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 March 31, 2000 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
Part I. Financial Information
Item 1. Financial Statements
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
BALANCE SHEETS
March 31, 2000
(Unaudited) Dec. 31, 1999
-------------- --------------
Assets
Cash and temporary cash investments, at cost which
approximates market value (Note 4) $ 3,601,911 $ 3,914,863
Investment in tax-exempt mortgage bonds (Note 5) 66,720,000 66,720,000
Investment in tax-exempt mortgage bonds held in a secondary trust,
at estimated fair value (Note 2E and 5) 22,155,000 5,000,000
Interest receivable 652,128 627,379
Other assets 2,398,847 1,727,483
-------------- --------------
$ 95,527,886 $ 77,989,725
============== ==============
Liabilities and Partners' Capital
Liabilities
Accounts payable (Note 6) $ 115,186 $ 242,220
Distribution payable (Note 3) 1,343,144 -
Debt financing 22,155,000 5,000,000
-------------- --------------
23,613,330 5,242,220
-------------- --------------
Partners' Capital
General Partner 4,584 5,980
Beneficial Unit Certificate Holders
($7.30 per BUC in 2000 and $7.29 in 1999) 71,909,972 72,741,525
-------------- --------------
71,914,556 72,747,505
-------------- --------------
$ 95,527,886 $ 77,989,725
============== ==============
The accompanying notes are an integral part of the combined financial statements.
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
COMBINED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
For the Three
For the Three Months Ended
Months Ended March 31, 1999
March 31, 2000 (combined)
-------------- --------------
Income
Mortgage bond investment income $ 1,436,244 $ 1,439,974
Interest income on temporary cash investments 66,817 5,896
Contingent interest income (Note 5) - 19,398
-------------- --------------
1,503,061 1,465,268
Expenses
Interest expense 61,833 -
General and administrative expenses (Note 6) 237,701 241,335
-------------- --------------
299,534 241,335
-------------- --------------
Net income $ 1,203,527 $ 1,223,933
============== ==============
Net income allocated to:
General Partner $ 12,035 $ 16,895
BUC Holders 1,191,492 1,207,038
-------------- --------------
$ 1,203,527 $ 1,223,933
============== ==============
Net income, basic and diluted, per BUC $ .12 $ .12
============== ==============
Weighted average number of BUCs outstanding 9,889,295 9,979,128
============== ==============
The accompanying notes are an integral part of the combined financial statements.
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
STATEMENT OF PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
Beneficial Unit
General Certificate Holders
Partner # of BUCs Amount Total
-------------- --------------- --------------- --------------
Partners' Capital (excluding accumulated other
comprehensive income)
Balance at December 31, 1999 $ 5,980 9,979,128 $ 73,647,525 $ 73,653,505
Net income 12,035 - 1,191,492 1,203,527
Cash distributions paid or accrued (Note 3) (13,431) - (1,329,713) (1,343,144)
Purchase of BUCs (129,400) (693,332) (693,332)
-------------- --------------- -------------- --------------
4,584 9,849,728 72,815,972 72,820,556
-------------- --------------- -------------- --------------
Accumulated Other Comprehensive Income
Balance at December 31, 1999 and March 31, 2000 - - (906,000) (906,000)
-------------- --------------- -------------- --------------
Balance at March 31, 2000 $ 4,584 9,849,728 $ 71,909,972 $ 71,914,556
============== =============== ============== ==============
The accompanying notes are an integral part of the combined financial statements.
