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, 2001 or
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: 000-24843
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
(Exact name of registrant as specified in its
Agreement of Limited Partnership)
Delaware 47-0810385
(State or other jurisdiction of (I.R.S. Employer
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 the 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 INVESTORS, L.P.
BALANCE SHEETS
June 30, 2001
(Unaudited) Dec. 31, 2000
-------------- --------------
Assets
Cash and cash equivalents $ 4,575,959 $ 5,858,216
Investment in tax-exempt mortgage bonds, at estimated fair value (Notes 3 and 4) 110,455,000 110,500,000
Investment in other tax-exempt bonds, at estimated fair value (Note 5) 3,939,000 3,000,000
Interest receivable 1,028,770 948,081
Other assets 4,870,001 4,059,207
-------------- --------------
$ 124,868,730 $ 124,365,504
============== ==============
Liabilities and Partners' Capital
Liabilities
Accounts payable (Note 6) $ 416,204 $ 511,178
Distribution payable 1,343,208 1,341,536
Debt financing (Note 3) 49,210,000 49,255,000
-------------- --------------
50,969,412 51,107,714
-------------- --------------
Partners' Capital
General Partner 9,417 3,392
Beneficial Unit Certificate Holders
($7.51 per BUC in 2001 and $7.45 in 2000) 73,889,901 73,254,398
-------------- --------------
73,899,318 73,257,790
-------------- --------------
$ 124,868,730 $ 124,365,504
============== ==============
The accompanying notes are an integral part of the financial statements.
PAGE 1
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
For the Three For the Three For the Six For the Six
Months Ended Months Ended Months Ended Months Ended
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
------------- ------------- -------------- --------------
Income
Mortgage bond investment income $ 2,020,317 $ 1,792,132 $ 4,379,640 $ 3,228,376
Other bond investment income 84,906 - 146,781 -
Other interest income 122,688 80,282 283,755 147,099
Contingent interest income (Note 4) 6,897 - 16,897 -
------------- ------------- -------------- --------------
2,234,808 1,872,414 4,827,073 3,375,475
Expenses
Realized loss on investment in tax-exempt
mortgage bond - 1,100,000 - 1,100,000
Interest expense 566,942 340,469 1,129,410 402,302
General and administrative expenses (Note 6) 206,312 296,263 407,967 533,964
------------- ------------- -------------- --------------
773,254 1,736,732 1,537,377 2,036,266
------------- ------------- -------------- --------------
Net income 1,461,554 135,682 3,289,696 1,339,209
Other comprehensive income:
Unrealized gains on securities
Net unrealized holding gains arising
during the period 39,000 - 39,000 -
------------- ------------- -------------- --------------
Net comprehensive income $ 1,500,554 $ 135,682 $ 3,328,696 $ 1,339,209
============= ============= ============== ==============
Net income allocated to:
General Partner $ 16,271 $ 12,357 $ 36,952 $ 24,392
BUC Holders 1,445,283 123,325 3,252,744 1,314,817
------------- ------------- -------------- --------------
$ 1,461,554 $ 135,682 $ 3,289,696 $ 1,339,209
============= ============= ============== ==============
Net income, basic and diluted, per BUC $ .15 $ .01 $ .33 $ .13
============= ============= ============== ==============
Weighted average number of BUCs outstanding,
basic and diluted 9,837,928 9,837,928 9,837,928 9,863,611
============= ============= ============== ==============
The accompanying notes are an integral part of the financial statements.
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
STATEMENT OF PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(UNAUDITED)
Beneficial Unit
General Certificate Holders
Partner # of BUCs Amount Total
-------------- --------------- -------------- --------------
Partners' Capital (excluding accumulated other
comprehensive income)
Balance at December 31, 2000 $ 3,392 9,837,928 $ 71,535,398 $ 71,538,790
Net income 36,952 - 3,252,744 3,289,696
Cash distributions paid or accrued (30,927) - (2,656,241) (2,687,168)
-------------- --------------- -------------- --------------
9,417 9,837,928 72,131,901 72,141,318
-------------- --------------- -------------- --------------
Accumulated Other Comprehensive Income
Balance at December 31, 2000 - - 1,719,000 1,719,000
Other comprehensive income - - 39,000 39,000
-------------- -------------- --------------- --------------
Balance at June 30, 2001 - - 1,758,000 1,758,000
-------------- --------------- -------------- --------------
Balance at June 30, 2001 $ 9,417 9,837,928 $ 73,889,901 $ 73,899,318
============== =============== ============== ==============
The accompanying notes are an integral part of the financial statements.
