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 June 30, 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 June 30, 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 $ -- $ 9,826,236
Cash and cash equivalents 12,334,657 1,078,440
Other receivable 225,000 --
Mortgage acquisition fees, net of accumulated
amortization of $414,209 in 1998 -- 13,791
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Total Assets $12,559,657 $10,918,467
================================================================================
Liabilities and Partners' Capital (Deficit)
Liabilities:
Accounts payable and accrued expenses $ 232,635 $ 68,700
Due to affiliates 27,000 18,000
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Total Liabilities 259,635 86,700
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Partners' Capital (Deficit):
General Partner (72,986) (87,669)
BAC Holders (2,140,000 BACS outstanding) 12,373,008 10,919,436
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Total Partners' Capital 12,300,022 10,831,767
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Total Liabilities and Partners' Capital $12,559,657 $10,918,467
================================================================================
</TABLE>
<TABLE>
<CAPTION>
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STATEMENT OF PARTNERS' CAPITAL (DEFICIT) (UNAUDITED)
For the six months ended June 30, 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 14,683 1,453,572 1,468,255
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Balance at June 30, 1999 $ (72,986) $12,373,008 $12,300,022
================================================================================
</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 June 30, Six months ended June 30,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Revenue
Share of earnings from investment
in mortgage revenue bond $ 194,732 $184,936 $ 387,434 $344,973
Other interest income 16,849 5,511 24,076 9,282
--------------------------------------------------
Total Revenue 211,581 190,447 411,510 354,255
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Expenses
General and administrative 64,747 49,287 117,856 76,513
Amortization of mortgage costs 3,091 10,700 13,791 21,400
--------------------------------------------------
Total Expenses 67,838 59,987 131,647 97,913
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Income before gain on sale of investment
in mortgage revenue bond 143,743 130,460 279,863 256,342
Gain on sale of investment
in mortgage revenue bond 1,188,392 -- 1,188,392 --
- ------------------------------------------------------------------------------------------------
Net Income $1,332,135 $130,460 $1,468,255 $256,342
================================================================================================
Net Income Allocated:
To the General Partner $ 13,321 $ 1,304 $ 14,683 $ 2,563
To the BAC Holders 1,318,814 129,156 1,453,572 253,779
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$1,332,135 $130,460 $1,468,255 $256,342
================================================================================================
Per BAC unit
(2,140,000 outstanding) $ .62 $ .06 $ .68 $ .12
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</TABLE>
<TABLE>
<CAPTION>
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STATEMENTS OF CASH FLOWS (UNAUDITED)
For the six months ended June 30,
1999 1998
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<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 1,468,255 $ 256,342
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Share of earnings from investment in mortgage
revenue bond (387,434) (344,973)
Interest received on mortgage revenue bond -- 437,766
Gain on sale of investment in mortgage revenue bond (1,188,392) --
Amortization 13,791 21,400
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Other receivable (225,000) --
Accounts payable and accrued expenses 163,935 11,768
Due to affiliates 9,000 (7,000)
--------------------------
Net cash provided by (used in) operating activities (145,845) 375,303
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Cash Flows From Investing Activities:
Net proceeds from sale of investment in mortgage revenue bond 11,402,062 --
--------------------------
Net cash provided by investing activities 11,402,062 --
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Net increase in cash and cash equivalents 11,256,217 375,303
Cash and cash equivalents, beginning of period 1,078,440 366,144
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Cash and cash equivalents, end of period $12,334,657 $ 741,447
================================================================================================
</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 recurring
adjustments which are, in the opinion of management, necessary to present a fair
statement of financial position as of June 30, 1999 and the statements of
operations for the three and six months ended June 30, 1999 and 1998, and
statements of cash flows and the statement of partners' capital (deficit) for
the six months ended June 30, 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 "Sale"). On April 15, 1999, the General
Partner sought consent to the 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 Sale was consummated on June 22,
1999 for a selling price of approximately $11.4 million, net of closing
adjustments and selling costs, which resulted in a gain on sale of approximately
$1.2 million which has been reflected in the Statements of Operations for the
three and six months ended June 30, 1999.
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 occurred simultaneous with the Sale. Any excess cash after the
payment of these expenses is required to be returned to the Partnership. The
amount of excess cash due from ConCam at June 30, 1999 was approximately
$225,000.
