FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1996 or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 0-15329
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Delaware 47-0699273
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
Suite 400, 1004 Farnam Street, Omaha, Nebraska 68102
(Address of principal executive offices) (Zip Code)
(402) 444-1630
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
<PAGE> - i -
Part I. Financial Information
Item 1. Financial Statements
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1996 Dec. 31, 1995
-------------- --------------
<S> <C> <C>
Assets
Cash and temporary cash investments, at cost which
approximates market value (Note 4) $ 2,479,350 $ 1,912,560
Investment in tax-exempt mortgage bonds, at estimated fair value (Note 5) 31,566,526 31,566,526
Investment in real estate, net of accumulated depreciation
(and valuation allowance for 1995) (Note 6) 27,303,956 25,890,570
Interest receivable 183,321 196,601
Other assets 229,995 64,192
-------------- --------------
$ 61,763,148 $ 59,630,449
============== ==============
Liabilities and Partners' Capital
Liabilities
Accounts payable (Note 8) $ 808,900 $ 683,013
Bonds payable (Note 7) 2,750,000 -
Distribution payable (Note 3) 331,163 331,163
-------------- --------------
3,890,063 1,014,176
-------------- --------------
Partners' Capital
General Partner 5,957 7,553
Beneficial Unit Certificate Holders
($11.03 per BUC in 1996 and $11.17 in 1995) 57,867,128 58,608,720
-------------- --------------
57,873,085 58,616,273
-------------- --------------
$ 61,763,148 $ 59,630,449
============== ==============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE> - 1 -
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the For the For the Six For the Six
Quarter Ended Quarter Ended Months Ended Months Ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Income
Mortgage bond investment income $ 521,648 $ 495,122 $ 1,116,553 $ 1,188,459
Rental income 1,422,169 1,270,900 2,719,570 2,525,429
Interest income on temporary cash investments 13,507 13,879 24,570 26,484
--------------- --------------- --------------- ---------------
1,957,324 1,779,901 3,860,693 3,740,372
--------------- --------------- --------------- ---------------
Expenses
General and administrative expenses (Note 8) 305,960 185,351 535,041 376,404
Real estate operating expenses 750,550 434,141 1,467,956 1,033,754
Depreciation 275,451 299,373 583,543 596,758
Interest expense 30,362 - 30,362 -
--------------- --------------- --------------- ---------------
1,362,323 918,865 2,616,902 2,006,916
--------------- --------------- --------------- ---------------
Net income $ 595,001 $ 861,036 $ 1,243,791 $ 1,733,456
=============== =============== =============== ===============
Net income allocated to:
General Partner $ 8,704 $ 11,604 $ 18,273 $ 23,302
BUC Holders 586,297 849,432 1,225,518 1,710,154
--------------- --------------- --------------- ---------------
$ 595,001 $ 861,036 $ 1,243,791 $ 1,733,456
=============== =============== =============== ===============
Net income per BUC $ .11 $ .16 $ .23 $ .32
=============== =============== =============== ===============
</TABLE>
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Beneficial Unit
General Certificate
Partner Holders Total
---------------- ---------------- ----------------
<S> <C> <C> <C>
Partners' Capital (excluding net unrealized holding losses):
Balance at December 31, 1995 $ 7,553 $ 67,357,194 $ 67,364,747
Net income 18,273 1,225,518 1,243,791
Cash distributions paid or accrued (Note 3)
Income (19,869) (1,383,567) (1,403,436)
Return of capital - (583,543) (583,543)
---------------- ---------------- ----------------
5,957 66,615,602 66,621,559
---------------- ---------------- ----------------
Net unrealized holding losses:
Balance at December 31, 1995 and June 30, 1996 - (8,748,474) (8,748,474)
---------------- ---------------- ----------------
Balance at June 30, 1996 $ 5,957 $ 57,867,128 $ 57,873,085
================ ================ ================
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE> - 2 -
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended
June 30, 1996 June 30, 1995
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,243,791 $ 1,733,456
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 583,543 596,758
Decrease in interest receivable 13,280 48,077
Increase in other assets (27,700) (13,547)
Increase (decrease) in accounts payable 125,887 (14,956)
--------------- ---------------
Net cash provided by operating activities 1,938,801 2,349,788
--------------- ---------------
Cash flows from investing activities
Real estate capital improvements (82,331) (65,884)
Acquisition of real estate (1,914,598) -
--------------- ---------------
Net cash used in investing activities (1,996,929) (65,884)
--------------- ---------------
Cash flows from financing activities
Distributions paid (1,986,979) (1,986,979)
