UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2006
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number:
000-24843
AMERICA FIRST TAX EXEMPT
INVESTORS, L.P.
(Exact name of registrant as
specified in its Agreement of Limited Partnership)
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Delaware
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47-0810385
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1004 Farnam Street,
Suite 400
Omaha, Nebraska
(Address of principal
executive offices)
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68102
(Zip Code)
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(402) 444-1630
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
Beneficial Unit Certificates representing assignments of
limited partnership interests in
America First Tax Exempt Investors, L.P. (the
BUCs)
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15
(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports, and (2) has been subject
to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§229.405 of the chapter) is not contained herein, and will
not be contained, to the best of the registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or non-accelerated
filer. See definition of accelerated filer and larger
accelerated in
Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated
filer o Accelerated
filer o Non-accelerated
filer þ
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act. o
The aggregate market value of the registrants BUCs held by
non-affiliates based on the final sales price of the BUCs on the
last business day of the registrants most recently
completed second fiscal quarter was $73,095,805.
DOCUMENTS
INCORPORATED BY REFERENCE
None
PART I
Forward-Looking
Statements
This report (including, but not limited to, the information
contained in Managements Discussion and Analysis of
Financial Condition and Results of Operations) contains
forward-looking statements that reflect managements
current beliefs and estimates of future economic circumstances,
industry conditions, the Partnerships performance and
financial results. All statements, trend analysis and other
information concerning possible or assumed future results of
operations of the Partnership and the investments it has made
constitute forward-looking statements. Beneficial Unit
Certificate (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. These factors
include general economic and business conditions such as the
availability and credit worthiness of prospective tenants, lease
rents, operating expenses, the terms and availability of
financing for properties financed by the tax-exempt mortgage
revenue bonds owned by the Partnership, adverse changes in the
real estate markets from governmental or legislative forces,
lack of availability and credit worthiness of counter parties to
finance future acquisitions and interest rate fluctuations and
other items discussed under Risk Factors in
Item 1 of this report.
America First Tax Exempt Investors, L.P. (the
Partnership) was formed on April 2, 1998 under
the Delaware Revised Uniform Limited Partnership Act for the
purpose of acquiring, holding, selling and otherwise dealing
with a portfolio of federally tax-exempt mortgage revenue bonds
which have been issued to provide construction
and/or
permanent financing of multifamily residential properties.
Interest on these bonds is excludable from gross income for
federal income tax purposes. As a result, most of the income
earned by the Partnership is exempt from federal income taxes.
As of December 31, 2006, the Partnership owned 13
tax-exempt mortgage revenue bonds which were issued to finance
10 apartment properties located in the states of Florida,
Indiana, Iowa, South Carolina, Texas, Nebraska and Kentucky
containing a total of 2,052 rental units, a
144-unit
multifamily apartment complex under construction in Texas and a
142-bed student housing facility in Nebraska. Each of these
mortgage revenue bonds provides for the payment of fixed-rate
interest to the Company. Additionally, 10 of the 13 bonds also
provide for the payment of contingent interest based upon net
cash flow and net capital appreciation of the underlying real
estate properties. As a result, these mortgage revenue bonds
provide the Company with the potential to participate in future
increases in the cash flow generated by the financed properties,
either through operations or from their ultimate sale. Nine of
the 12 properties which collateralize the bonds owned by the
Partnership are managed by America First Properties Management
Company L.L.C., an affiliate of the Partnership. Management
believes that this relationship provides greater insight and
understanding of the underlying property operations and the
propertys ability to meet debt service requirements to the
Partnership.
The amount of interest income earned by the Partnership from its
investment in tax-exempt mortgage revenue bonds is a function of
the net operating income generated by the properties
collateralizing the tax-exempt mortgage revenue bonds. Net
operating income from a multifamily residential property depends
on the rental and occupancy rates of the property and the level
of operating expenses. Occupancy rates and rents are directly
affected by the supply of, and demand for, apartments in the
market areas in which a property is located. This, in turn, is
affected by several factors such as local or national economic
conditions, the amount of new apartment construction and
interest rates on single-family mortgage loans. In addition,
factors such as government regulation, inflation, real estate
and other taxes, labor problems and natural disasters can affect
the economic operations of a property. Therefore, the return to
the Partnership depends upon the economic performance of the
multifamily residential properties which collateralize the
tax-exempt mortgage revenue bonds. For this reason, the
Partnerships investments are dependent on the economic
performance of such real estate and may be considered to be in
competition with other income-producing real estate of the same
type in the same geographic areas.
1
The Partnership may invest in other types of tax-exempt
securities that may or may not be secured by real estate. These
tax-exempt securities must be rated in one of the four highest
rating categories by at least one nationally recognized
securities rating agency and may not represent more than 25% of
our assets at the time of acquisition. The Partnership may also
make taxable mortgage loans secured by multifamily properties
which were financed by tax-exempt mortgage revenue bonds that we
hold. The Partnership generally does not seek to acquire direct
interests in real property as long term or permanent
investments. The Partnership may, however, look to acquire
direct interests in real property in order to position itself
for a future investment in tax exempt bonds. Additionally, it
may acquire apartment complexes securing its revenue bonds or
taxable mortgage loans through foreclosure in the event of a
default. The Partnership does not currently own a direct
interest in any real properties.
Business
Objectives and Strategy
Overview
The Partnership was formed for the primary purpose of acquiring,
holding, selling and otherwise dealing with a portfolio of
federally tax-exempt mortgage revenue bonds which have been
issued to provide construction
and/or
permanent financing of multifamily residential apartments. The
Partnerships business objectives are to: (i) preserve
and protect its capital; (ii) provide regular cash
distributions to BUC holders; and (iii) provide a potential
for an enhanced federally tax-exempt yield as a result of a
participation interest in the net cash flow and net capital
appreciation of the underlying real estate properties financed
by the tax-exempt mortgage revenue bonds.
We are pursuing a business strategy of acquiring additional
tax-exempt mortgage revenue bonds on a leveraged basis in order
to (i) increase the amount of tax-exempt interest available
for distribution to our shareholders; (ii) reduce risk
through asset diversification and interest rate hedging; and
(iii) achieve economies of scale. We are pursuing this
growth strategy by investing in additional tax-exempt mortgage
revenue bonds and related investments, taking advantage of
attractive financing structures available in the tax-exempt
securities market and entering into interest rate risk
management instruments. We may finance the acquisition of
additional tax-exempt mortgage revenue bonds through the
reinvestment of cash flow, the issuance of additional BUCs, or
securitization financing using our existing portfolio of
tax-exempt mortgage revenue bonds. Our operating policy is to
use securitizations or other forms of leverage to maintain a
level of debt financing between 40% and 60% of the total market
value of our assets.
In connection with our growth strategy, we are also assessing
opportunities to reposition our existing portfolio of tax-exempt
mortgage revenue bonds. The principal objective of this
repositioning initiative is to improve the quality and
performance of our revenue bond portfolio and, ultimately,
increase the amount of cash available for distribution to our
shareholders. In some cases, we may elect to redeem selected
tax-exempt bonds that are secured by multifamily properties that
have experienced significant appreciation. Through the selective
redemption of the bonds, a sale or refinancing of the underlying
property will be required which, if sufficient sale or
refinancing proceeds exist, will entitle the Company to receive
payment of accrued contingent interest on its bond investment.
In other cases, we may elect to sell bonds on properties that
are in stagnant or declining markets. The proceeds received from
these transactions would be redeployed into other tax-exempt
investments consistent with our investment objectives. We may
also be able to use a higher-quality investment portfolio to
obtain higher leverage to be used to acquire additional
investments.
Another goal of our repositioning strategy is to allow for the
preparation of financial statements that more accurately reflect
the nature of the Company as a tax-exempt bond fund rather than
as an owner of apartment properties. As of December 31,
2006, generally accepted accounting principles, in particular
Financial Accounting Standards Board (FASB)
Interpretation No. 46R (FIN 46R), require
us to present the financial results of eight of the properties
financed with tax-exempt bonds owned by us on a consolidated
basis with our financial results. The consolidation of
underlying apartment properties under FIN 46R results
mainly from the participation interest in the net cash flow and
net capital appreciation from the payment of both base interest
and contingent interest under the mortgage revenue bonds issued
to finance the consolidated properties. By repositioning the
investment portfolio into tax-exempt mortgage bonds which do not
result in consolidation of the underlying property, we will be
able to present our financial results in what we believe is a
more understandable and transparent manner.
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In executing our growth strategy, we expect to invest primarily
in bonds issued to provide affordable rental housing, but may
also consider bonds issued to finance student housing projects
and housing for senior citizens. The four basic types of
multifamily housing revenue bonds which we may acquire as
investments are as follows:
1. Private activity bonds issued under Section 142(d)
of the Internal Revenue Code of 1986, as amended (the
Code);
2. Bonds issued under Section 145 of the Code by
not-for-profit
entities qualified under Section 501(c) 3 of the Code;
3. Essential function bonds issued by a public
instrumentality to finance an apartment property owned by such
instrumentality; and
4. Existing 80/20 bonds that were issued under
section 103(b)(4)(A) of the Internal Revenue Code of 1954.
Each of these bond structures permits the issuance of tax-exempt
bonds to finance the construction or acquisition and
rehabilitation of affordable rental housing. Under applicable
Treasury Regulations, any affordable apartment project financed
with tax-exempt bonds must set aside a percentage of its total
rental units for occupancy by tenants whose incomes do not
exceed stated percentages of the median income in the local
area. In each case, the balance of the rental units in the
apartment project may be rented at market rates. With respect to
private activity bonds issued under Internal Revenue Code (the
Code) Section 142(d), the owner of the
apartment project may elect, at the time the bonds are issued,
whether to set aside a minimum of 20% of the units for tenants
making less than 50% of area median income (as adjusted for
household size) or 40% of the units for tenants making less than
60% of the area median income (as adjusted for household size).
Multifamily housing bonds that were issued prior to the Tax
Reform Act of 1986 (so called 80/20 bonds) require
that 20% of the rental units be set aside for tenants whose
income does not exceed 80% of the area median income, without
adjustment for household size.
We expect that many of the private activity housing bonds that
we evaluate for acquisition will be issued in conjunction with
the syndication of Low Income Housing Tax Credits under
Section 42 of the Code (LIHTCs) by the owner of
the financed apartment project. Additionally, we may acquire
direct ownership interests in properties with the ultimate goal
of restructuring the property ownership through a syndication of
LIHTCs with the Partnership providing the debt financing to the
new ownership.
Effect
of Adoption of FIN 46R on Financial Reporting
The Partnership adopted FASB Interpretation No. 46,
Consolidation of Variable Interest Entities an
interpretation of ARB 51 (FIN 46R) as of
January 1, 2004 and, as a result, it is now required to
consolidate the assets, liabilities, results of operations and
cash flows of certain entities that meet the definition of a
variable interest entity (VIE) into the
Partnerships financial statements. Management has
determined that all but four of the entities which own
multifamily apartment properties financed by the
Partnerships tax-exempt mortgage revenue bonds are VIEs of
the Partnership. Because management determined that the
Partnership is the primary beneficiary of each of these VIEs
pursuant to the terms of each tax-exempt mortgage revenue bond
and the criteria within FIN 46R, the Partnership
consolidated the assets, liabilities and results of operations
of these VIEs multifamily properties into the
Partnerships financial statements. Transactions and
accounts between the Partnership and the consolidated VIEs,
including the indebtedness underlying the tax-exempt mortgage
bonds secured by the properties owned by the VIEs, have been
eliminated in consolidation. Because each of the consolidated
VIEs was created before January 1, 2004, the assets and
liabilities of the VIEs have initially been measured at their
carrying amounts with the net amount added to the
Partnerships balance sheet being recognized as the
cumulative effect of a change in accounting principle in the
consolidated statement of operations. A $38.0 million loss
was recorded as of January 1, 2004 from the cumulative
effect of the change in accounting principle as a result of
recording the net deficit allocable to the Partnerships
variable interest in the VIEs.
All financial information in this
Form 10-K
presented on the basis of Generally Accepted Accounting
Principles in the United States of America (GAAP), is that of
the Partnership and the VIEs on a consolidated basis. We refer
to the Partnership and the consolidated VIEs throughout this
Form 10-K
as the Company. We refer to the Partnership as a
stand-alone entity without consolidation of the VIEs as the
Partnership.
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Financing
Strategy
We have financed acquisitions of additional revenue bonds
through a securitization transaction offered through the Merrill
Lynch proprietary residual interest tax-exempt securities and
puttable floating option tax-exempt receipts P-Float
program. In a securitization transaction, we deposit a
tax-exempt mortgage revenue bond into a trust which issues two
types of securities, senior securities (P-Floats)
and subordinated residual interest securities
(RITES). The P-Floats are floating-rate securities
representing a beneficial ownership interest in the outstanding
principal and interest of the tax-exempt mortgage revenue bond
credit-enhanced by Merrill Lynch (or a Merrill Lynch affiliate)
and sold to institutional investors. We receive the net proceeds
from the sale of the P-Floats and may use these funds to make
additional investments. The RITES are issued to us and represent
a beneficial ownership interest in the remaining interest on the
underlying tax-exempt mortgage revenue bond. We maintain a call
option on the senior P-Float securities and this allows us to
collapse the trusts and retain a level of control over the
underlying revenue bond. The call price of a P-Float is equal to
its par amount plus 10% of any increase in the market value of
the underlying revenue bonds. We account for these transactions
as secured borrowings, and they, in effect, provide us with
variable-rate financing. Accordingly, we record these senior
certificates as debt financing, the revenue bonds as investment
securities held in trust, and the RITES as investment securities.
Recent
Developments
On August 24, 2006, we sold our beneficial interest in
Northwood Lakes Apartments Multifamily Housing Revenue Refunding
Bonds, Series 2004B to Northwoods Lake Partners, LLC at par
value plus accrued interest resulting in total proceeds to the
Partnership of approximately $6.1 million. The property
financed by our mortgage revenue bonds, Northwood Lakes
Apartments in Duluth, Georgia, was required to be consolidated
into our financial statements under FIN 46R. Immediately
preceding the sale of our Series B Bonds, the owner of the
property completed the sale of the property, resulting in
approximately $4.3 million of net cash proceeds. These net
proceeds realized from the sale of the property were applied by
the property owner against accumulated tax-exempt contingent
interest earned by us on our bonds. The sale of the bonds plus
the receipt of accumulated contingent interest resulted in total
cash to us of approximately $10.4 million. The sale of the
bonds did not result in a taxable gain to the Partnership. In
order to properly reflect the transaction under FIN 46R,
the Company recorded the sale of the property in 2006 as though
it was owned by the Company. As such, the Company recorded a
GAAP gain on the sale of the property of $11.7 million.
In April 2006, we acquired $6.8 million of tax-exempt
revenue bonds issued to provide construction and permanent
financing for a
144-unit
multifamily apartment complex in Gainesville, Texas known as
Bella Vista Apartments. The apartment complex is currently under
construction, with an estimated completion date of April 2007.
The bonds earn an annual interest rate of 6.15%, with semiannual
interest payments and a stated maturity date of April 1,
2046. The bonds are secured by a construction performance
guarantee during the construction period by a third-party
guarantor. We have determined that the company that owns Bella
Vista Apartments does not meet the definition of a
variable interest entity. As a result, we will not
be required to consolidate financial statements of this company
into our consolidated financial statements under FIN 46R.
The Bella Vista bonds were acquired with a portion of the
proceeds realized from the sale of Clear Lake Colony Apartments
discussed below.
On November 10, 2005, we sold Clear Lake Colony Apartments,
a 316-unit
multifamily housing project located in West Palm Beach, Florida,
for a sales price of $33.4 million. Because the owner of
the property defaulted on its obligations under the $16,000,000
of Multi-Family Housing Revenue Refunding Bonds
Series 2000A that were issued to us to finance this
property, we acquired sole ownership of the property by way of
deed in lieu of foreclosure immediately prior to the sale. The
sale resulted in a taxable gain of approximately $12,400,000. In
conjunction with the Clear Lake transaction, we made a special
distribution of $3.5 million to our shareholders and our
general partner which was classified as Tier 2 Net Residual
Proceeds under the terms of our Agreement of Limited
Partnership. As this was a Tier 2 distribution,
approximately $2.6 million or 75% of the total distribution
was paid to shareholders of record as of November 30, 2005
and approximately $0.9 million was paid to our general
partner. In addition to the one-time distribution to BUC holders
and the general partner, a portion of the proceeds was used to
pay $359,000 of deferred administrative fees to the general
partner. The general partner had deferred payment of these
administrative fees without interest since 1989. Due to the gain
realized on this transaction, the
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general partner elected to receive these previously earned fees.
The remaining proceeds from the sale of the Clear Lake Colony
Apartments were reinvested in accordance with our investment
strategy.
Management
and Employees
The Partnership is managed by its general partner, America First
Capital Associates Limited Partnership Two (AFCA 2).
The Partnership has no employees, executive officers or
directors. Certain services are provided to the Partnership by
employees of The Burlington Capital Group LLC
(Burlington), formerly known as America First
Companies L.L.C., which is the general partner of AFCA 2,
and the Partnership reimburses Burlington for its allocated
share of these salaries and benefits. The Partnership is not
charged, and does not reimburse Burlington, for the services
performed by executive officers of Burlington.
Competition
The Partnership, from time to time, may be in competition with
private investors, lending institutions, trust funds, investment
partnerships and other entities with objectives similar to the
Partnership for the acquisition of tax-exempt mortgage revenue
bonds and other investments. This competition could reduce the
availability of tax-exempt mortgage revenue bonds for
acquisition and reduce the interest rate that issuers pay on
these bonds.
Because the Partnerships return on its tax-exempt mortgage
revenue bonds depends on the economic performance of the
multifamily residential properties financed by these bonds, the
Partnership may be considered to be in competition with other
residential real estate in the same geographic areas. In each
city in which the properties collateralized by the tax-exempt
mortgage revenue bonds owned by the Partnership are located,
such properties compete with a substantial number of other
multifamily properties. Multifamily properties also compete with
single-family housing that is either owned or leased by
potential tenants. To compete effectively, the apartment
properties financed by the Partnership must offer quality
apartments at competitive rental rates. In order to maintain
occupancy rates and attract quality tenants, the apartment
properties may also offer rental concessions, such as free rent
to new tenants for a stated period. These apartment properties
also compete by offering quality apartments in attractive
locations and that provide tenants with amenities such as
recreational facilities, garages and pleasant landscaping.
Environmental
Matters
The Partnership believes that each of the properties
collateralizing its tax-exempt mortgage revenue bonds is in
compliance, in all material respects, with federal, state and
local regulations regarding hazardous waste and other
environmental matters and is not aware of any environmental
contamination at any of such properties that would require any
material capital expenditure by the underlying properties and
therefore the Partnership for the remediation thereof.
Tax
Status
The Partnership is classified as a partnership for federal
income tax purposes and accordingly, it makes no provision for
income taxes. The distributive share of the Partnerships
income, deductions and credits is included in each BUC
holders income tax return.
The VIEs consolidated with the Partnership for GAAP reporting
purposes are separate legal entities who record and report
income taxes based upon their individual legal structure which
may include corporations, limited partnerships and limited
liability companies.
The Partnership does not presently believe that the
consolidation of VIEs for reporting under GAAP will impact the
Partnerships tax status, amounts reported to BUC holders
on IRS
Form K-1,
the Partnerships ability to distribute tax-exempt income
to BUC holders, the current level of quarterly distributions or
the tax-exempt status of the underlying mortgage revenue bonds.
5
General
Information
We are a Delaware limited partnership. Our general partner is
America First Capital Associates Limited Partnership 2,
whose general partner is Burlington. Since 1984, Burlington has
specialized in the management of investment funds, many of which
were formed to acquire real estate investments such as
tax-exempt mortgage revenue bonds, mortgage securities and
multifamily real estate properties. Burlington maintains its
principal executive offices at 1004 Farnam Street,
Suite 400, Omaha, Nebraska 68102, and its telephone number
is
(402) 444-1630.
We do not have any employees of our own. Employees of
Burlington, acting through our general partner, are responsible
for our operations and we reimburse Burlington for the allocated
salaries and benefits of these employees and for other expenses
incurred in running our business operations. In connection with
the operation of the Company, our general partner is entitled to
an administrative fee in an amount equal to 0.45% per annum
of principal amount of the revenue bonds, other tax-exempt
investments and taxable mortgage loans held by the Partnership.
Nine of the tax-exempt revenue bonds held by the Partnership
provide for the payment of this administrative fee to the
general partner by the owner of the financed property. When the
administrative fee is payable by a property owner, it is
subordinated to the payment of all base interest to the
Partnership on the tax-exempt revenue bond on that property. Our
Agreement of Limited Partnership provides that the
administrative fee will be paid directly by the Partnership with
respect to any investments for which the administrative fee is
not payable by the property owner or a third party. In addition,
our Agreement of Limited Partnership provides that the
Partnership will pay the administrative fee to the general
partner with respect to any foreclosed mortgage bonds.
Our general partner or its affiliates may also earn mortgage
placement fees in connection with the identification and
evaluation of additional investments that we acquire. Any
mortgage placement fees will be paid by the owners of the
properties financed by the acquired mortgage revenue bonds out
of bond proceeds. The amount of mortgage placement fees, if any,
will be subject to negotiation between the general partner or
its affiliates and such property owners.
America First Properties Management Company, L.L.C.
(Properties Management) is an affiliate of
Burlington that is engaged in the management of apartment
complexes. Properties Management currently manages nine of the
properties financed by the Partnership. Properties Management
may also seek to become the manager of apartment complexes
financed by additional mortgage bonds acquired by the Company,
subject to negotiation with the owners of such properties. If
the Company acquires ownership of any property through
foreclosure of a revenue bond, Properties Management may provide
property management services for such property and, in such
case, the Company will pay Properties Management its fees for
such services.
Our sole limited partner is America First Fiduciary Corporation
Number Five, a Nebraska corporation. Our shares, which are
referred to as beneficial unit certificates or
BUCs in our Agreement of Limited Partnership,
represent assignments by the sole limited partner of its rights
and obligations as a limited partner.
Information
Available on Website
The Companys annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and press releases are available free of charge at www.ataxz.com
as soon as reasonably practical after they are filed with the
SEC. The information on the website is not incorporated by
reference into this
Form 10-K.
The financial condition, results of operations and cash flows of
the Partnership are affected by various factors, many of which
are beyond the Partnerships control. These include the
following:
The
receipt of interest and principal payments on our tax-exempt
mortgage revenue bonds will be affected by the economic results
of the underlying multifamily properties.
Although our tax-exempt mortgage revenue bonds are issued by
state or local housing authorities, they are not obligations of
these governmental entities and are not backed by any taxing
authority. Instead, each of these revenue bonds is backed by a
non-recourse loan made to the owner of the underlying apartment
complex and is secured by a
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first mortgage lien on the property. Because of the non-recourse
nature of the underlying mortgage loans, the sole source of cash
to pay base and contingent interest, if applicable, on the
revenue bond, and to ultimately pay the principal amount of the
bond, is the net cash flow generated by the operation of the
financed property and the net proceeds from the ultimate sale or
refinancing of the property. This makes our investments in these
mortgage revenue bonds subject to the kinds of risks usually
associated with direct investments in multifamily real estate.
If a property is unable to sustain net cash flow at a level
necessary to pay its debt service obligations on our tax-exempt
mortgage revenue bond on the property, a default may occur. Net
cash flow and net sale proceeds from a particular property are
applied only to debt service payments of the particular mortgage
revenue bond secured by that property and are not available to
satisfy debt service obligations on other mortgage revenue bonds
that we hold. In addition, the value of a property at the time
of its sale or refinancing will be a direct function of its
perceived future profitability. Therefore, the amount of base
and contingent interest that we earn on our mortgage revenue
bonds, and whether or not we will receive the entire principal
balance of the bonds as and when due, will depend to a large
degree on the economic results of the underlying apartment
complexes.
The net cash flow from the operation of a property may be
affected by many things, such as the number of tenants, the
rental rates, operating expenses, the cost of repairs and
maintenance, taxes, government regulation, competition from
other apartment complexes, mortgage rates for single-family
housing and general and local economic conditions. In most of
the markets in which the properties financed by our bonds are
located, there is significant competition from other apartment
complexes and from single-family housing that is either owned or
leased by potential tenants. Low mortgage interest rates make
single-family housing more accessible to persons who may
otherwise rent apartments.
In the event of a default on a mortgage revenue bond (or a
taxable loan on the same property), we will have the right to
foreclose on the mortgage or deed of trust securing the
property. If we take ownership of the property securing a
defaulted revenue bond or taxable loan, we will be entitled to
all net cash flow generated by the property. However, such
amounts will no longer represent tax-exempt interest to us.
The
value of the properties is the only source of repayment of our
tax-exempt mortgage revenue bonds.
The principal of most of our tax-exempt mortgage revenue bonds
does not fully amortize over their terms. This means that all or
some of the balance of the mortgage loans underlying these bonds
will be repaid as a lump-sum balloon payment at the
end of the term. The ability of the property owners to repay the
mortgage loans with balloon payments is dependent upon their
ability to sell the properties securing our tax-exempt mortgage
revenue bonds or obtain adequate refinancing. The mortgage
revenue bonds are not personal obligations of the property
owners, and we rely solely on the value of the properties
securing these bonds for security. Similarly, if a tax-exempt
mortgage revenue bond goes into default, our only recourse is to
foreclose on the underlying multifamily property. If the value
of the underlying property securing the bond is less than the
outstanding principal balance and accrued interest on the bond,
we will suffer a loss.
In the event a property securing a tax-exempt mortgage revenue
bond is not sold prior to the maturity or remarketing of the
bond, any contingent interest payable from the net sale or
refinancing proceeds of the underlying property will be
determined on the basis of the appraised value of the underlying
property. Real estate appraisals represent only an estimate of
the value of the property being appraised and are based on
subjective determinations, such as the extent to which the
properties used for comparison purposes are comparable to the
property being evaluated and the rate at which a prospective
purchaser would capitalize the cash flow of the property to
determine a purchase price. Accordingly, such appraisals may
result in us realizing less contingent interest from a
tax-exempt mortgage revenue bond than we would have realized had
the underlying property been sold.
There
is additional credit risk when we make a taxable loan on a
property.
Taxable mortgage loans which we make to owners of the properties
which secure mortgage revenue bonds held by us are non-recourse
obligations of the property owner. As a result, the sole source
of principal and interest payments on these taxable loans is the
net cash flow generated by these properties or the net proceeds
from the sale of these properties. The net cash flow from the
operation of a property may be affected by many things as
discussed above. If a property is unable to sustain net cash
flow at a level necessary to pay current debt service
obligations on
7
our taxable loan on such property, a default may occur. In
addition, any payment of principal and interest on a taxable
loan on a particular property will be subordinate to payment of
all principal and interest (including contingent interest) on
the mortgage revenue bond secured by the same property. As a
result, there may be a higher risk of default on the taxable
loans than on the mortgage revenue bonds.
The
properties financed by our tax-exempt bonds are not completely
insured against damages from hurricanes and other major
storms.
Three of the multifamily housing properties financed by
tax-exempt bonds held by the Partnership are located in Florida
in areas that are prone to damage from hurricanes and other
major storms. Due to the significant losses incurred by
insurance companies on policies written on properties in Florida
damaged by hurricanes, property and casualty insurers in Florida
have modified their approach to underwriting policies. As a
result, the owners of these Florida properties now assume the
risk of first loss on a larger percentage of their
propertys value. If any of these properties were damaged
in a hurricane or other major storm, the losses incurred could
be significant and would reduce the cash flow available to pay
base or contingent interest on the Partnerships tax-exempt
bonds collateralized by these properties. In general, the
current insurance policies on these properties carry a 3%
deductible on the insurable value of the properties. The current
insurable value of the Florida properties is approximately
$51.4 million.
