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, 1999
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or
Transition Report Pursuant to Section 13 or 15(d) of
- ---------- the Securities Exchange Act of 1934
For the Transition period from to
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Commission File Number: 0-18333
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VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
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Exact Name of Registrant as Specified in its Charter
Delaware 13-3516912
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State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification No.
3 World Financial Center, 29th Floor,
New York, NY Attn.: Andre Anderson 10285
- -------------------------------------- -----
Address of Principal Executive Offices Zip Code
(212) 526-3183
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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
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<PAGE>
2
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
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BALANCE SHEETS
At March 31, At December 31,
1999 1998
(unaudited) (audited)
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<S> <C> <C>
Assets
Investment in mortgage revenue bond, working capital
loan, and capital improvements loan $10,018,938 $ 9,826,236
Cash and cash equivalents 990,198 1,078,440
Mortgage acquisition fees, net of accumulated
amortization of $424,909 and $414,209 in
1999 and 1998, respectively 3,091 13,791
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Total Assets $11,012,227 $10,918,467
================================================================================
Liabilities and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 26,340 $ 68,700
Due to affiliates 18,000 18,000
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Total Liabilities 44,340 86,700
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Partners' Capital (Deficit):
General Partner (86,308) (87,669)
BAC Holders (2,140,000 BACS outstanding) 11,054,195 10,919,436
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Total Partners' Capital 10,967,887 10,831,767
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Total Liabilities and Partners' Capital $11,012,227 $10,918,467
================================================================================
</TABLE>
<TABLE>
<CAPTION>
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STATEMENT OF PARTNERS' CAPITAL (DEFICIT) (UNAUDITED)
For the three months ended March 31, 1999
General BAC
Partner Holders Total
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<S> <C> <C> <C>
Balance at December 31, 1998 $ (87,669) $10,919,436 $10,831,767
Net income 1,361 134,759 136,120
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Balance at March 31, 1999 $ (86,308) $11,054,195 $10,967,887
================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
3
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
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STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended March 31,
1999 1998
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<S> <C> <C>
Revenue
Share of earnings from investment
in mortgage revenue bond $ 192,702 $ 160,037
Other interest 7,227 3,771
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Total Revenue 199,929 163,808
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Expenses
General and administrative 53,109 27,226
Amortization of mortgage costs 10,700 10,700
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Total Expenses 63,809 37,926
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Net Income $ 136,120 $ 125,882
================================================================================
Net Income Allocated:
To the General Partner $ 1,361 $ 1,259
To the BAC Holders 134,759 124,623
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$ 136,120 $ 125,882
================================================================================
Per BAC unit
(2,140,000 outstanding) $ .06 $ .06
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</TABLE>
<TABLE>
<CAPTION>
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STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended March 31,
1999 1998
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<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 136,120 $ 125,882
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Share of earnings from investment in mortgage
revenue bond (192,702) (160,037)
Interest received on mortgage revenue bond -- 233,051
Amortization 10,700 10,700
Decrease in cash arising from changes in
operating assets and liabilities:
Accounts payable and accrued expenses (42,360) (14,829)
Due to affiliates -- (3,000)
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Net cash provided by (used for) operating activities (88,242) 191,767
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Net increase (decrease) in cash and cash equivalents (88,242) 191,767
Cash and cash equivalents, beginning of period 1,078,440 366,144
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Cash and cash equivalents, end of period $ 990,198 $ 557,911
================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
4
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
The unaudited financial statements should be read in conjunction with the
Partnership's annual 1998 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, 1999 and the results of
operations for the three months ended March 31, 1999 and 1998, and cash flows
for the three months then ended, and the statement of partners' capital
(deficit) for the three months ended March 31, 1999. 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 1998,
or the following material contingencies exist and require disclosure in this
interim report per Regulation S-X, Rule 10-01, Paragraph (a)(5).