PAGE 2
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six For the Six
Months Ended Months Ended
June 30, 2001 June 30, 2000
-------------- --------------
Cash flows from operating activities
Net income $ 3,289,696 $ 1,339,209
Adjustments to reconcile net income to net cash
from operating activities
Realized loss on investment in tax-exempt mortgage bond - 1,100,000
Increase in interest receivable (80,689) (368,187)
Decrease in other assets 159,230 -
Increase (decrease) in accounts payable (94,974) 170,630
-------------- --------------
Net cash provided by operating activities 3,273,263 2,241,652
-------------- --------------
Cash flows from investing activities
Acquisition of tax-exempt bonds (900,000) (33,155,000)
Increase in other assets (968,659) (1,588,306)
Bond issuance costs paid (1,365) -
Principal payment received on tax-exempt mortgage bonds 45,000 -
Purchase of BUCs - (755,929)
-------------- --------------
Net cash used in investing activities (1,825,024) (35,499,235)
-------------- --------------
Cash flows from financing activities
Proceeds from debt financing - 33,155,000
Distributions paid (2,685,496) (1,343,145)
Principal payment on debt financing (45,000) -
-------------- --------------
Net cash provided by (used in) financing activities (2,730,496) 31,811,855
-------------- --------------
Net decrease in cash and cash equivalents (1,282,257) (1,445,728)
Cash and cash equivalents at beginning of period 5,858,216 3,914,863
-------------- --------------
Cash and cash equivalents at end of period $ 4,575,959 $ 2,469,135
============== ==============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,159,598 $ 140,248
============== ==============
Supplemental disclosure of non-cash financing activity:
As more fully described in Notes 3, 4(8) and 4(9), on March 28, 2000 and June
1, 2000, the Partnership securitized $17,155,000 and $16,000,000,
respectively, of tax-exempt mortgage bonds on Iona Lakes Apartments and Clear
Lake Colony Apartments, respectively, by depositing such bonds with a
custodian. The bonds were credit enhanced and interests in substantially all
of such bonds were sold to institutional investors with the Partnership
acquiring residual interests therein. These arrangements have been accounted
for as financing transactions.
The accompanying notes are an integral part of the financial statements.
PAGE 3
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001
(UNAUDITED)
1. Organization
America First Tax Exempt Investors, L.P. was formed on April 2, 1998 under the
Delaware Revised Uniform Limited Partnership Act for the purpose of acquiring,
holding, operating, selling and otherwise dealing with a portfolio of
federally tax-exempt mortgage bonds which have been issued to provide
construction and/or permanent financing of multifamily residential
apartments. The Partnership commenced operations on February 1, 1999. The
General Partner of the Partnership is America First Capital Associates Limited
Partnership Two (AFCA 2).
2. Basis of Presentation
The interim unaudited financial statements have been prepared according to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted according to such rules and regulations, although
management believes that the disclosures are adequate to make the information
presented not misleading. The 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,
2000. In the opinion of management, all normal and recurring adjustments
necessary to present fairly the financial position at June 30, 2001, and
results of operations for all periods presented have been made. The results
of operations for the three and six-month periods ended June 30, 2001 are not
necessarily indicative of the results to be expected for the full year.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
3. Debt Financing
As of June 30, 2001, the Partnership had securitized $49,285,000 (of which
$49,210,000 was outstanding at June 30, 2001 and $49,255,000 at December 31,
2000) of its tax-exempt mortgage bond portfolio under four separate financing
transactions as described below.
The Partnership securitized $5,000,000 of its tax-exempt mortgage bonds during
August 1999. In connection with the securitization, the Partnership deposited
$25,250,000 of such tax-exempt mortgage bonds into a trust (the Primary Trust)
which issued $25,250,000 in trust certificates (the Primary Trust
Certificates). The Primary Trust issued and delivered to a Merrill Lynch
affiliate $5,000,000 in Primary Trust Certificates which have a first priority
claim on principal and base interest on the underlying tax-exempt mortgage
bonds. The $5,000,000 in Primary Trust Certificates were placed in a secondary
trust (the Secondary Trust) and credit enhanced by a Merrill Lynch affiliate.
The Merrill Lynch affiliate sold to institutional investors floating rate
securities (the Secondary Securities) in the amount of $4,995,000. The
Partnership also pledged and transferred an additional $3,000,000 of Primary
Trust Certificates to a Merrill Lynch affiliate to secure payment of the
$5,000,000 principal amount of and accrued interest on the aforementioned
Primary Trust Certificates. The Partnership obtained ownership of the
remaining Primary Trust Certificates in the principal amount of $17,250,000
and the rights to all subordinate interest paid on the related tax-exempt
mortgage bonds. The Partnership also acquired a residual interest in the
Secondary Trust with a face amount of $5,000 and proceeds of the transfer of
the Primary Trust Certificates to the Merrill Lynch affiliate in the amount of
$4,995,000. The Partnership has a call right on the Secondary Securities and
upon exercise of such right may collapse the Secondary and Primary Trusts and,
therefore, retains a level of control over the Secondary Securities. The
purchase price of the Secondary Securities is equal to the par amount plus 10%
of any increase in the market price of the underlying Primary Trust
Certificates. (Also see Note 4 (7)).
