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, 1998
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,
1998 1997
(unaudited) (audited)
Assets
Investment in mortgage revenue bond,
working capital loan, and capital
improvements loan $ 9,926,986 $ 10,000,000
Cash and cash equivalents 557,911 366,144
Mortgage acquisition fees, net of accumulated
amortization of $382,109 and $371,409 in
1998 and 1997, respectively 45,891 56,591
Total Assets $ 10,530,788 $ 10,422,735
Liabilities and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 36,187 $ 51,016
Due to affiliates 19,000 22,000
Total Liabilities 55,187 73,016
Partners' Capital (Deficit):
General Partner (91,230) (92,489)
BAC Holders (2,140,000 BACS outstanding) 10,566,831 10,442,208
Total Partners' Capital 10,475,601 10,349,719
Total Liabilities and Partners' Capital $ 10,530,788 $ 10,422,735
Statement of Partners' Capital (Deficit) (unaudited)
For the three months ended March 31, 1998
General BAC
Partner Holders Total
Balance at December 31, 1997 $ (92,489) $ 10,442,208 $ 10,349,719
Net Income 1,259 124,623 125,882
Balance at March 31, 1998 $ (91,230) $ 10,566,831 $ 10,475,601
Statements of Operations (unaudited)
For the three months ended March 31, 1998 1997
Revenue
Share of earnings from investment
in mortgage revenue bond $ 160,037 $ 130,209
Other interest 3,771 3,389
Total Revenue 163,808 133,598
Expenses
General and administrative 27,226 46,270
Amortization of mortgage costs 10,700 10,700
Total Expenses 37,926 56,970
Net Income $ 125,882 $ 76,628
Net Income Allocated:
To the General Partner $ 1,259 $ 766
To the BAC Holders 124,623 75,862
$ 125,882 $ 76,628
Per BAC unit
(2,140,000 outstanding) $ .06 $ .04
Statements of Cash Flows (unaudited)
For the three months ended March 31, 1998 1997
Cash Flows From Operating Activities:
Net Income $ 125,882 $ 76,628
Adjustments to reconcile net income to
net cash provided by operating activities:
Share of earnings from investment
in mortgage revenue bond (160,037) (130,209)
Interest received on mortgage revenue bond 233,051 206,111
Amortization 10,700 10,700
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Accounts payable and accrued expenses (14,829) (6,804)
Due to affiliates (3,000) 9,987
Net cash provided by operating activities 191,767 166,413
Cash Flows From Financing Activities:
Cash distributions _ (162,105)
Net cash used for financing activities _ (162,105)
Net increase in cash and cash equivalents 191,767 4,308
Cash and cash equivalents, beginning of period 366,144 410,449
Cash and cash equivalents, end of period $ 557,911 $ 414,757
Notes to the Financial Statements
The unaudited financial statements should be read in conjunction with the
Partnership's annual 1997 audited financial statements within Form 10-K.
The unaudited financial statements include all normal and reoccurring
adjustments which are, in the opinion of management, necessary to present a
fair statement of financial position as of March 31, 1998 and the results of
operations and cash flows for the three months ended March 31, 1998 and 1997
and the statement of partners' capital (deficit) for the three months ended
March 31, 1998. Results of operations for the period are not necessarily
indicative of the results to be expected for the full year.
The following significant event has occurred subsequent to fiscal year 1997
which requires disclosure in this interim report per Regulation S-X, Rule
10-01, Paragraph (a)(5).
Effective January 1, 1998, the Partnership and ConCam executed an extension of
the existing standstill agreement (the "Agreement"), which expired on December
31, 1997. The Agreement was extended until the earlier to occur of December
31, 1998 or the closing of a sale of the Property. Until such time, ConCam
will continue to make "cash-flow" debt service payments in accordance with the
Agreement.
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 (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, LP
("ConCam"), and property management was transferred to ConAm Management
Corporation ("ConAm"), a major property management company and an affiliate of
ConCam. In addition to ownership, ConCam 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 ConCam pursuant to which the Partnership, for a limited
period, agreed to forbear from exercising certain remedies against ConCam and
the Property provided certain conditions were met.
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%. In
February 1996, ConCam indicated that the Property's operations could not
support debt service payments at the increased rate in 1996. On May 8, 1996,
as a result of negotiations with ConCam, the Partnership executed a standstill
agreement (the "Agreement") to generally allow a continuance of the terms of
the Forbearance Agreement provided that in lieu of the minimum pay rate, ConCam
pay as debt service all available cash flow generated by the Property. The
Agreement was in effect through December 31, 1996, the expiration of the
Forbearance Agreement. At such time, the parties were engaged in good faith
negotiations and therefore, the Partnership extended the Agreement with ConCam
through December 31, 1997. Effective January 1, 1998, the Partnership executed
an extension of the Agreement with ConCam until the earlier to occur of
December 31, 1998 or the closing of a sale of the Property. Until such time,
ConCam will continue to make "cash-flow" debt service payments in accordance
with the Agreement. Payments made during the three-month period ended March
31, 1998 approximated an average pay rate of 6.0%.
