United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One) X Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 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: 0-18333
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
Exact Name of Registrant as Specified in its Charter
Delaware 13-3516912
State or Other Jurisdiction of
Incorporation or Organization I.R.S. Employer Identification No.
3 World Financial Center, 29th Floor,
New York, NY Attn: Andre Anderson 10285
Address of Principal Executive Offices Zip Code
(212) 526-3237
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 ____
Balance Sheets At March 31, At December 31,
1996 1995
Assets
Investment in mortgage revenue bond, working
capital loan, and capital improvements loan $ 13,114,780 $ 13,222,356
Cash and cash equivalents 626,447 679,620
Mortgage acquisition fees, net of accumulated
amortization of $296,509 and $285,809 in
1996 and 1995, respectively 131,491 142,191
------------ ------------
Total Assets $ 13,872,718 $ 14,044,167
============ ============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 20,854 $ 26,187
Due to affiliates 6,507 6,500
Distributions payable 266,501 272,423
------------ ------------
Total Liabilities 293,862 305,110
------------ ------------
Partners' Capital (Deficit):
General Partner (60,215) (58,613)
BAC Holders (2,140,000 BACS outstanding) 13,639,071 13,797,670
------------ ------------
Total Partners' Capital 13,578,856 13,739,057
------------ ------------
Total Liabilities and Partners' Capital $ 13,872,718 $ 14,044,167
============ ============
Statement of Partners' Capital (Deficit)
For the three months ended March 31,1996
General BAC
Partner Holders Total
Balance at December 31, 1995 $ (58,613) $ 13,797,670 $ 13,739,057
Net income 1,063 105,237 106,300
Cash distributions (2,665) (263,836) (266,501)
--------- ------------ ------------
Balance at March 31, 1996 $ (60,215) $ 13,639,071 $ 13,578,856
========= ============ ============
Statements of Operations
For the three months ended March 31, 1996 1995
Revenue
Share of earnings (loss) from investment
in mortgage revenue bond $ 131,614 $ (414,275)
Other interest 5,267 6,791
--------- ----------
Total 136,881 (407,484)
========= ==========
Expenses
General and administrative 19,881 11,261
Amortization of mortgage costs 10,700 10,700
--------- ----------
Total 30,581 21,961
--------- ----------
Net Income (Loss) $ 106,300 $ (429,445)
========= ==========
Net Income (Loss) Allocated:
To the General Partner $ 1,063 $ (4,294)
To the BAC Holders 105,237 (425,151)
--------- ----------
$ 106,300 $ (429,445)
========= ==========
Per BAC unit
(2,140,000 outstanding) $.05 $(.20)
Statements of Cash Flows
For the three months ended March 31, 1996 1995
Cash Flows From Operating Activities
Net income (loss) $ 106,300 $ (429,445)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Share of earnings from investment
in mortgage revenue bond (131,614) 414,275
Interest received on mortgage revenue bond 239,190 245,655
Amortization 10,700 10,700
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Accounts payable (5,333) (13,154)
Due to affiliates 7 (13,400)
--------- ----------
Net cash provided by operating activities 219,250 214,631
--------- ----------
Cash Flows From Financing Activities
Cash distributions (272,423) (272,423)
--------- ----------
Net cash used for financing activities (272,423) (272,423)
--------- ----------
Net decrease in cash and cash equivalents (53,173) (57,792)
Cash and cash equivalents, beginning of period 679,620 802,222
--------- ---------
Cash and cash equivalents, end of period $ 626,447 $ 744,430
========= =========
Notes to the Financial Statements
The unaudited financial statements should be read in conjunction with the
Partnership's annual 1995 audited financial statements within Form 10-K.
The unaudited financial statements include all adjustments which are, in the
opinion of management, necessary to present a fair statement of financial
position as of March 31, 1996 and the results of operations and cash flows
for the three months ended March 31, 1996 and 1995 and the statement of
changes in partners' capital (deficit) for the three months ended March 31,
1996. Results of operations for the period are not necessarily indicative of
the results to be expected for the full year.
The following significant events have occurred subsequent to fiscal year
1995, or the following material contingencies exist and require disclosure in
this interim report per Regulation S-X, Rule 10-01, Paragraph (a)(5).