PAGE 4
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001
(UNAUDITED)
The Partnership also securitized tax-exempt mortgage bonds of $17,155,000 on
Iona Lakes Apartments which were acquired by the Partnership on March 28,
2000. Similar to the $5,000,000 securitization described above, the
$17,155,000 of tax-exempt mortgage bonds (the Iona Bonds) were deposited with
a custodian pursuant to a custody and participation agreement (the Custody
Agreement). The custodian issued (i) a certificate to a Merrill Lynch
affiliate evidencing a beneficial ownership interest in all outstanding
principal and base interest on the Iona Bonds (the Senior Certificate) and
(ii) a certificate to the Partnership evidencing a beneficial ownership
interest in all contingent interest on the Iona Bonds (the Residual
Certificate). The Merrill Lynch affiliate then transferred the Senior
Certificate to a secondary trust (Secondary Trust) and credit enhanced such
Senior Certificate. The Merrill Lynch affiliate sold to institutional
investors floating rate securities (the Secondary Securities) in the amount of
$17,150,000. In addition to the Residual Certificate, the Partnership
acquired for $5,000 a residual interest in the Secondary Trust with a face
amount of $5,000. The Partnership has a call right on the Secondary
Securities and, upon exercise of such right, may collapse the Custody
Agreement and the Secondary Trust and, therefore, retains a level of control
over the Secondary Securities. The purchase price of the Secondary Securities
is equal to the par amount plus 10% of any increase in the market value of the
underlying Senior Certificates. The Partnership has also pledged $12,600,000
of its Woodbridge Apartments of Bloomington III tax-exempt mortgage bonds and
$5,300,000 of Primary Trust Certificates related to the Northwoods Lake
Apartments tax-exempt mortgage bonds as additional collateral in connection
with the securitization. (Also see Notes 4(4), (7) and (8)).
The Partnership also securitized tax-exempt mortgage bonds of $16,000,000 on
Clear Lake Colony Apartments which was acquired by the Partnership on June 8,
2000 and $11,130,000 on Bent Tree Apartments which was acquired on December
21, 2000. Such securitizations are structured similar to the $17,155,000
securitization described above. Floating rate securities in the amount of
$15,995,000 and $11,125,000 for Clear Lake Colony Apartments and Bent Tree
Apartments, respectively, were sold to institutional investors and the
Partnership acquired residual interests in trusts with a face value of $10,000
($5,000 for each of the securitized bonds) for $10,000 ($5,000 each). The
Partnership also pledged $8,976,000 of its Woodbridge Apartments of Louisville
II tax-exempt mortgage bonds and $2,000,000 of Primary Trust Certificates
related to the Northwoods Lake Apartments tax-exempt mortgage bonds as
additional collateral in connection with the securitization of the Clear Lake
Colony Apartments bonds. The Partnership also pledged $6,700,000 of its
Ashley Pointe at Eagle Crest tax-exempt mortgage bonds as additional
collateral in connection with the securitization of the Bent Tree Apartments
Bonds. (Also see Notes 4(5), (6), (7), (9), and (10)).
For financial statement purposes, the transactions described above have been
accounted for as financing transactions and, in effect, provide variable-rate
financing for the acquisition of new, or the securitization of existing,
tax-exempt mortgage bonds. Accordingly, the $49,210,000 of tax-exempt
mortgage bonds financed are required to be held in trust, the subordinated
interests are classified as other assets, and, in the case of the $5,000,000
debt financing, the net cash proceeds were classified as cash and temporary
cash investments. In all of the transactions, the financing debt bears
interest, plus credit enhancement, servicing, trustee and related fees.
Financing debt of $32,130,000 bears interest at a weekly floating bond rate
which averaged approximately 4.25% for 2001 (4.27% for the three months ended
June 30, 2001), including fees. The remaining $17,080,000 of financing debt
provided for interest at a weekly floating rate through June 21, 2000 at which
time the Partnership elected to lock in the then current rate of 5.39%,
including fees, through June 20, 2001. Effective June 21, 2001, the financing
debt again bears interest at a weekly floating bond rate similar to the other
debt financing arrangements. The stated maturity date is October 2011 for the
$5,000,000 of debt financing, September 2002 for the $16,000,000 of debt
financing, June 2002 for the $11,130,000 of debt financing and the final
stated maturity date is April 2004 for the remaining $17,080,000 of debt
financing. In each case, the debt financing is subject to the respective call
feature described above. The Partnership did not recognize a gain or loss in
connection with any of the financing transactions.
PAGE 5
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001
(UNAUDITED)
4. Investment in Tax-Exempt Mortgage Bonds
The Partnership classified its investment in tax-exempt mortgage bonds as
available-for-sale. At June 30, 2001, and December 31, 2000, the total
amortized cost, gross unrealized holding gains and aggregate fair value of
available-for-sale securities were $108,781,000, $1,719,000 and $110,500,000,
respectively.
Descriptions of the properties collateralizing the tax-exempt mortgage bonds
and certain terms of such bonds owned by the Partnership at
June 30, 2001, are as follows:
Base Principal
Maturity Interest Outstanding at
Property Name Location Date Rate June 30, 2001
- --------------------------------- ----------------- -------- -------- --------------
Shoals Crossing Atlanta, GA 12/01/25 7.5% (1) 4,500,000
Woodbridge Apts. of Bloomington III (4) Bloomington, IN 12/01/27 7.5% (1) 12,600,000
Ashley Pointe at Eagle Crest (5) Evansville, IN 12/01/27 7.0% (1) 6,700,000
Woodbridge Apts. of Louisville II (6) Louisville, KY 12/01/27 7.5% (1) 8,976,000
Northwoods Lake Apartments (7) Duluth, GA 09/01/25 7.5% (1) 25,250,000
Ashley Square Des Moines, IA 12/01/25 7.5% (2) 6,500,000
Iona Lakes Apartments (8) Ft. Myers, FL 04/01/30 6.9% (3) 17,080,000
Clear Lake Colony Apartments (9) West Palm Beach, FL 06/15/30 6.9% (3) 16,000,000
Bent Tree Apartments (10) Columbia, SC 12/15/30 7.1% (3) 11,130,000
(1) In addition to the base interest rates shown, the bonds bear contingent
interest, as defined in each revenue note, of an additional 3.5% per annum
that is payable out of 100% (50% in the case of Woodbridge Apartments of
Bloomington III and Woodbridge Apartments of Louisville II) of the net cash
flow generated by the respective property. The Partnership received
contingent interest of $10,000 from Ashley Pointe at Eagle Crest. No
contingent interest was received from any of the other mortgage bonds during
the three or six months ended June 30, 2001.