The General Partner's objective is to maximize the recovery of
the Partnership's investment. After careful consideration, the General Partner
has determined that a sale of the Property and an accelerated repayment of the
Bond is the most viable means to achieve this. Therefore, the Partnership and
ConCam have agreed to pursue a sale of the Property prior to the Bond's
scheduled maturity date on April 28, 1999. Any sale will be subject to the
Partnership's approval. Given that the Bond is collateralized by the Property,
the principal repaid on the Bond is dependent on the value of the Property.
Based upon the decision to pursue a sale of the Property in 1998 and the
resulting change in the estimated holding period, the Partnership wrote down
the carrying value of its investment in the mortgage revenue bond, working
capital loan, and capital improvements loan to $10,000,000, its estimated fair
value as determined by management as of December 31, 1997. There can be no
assurance that a sale will occur in the near term, or that a sale will result
in a particular price.
In anticipation of a potential sale, ConCam has been concentrating its efforts
on stabilizing Property operations and positioning the Property in the Fresno
market. To this end, the Partnership authorized ConCam to utilize a portion of
operating cash flow to make certain Property improvements deemed necessary to
increase occupancy and ensure that the Property is well-positioned for sale.
ConCam will continue to make "cash-flow" debt service payments to the
Partnership until the Property is sold. The level of debt service payments
made by ConCam to the Partnership decreased to an average pay rate of 3.3%
during 1997 as a result of these additional capital expenses at the Property
level. However, debt service payments made for the first quarter of 1998 were
made at an average rate of 6.0%. This improvement primarily is due to efforts
to stabilize Property operations, as discussed above.
At March 31, 1998, the Partnership had cash and cash equivalents, which are
invested in tax-exempt money market accounts, of $557,911, compared with
$366,144 at December 31, 1997. The increase primarily is due to an increase in
net cash flow from operations due to ConCam making higher minimum interest
payments to the Partnership and the discontinuation of quarterly cash
distributions.
Accounts payable and accrued expenses decreased to $36,187 at March 31, 1998,
compared to $51,016 at December 31, 1997. The change is primarily due to
differences in the timing of payments. Due to affiliates decreased to $19,000
at March 31, 1998, compared to $22,000 at December 31, 1997, primarily due to
lower administrative reimbursement accruals during the 1998 period.
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. Beginning with the fourth quarter
of 1996, cash distributions were reduced to an annual return of 3.0%. The level
of debt service paid by ConCam declined further during the second quarter of
1997, and consequently, the 1997 second quarter distribution was reduced to an
annual return of 1.5%. In view of the decline in cash flow available to fund
distributions, cash distributions were suspended beginning with the 1997 third
quarter distribution, which would have been paid in November 1997. In light of
the decision to sell the Property in 1998, quarterly distributions will not be
reinstated. However, once the Property is sold, ConCam will pay the
Partnership the net sale proceeds, which the Partnership will accept as full
settlement of ConCam's obligations with respect to the Bond. Thereafter, the
General Partner will distribute the net proceeds received on the Bond together
with the Partnership's remaining cash reserves (after payment of, or provision
for, the Partnership's liabilities and expenses), and dissolve the Partnership.
As of March 31, 1998, total cash distributions paid to the Limited Partners
since inception have been funded 77% from operating cash flow and 23% from the
Partnership's cash reserves. The sources of the Partnership's future cash flows
are expected to be from payments of interest on the Bond, and interest earned
on cash and cash equivalents.
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-month period ended March 31, 1998, the Partnership generated net
income of $125,882, compared with net income of $76,628 for the three-month
period ended March 31, 1997. The increase primarily is due to an increase in
the Partnership's share of earnings from its investment in the Bond, a decrease
in general and administrative expenses and a slight increase in other interest.
The Partnership's share of earnings from investment in the Bond is based on the
Property's earnings before debt service, which increased for the three-month
period ended March 31, 1998 relative to 1997. The Partnership's equity
interest in the Property's earnings for the three-month period ended March 31,
1998 was $160,037, compared to $130,209 for the three- month period ended March
31, 1997. The Partnership's equity interest in the Property's earnings
increased for the 1998 period primarily due to higher rental income, which was
partially offset by higher expenses incurred at the Property. Total income at
Camelot Lakes Apartments was $538,936 for the three-month period ended March
31, 1998, compared to $499,477 for the three- month period ended March 31,
1997. The increase primarily is due to an increase in rental income as a
result of higher average occupancy at the Property. Total expenses at Camelot
Lakes Apartments, net of debt service, were $259,417 for the three- month
period ended March 31, 1998, compared to $249,624 for the three-month period
ended March 31, 1997. The increase primarily is due to higher security,
landscaping, utilities, administrative and other property expenses, which were
partially offset by lower repairs and maintenance, advertising and promotion
and property insurance expenses.
For the three-month period ended March 31, 1998, other interest was $3,771,
compared to $3,389 for the three-month period ended March 31, 1997. The
increase primarily is due to higher average cash balances maintained by the
Partnership during the 1998 period.