Proceeds from issuance of tax-exempt refunding bonds 2,750,000 -
Bond issuance costs paid (138,103) -
--------------- ---------------
Net cash provided by (used in) financing activities 624,918 (1,986,979)
--------------- ---------------
Net increase in cash and temporary cash investments 566,790 296,925
Cash and temporary cash investments at beginning of period 1,912,560 1,969,975
--------------- ---------------
Cash and temporary cash investments at end of period $ 2,479,350 $ 2,266,900
=============== ===============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE> - 3 -
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
1. Organization
America First Tax Exempt Mortgage Fund 2 Limited Partnership (the Partnership)
was formed on September 30, 1986, under the Delaware Revised Uniform Limited
Partnership Act for the purpose of acquiring a portfolio of federally
tax-exempt mortgage bonds collateralized by income-producing real estate,
including multifamily residential apartments and commercial properties. The
Partnership will terminate on December 31, 2016, unless terminated earlier
under the provisions of the Partnership Agreement. The General Partner of the
Partnership is America First Capital Associates Limited Partnership Four (AFCA
4).
2. Summary of Significant Accounting Policies
A) Financial Statement Presentation
The consolidated financial statements include the accounts of the
Partnership and its subsidiary, Park at Fifty Eight Limited Partnership,
which owns The Park at Fifty Eight Apartments. All significant
intercompany transactions and accounts have been eliminated in
consolidation.
The consolidated financial statements of the Partnership are prepared
without audit on the accrual basis of accounting in accordance with
generally accepted accounting principles. The consolidated financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Partnership's Annual Report on Form 10-K for
the year ended December 31, 1995. In the opinion of management, all
normal and recurring adjustments necessary to present fairly the financial
position at June 30, 1996, and results of operations for all periods
presented have been made.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
B) Investment in Tax-Exempt Mortgage Bonds
The Partnership adopted Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" (FAS
115) as of January 1, 1994. FAS 115 requires that investment securities
be classified as held-to-maturity, available-for-sale, or trading. Under
FAS 115, investments classified as available-for-sale are reported at fair
value with any unrealized gains or losses excluded from earnings and
reflected as a separate component of partners' capital. Subsequent
increases and decreases in the net unrealized gain/loss on the
available-for-sale securities are reflected as adjustments to the carrying
value of the portfolio and adjustments to the component of partners'
capital. The Partnership does not have investment securities classified
as held-to-maturity or trading. Unrealized losses of $8,748,474 on
tax-exempt mortgage bonds previously recognized through income were
reclassified to a separate component of partners' capital with the
adoption of FAS 115. There was no additional impact resulting from
adoption since the bonds had already been reduced to estimated fair value.
The carrying value of tax-exempt mortgage bonds is periodically reviewed
and adjusted when there are significant changes in the estimated net
realizable value of the underlying collateral.
Accrual of mortgage bond investment income is excluded from income when,
in the opinion of management, collection of related interest is doubtful.
This interest is recognized as income when it is received.
<PAGE> - 4 -
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
C) Investment in Real Estate
The Partnership's investment in real estate consists of property acquired
through foreclosure or deed in lieu of foreclosure and other real estate
acquired. For periods prior to January 1, 1996, property acquired through
foreclosure or deed in lieu of foreclosure was recorded at the lower of
the unpaid bond balance or estimated net realizable value at the date of
acquisition. Other real estate acquired was recorded at cost. A
valuation allowance was established for declines in the estimated net
realizable value subsequent to acquisition.
On January 1, 1996, the Partnership adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" (FAS 121). Among
other things, FAS 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or circumstances indicate that the carrying
value of an asset may not be recoverable. As a result of adopting FAS
121, the Partnership wrote down the carrying value of each impaired
property to estimated net realizable value thus eliminating the valuation
allowance on real estate acquired. The carrying value of each property
will be periodically reviewed and adjustments will be made to the carrying
value when there are declines in the estimated net realizable value.