(2) In addition to the base interest rate shown, the bond bears contingent
interest, as defined in the revenue note, of an additional 3% per annum
payable out of the net cash flow generated by the property. Past due unpaid
contingent interest compounds at a rate of 10.5% per annum. The Partnership
did not receive any contingent interest during the three or six months ended
June 30, 2001.
(3) In addition to the base interest rate shown, the bonds bear contingent
interest, as defined in the revenue note, of an additional 2.6% per annum,
1.885% per annum and 1.9% per annum for Iona Lakes Apartments, Clear Lake
Colony Apartments and Bent Tree Apartments, respectively, payable out of the
net cash flow generated by each such property. Past due unpaid contingent
interest compounds at a rate of 9.5% per annum, 8.785% per annum and 9% per
annum for Iona Lakes Apartments, Clear Lake Colony Apartments and Bent Tree
Apartments, respectively. The Partnership received contingent interest of
$6,897 from Bent Tree Apartments during the three and six months ended June
30, 2001. No contingent interest was received from any of the other mortgage
bonds during the three or six months ended June 30, 2001.
(4) Tax-exempt mortgage bonds of $12,600,000, in addition to the $5,300,000
of Primary Trust Certificates described in (7) below, have been pledged as
additional security to the beneficial owner of the tax-exempt mortgage bonds
as described in (8) below.
(5) Tax-exempt mortgage bonds of $6,700,000 have been pledged as additional
security to the beneficial owner of the tax-exempt mortgage bonds as described
in (10) below.
PAGE 6
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001
(UNAUDITED)
(6) Tax-exempt mortgage bonds of $8,976,000, in addition to the $2,000,000 of
Primary Trust Certificates described in (7) below, have been pledged as
additional security to the beneficial owner of the tax-exempt mortgage bonds
as described in (9) below.
(7) Tax-exempt mortgage bonds of $25,250,000 have been deposited with a trust
(the Primary Trust as described in Note 3). In addition to the $8,000,000 of
Primary Trust Certificates pledged as collateral as described in Note 3, the
Partnership also pledged Primary Trust Certificates representing a beneficial
interest in $5,300,000, $2,000,000 and $4,000,000 in principal amount of such
bonds as described in (4) and (6) above and Note 7, respectively.
(8) Tax-exempt mortgage bonds of $17,155,000 secured by Iona Lakes Apartments
were acquired by the Partnership on March 28, 2000. Such bonds have been
deposited with a custodian as described in Note 3. Such bonds had a
remaining principal balance of $17,080,000 at June 30, 2001. Also see (4)
and (7) above.
(9) Tax-exempt mortgage bonds of $16,000,000 secured by Clear Lake Colony
Apartments were acquired by the Partnership on June 8, 2000. Such bonds have
been deposited with a custodian as described in Note 3. Also see (6) and
(7) above.
(10) Tax-exempt mortgage bonds of $11,130,000 secured by Bent Tree Apartments
were acquired by the Partnership on December 21, 2000. Such bonds have been
deposited with a custodian as described in Note 3. Also see (5) above.
5. Investment in Other Tax-Exempt Bonds
At June 30, 2001 and December 31, 2000, the Partnership had an investment in
other tax-exempt bonds with a principal amount of $3,900,000 and $3,000,000,
respectively. Such tax-exempt bonds bear interest at the rate of 8.25% per
annum and mature on December 1, 2026. The bonds are guaranteed by an
affiliate of the borrower. The Partnership pledged such tax-exempt bonds as
security for a standby reimbursement agreement as described in Note 7.
The Partnership classified its investment in other tax-exempt mortgage bonds
as available-for-sale. At June 30, 2001, the amortized cost, gross unrealized
gains and fair value of the other tax-exempt bonds was $3,900,000, $39,000,
and $3,939,000, respectively. At December 31, 2000, the general partner
estimated that the fair value of the other tax-exempt bonds was $3,000,000.
6. Transactions with Related Parties
Substantially all of the Partnership's general and administrative expenses and
certain costs capitalized by the Partnership are paid by AFCA 2 or an
affiliate and are reimbursed by the Partnership. The amount of such expenses
reimbursed to AFCA 2 during 2001 was $547,767 ($259,130 during the three
months ended June 30, 2001). The reimbursed expenses included in this
footnote are presented on a cash basis and do not reflect accruals made at
quarter end which are reflected in the accompanying financial statements.