We may
suffer adverse consequences from changing interest
rates.
We have financed the acquisition of some of our assets using
variable-rate debt financing. The interest that we pay on this
financing fluctuates with a specific interest rate index. If the
interest rate index increases, our interest expense will
increase. This will reduce the amount of cash we have available
for distribution and may affect the market value of our BUCs.
An increase in interest rates could also decrease the value of
our tax-exempt mortgage bonds. A decrease in the value of our
tax-exempt mortgage revenue bonds could cause the debt financing
counterparty to demand additional collateral. If additional
collateral is not available, the debt financing could be
terminated and some or all of the bonds collateralizing such
financing may be sold to repay the debt. In that case, we would
lose the net interest income from these bonds. A decrease in the
value of our tax-exempt mortgage revenue bonds could also
decrease the amount we could realize on the sale of our
investments and would decrease the amount of funds available for
distribution to our shareholders.
There
are risks associated with our participation in the P-Float
program.
In order to obtain debt financing, we have securitized many of
our tax-exempt mortgage revenue bonds through the Merrill Lynch
P-Float program. Under this program, we deposit a tax-exempt
mortgage revenue bond into a trust which issues a senior P-Float
to an institutional investor and a residual interest to us. The
trust pays interest on the P-Floats and the residual interest
from the interest payments received on the underlying tax-exempt
mortgage revenue bond. If the trust is unable to pay the full
amount of interest due on the P-Float, a default will occur. In
addition, if the value of the mortgage revenue bond and any
other collateral declines below a specified level, a default
will occur. In such event, the trust could be terminated and
some or all of the bonds pledged as collateral may be sold to
satisfy the debt.
In this program, the senior interests sold are credit-enhanced
by Merrill Lynch or its affiliate. The inability of Merrill
Lynch or its affiliate to perform under the program or
impairment of the credit-enhancement may terminate the
transaction and cause us to lose the net interest income earned
as a result.
By using the P-Float program for debt financing, we forego a
portion of the interest we would have received on our existing
tax-exempt mortgage revenue bonds. If we are unable to reinvest
the proceeds from this borrowing in investments that generate a
greater amount of interest, the amount of net interest income
that we receive may decline.
8
Our
tax-exempt mortgage revenue bonds are illiquid assets and their
value may decrease.
The majority of our assets consist of our tax-exempt mortgage
revenue bonds. These mortgage revenue bonds are relatively
illiquid, and there is no existing trading market for these
mortgage revenue bonds. As a result, there are no market makers,
price quotations or other indications of a developed trading
market for these mortgage revenue bonds. In addition, no rating
has been issued on any of the existing mortgage revenue bonds
and we do not expect to obtain ratings on mortgage revenue bonds
we may acquire in the future. Accordingly, any buyer of these
mortgage revenue bonds would need to perform its own due
diligence prior to a purchase. As a result, our ability to sell
our tax-exempt mortgage revenue bonds, and the price we may
receive upon their sale, will be affected by the number of
potential buyers, the number of similar securities on the market
at the time and a number of other market conditions. As a
result, such a sale could result in a loss to us.
We
could be adversely affected if counterparties are unable to
fulfill their obligations under our derivative
agreements.
We have used interest rate swaps and caps to help us mitigate
our interest rate risks. However, these derivative transactions
do not fully insulate us from the interest rate risks to which
we are exposed. A liquid secondary market may not exist for any
instruments purchased or sold in those transactions, thus, we
may be required to maintain a position until exercise or
expiration, which could result in losses. Moreover, the
derivative instruments are required to be marked to market with
the difference recognized in earnings as interest expense which
can result in significant volatility to reported net income over
the term of these instruments. The counterparty to certain of
these agreements has the right to convert them to fixed-rate
agreements, and it is possible that such a conversion could
result in our paying more interest than we would under our
variable-rate financing.
The
rent restrictions and occupant income limitations imposed on
properties financed by tax-exempt mortgage revenue bonds may
limit the revenues of the properties financed by our tax-exempt
mortgage revenue bonds.
All of the properties securing our tax-exempt mortgage revenue
bonds are subject to certain federal, state
and/or local
requirements with respect to the permissible income of their
tenants. Since federal subsidies are not generally available on
these properties, rents must be charged on a designated portion
of the units at a level to permit these units to be continuously
occupied by low or moderate income persons or families. As a
result, these rents may not be sufficient to cover all operating
costs with respect to these units and debt service on the
applicable tax-exempt mortgage revenue bond. This may force the
property owner to charge rents on the remaining units that are
higher than they would be otherwise and may, therefore, exceed
competitive rents which may adversely affect the occupancy rate
of a property securing an investment and the property
owners ability to service its debt.
The
properties securing our revenue bonds may be subject to
liability for environmental contamination and thereby increase
the risk of default on such bonds.
The owner or operator of real property may become liable for the
costs of removal or remediation of hazardous substances released
on its property. Various federal, state and local laws often
impose such liability without regard to whether the owner or
operator knew of, or was responsible for, the release of such
hazardous substances. The properties that secure our revenue
bonds, or any additional revenue bonds we acquire in the future,
may contain contamination of which we are not aware. The costs
associated with the remediation of any such contamination may be
significant and may exceed the value of a property, causing the
property owner to default on the revenue bond secured by the
property.
If we
acquire direct ownership of apartment properties we will be
subject to all of the risks normally associated with the
ownership of commercial real estate.
We may acquire ownership of apartment complexes financed by tax
exempt bonds held by us in the event of a default on such bonds.
We may also acquire ownership of apartment complexes on a
temporary basis in order to facilitate the eventual acquisition
by us of tax exempt mortgage revenue bonds on the properties. In
either case, during the time we own an apartment complex we will
generate taxable income or losses from the operations of such
9
property rather than tax exempt interest. In addition, we will
be subject to all of the risks normally associated with the
operation of commercial real estate including declines in
property value, occupancy and rental rates and increases in
operating expenses. We may also be subject to government
regulations, natural disasters and environmental issues, any of
which could have an adverse affect on the Partnerships
financial results and ability to make distributions to
shareholders.
Any
future issuances of additional BUCs could cause their market
value to decline.
We have the authority to issue additional BUCs representing
assigned limited partner interests in the Partnership, and we
plan to issue such BUCs from time to time. The issuance of
additional BUCs could cause dilution of the existing BUCs and a
decrease in the market price of the BUCs. If additional BUCs are
issued but the Company is unable to invest the additional equity
capital in assets that generate tax exempt income at levels at
least equivalent to our existing assets, Cash Available for
Distributions (CAD) may decline. A decline in CAD
may result in lower distributions to BUC holders and a lower
market price for our BUCs.
The
Company is not registered under the Investment Company
Act.
The Company is not required to register as an investment company
under the Investment Company Act of 1940, as amended (the
Investment Company Act) because it operates under an
exemption there from. As a result, none of the protections of
the Investment Company Act (disinterested directors, custody
requirements for securities, and regulation of the relationship
between a fund and its advisor) will be applicable to the
Company.
The
Company engages in transactions with related
parties.
Each of the executive officers of Burlington and four of the
managers of Burlington hold equity positions in Burlington. A
subsidiary of Burlington acts as our general partner and manages
our investments and performs administrative services for us and
earns certain fees that are either paid by the properties
financed by our tax-exempt mortgage revenue bonds or by us.
Another subsidiary of Burlington provides
on-site
management for many of the multifamily apartment properties that
underlie our tax-exempt bonds and earns fees from the property
owners based on the gross revenues of these properties. The
shareholders of the limited-purpose corporations which own five
of the apartment properties financed with tax-exempt bonds and
taxable loans held by the Company are employees of Burlington
who are not involved in the operation or management of the
Company and who are not executive officers or managers of
Burlington. Because of these relationships, our agreements with
Burlington and its subsidiaries are related-party transactions.
By their nature, related-party transactions may not be
considered to have been negotiated at arms-length. These
relationships may also cause a conflict of interest in other
situations where we are negotiating with Burlington.
Shareholders
may incur tax liability if any of the interest on our tax-exempt
mortgage revenue bonds is determined to be
taxable.
Certain of our tax-exempt mortgage revenue bonds bear interest
at rates which include contingent interest. Payment of the
contingent interest depends on the amount of net cash flow
generated by, and net proceeds realized from a sale of, the
property securing the bond. Due to this contingent interest
feature, an issue may arise as to whether the relationship
between the property owner and us is that of debtor and creditor
or whether we are engaged in a partnership or joint venture with
the property owner. If the Internal Revenue Service
(IRS) were to determine that tax-exempt mortgage
revenue bonds represented an equity investment in the underlying
property, the interest paid to us could be viewed as a taxable
return on such investment and would not qualify as tax-exempt
interest for federal income tax purposes. We have obtained
unqualified legal opinions to the effect that interest on our
tax-exempt mortgage revenue bonds is excludable from gross
income for federal income tax purposes which opinions provide
that interest paid to a substantial user or
related person (each as defined in the Code) is not
exempt from federal income taxation. However, these legal
opinions have no binding effect on the IRS or the courts, and no
assurances can be given that the conclusions reached will not be
contested by the IRS or, if contested, will be sustained by a
court. In addition, the tax-exempt status of the interest paid
on our tax-exempt mortgage revenue bonds is subject to
compliance by the underlying properties, and the owners thereof,
with the bond documents and covenants required by the
bond-issuing authority and the Code. Among these requirements
are tenant income
10
restrictions, regulatory agreement compliance, reporting
requirements, use of proceeds restrictions and compliance with
rules pertaining to arbitrage. Each issuer of the revenue bonds,
as well as each of the underlying property owners/borrowers, has
covenanted to comply with procedures and guidelines designed to
ensure satisfaction with the continuing requirements of the
Code. Failure to comply with these continuing requirements of
the Code may cause the interest on our bonds to be includable in
gross income for federal income tax purposes retroactively to
the date of issuance, regardless of when such noncompliance
occurs. In addition, we hold residual interests issued in
securitization programs which hold tax-exempt mortgage revenue
bonds, such as the P-Floats/RITES program, which entitle us to a
share of the tax-exempt interest of these mortgage revenue
bonds. It is possible that the characterization of the residual
interest in the P-Floats/RITES program could be challenged and
the income that we receive through these instruments could be
treated as ordinary taxable income includable in our gross
income for federal tax purposes. The rules dealing with federal
income taxation are constantly under review by persons involved
in the legislative process and by the IRS and the
U.S. Treasury Department. Changes to the tax law, which may
have retroactive application, could adversely affect us and our
shareholders. It cannot be predicted whether, when, in what
forms or with what effective dates the tax law applicable to us
will be changed.
Not
all of the interest income of the Company is exempt from
taxation.
We have made, and may make in the future, taxable mortgage loans
to the owners of properties which are secured by tax-exempt
mortgage revenue bonds that we hold. Shareholders will be taxed
on their allocable share of this taxable interest income. In any
case that interest earned by the Company is taxable, a
shareholders allocable share of this taxable interest
income will be taxable to the shareholder regardless of whether
an amount of cash equal to such allocable share is actually
distributed to the shareholder.
If the
Company was determined not to be a partnership for tax purposes,
it will have adverse economic consequences for the Company and
its shareholders.
We are a Delaware limited partnership and have chosen to operate
as a partnership for federal income tax purposes. As a
partnership, to the extent we generate taxable income,
shareholders will be individually liable for income tax on their
proportionate share of this taxable income, whether or not we
make cash distributions. The ability of shareholders to deduct
their proportionate share of the losses and expenses we generate
will be limited in certain cases, and certain transactions may
result in the triggering of the Alternative Minimum Tax for
shareholders who are individuals.
If the Company is classified as an association taxable as a
corporation rather than as a partnership, we will be taxed on
our taxable income, if any, and all distributions made by us to
our shareholders would constitute ordinary dividend income
taxable to such shareholders to the extent of our earnings and
profits, which would include tax-exempt income, as well as any
taxable income we might have, and the payment of these dividends
would not be deductible by us. The listing of the Companys
BUCs for trading on the NASDAQ Global Market causes the Company
to be treated as a publicly traded partnership under
Section 7704 of the Code. A publicly traded partnership is
generally taxable as a corporation unless 90% or more of its
gross income is qualifying income. Qualifying income
includes interest, dividends, real property rents, gain from the
sale or other disposition of real property, gain from the sale
or other disposition of capital assets held for the production
of interest or dividends and certain other items. Substantially
all of the Companys gross income will continue to be
tax-exempt interest income on mortgage bonds. We believe that
all of this interest income is qualifying income, however, it is
possible that some or all of our income could be determined not
to be qualifying income. In such a case, if more than 10% of our
annual gross income in any year is not qualifying income, the
Company will be taxable as a corporation rather than a
partnership for federal income tax purposes. We have not
received, and do not intend to seek, a ruling from the Internal
Revenue Service regarding our status as a partnership for tax
purposes.
|
|
Item 1B.
|
Unresolved
Staff Comments.
|
None
11
The Partnership currently does not own or lease any physical
properties. The Partnerships ownership in tax-exempt
mortgage revenue bonds is collateralized by underlying
multifamily housing properties.
As a result of the adoption of FIN 46R, the Company is
required to consolidate the multifamily residential properties
owned by the VIEs for which the Company is the primary
beneficiary into the Companys financial statements. The
Company consolidated eight multifamily housing properties
located in Florida, Indiana, Iowa, South Carolina and Kentucky
as of December 31, 2006. The following table lists the
consolidated properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Average Square
|
|
Property Name
|
|
Location
|
|
of Units
|
|
|
Feet per Unit
|
|
|
Ashley Point at Eagle Crest
|
|
Evansville, IN
|
|
|
144
|
|
|
|
910
|
|
Ashley Square
|
|
Des Moines, IA
|
|
|
150
|
|
|
|
970
|
|
Bent Tree Apartments
|
|
Columbia, SC
|
|
|
232
|
|
|
|
989
|
|
Fairmont Oaks Apartments
|
|
Gainsville, FL
|
|
|
178
|
|
|
|
1,139
|
|
Iona Lakes Apartments
|
|
Ft. Myers, FL
|
|
|
350
|
|
|
|
807
|
|
Lake Forest Apartments
|
|
Daytona Beach, FL
|
|
|
240
|
|
|
|
1,093
|
|
Woodbridge Apts. of
Bloomington III
|
|
Bloomington, IN
|
|
|
280
|
|
|
|
946
|
|
Woodbridge Apts. of
Louisville II
|
|
Louisville, KY
|
|
|
190
|
|
|
|
947
|
|
|
|
Item 3.
|
Legal
Proceedings.
|
There are no material pending legal proceedings to which the
Partnership is a party or to which any of the properties
collateralizing the Partnerships tax-exempt mortgage
revenue bonds are subject.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders.
|
No matter was submitted during the fourth quarter of the fiscal
year ended December 31, 2006 to a vote of the
Partnerships security holders.
PART II
|
|
Item 5.
|
Market
for the Registrants Common Equity, Related Security Holder
Matters and Issuer Purchases of Equity Securities.
|
(a) Market Information. BUCs represent assignments by the
sole limited partner of its rights and obligations as a limited
partner. The rights and obligations of BUC holders are set forth
in the Partnerships Agreement of Limited Partnership. BUCs
of the Partnership trade on the NASDAQ Global Market under the
trading symbol ATAXZ. The following table sets forth
the high and low sale prices for the BUCs for each quarterly
period from January 1, 2005 through December 31, 2006.
|
|
|
|
|
|
|
|
|
2006
|
|
High
|
|
|
Low
|
|
|
1st Quarter
|
|
$
|
8.20
|
|
|
$
|
7.42
|
|
2nd Quarter
|
|
$
|
7.82
|
|
|
$
|
7.10
|
|
3rd Quarter
|
|
$
|
7.90
|
|
|
$
|
7.21
|
|
4th Quarter
|
|
$
|
8.14
|
|
|
$
|
7.70
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
High
|
|
|
Low
|
|
|
1st Quarter
|
|
$
|
7.39
|
|
|
$
|
6.75
|
|
2nd Quarter
|
|
$
|
7.69
|
|
|
$
|
6.91
|
|
3rd Quarter
|
|
$
|
8.73
|
|
|
$
|
7.25
|
|
4th Quarter
|
|
$
|
7.99
|
|
|
$
|
7.25
|
|
12
(b) BUC Holders. The approximate number of BUC holders on
March 5, 2007 was 4,300.
(c) Distributions. Distributions to BUC holders were made
on a quarterly basis during 2006 and 2005 with a special
distribution in December 2005. Total distributions for the years
ended December 31, 2006, 2005 and 2004 were $5,312,000,
$7,937,000 and $5,312,000, respectively. The distributions paid
or accrued per BUC during the fiscal years ended
December 31, 2006, 2005 and 2004 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
For the
|
|
For the
|
|
|
Year Ended
|
|
Year Ended
|
|
Year Ended
|
|
|
Dec. 31, 2006
|
|
Dec. 31, 2005
|
|
Dec. 31, 2004
|
|
Cash Distributions
|
|
$
|
0.5400
|
|
|
$
|
0.8068
|
|
|
$
|
0.5400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Item 7, Managements Discussion and Analysis
of Financial Condition and Results of Operations, for
information regarding the sources of funds that will be used for
cash distributions and for a discussion of factors which may
adversely affect the Partnerships ability to make cash
distributions at the same levels in 2007 and thereafter.
(d) Securities Authorized for Issuance Under Equity
Compensation Plans. The Partnership does not maintain any equity
compensation plans.
Sales
of Unregistered Securities.
None
Issuer
Purchases of Equity Securities.
None
13
|
|
Item 6.
|
Selected
Financial Data.
|
Set forth below is selected financial data for the Company as of
and for the years ended December 31, 2004 through 2006 and
for the Partnership as of and for the years ended
December 31, 2002 and 2003. The information should be read
in conjunction with the Companys consolidated financial
statements and notes thereto filed in response to Item 8 of
this report. In addition, please refer to the discussions in
Item 1 and Item 7 regarding the adoption of
FIN 46R and its effects on the presentation of financial
data in this report on
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or
|
|
|
As of or
|
|
|
As of or
|
|
|
As of or
|
|
|
As of or
|
|
|
|
for the
|
|
|
for the
|
|
|
for the
|
|
|
for the
|
|
|
for the
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
Dec. 31, 2006
|
|
|
Dec. 31, 2005
|
|
|
Dec. 31, 2004
|
|
|
Dec. 31, 2003
|
|
|
Dec. 31, 2002
|
|
|
Property revenues
|
|
$
|
14,187,135
|
|
|
$
|
13,891,556
|
|
|
$
|
13,034,770
|
|
|
$
|
|
|
|
$
|
|
|
Real estate operating expenses
|
|
|
(8,781,819
|
)
|
|
|
(8,515,626
|
)
|
|
|
(7,366,291
|
)
|
|
|
|
|
|
|
|
|
Depreciation and amortization
expense
|
|
|
(2,486,366
|
)
|
|
|
(2,740,703
|
)
|
|
|
(2,817,740
|
)
|
|
|
(48,155
|
)
|
|
|
(39,277
|
)
|
Mortgage revenue bond investment
income
|
|
|
1,418,289
|
|
|
|
1,061,242
|
|
|
|
923,108
|
|
|
|
8,769,052
|
|
|
|
8,593,940
|
|
Other bond investment income
|
|
|
4,891
|
|
|
|
73,179
|
|
|
|
321,750
|
|
|
|
321,750
|
|
|
|
321,750
|
|
Other interest income
|
|
|
337,008
|
|
|
|
102,474
|
|
|
|
78,367
|
|
|
|
116,266
|
|
|
|
421,242
|
|
Gain on sale of securities
|
|
|
|
|
|
|
126,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,810,000
|
)
|
|
|
|
|
Interest expense
|
|
|
(2,106,292
|
)
|
|
|
(1,176,293
|
)
|
|
|
(1,179,896
|
)
|
|
|
(1,615,179
|
)
|
|
|
(1,851,563
|
)
|
Hurricane related expenses
|
|
|
|
|
|
|
|
|
|
|
(771,666
|
)
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
(1,575,942
|
)
|
|
|
(2,028,366
|
)
|
|
|
(1,484,598
|
)
|
|
|
(1,139,070
|
)
|
|
|
(1,169,705
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing
operations
|
|
$
|
996,904
|
|
|
$
|
794,213
|
|
|
$
|
737,804
|
|
|
$
|
4,594,664
|
|
|
$
|
6,276,387
|
|
Income (loss) from discontinued
operations, (including gain on sale of $11,667,246 and
$18,771,497 in 2006 and 2005, respectively)
|
|
|
11,779,831
|
|
|
|
18,770,929
|
|
|
|
(424,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of
accounting change
|
|
|
12,776,735
|
|
|
|
19,565,142
|
|
|
|
312,944
|
|
|
|
4,594,664
|
|
|
|
6,276,387
|
|
Cumulative effect of accounting
change
|
|
|
|
|
|
|
|
|
|
|
(38,023,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12,776,735
|
|
|
$
|
19,565,142
|
|
|
$
|
(37,710,057
|
)
|
|
$
|
4,594,664
|
|
|
$
|
6,276,387
|
|
Less: general partners
interest in net income
|
|
|
1,627,305
|
|
|
|
1,021,216
|
|
|
|
72,436
|
|
|
|
45,947
|
|
|
|
62,764
|
|
Unallocated loss related to
variable interest entities
|
|
|
3,863,226
|
|
|
|
1,443,519
|
|
|
|
(44,953,615
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest in
net income
|
|
$
|
7,286,204
|
|
|
$
|
17,100,407
|
|
|
$
|
7,171,122
|
|
|
$
|
4,548,717
|
|
|
$
|
6,213,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest in
net income per unit (basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.74
|
|
|
$
|
0.58
|
|
|
$
|
0.52
|
|
|
$
|
0.46
|
|
|
$
|
0.63
|
|
Income (loss) from discontinued
operations, (including gain on sale of $1.91 per unit)
|
|
|
|
|
|
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of
accounting change
|
|
|
0.74
|
|
|
|
1.74
|
|
|
|
0.52
|
|
|
|
0.46
|
|
|
|
0.63
|
|
Cumulative effect of accounting
change
|
|
|
|
|
|
|
|
|
|
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, basic and diluted, per
unit
|
|
$
|
0.74
|
|
|
$
|
1.74
|
|
|
$
|
0.73
|
|
|
$
|
0.46
|
|
|
$
|
0.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid or accrued per
BUC
|
|
$
|
0.5400
|
|
|
$
|
0.8068
|
|
|
$
|
0.5400
|
|
|
$
|
0.5400
|
|
|
$
|
0.5400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or
|
|
|
As of or
|
|
|
As of or
|
|
|
As of or
|
|
|
As of or
|
|
|
|
for the
|
|
|
for the
|
|
|
for the
|
|
|
for the
|
|
|
for the
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
Dec. 31, 2006
|
|
|
Dec. 31, 2005
|
|
|
Dec. 31, 2004
|
|
|
Dec. 31, 2003
|
|
|
Dec. 31, 2002
|
|
|
Investments in tax-exempt mortgage
revenue bonds, at estimated fair value
|
|
$
|
27,103,398
|
|
|
$
|
17,033,964
|
|
|
$
|
16,031,985
|
|
|
$
|
139,197,520
|
|
|
$
|
118,528,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate assets, net
|
|
$
|
56,209,929
|
|
|
$
|
56,593,086
|
|
|
$
|
58,243,113
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
100,200,189
|
|
|
$
|
111,574,124
|
|
|
$
|
118,147,479
|
|
|
$
|
155,553,817
|
|
|
$
|
138,757,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
45,770,000
|
|
|
$
|
45,990,000
|
|
|
$
|
62,275,000
|
|
|
$
|
67,495,000
|
|
|
$
|
59,730,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by operating
activities
|
|
$
|
5,637,095
|
|
|
$
|
3,851,827
|
|
|
$
|
5,128,258
|
|
|
$
|
6,621,089
|
|
|
$
|
6,027,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in)
investing activities
|
|
$
|
6,396,786
|
|
|
$
|
23,104,860
|
|
|
$
|
(5,264,436
|
)
|
|
$
|
(21,285,025
|
)
|
|
$
|
(1,240,220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in)
financing activities
|
|
$
|
(6,855,558
|
)
|
|
$
|
(25,975,424
|
)
|
|
$
|
(843,588
|
)
|
|
$
|
10,786,146
|
|
|
$
|
(6,202,422
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Available for Distribution
(CAD)(1)
|
|
$
|
7,876,824
|
|
|
$
|
14,919,367
|
|
|
$
|
6,086,921
|
|
|
$
|
6,813,368
|
|
|
$
|
6,769,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of BUCs
outstanding, basic and diluted
|
|
|
9,837,928
|
|
|
|
9,837,928
|
|
|
|
9,837,928
|
|
|
|
9,837,928
|
|
|
|
9,837,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
To calculate CAD, amortization expense related to debt financing
costs and bond reissuance costs, Tier 2 income due to the
general partner (as defined in the Agreement of Limited
Partnership), interest rate cap expense, provision for loan
losses, impairments on bonds and losses related to VIEs
including the cumulative effect of accounting change, are added
back to the Companys net income (loss) as computed in
accordance with accounting principles generally accepted in the
United States of America (GAAP). The Company uses
CAD as a supplemental measurement of its ability to pay
distributions. The Company believes that CAD provides relevant
information about its operations and is necessary along with net
income (loss) for understanding its operating results. |
There is no generally accepted methodology for computing CAD,
and the Companys computation of CAD may not be comparable
to CAD reported by other companies.
Although the Company considers CAD to be a useful measure of its
operating performance, CAD should not be considered as an
alternative to net income (loss) or net cash flows from
operating activities which are calculated in accordance with
GAAP.
15
The following sets forth a reconciliation of the Companys
net income (loss) as determined in accordance with GAAP and its
CAD for the periods set forth.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
Net income (loss)
|
|
$
|
12,776,735
|
|
|
$
|
19,565,142
|
|
|
$
|
(37,710,057
|
)
|
|
$
|
4,594,664
|
|
|
$
|
6,276,387
|
|
Net (income) loss related to VIEs
and eliminations due to consolidation
|
|
$
|
(3,863,226
|
)
|
|
|
(1,443,519
|
)
|
|
|
4,867,444
|
|
|
|
|
|
|
|
|
|
Cumulative effect of accounting
change
|
|
$
|
|
|
|
|
|
|
|
|
38,023,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before impact of VIE
consolidation
|
|
$
|
8,913,509
|
|
|
|
18,121,623
|
|
|
|
5,180,388
|
|
|
|
4,594,664
|
|
|
|
6,276,387
|
|
Amortization expense (Partnership
only)
|
|
|
25,605
|
|
|
|
24,467
|
|
|
|
196,122
|
|
|
|
48,155
|
|
|
|
39,277
|
|
Tier 2 Income(2)
|
|
|
(1,062,500
|
)
|
|
|
(3,595,754
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate cap expense
|
|
|
210
|
|
|
|
(364,969
|
)
|
|
|
117,916
|
|
|
|
360,549
|
|
|
|
453,439
|
|
Provision for loan losses
|
|
|
|
|
|
|
734,000
|
|
|
|
217,654
|
|
|
|
1,810,000
|
|
|
|
|
|
Impairment on tax-exempt mortgage
revenue bonds
|
|
|
|
|
|
|
|
|
|
|
374,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAD
|
|
$
|
7,876,824
|
|
|
$
|
14,919,367
|
|
|
$
|
6,086,921
|
|
|
$
|
6,813,368
|
|
|
$
|
6,769,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
|
As described in Note 3 to the consolidated financial
statements, Net Interest Income representing contingent interest
and Net Residual Proceeds representing contingent interest
(Tier 2 Income) will be distributed 75% to the BUC holders
and 25% to the General Partner. This adjustment represents the
25% of Tier 2 income due to the general partner. For 2006,
the Northwoods Lake Apartments sale provided for
$4.25 million of Tier 2 Income. For 2005 the Clear
Lake sale resulted in approximately $14.4 million of
Tier 2 Income. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
General
In this Managements Discussion and Analysis we will
discuss the results of operations in two sections, (1) the
Company, which refers to the consolidated financial
information as reported on a GAAP basis of the Partnership and
the consolidated VIEs and (2) the Partnership
which refers to America First Tax Exempt Investors, L.P. as a
stand-alone entity. The consolidated VIEs refers to
certain entities that own multifamily apartment projects
financed with mortgage revenue bonds held by the Partnership
that have been determined to be variable interest entities and
are consolidated with the Partnership in accordance with
FIN 46R. Throughout this discussion we will refer to the
Company, the Partnership and the consolidated VIEs as described
in this paragraph. This discussion structure is consistent with
the segment reporting of the Company as presented in the Notes
to the consolidated financial statements of the Company.