Depreciation of real estate is based on the estimated useful life of the
property (27-1/2 years on multifamily residential apartments or 31-1/2
years on The Exchange at Palm Bay) using the straight-line method.
Depreciation of real estate improvements on The Exchange at Palm Bay is
based on the term of the related tenant lease using the straight-line
method. Subsequent to January 1, 1996, depreciation is calculated based
on the adjusted carrying value of the properties.
The adoption of FAS 121 did not have a material impact on the financial
statements.
D) Income Taxes
No provision has been made for income taxes since Beneficial Unit
Certificate (BUC) Holders are required to report their share of the
Partnership's taxable income for federal and state income tax purposes.
E) Temporary Cash Investments
Temporary cash investments are invested in federally tax-exempt securities
purchased with an original maturity of three months or less.
F) Net Income per BUC
Net income per BUC has been calculated based on the number of BUCs
outstanding (5,245,623) for all periods presented.
3. Partnership Income, Expenses and Cash Distributions
The Partnership Agreement contains provisions for the distribution of Net
Interest Income and Net Residual Proceeds and for the allocation of income and
expenses for tax purposes among AFCA 4 and BUC Holders.
Cash distributions included in the financial statements represent the actual
cash distributions made during each period and the cash distributions accrued
at the end of each period.
4. Partnership Reserve Account
The Partnership maintains a reserve account which totaled $1,712,530 at June
30, 1996. The reserve account was established to maintain working capital for
the Partnership and is available to supplement distributions to investors or
for any other contingencies related to the ownership of the mortgage bonds,
real estate acquired and the operation of the Partnership.
<PAGE> - 5 -
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
5. Investment in Tax-Exempt Mortgage Bonds
Descriptions of the tax-exempt mortgage bonds owned by the Partnership at
June 30, 1996, are as follows:
<TABLE>
<CAPTION>
Base
Number Maturity Interest Carrying
Property Name Location of Units Date Rate(1) Amount
---------------------------------- -------------------- -------- ------------- -------- -----------------
<S> <C> <C> <C> <C> <C>
Performing:
Jackson Park Place Fresno, CA 296 09/01/11 8.5% $ 8,760,000
-----------------
Nonperforming:(2)
Jefferson Place Olathe, KS 352 12/01/10 8.5% 12,800,000
Avalon Ridge Renton, WA 356 09/01/11 8.5% 18,755,000
-----------------
31,555,000
-----------------
40,315,000
Unrealized holding losses (8,748,474)
-----------------
Balance at June 30, 1996 $ 31,566,526
=================
</TABLE>
(1) In addition to the base interest rate shown, the bonds bear additional
contingent interest as defined in each revenue note which, when combined with
the interest shown, is limited to a cumulative, noncompounded amount not
greater than 13% per annum. The Partnership did not receive any additional
contingent interest in 1996.
(2) Nonperforming bonds are bonds which are not fully current as to interest
payments. The amount of foregone interest on nonperforming bonds for 1996 was
$596,835 ($335,046 for the quarter ended June 30, 1996).
6. Investment in Real Estate
The Partnership's investment in real estate is comprised of the following at
June 30, 1996:
<TABLE>
<CAPTION>
Building
Number and Carrying
Property Name Location of Units Land Improvements Amount
--------------------------------- -------------------- -------- ------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Covey at Fox Valley Aurora, IL 216 $ 1,320,000 $ 10,028,338 $ 11,348,338
The Exchange at Palm Bay Palm Bay, FL 72,002(1) 1,150,318 3,222,792 4,373,110
The Park at Fifty Eight(2) Chattanooga, TN 196 231,113 4,122,226 4,353,339
Shelby Heights Bristol, TN 100 175,000 2,952,847 3,127,847
Coral Point Mesa, AZ 336 2,240,000 8,960,000 11,200,000
-----------------
34,402,634
Less accumulated depreciation (7,098,678)
-----------------
Balance at June 30, 1996 $ 27,303,956
=================
</TABLE>
(1) Represents square feet.
(2) Property is owned by Park at Fifty Eight Limited Partnership and consists
of Phase II (96 units acquired through foreclosure) and Phase I (100 units
purchased on May 16, 1996 for $1,914,598) (See Note 7).