In February 1999, the Partnership entered into a binding agreement to sell the
mortgage revenue bond issued by the City of Fresno, California in the original
principal amount of $15,515,000 (the "Bond") to Wasatch Acquisitions LLC, a Utah
limited liability company, or its designated affiliate (the "Buyer"), for a
gross sales price of $11.6 million (the "Proposed Sale"). On April 15, 1999, the
General Partner sought consent to the Proposed Sale by a majority in interest of
the BAC Holders evidencing economic and certain other rights attributable to the
limited partnership interests in the Partnership by means of a consent
solicitation. Such consent was obtained on May 10, 1999. The Proposed Sale is
still subject to the consent of the City of Fresno, California and the
concurrent acquisition of the Property by the Buyer. There can be no assurance
that the Proposed Sale will be consummated on the announced terms, if at all.
Effective December 31, 1998, the Partnership allowed ConCam to cease making
"cash flow" debt service payments and instead use the cash flow from the
Property to pay expenses incurred in connection with the sale of the Property to
the Buyer, which is intended to occur simultaneously with the Proposed Sale.
ConCam is permitted to retain cash flow from the Property until the earlier to
occur of (i) June 30, 1999, (ii) the closing of the Proposed Sale, or (iii) the
termination of the Agreement upon default by ConCam. Any excess cash after the
payment of these expenses will be returned to the Partnership.
<PAGE>
5
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
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 mortgage loan (the "Loan") on Camelot Lakes Apartments (the
"Property").
Operating difficulties at the Property resulted in a default by Camelot Lakes
Associates, an unaffiliated limited partnership (the "Original Borrower"), for
Bond payments due on November 1993 through January 1994. On February 1, 1994,
the General Partner entered into 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, among other things, allow a continuance of the terms of
the Forbearance Agreement provided that in lieu of the minimum pay rate, ConCam
pays as debt service all available cash flow generated by the Property. The
Agreement remained in effect until the Forbearance Agreement expired on December
31, 1996. Since such time, the parties have been engaged in good faith
negotiations to effect a sale of the Property and the Bond and therefore, the
Partnership has entered into various extensions of the Agreement with ConCam.
The most recent extension of the Agreement was effective December 31, 1998,
whereby the Partnership agreed to allow ConCam to cease making "cash flow" debt
service payments and instead use the cash flow from the Property to pay expenses
incurred in connection with the sale of the Property to the Buyer, which is
intended to occur simultaneously with the Proposed Sale. ConCam is permitted to
retain the cash flow from the Property until the earlier to occur of (i) June
30, 1999, (ii) the closing of the Proposed Sale, or (iii) the termination of the
Agreement upon default by ConCam. Any excess cash after the payment of these
expenses is required to be returned to the Partnership by ConCam.
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, or a sale of
the Bond in conjunction with a sale of the Property, are the most viable means
to achieve this objective. Therefore, the Partnership and ConCam agreed to
pursue a sale of the Property and/or the Bond prior to the Loan's scheduled
maturity date on April 28, 1999. In February 1999, the Partnership entered into
a binding agreement to sell the Bond to the Buyer, for a gross sale price of
$11.6 million. The Proposed Sale is subject to the consent of the City of
Fresno, California and the concurrent acquisition of the Property by the Buyer.
There can be no assurance that the Proposed Sale will be consummated on the
announced terms, if at all.
<PAGE>
6
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
During 1997, the Partnership wrote down the carrying value of its investment in
the Bond, working capital loan, and capital improvements loan to its estimated
fair value as determined by management at that time. At December 31, 1998, the
carrying value totaled $9,826,236. If the Proposed Sale is consummated, it is
expected to result in a gain in the amount of approximately $1.2 million.
At March 31, 1999, the Partnership had cash and cash equivalents of $990,198,
compared with $1,078,440 at December 31, 1998. The decrease is primarily due to
differences in the timing of payments for administrative, audit and other
professional fees.