Critical
Accounting Policies
The preparation of financial statements in accordance with GAAP
requires management of the Company to make a number of
judgments, assumptions and estimates. The application of these
judgments, assumptions and estimates can affect the amounts of
assets, liabilities, revenues and expenses reported by the
Company. All of the Companys significant accounting
policies are described in Note 2 to the Companys
consolidated financial statements included in Item 8 of
this report. The Company considers the following to be its
critical accounting policies as they involve judgments,
assumptions and estimates that significantly affect the
preparation of its financial statements.
16
Variable
Interest Entities (VIEs)
When the Partnership invests in a tax-exempt mortgage revenue
bond which is collateralized by the underlying multifamily
property, the Partnership will evaluate the entity which owns
the property securing the tax-exempt mortgage revenue bond to
determine if it is a VIE as defined by FIN 46R.
FIN 46R is a complex standard that requires significant
analysis and judgment. If it is determined that the entity is a
VIE, the Partnership will then evaluate if it is the primary
beneficiary of such VIE, by determining whether the Partnership
will absorb the majority of the VIEs expected losses,
receive a majority of the VIEs residual returns, or both.
If the Partnership determines itself to be the primary
beneficiary of the VIE, then the assets, liabilities and
financial results of the related multifamily property will be
consolidated in the Partnerships financial statements. As
a result of such consolidation, the tax-exempt or taxable debt
financing provided by the Partnership to such consolidated VIE
will be eliminated as part of the consolidation process.
However, the Partnership will continue to receive interest and
principal payments on such debt and these payments will retain
their characterization as either tax-exempt or taxable interest
for income tax reporting purposes.
Investments
in Tax-Exempt Mortgage Revenue Bonds and Other Tax-Exempt
Bonds
Valuation As all of the Partnerships
investments in tax-exempt mortgage revenue bonds are classified
as
available-for-sale
securities, they are carried on the balance sheet at their
estimated fair values. The Company bases the fair value of the
tax-exempt bonds, which have a limited market, on quotes from
external sources, such as brokers, for these or similar bonds.
In the limited situation when quotes are unavailable the
Partnership estimates the fair value for each bond as the
present value of its expected cash flows using a discount rate
for comparable tax-exempt investments. This calculation
methodology encompasses judgment in its application.
Effect of classification of securities on
earnings As the Partnerships investments
in tax-exempt mortgage revenue bonds are classified as
available-for-sale
securities, changes in estimated fair values are recorded as
adjustments to accumulated other comprehensive income, which is
a component of partners capital, rather than through
earnings. The Partnership does not intend to hold any of its
securities for trading purposes; however, if the
Partnerships
available-for-sale
securities were classified as trading securities, there could be
substantially greater volatility in the Partnerships
earnings because changes in estimated fair values would be
reflected in the Partnerships earnings.
Review of securities for
other-than-temporary
impairment The Partnership periodically reviews
each of its mortgage revenue bonds for impairment by comparing
the estimated fair value of the revenue bond to its carrying
amount. The estimated fair value of the revenue bond is
calculated using a discounted cash flow model using interest
rates for comparable investments. A security is considered
other-than-temporarily
impaired if evidence indicates that the cost of the investment
is not recoverable within a reasonable period of time. If an
other-than-temporary
impairment exists, the cost basis of the mortgage bond is
written down to its estimated fair value, with the amount of the
write-down accounted for as a realized loss. The recognition of
an
other-than-temporary
impairment and the potential impairment analysis are subject to
a considerable degree of judgment, the results of which when
applied under different conditions or assumptions could have a
material impact on the financial statements. The estimated
future cash flow of each revenue bond depends on the operations
of the underlying property and, therefore is subject to a
significant amount of uncertainty in the estimation of future
rental receipts, future real estate operating expenses, and
future capital expenditures. Such estimates are affected by
economic factors such as the rental markets and labor markets in
which the property operates, the current capitalization rates
for properties in the rental markets, and tax and insurance
expenses. Different conditions or different assumptions applied
to the calculation may result in different results. The
Partnership periodically compares its estimates with historical
results to evaluate the reasonableness and accuracy of its
estimates and adjusts its estimates accordingly.
Revenue recognition The interest income
received by the Partnership from its tax-exempt mortgage revenue
bonds is dependent upon the net cash flow of the underlying
properties. Base interest income on fully performing tax-exempt
mortgage revenue bonds is recognized as it is accrued. Base
interest income on tax-exempt mortgage revenue bonds not fully
performing is recognized as it is received. Past due base
interest on tax-exempt mortgage revenue bonds, which are or were
previously not fully performing, is recognized as received. The
Partnership reinstates the accrual of base interest once the
tax-exempt mortgage revenue bonds ability to perform is
17
adequately demonstrated. Contingent interest income, which is
only received by the Partnership if the properties financed by
the tax-exempt mortgage revenue bonds generate excess available
cash flow as set forth in each bond, is recognized as received.
Derivative
Instruments and Hedging Activities
The Partnerships investments in interest rate cap
agreements are accounted for under the provisions of
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, (SFAS No. 133) as
amended and interpreted. SFAS No. 133 establishes
accounting and reporting standards for derivative financial
instruments, including certain derivative financial instruments
embedded in other contracts, and for hedging activity.
SFAS No. 133 requires the Partnership to recognize all
derivatives as either assets or liabilities in its financial
statements and record these instruments at their fair values. In
order to achieve hedge accounting treatment, hedging activities
must be appropriately designated, documented and proven to be
effective as a hedge pursuant to the provisions of
SFAS No. 133. The Partnership did not designate its
current hedges as qualifying hedges under SFAS No. 133.
The fair values of the caps at inception are their original
cost. The Partnerships debt financings currently bear
interest based on the Bond Market Association (BMA)
floating rate index. Changes in the fair value of the interest
rate cap agreements are marked to market with the difference
recognized in earnings as interest expense. The mark to market
adjustment through earnings can cause a significant fluctuation
in reported net income although it has no impact on the
Partnerships cash flows. In addition, the calculation of
the fair value of the caps involves a considerable degree of
judgment.
Executive
Summary
Overview
As a result of its adoption of FIN 46R on January 1,
2004, the Company began reporting results of operations on a
consolidated basis for two reportable segments, the Partnership
and VIEs. In addition to the two reportable segments, the
Company also separately reports its consolidating and
eliminating entries in order to properly reflect the operations
of its two reportable segments see Note 13 to
the Consolidated Financial Statements.
The Partnership operates for the purpose of acquiring, holding,
selling and otherwise dealing with a portfolio of federally
tax-exempt mortgage revenue bonds which have been issued to
provide construction
and/or
permanent financing of multifamily residential apartments. The
VIEs primary operating strategy focuses on multifamily apartment
properties as long-term investments. Each VIE owns one
multifamily apartment property that has been financed by a
tax-exempt mortgage revenue bond held by the Partnership.
The VIEs operating goal is to generate increasing amounts
of net rental income from these properties that will allow them
to service debt. In order to achieve this goal, management of
these multifamily apartment properties is focused on:
(i) maintaining high economic occupancy and increasing
rental rates through effective leasing, reduced turnover rates
and providing quality maintenance and services to maximize
resident satisfaction; (ii) managing operating expenses and
achieving cost reductions through operating efficiencies and
economies of scale generally inherent in the management of a
portfolio of multiple properties; and (iii) emphasizing
regular programs of repairs, maintenance and property
improvements to enhance the competitive advantage and value of
the properties in their respective market areas.
Nine of the 12 properties which collateralize the bonds owned by
the Partnership are managed by Properties Management, an
affiliate of the Partnership. Management believes that this
relationship provides greater insight and understanding of the
underlying property operations and their ability to meet debt
service requirements to the Partnership. The three properties
not managed by Properties Management are Woodbridge Apartments
of Bloomington, Woodbridge Apartments of Louisville and Bella
Vista Apartments.
As of December 31, 2006, the Company consolidated eight VIE
multifamily apartment properties containing a total of
1,764 rental units. As of December 31, 2005, the
Company consolidated nine VIE multifamily apartment properties
containing a total of 2,256 Units. As of December 31, 2004,
the Company consolidated 10 VIE multifamily apartment properties
containing a total of 2,572 rental units.
18
Discussion
of the Partnership Bond Holdings and the Related Apartment
Property as of December 31, 2006
The following discussion outlines the individual bond holdings
of the Partnership, discusses the significant terms of the
bonds, identifies those ownership entities which are
consolidated VIEs of the Company and briefly discusses the
overall operations and financial results of the underlying
properties.
|
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|
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|
|
Percentage of Occupied
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|
|
Economic Occupancy(1)
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|
Number
|
|
|
Units as of December 31,
|
|
|
for the Period Ended December 31,
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|
Property Name
|
|
of Units
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|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Consolidated Properties
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|
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|
|
Ashley Pointe at Eagle Crest
|
|
|
144
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|
|
|
98
|
%
|
|
|
90
|
%
|
|
|
86
|
%
|
|
|
90
|
%
|
Ashley Square
|
|
|
150
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|
|
|
81
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%
|
|
|
90
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%
|
|
|
80
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%
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|
|
88
|
%
|
Bent Tree Apartments
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|
|
232
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|
|
|
92
|
%
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|
|
92
|
%
|
|
|
80
|
%
|
|
|
75
|
%
|
Fairmont Oaks Apartments
|
|
|
178
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|
|
|
97
|
%
|
|
|
98
|
%
|
|
|
87
|
%
|
|
|
89
|
%
|
Iona Lakes Apartments
|
|
|
350
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|
|
|
88
|
%
|
|
|
98
|
%
|
|
|
90
|
%
|
|
|
91
|
%
|
Lake Forest Apartments
|
|
|
240
|
|
|
|
98
|
%
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|
|
96
|
%
|
|
|
97
|
%
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|
|
94
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%
|
Woodbridge Apts. of
Bloomington III
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|
|
280
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|
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|
97
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%
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|
93
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%
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|
|
92
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%
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|
|
86
|
%
|
Woodbridge Apts. of
Louisville II
|
|
|
190
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|
|
|
94
|
%
|
|
|
90
|
%
|
|
|
91
|
%
|
|
|
90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
1,764
|
|
|
|
93
|
%
|
|
|
94
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%
|
|
|
89
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%
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|
|
88
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%
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Non-Consolidated Properties
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|
Chandler Creek Apartments
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|
|
216
|
|
|
|
92
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%
|
|
|
93
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%
|
|
|
71
|
%
|
|
|
69
|
%
|
Clarkson College
|
|
|
142
|
|
|
|
83
|
%
|
|
|
74
|
%
|
|
|
70
|
%
|
|
|
60
|
%
|
Deerfield Apartments
|
|
|
72
|
|
|
|
64
|
%(2)
|
|
|
n/a
|
|
|
|
n/a
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|
|
|
n/a
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|
Bella Vista Apartments
|
|
|
144
|
|
|
|
n/a
|
(3)
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|
|
n/a
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|
|
n/a
|
|
|
|
n/a
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
574
|
|
|
|
|
|
|
|
|
|
|
|
|
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(1) |
|
Economic occupancy is presented for the twelve months ended
December 31, 2006 and 2005, and is defined as the net
rental income received divided by the maximum amount of rental
income to be derived from each property. This statistic is
reflective of rental concessions, delinquent rents and
non-revenue units such as model units and employee units. |
|
(2) |
|
For Deerfield, only Physical occupancy is presented as of
December 31, 2006, as this is a new investment. |
|
(2) |
|
Bella Vista was under initial construction as of
December 31, 2006, and therefore has no occupancy data. |
Ashley Pointe Ashley Pointe at Eagle Crest is
located in Evansville, Indiana and contains 144 units. The
tax exempt mortgage revenue bonds owned by the Partnership are
traditional 80/20 bonds issued prior to the Tax
Reform Act of 1986. These bonds require that 20% of the rental
units be set aside for tenants whose income does not exceed 80%
of the area median income, without adjustment for household
size. The bonds have an outstanding principal amount of
$6.7 million and have a base interest rate of 7.0%. This
bond contains an early call provision under which the
Partnership may call the bonds on December 1, 2007. The
bonds also contain a participation interest in any excess cash
flow generated by the underlying property through the potential
payment of contingent interest. The bond accrues contingent
interest at a rate of 3.5% annually and such contingent interest
is payable only if the underlying property generates excess
operating cash flows or realizes excess cash through capital
appreciation and a related sale or refinancing of the property.
To date the property has not paid any contingent interest and
the Partnership has not recognized any contingent interest
income related to this bond. Because of its capital structure
and the participation interests contained in the bond owned by
the Partnership this property is a consolidated VIE. In 2006,
Ashley Pointes operations resulted in net operating income
of $467,000 on net revenue of approximately $1.1 million.
19
Ashley Square Ashley Square Apartments is
located in Des Moines, Iowa and contains 150 units. The tax
exempt mortgage revenue bonds owned by the Partnership are
traditional 80/20 bonds issued prior to the Tax
Reform Act of 1986. These bonds require that 20% of the rental
units be set aside for tenants whose income does not exceed 80%
of the area median income, without adjustment for household
size. The bonds have an outstanding principal amount of
$6.5 million and have a base interest rate of 7.5%. The
bonds also contain a participation interest in any excess cash
flow generated by the underlying property through the potential
payment of contingent interest. The bond accrues contingent
interest at a rate of 3.0% annually and such contingent interest
is payable only if the underlying property generates excess
operating cash flows or realizes excess cash through capital
appreciation and a related sale or refinancing of the property.
To date the property has not paid any contingent interest and
the Partnership has not recognized any contingent interest
income related to this bond. Because of its capital structure
and the participation interests contained in the bond owned by
the Partnership this property is a consolidated VIE.
Additionally, the equity ownership of this property is held by
individuals or entities affiliated with the general partner. In
2006 Ashley Squares operations resulted in net operating
income of $240,000 on net revenue of approximately
$1.1 million. The 2006 results were negatively impacted by
significant capital improvement projects which resulted in
varying numbers of units being unavailable for rent throughout
the year. As a result occupancy trends are negative as both
physical and economic occupancy decreased from 2005 to 2006.
Property management expects operations to improve in 2007 as the
capital improvement projects are completed and all units are
available for rent.
Bella Vista Bella Vista Apartments are
currently under construction in Gainesville, Texas and will
contain 144 units upon completion in the first half of
2007. The tax exempt mortgage revenue bonds owned by the
Partnership are private activity housing bonds issued in
conjunction with the syndication of Low Income Housing Tax
Credits. The bonds have an outstanding principal amount of
$6.8 million and have a base interest rate of 6.15%. The
bonds do not contain participation interests. The bonds are
secured by a construction performance guarantee during the
construction period by a third-party guarantor. We have
determined that the company that owns Bella Vista Apartments
does not meet the definition of a variable interest
entity. As a result, this property is not a consolidated
VIE.
Bent Tree Bent Tree Apartments is located in
Columbia, South Carolina and contains 232 units. The tax
exempt mortgage revenue bonds owned by the Partnership are
traditional 80/20 bonds issued prior to the Tax
Reform Act of 1986. These bonds require that 20% of the rental
units be set aside for tenants whose income does not exceed 80%
of the area median income, without adjustment for household
size. The bonds have an outstanding principal amount of
$11.1 million and have a base interest rate of 7.1%. The
bonds also contain a participation interest in any excess cash
flow generated by the underlying property through the potential
payment of contingent interest. The bond accrues contingent
interest at a rate of 1.9% annually and such contingent interest
is payable only if the underlying property generates excess
operating cash flows or realizes excess cash through capital
appreciation and a related sale or refinancing of the property.
To date the property has not paid any contingent interest and
the Partnership has not recognized any contingent interest
income related to this bond. Because of its capital structure
and the participation interests contained in the bond owned by
the Partnership this property is a consolidated VIE.
Additionally, the equity ownership of this property is held by
individuals or entities affiliated with the general partner. In
2006, Bent Trees operations resulted in net operating
income of $580,000 on net revenue of approximately
$1.5 million.
Chandler Creek Chandler Creek Apartments is
located in Round Rock, Texas and contains 216 units. The
tax exempt mortgage revenue bonds owned by the Partnership were
issued under Section 145 of the Code by a
not-for-profit
entity qualified under Section 501(c) 3 of the Code. The
Chandler Creek bonds are in technical default and interest is
being paid on these bonds at a base rate below the stated rate.
In January 2004 the Company entered into a forbearance agreement
with the owner of Chandler Creek Apartments which set forth the
terms under which the Company agreed to forbear from the
exercise of remedies against the owner. Among the conditions to
forbearance is an agreement for current interest payments at a
rate below the stated rate. In April 2006, the Company
terminated the forbearance agreement with the owner. The
termination of the forbearance agreement allows the Company to
seek additional remedies including the ultimate foreclosure of
the property, if necessary. The Company does not currently
intend to exercise its right to foreclose on the property as the
property continues to pursue alternatives to ultimately satisfy
its obligations to its creditors. The bonds have an outstanding
principal amount of
20
$11.5 million and are currently paying a base interest rate
of 6.0%. The bonds do not contain participation interests.
Because the property is owned by a 501(c) 3
not-for-profit
entity it is not a consolidated VIE. In 2006 Chandler
Creeks operations resulted in net operating income of
$788,000 on net revenue of approximately $1.7 million.
Clarkson College Clarkson College is a 142
bed student housing facility located in Omaha, Nebraska. The tax
exempt mortgage revenue bonds owned by the Partnership were
issued under Section 145 of the Code by a
not-for-profit
entity qualified under Section 501(c) 3 of the Code. The
bonds have an outstanding principal amount of $6.1 million
and have a base interest rate of 6.0%. The bonds also contain a
participation interest in any excess cash flow generated by the
underlying property through the potential payment of contingent
interest. The bond accrues contingent interest at a rate of
1.25% annually and such contingent interest is payable only if
the underlying property generates excess operating cash flows or
realizes excess cash through capital appreciation and a related
sale or refinancing of the property. To date the property has
not paid any contingent interest and the Partnership has not
recognized any contingent interest income related to this bond.
Because the property is owned by a 501(c) 3
not-for-profit
entity it is not a consolidated VIE. In 2006 Clarkson
Colleges operations resulted in net operating income of
$393,000 on net revenue of approximately $588,000. As shown in
the table above, occupancy trends are positive as both physical
and economic occupancy increased from 2005 to 2006.
Deerfield Deerfield Apartments is located in
Blair, Nebraska and contains 72 units. The tax exempt
mortgage revenue bonds owned by the Partnership were issued
under Section 145 of the Code by a
not-for-profit
entity qualified under Section 501(c) 3 of the Code. The
bonds have an outstanding principal amount of $3.4 million
and have a base interest rate of 6.25%. The bonds do not contain
participation interests. Because the property is owned by a
501(c) 3
not-for-profit
entity it is not a consolidated VIE. The Partnership acquired
the bond in the fourth quarter of 2006.
Fairmont Oaks Fairmont Oaks Apartments is
located in Gainesville, Florida and contains 178 units. The
tax exempt mortgage revenue bonds owned by the Partnership are
traditional 80/20 bonds issued prior to the Tax
Reform Act of 1986. These bonds require that 20% of the rental
units be set aside for tenants whose income does not exceed 80%
of the area median income, without adjustment for household
size. The bonds have an outstanding principal amount of
$7.8 million and have a base interest rate of 6.2%. The
bonds also contain a participation interest in any excess cash
flow generated by the underlying property through the potential
payment of contingent interest. The bond accrues contingent
interest at a rate of 2.2% annually and such contingent interest
is payable only if the underlying property generates excess
operating cash flows or realizes excess cash through capital
appreciation and a related sale or refinancing of the property.
To date the property has not paid any contingent interest and
the Partnership has not recognized any contingent interest
income related to this bond. Because of its capital structure
and the participation interests contained in the bond owned by
the Partnership this property is a consolidated VIE.
Additionally, the equity ownership of this property is held by
individuals or entities affiliated with the general partner. In
2006, Fairmont Oaks operations resulted in net operating
income of $643,000 on net revenue of approximately
$1.4 million.
Iona Lakes Iona Lakes Apartments is located
in Fort Meyers, Florida and contains 350 units. The
tax exempt mortgage revenue bonds owned by the Partnership are
traditional 80/20 bonds issued prior to the Tax
Reform Act of 1986. These bonds require that 20% of the rental
units be set aside for tenants whose income does not exceed 80%
of the area median income, without adjustment for household
size. The bonds have an outstanding principal amount of
$16.5 million and have a base interest rate of 6.9%. The
bonds also contain a participation interest in any excess cash
flow generated by the underlying property through the potential
payment of contingent interest. The bond accrues contingent
interest at a rate of 2.6% annually and such contingent interest
is payable only if the underlying property generates excess
operating cash flows or realizes excess cash through capital
appreciation and a related sale or refinancing of the property.
To date the property has not paid any contingent interest and
the Partnership has not recognized any contingent interest
income related to this bond. Because of its capital structure
and the participation interests contained in the bond owned by
the Partnership this property is a consolidated VIE.
Additionally, the equity ownership of this property is held by
individuals or entities affiliated with the general partner. In
2006, Iona Lakes operations resulted in net operating
income of $1.6 million on net revenue of approximately
$3.2 million. As shown in the table above, occupancy trends
were lower in 2006. Physical occupancy declined significantly
due to units being unavailable for rent at times during the year
due to capital improvement
21
projects while economic occupancy declines slightly as fewer
concessions were granted in 2006 thereby offsetting the decline
in physical occupancy.
Lake Forest Lake Forest Apartments is located
in Daytona Beach, Florida and contains 240 units. The tax
exempt mortgage revenue bonds owned by the Partnership are
traditional 80/20 bonds issued prior to the Tax
Reform Act of 1986. These bonds require that 20% of the rental
units be set aside for tenants whose income does not exceed 80%
of the area median income, without adjustment for household
size. The bonds have an outstanding principal amount of
$10.3 million and have a base interest rate of 6.9%. The
bonds also contain a participation interest in any excess cash
flow generated by the underlying property through the potential
payment of contingent interest. The bond accrues contingent
interest at a rate of 1.6% annually and such contingent interest
is payable only if the underlying property generates excess
operating cash flows or realizes excess cash through capital
appreciation and a related sale or refinancing of the property.
To date the property has not paid any contingent interest and
the Partnership has not recognized any contingent interest
income related to this bond. Because of its capital structure
and the participation interests contained in the bond owned by
the Partnership this property is a consolidated VIE.
Additionally, the equity ownership of this property is held by
individuals or entities affiliated with the general partner. In
2006, Lake Forests operations resulted in net operating
income of $1.2 million on net revenue of approximately
$2.1 million. As shown in the table above, occupancy trends
are positive as both physical and economic occupancy increased
from 2005 to 2006.
Woodbridge at Louisville Woodbridge
Apartments at Louisville is located in Louisville, Kentucky and
contains 190 units. The tax exempt mortgage revenue bonds
owned by the Partnership are traditional 80/20 bonds
issued prior to the Tax Reform Act of 1986. These bonds require
that 20% of the rental units be set aside for tenants whose
income does not exceed 80% of the area median income, without
adjustment for household size. The bonds have an outstanding
principal amount of $9.0 million and have a base interest
rate of 7.5%. This bond contains an early call provision under
which the Partnership may call the bonds on December 1,
2007. The bonds also contain a participation interest in any
excess cash flow generated by the underlying property through
the potential payment of contingent interest. The bond accrues
contingent interest at a rate of 3.5% annually and such
contingent interest is payable only if the underlying property
generates excess operating cash flows or realizes excess cash
through capital appreciation and a related sale or refinancing
of the property. To date the property has not paid any
contingent interest and the Partnership has not recognized any
contingent interest income related to this bond. Because of its
capital structure and the participation interests contained in
the bond owned by the Partnership this property is a
consolidated VIE. In 2006, Woodbridge at Louisvilles
operations resulted in net operating income of $755,000 on net
revenue of approximately $1.6 million. As shown in the
table above, occupancy trends are positive as both physical and
economic occupancy increased from 2005 to 2006.
Woodbridge at Bloomington Woodbridge
Apartments at Bloomington is located in Bloomington, Indiana and
contains 280 units. The tax exempt mortgage revenue bonds
owned by the Partnership are traditional 80/20 bonds
issued prior to the Tax Reform Act of 1986. These bonds require
that 20% of the rental units be set aside for tenants whose
income does not exceed 80% of the area median income, without
adjustment for household size. The bonds have an outstanding
principal amount of $12.6 million and have a base interest
rate of 7.5%. This bond contains an early call provision under
which the Partnership may call the bonds on December 1,
2007. The bonds also contain a participation interest in any
excess cash flow generated by the underlying property through
the potential payment of contingent interest. The bond accrues
contingent interest at a rate of 3.5% annually and such
contingent interest is payable only if the underlying property
generates excess operating cash flows or realizes excess cash
through capital appreciation and a related sale or refinancing
of the property. To date the property has not paid any
contingent interest and the Partnership has not recognized any
contingent interest income related to this bond. Because of its
capital structure and the participation interests contained in
the bond owned by the Partnership this property is a
consolidated VIE. In 2006, Woodbridge at Bloomingtons
operations resulted in net operating income of $1.0 million
on net revenue of approximately $2.2 million. As shown in
the table above, occupancy trends are positive as both physical
and economic occupancy increased from 2005 to 2006.