AFCA 2 is entitled to receive an administrative fee from the Partnership equal
to 0.45% of the outstanding principal balance of any tax-exempt mortgage bond
or other mortgage investment, unless the owner of the property financed by
such tax-exempt mortgage bond or other mortgage investment or another third
party is required to pay such administrative fee. Under the terms of each of
the Partnership's existing tax-exempt mortgage bonds, the property owners are
obligated to pay the administrative fee to AFCA 2. Therefore, the Partnership
did not pay any administrative fees to AFCA 2 during 2001. However, the
Partnership paid to AFCA 2 $7,665 in 2001 ($4,290 for the three months ended
June 30, 2001) in administrative fees related to an investment in other
tax-exempt bonds acquired in November 2000 and April 2001. The Partnership
may become obligated to pay additional administrative fees to AFCA 2 in the
event it acquires additional tax-exempt mortgage bonds or other mortgage
investments and is not able to negotiate the payment of these fees by the
property owners or in the event it acquires title to any of the properties
securing its existing tax-exempt mortgage bonds by reason of foreclosure.
AFCA 2 received administrative fees of $205,857 during 2001 ($89,713 during
the three months ended June 30, 2001) from the owners of properties financed
PAGE 7
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2001
(UNAUDITED)
by the tax-exempt mortgage bonds held by the Partnership. Since these
administrative fees are not Partnership expenses, they have not been reflected
in the accompanying financial statements. However, such fees are payable by
the property owners prior to the payment of any contingent interest on the
tax-exempt mortgage bonds secured by these properties.
AFCA 2 was also entitled to receive approximately $359,000 in
administrative fees from the Partnership for the year ended December 31,
1989. The payment of these fees, which has been deferred by AFCA 2, is
contingent upon, and will be paid only out of future profits realized by the
Partnership from the disposition of any Partnership assets. This amount will
be recorded as an expense by the Partnership when it is probable that these
fees will be paid.
An affiliate of AFCA 2 was retained to provide property management services
for Ashley Square, Northwoods Lake Apartments, Ashley Pointe at Eagle Crest,
Shoals Crossing, Iona Lakes Apartments (beginning in April 2000), Clear Lake
Colony Apartments (beginning in June 2000) and Bent Tree Apartments (beginning
in December 2000). The management fees paid to the affiliate of AFCA 2 reflect
market rates for such services in the areas in which these properties are
located and totaled $294,835 during 2001 ($147,570 for the three months ended
June 30, 2001). These management fees are not Partnership expenses and,
accordingly, have not been reflected in the accompanying financial
statements. However, such fees are paid out of the revenues generated by
these properties prior to the payment of any interest on the tax-exempt bonds
held by the Partnership on these properties.
The Partnership's "other assets" include approximately $4,259,993 of taxable
mortgage loans due from the owners of Iona Lakes Apartments, Clear Lake Colony
Apartments, Bent Tree Apartments and Lake Forest Apartments which
collateralize the Partnership's respective tax-exempt mortgage bonds (or, in
the case of Lake Forest Apartments, the tax-exempt mortgage bonds the
Partnership plans to acquire an interest in as described in Note 7.) The
taxable mortgage loans bear interest ranging from 8.25% to 9.10% per annum,
may be repaid at any time, and may increase for additional advances. Each
such taxable mortgage loan is secured by a second mortgage on the respective
property. The owners of the aforementioned properties are employees of the
general partner of AFCA 2.
7. Commitments and Contingencies
In May 2001, the Partnership entered into a Standby Reimbursement Agreement
guaranteeing reimbursement of sums up to $12,727,751 as part of a plan to
acquire certain securities representing an interest in tax-exempt mortgage
bonds secured by the Lake Forest Apartments which total $12,375,000. In
connection with the Standby Reimbursement Agreement the Partnership pledged
its other tax-exempt bonds with a principal balance of $3,900,000 as of June
30, 2001, (of which $900,000 was acquired on April 6, 2001) and $4,000,000 of
Primary Trust Certificates related to the Northwoods Lake Apartments
tax-exempt mortgage bonds as security. This Standby Reimbursement Agreement
is expected to terminate on or about December 1, 2001 in connection with the
issuance of tax-exempt refunding bonds secured by Lake Forest Apartments. The
Partnership plans to acquire certain securities representing an interest in
such tax-exempt mortgage bonds.
PAGE 8
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with all of the
financial statements and notes included in Item 1 of this report as well as
the Partnership's Annual Report on Form 10-K for the year ended December 31,
2000.