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three
For the Three Months Ended
Months Ended March 31, 1999
March 31, 2000 (combined)
-------------- --------------
Cash flows from operating activities
Net income $ 1,203,527 $ 1,223,933
Adjustments to reconcile net income to net cash
from operating activities
Increase in interest receivable (24,749) (63,944)
Decrease in other assets 200 66
Decrease in accounts payable (127,034) (23,159)
-------------- --------------
Net cash provided by operating activities 1,051,944 1,136,896
-------------- --------------
Cash flows used in investing activities
Acquisition of tax-exempt mortgage bond (17,155,000) -
Increase in other assets (671,564) -
Purchase of BUCs (693,332) -
Bond issuance costs paid - (66,301)
-------------- --------------
Net cash used in investing activities (18,519,896) (66,301)
-------------- --------------
Cash flows from financing activities
Proceeds from debt financing 17,155,000 -
Distributions paid - (1,365,640)
-------------- --------------
Net cash provided by financing activities 17,155,000 (1,365,640)
-------------- --------------
Net decrease in cash and temporary cash investments (312,952) (295,045)
Cash and temporary cash investments at beginning of period 3,914,863 920,801
-------------- --------------
Cash and temporary cash investments at end of period $ 3,601,911 $ 625,756
============== ==============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 66,593 $ -
============== ==============
Supplemental disclosure of non-cash investing activity:
During the three months ended March 31, 1999, the tax-exempt mortgage bond
secured by Shoals Crossing with a principal balance of $4,500,000 was
refinanced by its local housing finance authority. The bond held by the
Partnership was terminated and a new bond in the same principal amount was
issued to the Partnership.
Supplemental disclosure of non-cash financing activity:
As more fully described in Notes 2(E) and 5(8), on March 28, 2000, the
Partnership securitized $17,155,000 of tax-exempt mortgage bonds on Iona Lakes
Apartments 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 a residual interest
therein. This arrangement has been accounted for as a financing transaction.
In connection with the February 1, 1999, merger of the Partnership and America
First Tax Exempt Mortgage Fund Limited Partnership (the Prior Partnership)
described in Note 1 to the financial statements, unit holders of the Prior
Partnership received one Beneficial Unit Certificate (BUC) of the Partnership
for each BUC they held in the Prior Partnership as of the record date.
The accompanying notes are an integral part of the combined financial
statements.
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
1. Organization
America First Tax Exempt Investors, L.P. (the New Partnership) 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 New Partnership commenced operations on February 1, 1999,
when it was merged with America First Tax Exempt Mortgage Fund Limited
Partnership (the Prior Partnership). Under the terms of the merger agreement,
the New Partnership was the surviving partnership and effectively took over
the operations of the Prior Partnership as of that date. Unit holders of the
Prior Partnership received one Beneficial Unit Certificate (BUC) of the New
Partnership for each BUC they held in the Prior Partnership as of the record
date. The Prior Partnership was terminated under the provisions of the Prior
Partnership's Partnership Agreement. The New Partnership will terminate on
December 31, 2050, unless terminated earlier under the provisions of its
Partnership Agreement. The General Partner of both the Prior Partnership and
the New Partnership is America First Capital Associates Limited Partnership
Two (AFCA 2). The New Partnership and the Prior Partnership are collectively
referred to as the Partnership.
2. Summary of Significant Accounting Policies
A)Financial Statement Presentation
The accompanying 2000 financial statements include the accounts of the New
Partnership. The accompanying 1999 financial statements include the
combined accounts of the New Partnership from February 1, 1999 (the Merger
Date), through March 31, 1999, and the accounts of the Prior Partnership
from January 1, 1999 until the Merger Date. The combination of the
accounts of the Prior Partnership and the New Partnership is reflected on
an "as-if" pooling basis for a merger of entities under common control.
The financial statements of the Partnership are prepared without audit on
the accrual basis of accounting in accordance with generally accepted
accounting principles. 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, 1999. In the opinion of management, all normal and recurring
adjustments necessary to present fairly the financial position at
March 31, 2000, and results of operations for all periods presented have
been made.
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
B) Investment in Tax-Exempt Mortgage Bonds
Investment securities are classified as held-to-maturity, available-for-
sale or trading. Investments classified as available-for-sale are reported
at fair value with any unrealized gains or losses excluded from earnings
and reflected in other comprehensive income. Subsequent increases and
decreases in the net unrealized gain/loss on available-for-sale securities
are reflected as adjustments to the carrying value of the portfolio and in
other comprehensive income. The Partnership does not have investment
securities classified as held-to-maturity or trading.
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
Because 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, the carrying value of the bonds reflects
management's estimate of the aggregate fair value of the financed
properties. The carrying value of tax-exempt mortgage bonds is
periodically reviewed and adjusted when there are significant changes in
the estimated fair value of the underlying collateral for the tax-exempt
mortgage bonds.
Mortgage bond investment income is recognized as earned.
C)Income Taxes
No provision has been made for income taxes since the Beneficial Unit
Certificate (BUC) Holders are required to report their share of the
Partnership's taxable income for federal and state income tax purposes.