<PAGE> - 6 -
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
7. Bonds Payable
On May 16, 1996, Park at 58 Limited Partnership received proceeds of
$2,750,000 through the offering of multifamily housing revenue refunding bonds
on The Park at Fifty Eight. The bonds were rated "A" by Standard and Poor's
Corporation and bear interest at an effective rate of 6.65%. The bonds have a
25-year maturity with annual principal payments ranging from $50,000 to
$210,000 due each March. Accrued interest is payable semi-annually in March
and September. The bonds are collateralized by The Park at Fifty Eight.
8. Transactions with Related Parties
Substantially all of the Partnership's general and administrative expenses are
paid by AFCA 4 or an affiliate and reimbursed by the Partnership. The amount
of such expenses reimbursed to AFCA 4 during 1996 was $487,870 ($214,109 for
the quarter ended June 30, 1996). The reimbursed expenses are presented on a
cash basis and do not reflect accruals made at quarter end. AFCA 4 or an
affiliate also paid $41,056 ($13,756 for the quarter ended June 30, 1996) in
capitalized costs during 1996 which were reimbursed by the Partnership. The
capitalized costs were incurred in connection with the offering of multifamily
housing revenue refunding bonds described in Note 7.
AFCA 4 received from property owners administrative fees of $39,308 ($8,760
for the quarter ended June 30, 1996) in 1996. Since these fees are not
Partnership expenses, they have not been reflected in the accompanying
financial statements. Pursuant to the Limited Partnership Agreement, AFCA 4
is entitled to an administrative fee from the Partnership in the event the
Partnership becomes the equity owner of a property by reason of foreclosure.
The amount of such fees paid to AFCA 4 during 1995 was $113,100 ($56,550 for
the quarter ended June 30, 1996).
The general partner of the property partnership which owns Jefferson Place is
principally owned by an employee of an affiliate of AFCA 4. Such employee has
a nominal interest in the affiliate. AFCA 4 and an affiliated mortgage fund
also own small interests in the general partner. The general partner has a
nominal interest in the property partnership's profits, losses and cash flow
which is subordinate to the interest of the Partnership and the mortgage
bond. The general partner did not receive cash distributions from the
partnership in 1996.
An affiliate of AFCA 4 was retained to provide property management services
for Covey at Fox Valley, The Park at Fifty Eight, Shelby Heights, Coral Point,
Jefferson Place and Avalon Ridge. The fees for services provided represent
the lower of (i) costs incurred in providing management of the property, or
(ii) customary fees for such services determined on a competitive basis and
amounted to $207,884 ($105,875 for the quarter ended June 30, 1996) in 1996.
9. Proposed Merger
On March 28, 1996, the Partnership entered into a Merger Agreement with
America First Apartment Investors, L.P. (Apartment Investors) a newly formed
Delaware limited partnership of which AFCA 4 is the general partner. Under
the Merger Agreement, Apartment Investors will be the surviving limited
partnership and will acquire all assets and liabilities of the Partnership.
BUC Holders in the Partnership will become BUC Holders in Apartment Investors
and will receive one BUC of Apartment Investors for each BUC they hold in the
Partnership as of the record date to be established for the merger. Among
other things, the merger is conditioned upon the approval of the holders of a
majority of the BUCs in the Partnership.
10. Restatement
The tax-exempt mortgage bonds were previously accounted for as loans.
However, the bonds are considered debt securities under FAS 115, which was
effective January 1, 1994. Accordingly, the 1995 financial statements have
been restated to properly present the bonds as debt securities. The only
effect of the restatement was to segregate the $8,748,474 of unrealized losses
as a separate component of partners' capital. There was no effect on the
carrying value of the bonds, total assets, total partners' capital or net
income.
<PAGE> - 7 -
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Partnership originally acquired nine tax-exempt mortgage bonds, the
proceeds of which were used to provide construction and/or permanent financing
for eight multifamily housing properties and one commercial property. During
1988, one tax-exempt mortgage bond was prepaid in full. On May 16, 1996, the
Partnership acquired Phase I of the Park at Fifty Eight Apartments. At June
30, 1996, the Partnership continued to hold three of these tax-exempt mortgage
bonds with a carrying value, at estimated fair value, of $31,566,526 and five
real estate properties acquired with a depreciated cost of $27,303,956.