Liquidity and Capital Resources
The Partnership's primary capital resource consists of nine tax-exempt
mortgage bonds which were issued to the Partnership in order to provide
construction and/or permanent financing for nine multifamily housing
projects. The nine multifamily projects financed at June 30, 2001 are listed
in the following table:
At June 30, 2001
-----------------------------
Number Percentage
Number of Units of Units
Property Name Location of Units Occupied Occupied
- ------------------------------------- ------------------ -------------- -------------- --------------
Shoals Crossing Atlanta, GA 176 167 95%
Ashley Square Des Moines, IA 144 143 99%
Northwoods Lake Apartments Duluth, GA 492 463 94%
Woodbridge Apts. of Bloomington III Bloomington, IN 280 248 89%
Woodbridge Apts. of Louisville II Louisville, KY 190 171 90%
Iona Lakes Apartments Ft. Myers, FL 350 325 93%
Clear Lake Colony Apartments West Palm Beach, FL 316 314 99%
Ashley Pointe at Eagle Crest Evansville, IN 150 147 98%
Bent Tree Apartments Columbia, SC 232 214 92%
-------------- -------------- --------------
2,330 2,192 94%
============== ============== ==============
The aggregate carrying value of the tax-exempt mortgage bonds at June 30, 2001
was $110,455,000. The carrying value of the bonds reflects the general
partner's estimate of the fair value of such bonds. As of June 30, 2001, the
Partnership has pledged a total of $87,786,000 of its tax-exempt mortgage bond
portfolio in connection with securitizations of its tax-exempt mortgage bonds
as described herein. In addition, the Partnership pledged $4,000,000 of its
tax-exempt mortgage bond portfolio in connection with a standby reimbursement
agreement as more fully described below.
Each of the bonds bears interest at a fixed rate and provides for the payment
of additional contingent interest that is payable solely from available net
cash flow generated by the financed property. The principal amounts of eight
of the bonds do not amortize over their respective terms. The remaining bond
requires semiannual payments of principal and interest out of operating cash
flow.
PAGE 9
Tax-exempt interest earned on the mortgage bonds represents the Partnership's
principal source of cash flow. The Partnership also earns tax-exempt interest
and taxable interest on certain other investments. The Partnership's
principal uses of cash are the payment of operating expenses and distributions
to BUC holders. The following table sets forth information relating to cash
distributions paid to BUC holders for the periods shown:
For the Six For the Six
Months Ended Months Ended
June 30, 2001 June 30, 2000
-------------- --------------
Cash distributions
Income $ .2700 $ .1583
Return of capital - .1117
-------------- --------------
Income $ .2700 $ .2700
============== ==============
Distributions
Paid out of current cash flow $ .2700 $ .2453
Paid out of prior undistributed cash flow - .0247
-------------- --------------
Income $ .2700 $ .2700
============== ==============
In addition to cash generated from interest income, the Partnership may draw
on its reserve to pay operating expenses or to supplement cash distributions
to BUC holders. As of June 30, 2001, the amount held by the Partnership in
the reserve was $4,870,962. During the six months ended June 30, 2001,
undistributed income totaling $602,528 ($118,346 for the three months ended
June 30, 2001) was placed into reserves. Future distributions to BUC Holders
will depend upon the amount of base and contingent interest received on the
mortgage bonds, the size of the reserves established by the Partnership and
the extent to which withdrawals are made from reserves.
The Partnership believes that cash provided by interest income from its
tax-exempt bonds and other investments, supplemented, if necessary, by
withdrawals from its reserve, will be adequate to meet its projected
short-term and long-term liquidity requirements, including the payments of
distributions to BUC Holders.
The Partnership is pursuing an investment strategy whereby it is investing in
additional tax-exempt mortgage bonds and related investments and financing
such acquisitions through the sale of senior interests in its tax-exempt
mortgage bonds. By acquiring additional investments, AFCA 2 hopes to: (i)
increase the amount of tax-exempt interest available for distribution to BUC
holders, (ii) reduce risk through increased asset diversification and (iii)
achieve improved economies of scale. By financing the acquisition of
additional investments through the sale of senior interests in its tax-exempt
bonds, the Partnership foregoes a portion of the interest it earns on its
tax-exempt bonds, but reinvests the sale proceeds in instruments which are
expected to generate a greater amount of interest income. To the extent the
Partnership sells such senior interests and is unable to reinvest the proceeds
in investments that generate interest at least as great as the interest paid
on the senior interests, the amount of interest income available to the
Partnership will decline. AFCA 2 is unable to estimate the amount of
additional tax-exempt mortgage bonds and other investments that the
Partnership may acquire and there can be no assurance that the Partnership
will be able to achieve any of the goals stated above.
In keeping with its investment strategy, in May 2001, the Partnership entered
into a Standby Reimbursement Agreement guaranteeing reimbursement of sums up
to $12,727,751 as part of a plan to acquire certain securities representing an
interest in tax-exempt mortgage bonds secured by the Lake Forest Apartments
which total $12,375,000. In connection with the Standby Reimbursement
Agreement the Partnership pledged $3,900,000 of its other tax-exempt bonds (of
which $900,000 was acquired on April 6, 2001) and $4,000,000 of Primary Trust
Certificates related to the Northwoods Lake Apartments tax-exempt mortgage
bonds as security. This Standby Reimbursement Agreement is expected to
terminate on or about December 1, 2001 in connection with the issuance of
PAGE 10
tax-exempt refunding bonds secured by Lake Forest Apartments. The Partnership
plans to acquire certain securities representing an interest in such
tax-exempt mortgage bonds.
Asset Quality
It is the policy of the Partnership to make a periodic review of the real
estate collateralizing the Partnership's tax-exempt mortgage bonds in order to
assess for impairment the carrying value of the tax-exempt mortgage bonds.