Total Partnership expenses for the three-month period ended March 31, 1998 were
$37,926, compared to $56,970 for the three- month period ended March 31, 1997.
The decrease is attributable to lower general and administrative expenses for
the 1998 period. General and administrative expenses for the three-month
period ended March 31, 1998 were $27,226, compared to $46,270 for the
three-month period ended March 31, 1997. The decrease primarily is due to a
decrease in legal and other professional fees during the 1998 period.
Interest received on the mortgage revenue bond was $233,051 for the three-month
period ended March 31, 1998, compared with $206,111 for the three-month period
ended March 31, 1997. The increase is largely due to ConCam providing for debt
service at a higher rate averaging 6.0% for the 1998 period.
Average occupancy at the Property for the three-month period ended March 31,
1998 was 94.7%, compared with 82.4% for the three-month period ended March 31,
1997. As of March 31, 1998, the Property was 95.5% occupied, compared with
82.4% as of March 31, 1997.
Part II Other Information
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(10.1) Extension Letter between Victory Tax Exempt Realty Income
Fund Limited Partnership and ConCam Associates, L.P.
dated May 11, 1998.
(27) Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K
were filed during the quarter ended March 31, 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, 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, 1998
BY: s/Doreen D. Odell/
Name: Doreen D. Odell
Title: President, Director and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Mar-31-1998
<CASH> 557,911
<SECURITIES> 000
<RECEIVABLES> 000
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 9,926,986
<PP&E> 000
<DEPRECIATION> 000
<TOTAL-ASSETS> 10,530,788
<CURRENT-LIABILITIES> 55,187
<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> 000
<TOTAL-LIABILITY-AND-EQUITY> 10,530,788
<SALES> 000
<TOTAL-REVENUES> 163,808
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 37,926
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> 125,882
<INCOME-TAX> 000
<INCOME-CONTINUING> 125,882
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 125,882
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
VICTORY TAX EXEMPT REALTY INCOME FUND
LIMITED PARTNERSHIP
3 World Financial Center
200 Vesey Street, 29th Floor
New York, New York 10285
May 11, 1998
Concam Associates, L.P.
1764 San Diego Avenue
San Diego, California 92110
Attention Mr. Ralph Tilley
Re: Camelot Lake Apartments (the "Project");
Standstill Letter, dated May 8, 1996 (as
amended, the "Standstill Letter"), by and
between Victory Tax Exempt Realty Income Fund
Limited Partnership, a Delaware limited
partnership ("Lender"), and Concam
Associates, L.P., a California limited
partnership ("Borrower").
Ladies and Gentlemen:
The purpose of this letter (this "Letter Agreement") is to set forth our
understanding with respect to the Standstill Letter and the Project. All
capitalized terms used but not otherwise defined herein shall have the meaning
ascribed to them in the Standstill Letter.
Accordingly, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Lender and Borrower hereby agree as follows:
1. The term of the Standstill Letter shall be extended and shall continue
until the earlier to occur of (a) December 31, 1998, (b) the closing of a
"Sale" (as hereinafter defined) or (c) the termination by either Borrower or
Lender in accordance with paragraph 3 of the Standstill Letter. Upon the
termination or expiration of the Standstill Letter, the rights and
obligations of the parties under the Standstill Letter shall cease and the
Standstill Letter shall 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 of the Standstill Letter. As used herein,
"Sale" shall mean the sale or other disposition of all or substantially all
of the Project to an unaffiliated third party.
2. Nothing contained herein shall be construed as a commitment by Lender to (a)
make any new loan or loans or to grant or extend any other financial
accommodations to Borrower, (b) restructure the Loan or to modify any Loan
Document, (c) approve or accept any proposed Sale or (d) 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, the Standstill Letter, at law or in equity.
3. No purported alteration, amendment, change, waiver, termination or other
modification of this Letter Agreement, the Loan Documents, the Forbearance
Agreement, or the Standstill Letter 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.
4. Each of the parties hereto understands that this Letter Agreement is a
legally binding agreement that may affect such party's rights. Each party
hereto represents to the other that it has been represented by independent
legal counsel of its choice regarding the meaning and legal significance of
this Letter Agreement and that it is satisfied with its legal counsel and the
advice received from it.
5. Should any provision of this Letter Agreement 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.
6. This letter Agreement 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 principals of conflicts of laws.
7. This Letter Agreement 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.
8. Each party executing this Letter Agreement represents that such party has
the full authority and legal power to do so.
9. The Letter Agreement 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 Letter Agreement where indicated
below and return it to the undersigned at the above address.
LENDER:
VICTORY TAX EXEMPT REALTY INCOME FUND
LIMITED PARTNERSHIP
a Delaware limited partnership
BY: CA VICTORY INC.,
a Delaware Corporation
Its General Partner
By: /s/Nicole Barr
Nicole Barr
Vice President
ACCEPTED AND AGREED TO
AS OF THE DATE FIRST WRITTEN ABOVE
BORROWER:
CONCAM ASSOCIATES, L.P.,
a California limited partnership
By: CONCAM, INC.
a California Corporation
By: /s/Ralph Tilley
Ralph Tilley