The following table shows the various occupancy levels of the properties
financed or owned by the Partnership at June 30, 1996:
<TABLE>
<CAPTION>
Number Percentage
Number of Units of Units
Property Name Location of Units Occupied Occupied
- ------------------------------- ----------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Jackson Park Place Fresno, CA 296 269 91%
Jefferson Place Olathe, KS 352 351 100%
Avalon Ridge Renton, WA 356 291 82%
Covey at Fox Valley(1) Aurora, IL 216 204 94%
The Park at Fifty Eight(3) Chattanooga, TN 196 192 98%
Shelby Heights(1) Bristol, TN 100 93 93%
Coral Point(1) Mesa, AZ 336 320 95%
---------- ---------- -----------
1,852 1,720 93%
========== ========== ===========
The Exchange at Palm Bay(1) Palm Bay, FL 72,002(2) 42,627(2) 59%
========== ========== ===========
</TABLE>
(1) Property acquired through foreclosure or deed in lieu of foreclosure.
(2) Represents square feet.
(3) Property consists of Phase II (96 units acquired through foreclosure) and
Phase I (100 units purchased on May 16, 1996).
The principal amounts of the tax-exempt mortgage bonds do not amortize over
their terms. The tax-exempt mortgage bonds provide for the payment of base
interest at a fixed rate. In addition, the Partnership may earn contingent
interest based on a participation in the net cash flow and net sale or
refinancing proceeds from the real estate collateralizing the tax-exempt
mortgage bonds. The base interest payments received on the tax-exempt
mortgage bonds and net rental income earned on properties owned represent the
principal sources of the Partnership's income and distributable cash. The
Partnership has not received any contingent interest on its mortgage bonds
during 1996. The Partnership also earns income on temporary cash investments.
The Partnership may draw on reserves to pay operating expenses or to
supplement cash distributions to Beneficial Unit Certificate (BUC) Holders.
On May 16, 1996, the Partnership raised $2,750,000 through the offering of
multifamily housing refunding bonds on The Park at Fifty Eight Apartments.
The Partnership utilized $1,914,598 of the proceeds to acquire Phase I of the
Park at Fifty Eight Apartments with the remaining proceeds added to the
Partnership's reserves.
During the six months ended June 30, 1996, $159,645 ($123,038 for the quarter
ended June 30, 1996) of undistributed income was withdrawn from reserves. The
total amount held in reserves at June 30, 1996, was $1,712,530. Future
distributions to BUC Holders will depend upon the amount of base and
contingent interest and net rental income the Partnership receives, the size
of reserves established by the Partnership and the extent to which withdrawals
are made from reserves.
<PAGE> - 8 -
The Partnership believes that cash provided by operating activities and, if
necessary, withdrawals from the Partnership's reserves will be adequate to
meet its short-term and long-term liquidity requirements, including the
payments of distributions to BUC Holders. Under the terms of the Partnership
Agreement, the Partnership has the authority to enter into short-term and
long-term debt financing arrangements. The Partnership is not authorized to
issue additional BUCs to meet short-term and long-term liquidity requirements.
Distributions
Cash distributions paid or accrued per BUC were as follows:
<TABLE>
<CAPTION>
For the Six For the Six
Months Ended Months Ended
June 30, 1996 June 30, 1995
--------------- ---------------
<S> <C> <C>
Regular monthly distributions
Income $ .2638 $ .2612
Return of capital .1112 .1138
--------------- ---------------
$ .3750 $ .3750
=============== ===============
Distributions
Paid out of current and prior undistributed cash flow $ .3750 $ .3750
=============== ===============
</TABLE>
Asset Quality
It is the policy of the Partnership to make a periodic review of the real
estate collateralizing the Partnership's mortgage bonds in order to establish,
when necessary, a valuation reserve on mortgage bonds. The carrying value of
the mortgage bonds is periodically reviewed and adjustments are made when
there are significant changes in the estimated net realizable value of the
underlying collateral for the bonds.
On January 1, 1996, the Partnership adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" (FAS 121). Among other things, FAS 121
requires that long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever events or
circumstances indicate that the carrying value of an asset may not be
recoverable. As a result of adopting FAS 121, the Partnership wrote down the
carrying value of each impaired property to estimated net realizable value
thus eliminating the valuation allowance on real estate acquired. The
carrying value of each property will be periodically reviewed and adjustments
will be made to the carrying value when there are declines in the estimated
net realizable value.