Due to the Property's operating difficulties, the General Partner reduced the
cash distribution paid to the partners commencing in 1993, and subsequently
suspended cash distributions beginning with the 1997 third quarter distribution,
which would have been paid in November 1997. In light of the decision to sell
the Property and/or the Bond, the General Partner currently does not intend to
reinstate the quarterly distributions to the partners of the Partnership.
Following a sale of the Bond, the General Partner will distribute to the BAC
Holders 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 December 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.
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, 1999, the Partnership generated net
income of $136,120, compared with net income of $125,882 for the three-month
period ended March 31, 1998. The increase for the three-month period primarily
is due to an increase in the Partnership's share of earnings from its investment
in the Bond and an increase in other interest income which was partially offset
by an increase in general and administrative expenses.
The Partnership's share of earnings from investment in the Bond is based on the
Property's earnings before debt service, which increased to $192,702 for the
three-month period ended March 31, 1999, compared to $160,037 for the
three-month period ended March 31, 1998. The Partnership's equity interest in
the Property's earnings increased for the 1999 period primarily due to the fact
that on October 1, 1998, ConCam and the Partnership agreed to market the
Property for sale and, therefore, no longer took depreciation expense on the
building and personal property funded by the Bond. Total income at Camelot Lakes
Apartments was $526,925 for the three-month period ended March 31, 1999,
compared to $538,936 for the three-month period ended March 31, 1998. The
decrease primarily is due to a decrease in rental income as a result of lower
average occupancy at the Property. Total expenses at Camelot Lakes Apartments,
before debt service, were $303,987 for the three-month period ended March 31,
1999, an increase from $259,417 for the three-month period ended March 31, 1998,
primarily due to an increase for repairs and maintenance expenses and marketing
expenses incurred in connection with a potential sale of the Property.
For the three-month period ended March 31, 1999, other interest was $7,227,
compared to $3,771 for the three-month period ended March 31, 1998. The increase
primarily is due to higher average cash balances maintained by the Partnership
during the 1999 period.
Total Partnership expenses for the three-month period ended March 31, 1999 were
$63,809, compared to $37,926 for the three-month period ended March 31, 1998.
The changes are attributable to higher general and administrative expenses.
General and administrative expenses for the three-month period ended March 31,
1999 were $53,109, compared to $27,226, for the three-month period ended March
31, 1998. The increase primarily is due to higher legal, audit, and other
professional fees.
<PAGE>
7
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
No interest was received on the mortgage revenue bond for the three-month period
ended March 31, 1999, compared with $233,051 for the three-month period ended
March 31, 1998. The decrease is due to an agreement reached between the
Partnership and ConCam to suspend debt service payments effective December 31,
1998.
Average occupancy at the Property for the three-month period ended March 31,
1999 was 92%, compared with 94.7% for the three-month period ended March 31,
1998. As of March 31, 1999, the Property was 92.84% occupied, compared with
95.5% as of March 31, 1998.
Part II Other Information
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K -
On February 23, 1999, the Partnership filed a report on Form
8-K reporting that the Partnership entered into a binding
agreement to sell the mortgage revenue bond.
<PAGE>
8
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
SIGNATURE
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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 17, 1999 BY: /s/Kenneth F. Boyle
-------------------------------------
Name: Kenneth F. Boyle
Title: President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Mar-31-1999
<CASH> 990,198
<SECURITIES> 000
<RECEIVABLES> 000
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 990,198
<PP&E> 000
<DEPRECIATION> 000
<TOTAL-ASSETS> 11,012,227
<CURRENT-LIABILITIES> 44,340
<BONDS> 000
000
000
<COMMON> 000
<OTHER-SE> 10,967,887
<TOTAL-LIABILITY-AND-EQUITY> 11,012,227
<SALES> 000
<TOTAL-REVENUES> 199,929
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 63,809
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> 136,120
<INCOME-TAX> 000
<INCOME-CONTINUING> 136,120
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 136,120
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