The sole source of funds available for the repayment of principal of the bonds
is the net proceeds from the sale or refinancing of the financed properties,
except for one tax-exempt mortgage bond which requires semiannual payments of
principal and interest out of operating cash flow.
Based on reviews performed during 2001 on the real estate collateralizing the
Partnership's tax-exempt mortgage bonds, no indications of impairment of the
tax-exempt mortgage bonds were noted.
Results of Operations
Comparison of the Three Months Ended June 30, 2001 and June 30, 2000
Mortgage bond investment income increased $228,185 (13%) from $1,792,132 for
the three months ended June 30, 2000 to $2,020,317 for the three months ended
June 30, 2001. Approximately $403,025 of such increase is attributable to the
acquisitions of the Clear Lake Colony Apartments and Bent Tree Apartments
tax-exempt mortgage bonds in June and December 2000, respectively. Also
contributing to the higher income were increases of $85,000 and $4,160 earned
on the Northwoods Lake Apartments and Ashley Square Apartments tax-exempt
mortgage bonds, respectively. Offsetting such additions to income were
decreases of $257,125 from the Arama Apartments bond resulting from the sale
of such bond in September 2000 and $4,633 from the Shoals Crossing tax-exempt
mortgage bond and a net decrease of $2,242 in income earned on certain of the
Partnership's other tax-exempt mortgage bonds.
The $85,000 increase in income earned on the Northwoods Lake Apartments
tax-exempt mortgage bond is attributable to the receipt of past due base
interest received during the three months ended June 30, 2001 on the mortgage
bond that was due to the Partnership prior to the reissuance in 1998. The
Partnership did not receive past due base interest on this mortgage bond
during the comparable period of 2000. Past due base interest payments are a
function of the net cash flow generated by the underlying property. Despite
such variation in net cash flow, the Partnership earned the full amount of
base interest due on this mortgage bond during the three months ended June 30,
2001 and 2000.
The Partnership earned $84,906 of bond investment income during the three
months ended June 30, 2001, on an investment in $3,900,000 of tax-exempt bonds
($3,000,000 of which was acquired in November 2000 and $900,000 of which was
acquired in April 2001). No such income was earned for the comparable period
of 2000 as the Partnership did not have similar investments during such period.
Other interest income increased $42,406 for the three months ended June 30,
2001, compared to the same period in 2000. Such increase is primarily
attributable to an increase in the Partnership's taxable mortgage loans which
are classified as other assets on the Partnership's balance sheet.
The Partnership earned contingent interest income of $6,897 from the Bent Tree
Apartments tax-exempt mortgage bond for the three months ended June 30, 2001,
whereas no such income was earned on any of the Partnership's tax-exempt
mortgage bonds for the comparable period of 2000.
During the three months ended June 30, 2001, the Partnership incurred interest
expense of $566,942 on the $49,210,000 of debt financing obtained in
connection with securitizing certain of its tax-exempt mortgage bonds. For
the comparable period of 2000, the Partnership incurred interest expense of
$340,469 on $38,155,000 of debt financing (of which $16,000,000 was acquired
in June 2000). Accordingly, interest expense increased $226,473 for the three
months ended June 30, 2001, compared to the comparable period of 2000.
PAGE 11
General and administrative expenses for the three months ended June 30, 2001
decreased $89,951 (30%) compared to the same period in 2000. Such decrease is
attributable to decreases of approximately $41,000 in servicing fees, $39,000
in salaries and related expenses and $10,000 in various other general and
administrative expenses.
Comparison of the Six Months Ended June 30, 2001 and June 30, 2000
Mortgage bond investment income increased $1,151,264 (36%) from $3,228,376 for
the six months ended June 30, 2000 to $4,379,640 for the six months ended June
30, 2001. Approximately $1,170,177 of such increase is attributable to the
acquisitions of the Iona Lakes Apartments, Clear Lake Colony Apartments and
Bent Tree Apartments tax-exempt mortgage bonds in March, June, and December
2000, respectively. Also contributing to the higher income were increases of
$164,740 and $8,792 earned on the Northwoods Lake Apartments and Ashley Square
tax-exempt mortgage bonds, respectively. Offsetting such additions to income
were decreases of $167,965 and $21,275 on the Arama Apartments and Woodbridge
Apartments of Bloomington III tax-exempt mortgage bonds, respectively (as more
fully described below), and a net decrease of $3,205 in income earned on
certain of the Partnership's other tax-exempt mortgage bonds.
During the six months ended June 30, 2001, the Partnership earned $346,285 of
mortgage bond investment income on its former investment in the Arama
Apartments tax-exempt mortgage bond. Such income represents the final payment
of past due base interest and principal that the Partnership will receive on
such bond which was sold in September 2000. During the six months ended June
30, 2000, the Partnership recorded mortgage bond investment income of $514,250
on such bond representing the full amount of base interest due for such
period. Accordingly, mortgage bond investment income earned on the Arama
Apartments mortgage bond decreased $167,965 for the six months ended June 30,
2001, compared to the same period in 2000.