22
Results
of Operations
The
Consolidated Company
The tables below compare the results of operations for the
Company for 2006, 2005, and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
Dec. 31, 2006
|
|
|
Dec. 31, 2005
|
|
|
Dec. 31, 2004
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property revenues
|
|
$
|
14,187,135
|
|
|
$
|
13,891,556
|
|
|
$
|
13,034,770
|
|
Mortgage revenue bond investment
income
|
|
|
1,418,289
|
|
|
|
1,061,242
|
|
|
|
923,108
|
|
Other bond investment income
|
|
|
4,891
|
|
|
|
73,179
|
|
|
|
321,750
|
|
Other interest income
|
|
|
337,008
|
|
|
|
102,474
|
|
|
|
78,367
|
|
Gain on sale of securities
|
|
|
|
|
|
|
126,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
15,947,323
|
|
|
|
15,255,201
|
|
|
|
14,357,995
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate operating (exclusive
of items shown below)
|
|
|
8,781,819
|
|
|
|
8,515,626
|
|
|
|
7,366,291
|
|
Depreciation and amortization
|
|
|
2,486,366
|
|
|
|
2,740,703
|
|
|
|
2,817,740
|
|
Interest
|
|
|
2,106,292
|
|
|
|
1,176,293
|
|
|
|
1,179,896
|
|
General and administrative
|
|
|
1,575,942
|
|
|
|
2,028,366
|
|
|
|
1,484,598
|
|
Hurricane related
|
|
|
|
|
|
|
|
|
|
|
771,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Expenses
|
|
|
14,950,419
|
|
|
|
14,460,988
|
|
|
|
13,620,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
996,904
|
|
|
|
794,213
|
|
|
|
737,804
|
|
Income (loss) from discontinued
operations, (including gain on sale of $11,667,246 and
$18,771,497 in 2006 and 2005, respectively)
|
|
|
11,779,831
|
|
|
|
18,770,929
|
|
|
|
(424,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of
accounting change
|
|
$
|
12,776,735
|
|
|
$
|
19,565,142
|
|
|
$
|
312,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2006 Compared to the Year Ended
December 31, 2005
Property Revenues. Property revenues increased
approximately $296,000 for the year ended December 31, 2006
compared to the same period of 2005. The increase is primarily
attributable to an increase in net rental revenue resulting from
the increase in economic occupancy. Annual net rental revenues
per unit increased from approximately $7,529 in 2005 to
approximately $7,632 in 2006, or $103 per unit. The largest
increases in per unit rents were realized at Woodbridge
Apartment of Bloomington, Woodbridge Apartments of Louisville
and Lake Forest where the properties combined to increase rental
revenues by approximately $234,000 or $319 per unit for the
year ended December 31, 2006 compared to 2005.
Mortgage revenue bond investment income. The
increase in mortgage revenue bond investment income from 2005 to
2006 is primarily due to income generated by the tax-exempt
mortgage bonds acquired in 2006. Specifically, the Bella Vista
and Deerfield bonds were acquired in the second and fourth
quarters of 2006, respectively. The interest income from Bella
Vista accounted for most of the increase.
Other interest income. Other interest income
represents interest earned on cash and cash equivalents. The
increase is attributable to higher average balances of cash and
cash equivalents during the year which resulted from the Clear
Lake and Northwoods transactions.
Gain on sale of securities. The Company sold
its entire interest in the Museum Tower bonds during the first
quarter of 2005 realizing a gain on the sale of securities of
$126,750. There were no such sales of securities in 2006.
23
Real estate operating expenses. Real estate
operating expenses increased during 2006 compared to 2005. This
increase is related to spending on ongoing repairs and
maintenance in order to make the properties more attractive to
current and potential tenants. Additionally, the properties
realized increased professional services fees, real estate taxes
and insurance costs.
Interest expense. Interest expense increased
significantly when comparing 2006 to 2005 due mainly to
increased interest rates on our variable interest debt and the
mark-to-market
adjustments on our interest rate caps. The effective borrowing
rates for the year on our variable interest debt increased
approximately 1%, or $477,000. The remaining increase is
attributable to the effect of interest rate cap expense which is
the result of marking our interest rate caps to market plus
amortization of premiums paid for the caps. For the year ended
December 31, 2005 this
mark-to-market
adjustment reduced interest expense by $365,000 as compared to
an increase in interest expense in 2006 of $210.
General and administrative expenses. General
and administrative expenses declined during 2006 compared to the
same period in 2005 primarily as a result of the payment of
$359,000 of deferred administrative fees in 2005. These fees
were previously deferred by the general partner, however, in
conjunction with the sale of Clear Lake Colony Apartments, these
fees were paid in December 2005. There were no such deferred
fees paid in 2006. Additionally, salaries and benefits expense
decreased approximately $90,000 for the year ended
December 31, 2006 compared to 2005 due mainly to lower
bonus accruals and lower benefit costs.
Depreciation and amortization. Depreciation
and amortization consists primarily of depreciation associated
with the apartment properties of the consolidated VIEs. The
decrease in depreciation expense in 2006 is attributable to
certain assets becoming fully depreciated during the year.
Year
Ended December 31, 2005 Compared to the Year Ended
December 31, 2004
Property Revenues. Property revenues increased
approximately $857,000 for the year ended December 31, 2005
compared to the same period of 2004. The increase is
attributable to increased occupancy as physical occupancy
increased to 94% as of December 31, 2005 compared to 88% as
of December 31, 2004. The increase in physical occupancy
resulted in an increase in annual net rental revenues per unit
from approximately $7,044 in 2004 to approximately $7,529 in
2005, or $485 per unit. The majority of the increase in
physical occupancy occurred in the second half of the year. The
largest increases in per unit rents were realized at Iona Lakes
and Lake Forest where the properties combined to increase rental
revenues by approximately $572,000 or $969 per unit for the
year ended December 31, 2005 compared to December 31,
2004.
Mortgage revenue bond investment income. The
increase in mortgage revenue bond investment income from 2004 to
2005 is primarily due to holding the Clarkson College tax-exempt
mortgage bonds for a full year in 2005 compared to only eight
months in 2004. The interest income associated with Clarkson
College contributed approximately $165,000 of additional income
for year ended December 31, 2005 compared with the same
period of 2004.
Other bond investment income. During the first
quarter of 2005, the Company sold its investment in the Museum
Tower tax-exempt bond. As a result of the sale, interest income
from these bonds decreased by approximately $286,000 in 2005.
Other interest income. Other interest income
represents interest earned on cash and cash equivalents. The
increase is attributable to higher average balances of cash and
cash equivalents during the year which resulted from the sale of
our investment in the Museum Towers bonds and the Clear Lake
transaction.
Gain on sale of securities. The Company sold
its entire interest in the Museum Tower bonds during the first
quarter of 2005. The carrying cost of the investment was
$3.9 million and the net proceeds from the sale were
$4.0 million resulting in a gain on the sale of securities
of $126,750.
Real estate operating expenses. Real estate
operating expense increased during 2005 compared to 2004. This
increase is related to spending on repairs and maintenance
during the second half of 2005 in order to make the properties
more attractive to current and potential tenants. Additionally,
the properties realized increased utility costs.
24
Interest expense. Interest expense was flat
when comparing 2005 to 2004 due mainly to two offsetting items.
An increase is attributable to a bridge loan that was entered
into during the third quarter of 2005 to facilitate the sale of
Clear Lake Colony Apartments. Prior to July 2005, the
Partnerships $16.0 million investment in the Clear
Lake bonds was used as collateral for the Partnerships
variable debt financing. The Partnership entered into a bridge
loan in order to refinance the existing debt and remove the
collateral restriction on the bonds. In order to obtain the
bridge loan, the Partnership paid origination fees of $160,000.
All of those fees were amortized to interest expense during
2005. In addition to the origination fees, the bridge loan
carried interest at a higher variable rate as compared to the
debt it replaced. This resulted in approximately $299,000 higher
interest expense in 2005 compared to 2004. Offsetting this
increase was the change in interest rate cap expense which is
the result of marking our interest rate caps to market. For the
year ended December 31, 2005, this
mark-to-market
adjustment reduced interest expense by $365,000 compared to an
increase in interest expense of $118,000 in 2004.
General and administrative expenses. General
and administrative expenses were higher during 2005 compared to
the same period in 2004 primarily as a result of the payment of
$359,000 of deferred administrative fees. These fees were
previously deferred by the general partner, however, in
conjunction with the sale of Clear Lake Colony Apartments, these
fees were paid in December 2005. The sale ultimately closed on
November 10, 2005 and is more fully described in the
discussion of Liquidity and Capital Resources in this
Form 10-K.
Salaries and benefits expense increased approximately $151,000
for the year ended December 31, 2005 compared to 2004 due
to the hiring of a dedicated fund manager and investment
analyst. Legal fees increased by approximately $107,000 and
Board of Manager fees increased by approximately $83,000 in 2005
compared to 2004. Offsetting these expenses were reductions in
accounting related expenses of approximately $65,000 related to
preparatory work associated with Sarbanes-Oxley compliance
incurred in 2004 along with a decrease in miscellaneous other
administrative expenses.
Hurricane related expenses. These expenses
relate to the hurricane damages sustained by certain properties
located in the areas of Florida and Georgia that were affected
by the various hurricanes that hit during 2004. There were no
such expenses in 2005 affecting the properties.
Discontinued
Operations
The assets, liabilities and results of operations of Clear Lake
Colony Apartments and Northwood Lake Apartments, consolidated
VIEs, are classified as discontinued operations under
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-lived Assets
(SFAS No. 144) see
Note 6 to the consolidated financial statements. The
following is a discussion of the transactions which precipitated
the classification as discontinued operations, the
transactions impact on the consolidated financial
statements of the Company and the transactions impact on
the Partnership.
During 2006, Northwoods Lake Apartments in Duluth, Georgia met
the criteria as a discontinued operation under
SFAS No. 144. During the third quarter of 2006 the
property was sold to an unaffiliated third party. In order to
properly reflect the transaction under FIN 46R, the Company
recorded the sale of the property in 2006 as though the property
was owned by the Company. As such, in 2006, the Company recorded
a gain on the sale of the property of $11.7 million. In
conjunction with the property sale, the Partnership sold its
investment in the bonds issued by the property owner at par
value plus accrued interest. Additionally, the property owner
realized approximately $4.3 million in net cash proceeds
from the sale of the property. These funds were used in their
entirety to retire existing obligations of the property owner
including accumulated tax exempt contingent interest earned by
the Partnership on the bonds. The sale of the bonds plus the
receipt of accumulated contingent interest in 2006 resulted in
total proceeds to the Partnership of approximately
$10.4 million.
As of December 31, 2005, Northwoods assets of
approximately $17.5 million and liabilities of
approximately $18.7 million are included in assets and
liabilities of discontinued operations, respectively. For the
years ended December 31, 2006, 2005 and 2004,
Northwoods net income of approximately $113,000, $26,000
and $133,000, respectively, is included in the income or loss
from discontinued operations.
On July 22, 2005, the Partnership entered into a purchase
and sale agreement (the Agreement) to sell the Clear
Lake Colony Apartments (Clear Lake) to an
unaffiliated third party. Because Clear Lake Colony Acquisition
Corp, the owner of Clear Lake, defaulted on its bond obligations
to the Partnership, the Partnership
25
acquired sole ownership of Clear Lake by way of deed in lieu of
foreclosure immediately prior to the Partnerships sale of
Clear Lake. The Agreement provided for a sales price of
$33.4 million for all of the land, buildings, building
improvements, certain personal property, current lease
agreements and other assets associated with Clear Lake. On
November 10, 2005, the sale closed resulting in a taxable
gain to the Partnership of approximately $12.4 million and
a GAAP basis gain of approximately $18.8 million for the
Company. The Partnership received cash proceeds of approximately
$32.2 million, net of transaction related costs. For the
years ended December 31, 2005 and 2004, Clear Lakes
net income (loss) of approximately ($27,000) and ($558,000),
respectively, is included in the income or loss from
discontinued operations.
In conjunction with the Clear Lake transaction, the general
partners Board of Managers approved a special distribution
to the BUC holders. In accordance with the Agreement of Limited
Partnership, this special distribution is considered a
distribution of Net Residual Proceeds. All of the Clear Lake
sale proceeds are classified as Tier 2 Net Residual
Proceeds. The Board approved a special distribution of
$3.5 million from the Net Residual Proceeds from the Clear
Lake Colony sale. As this is a Tier 2 distribution,
approximately $2.6 million or 75% of the total distribution
was paid to BUC holders of record as of November 30, 2005
and approximately $0.9 million was paid to the general
partner in the fourth quarter of 2005. The Partnership used
$16.0 million of the proceeds for the repayment of debt.
The remaining proceeds from the sale of approximately
$12.4 million were reinvested in accordance with the
Partnerships investment strategy.
The
Partnership
The Partnership was formed for the primary purpose of acquiring,
holding, selling and otherwise dealing with a portfolio of
federally tax-exempt mortgage revenue bonds which have been
issued to provide construction
and/or
permanent financing of multifamily residential apartments. The
Partnerships business objectives are to: (i) preserve
and protect its capital; (ii) provide regular cash
distributions to BUC holders; and (iii) provide a potential
for an enhanced federally tax-exempt yield as a result of a
participation interest in the net cash flow and net capital
appreciation of the underlying real estate properties financed
by the tax-exempt mortgage revenue bonds.
The Partnership is pursuing a business strategy of acquiring
additional tax-exempt mortgage revenue bonds on a leveraged
basis in order to: (i) increase the amount of tax-exempt
interest available for distribution to its BUC holders;
(ii) reduce risk through asset diversification and interest
rate hedging; and (iii) achieve economies of scale. The
Partnership seeks to achieve its investment growth strategy by
investing in additional tax-exempt mortgage revenue bonds and
related investments, taking advantage of attractive financing
structures available in the tax-exempt securities market and
entering into interest rate risk management instruments.
Each of the tax-exempt mortgage revenue bonds bears tax-exempt
interest at a fixed rate and ten of the bonds provide for the
payment of additional contingent interest that is payable solely
from available net cash flow generated by the financed property.
At December 31, 2006, all of the Partnerships
tax-exempt mortgage revenue bonds were paying their full amount
of base interest. The Partnership has the ability and may
restructure the terms of its tax-exempt mortgage revenue bond to
reduce the base interest rate payable on these bonds. The
Partnership remains aware of this potential and continues to
monitor the performance of the multifamily properties
collateralizing its tax-exempt mortgage revenue bonds.
As of December 31, 2006 the Partnership has securitized
$45.8 million of its tax-exempt mortgage revenue bond
portfolio. The Partnership has used the proceeds, and will use
future proceeds, from these securitization transactions to
acquire additional tax-exempt mortgage revenue bonds and other
investments.
The Partnership may make taxable loans or acquire direct
ownership interests in real property with the ultimate purpose
of acquiring tax-exempt mortgage revenue bonds secured by the
same property. The Partnership may also make taxable loans to
provide capital project funding to a property securing a
tax-exempt mortgage revenue bond already owned by the
Partnership. Therefore, the business purpose of the Partnership
making taxable loans or acquiring direct property ownership
interests is not solely to earn taxable income, but rather to
acquire, either immediately or in the future, a tax-exempt
mortgage revenue bond or to improve the condition of a property
securing a tax-exempt mortgage revenue bond.
26
The following discussion of the Partnerships results of
operations for the years ended December 31, 2006, 2005 and
2004 reflects the operations of the Partnership prior to the
consolidation of the VIEs, which was required with the
implementation of FIN 46R. This information reflects the
information used by management to analyze the Partnerships
operations and is reflective of the segment data discussed in
Note 13 to the audited financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
Dec. 31, 2006
|
|
|
Dec. 31, 2005
|
|
|
Dec. 31, 2004
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage revenue bond investment
income
|
|
$
|
11,633,084
|
|
|
$
|
10,168,938
|
|
|
$
|
8,779,595
|
|
Other bond investment income
|
|
|
4,892
|
|
|
|
73,179
|
|
|
|
321,750
|
|
Other interest income
|
|
|
983,372
|
|
|
|
505,032
|
|
|
|
127,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,621,348
|
|
|
|
10,747,149
|
|
|
|
9,228,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond Impairment
|
|
|
|
|
|
|
|
|
|
|
374,841
|
|
Provision for Loan Losses
|
|
|
|
|
|
|
734,000
|
|
|
|
217,654
|
|
Interest expense
|
|
|
2,106,291
|
|
|
|
2,149,027
|
|
|
|
1,774,902
|
|
Amortization expense
|
|
|
25,605
|
|
|
|
24,467
|
|
|
|
196,122
|
|
General and administrative
|
|
|
1,575,942
|
|
|
|
2,028,366
|
|
|
|
1,484,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,707,838
|
|
|
|
4,935,860
|
|
|
|
4,048,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
8,913,510
|
|
|
$
|
5,811,289
|
|
|
$
|
5,180,388
|
|
Income from discontinued operations
|
|
$
|
|
|
|
$
|
12,310,334
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of
accounting change
|
|
$
|
8,913,510
|
|
|
$
|
18,121,623
|
|
|
$
|
5,180,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2006 Compared to the Year Ended
December 31, 2005
Mortgage revenue bond investment
income. Mortgage revenue bond investment income
increased approximately $1.4 million in 2006 compared to
2005. The increase is due to increased collections of contingent
interest offset by decreased collections of base interest.
Contingent interest income collected in 2006 increased
approximately $2.2 million. Previously unrecognized
contingent interest associated with the Partnerships
investment in the Northwoods Lake mortgage revenue bond amounted
to $4.3 million and was received and recognized in the
third quarter of 2006. Previously unrecognized contingent
interest associated with the Clear Lake bonds totaling
approximately $2.1 million was received and recognized in
the fourth quarter of 2005. Due to the uncertainty in
collections of contingent interest, the Partnership recognizes
this as income only when it is realized. Interest associated
with the mortgage revenue bonds acquired in 2006 increased base
income by approximately $360,000. Offsetting the increase
associated with the new bonds were decreases in mortgage revenue
bond investment income related to bonds sold or otherwise
disposed in 2006 and 2005. The decrease in base interest on the
Northwoods bonds which were outstanding through August 24,
2006 and the Clear Lake bonds which were outstanding through
November 15, 2005 amounted to approximately
$1.1 million.
Other interest income. Other interest income
represents interest earned on the Partnerships taxable
loans and cash and cash equivalents. The increase is
attributable to interest received on taxable loans plus increase
income on cash equivalent investments. Interest on taxable loans
increased approximately $91,000. The interest on taxable loans
is recorded as received due to the risk of collection. Interest
income on cash equivalents increased approximately $337,000 due
to higher levels of cash equivalents during the year.
Bond impairment and provision for loan
losses. The Partnership is required to
periodically test its tax-exempt mortgage bonds for impairment
by determining if the fair value of a bond is less than its
cost. If a bond is impaired on other than a temporary basis, an
impairment charge is recorded against earnings in the period.
Similarly, the Partnership is required to recognize a provision
for loan losses against earnings when it determines
27
that the full amount of principal and interest on its taxable
loans may not be fully recoverable. The Partnership has
determined that no such impairment charges are necessary in
2006. In 2005 no bond impairment was recorded while a provision
for loan losses of $734,000 was recorded.
Interest expense. Interest expense decreased
by approximately $43,000 during 2006 compared to 2005. The
decrease is attributable to interest expense on loans
outstanding during 2005 related to Clear Lake Colony Apartments
which were no longer outstanding in 2006. Total interest expense
paid in 2005 related to Clear Lake, including origination fees
of $160,000 paid on a bridge loan used to facilitate the sale of
the Clear Lake property, was approximately $777,000. Offsetting
the decline in interest paid related to Clear Lake were two
items, an increase in our variable borrowing rates and the
mark-to-market
adjustment recorded related to our interest rate caps. The
effective borrowing rates for the year on our variable interest
debt increased approximately 1%, or $477,000. The remaining
increase is attributable to the effect of interest rate cap
expense which is the result of marking our interest rate caps to
market plus amortization of premiums paid for the caps. For the
year ended December 31, 2005 this
mark-to-market
adjustment reduced interest expense by $365,000 as compared to
an increase in interest expense in 2006 of $210.
General and administrative expenses. General
and administrative expenses declined during 2006 compared to the
same period in 2005 primarily as a result of the payment of
$359,000 of deferred administrative fees in 2005. These fees
were previously deferred by the general partner, however, in
conjunction with the sale of Clear Lake Colony Apartments, these
fees were paid in December 2005. There were no such deferred
fees paid in 2006. Salaries and benefits expense decreased
approximately $90,000 for the year ended December 31, 2006
compared to 2005 due mainly to lower bonus accruals and lower
benefit costs. Professional and Board of Managers fees increased
by approximately $60,000 due mainly to increased legal costs
offset by a decline in Board of Managers fees. Along with the
items noted, miscellaneous other administrative expenses showed
general declines in 2006.
Year
Ended December 31, 2005 Compared to the Year Ended
December 31, 2004
Mortgage revenue bond investment
income. Mortgage revenue bond investment income
increased approximately $1.4 million in 2005 compared to
2004. The increase is due to previously unrecognized contingent
interest and deferred contingent interest associated with the
Partnerships investment in the Clear Lake mortgage revenue
bond. Total contingent interest and deferred contingent interest
amounted to approximately $2.1 million and was received and
recognized in the fourth quarter of 2005. Due to the uncertainty
in collections of contingent interest, the Partnership
recognizes this as income only when it is realized. Interest
associated with Clarkson Student Housing bonds increased income
by approximately $164,000 due to a full year of ownership of the
bonds in 2005 compared to a partial year of owning the bonds in
2004. Offsetting the increase associated with Clear Lake and
Clarkson were decreases in mortgage revenue bond investment
income related to a decrease in base interest on the Clear Lake
bonds as the bonds were outstanding through November 15,
2005 compared to an entire year in 2004. The reduced base
interest income amounted to approximately $138,000 in 2005.
Additional reductions in interest income occurred from the
Northwoods bond restructuring in 2004 whereby the Partnership
reduced its ownership in the Northwoods bonds from a principal
investment of approximately $25.2 million at the beginning
of 2004 to $6.1 million in June 2004. The reduced ownership
resulted in approximately $661,000 of lower interest income in
2005. Further reductions in interest income of approximately
$48,000 were due to principal payments made during 2005 on the
other investments of the Partnership.
Other bond investment income. During the first
quarter of 2005, the Company sold its investment in Museum Tower
tax-exempt bond. As a result of the sale, interest income from
this bond decreased by approximately $286,000 in 2005.
Offsetting this decrease was approximately $37,000 of additional
bond interest income from the investment in bonds of
approximately $600,000 during 2005.
Other interest income. Other interest income
represents income earned on the Partnerships taxable loans
and cash and cash equivalents. The increase is primarily
attributable to interest received on a taxable loan to Clear
Lake Colony Apartment of approximately $312,000. The interest on
this taxable loan was previously not recorded due to the risk of
collectibility.
Bond impairment and provision for loan
losses. The Partnership is required to
periodically test its tax-exempt mortgage bonds for impairment
by determining if the fair value of a bond is less than its
cost. If a bond is
28
impaired on other than a temporary basis, an impairment charge
is recorded against earnings in the period. Similarly, the
Partnership is required to recognize a provision for loan losses
against earnings when it determines that the full amount of
principal and interest on its taxable loans may not be fully
recoverable. The Partnership recorded a bond impairment of $0
and a provision for loan losses of $734,000 for the year ended
December 31, 2005 compared with a bond impairment of
approximately $375,000 and a provision for loan losses of
approximately $218,000 for the year ended December 31, 2004.
Interest expense. Interest expense increased
by approximately $374,000 during 2005 compared to 2004. The
increase is attributable to a bridge loan that was entered into
during the third quarter of 2005 to facilitate the sale of Clear
Lake Colony Apartments. Prior to July of 2005, the
Partnerships $16.0 million investment in the Clear
Lake bonds was used as collateral for the Partnerships
variable debt financing. The Partnership entered into a bridge
loan in order to refinance the existing debt and remove the
collateral restriction on the bonds. In order to obtain the
bridge loan, the Partnership paid origination fees of $160,000.
All of those fees were amortized to interest expense during
2005. In addition to the origination fees, the bridge loan
carried interest at variable rate and was approximately $299,000
higher in 2005 compared to 2004.
Amortization expense. Amortization expense
decreased approximately $172,000 primarily due to the bond and
debt financing costs expensed on the restructure of the
Northwood Lakes bonds in 2004.
General and administrative expenses. General
and administrative expenses were higher during 2005 compared to
the same period in 2004 primarily as a result of $359,000 of
deferred administrative fees. These fees were previously
deferred by the general partner, however, in conjunction with
the sale of Clear Lake Colony Apartments, these fees were paid
during 2005. The sale ultimately closed on November 10,
2005 and is more fully described in the discussion of Liquidity
and Capital Resources in this
Form 10-K.
Salaries and benefits expense increased approximately $151,000
for the year ended December 31, 2005 compared to 2004.
Legal fees increased by approximately $107,000 and Board of
Manager fees increased by approximately $83,000 in 2005 compared
to 2004. Offsetting these expenses were reductions in accounting
related expenses of approximately $65,000 along with a decrease
in miscellaneous other administrative expenses.
Liquidity
and Capital Resources
Partnership
Liquidity
Tax-exempt interest earned on the mortgage revenue bonds
represents the Partnerships principal source of cash flow.
Tax-exempt interest is primarily comprised of base interest on
the mortgage revenue bonds. The Partnership will also receive
from time to time contingent interest on the mortgage revenue
bonds. Contingent interest is only paid when the underlying
properties generate excess cash flow or are sold or refinanced
in transactions that generate sufficient proceeds to allow for
the payment of accrued contingent interest. Therefore, cash
in-flows are fairly fixed in nature and increase when the
underlying properties have strong economic performances and when
the Partnership acquires additional tax-exempt mortgage revenue
bonds.
The Partnerships principal uses of cash are the payment of
distributions to BUC holders, interest on debt financing and
general and administrative expenses. The Partnership also uses
cash to acquire additional investments. Distributions to BUC
holders may increase or decrease at the determination of the
general partner. The Partnership is currently paying regular
distributions at the rate of $0.54 per BUC per year. As
previously discussed, the Partnership paid a special
distribution of approximately $0.27 per BUC during 2005 in
conjunction with the Clear Lake transaction. The general partner
determines the amount of the distributions based upon the
projected future cash flows of the Partnership. Future
distributions to BUC holders will depend upon the amount of base
and contingent interest received on the tax-exempt mortgage
revenue bonds and other investments, the effective interest rate
on the Partnerships variable-rate debt financing, and the
amount of the Partnerships undistributed cash.
The Partnership believes that cash provided by net interest
income from its tax-exempt mortgage revenue bonds and other
investments will be adequate to meet its projected long-term
liquidity requirements, including the payment of expenses,
interest and distributions to BUC holders. Recently, income from
investments has not been sufficient to fund such expenditures
without utilizing cash reserves to supplement the deficit. See
discussion below regarding Cash Available for
Distribution.
29
VIE
Liquidity
The VIEs primary source of cash is net rental revenues
generated by their real estate investments. Net rental revenues
from a multifamily apartment property depend on the rental and
occupancy rates of the property and on the level of operating
expenses. Occupancy rates and rents are directly affected by the
supply of, and demand for, apartments in the market area in
which a property is located. This, in turn, is affected by
several factors such as local or national economic conditions,
the amount of new apartment construction and the affordability
of single-family homes. In addition, factors such as government
regulation (such as zoning laws), inflation, real estate and
other taxes, labor problems and natural disasters can affect the
economic operations of an apartment property.
The VIEs primary uses of cash are: (i) the payment of
operating expenses; and (ii) the payment of debt service on
the VIEs bonds and mortgage notes payable.
Consolidated
Liquidity
Cash flows provided by operating activities increased
$1.8 million in 2006 compared to 2005 due primarily to the
timing of payments in accounts payable offset by a decline in
net operating income. Net operating income is net income
excluding gains, depreciation and amortization. The decline in
net operating income was realized by the consolidated VIEs as
property revenues declined while operating expenses increased.
Cash provided by investing activities decreased
$16.7 million in 2006 compared to 2005. This decline was
due to lower sale proceeds from asset sales coupled with an
increase in cash used to acquire new investments. Total proceeds
from asset sales were approximately $29.6 million as
compared to $36.2 million in 2005. A use of cash was the
acquisition of tax-exempt bonds which totaled approximately
$22.2 million as compared to $12.0 million in 2005.
Cash used in financing activities decreased $19.1 million
in 2006 compared to 2005 due to lower distributions and debt
principal payments. Specifically, in 2005 $16.0 million of
debt related to Clear Lake was retired while no such debt
retirement as occurred in 2006.