On May 8, 1996, as a result of negotiations with the ConCam Owner, the
Partnership executed a Letter Agreement (the "Agreement") to generally allow
a continuance of the terms of the Forbearance Agreement provided that in lieu
of the minimum pay rate, the ConCam Owner pay as debt service all available
cash flow. The Agreement will be in effect through December 31, 1996, the
expiration of the Forbearance Agreement, but can be terminated by either
party upon 30 days written notice.
Part I, Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
The Partnership's operating income is derived from its investment in a
mortgage revenue bond (the "Bond") in the original principal amount of
$15,515,000 secured by a first deed of trust on Camelot Lakes Apartments (the
"Property").
Operating difficulties at the Property resulted in Camelot Lakes Associates,
an unaffiliated limited partnership ("Camelot Lakes" or the "Original
Borrower"), defaulting on the November 1993 through January 1994 Bond
payments. On February 1, 1994, the General Partner reached a restructuring
agreement with the Original Borrower, whereby the ownership of the Property
was transferred to ConCam Associates (the "ConCam Owner" or the "New
Borrower"), and property management was transferred to the ConAm Management
Corporation ("ConAm"), a major property management company. In addition to
ownership, the ConCam Owner, an affiliate of ConAm, assumed the obligations
under the Bond and loan documents on a nonrecourse basis. Pursuant to the
restructuring, the Partnership entered into a Forbearance Agreement (the
"Forbearance Agreement") with the ConCam Owner, which modified the terms of
the Bond and amended the second mortgage. The Forbearance Agreement will
expire on December 31, 1996 and is subject to renewal at the Partnership's
sole option. Pursuant to the Forbearance Agreement, the minimum interest
payment on the Bond increased to 7.0% on February 1, 1996 from the previous
rate of 6.5%. Given the difficulties confronting multifamily property owners
in Fresno, ConCam indicated that it was unlikely that the Property's
operations could support debt service payments at the increased rate in 1996.
Although the ConCam Owner paid debt service at the 7.0% minimum pay rate
(partially from its cash reserves) on February 1, 1996, it made its March 1
and April 1, 1996 payments at an annualized rate lower than the minimum pay
rate. In view of these circumstances, the General Partner engaged in
discussions with the ConCam Owner to negotiate an agreement to continue
operations under the Forbearance Agreement. On May 8, 1996, as a result of
negotiations with the ConCam Owner, the Partnership executed a Letter
Agreement (the "Agreement") to generally allow a continuance of the terms of
the Forbearance Agreement provided that in lieu of the minimum pay rate, the
ConCam Owner pay as debt service all available cash flow. The Agreement will
be in effect through December 31, 1996, the expiration of the Forbearance
Agreement, but can be terminated by either party upon 30 days written notice.
At March 31, 1996, the Partnership had cash and cash equivalents, which are
invested in tax-exempt money market accounts, of $626,447, compared with
$679,620 at December 31, 1995. The decrease is due to net cash used to fund
cash distributions exceeding net cash provided by operating activities.
Due to the Property's operating difficulties, the General Partner reduced the
cash distribution paid to the partners from an annual return of 7.5% to 5.0%,
effective with the second quarter of 1993. Total cash distributions declared
year-to- date for 1996 were $266,501, which included $263,836, or $.125 per
Beneficial Assignee Certificate, declared payable to the Limited Partners. As
of March 31, 1996, total cash distributions paid to the Limited Partners
since inception have been funded 78% from operating cash flow and 22% from
the Partnership's cash reserves. The sources of the Partnership's future cash
flows are expected to be from payments of Base Interest on the Bond, and
interest earned on cash and cash equivalents. The ConCam Owner's ability to
service the new pay rate of 7.0% has been impeded due to the adverse market
conditions in Fresno. Depending on the level of debt service made by the
ConCam Owner, it may be necessary to reduce the level of cash distributions
during 1996.
Results of Operations
The Partnership accounts for its investment in the Bond using the
equity method of accounting. Accordingly, the Partnership reports as income
its share of the Property's results of operations.
For the three months ended March 31, 1996, the Partnership generated net
income of $106,300, compared with a net loss of $429,445 for the three months
ended March 31, 1995. The change from net loss to net income primarily is
due to an increase in the Partnership's share of earnings from its investment
in the Bond.
The Partnership's share of earnings from investment in the Bond is based on
the Property's earnings before debt service, which was largely unchanged for
the three months ended March 31, 1996 relative to the same period in 1995.