D)Temporary Cash Investments
Temporary cash investments are invested in federally tax-exempt securities
purchased with an original maturity of three months or less.
E)Debt Financing
The Partnership securitized $5,000,000 of its Northwoods Lake Apartments
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 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 5 (5)).
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
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
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.
(Also see Note 5 (8)).
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 bonds. Accordingly, the $5,000,000 and $17,155,000
of tax-exempt mortgage bonds financed are restricted to be held in trust,
the subordinated interest is 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 both transactions, the financing
debt bears interest, plus credit enhancement, servicing, trustee and
related fees, at a weekly floating bond rate which averaged approximately
3.90% for the three month period ended March 31, 2000. The stated
maturity date is September 2025 for the $5,000,000 of debt financing and
April 2030 for the $17,155,000 of debt financing, and, in each case, is
subject to the respective call feature described above. The Partnership
did not recognize a gain or loss in connection with either of the
financing transactions.
F)Net Income per BUC
Net income per BUC has been calculated based on the weighted average
number of BUCs outstanding during each period presented.
G)New Accounting Pronouncement
In June, 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). This statement provides
new accounting and reporting standards for the use of derivative
instruments. Adoption of this statement, as amended, is required by the
Partnership effective January 1, 2001. Management is currently evaluating
the effects of adopting this statement.
3. Partnership Income, Expenses and Cash Distributions
The Partnership Agreement contains provisions for the distribution of Net
Interest Income and Net Residual Proceeds and for the allocation of income and
expenses for tax purposes among AFCA 2 and BUC Holders.
Cash distributions included in the financial statements represent the actual
cash distributions made during each period and the cash distributions accrued
at the end of each period.
4. Partnership Reserve Account
The Partnership maintains a reserve account which totaled $3,365,053 at
March 31, 2000. The reserve account was established to maintain working
capital for the Partnership and is available to supplement distributions to
BUC Holders or for any other contingencies related to the ownership of the
mortgage bonds and the operation of the Partnership.
On December 20, 1999, management announced its intent to utilize a portion of
the reserve account to purchase up to a total of 200,000 BUCs of the
Partnership in open market transactions. Through March 31, 2000, 129,400 BUCs
had been acquired and cancelled at a cost of $693,332.
5. Investment in Tax-Exempt Mortgage Bonds
Descriptions of the tax-exempt mortgage bonds owned by the Partnership at
March 31, 2000, are as follows:
Base
Number Maturity Interest
Property Name Location of Units Date Rate
- --------------------------------- ----------------- -------- -------- ---------
Arama Apartments Miami, FL 293 07/01/10 8.5% (1)
Woodbridge Apts. of Bloomington III (6) Bloomington, IN 280 12/01/27 7.5% (2)
Shoals Crossing Atlanta, GA 176 12/01/25 7.5% (2)
Ashley Pointe at Eagle Crest Evansville, IN 150 12/01/27 7.0% (2)
Woodbridge Apts. of Louisville II (7) Louisville, KY 190 12/01/27 7.5% (2)
Northwoods Lake Apartments (5) Duluth, GA 492 09/01/25 7.5% (2)
Ashley Square Des Moines, IA 144 12/01/09 7.5% (3)
Iona Lakes Apartments (8) Ft. Myers, FL 350 04/01/30 6.9% (4)
(1) In addition to the base interest rate shown, the bond bears additional
contingent interest, as defined in the revenue note, which, when combined with
the base interest, is limited to a cumulative, noncompounded amount not
greater than 12% per annum. The Partnership did not receive additional
contingent interest during the three months ended March 31, 2000.
(2) In addition to the base interest rates shown, the bonds bear additional
contingent interest, as defined in each revenue note, of an additional 3.5% per
annum that is payable out of 50% (100% in the case of Shoals Crossing, Ashley
Pointe at Eagle Crest and Northwoods Lake Apartments) of the net cash flow
generated by the respective property. The Partnership did not receive
additional contingent interest from any such bonds during the three months
ended March 31, 2000.
(3) In addition to the base interest rate shown, the bond bears additional
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 additional contingent interest during the
three months ended March 31, 2000.