Cash
Available for Distribution
Management utilizes a calculation of Cash Available for
Distribution (CAD) as a means to determine the
Partnerships ability to make distributions to BUC holders.
The Company believes that CAD provides relevant information
about its operations and is necessary along with net income
(loss) for understanding its operating results. To calculate
CAD, amortization expense related to debt financing costs and
bond reissuance costs, Tier 2 income due to the general
partner as defined in the Agreement of Limited Partnership,
interest rate cap expense, provision for loan losses,
impairments on bonds and losses related to VIEs including the
cumulative effect of accounting change are added back to the
Companys net income (loss) as computed in accordance with
accounting principles generally accepted in the United States of
America (GAAP). Management evaluates two measures of
CAD by further breaking down the calculation into Total CAD and
CAD excluding contingent interest and realized gains. There is
no generally accepted methodology for computing CAD, and the
Companys computation of CAD may not be comparable to CAD
reported by other companies. Although the Company considers CAD
to be a useful measure of its operating performance, CAD should
not be considered as an alternative to net income or net cash
flows from operating activities which are calculated in
accordance with GAAP.
The Partnerships regular annual distributions are
currently equal to $0.54 per unit. In recent years CAD,
excluding contingent interest and realized gains, has not been
sufficient to fund such distributions, without utilizing cash
reserves to supplement the deficit. The general partner believes
that the Partnership has an opportunity to increase its CAD
excluding contingent interest and realized gains to a level that
equals or exceeds the current distribution rate by fully
investing, on a leveraged basis, the cash and cash equivalents
currently held by the Partnership in new investments. The
general partner believes that current investment opportunities
will allow the Partnership to become fully invested in the near
future.
30
The following tables show the calculation of CAD and the
break-down of Total CAD and CAD excluding contingent interest
and realized gains for the years ended December 31, 2006
and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net income (loss)
|
|
$
|
12,776,735
|
|
|
$
|
19,565,142
|
|
|
$
|
(37,710,057
|
)
|
Net (income) loss related to VIEs
and eliminations due to consolidation
|
|
$
|
(3,863,226
|
)
|
|
|
(1,443,519
|
)
|
|
|
4,867,444
|
|
Cumulative effect of accounting
change
|
|
$
|
|
|
|
|
|
|
|
|
38,023,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before impact of VIE
consolidation
|
|
$
|
8,913,509
|
|
|
|
18,121,623
|
|
|
|
5,180,388
|
|
Amortization expense (Partnership
only)
|
|
|
25,605
|
|
|
|
24,467
|
|
|
|
196,122
|
|
Tier 2 Income(1)
|
|
|
(1,062,500
|
)
|
|
|
(3,595,754
|
)
|
|
|
|
|
Interest rate cap expense
|
|
|
210
|
|
|
|
(364,969
|
)
|
|
|
117,916
|
|
Provision for loan losses
|
|
|
|
|
|
|
734,000
|
|
|
|
217,654
|
|
Impairment on tax-exempt mortgage
revenue bonds
|
|
|
|
|
|
|
|
|
|
|
374,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAD
|
|
$
|
7,876,824
|
|
|
$
|
14,919,367
|
|
|
|
6,086,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As described in Note 3 to the consolidated financial
statements, Net Interest Income representing contingent interest
and Net Residual Proceeds representing contingent interest
(Tier 2 Income) will be distributed 75% to the BUC holders
and 25% to the general partner. This adjustment represents the
25% of Tier 2 income due to the general partner. For 2006,
the Northwoods Lake Apartments sale provided for
$4.25 million of Tier 2 Income. For 2005 the Clear
Lake sale resulted in approximately $14.4 million of
Tier 2 Income. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Total CAD
|
|
$
|
7,876,824
|
|
|
$
|
14,919,367
|
|
|
$
|
6,086,921
|
|
Contingent interest and realized
gains
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent interest
Northwoods
|
|
|
3,187,500
|
|
|
|
|
|
|
|
|
|
Contingent interest and realized
gain Clear Lake
|
|
|
|
|
|
$
|
10,787,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAD from contingent interest and
realized gains
|
|
$
|
3,187,500
|
|
|
$
|
10,787,261
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAD excluding contingent interest
and realized gains
|
|
$
|
4,689,324
|
|
|
$
|
4,132,106
|
|
|
$
|
6,086,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of units
outstanding, basic and diluted
|
|
|
9,837,928
|
|
|
|
9,837,928
|
|
|
|
9,837,928
|
|
Net income, basic and diluted, per
unit
|
|
$
|
0.74
|
|
|
$
|
1.74
|
|
|
$
|
0.73
|
|
Total CAD per unit
|
|
$
|
0.80
|
|
|
$
|
1.52
|
|
|
$
|
0.62
|
|
CAD from contingent interest and
realized gains, per unit
|
|
$
|
0.32
|
|
|
$
|
1.10
|
|
|
$
|
|
|
CAD excluding contingent interest
and realized gains, per unit
|
|
$
|
0.48
|
|
|
$
|
0.42
|
|
|
$
|
0.62
|
|
Off
Balance Sheet Arrangements
As of December 31, 2006 and 2005, the Partnership invested
in tax-exempt mortgage revenue bonds which are collateralized by
multifamily housing projects. The multifamily housing projects
are owned by entities that are not controlled by the
Partnership. The Partnership has no equity interest in these
entities and does not guarantee any obligations of these
entities. Some of the ownership entities are treated as variable
interest entities (VIEs) of the Partnership and are
consolidated with the Partnership for financial reporting
purposes. The VIEs that are consolidated with the Partnership do
not have off-balance sheet arrangements.
The Partnership has financed the acquisition of some of its
tax-exempt revenue bonds using the Merrill Lynch P-Float
program. Although this financing involves placing the mortgage
revenue bonds in trust in exchange for an interest in the trust,
the transaction is treated as a leveraged financing and not a
sale of the mortgage revenue bonds.
31
Therefore, the Partnership continues to reflect the mortgage
revenue bonds as assets in its balance sheet and does not have
any off-balance sheet arrangements.
The Partnership does not engage in trading activities involving
non-exchange traded contracts. As such, the Partnership is not
materially exposed to any financing, liquidity, market, or
credit risk that could arise if it had engaged in such
relationships.
The Partnership does not have any relationships or transactions
with persons or entities that derive benefits from their
non-independent relationships with the Company or its related
parties other than what is disclosed in Note 8 to the
Companys consolidated financial statements.
Contractual
Obligations
The Partnership has the following contractual obligations as of
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
1-3
|
|
|
3-5
|
|
|
More Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Debt financing
|
|
$
|
45,770,000
|
|
|
$
|
7,835,000
|
|
|
$
|
10,320,000
|
|
|
$
|
27,615,000
|
|
|
$
|
|
|
Coupon rate(s)(1)
|
|
|
|
|
|
|
4.27
|
%
|
|
|
4.31
|
%
|
|
|
4.23
|
%
|
|
|
|
|
Interest(2)
|
|
$
|
6,216,382
|
|
|
$
|
1,724,425
|
|
|
$
|
3,188,747
|
|
|
$
|
1,303,210
|
|
|
|
|
|
|
|
|
(1) |
|
Effective interest rates differ as described in Item 7
Debt Financing, interest rates shown are the average
effective rate, including fees, for the year ended
December 31, 2006 |
|
(2) |
|
Interest shown is estimated based upon current effective
interest rates through maturity |
Inflation
With respect to the financial results of the Partnerships
investments in tax-exempt mortgage revenue bonds, substantially
all of the resident leases at the multifamily residential
properties, which collateralize the Partnerships
tax-exempt mortgage revenue bonds, allow, at the time of
renewal, for adjustments in the rent payable there under, and
thus may enable the properties to seek rent increases. The
substantial majority of these leases are for one year or less.
The short-term nature of these leases generally serves to reduce
the risk to the properties of the adverse effects of inflation;
however, market conditions may prevent the properties from
increasing rental rates in amounts sufficient to offset higher
operating expenses. Inflation did not have a significant impact
on the Partnerships financial results for the years
presented in this report.
Recent
Accounting Pronouncements
In June 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an Interpretation
of FASB Statement No. 109. The interpretation clarifies
the accounting for uncertainty in tax positions. The
interpretation is effective for us beginning in the first
quarter of 2007. We do not believe the standard will have a
material impact on the consolidated financial statements.
In September 2006, the FASB issued Statement No. 157,
Fair Value Measurement
(SFAS No. 157). This statement does not
require new fair value measurements, however, it provides
guidance on applying fair value and expands required
disclosures. SFAS No. 157 is effective beginning in
the first quarter of 2008. We are currently assessing the impact
SFAS No. 157 may have on our consolidated financial
statements.
In February 2007, the FASB issued Statement No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115 (SFAS No. 159). This
statement permits, but does not require, entities to choose to
measure many financial instruments and certain other items at
fair value. SFAS No. 159 is effective for us beginning
in the first quarter of 2008. We are currently assessing the
impact SFAS No. 159 may have on our consolidated
financial statements.
32
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
The Partnerships primary market risk exposures are
interest rate risk and credit risk. The Partnerships
exposure to market risks relates primarily to its investments in
tax-exempt mortgage revenue bonds and its debt financing.
Interest
Rate Risk
Interest rates are highly sensitive to many factors, including
governmental, monetary and tax policies, domestic and
international economic and political considerations and other
factors beyond the Partnerships control. The nature of the
Partnerships investment in the tax-exempt mortgage revenue
bonds and the debt financing used to finance these investments
exposes the Partnership to financial risk due to fluctuations in
market interest rates. The tax-exempt mortgage revenue bonds
bear base interest at fixed rates and may additionally pay
contingent interest which fluctuates based upon the cash flows
of the underlying property. As of December 31, 2006, the
weighted average base rate of the tax-exempt mortgage revenue
bonds was 6.8%. Accordingly, the interest income generated by
the tax-exempt mortgage revenue bonds is generally fixed, except
to the extent the underlying properties generate enough excess
cash flow to pay contingent interest. Each of the bonds matures
after 2010. Conversely, the interest rates on the
Partnerships floating rate debt financing fluctuate based
on the BMA Index Rate, which resets weekly. Accordingly, the
Partnerships cost of borrowing will increase as the BMA
Index Rate increases. As of December 31, 2006, the
Partnership had total debt financing outstanding of $45,770,000.
The weighted average effective interest rate for 2006 on the
debt outstanding as of December 31, 2006 was approximately
4.3%. If the average BMA Index Rate, including fees, had
increased or decreased by 100 basis points for the year ended
December 31, 2006, the interest expense payments on this
variable-rate debt financing would have increased or decreased
by approximately $460,000, respectively.
In the event of a significant unfavorable fluctuation in
interest rates, the Partnership may collapse each of its
financing transactions by exercising the call feature of the
respective bond securitization. The BMA Index Rate, net of any
fees, ranged from 2.9% to 4.0% during the year ended
December 31, 2006, while the base rates of the securitized
tax-exempt mortgage revenue bonds range from 6.00% to 8.50% as
of December 31, 2006. In the event that the BMA Index Rate
rises dramatically and exceeds the base rate of the securitized
tax-exempt mortgage revenue bonds, the trust would be collapsed
as a result of insufficient interest from the underlying
fixed-rate tax-exempt mortgage bond to service the floating rate
senior interest obligations of the P-Float. Upon collapse of the
trust, the Company would have to either refinance or sell the
tax-exempt mortgage revenue bonds. A decrease in the net
interest income earned through the structure of the
securitizations would decrease cash available for distributions.
The Partnership is managing its interest rate risk on its debt
financing by entering into interest rate cap agreements that cap
the amount of interest expense it could pay on its floating rate
debt financing as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal of
|
|
|
Effective
|
|
|
Maturity
|
|
Purchase
|
|
|
|
Date Purchased
|
|
Debt Financing
|
|
|
Capped Rate
|
|
|
Date
|
|
Price
|
|
|
Counter Party
|
|
July 7, 2006
|
|
$
|
10,000,000
|
|
|
|
4.90
|
%
|
|
July 1, 2011
|
|
$
|
159,700
|
|
|
US Bank
|
November 1, 2002
|
|
$
|
10,000,000
|
|
|
|
3.90
|
%(1)
|
|
November 1, 2007
|
|
$
|
250,000
|
|
|
Bank of America
|
February 1, 2003
|
|
$
|
15,000,000
|
|
|
|
4.40
|
%(2)
|
|
January 1, 2010
|
|
$
|
608,000
|
|
|
Bank of America
|
|
|
|
(1) |
|
The counterparty has the right to convert the cap into a fixed
rate swap with an effective fixed interest rate to the
Partnership of 3.50%. |
|
(2) |
|
The counterparty has the right to convert the cap into a fixed
rate swap with an effective fixed interest rate to the
Partnership of 3.85%. |
Using the cap agreements, the Partnership is able to benefit
from a low interest rate environment, while still remaining
protected from a significant increase in the floating rates.
Bank of America does have the right to convert two of the cap
agreements to fixed rate swaps, in which case the
Partnerships interest expense would be fixed, but at
higher interest rates than the current floating rate. Should the
BMA Index Rate continue to remain low or further decline, Bank
of America could exercise such option. The cap agreements are
required to be marked to market with the difference recognized
in earnings as interest expense which can result in significant
volatility to reported net
33
income over the term of the caps. The weighted-average effective
rate on the debt financing, excluding the effect of marking the
interest rate cap agreements to market, was 4.3% for the year
ended December 31, 2006. At times during 2006 our effective
interest rates were in excess of our interest rate caps
resulting in cash payments to the Company of approximately
$46,000.
The fair value of the Partnerships investments in
tax-exempt mortgage revenue bonds, which bear fixed base
interest rates, is also directly impacted by changes in market
interest rates. An increase in rates will cause the fair value
of the bonds to decrease. If the fair value of the bonds
decreases, the Partnership may need to provide additional
collateral for its debt financing.
Credit
Risk
The Partnerships primary credit risk is the risk of
default on its portfolio of tax-exempt mortgage revenue bonds
and taxable loans collateralized by the multifamily properties.
The tax-exempt mortgage revenue bonds are not direct obligations
of the governmental authorities that issued the bonds and are
not guaranteed by such authorities or any insurer or other
party. In addition, the tax-exempt mortgage revenue bonds and
the associated taxable loans are non-recourse obligations of the
property owner. As a result, the sole source of principal and
interest payments (including both base and contingent interest)
on the tax-exempt mortgage revenue bonds and the taxable loans
is the net rental revenues generated by these properties or the
net proceeds from the sale of these properties.
If a property is unable to sustain net rental revenues at a
level necessary to pay current debt service obligations on the
Partnerships tax-exempt mortgage revenue bond or taxable
loan on such property, a default may occur. A propertys
ability to generate net rental income is subject to a wide
variety of factors, including rental and occupancy rates of the
property and the level of operating expenses. Occupancy rates
and rents are directly affected by the supply of, and demand
for, apartments in the market area in which a property is
located. This, in turn, is affected by several factors such as
local or national economic conditions, the amount of new
apartment construction and the affordability of single-family
homes. In addition, factors such as government regulation (such
as zoning laws), inflation, real estate and other taxes, labor
problems and natural disasters can affect the economic
operations of an apartment property.
Defaults on its tax-exempt mortgage revenue bonds and taxable
loans may reduce the amount of future cash available for
distribution to BUC holders. In addition, if a propertys
net rental income declines, it may affect the market value of
the property. If the market value of a property deteriorates,
the amount of net proceeds from the ultimate sale or refinancing
of the property may be insufficient to repay the entire
principal balance of the tax-exempt mortgage revenue bond or
taxable loan secured by the property.
In the event of a default on a tax-exempt mortgage revenue bond
or taxable loan, the Partnership will have the right to
foreclose on the mortgage or deed of trust securing the
property. If the Partnership takes ownership of the property
securing a defaulted tax-exempt mortgage revenue bond, it will
be entitled to all net rental revenues generated by the
property. However, such amounts will no longer represent
tax-exempt interest to the Partnership.
The Partnerships primary method of managing the credit
risks associated with its tax-exempt mortgage revenue bonds and
taxable loans is to perform a complete due diligence and
underwriting process of the properties securing these mortgage
bonds and loans and to carefully monitor the performance of such
property on a continuous basis.
The Partnership is also exposed to credit risk with respect to
its debt financing. All of the Partnerships debt financing
has been obtained using securitizations issued through the
Merrill Lynch P-Float program. In this program, the senior
interests sold are credit enhanced by Merrill Lynch or its
affiliate. The inability of Merrill Lynch or its affiliate to
perform under the program or impairment of the credit
enhancement may terminate the transaction and cause the
Partnership to lose the net interest income earned as a result.
The Partnership recognizes the concentration of financing with
this institution and periodically monitors its ability to
continue to perform. In addition, the Partnerships
interest rate cap agreements are with two other counterparties.
We have a $10.0 million interest rate cap agreement with US
Bank and a $10.0 million and $15.0 million interest
rate cap agreement with Bank of America.
34
As the above information incorporates only those material
positions or exposures that existed as of December 31,
2006, it does not consider those exposures or positions that
could arise after that date. The ultimate economic impact of
these market risks on the Partnership will depend on the
exposures that arise during the period, the Partnerships
risk mitigating strategies at that time and overall business and
economic environment.
Concentration
of Credit Risk
The Company maintains the majority of its unrestricted cash
balances at two financial institutions. The balances are insured
by the Federal Deposit Insurance Corporation up to $100,000. At
various times throughout 2006, the cash balances may have
exceeded the $100,000 limit. The Company is exposed to risk on
its short-term investments in the event of non-performance by
counterparties. The Company does not anticipate any
non-performance. This risk is minimized significantly by the
Companys portfolio being restricted to investment grade
securities.
35
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of
America First Tax Exempt Investors, L.P.
We have audited the accompanying consolidated balance sheets of
America First Tax Exempt Investors, L.P. and subsidiaries (the
Company) as of December 31, 2006 and 2005, and
the related consolidated statements of operations,
partners capital and comprehensive income (loss), and cash
flows for each of three years in the period ended
December 31, 2006. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial
statements of Woodbridge Apartments of Louisville II, L.P.
and Woodbridge Apartments of Bloomington III, L.P.
(consolidated variable interest entities), which statements,
together, reflect total assets constituting 8% of consolidated
total assets as of December 31, 2006 and 2005, and total
revenues constituting 21%, 17%, and 18% of consolidated total
revenues for the years ended December 31, 2006, 2005, and
2004, respectively. Those financial statements were audited by
other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the amounts included for
Woodbridge Apartments of Louisville II, L.P. and Woodbridge
Apartments of Bloomington III, L.P., is based solely on the
reports of such other auditors.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audit and the reports of the other
auditors, such consolidated financial statements present fairly,
in all material respects, the financial position of America
First Tax Exempt Investors, L.P. and subsidiaries as of
December 31, 2006 and 2005, and the results of their
operations and their cash flows for each of the three years in
the period of December 31, 2006, in conformity with
accounting principles generally accepted in the United States of
America.
As discussed in Note 2 to the consolidated financial
statements, on January 1, 2004, the Company adopted FASB
Interpretation No. 46R Accounting for Variable
Interest Entities.
/s/ DELOITTE &
TOUCHE LLP
Omaha, Nebraska
March 5, 2007
36
AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
ASSETS
|
Cash and cash equivalents
|
|
$
|
8,476,928
|
|
|
$
|
3,298,605
|
|
Restricted cash
|
|
|
2,131,272
|
|
|
|
3,116,340
|
|
Interest receivable
|
|
|
264,160
|
|
|
|
142,816
|
|
Tax-exempt mortgage revenue bonds
|
|
|
27,103,398
|
|
|
|
17,033,964
|
|
Other tax-exempt bond
|
|
|
4,800,000
|
|
|
|
12,000,000
|
|
Real estate assets:
|
|
|
|
|
|
|
|
|
Land
|
|
|
7,280,555
|
|
|
|
7,280,555
|
|
Buildings and improvements
|
|
|
77,311,306
|
|
|
|
75,215,802
|
|
|
|
|
|
|
|
|
|
|
Real estate assets before
accumulated depreciation
|
|
|
84,591,861
|
|
|
|
82,496,357
|
|
Accumulated depreciation
|
|
|
(28,381,932
|
)
|
|
|
(25,903,271
|
)
|
|
|
|
|
|
|
|
|
|
Net real estate assets
|
|
|
56,209,929
|
|
|
|
56,593,086
|
|
Other assets
|
|
|
1,214,502
|
|
|
|
1,858,374
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
17,530,939
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
100,200,189
|
|
|
$
|
111,574,124
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Accounts payable, accrued expenses
and other liabilities
|
|
$
|
6,117,451
|
|
|
$
|
5,917,600
|
|
Distribution payable
|
|
|
1,566,378
|
|
|
|
1,341,534
|
|
Debt financing
|
|
|
45,770,000
|
|
|
|
45,990,000
|
|
Liabilities of discontinued
operations
|
|
|
|
|
|
|
18,685,000
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
53,453,829
|
|
|
|
71,934,134
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
(Note 11)
|
|
|
|
|
|
|
|
|
Partners Capital
|
|
|
|
|
|
|
|
|
General partner
|
|
|
1,526,062
|
|
|
|
178,058
|
|
Beneficial Unit Certificate holders
|
|
|
90,722,467
|
|
|
|
88,827,327
|
|
Unallocated deficit of variable
interest entities
|
|
|
(45,502,169
|
)
|
|
|
(49,365,395
|
)
|
|
|
|
|
|
|
|
|
|
Total Partners Capital
|
|
|
46,746,360
|
|
|
|
39,639,990
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Partners Capital
|
|
$
|
100,200,189
|
|
|
$
|
111,574,124
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
37
AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property revenues
|
|
$
|
14,187,135
|
|
|
|
13,891,556
|
|
|
$
|
13,034,770
|
|
Mortgage revenue bond investment
income
|
|
|
1,418,289
|
|
|
|
1,061,242
|
|
|
|
923,108
|
|
Other bond investment income
|
|
|
4,891
|
|
|
|
73,179
|
|
|
|
321,750
|
|
Other interest income
|
|
|
337,008
|
|
|
|
102,474
|
|
|
|
78,367
|
|
Gain on sale of securities
|
|
|
|
|
|
|
126,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
15,947,323
|
|
|
|
15,255,201
|
|
|
|
14,357,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate operating (exclusive
of items shown below)
|
|
|
8,781,819
|
|
|
|
8,515,626
|
|
|
|
7,366,291
|
|
Depreciation and amortization
|
|
|
2,486,366
|
|
|
|
2,740,703
|
|
|
|
2,817,740
|
|
Interest
|
|
|
2,106,292
|
|
|
|
1,176,293
|
|
|
|
1,179,896
|
|
General and administrative
|
|
|
1,575,942
|
|
|
|
2,028,366
|
|
|
|
1,484,598
|
|
Hurricane related
|
|
|
|
|
|
|
|
|
|
|
771,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Expenses
|
|
|
14,950,419
|
|
|
|
14,460,988
|
|
|
|
13,620,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
996,904
|
|
|
|
794,213
|
|
|
|
737,804
|
|
Income (loss) from discontinued
operations, (including gain on sale of $11,667,246 and
$18,771,497 in 2006 and 2005, respectively)
|
|
|
11,779,831
|
|
|
|
18,770,929
|
|
|
|
(424,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of
accounting change
|
|
|
12,776,735
|
|
|
|
19,565,142
|
|
|
|
312,944
|
|
Cumulative effect of accounting
change
|
|
|
|
|
|
|
|
|
|
|
(38,023,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12,776,735
|
|
|
|
19,565,142
|
|
|
$
|
(37,710,057
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest in
net income per unit (basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.74
|
|
|
$
|
0.58
|
|
|
$
|
0.52
|
|
Income from discontinued operations
|
|
|
|
|
|
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of
accounting change
|
|
|
0.74
|
|
|
|
1.74
|
|
|
|
0.52
|
|
Cumulative effect of accounting
change
|
|
|
|
|
|
|
|
|
|
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, basic and diluted, per
unit
|
|
$
|
0.74
|
|
|
$
|
1.74
|
|
|
$
|
0.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of units
outstanding, basic and diluted
|
|
|
9,837,928
|
|
|
|
9,837,928
|
|
|
|
9,837,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
38
AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS CAPITAL AND
COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Beneficial Unit
|
|
|
Deficit of
|
|
|
|
|
|
Other
|
|
|
|
General
|
|
|
Certificate Holders
|
|
|
Variable Interest
|
|
|
|
|
|
Comprehensive
|
|
|
|
Partner
|
|
|
# of Units
|
|
|
Amount
|
|
|
Entities
|
|
|
Total
|
|
|
Income (Loss)
|
|
|
Balance at January 1, 2004
|
|
$
|
61,320
|
|
|
|
9,837,928
|
|
|
$
|
77,270,174
|
|
|
$
|
|
|
|
$
|
77,331,494
|
|
|
$
|
4,671,841
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
72,436
|
|
|
|
|
|
|
|
7,171,122
|
|
|
|
(44,953,615
|
)
|
|
|
(37,710,057
|
)
|
|
|
|
|
Unrealized gain on securities
|
|
|
(4,737
|
)
|
|
|
|
|
|
|
(468,972
|
)
|
|
|
|
|
|
|
(473,709
|
)(1)
|
|
|
(473,709
|
)
|
Cumulative effect of accounting
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,855,299
|
)
|
|
|
(5,855,299
|
)
|
|
|
(5,855,299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44,039,065
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid or accrued
|
|
|
(53,661
|
)
|
|
|
|
|
|
|
(5,312,482
|
)
|
|
|
|
|
|
|
(5,366,143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
75,358
|
|
|
|
9,837,928
|
|
|
|
78,659,842
|
|
|
|
(50,808,914
|
)
|
|
|
27,926,286
|
|
|
|
(1,657,167
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,021,216
|
|
|
|
|
|
|
|
17,100,407
|
|
|
|
1,443,519
|
|
|
|
19,565,142
|
|
|
|
|
|
Unrealized gain on securities
|
|
|
10,145
|
|
|
|
|
|
|
|
1,004,319
|
|
|
|
|
|
|
|
1,014,464
|
(1)
|
|
|
1,014,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,579,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid or accrued
|
|
|
(928,661
|
)
|
|
|
|
|
|
|
(7,937,241
|
)
|
|
|
|
|
|
|
(8,865,902
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
178,058
|
|
|
|
9,837,928
|
|
|
|
88,827,327
|
|
|
|
(49,365,395
|
)
|
|
|
39,639,990
|
|
|
|
(642,703
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1,627,305
|
|
|
|
|
|
|
|
7,286,204
|
|
|
|
3,863,226
|
|
|
|
12,776,735
|
|
|
|
|
|
Unrealized loss on securities
|
|
|
(797
|
)
|
|
|
|
|
|
|
(78,935
|
)
|
|
|
|
|
|
|
(79,732
|
)(1)
|
|
|
(79,732
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,697,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid or accrued
|
|
|
(278,504
|
)
|
|
|
|
|
|
|
(5,312,129
|
)
|
|
|
|
|
|
|
(5,590,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
1,526,062
|
|
|
|
9,837,928
|
|
|
$
|
90,722,467
|
|
|
$
|
(45,502,169
|
)
|
|
$
|
46,746,360
|
|
|
$
|
(722,435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Gains recognized in net income during the years ended
December 31, 2006, 2005 and 2004 were $0, $126,750 and $0,
respectively. |
The accompanying notes are an integral part of the consolidated
financial statements.