The Partnership's equity interest in the Property's earnings for the three
months ended March 31, 1996 was $131,614, compared with $(414,275) for the
three months ended March 31, 1995. The Partnership's equity interest in the
Property's earnings increased in 1996, primarily due to higher expenses
incurred at the Property in the first quarter of 1995. Total income at
Camelot Lakes Apartments was $520,350 for the three months ended March 31,
1996, compared with $523,134 for the three months ended March 31, 1995. The
decrease primarily is due to a decrease in other income, consisting of laundry
revenues, which was partially offset by an increase in rental income as a
result of increased occupancy at the Property. Total expenses at Camelot Lakes
Apartments, net of debt service, were $266,764 for the three months ended
March 31, 1996, compared to $803,533 for the three months ended March 31,
1995. The decrease primarily is due to higher repairs and maintenance expense
in the first quarter of 1995.
Total expenses for the three months ended March 31, 1996 were $30,581,
compared to $21,961 for the three months ended March 31, 1995. The increase
largely is attributable to higher general and administrative expenses in 1996,
primarily as a result of increased legal expenses associated with the
modification of the Forbearance Agreement and an increase in reimbursable
costs, partially offset by a decrease in miscellaneous expenses.
Interest received on the mortgage revenue bond was $239,190 for the three
months ended March 31, 1996, compared with $245,655 for the three months ended
March 31, 1995. The decrease is largely due to the ConCam Owner providing for
debt service at a lower rate due to the current operating and market
constraints mentioned above.
As of March 31, 1996, occupancy at the Property was 86.8%, compared with 82.7%
as of March 31, 1995.
Part II Other Information
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(10.5) Standstill Letter Agreement between Victory Tax Exempt
Realty Income Fund Limited Partnership and ConCam
Associates, L.P. dated May 8, 1996.
(27) Financial Data Schedule
(b) Reports on Form 8-K.
On February 16, 1996, based upon, among other things, the
advice of Partnership counsel, Skadden, Arps, Slate, Meagher
& Flom, the General Partner adopted a resolution that states,
among other things, if a Change of Control (as defined below)
occurs, the General Partner may distribute the Partnership's
cash balances not required for its ordinary course day-to-day
operations. "Change of Control" means any purchase or offer
to purchase more than 10% of the Units that is not approved
in advance by the General Partner. In determining the amount
of the distribution, the General Partner may take into
account all material factors. In addition, the Partnership
will not be obligated to make any distribution to any
partner, and no partner will be entitled to receive any
distribution until the General Partner has declared the
distribution and established a record date and distribution
date for the distribution. The Partnership filed a Form 8-K
disclosing this resolution on February 29, 1996.
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.
VICTORY TAX EXEMPT REALTY INCOME FUND
LIMITED PARTNERSHIP
BY: CA Victory Inc.
General Partner
Date: May 15, 1996 BY: /s/ Paul L. Abbott
President
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Mar-31-1996
<CASH> 626,447
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,872,718
<CURRENT-LIABILITIES> 293,862
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 13,872,718
<SALES> 0
<TOTAL-REVENUES> 136,881
<CGS> 0
<TOTAL-COSTS>
<OTHER-EXPENSES> 30,581
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 106,300
<INCOME-TAX> 0
<INCOME-CONTINUING> 106,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 106,300
<EPS-PRIMARY> .05
<EPS-DILUTED> 0
</TABLE>
VICTORY TAX EXEMPT REALTY INCOME FUND
LIMITED PARTNERSHIP
3 World Financial Center
200 Vesey Street, 29th Floor
New York, New York 10285
May 8,1996
Concam Associates, L.P.
1764 San Diego Avenue
San Diego, California 92110
Attn: Mr. Ralph Tilley
Re: Camelot Lakes Apartments (the "Project"); Forbearance
[sic] Agreement, dated as of January 31, 1994 (the
"Forbearance Agreement"), by and between Victory Tax
Exempt Realty Income Fund Limited Partnership ("Lender"),
and Concam Associates, L.P. ("Borrower")
Ladies and Gentlemen:
The purpose of this letter ("Standstill Letter") is to set forth
our understanding with respect to certain aspects of the financing related
to the Project. All capitalized terms used but not otherwise defined herein
shall have the meaning ascribed to them in the Forbearance Agreement.