Internal property valuations and reviews performed during the six months ended
June 30, 1996, indicated that the mortgage bonds and real estate recorded on
the balance sheet at June 30, 1996, required no adjustments to their current
carrying amounts.
The overall status of the Partnership's mortgage bonds and real estate owned
has generally remained constant since March 31, 1996.
<PAGE> - 9 -
Results of Operations
The tables below compare the results of operations for each period shown.
<TABLE>
<CAPTION>
For the For the Increase
Quarter Ended Quarter Ended (Decrease)
June 30, 1996 June 30, 1995 From 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Mortgage bond investment income $ 521,648 $ 495,122 $ 26,526
Rental income 1,422,169 1,270,900 151,269
Interest income on temporary cash investments 13,507 13,879 (372)
--------------- --------------- ---------------
1,957,324 1,779,901 177,423
--------------- --------------- ---------------
General and administrative expenses 305,960 185,351 120,609
Real estate operating expenses 750,550 434,141 316,409
Depreciation 275,451 299,373 (23,922)
Interest expense 30,362 - 30,362
--------------- --------------- ---------------
1,362,323 918,865 443,458
--------------- --------------- ---------------
Net income $ 595,001 $ 861,036 $ (266,035)
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
For the Six For the Six Increase
Months Ended Months Ended (Decrease)
June 30, 1996 June 30, 1995 From 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Mortgage bond investment income $ 1,116,553 $ 1,188,459 $ (71,906)
Rental income 2,719,570 2,525,429 194,141
Interest income on temporary cash investments 24,570 26,484 (1,914)
--------------- --------------- ---------------
3,860,693 3,740,372 120,321
--------------- --------------- ---------------
General and administrative expenses 535,041 376,404 158,637
Real estate operating expenses 1,467,956 1,033,754 434,202
Depreciation 583,543 596,758 (13,215)
Interest expense 30,362 - 30,362
--------------- --------------- ---------------
2,616,902 2,006,916 609,986
--------------- --------------- ---------------
Net income $ 1,243,791 $ 1,733,456 $ (489,665)
=============== =============== ===============
</TABLE>
Mortgage bond investment income increased for the quarter ended June 30, 1996,
compared to the same period in 1995 as a result of an increase in the cash
flow received from Avalon Ridge of approximately $32,000 and a decrease in
cash flow from Jefferson Place of approximately $5,000. Mortgage bond
investment income decreased for the six months ended June 30, 1996, compared
to the same period in 1995 as a result of decreases in the cash flow received
from Avalon Ridge of approximately $63,000 and Jefferson Place of
approximately $9,000. The decrease in cash flow received from Avalon Ridge
for the six months ended June 30, 1996, compared to the same period in 1995,
was primarily due to a decrease in average occupancy of approximately 4%.
Rental income, excluding rental income of approximately $58,000 earned by The
Park at Fifty Eight-Phase I which was acquired in May 1996, increased
approximately $93,000 and $136,000 for the quarter and six months ended June
30, 1996, respectively, compared to the same periods in 1995. These increases
are due primarily to rental rate increases and higher average occupancy of
certain properties acquired by the Partnership in foreclosure.
<PAGE> - 10 -
Real estate operating expenses for the quarter ended June 30, 1996, were
higher compared to the same period in 1995 due to: (i) a property tax refund
of approximately $244,000 received by Covey at Fox Valley in June 1995; (ii)
real estate operating expenses of approximately $61,000 incurred by The Park
at Fifty Eight-Phase I which was acquired in May 1996; and (iii) a net
increase in expenses of approximately $11,000 incurred by the Partnership's
other properties. Excluding property tax refunds of approximately $252,000
received during the six months ended June 30, 1995, real estate operating
expenses increased approximately $182,000 for the six months ended June 30,
1996, compared to the same period in 1995. This increase is due to: (i)
leasing commissions of approximately $85,000 incurred by the Exchange at Palm
Bay in connection with leasing additional space to tenants; (ii) real estate
operating expenses of approximately $61,000 incurred by the Park at Fifty
Eight-Phase I; and (iii) an increase in repairs and maintenance expenses and
property improvements of approximately $36,000 at the Partnership's other
properties.