39
AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12,776,735
|
|
|
|
19,565,142
|
|
|
$
|
(37,710,057
|
)
|
Adjustments to reconcile net income
(loss) to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of accounting
change
|
|
|
|
|
|
|
|
|
|
|
38,023,001
|
|
Depreciation and amortization
expense
|
|
|
2,621,203
|
|
|
|
3,507,864
|
|
|
|
3,956,037
|
|
Gain on sale of securities
|
|
|
|
|
|
|
(126,750
|
)
|
|
|
|
|
Gain on sale of discontinued
operations
|
|
|
(11,667,246
|
)
|
|
|
(18,771,497
|
)
|
|
|
|
|
(Increase) decrease in interest
receivable
|
|
|
(121,344
|
)
|
|
|
42,122
|
|
|
|
(85,390
|
)
|
(Increase) decrease in other assets
|
|
|
842,823
|
|
|
|
812,482
|
|
|
|
(502,732
|
)
|
Increase (decrease) in accounts
payable and accrued expenses
|
|
|
1,184,924
|
|
|
|
(1,177,536
|
)
|
|
|
1,447,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
5,637,095
|
|
|
|
3,851,827
|
|
|
|
5,128,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of tax-exempt
mortgage revenue bonds
|
|
|
19,200,000
|
|
|
|
4,026,750
|
|
|
|
500,000
|
|
Proceeds from sale of discontinued
operations
|
|
|
10,443,223
|
|
|
|
32,196,883
|
|
|
|
|
|
Acquisition of tax-exempt mortgage
revenue bonds
|
|
|
(10,190,000
|
)
|
|
|
|
|
|
|
|
|
Acquisition of other tax-exempt
bonds
|
|
|
(12,000,000
|
)
|
|
|
(12,000,000
|
)
|
|
|
(3,376,752
|
)
|
(Increase) decrease in restricted
cash
|
|
|
985,068
|
|
|
|
(71,313
|
)
|
|
|
(379,477
|
)
|
Capital expenditures
|
|
|
(2,082,339
|
)
|
|
|
(1,069,126
|
)
|
|
|
(227,200
|
)
|
Principal payments received on
tax-exempt bonds
|
|
|
40,834
|
|
|
|
21,666
|
|
|
|
1,667
|
|
Increase in taxable loans
|
|
|
|
|
|
|
|
|
|
|
(2,225,508
|
)
|
(Increase) decrease in other assets
|
|
|
|
|
|
|
|
|
|
|
442,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
6,396,786
|
|
|
|
23,104,860
|
|
|
|
(5,264,436
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions paid
|
|
|
(5,365,790
|
)
|
|
|
(8,865,902
|
)
|
|
|
(5,366,143
|
)
|
Principal payments on debt
financings
|
|
|
(345,000
|
)
|
|
|
(16,285,000
|
)
|
|
|
(14,220,000
|
)
|
Principal payments made on
tax-exempt bonds
|
|
|
|
|
|
|
(295,835
|
)
|
|
|
(119,167
|
)
|
Principal payment on short-term
financing
|
|
|
|
|
|
|
|
|
|
|
(9,000,000
|
)
|
Acquisition of interest rate cap
agreements
|
|
|
(159,700
|
)
|
|
|
|
|
|
|
|
|
Proceeds from debt financing
|
|
|
|
|
|
|
|
|
|
|
9,000,000
|
|
Proceeds from refinancing of
tax-exempt bonds to unrelated entity
|
|
|
|
|
|
|
|
|
|
|
19,100,000
|
|
Increase (decrease) in deposits and
escrowed funds
|
|
|
(985,068
|
)
|
|
|
(528,687
|
)
|
|
|
379,477
|
|
Bond costs and debt financing costs
paid
|
|
|
|
|
|
|
|
|
|
|
(617,755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing
activities
|
|
|
(6,855,558
|
)
|
|
|
(25,975,424
|
)
|
|
|
(843,588
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and
cash equivalents
|
|
|
5,178,323
|
|
|
|
981,263
|
|
|
|
(979,766
|
)
|
Cash and cash equivalents at
beginning of year
|
|
|
3,298,605
|
|
|
|
2,317,342
|
|
|
|
3,297,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
year
|
|
$
|
8,476,928
|
|
|
|
3,298,605
|
|
|
$
|
2,317,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash
flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for
interest
|
|
$
|
2,480,905
|
|
|
|
3,190,446
|
|
|
$
|
1,905,570
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of taxable loan to
tax-exempt bond
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,823,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
40
AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
America First Tax Exempt Investors, L.P. (the
Partnership) was formed on April 2, 1998 under
the Delaware Revised Uniform Limited Partnership Act for the
purpose of acquiring, holding, selling and otherwise dealing
with a portfolio of federally tax-exempt mortgage revenue bonds
which have been issued to provide construction
and/or
permanent financing of multifamily residential apartments. The
Partnership will terminate on December 31, 2050 unless
terminated earlier under the provisions of its Agreement of
Limited Partnership. The general partner of the Partnership is
America First Capital Associates Limited Partnership Two (the
general partner or AFCA 2). In this
Form 10-K,
the Company refers to the consolidated financial
information as reported on a GAAP basis of the Partnership and
the consolidated VIEs while the Partnership refers
to America First Tax Exempt Investors, L.P. as a stand-alone
entity.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Principles
of Consolidation
In January 2003, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities an
interpretation of ARB 51 (FIN 46). A
modification to FIN 46 was released in December 2003
(FIN 46R). The Partnership adopted FIN 46R
as of January 1, 2004 and, as a result, it is now required
to consolidate the assets, liabilities and results of operations
of certain entities that meet the definition of a variable
interest entity (a VIE) into the
Partnerships financial statements. Management has
determined that all but four of the entities which own
multifamily apartment properties financed by the
Partnerships tax-exempt mortgage revenue bonds are VIEs of
the Partnership. Because management determined that the
Partnership is the primary beneficiary of each of these VIEs
pursuant to the terms of each tax-exempt mortgage revenue bond
and the criteria within FIN 46R, the Partnership
consolidated the assets, liabilities and results of these
VIEs multifamily properties into the Partnerships
financial statements on January 1, 2004. All transactions
and accounts between the Partnership and the consolidated VIEs,
including the indebtedness underlying the tax-exempt mortgage
bonds secured by the properties owned by the VIEs, have been
eliminated in consolidation. Because each of the consolidated
VIEs was created before January 1, 2004, the assets and
liabilities of the VIEs were initially measured at their
carrying amounts with the net amount added to the
Partnerships balance sheet being recognized as the
cumulative effect of a change in accounting principle. A
$38.0 million loss was recorded as of January 1, 2004
from the cumulative effect of the change in accounting principle
as a result of recording the net loss allocable to the
Partnerships variable interest in the VIEs.
The Partnership does not presently believe that the
consolidation of VIEs for reporting under generally accepted
accounting principles in the United States of America
(GAAP) will impact the Partnerships tax
status, amounts reported to Beneficial Unit Certificate holders
(BUC holders) on IRS
Form K-1,
the Partnerships ability to distribute tax-exempt income
to BUC holders, the current level of quarterly distributions or
the tax-exempt status of the underlying mortgage revenue bonds.
Use of
estimates in preparation of consolidated financial
statements
The preparation of the accompanying consolidated financial
statements in conformity with GAAP 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 consolidated financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Cash
and Cash Equivalents
Cash and cash equivalents include highly liquid securities and
investments in federally tax-exempt securities with maturities
of three months or less when purchased.
41
AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Concentration
of Credit Risk
The Company maintains the majority of its unrestricted cash
balances at two financial institutions. The balances are insured
by the Federal Deposit Insurance Corporation up to $100,000. At
various times throughout 2006, the cash balances may have
exceeded the $100,000 limit. The Company is exposed to risk on
its short-term investments in the event of non-performance by
counterparties. The Company does not anticipate any
non-performance. This risk is minimized significantly by the
Companys portfolio being restricted to investment grade
securities.
Restricted
Cash
Restricted cash, which is legally restricted to use, is
comprised of resident security deposits, required maintenance
reserves, escrowed funds and collateral for interest rate cap
agreements as of December 31, 2006 and 2005. The Company
must maintain unencumbered cash of $609,000 per the related
interest rate cap collateral agreements.
Investment
in Tax-Exempt Mortgage Revenue Bonds and Other Tax-Exempt
Bonds
The Company accounts for its investments in tax-exempt mortgage
revenue bonds and other tax-exempt bonds under the provisions of
SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities
(SFAS No. 115). SFAS No. 115
requires investments in securities to be classified as one of
the following:
1) held-to-maturity,
2) available-for-sale,
or 3) trading securities. All of the Companys
investments in tax-exempt mortgage revenue bonds and other
tax-exempt bonds are classified as
available-for-sale.
Investments classified as
available-for-sale
are reported at estimated fair value with the net unrealized
gains or losses reflected in other comprehensive income.
Unrealized gains and losses do not affect the cash flow of the
bonds, distributions to BUC holders, or the characterization of
the tax-exempt interest income of the financial obligation of
the underlying collateral.
The Company bases the fair value of the tax-exempt bonds, which
have a limited market, on quotes from external sources, such as
brokers, for these or similar bonds. In the limited situation
when quotes are unavailable the Partnership estimates the fair
value for each bond as the present value of its expected cash
flows using a discount rate for comparable tax-exempt
investments. This calculation methodology encompasses judgment
in its application. The Company bases the fair value of the
other tax-exempt bonds, which also have a limited market, on
quotes from external sources, such as brokers, for these or
similar bonds.
The Company periodically evaluates the credit risk exposure
associated with the tax-exempt mortgage revenue bonds by
reviewing the fair value of the underlying real estate
collateral to determine whether an
other-than-temporary
impairment exists. When the Company believes it is probable that
all amounts due under the terms of the tax-exempt mortgage
revenue bonds, including principal and accrued interest, will
not be collected, an
other-than-temporary
impairment is recorded. If an
other-than-temporary
impairment exists, the cost basis of the respective bond is
written down to its estimated fair value, with the amount of the
write-down accounted for as a realized loss.
The interest income received by the Company from its investment
in tax-exempt mortgage revenue bonds is dependent upon the net
cash flow of the underlying properties. Base interest income on
fully-performing tax-exempt mortgage revenue bonds is recognized
as it is accrued. Tax-exempt bonds are considered to be
fully-performing if the bond is currently meeting all of its
obligations. Base interest income on tax-exempt mortgage revenue
bonds not fully performing is recognized as it is received. Past
due base interest on tax-exempt mortgage revenue bonds, which
are or were previously not fully performing, is recognized as
received. Contingent interest income, which is only received by
the Company if the properties financed by the tax-exempt
mortgage revenue bonds generate excess available cash flow as
set forth in each bond, is recognized as received. The Company
reinstates the accrual of base interest once the tax-exempt
mortgage revenue bonds ability to perform is adequately
42
AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
demonstrated. As of December 31, 2006 and 2005, the
Companys tax-exempt mortgage revenue bonds were fully
performing as to their base interest.
Interest income on other tax-exempt bonds is recognized as
earned.
The Company eliminates all but four of the tax-exempt mortgage
revenue bonds and the associated interest income and interest
receivable when it consolidates the underlying real estate
collateral in accordance with FIN 46R.
Variable
interest entities (VIEs)
When the Partnership invests in a tax-exempt mortgage revenue
bond which is collateralized by the underlying multifamily
property, the Partnership will evaluate the entity which issued
the tax-exempt mortgage revenue bond to determine if it is a VIE
as defined by FIN 46R. FIN 46R is a complex standard
that requires significant analysis and judgment. If it is
determined that the entity is a VIE, the Partnership will then
evaluate if it is the primary beneficiary of such VIE, by
determining whether the Partnership will absorb the majority of
the VIEs expected losses, receive a majority of the
VIEs residual returns, or both. If the Partnership
determines itself to be the primary beneficiary of the VIE, then
the assets, liabilities and financial results of the related
multifamily property will be consolidated in the
Partnerships financial statements. As a result of such
consolidation, the tax-exempt or taxable debt financing provided
by the Partnership to such consolidated VIE will be eliminated
as part of the consolidation process. However, the Partnership
will continue to receive interest and principal payments on such
debt and these payments will retain their characterization as
either tax-exempt or taxable interest for income tax reporting
purposes. As the Partnership has no legal ownership in the VIEs,
creditors of the VIEs have no recourse to the Partnership.
Investments
in Real Estate
The Companys investments in real estate, recorded due to
the consolidation of the VIEs discussed above, are carried at
cost less accumulated depreciation. Depreciation of real estate
is based on the estimated useful life of the related asset,
generally
19-40 years
on multifamily residential apartment buildings and five to
fifteen years on capital improvements and is calculated using
the straight-line method. Maintenance and repairs are charged to
expense as incurred, while significant improvements, renovations
and replacements are capitalized.
Management reviews each property for impairment at least
annually and whenever events or changes in circumstances
indicate that the carrying value of a property may not be
recoverable. The review of recoverability is based upon
comparing the net book value of each real estate property to the
sum of its estimated undiscounted future cash flows. If
impairment exists due to the inability to recover the carrying
value of a property, an impairment loss is recorded to the
extent that the carrying value of the property exceeds its
estimated fair value. There were no impairment losses recognized
during the years ended December 31, 2006, 2005 and 2004.
Debt
Financing
The Company has financed the acquisition of
and/or
securitized a portion of its tax-exempt mortgage revenue bond
portfolio using securitizations through the Merrill Lynch
P-Float program. Through this program, the Partnership transfers
a tax-exempt mortgage revenue bond into a trust which issues two
types of securities, senior securities (P-Floats)
and subordinated residual interest securities
(RITES). The P-Floats are floating rate securities
representing a beneficial ownership interest in the outstanding
principal and interest of the tax-exempt mortgage revenue bond
credit enhanced by Merrill Lynch (or a Merrill Lynch affiliate)
and sold to institutional investors. The RITES are issued to the
Partnership and represent a beneficial ownership interest in the
remaining interest on the underlying tax-exempt mortgage revenue
bond. The Partnership maintains a call right on the senior
floating rate securities and, upon exercise of such right, may
collapse the trusts and, therefore, retains a level of control
over the tax-exempt mortgage revenue bond. In order to collapse
the trusts, the cost is equal to the par amount plus 20% of any
increase in the market value of the underlying bonds. The
Partnership accounts for the
43
AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
securitization transactions in accordance with
SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities. The Partnership has determined that control is
maintained by the Company over the transferred assets in these
transactions. Therefore, the Company accounts for these
transactions as secured borrowings and not sales transactions.
Deferred
Financing Costs
Debt financing costs are capitalized and amortized on a
straight-line basis over the stated maturity of the related debt
financing agreement, which approximates the effective interest
method. Bond issuance costs are capitalized and amortized on a
straight-line basis over the stated maturity of the related
tax-exempt mortgage revenue bonds, which approximates the
effective interest method. As of December 31, 2006 and
2005, debt financing costs and bond issuance costs of $215,386
and $566,687, respectively, were included in other assets. These
costs are net of accumulated amortization of $135,703 and
$139,365 as of December 31, 2006 and 2005, respectively.
Income
Taxes
No provision has been made for income taxes since the BUC
holders are required to report their share of the
Partnerships taxable income for federal and state income
tax purposes. Some of the consolidated VIEs are corporations
that are subject to federal and state income taxes. At
December 31, 2006 and 2005, the Company evaluated whether
it was more likely than not that any deferred tax assets would
be realized. The Company has recorded a valuation allowance
against the remaining deferred tax assets since the realization
of these future benefits is not more likely than not.
Revenue
Recognition on Investments in Real Estate
The Partnerships VIEs are lessors of multifamily rental
units under operating leases with terms of one year or less.
Rental revenue is recognized, net of rental concessions, on a
straight-line method over the related lease term.
Derivative
Instruments and Hedging Activities
The Company accounts for its derivative and hedging activities
in accordance with SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities
(SFAS No. 133) as amended and interpreted.
SFAS No. 133 requires the recognition of all
derivative instruments as assets or liabilities in the
Companys consolidated balance sheets and measurement of
these instruments at fair value. The accounting treatment is
dependent upon whether or not a derivative instrument is
designated as a hedge and, if so, the type of hedge. The
Companys interest rate cap agreements do not have a
specific hedge designation under SFAS No. 133, and
therefore changes in fair value are recognized in the
consolidated statements of operations as interest expense. The
Company is exposed to loss should a counterparty to its
derivative instruments default. The Company does not anticipate
non-performance by any counterparty. The fair value of the
interest rate cap agreements are determined based upon current
fair values as quoted by recognized dealers.
44
AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Net
Income per BUC
Net income per BUC has been calculated based on the weighted
average number of BUCs outstanding during each year presented.
The Partnership has no dilutive equity securities and,
therefore, basic net income per BUC is the same as diluted net
income per BUC. The following table provides a reconciliation of
net income per BUC holder:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Calculation of limited
partners interest in income from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
996,904
|
|
|
$
|
794,213
|
|
|
$
|
737,804
|
|
Less: general partners
interest in income from continuing operations
|
|
|
1,627,305
|
|
|
|
58,113
|
|
|
|
51,804
|
|
Unallocated loss related to
variable interest entities
|
|
|
(7,916,605
|
)
|
|
|
(5,017,076
|
)
|
|
|
(4,442,584
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest in
income from continuing operations
|
|
$
|
7,286,204
|
|
|
$
|
5,753,176
|
|
|
$
|
5,128,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of limited
partners interest in income from discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued
operations
|
|
$
|
11,779,831
|
|
|
$
|
18,770,929
|
|
|
$
|
(424,860
|
)
|
Less: general partners
interest in income from discontinued operations
|
|
|
|
|
|
|
963,103
|
|
|
|
|
|
Unallocated income (loss) related
to variable interest entities
|
|
|
11,779,831
|
|
|
|
6,460,595
|
|
|
|
(424,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest in
discontinued operations
|
|
$
|
|
|
|
$
|
11,347,231
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of limited
partners interest in income before cumulative effect of
accounting change:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of
accounting change
|
|
$
|
12,776,735
|
|
|
$
|
19,565,142
|
|
|
$
|
312,944
|
|
Less: general partners
interest in net income
|
|
|
1,627,305
|
|
|
|
1,021,216
|
|
|
|
51,804
|
|
Unallocated income (loss) related
to variable interest entities
|
|
|
3,863,226
|
|
|
|
1,443,519
|
|
|
|
(4,867,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest in
income before cumulative effect
|
|
$
|
7,286,204
|
|
|
$
|
17,100,407
|
|
|
$
|
5,128,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Calculation of limited
partners interest in cumulative effect of accounting
change:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of accounting
change
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(38,023,001
|
)
|
Less: general partners
interest in cumulative effect of accounting change
|
|
|
|
|
|
|
|
|
|
|
20,632
|
|
Unallocated loss related to
variable interest entities
|
|
|
|
|
|
|
|
|
|
|
(40,086,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest in
cumulative effect of accounting change
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,042,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of limited
partners interest in net income
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12,776,735
|
|
|
$
|
19,565,142
|
|
|
$
|
(37,710,057
|
)
|
Less general partners
interest in net income
|
|
|
1,627,305
|
|
|
|
1,021,216
|
|
|
|
72,436
|
|
Unallocated loss related to
variable interest entities
|
|
|
3,863,226
|
|
|
|
1,443,519
|
|
|
|
(44,953,615
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest in
net income
|
|
$
|
7,286,204
|
|
|
$
|
17,100,407
|
|
|
$
|
7,171,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of units
outstanding, basic and diluted
|
|
|
9,837,928
|
|
|
|
9,837,928
|
|
|
|
9,837,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners interest in
net income per BUC (basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.74
|
|
|
$
|
0.58
|
|
|
$
|
0.52
|
|
Income from discontinued operations
|
|
|
|
|
|
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of
accounting change
|
|
|
0.74
|
|
|
|
1.74
|
|
|
|
0.52
|
|
Cumulative effect of accounting
change
|
|
|
|
|
|
|
|
|
|
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
0.74
|
|
|
$
|
1.74
|
|
|
$
|
0.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.
|
Partnership Income,
Expenses and Cash Distributions
|
The Agreement of Limited Partnership of the Partnership contains
provisions for the distribution of Net Interest Income, Net
Residual Proceeds and Liquidation Proceeds (as defined in the
Agreement of Limited Partnership) and for the allocation of
income and loss from operations and allocation of income and
loss arising from a repayment, sale or liquidation. Income and
losses will be allocated to each BUC holder on a periodic basis,
as determined by the general partner, based on the number of
BUCs held by each BUC holder as of the last day of the period
for which such allocation is to be made. Distributions of Net
Interest Income and Net Residual Proceeds will be made to each
BUC holder of record on the last day of each distribution period
based on the number of BUCs held by each BUC holder as of such
date.
Net Interest Income, as defined in the Agreement of Limited
Partnership, will be distributed 99% to the BUC holders and 1%
to AFCA 2. The portion of Net Residual Proceeds, as defined in
the Agreement of Limited Partnership, representing a return of
principal will be distributed 100% to the BUC holders.
Notwithstanding the foregoing, the Agreement of Limited
Partnership further breaks down Net Interest Income and Net
Residual Proceeds into Tiers. Tier 1 income is defined as
Net Interest Income excluding contingent
46
AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
interest and is distributed as described above. Net Interest
Income representing contingent interest and Net Residual
Proceeds representing contingent interest in an amount equal to
0.9% per annum of the principal amount of the mortgage
bonds on a cumulative basis is defined as Tier 2 income.
Tier 2 income is distributed 75% to the BUC holders
and 25% to AFCA 2. The general partner may hold Tier 2
income as a reserve for the benefit of the Partnership rather
than distributing all Tier 2 income in given period.
With respect to the allocation of income and loss from
operations, if a partner has a deficit capital account balance
as of the last day of any fiscal year, then all items of income
for such fiscal year shall be first allocated to such partner in
the amount and manner necessary to eliminate such deficit.
The unallocated deficit of the VIEs is primarily comprised of
the accumulated historical net losses of the VIEs as of
January 1, 2004 (FIN 46R implementation date) and the
VIEs net losses subsequent to that date. The cumulative
effect of the change in accounting principle, excluding the
reversal of the allowance for loan losses related to losses
recorded on the Partnerships balance sheet prior to the
adoption of FIN 46R, as well as the losses recognized by
the VIEs, are not allocated to the general partner and BUC
holders as such activity is not contemplated by, or addressed
in, the Agreement of Limited Partnership.
Cash distributions are currently made on a quarterly basis but
may be made on a monthly or semiannual basis at the election of
AFCA 2.
|
|
4.
|
Investments
in Tax-Exempt Mortgage Revenue Bonds
|
The tax-exempt mortgage revenue bonds are issued by various
state and local governments, their agencies and authorities to
finance the construction or rehabilitation of income-producing
real estate properties. However, the tax-exempt mortgage revenue
bonds do not constitute an obligation of any state or local
government, agency or authority and no state or local
government, agency or authority is liable on them, nor is the
taxing power of any state or local government pledged to the
payment of principal or interest on the tax-exempt mortgage
revenue bonds. The tax-exempt mortgage revenue bonds are
non-recourse obligations of the respective owners of the
properties. The sole source of the funds to pay principal and
interest on the tax-exempt mortgage revenue bonds is the net
cash flow or the sale or refinancing proceeds from the
properties. Each tax-exempt mortgage revenue bond, however, is
collateralized by a first mortgage on all real and personal
property included in the related property and an assignment of
rents. Each of the tax-exempt mortgage revenue bonds bears
tax-exempt interest at a fixed rate and the Clarkson College
bonds provide for the payment of additional contingent interest
that is payable solely from available net cash flow generated by
the financed property.
The Companys financial statements reflect the following
investments in tax-exempt mortgage revenue bonds as of
December 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
Description of Tax-Exempt
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
Mortgage Revenue Bonds
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Fair Value
|
|
|
Chandler Creek Apartments
|
|
$
|
11,500,000
|
|
|
$
|
|
|
|
$
|
(81,650
|
)
|
|
$
|
11,418,350
|
|
Clarkson College
|
|
|
6,135,833
|
|
|
|
|
|
|
|
(640,785
|
)
|
|
|
5,495,048
|
|
Bella Vista
|
|
|
6,800,000
|
|
|
|
|
|
|
|
|
|
|
|
6,800,000
|
|
Deerfield Apartments
|
|
|
3,390,000
|
|
|
|
|
|
|
|
|
|
|
|
3,390,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,825,833
|
|
|
$
|
|
|
|
$
|
(722,435
|
)
|
|
$
|
27,103,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
|
|
Description of Tax-Exempt
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
Mortgage Revenue Bonds
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Fair Value
|
|
|
Chandler Creek Apartments
|
|
$
|
11,500,000
|
|
|
$
|
|
|
|
$
|
(141,450
|
)
|
|
$
|
11,358,550
|
|
Clarkson College
|
|
|
6,176,667
|
|
|
|
|
|
|
|
(501,253
|
)
|
|
|
5,675,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,676,667
|
|
|
$
|
|
|
|
$
|
(642,703
|
)
|
|
$
|
17,033,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Chandler Creek bonds are in technical default and interest
is being paid on these bonds at a rate below the stated rate. In
January 2004 the Company entered into a forbearance agreement
with the owner of Chandler Creek Apartments which set forth the
terms under which the Company agreed to forbear from the
exercise of remedies against the owner. Among the conditions to
forbearance is an agreement for current interest payments at a
rate below the stated rate. In April 2006, the Company
terminated a forbearance agreement with the owner. The
termination of the forbearance agreement allows the Company to
seek additional remedies including the ultimate foreclosure of
the property, if necessary. The Company does not currently
intend to exercise its right to foreclose on the property as the
property continues to pursue alternatives to ultimately satisfy
its obligations to its creditors. The current unrealized losses
on the bonds are not considered to be
other-than-temporary
because the Company has the intent and ability to hold these
securities until their value recovers or until maturity, if
necessary. The unrealized loss will continue to fluctuate each
reporting period based on the market conditions and present
value of the expected cash flow.
In April 2006, the Company acquired the Bella Vista bonds at par
value of $6.8 million, which represented 100% of the bond
issuance. The bonds earn interest at an annual rate of 6.15%
with semi-annual interest payments and a stated maturity date of
April 1, 2046. The bonds were issued in order to construct
a 144 unit multi-family apartment complex in Gainesville,
Texas. The apartment complex is currently under construction
with an estimated completion date of April 2007. The bonds are
secured by a construction performance guarantee during the
construction period by a third party guarantor. Therefore,
during the construction process, the Company has determined that
the fair value of the bonds is equal to their par value. Because
these bonds are 100% owned by the Company and no active market
exists for such bonds, future determinations of the bonds
fair value, upon completion of construction, will be primarily
dependant on the Companys internal valuation techniques
including discounted cash flow models. Upon the completion of
construction, the fair value of the Bella Vista bonds will be
subject to traditional bond risks including the general interest
rate environment along with the performance of the underlying
property that services the principal and interest payments on
the bonds. The Company has determined that the underlying entity
that supports the bonds does not meet the definition of a VIE
and will not be required to be consolidated into the
Companys consolidated financial statements under
FIN 46R. In October 2006, the Company acquired the
Deerfield Series A and B bonds at a par value of
$3.3 million and $90,000, respectively. The bonds earn
interest at an annual rate of 6.25% on the Series A and
8.5% on the Series B. The bonds are secured by a
72 unit apartment complex in Blair, Nebraska. The Company
has determined that the underlying entity, a 501(c)3 not for
profit entity, that supports the bonds does not meet the
definition of a VIE and will not be required to be consolidated
into the Companys consolidated financial statements under
FIN 46R.