(4) In addition to the base interest rate shown, the bond bears
additional contingent interest, as defined in the revenue note, of an
additional 2.6% per annum payable out of the net cash flow generated by the
property. Past due unpaid contingent interest compounds at a rate of 9.5% per
annum.
(5) Tax-exempt mortgage bonds of $25,250,000 have been deposited with a trust
(the Primary Trust as described in Note 2 (E)). The Partnership also pledged
Primary Trust Certificates representing a beneficial interest in $5,300,000
and $2,000,000 in principal amount of such bonds as described in (6) and (7)
below, respectively.
(6) Tax-exempt bonds of $12,600,000, in addition to the $5,300,000 of Primary
Trust Certificates described in (5) above, have been pledged as additional
security to the beneficial owner of the tax-exempt mortgage bonds as described
in (8) below.
(7) Tax-exempt bonds of $8,976,000, in addition to the $2,000,000 of Primary
Trust Certificates described in (5) above, have been pledged as security for a
reimbursement obligation regarding a $16,330,000 letter of credit. Such
letter of credit was issued for the benefit of the purchaser of Clear Lake
Colony Apartments (the Project) located in West Palm Beach, Florida as part of
a plan by the Partnership to acquire certain securities representing an
interest in tax-exempt bonds secured by the Project which are anticipated to
be issued on or around June 30, 2000. Pending issuance of such bonds and
certain other events, the Partnership's obligations under the reimbursement
obligation will cease and the $8,976,000 of tax-exempt mortgage bonds and
$2,000,000 of Primary Trust Certificates will be released from such pledge.
However, upon issuance of the new bonds, the Partnership anticipates that
substantially all of these securities will be pledged as collateral to the
beneficial owner of the new bonds.
(8) Tax-exempt bonds of $17,155,000 secured by this property were acquired by
the Partnership on March 28, 2000. Such bonds have been deposited with a
custodian as described in Note 2 (E). Also see (5) and (6) above.
The Partnership classified its investment in tax-exempt mortgage bonds as
available-for-sale. At March 31, 2000, the total amortized cost, gross
unrealized holding losses and aggregate fair value of available-for-sale
securities were $89,781,000, $906,000 and $88,875,000, respectively. At
December 31, 1999, the total amortized cost, gross unrealized holding losses
and aggregate fair value of available-for-sale securities were $72,626,000,
$906,000, and $71,720,000 respectively.
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 the three months ended March 31, 2000 was
$366,352. The reimbursed expenses are presented on a cash basis and do not
reflect accruals made at quarter end.
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 bond or other
mortgage investment, unless the owner of the property financed by such
tax-exempt 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 the three months ended
March 31, 2000. The Partnership may become obligated to pay administrative
fees to AFCA 2 in the event it acquires additional tax-exempt 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 bonds by reason of foreclosure. AFCA 2
received administrative fees of $64,682 during the three months ended March
31, 2000, from the owners of properties financed by the tax-exempt 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 bonds secured by
these properties.
In addition, 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.
AFCA 2 earned a mortgage placement fee of $171,550 in connection with the
acquisition of the Iona Lakes Apartments tax-exempt mortgage bond. The
mortgage placement fee was paid by the owner of Iona Lakes Apartments. Since
such fee is not an expense of the Partnership, it has not been reflected in
the accompanying financial statements.
An affiliate of AFCA 2 was retained to provide property management services
for Ashley Square, Northwoods Lake Apartments, Ashley Pointe at Eagle Crest
and Shoals Crossing. 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 $75,582 during the three months ended March 31, 2000.
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.
7. Commitments and Contingencies
As more fully described in Note 5, the Partnership has pledged $10,976,000 of
tax-exempt mortgage bonds and Primary Trust Certificates as collateral for a
letter of credit in the amount of $16,330,000.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Capital Resources
On February 1, 1999, America First Tax Exempt Investors, L.P. (the New
Partnership) commenced operations when it merged with America First Tax Exempt
Mortgage Fund Limited Partnership (the Prior Partnership). Under the terms of
the merger agreement, the New Partnership was the surviving partnership and
effectively took over the operations of the Prior Partnership as of that
date. Unit holders of the Prior Partnership received one Beneficial Unit
Certificate (BUC) of the New Partnership for each BUC they held in the Prior
Partnership as of the record date. The Prior Partnership was terminated under
the provisions of the Prior Partnership's Partnership Agreement. The General
Partner of both the Prior Partnership and the New Partnership is America First
Capital Associates Limited Partnership Two (AFCA 2). The New Partnership and
the Prior Partnership are collectively referred to as the Partnership.