Accordingly, the parties hereby confirm their understanding and
agreement with respect to the following:
1. The term of this Standstill Letter shall commence on the date hereof and
shall continue until the earlier to occur of (i) December 31, 1996, and
(ii) the termination hereof by either party in accordance herewith.
Upon the termination or expiration hereof, the rights and obligations of
the parties under this Standstill Letter shall cease and this Standstill
Letter be of no further force or effect, and the rights, liabilities and
obligations of the parties shall be as they existed immediately prior to
the execution hereof.
2. During the period while this Standstill Letter is in effect, and
provided that Borrower pays to Lender all Cash Flow remaining after
payment of the Mortgage Administration and Servicing Fee due and payable
for the applicable period and after setting aside funds sufficient to
satisfy Borrower's liability for tenant security deposits, Lender shall
not exercise any remedies against Borrower or the Project based upon any
failure by Borrower to make any payments of Base Interest as required by
the Forbearance Agreement. All amount so paid by Borrower shall be
applied first to any current payments of Base Interest due under the
Forbearance Agreement, second to any unpaid installments (or any unpaid
portions of installments) of Base Interest due under the Forbearance
Agreement, and thereafter in accordance with the Forbearance Agreement
and the Loan Documents. The unpaid amount of Base Interest accruing
shall bear simple interest at the Base Rate compounded monthly as
provided in Section 8 of the Forbearance Agreement.
3. Either party may terminate this Standstill Letter for any reason or no
reason whatsoever, in its discretion and without any obligation or
liability to the other party for doing so or not doing so, upon thirty
(30) days written notice to the other party.
4. Nothing contained herein shall be construed as a commitment by Lender to
(a) make any new loans, or to grant or extend any other financial
accommodations to the Borrower, (b) restructuring the Loan or to modify
any Loan Document or (c) except as expressly provided for herein, waive,
modify or forbear from exercising any rights, powers, remedies or
privileges, whether under the Loan Documents, the Forbearance Agreement,
at law or in equity.
5. No purported alteration, amendment, change, waiver, termination or other
modification of this Standstill Letter, the Forbearance Agreement or any
of the Loan Documents shall be binding upon any party hereto, or have
any other force or effect in any respect unless the same shall be in
writing and signed by, or on behalf of, the party to be charged
therewith.
6. Each of the parties hereto understands that this Standstill
Letter is a legally binding agreement that may affect such party's
rights. Each of the parties hereto represents to the others that it has
been represented by independent legal counsel of its choice regarding
the meaning and legal significance of this Standstill Letter and that it
is satisfied with its legal counsel and the advice received from it.
7. Should any provision of this Standstill Letter require judicial
interpretation, it is agreed that a court interpreting or construing the
same shall not apply a presumption that the terms hereof shall be more
strictly construed against any party by reason of the rule of
construction that a document is to be construed more strictly against
the party who itself or through its agent prepared
the same.
8. This Standstill Letter shall be interpreted and enforced in accordance
with the internal laws of the State of California as the same may from
time to time exist, without giving effect to the principles of conflicts
of laws.
9. This Standstill Letter constitutes the entire agreement of the parties
concerning the subject matter hereof, and supersedes any prior or
contemporaneous representations or agreements, either oral or written,
not contained herein.
10. Each party executing this Standstill Letter represents that such party
has the full authority and legal power to do so.
11. This Standstill Letter may be executed in one or more counterparts, each
of which shall be deemed an original but all of which together shall
constitute one and the same instrument, with the same effect as if each
party had executed all counterparts.
If the foregoing accurately sets forth our understanding, please
execute a copy of this Standstill Letter where indicated below and return
it to the undersigned at the above address.
VICTORY TAX EXEMPT REALTY INCOME FUND
LIMITED PARTNERSHIP
By: CA VICTORY INC., a Delaware corporation,
its General Partner
By: /s/Gregory Mayer
Name: Gregory Mayer
Its: Vice President
ACCEPTED AND AGREED TO AS OF THE
DATE FIRST WRITTEN ABOVE
CONCAM ASSOCIATES, L.P.
A California limited partnership
By: CONCAM, INC.
A California corporation
By: /s/Ralph W. Tilley
Name: Ralph W. Tilley
Its: Vice President