The $164,740 increase and $21,275 decrease in income earned on the Northwoods
Lake and Woodbridge Apartments of Bloomington III tax-exempt mortgage bonds,
respectively, are attributable to variations in the amount of past due base
interest received on such mortgage bonds that was due to the Partnership prior
to the reissuances in 1998. Such variations are a function of the net cash
flow generated by the respective underlying property. Despite such variations
in net cash flow, the Partnership earned the full amount of base interest due
on each of these mortgage bonds during the six months ended June 30, 2001
and 2000.
The Partnership earned $146,781 of bond investment income during the six
months ended June 30, 2001, on an investment in $3,900,000 of tax-exempt bonds
of which $3,000,000 was acquired in November 2000 and $900,000 of which was
acquired in April 2001. No such income was earned for the comparable period
of 2000 as the Partnership did not have similar investments during such period.
Other interest income increased $136,656 for the six months ended June 30,
2001, compared to the same period in 2000. Such increase is primarily
attributable to an increase in the Partnership's taxable mortgage loans which
are classified as other assets on the Partnership's balance sheet.
The Partnership earned contingent interest income of $16,897 ($10,000 and
$6,897 from the Ashley Point at Eagle Crest and Bent Tree Apartments
tax-exempt mortgage bonds, respectively, for the six months ended June 30,
2001, whereas no such income was earned on any of the Partnership's tax-exempt
mortgage bonds for the comparable period of 2000.
During the six months ended June 30, 2001, the Partnership incurred interest
expense of $1,129,410 on the $49,210,000 of debt financing obtained in
connection with securitizing certain of its tax-exempt mortgage bonds. For
the comparable period of 2000, the Partnership incurred interest expense of
$402,302 on $38,155,000 of debt financing (of which $17,155,000 and
$16,000,000 were acquired in March and June of 2000, respectively.
Accordingly, interest expense increased $727,108 for the six months ended June
30, 2001, compared to the comparable period of 2000.
General and administrative expenses for the six months ended June 30, 2001
decreased $125,997 (24%) compared to the same period in 2000. Such decrease is
primarily attributable to decreases of approximately $75,000 in salaries and
related expenses, $40,000 in servicing fees and $11,000 in various other
general and administrative expenses.
PAGE 12
New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued Financial
Accounting Standards (FAS) No. 141, "Business Combinations" and FAS No. 142,
"Goodwill and Other Intangible Assets" which provide guidance on how entities
are to account for business combinations and for the goodwill and other
intangible assets that arise from those combinations or are acquired
otherwise. These standards are effective for the Partnership on January 1,
2002. The Partnership presently has no goodwill recorded and, as a result,
the adoption of the new pronouncements is not expected to have a significant
impact on the financial statements.
Forward Looking Statements
This report contains forward looking statements that reflect management's
current beliefs and estimates of future economic circumstances, industry
conditions, the Partnership's performance and financial results. All
statements, trend analysis and other information concerning possible or
assumed future results of operations of the Partnership and the real estate
investments it has made (including, but not limited to, the information
contained in Management's Discussion and Analysis of Financial Condition and
Results of Operations"), constitute forward-looking statements. BUC holders
and others should understand that these forward looking statements are subject
to numerous risks and uncertainties and a number of factors could affect the
future results of the Partnership and could cause those results to differ
materially from those expressed in the forward looking statements contained
herein.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Partnership's primary market risk exposure is interest rate risk related
to its investment portfolio and financing debt. There have been no
significant changes in the Partnership's interest rate risk on its investment
portfolio since December 31, 2000.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following documents are filed as part of this report.
Exhibit numbers refer to the paragraph numbers under Item 601
of Regulation S-K:
3. Articles of Incorporation and Bylaws of America First
Fiduciary Corporation Number Five (incorporated herein by
reference to Form S-11 Registration Statement filed August 30,
1985, with the Securities and Exchange Commission by America
First Tax Exempt Mortgage Fund Limited Partnership (Commission
File No. 2-99997)).
4(a) Form of Certificate of Beneficial Unit Certificate
incorporated by reference to Exhibit 4.1 to Registration
Statement on Form S-4 (Commission File No. 333-50513) filed by
the Registrant on April 17, 1998.
4(b) Agreement of Limited Partnership of the Registrant
(incorporated by reference to Form 10-K dated December 31, 1998
filed pursuant to Section 13 or 15(d) of the Securities Act of
1934 by America First Tax Exempt Investors, L.P. (Commission
File No. 000-24843)).
4(c) Amended Agreement of Merger, dated June 12, 1998,
between the Registrant and America First Tax Exempt Mortgage
Fund Limited Partnership (incorporated by reference to Exhibit
4.3 to Amendment No. 3 to Registration Statement on Form S-4
(Commission File No. 333-50513) filed by the Registrant on
September 14, 1998.
PAGE 13
(b) Reports on Form 8-K
The following report on Form 8-K was filed during the period
covered by this report:
Date of Report Item Reported Financial Statements Filed
-------------- ------------- --------------------------
April 25, 2001 Other Events No
PAGE 14
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 10, 2001 AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
By America First Capital
Associates Limited
Partnership Two, General
Partner of the Registrant
By America First Companies L.L.C.,
General Partner of America First
Capital Associates Limited
Partnership Two
By /s/ Michael Thesing
Michael Thesing
Vice President
and Principal Financial Officer
PAGE 15