The Partnership's primary capital resource consists of eight tax-exempt
mortgage bonds which were issued to the Partnership in order to provide
construction and/or permanent financing for the eight multifamily housing
projects listed in the following table:
At March 31, 2000
-----------------------------
Number Percentage
Number of Units of Units
Property Name Location of Units Occupied Occupied
- ------------------------------------- ------------------ -------------- -------------- --------------
Woodbridge Apts. of Bloomington III Bloomington, IN 280 235 84%
Ashley Pointe at Eagle Crest Evansville, IN 150 147 98%
Woodbridge Apts. of Louisville II Louisville, KY 190 166 87%
Northwoods Lake Apartments Duluth, GA 492 476 97%
Shoals Crossing Atlanta, GA 176 172 98%
Ashley Square Des Moines, IA 144 140 97%
Arama Apartments Miami, FL 293 284 97%
Iona Lakes Apartments Ft. Myers, FL 350 334 95%
-------------- -------------- --------------
2,075 1,954 94%
============== ============== ==============
The aggregate carrying value of the tax-exempt bonds at March 31, 2000 was
$88,875,000. The Partnership has securitized $22,155,000 of its tax-exempt
bonds as described herein. Because 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, the carrying value of the bonds
reflects the general partner's estimate of the aggregate fair value of the
financed properties.
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 amount of the
bonds does not amortize over their respective terms.
Tax-exempt interest earned on the 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 Three
For the Three Months Ended
Months Ended March 31, 1999
March 31, 2000 (combined)
-------------- --------------
Cash distributions
Income $ .1350 $ .1350
============== ==============
Distributions
Paid out of current and prior undistributed cash flow $ .1350 $ .1350
============== ==============
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 March 31, 2000, the amount held by the Partnership in
the reserve was $3,365,053. During the quarter ended March 31, 2000, a net
amount of undistributed income totaling $139,617 was withdrawn from 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. Income from the tax-exempt mortgage bond
secured by Arama Apartments is expected to be substantially reduced beginning
in the latter part of the year 2000. Since 1986, Arama Apartments has been
receiving rent subsidies from the Department of Housing and Urban Development
and it is expected that these subsidies will be significantly reduced in 2000.
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 bonds
and/or by issuing additional BUCs. 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, on March 28, 2000, the Partnership
acquired $17,155,000 of tax-exempt mortgage bonds (the Iona Bonds) secured by
Iona Lakes Apartments located in Ft. Meyers, Florida. The Partnership
securitized the Iona Bonds by depositing them 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 Iona Bonds. As described in Note 2 (E) to the
financial statements, this arrangement has been accounted for as a financing
transaction and, in effect, provides variable-rate financing to the
Partnership.
During the three months ended March 31, 2000, the Partnership purchased and
cancelled 129,400 BUCs in open market transactions at a cost of $693,332.
Asset Quality
It is the policy of the Partnership to make a periodic review of the real
estate collateralizing the Partnership's mortgage bonds in order to adjust,
when necessary, the carrying value of the mortgage bonds. Because 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, the
carrying value of the bonds reflects the general partner's estimate of the
aggregate fair value of the financed properties. The fair value is based on
discounted estimated future cash flows. The carrying value of the mortgage
bonds is periodically reviewed and adjustments are made when there are
significant changes in the estimated fair value of the underlying collateral
of the mortgage bonds.
Based on the foregoing methodology, internal valuations and reviews performed
during the three months ended March 31, 2000 indicated that the carrying value
of the Partnership's investment in tax-exempt mortgage bonds recorded on the
balance sheet at March 31, 2000, required no adjustment.
The overall status of the Partnership's other mortgage bonds has generally
remained constant since December 31, 1999.
Results of Operations
The table below compares the results of operations for each period shown.