<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 had been engaged in good faith
negotiations to effect a sale of the Property and the Bond and therefore, the
Partnership 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
occurred simultaneous with the Sale. ConCam was permitted to retain the cash
flow from the Property until the closing of the Sale. Any excess cash after the
payment of these expenses is required to be returned to the Partnership by
ConCam. The amount of excess cash due from ConCam at June 30, 1999 was
approximately $225,000.
The General Partner's objective was to maximize the recovery of the
Partnership's investment. After careful consideration, the General Partner
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, were the most
viable means to achieve this objective. Therefore, the Partnership and ConCam
agreed to sell 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
approximately $11.6 million. The Sale was consummated on June 22, 1999 for a
selling price of approximately $11.4 million, net of closing adjustments and
selling costs, which resulted in a gain on sale of approximately $1.2 million
which has been reflected in the Statements of Operations for the three and six
months ended June 30, 1999.
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.
<PAGE>
6
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
At June 30, 1999, the Partnership had cash and cash equivalents of $12,334,657,
compared with $1,078,440 at December 31, 1998. The increase is primarily due to
the net proceeds from the sale of the Bond.
As a result of the Sale, 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 in 1999.
Results of Operations
- ---------------------
The Partnership accounts for its investment in the Bond using the equity method
of accounting. Accordingly, the Partnership reports its share of the Property's
results of operations as income.
For the three and six months ended June 30, 1999, the Partnership generated net
income of $1,332,135 and $1,468,255, compared with net income of $130,460 and
$256,342 for the three and six months ended June 30, 1998. The increase for the
three-month and six-month periods ended June 30, 1999 is primarily due to the
gain recognized on the Sale.
The Partnership's share of earnings from investment in the Bond is based on the
Property's earnings before debt service, which increased to $387,434 for the six
months ended June 30, 1999, compared to $344,973 for the six months ended June
30, 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 $1,075,400 for the six
months ended June 30, 1999, compared to $1,084,751 for the six months ended June
30, 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 $687,966 for the six-month period
ended June 30, 1999, an increase from $578,220 for the six months ended June 30,
1998, primarily due to an increase for repairs and maintenance expenses and
marketing expenses incurred in connection with the Sale.
For the three and six months ended June 30, 1999, other interest income was
$16,849 and $24,076, compared to $5,511 and $9,282 for the three and six months
ended June 30, 1998. The increase is primarily due to higher average cash
balances maintained by the Partnership during the 1999 period.
Total Partnership expenses for the three and six months ended June 30, 1999 were
$67,838 and $131,647, compared to $59,987 and $97,913 for the three and six
months ended June 30, 1998. The increase in 1999 is attributable to higher
general and administrative expenses. General and administrative expenses for the
three and six months ended June 30, 1999 were $64,747 and $117,856, compared to
$49,287 and $76,513, for the three and six months ended June 30, 1998. The
increase primarily is due to higher legal, audit, and other professional fees in
connection with the Sale.
No interest was received on the mortgage revenue bond for the six-month period
ended June 30, 1999, compared with $437,766 for the six-month period ended June
30, 1998. The decrease is due to an agreement reached between the Partnership
and ConCam to suspend debt service payments effective December 31, 1998.
<PAGE>
7
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
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.
On May 27, 1999, the Partnership filed a report on Form 8-K
reporting an amendment to the binding agreement to sell the
mortgage revenue bond, extending the closing of the sale to
June 21, 1999, but in no event later than June 30, 1999.
On June 21, 1999, the Partnership filed a report on Form 8-K
reporting that the buyer purchased the mortgage revenue bond for
a gross sales price of $11,620,000.
<PAGE>
8
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
SIGNATURE
---------
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: August 16, 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> 6-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Jun-30-1999
<CASH> 12,334,657
<SECURITIES> 000
<RECEIVABLES> 225,000
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 12,559,657
<PP&E> 000
<DEPRECIATION> 000
<TOTAL-ASSETS> 12,559,657
<CURRENT-LIABILITIES> 259,635
<BONDS> 000
000
000
<COMMON> 000
<OTHER-SE> 12,300,022
<TOTAL-LIABILITY-AND-EQUITY> 12,559,657
<SALES> 000
<TOTAL-REVENUES> 411,510
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 131,647
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> 279,863
<INCOME-TAX> 000
<INCOME-CONTINUING> 279,863
<DISCONTINUED> 000
<EXTRAORDINARY> 1,188,392
<CHANGES> 000
<NET-INCOME> 1,468,255
<EPS-BASIC> .68
<EPS-DILUTED> .68
</TABLE>