Depreciation expense decreased for the quarter and six months ended June 30,
1996, compared to the same periods in 1995 due to the adoption of FAS 121 on
January 1, 1996. FAS 121 requires that depreciation be calculated on the
adjusted carrying value of the properties.
Interest expense of $30,362 was incurred for the quarter and six months ended
June 30, 1996, on the $2,750,000 of bonds payable which were issued in May
1996.
The decrease in interest income on temporary cash investments for the quarter
and six months ended June 30, 1996, compared to the same periods in 1995 is
primarily due to a decrease in the average reserve balance attributable to
withdrawals made from Partnership reserves during 1996 to supplement
distributions to BUC Holders.
General and administrative expenses increased for the quarter and six months
ended June 30, 1996, compared to the same periods in 1995. These increases
were due to: (i) approximately $75,000 of costs incurred in the quarter and
six months ended June 30, 1996 in conjunction with the proposed merger with
America First Apartment Investors L.P.; (ii) an increase of approximately
$33,000 and $63,000 in salaries and related expenses for the quarter and six
months ended June 30, 1996, respectively; (iii) an increase of approximately
$5,000 and $7,000 in professional fees for the quarter and six months ended
June 30, 1996, respectively; and (iv) net increases of approximately $8,000
and $14,000 in other general and administrative expenses incurred for the
quarter and six months ended June 30, 1996, respectively.
<PAGE> - 11 -
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4(a) Agreement of Limited Partnership dated October 15, 1986
(incorporated herein by reference to Form 10-K dated
December 31, 1986 filed pursuant to Section 13 or 15(d) of
the Securities Act of 1934 by America First Tax Exempt
Mortgage Fund 2 Limited Partnership (Commission File No.
0-15329)).
4(b) Form of Certificate of Beneficial Unit Certificate
(incorporated herein by reference to Form S-11
Registration Statement filed May 8, 1986 with the
Securities and Exchange Commission by America First Tax
Exempt Mortgage Fund 2 Limited Partnership (Commission
File No. 33-5521)).
10(a) $18,755,000 Washington State Housing Finance Commission
Multifamily Housing Mortgage Revenue Note (Sunpointe
Apartments Projects) Series 1987 (incorporated herein by
reference to Form 10-K dated December 31, 1987 filed
pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 by America First Tax Exempt Mortgage Fund 2
Limited Partnership (Commission File No. 0-15329)).
10(b) Lender Loan Agreement and Indenture of Trust among
Washington State Housing Finance Commission, the
Registrant and FirsTier Bank, National Association, dated
September 1, 1987 (incorporated herein by reference to Form
10-K dated December 31, 1987 filed pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 by America
First Tax Exempt Mortgage Fund 2 Limited Partnership
(Commission File No. 0-15329)).
10(c) Construction Loan Agreement between the Registrant and
Sunpointe Associates Limited Partnership, dated September
1, 1987 (incorporated herein by reference to Form 10-K
dated December 31, 1987 filed pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 by America
First Tax Exempt Mortgage Fund 2 Limited Partnership
(Commission File No. 0-15329)).
(b) Form 8-K
The registrant did not file a report on Form 8-K during the
quarter for which this report is filed.
<PAGE> - 12 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: August 13, 1996 AMERICA FIRST TAX EXEMPT MORTGAGE
FUND 2 LIMITED PARTNERSHIP
By America First Capital
Associates Limited
Partnership Four, General
Partner of the Registrant
By America First Companies L.L.C.,
General Partner of America First Capital
Associates Limited Partnership Four
By /s/ Michael Thesing
Michael Thesing
Vice President, Secretary,
Treasurer and Chief Financial
Officer (Vice President and Principal
Financial Officer of Registrant)
<PAGE> - 13 -
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,846,036
<SECURITIES> 31,566,526
<RECEIVABLES> 186,228
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,032,264
<PP&E> 32,447,275
<DEPRECIATION> 6,823,227
<TOTAL-ASSETS> 59,346,207
<CURRENT-LIABILITIES> 1,074,633
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 58,271,574
<TOTAL-LIABILITY-AND-EQUITY> 59,346,207
<SALES> 0
<TOTAL-REVENUES> 1,903,369
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,254,579
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 648,790
<INCOME-TAX> 0
<INCOME-CONTINUING> 648,790
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 648,790
<EPS-PRIMARY> 0
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