For the Three
For the Three Months Ended Increase
Months Ended March 31, 1999 (Decrease)
March 31, 2000 (combined) From 1999
-------------- -------------- --------------
Mortgage bond investment income $ 1,436,244 $ 1,439,974 $ (3,730)
Interest income on temporary cash investments 66,817 5,896 60,921
Contingent interest income - 19,398 (19,398)
-------------- -------------- --------------
1,503,061 1,465,268 37,793
Interest expense 61,833 - 61,833
General and administrative expenses 237,701 241,335 (3,634)
-------------- -------------- --------------
Net income $ 1,203,527 $ 1,223,933 $ (20,406)
============== ============== ==============
UPDATE
Although mortgage bond investment income on individual tax-exempt mortgage
bonds fluctuated as described below, total mortgage bond investment income
earned for the three months ended March 31, 2000, approximated that of the
same period of 1999. During the three months ended March 31, 2000, and March
31, 1999, the Partnership recognized the full amount of base interest due on
five of its seven tax-exempt mortgage bonds held during the respective
periods. However, the remaining two tax exempt bonds, which are secured by
Shoals Crossing and Ashley Square, did not generate cash flow sufficient to
pay base interest in either 2000 or 1999. For the three months ended March
31, 2000 and March 31, 1999, such shortfalls totaled approximately $54,000 and
$103,000, respectively. Offsetting the shortfalls in 2000 was approximately
$19,000 of past due base interest received from the prior Woodbridge
Apartments of Bloomington III (Bloomington) tax-exempt bonds. This compares
to past due base interest totaling approximately $65,000 received for the same
period in 1999 from the prior Bloomington, Woodbridge Apartments of Louisville
III (Louisville) and Northwoods Lake Apartments (Northwoods) tax-exempt
mortgage bonds. Thus, the variance between base interest shortfalls and past
due interest received was $35,000 in 2000 compared to $38,000 in 1999, a
difference of $3,000, which substantially accounts for the $4,000 decrease in
total mortgage bond investment income from 1999 to 2000. "Prior bonds"
described above refer to tax-exempt bonds owned by the Partnership and secured
by these properties before their reissuance in 1998 and 1999.
Interest income on temporary cash investments increased for the three months
ended March 31, 2000, compared to the three months ended March 31, 1999. Such
increase is attributable to the investment of cash proceeds resulting from $5
million in debt financing obtained in August 1999.
The decrease in contingent interest income for the three months ended March
31, 2000, compared to the same period in 1999 is attributable to a reduction
in net operating income generated by the Arama Apartments.
During the three months ended March 31, 2000, the Partnership incurred
interest expense of $61,833 on the $5,000,000 of debt financing obtained in
August 1999 in connection with securitizing $5,000,000 of its tax-exempt
mortgage bonds. The Partnership had no such financing prior to August 1999
and therefore incurred no interest expense for the quarter ended March 31,
1999.
General and administrative expenses incurred for the three months ended March
31, 2000 decreased slightly compared to the same period in 1999. Such decrease
is attributable to (i) costs of approximately $12,000 incurred in 1999 in
connection with the Merger and (ii) net decreases of $5,000 in a number of the
Partnership's general and administrative expenses, partially offset by (iii)
an increase of approximately $13,000 in salaries and related expenses.
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, 1999. However, in March 2000, the Partnership
significantly increased its financing debt through the acquisition of a
$17,155,000 tax-exempt mortgage bond which was effectively financed with
variable-rate debt as more fully described under Liquidity and Capital
Resources.
At March 31, 2000, the Partnership had total debt financing with a principal
amount of and fair value of $22,155,000. The weighted average interest rate
of the variable-rate financing was 4.09% at March 31, 2000.
The tax-exempt bonds secured by the $5,000,000 of financing debt have a stated
maturity of September 2025 and the tax-exempt bonds secured by the $17,155,000
of financing debt have a stated maturity of April 2030. However, the
Partnership has the right to collapse each of the financing transactions at
any time.
As the above discussion incorporates only new positions or exposures since
December 31, 1999, and that existed as of March 31, 2000, it does not consider
those exposures or positions that could arise after March 31, 2000. Moreover,
because future commitments are not discussed above, the information presented
has limited predictive value. As a result, the Partnership's ultimate
economic impact with respect to interest rate fluctuations will depend on the
exposures that arise during the period, the Partnership's risk mitigating
strategies at that time and interest rates.
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.
27. Financial Data Schedule.
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during
the period covered by this report.
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: May 11, 2000 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