All of the tax-exempt mortgage revenue bonds that the
Partnership owns have been issued to provide construction
and/or
permanent financing of multifamily residential properties. Each
year the Partnership makes an assessment of the fair value of
these bonds by estimating the present value of the expected cash
flows using a discount rate for comparable tax-exempt
investments. The Chandler Creek and Clarkson College investments
have been in an unrealized loss position for greater than twelve
months. These unrealized losses are, however, not considered to
be
other-than-temporary
because the Partnership has the intent and ability to hold these
securities until their value recovers or until maturity if
necessary. The unrealized loss will continue to fluctuate each
reporting period based on the market conditions and present
value of the expected cash flows.
48
AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Descriptions of the properties collateralizing the tax-exempt
mortgage revenue bonds and other tax-exempt bonds and certain
terms of such bonds are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
|
|
|
|
|
Base
|
|
|
Outstanding at
|
|
|
Income
|
|
|
|
|
|
Maturity
|
|
|
Interest
|
|
|
Dec. 31,
|
|
|
Earned in
|
|
Property Name
|
|
Location
|
|
Date
|
|
|
Rate
|
|
|
2006
|
|
|
2006
|
|
|
Chandler Creek Apartments
|
|
Round Rock, TX
|
|
|
11/1/2042
|
|
|
|
6.0
|
%(1)
|
|
$
|
11,500,000
|
|
|
$
|
690,000
|
|
Clarkson College
|
|
Omaha, NE
|
|
|
11/1/2035
|
|
|
|
6.0
|
%
|
|
|
6,135,833
|
|
|
|
369,296
|
|
Bella Vista
|
|
Gainesville, TX
|
|
|
4/1/2046
|
|
|
|
6.15
|
%
|
|
|
6,800,000
|
|
|
|
305,518
|
|
Deerfield Apartments
|
|
Blair, NE
|
|
|
11/15/2048
|
|
|
|
6.25
|
%
|
|
|
3,300,000
|
|
|
|
51,563
|
|
Deerfield Apartments
|
|
Blair, NE
|
|
|
11/15/2048
|
|
|
|
8.50
|
%
|
|
|
90,000
|
|
|
|
1,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Tax-Exempt Mortgage Bonds
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,825,833
|
|
|
$
|
1,418,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Other
Tax-Exempt
Bonds
|
|
|
|
|
9/1/2017
|
|
|
|
Variable
|
(2)
|
|
$
|
4,800,000
|
|
|
$
|
4,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Tax-Exempt Bonds
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,800,000
|
|
|
$
|
4,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
|
|
|
|
|
Base
|
|
|
Outstanding at
|
|
|
Income
|
|
|
|
|
|
Maturity
|
|
|
Interest
|
|
|
Dec. 31,
|
|
|
Earned in
|
|
Property Name
|
|
Location
|
|
Date
|
|
|
Rate
|
|
|
2005
|
|
|
2005
|
|
|
Chandler Creek Apartments
|
|
Round Rock, TX
|
|
|
11/1/2042
|
|
|
|
6.0
|
%(1)
|
|
$
|
11,500,000
|
|
|
$
|
690,000
|
|
Clarkson College
|
|
Omaha, NE
|
|
|
11/1/2035
|
|
|
|
6.0
|
%
|
|
|
6,176,667
|
|
|
|
371,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Tax-Exempt Mortgage Bonds
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,676,667
|
|
|
$
|
1,061,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Other Tax-Exempt
Bonds
|
|
|
|
|
9/1/2017
|
|
|
|
Variable
|
(2)
|
|
$
|
12,000,000
|
|
|
$
|
46,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Tax-Exempt Bonds
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,000,000
|
|
|
$
|
46,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These bonds are in technical default and base interest is being
paid at a rate below the stated rate. See discussion above. |
|
(2) |
|
The Variable rate on this investment resets weekly. The rate is
based on the BMA rate which was 3.9% at December 31, 2006. |
49
AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The detail of real estate assets as of December 31, 2006
and December 31, 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings
|
|
|
Value at
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
and
|
|
|
December 30,
|
|
|
|
|
Property Name
|
|
Location
|
|
of Units
|
|
|
Land
|
|
|
Improvements
|
|
|
2006
|
|
|
|
|
|
Ashley Point at Eagle Crest
|
|
Evansville, IN
|
|
|
144
|
|
|
$
|
321,489
|
|
|
$
|
6,092,695
|
|
|
$
|
6,414,184
|
|
|
|
|
|
Ashley Square
|
|
Des Moines, IA
|
|
|
150
|
|
|
|
650,000
|
|
|
|
7,242,944
|
|
|
|
7,892,944
|
|
|
|
|
|
Bent Tree Apartments
|
|
Columbia, SC
|
|
|
232
|
|
|
|
986,000
|
|
|
|
11,025,115
|
|
|
|
12,011,115
|
|
|
|
|
|
Fairmont Oaks Apartments
|
|
Gainsville, FL
|
|
|
178
|
|
|
|
850,400
|
|
|
|
8,004,382
|
|
|
|
8,854,782
|
|
|
|
|
|
Iona Lakes Apartments
|
|
Ft. Myers, FL
|
|
|
350
|
|
|
|
1,900,000
|
|
|
|
16,820,001
|
|
|
|
18,720,001
|
|
|
|
|
|
Lake Forest Apartments
|
|
Daytona Beach, FL
|
|
|
240
|
|
|
|
1,396,800
|
|
|
|
10,557,253
|
|
|
|
11,954,053
|
|
|
|
|
|
Woodbridge Apts. of
Bloomington III
|
|
Bloomington, IN
|
|
|
280
|
|
|
|
656,346
|
|
|
|
10,145,983
|
|
|
|
10,802,329
|
|
|
|
|
|
Woodbridge Apts. of
Louisville II
|
|
Louisville, KY
|
|
|
190
|
|
|
|
519,520
|
|
|
|
7,422,933
|
|
|
|
7,942,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,591,861
|
|
|
|
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28,192,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
56,399,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
|
Buildings
|
|
|
Value at
|
|
|
|
|
|
Number
|
|
|
|
|
|
and
|
|
|
Dec. 31,
|
|
Property Name
|
|
Location
|
|
of Units
|
|
|
Land
|
|
|
Improvements
|
|
|
2005
|
|
|
Ashley Point at Eagle Crest
|
|
Evansville, IN
|
|
|
144
|
|
|
$
|
321,489
|
|
|
$
|
6,092,695
|
|
|
$
|
6,414,184
|
|
Ashley Square
|
|
Des Moines, IA
|
|
|
150
|
|
|
|
650,000
|
|
|
|
6,111,243
|
|
|
|
6,761,243
|
|
Bent Tree Apartments
|
|
Columbia, SC
|
|
|
232
|
|
|
|
986,000
|
|
|
|
11,025,115
|
|
|
|
12,011,115
|
|
Fairmont Oaks Apartments
|
|
Gainsville, FL
|
|
|
178
|
|
|
|
850,400
|
|
|
|
7,968,687
|
|
|
|
8,819,087
|
|
Iona Lakes Apartments
|
|
Ft. Myers, FL
|
|
|
350
|
|
|
|
1,900,000
|
|
|
|
15,924,621
|
|
|
|
17,824,621
|
|
Lake Forest Apartments
|
|
Daytona Beach, FL
|
|
|
240
|
|
|
|
1,396,800
|
|
|
|
10,543,512
|
|
|
|
11,940,312
|
|
Woodbridge Apts. of
Bloomington III
|
|
Bloomington, IN
|
|
|
280
|
|
|
|
656,346
|
|
|
|
10,142,069
|
|
|
|
10,798,415
|
|
Woodbridge Apts. of
Louisville II
|
|
Louisville, KY
|
|
|
190
|
|
|
|
519,520
|
|
|
|
7,407,860
|
|
|
|
7,927,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,496,357
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25,903,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
56,593,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Although these assets are consolidated under FIN 46R, the
Partnership has no ownership interest in them other than to the
extent they serve as collateral for the revenue bonds. The
results of operations of those properties are recorded by the
Company in consolidation but any net income or loss from these
properties does not accrue to the BUC holders or the general
partner, but is instead included in Unallocated losses
related to Variable Interest Entities as shown in the
calculation of net income per BUC in Footnote 2.
50
AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Discontinued
Operations and Assets Held for Sale
|
During 2006, Northwoods Lake Apartments in Duluth, Georgia met
the criteria as a discontinued operation under
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-lived Assets
(SFAS No. 144), and it is classified
as such in the consolidated financial statements for all periods
presented. The Company owned $6.15 million in bonds secured
by the property and under FIN 46R, the Company was required
to consolidate the property. During the third quarter of 2006,
the property owner sold the property. In conjunction with the
property sale, the Partnership sold its investment in the
Northwoods Lake Apartments bonds. The sale of the bonds did not
result in a taxable gain to the Partnership. In order to
properly reflect the transaction under FIN 46R, the Company
recorded the sale of the property in 2006 as though it was owned
by the Company. As such, the Company recorded a gain on the sale
of the property of $11.7 million. The sale was completed
for a total purchase price of $29.5 million. As part of the
purchase price for the property, the buyer assumed the property
owners obligations under the Northwood Lake Apartment
Multifamily Housing Revenue Refunding Bonds, Series 2004A
(the Series A Bonds) and Series 2004B (the
Series B Bonds). The Series A Bonds had a
principal outstanding balance of $18.6 million and the
Series B Bonds had a principal outstanding balance of
$6.1 million. The Series A Bonds are held by
unaffiliated third parties. There is no material relationship
between the Partnership, the property owner or any of their
respective affiliates, on the one hand, and the Buyer or any of
its respective affiliates, on the other hand. The property owner
realized approximately $4.3 million in net cash proceeds
from the sale of the Property. These funds were used in their
entirety to retire existing obligations of the property owner
including accumulated tax exempt contingent interest earned by
the Partnership on the Series B Bonds. The equity in the
property owner was held by individuals associated with the
general partner of AFCA2. All net proceeds received by the
property owner as a result of the transaction and any assets
remaining with the property owner were used to settle
obligations to the Partnership. The property owner will have no
further on-going operations and is expected to be dissolved with
no return of capital to its partners. The sale of the bonds plus
the receipt of accumulated contingent interest in 2006 resulted
in total proceeds to the Partnership of approximately
$10.4 million.
On July 22, 2005, the Partnership entered into a purchase
and sale agreement (the Agreement) to sell a
316-unit
multi-family housing project located in West Palm Beach, Florida
known as Clear Lake Colony Apartments (Clear Lake).
Clear Lake was sold to Development Resources Group, LLC, a
Florida limited liability company. There is no affiliation
between Development Resources Group, LLC and the Partnership or
of its affiliates or any officer or manager of The Burlington
Capital Group LLC (the general partner of AFCA 2). The Agreement
provided for a sales price of $33,375,000 for all of the land,
buildings, building improvements, certain personal property,
current lease agreements and other assets associated with Clear
Lake. On November 10, 2005, the sale closed resulting in an
estimated taxable gain to the Partnership of approximately
$12.4 million and a GAAP basis gain of approximately
$18.8 million for the Company. The Partnership received
cash proceeds of approximately $32.2 million, net of
transaction related costs.
Because Clear Lake Colony Acquisition Corp, the owner of Clear
Lake, defaulted on its bond obligations to the Partnership, the
Partnership acquired sole ownership of Clear Lake by way of deed
in lieu of foreclosure immediately prior to the
Partnerships sale of Clear Lake to the Purchaser.
As a result of the foregoing, both Northwood and Clear Lake met
the criteria under SFAS No. 144 as a discontinued
operation and are classified as such in the consolidated results
of operations and in the consolidated balance sheets. Under
SFAS No. 144, an asset is generally considered to
qualify as held for sale when: i) management, having the
authority to approve the action, commits to a plan to sell the
asset, ii) the asset is available for immediate sale in its
present condition, iii) an active program to locate a buyer
and other actions required to complete the plan to sell the
asset have been initiated at a price that is reasonable in
relation to its current fair value and iv) the sale of the
asset is probable, and transfer of the asset is expected to
qualify for recognition as a completed sale, within one year.
The following table presents a balance sheet for the assets and
liabilities of
51
AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
discontinued operations presented on the consolidated balance
sheet as of December 31, 2006 and December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
Dec. 31, 2006
|
|
|
Dec. 31, 2005
|
|
|
Land
|
|
$
|
|
|
|
$
|
3,787,500
|
|
Buildings and improvements
|
|
|
|
|
|
|
21,720,420
|
|
|
|
|
|
|
|
|
|
|
Real estate assets before
accumulated depreciation
|
|
|
|
|
|
|
25,507,920
|
|
Accumulated depreciation
|
|
|
|
|
|
|
(7,976,985
|
)
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
17,530,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
18,685,000
|
|
|
|
|
|
|
|
|
|
|
Net liabilities
|
|
$
|
|
|
|
$
|
1,154,065
|
|
|
|
|
|
|
|
|
|
|
The following table presents the revenues and net loss,
excluding gain on sale of $11.7 million in 2006 and
$18.8 million in 2005 for the discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Rental Revenues
|
|
$
|
2,199,010
|
|
|
$
|
5,802,361
|
|
|
$
|
5,974,638
|
|
Expenses
|
|
|
2,085,173
|
|
|
|
5,802,929
|
|
|
|
6,399,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
113,837
|
|
|
$
|
(568
|
)
|
|
$
|
(424,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In conjunction with the Clear Lake transaction, the general
partners Board of Managers approved a special distribution
to the BUC holders. As described in Note 3, all
distributions to the partners are governed by the Agreement of
Limited Partnership. In accordance with the Agreement of Limited
Partnership, this special distribution is considered a
distribution of Net Residual Proceeds. All of the Clear Lake
sale proceeds are classified as Tier 2 Net Residual
Proceeds. The Board approved a special distribution of
$3.5 million from the Net Residual Proceeds from the Clear
Lake Colony sale. As this is a Tier 2 distribution,
approximately $2.6 million or 75% of the total distribution
was paid to BUC holders of record as of November 30, 2005
and approximately $0.9 million was paid to the general
partner in the fourth quarter of 2005.
In addition to the one-time distribution to BUC holders and the
general partner, a portion of the proceeds were used to pay
$359,000 of deferred administrative fees to the general partner.
The general partner had deferred payment of these administrative
fees without interest since 1989. Due to the gain realized on
this transaction, the general partner elected to receive these
fees. As previously disclosed in the Companys annual
reports on
Form 10-K,
this amount was to be accrued when it was probable that payment
would occur. The Partnership paid the $359,000 of administrative
fees during 2005 and therefore recognized the expense in 2005.
52
AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Partnership used $16.0 million of the proceeds for the
repayment of debt. The remaining proceeds from the sale of
approximately $12.4 million were reinvested in accordance
with the Partnerships investment strategy.
The terms of the Companys debt financing are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Financing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitized Tax-Exempt
|
|
at December 31,
|
|
|
Original
|
|
|
Year
|
|
|
Stated
|
|
|
Effective
|
|
Mortgage Bond and Pledged Collateral
|
|
2006
|
|
|
Debt Financing
|
|
|
Acquired
|
|
|
Maturity
|
|
|
Rate(1)
|
|
|
Bent Tree Apartments
|
|
$
|
11,130,000
|
|
|
$
|
11,130,000
|
|
|
|
2000
|
|
|
|
Dec. 2010
|
|
|
|
4.24
|
%
|
Fairmont Oaks Apartments
|
|
|
7,835,000
|
|
|
|
8,020,000
|
|
|
|
2003
|
|
|
|
April 2007
|
|
|
|
4.27
|
%
|
Iona Lakes Apartments
|
|
|
16,485,000
|
|
|
|
17,155,000
|
|
|
|
2000
|
|
|
|
April 2011
|
|
|
|
4.23
|
%
|
Lake Forest Apartments
|
|
|
10,320,000
|
|
|
|
10,590,000
|
|
|
|
2001
|
|
|
|
Dec. 2009
|
|
|
|
4.31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt financing
|
|
$
|
45,770,000
|
|
|
$
|
46,895,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the average effective interest rate, including fees,
for the year ended December 31, 2006. |
The securitization transactions which give rise to this debt
financing are accounted for as secured borrowings and, in
effect, provide variable-rate financing for the acquisition of
new, or the securitization of existing, tax-exempt mortgage
revenue bonds. Accordingly, the $45,770,000 of tax-exempt
mortgage revenue bonds financed are required to be held in trust
and the subordinated interests (RITES) totaling
$20,000 are classified as other assets.
The Company did not recognize a gain or loss in connection with
any of the secured borrowings.
The Companys financing is concentrated with one provider
through the P-Float program. As such, the Company periodically
monitors the providers ability to continue to perform and
does not anticipate non-performance by the counterparty.
The Companys aggregate borrowings as of December 31,
2006 contractually mature over the next five years and
thereafter as follows:
|
|
|
|
|
2007
|
|
$
|
7,835,000
|
|
2008
|
|
|
|
|
2009
|
|
|
10,320,000
|
|
2010
|
|
|
11,130,000
|
|
2011
|
|
|
16,485,000
|
|
|
|
|
|
|
Total
|
|
$
|
45,770,000
|
|
|
|
|
|
|
53
AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
8.
|
Transactions
with Related Parties
|
Substantially all of the Companys 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 capitalized costs were
incurred in connection with the acquisition or reissuance of
certain tax-exempt mortgage revenue bonds and the debt financing
transactions. The amounts of such expenses reimbursed to AFCA 2
or an affiliate are shown below. The amounts below represent
actual cash reimbursements and do not reflect accruals made at
each year end.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Reimbursable salaries and benefits
|
|
$
|
612,836
|
|
|
$
|
705,559
|
|
|
$
|
558,188
|
|
Clarkson taxable loan advance
|
|
|
|
|
|
|
|
|
|
|
1,756,898
|
|
Costs capitalized by the
Partnership
|
|
|
|
|
|
|
6,388
|
|
|
|
133,584
|
|
Other expenses
|
|
|
124,617
|
|
|
|
271,566
|
|
|
|
153,403
|
|
Insurance
|
|
|
95,662
|
|
|
|
138,209
|
|
|
|
115,970
|
|
Professional fees and expenses
|
|
|
364,937
|
|
|
|
379,168
|
|
|
|
309,863
|
|
Investor services and custodial
fees
|
|
|
47,739
|
|
|
|
34,323
|
|
|
|
35,285
|
|
Registration fees
|
|
|
45,804
|
|
|
|
44,597
|
|
|
|
22,852
|
|
Report preparation and distribution
|
|
|
12,257
|
|
|
|
21,409
|
|
|
|
25,133
|
|
Consulting and travel expenses
|
|
|
24,207
|
|
|
|
27,751
|
|
|
|
10,970
|
|
Telephone
|
|
|
6,368
|
|
|
|
6,479
|
|
|
|
4,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,334,427
|
|
|
$
|
1,635,449
|
|
|
$
|
3,126,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFCA 2 is entitled to receive an administrative fee from the
Partnership equal to 0.45% per annum of the outstanding
principal balance of any its tax-exempt mortgage revenue bonds
or other tax-exempt investments for which the owner of the
financed property or other third party is not obligated to pay
such administrative fee directly to AFCA 2. For the years ended
December 31, 2006, 2005, and 2004, the Partnership paid
administrative fees to AFCA 2 of $79,447, $82,518, and $86,882,
respectively. In addition to the administrative fees paid
directly by the Partnership, AFCA 2 receives administrative fees
directly from the owners of properties financed by certain of
the tax-exempt mortgage revenue bonds held by the Partnership.
These administrative fees also equal 0.45% per annum of the
outstanding principal balance of these tax-exempt mortgage
revenue bonds and totaled $312,981, $317,523, and $311,258, in
2006, 2005, and 2004, respectively. In addition, during 2006
AFCA 2 received payment of approximately $440,000 of past due
administrative fees from the owners of Northwoods. Although
these third party administrative fees are not Partnership
expenses, they have been reflected in the accompanying
consolidated financial statements of the Company as a result of
the consolidation of the VIEs. Such fees are payable by the
financed property prior to the payment of any contingent
interest on the tax-exempt mortgage revenue bonds secured by
these properties. If the Partnership were to acquire any of
these properties in foreclosure, it would assume the obligation
to pay the administrative fees relating to mortgage revenue
bonds on these properties. During 2005, AFCA 2 also received
approximately $359,000 in deferred administrative fees from the
Partnership which related to the year ended December 31,
1989. Such deferred administrative fees became payable as a
result of the gain realized by the Partnership from the sale of
Clear Lake Colony Apartments.
Accounts payable as of December 31, 2006 and 2005 included
accrued amounts for reimbursable costs and expenses and
administrative fees due to AFCA 2 of $58,460 and $93,656
respectively.
AFCA 2 earned mortgage placement fees of $14,319 during the year
ended December 31, 2004 in connection with the acquisition
of the Clarkson College tax-exempt mortgage revenue bonds during
2004. The mortgage placement fees were paid by the owners of the
respective student housing property and, accordingly, have not
been reflected in the accompanying consolidated financial
statements since it is not considered a VIE. Similar fees of
$68,000 and $33,900 were earned by AFCA 2 during the year ended
December 31, 2006 in connection with the
54
AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
acquisition of the Bella Vista and Deerfield, respectively,
tax-exempt mortgage revenue bonds during 2006. There were no
such fees earned in 2005.
An affiliate of AFCA 2, Properties Management, was retained
to provide property management services for Ashley Square,
Northwoods Lake Apartments, Ashley Pointe at Eagle Crest, Iona
Lakes Apartments, Clear Lake Colony Apartments, Bent Tree
Apartments, Lake Forest Apartments, Clarkson College, Chandler
Creek Apartments, Deerfield Apartments, and Fairmont Oaks
Apartments. The management fees paid to the affiliate of AFCA 2
amounted to $514,173 in 2006, $756,348 in 2005, and $686,425 in
2004. These management fees are not Partnership expenses but are
recorded by each applicable VIE entity and, accordingly, have
been reflected in the accompanying consolidated financial
statements. Such fees are paid out of the revenues generated by
the properties owned by the VIEs prior to the payment of any
interest on the tax-exempt mortgage revenue bonds and taxable
loans held by the Partnership on these properties.
The equity in the VIEs is held by individuals or entities
affiliated with the Partnership for all properties except for
Ashley Point Apartments, L.P., Woodbridge Apartments of
Bloomington III and Woodbridge Apartments of
Louisville II.
|
|
9.
|
Interest
Rate Cap Agreements
|
The Company has three derivative agreements in order to mitigate
its exposure to increases in interest rates on its variable-rate
debt financing.
On July 1, 2006, an interest rate cap with a notional
amount of $20.0 million expired. On July 7, 2006, the
Partnership purchased a new interest rate cap for a $159,700
premium. The derivative has a cap on the floating rate index of
4.0%, a notional amount of $10.0 million and matures on
July 1, 2011. It effectively caps the floating rate index
at 4.0%, so the maximum interest rate to be paid on
$10.0 million of debt financing is 4.0% plus remarketing,
credit enhancement, liquidity and trustee fees which aggregate
to approximately 90 basis points.
On November 1, 2002, the Partnership purchased a
convertible interest rate cap for a $250,000 premium. The
derivative has a cap on the floating rate index of 3.0%, a
notional amount of $10.0 million and matures on
November 1, 2007. It effectively caps the floating rate
index at 3.0%, so the maximum interest rate to be paid on
$10.0 million of debt financing is 3.0% plus remarketing,
credit enhancement, liquidity and trustee fees which aggregate
to approximately 90 basis points. If the floating rate index
declines to a level where the counterparty elects to exercise
its option, the convertible cap would be converted to a fixed
rate swap and the Partnerships interest expense would be
converted to a fixed rate of 3.5%.
On February 1, 2003, the Partnership purchased a
convertible interest rate cap for a $608,000 premium. The
derivative has a cap on the floating rate index of 3.50%, a
notional amount of $15.0 million and matures on
January 1, 2010. It effectively caps the floating rate
index at 3.50%, so the maximum interest rate to be paid on
$15.0 million of debt financing is 3.50% plus remarketing,
credit enhancement, liquidity and trustee fees which aggregate
to approximately 90 basis points. If the floating rate index
declines to a level where the counterparty elects to exercise
its option, the convertible cap would be converted to a fixed
rate swap and the Partnerships interest expense would be
converted to a fixed rate of 3.85%.
Interest rate cap expense, which is the result of marking the
interest rate cap agreements to market, reduced expense by
approximately $365,000 for the year ended December 31,
2005, and increased expense $210 and $118,000 for the years
ended December 31, 2006 and 2004 respectively. These are
free-standing derivatives.
55
AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
Fair
Value of Financial Instruments
|
The following methods and assumptions were used by the
Partnership in estimating the fair value of its financial
instruments:
Cash and cash equivalents, restricted cash, interest
receivable, interest rate cap agreements and distribution
payable: Fair value approximates the carrying
value of such assets and liabilities due to the Companys
accounting policy
and/or
short-term nature of the financial instrument.
Debt financing: The carrying amount of the
debt financing approximates fair value as management believes
that the interest rates on the debt are consistent with those
that would be currently available to the Partnership in the
market.
Investment in tax-exempt mortgage revenue bonds and
investment in other tax-exempt bond: Fair value
is based on the Companys estimate of fair value as
described in Notes 4 and 5.
|
|
11.
|
Commitments
and Contingencies
|
The Company is subject to various legal proceedings and claims
that arise in the ordinary course of business. These matters are
frequently covered by insurance. If it has been determined that
a loss is probable to occur, the estimated amount of the loss is
accrued in the consolidated financial statements. While the
resolution of these matters cannot be predicted with certainty,
management believes the final outcome of such matters will not
have a material adverse effect on the Companys
consolidated financial statements.
|
|
12.
|
Recent
Accounting Pronouncements
|
In June 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an Interpretation
of FASB Statement No. 109. The interpretation clarifies
the accounting for uncertainty in tax positions. The
interpretation is effective for the Company beginning in the
first quarter of 2007. The Company does not believe the standard
will have a material impact on the consolidated financial
statements.
In September 2006, the FASB issued Statement No. 157,
Fair Value Measurement
(SFAS No. 157). This statement does not
require new fair value measurements, however, it provides
guidance on applying fair value and expands required
disclosures. SFAS No. 157 is effective beginning in
the first quarter of 2008. The Company is currently assessing
the impact SFAS No. 157 may have on the consolidated
financial statements.
In February 2007, the FASB issued Statement No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115 (SFAS No. 159). This
statement permits, but does not require, entities to choose to
measure many financial instruments and certain other items at
fair value. SFAS No. 159 is effective for us beginning
in the first quarter of 2008. The Company is currently assessing
the impact SFAS No. 159 may have on the consolidated
financial statements.
The Company consists of two reportable segments, Partnership and
VIEs. In addition to the two reportable segments, the Company
also separately reports its consolidating and eliminating
entries since it does not allocate certain items to the segments.
The
Partnership Segment
The Partnership operates for the purpose of acquiring, holding,
selling and otherwise dealing with a portfolio of federally
tax-exempt mortgage revenue bonds which have been issued to
provide construction
and/or
permanent financing of multifamily residential apartments.
56
AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The
VIE segment
As a result of the effect of FIN 46R, management more
closely monitors and evaluates the financial reporting
associated with and the operations of the VIEs. Management
performs such evaluation separately from the operations of the
Partnership through interaction with the third party property
management companies which are under contract to manage the
VIEs multifamily apartment properties. Management
effectively treats the Partnership and the VIEs as separate and
distinct businesses.
The VIEs primary operating strategy focuses on multifamily
apartment properties as long-term investments. The VIEs
operating goal is to generate increasing amounts of net rental
income from these properties that will allow them to service
debt. In order to achieve this goal, management of these
multifamily apartment properties is focused on:
(i) maintaining high economic occupancy and increasing
rental rates through effective leasing, reduced turnover rates
and providing quality maintenance and services to maximize
resident satisfaction; (ii) managing operating expenses and
achieving cost reductions through operating efficiencies and
economies of scale generally inherent in the management of a
portfolio of multiple properties; and (iii) emphasizing
regular programs of repairs, maintenance and property
improvements to enhance the competitive advantage and value of
its properties in their respective market areas. As of
December 31, 2006, the Company consolidated eight VIE
multifamily apartment properties. The VIEs multifamily
apartment properties are located in the states of Iowa, Indiana,
Florida, Kentucky and South Carolina.
The following table details certain key financial information
for the Companys reportable segments for the three years
ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Total revenue Partnership
|
|
$
|
12,621,348
|
|
|
$
|
10,747,149
|
|
|
$
|
9,228,505
|
|
VIEs
|
|
|
14,187,135
|
|
|
|
13,891,556
|
|
|
|
13,034,770
|
|
Consolidation/eliminations
|
|
|
(10,861,160
|
)
|
|
|
(9,383,504
|
)
|
|
|
(7,905,280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
15,947,323
|
|
|
$
|
15,255,201
|
|
|
$
|
14,357,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership
|
|
$
|
8,913,510
|
|
|
$
|
5,811,289
|
|
|
$
|
5,180,388
|
|
VIEs
|
|
|
(5,942,777
|
)
|
|
|
(5,807,526
|
)
|
|
|
(6,466,669
|
)
|
Consolidation/eliminations
|
|
|
(1,973,829
|
)
|
|
|
790,450
|
|
|
|
2,024,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
996,904
|
|
|
$
|
794,213
|
|
|
$
|
737,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership
|
|
$
|
8,913,510
|
|
|
$
|
18,121,623
|
|
|
$
|
7,243,558
|
|
VIEs
|
|
|
10,729,646
|
|
|
|
(863,054
|
)
|
|
|
(43,392,588
|
)
|
Consolidation/eliminations
|
|
|
(6,866,421
|
)
|
|
|
2,306,573
|
|
|
|
(1,561,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12,776,735
|
|
|
$
|
19,565,142
|
|
|
$
|
(37,710,057
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership
|
|
$
|
133,887,842
|
|
|
$
|
128,782,494
|
|
|
$
|
132,545,347
|
|
VIEs
|
|
|
58,969,966
|
|
|
|
88,088,358
|
|
|
|
96,613,572
|
|
Consolidation/eliminations
|
|
|
(92,657,619
|
)
|
|
|
(105,296,728
|
)
|
|
|
(111,011,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
100,200,189
|
|
|
$
|
111,574,124
|
|
|
$
|
118,147,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total partners capital
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership
|
|
$
|
85,758,294
|
|
|
$
|
80,970,212
|
|
|
$
|
70,759,037
|
|
VIEs
|
|
|
(55,827,776
|
)
|
|
|
(66,557,422
|
)
|
|
|
(43,392,588
|
)
|
Consolidation/eliminations
|
|
|
16,815,842
|
|
|
|
25,227,200
|
|
|
|
559,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total partners capital
|
|
$
|
46,746,360
|
|
|
$
|
39,639,990
|
|
|
$
|
27,926,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
AMERICA
FIRST TAX EXEMPT INVESTORS, L.P.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
14.
|
Summary
of Unaudited Quarterly Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,797,294
|
|
|
$
|
3,904,489
|
|
|
$
|
3,840,578
|
|
|
$
|
4,404,962
|
|
Income (loss) from continuing
operations
|
|
|
267,076
|
|
|
|
433,095
|
|
|
|
(51,007
|
)
|
|
|
347,740
|
|
Income (loss) from discontinued
operations
|
|
|
193,459
|
|
|
|
211,739
|
|
|
|
11,783,237
|
|
|
|
(408,604
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
460,535
|
|
|
$
|
644,834
|
|
|
$
|
11,732,230
|
|
|
$
|
(60,864
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations, per BUC
|
|
$
|
0.11
|
|
|
$
|
0.13
|
|
|
$
|
0.37
|
|
|
$
|
0.13
|
|
Income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, basic and diluted, per
BUC
|
|
$
|
0.11
|
|
|
$
|
0.13
|
|
|
$
|
0.37
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,714,928
|
|
|
$
|
3,590,280
|
|
|
$
|
3,559,782
|
|
|
$
|
4,390,211
|
|
Income (loss) from continuing
operations
|
|
|
646,228
|
|
|
|
(99,949
|
)
|
|
|
(546,445
|
)
|
|
|
794,379
|
|
Income (loss) from discontinued
operations
|
|
|
156,886
|
|
|
|
125,127
|
|
|
|
(81,597
|
)
|
|
|
18,570,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
803,114
|
|
|
$
|
25,178
|
|
|
$
|
(628,042
|
)
|
|
$
|
19,364,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations,
per BUC
|
|
$
|
0.16
|
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
|
$
|
0.24
|
|
Income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, basic and diluted, per
BUC
|
|
$
|
0.16
|
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
|
$
|
1.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
Report of
Independent Auditors
To the Partners
Woodbridge Apartments of Louisville II, L.P.
We have audited the accompanying balance sheet of Woodbridge
Apartments of Louisville II, L.P., a limited partnership,
as of December 31, 2006, and the related statements of
profit and loss, changes in partners capital (deficit) and
cash flows for the year then ended. These financial statements
are the responsibility of the Partnerships management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Woodbridge Apartments of Louisville II, L.P. at
December 31, 2006, and the results of its operations and
its cash flows for the year then ended in conformity with
accounting principles generally accepted in the
United States.
Our audit was conducted for the purpose of forming an opinion on
the basic financial statements taken as a whole. The
accompanying supporting data listed on the contents page are
presented for purposes of additional analysis and are not a
required part of the basic financial statements of the
Partnership. Such data has been subjected to the auditing
procedures applied in our audit of the basic financial
statements and, in our opinion, are fairly stated, in all
material respects, in relation to the basic financial statements
taken as a whole.
/s/ Katz,
Sapper & Miller, LLP
Indianapolis, Indiana
February 2, 2007
59
Report of
Independent Auditors
To the Partners
Woodbridge Apartments of Louisville II, L.P.
We have audited the accompanying balance sheet of Woodbridge
Apartments of Louisville II, L.P., a limited partnership,
as of December 31, 2005, and the related statements of
profit and loss, changes in partners capital (deficit) and
cash flows for the year then ended. These financial statements
are the responsibility of the Partnerships management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Woodbridge Apartments of Louisville II, L.P. at
December 31, 2005, and the results of its operations and
its cash flows for the year then ended in conformity with
accounting principles generally accepted in the
United States.
Our audit was conducted for the purpose of forming an opinion on
the basic financial statements taken as a whole. The
accompanying supporting data listed on the contents page are
presented for purposes of additional analysis and are not a
required part of the basic financial statements of the
Partnership. Such data has been subjected to the auditing
procedures applied in our audit of the basic financial
statements and, in our opinion, are fairly stated, in all
material respects, in relation to the basic financial statements
taken as a whole.
/s/ Katz,
Sapper & Miller, LLP
Indianapolis, Indiana
January 28, 2006
60
Report of
Independent Auditors
To the Partners
Woodbridge Apartments of Louisville II, L.P.
We have audited the accompanying balance sheet of Woodbridge
Apartments of Louisville II, L.P., a limited partnership,
as of December 31, 2004, and the related statements of
profit and loss, changes in partners capital (deficit) and
cash flows for the year then ended. These financial statements
are the responsibility of the Partnerships management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Woodbridge Apartments of Louisville II, L.P. at
December 31, 2004, and the results of its operations and
its cash flows for the year then ended in conformity with
accounting principles generally accepted in the
United States.
Our audit was conducted for the purpose of forming an opinion on
the basic financial statements taken as a whole. The
accompanying supporting data listed on the contents page are
presented for purposes of additional analysis and are not a
required part of the basic financial statements of the
Partnership. Such data has been subjected to the auditing
procedures applied in our audit of the basic financial
statements and, in our opinion, are fairly stated, in all
material respects, in relation to the basic financial statements
taken as a whole.
/s/ Katz,
Sapper & Miller, LLP
Indianapolis, Indiana
January 26, 2005
61
Report of
Independent Auditors
To the Partners
Woodbridge Apartments of Bloomington III, L.P.
We have audited the accompanying balance sheet of Woodbridge
Apartments of Bloomington III, L.P., a limited partnership,
as of December 31, 2006, and the related statements of
profit and loss, changes in partners capital (deficit) and
cash flows for the year then ended. These financial statements
are the responsibility of the Partnerships management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Woodbridge Apartments of Bloomington III, L.P. at
December 31, 2006, and the results of its operations and
its cash flows for the year then ended in conformity with
accounting principles generally accepted in the
United States.
Our audit was conducted for the purpose of forming an opinion on
the basic financial statements taken as a whole. The
accompanying supporting data listed on the contents page are
presented for purposes of additional analysis and are not a
required part of the basic financial statements of the
Partnership. Such data has been subjected to the auditing
procedures applied in our audit of the basic financial
statements and, in our opinion, are fairly stated, in all
material respects, in relation to the basic financial statements
taken as a whole.
/s/ Katz,
Sapper & Miller, LLP
Indianapolis, Indiana
February 2, 2007
62
Report of
Independent Auditors
To the Partners
Woodbridge Apartments of Bloomington III, L.P.
We have audited the accompanying balance sheet of Woodbridge
Apartments of Bloomington III, L.P., a limited partnership,
as of December 31, 2005, and the related statements of
profit and loss, changes in partners capital (deficit) and
cash flows for the year then ended. These financial statements
are the responsibility of the Partnerships management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Woodbridge Apartments of Bloomington III, L.P. at
December 31, 2005, and the results of its operations and
its cash flows for the year then ended in conformity with
accounting principles generally accepted in the
United States.
Our audit was conducted for the purpose of forming an opinion on
the basic financial statements taken as a whole. The
accompanying supporting data listed on the contents page are
presented for purposes of additional analysis and are not a
required part of the basic financial statements of the
Partnership. Such data has been subjected to the auditing
procedures applied in our audit of the basic financial
statements and, in our opinion, are fairly stated, in all
material respects, in relation to the basic financial statements
taken as a whole.
/s/ Katz,
Sapper & Miller, LLP
Indianapolis, Indiana
January 28, 2006
63
Report of
Independent Auditors
To the Partners
Woodbridge Apartments of Bloomington III, L.P.
We have audited the accompanying balance sheet of Woodbridge
Apartments of Bloomington III, L.P., a limited partnership,
as of December 31, 2004, and the related statements of
profit and loss, changes in partners capital (deficit) and
cash flows for the year then ended. These financial statements
are the responsibility of the Partnerships management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Woodbridge Apartments of Bloomington III, L.P. at
December 31, 2004, and the results of its operations and
its cash flows for the year then ended in conformity with
accounting principles generally accepted in the
United States.
Our audit was conducted for the purpose of forming an opinion on
the basic financial statements taken as a whole. The
accompanying supporting data listed on the contents page are
presented for purposes of additional analysis and are not a
required part of the basic financial statements of the
Partnership. Such data has been subjected to the auditing
procedures applied in our audit of the basic financial
statements and, in our opinion, are fairly stated, in all
material respects, in relation to the basic financial statements
taken as a whole.
/s/ Katz,
Sapper & Miller, LLP
Indianapolis, Indiana
January 26, 2005
64
|
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure.
|
Not applicable
|
|
Item 9A.
|
Controls
and Procedures.
|
(a) Evaluation of disclosure controls and
procedures. The Chief Executive Officer and Chief
Financial Officer of the general partner of the general partner
of the Partnership have evaluated the effectiveness of the
Partnerships disclosure controls and procedures (as
defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
as of the end of the period covered by this report. Based on
that evaluation, the Chief Executive Officer and the Chief
Financial Officer have concluded that the Partnerships
current disclosure controls and procedures are effective.
(b) Changes in internal controls over financial
reporting. There were no changes in the
Partnerships internal controls over financial reporting
during the Partnerships most recent fiscal quarter that
have materially affected, or are reasonably likely to materially
affect, the Partnerships internal control over financial
reporting.
|
|
Item 9B.
|
Other
Information.
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance.
|
The Partnership has no directors or officers of its own.
Management of the Partnership consists of the general partner of
the Partnership, America First Capital Associates Limited
Partnership Two (AFCA 2) and its general partner,
The Burlington Capital Group LLC (formerly America First
Companies, L.L.C.) (Burlington).
The following individuals are the officers and managers of
Burlington, and each serves for a term of one year.
|
|
|
|
|
|
|
Name
|
|
Position Held
|
|
Position Held Since
|
|
|
Michael B. Yanney
|
|
Chairman of the Board and Manager
|
|
|
1984
|
|
Lisa Y. Roskens
|
|
President, Chief Executive Officer
and Manager
|
|
|
2001/2000/1999
|
|
Michael J. Draper
|
|
Chief Financial Officer
|
|
|
2004
|
|
Mariann Byerwalter
|
|
Manager(2)
|
|
|
1997
|
|
Dr. William S. Carter
|
|
Manager(2)
|
|
|
2003
|
|
James O. Ellis
|
|
Manager(2)
|
|
|
2005
|
|
Patrick J. Jung
|
|
Manager(1)(2)
|
|
|
2003
|
|
George H. Krauss
|
|
Manager
|
|
|
2001
|
|
Dr. Martin A. Massengale
|
|
Manager(1)(2)
|
|
|
1994
|
|
Dr. Gail Walling Yanney
|
|
Manager
|
|
|
1996
|
|
Clayton K. Yeutter
|
|
Manager(1)(2)
|
|
|
2001
|
|
|
|
|
(1) |
|
Member of the Burlington Audit Committee. The Board of Managers
has designated Mr. Jung as the audit committee
financial expert as such term is defined in
Item 401(h) of SEC
Regulation S-K. |
|
(2) |
|
Determined to be independent under both Section 10A of the
Securities Act of 1934 and under the NASDAQ Marketplace rules. |
Michael B. Yanney, 73, has served as the Chairman of the
Board of Burlington and its predecessors since 1984. From 1977
until the organization of Burlington in 1984, Mr. Yanney
was principally engaged in the ownership and management of
commercial banks. From 1961 to 1977, Mr. Yanney was
employed by Omaha National Bank and Omaha National Corporation
(now part of U.S. Bank), where he held various positions,
including the position of Executive Vice President and Treasurer
of the holding company. Mr. Yanney also serves as a member
of the boards of directors of America First Apartment Investors,
Inc., Level 3 Communications, Inc., Streck Laboratories,
and Magnum Resources, Inc.,. Mr. Yanney is the husband of
Gail Walling Yanney and the father of Lisa Y. Roskens.
65
Lisa Y. Roskens, 40, is Chief Executive Officer and
President of Burlington. From 1999 to 2000, Ms. Roskens was
managing Director of Twin Compass, LLC. From 1997 to 1999,
Ms. Roskens was employed by Inacom Corporation where she
held the position of Director of Business Development and
Director of Field Services Development. From 1995 to 1997,
Ms. Roskens served as Finance Director for the
U.S. Senate campaign of Senator Charles Hagel of Nebraska.
From 1992 to 1995, Ms. Roskens was an attorney with the
Kutak Rock LLP law firm in Omaha, Nebraska, specializing in
commercial litigation. Ms. Roskens is the daughter of
Michael B. Yanney and Gail Walling Yanney. Ms. Roskens also
serves on the Board of Directors of America First Apartment
Investors, Inc.
Michael J. Draper, 41, is Chief Financial Officer of
Burlington. From April 2004 to September 2004, he was the
Director of Finance and Accounting for Burlington. From April
2000 through March 2004, he was employed at Transgenomic, Inc.
where he served as Chief Financial Officer and prior to that as
Controller. Prior to Transgenomic, Mr. Draper was Vice
President of Accounting and Finance for MSI Systems Integrators
for over 2 years and was with Deloitte & Touche
LLP for over 8 years.
Mariann Byerwalter, 46, is Chairman of JDN Corporate
Advisory LLC. She was Vice President of Business Affairs and
Chief Financial Officer of Stanford University from 1996 to
2001. Ms. Byerwalter was Executive Vice President of
America First Eureka Holdings, Inc. (AFEH) and
EurekaBank from 1988 to January 1996. Ms. Byerwalter was
Chief Financial Officer and Chief Operating Officer of AFEH, and
Chief Financial Officer of EurekaBank from 1993 to January 1996.
She was an officer of BankAmerica Corporation and its venture
capital subsidiary from 1984 to 1987. She served as Vice
President and Executive Assistant to the President of Bank of
America and was a Vice President in the banks Corporate
Planning and Development Department. She was also on the
Stanford Board of Trustees from 1992 to 1996 and was
re-appointed to such in 2002. Ms. Byerwalter currently
serves on the board of directors of LookSmart, Inc., Redwood
Trust, Inc., SRI International, the PMI Group Inc., the Stanford
Hospital and Clinics, the Lucile Packard Childrens
Hospital and certain investment companies affiliated with
Charles Schwab Corporation.
Dr. William S. Carter, 80, is retired from medical
practice. He is a graduate of Butler University and the Nebraska
University College of Medicine. He served his residency at the
University of Missouri and was appointed a diplomat of the
American Board of Otorhinolaryngology. He was in private
practice in Omaha, Nebraska, until 1993. He is currently on the
board of directors of Murphy Drug Co. and is a director of the
Happy Hollow Club in Omaha and the Thunderbird Club in Rancho
Mirage, California.
James O. Ellis, 59, is President and Chief Executive
Officer of the Institute of Nuclear Power Operations,
headquartered in Atlanta, Georgia, an independent, nonprofit
company which works with the commercial nuclear industry in
maintaining safety and reliability standards in the operation of
nuclear electric generating plants. Admiral (Ret.) Ellis
recently retired as Commander, United States Strategic Command,
Offutt Air Force Base. He was responsible for the global command
and control of the U.S. strategic forces to meet decisive
national security objectives. USSTRATCOM provides a broad range
of strategic capabilities and options for the President and
Secretary of Defense. Mr. Ellis is a graduate of the
U.S. Naval Academy and was designated a Naval Aviator in
1971 and has held a variety of sea and shore assignments
since 1972. He holds Master of Science degrees in Aerospace
Engineering and in Aeronautical Systems. He also serves as a
director of the Lockheed Martin Corporation, Level 3
Communications, Inc. and Inmarsat PLC. In December 2005,
Mr. Ellis was appointed by President Bush to the
Presidents Foreign Intelligence Advisory Board
Patrick J. Jung, CPA, 59, currently is the Chief
Operating Officer with Surdell Partners, LLC. Prior to joining
Surdell, Mr. Jung was with KPMG LLP for 30 years.
During that period, he served as a partner for 20 years and
as the managing partner of the Nebraska business unit for the
last six years. Mr. Jung also serves on the boards of
directors of Werner Enterprises, Inc, including its audit and
compensation committees, and Supertel Hospitality, Inc,
including its audit committee.
George H. Krauss, 65, has been a consultant to Burlington
since 1996. Mr. Krauss is also of counsel to Kutak Rock
LLP, a national law firm of over 300 lawyers headquartered in
Omaha, Nebraska. Mr. Krauss has been associated with Kutak
Rock LLP since 1972 and served as its managing partner from 1983
to 1993. Mr. Krauss also serves on the board of directors
of Gateway, Inc., MFA Mortgage Investments, Inc., West
Corporation, and America First Apartment Investors, Inc.
Mr. Krauss is a member of the compensation committee,
corporate governance and
66
nominating committee and audit committee of Gateway, Inc., as
well as a member of the compensation committee and audit
committee of West Corporation.
Dr. Martin A. Massengale, 73, is President Emeritus
of the University of Nebraska, Director of the Center for
Grassland Studies and a Foundation Distinguished Professor.
Prior to becoming President Emeritus in 1991, he served as
Interim President from 1989, as Chancellor of the University of
Nebraska Lincoln from 1981 until 1991 and as Vice Chancellor for
Agriculture and Natural Resources from 1976 to 1981. Prior to
that time, he was a professor and associate dean of the College
of Agriculture at the University of Arizona. Dr. Massengale
currently serves on the board of managers of AAFL Enterprises,
LLC, including as a member of its executive committee and the
chairman of its communications committee.
Dr. Gail Walling Yanney, 70, is a retired physician.
Dr. Yanney practiced anesthesiology and was the Executive
Director of the Clarkson Foundation until October of 1995. In
addition, she was a director of FirsTier Bank, N.A., Omaha,
Nebraska, prior to its merger with First Bank, N.A.
Dr. Yanney is the wife of Michael B. Yanney and the mother
of Lisa Y. Roskens.
Clayton K. Yeutter, 76, is Senior Advisor
International Trade to Hogan & Hartson, a Washington
D.C. law firm. From 1978 to 1985 he served as the President and
Chief Executive Officer of the Chicago Mercantile Exchange.
Mr. Yeutter served as the U.S. Secretary of
Agriculture from 1989 to 1991, and has served in cabinet and
sub-cabinet
posts under four U.S. Presidents. Mr. Yeutter
currently serves on the board of directors of Oppenheimer Funds,
Inc., Covanta Holding Corp., and American Commercial Lines, Inc.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934
requires the managers and executive officers of Burlington and
persons who own more than 10% of the Partnerships BUCs to
file reports of their ownership of BUCs with the SEC. Such
officers, managers and BUC holders are required by SEC
regulation to furnish the Partnership with copies of all
Section 16(a) reports they file. Based solely upon review
of the copies of such reports received by the Partnership and
written representations from each such person who did not file
an annual report with the SEC (Form 5) that no other
reports were required, the Partnership believes that there was
compliance for the year ended December 31, 2006 with all
Section 16(a) filing requirements applicable to such
executive officers, managers and beneficial owners of BUCs.
Code
of Ethical Conduct and Code of Conduct
Burlington has adopted the Code of Ethical Conduct for its
senior executive and financial officers as required by
Section 406 of the Sarbanes-Oxley Act of 2002. As such,
this Code of Ethical Conduct covers all executive officers of
Burlington, who perform such duties for the Partnership.
Burlington has also adopted the Code of Conduct applicable to
all directors, officers and employees which is designed to
comply with the listing requirements of the NASDAQ Stock Market.
Both the Code of Ethical Conduct and the Code of Conduct are
available on the Partnerships website at
www.ataxz.com.
|
|
Item 11.
|
Executive
Compensation.
|
Neither the Partnership nor AFCA 2 has any officers. Certain
services are provided to the Partnership by officers of
Burlington. However, under the terms of our Agreement of Limited
Partnership, neither our general partner nor Burlington is
allowed to be reimbursed by us for any compensation paid by
Burlington to its officers. Accordingly, we do not pay
compensation of any nature to the persons who effectively act as
our executive officers.
The Board of Managers of Burlington effectively acts as our
board of directors. Although Burlington is not a public company
and its securities are not listed on any stock market or
otherwise publicly traded, its Board of Managers is constituted
in a manner that complies with rules of the Securities and
Exchange Commission and the NASDAQ Stock Market related to
public companies with securities listed on the NASDAQ Global
Market in order for the Company and its BUCs to comply with
these rules. Among other things, a majority of the Board of
Managers of Burlington consists of managers who meet the
definitions of independence under the rules of the SEC and the
NASDAQ Stock Market. These independent managers are Patrick J.
Jung, Mariann Byerwalter, Martin M. Massengale, Clayton Yeutter,
William S. Carter and James O. Ellis. During 2006, we paid
Burlington a total
67
of $92,167 in order to reimburse it for a portion of the fees it
pays to these six independent directors. We did not pay any
other compensation of any nature to any of the managers of
Burlington or reimburse Burlington for any other amounts
representing compensation to its Board of Managers.
Remuneration paid by the Partnership to AFCA 2 pursuant to the
terms of its Agreement of Limited Partnership during the year
ended December 31, 2006 is described in Note 8 to the
Companys Financial Statements filed in response to
Item 8 of this report.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and
Management.
|
(a) No person is known by the Partnership to own
beneficially more than 5% of the Partnerships BUCs.
(b) No manager or executive officer of Burlington and no
partner of AFCA 2 owns any BUCs.
(c) There are no arrangements known to the Partnership, the
operation of which may at any subsequent date result in a change
in control of the Partnership.
(d) The Partnership does not maintain any equity
contribution plans as defined in Item 201(d) of
Regulation S-K.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
The general partner of the Partnership is AFCA 2 and the sole
general partner of AFCA 2 is Burlington.
Except as described in Note 8 to the Companys
Financial Statements filed in response to Item 8 of this
report, the Partnership is not a party to any transaction or
proposed transaction with AFCA 2, Burlington or with any
person who is: (i) a manager or executive officer of
Burlington or any general partner of AFCA 2; (ii) a nominee
for election as a manager of Burlington; (iii) an owner of
more than 5% of the BUCs; or, (iv) a member of the
immediate family of any of the foregoing persons.
|
|
Item 14.
|
Principal
Accountant Fees and Services.
|
The Audit Committee of Burlington has engaged
Deloitte & Touche LLP as the independent registered
public accounting firm for the Company. The Audit Committee
regularly reviews and determines whether any non-audit services
provided by Deloitte & Touche LLP potentially affects
their independence with respect to the Company. The Audit
Committees policy is to pre-approve all audit and
permissible non-audit services provided by Deloitte &
Touche LLP. Pre-approval is generally provided by the Audit
Committee for up to one year, is detailed as to the particular
service or category of services to be rendered, and is generally
subject to a specific budget. The Audit Committee may also
pre-approve additional services or specific engagements on a
case-by-case
basis. Management provides annual updates to the Audit Committee
regarding the extent of any services provided in accordance with
this pre-approval, as well as the cumulative fees for all
non-audit services incurred to date.
The following table sets forth the aggregate fees billed by
Deloitte & Touche LLP with respect to audit and
non-audit services for the Company during the year ended
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Audit Fees(1)
|
|
$
|
211,175
|
|
|
$
|
138,415
|
|
Audit-Related Fees
|
|
|
|
|
|
|
|
|
Tax Fees(2)
|
|
|
38,927
|
|
|
|
22,279
|
|
All Other Fees
|
|
$
|
|
|
|
$
|
|
|
|
|
|
(1) |
|
Audit Includes fees and expenses for
professional services rendered for the audit of the
Companys annual financial statements, reviews of the
financial statements included in the Companys quarterly
reports on
Form 10-Q
during 2006, and services associated with registration
statements, periodic reports and other documents filed with the
Securities Exchange Commission or other documents issued in
connection with securities offerings, such as consents. |
|
(2) |
|
Tax Includes fees and expenses for the
professional services rendered for the preparation and review of
tax returns and for various consultations. |
68
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules.
|
(a) The following documents are filed as part of this
report:
1. Financial Statements. The following
financial statements of the Company are included in response to
Item 8 of this report:
Reports of Independent Registered Public Accounting Firms.
Consolidated Balance Sheets of the Company as of
December 31, 2006 and 2005.
Consolidated Statements of Operations and Comprehensive Income
of the Company for the years ended December 31, 2006, 2005
and 2004.
Consolidated Statements of Partners Capital of the Company
for the years ended December 31, 2006, 2005 and 2004.
Consolidated Statements of Cash Flows of the Company for the
years ended December 31, 2006, 2005 and 2004.
Notes to Consolidated Financial Statements of the Company.
2. Financial Statement Schedules. The
information required to be set forth in the financial statement
schedules is included in the notes to consolidated financial
statements of the Company filed in response to Item 8 of
this report.
3. Exhibits. The following exhibits are
filed as required by Item 15(a)(3) 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 Registration Statement on
Form S-11
(No. 2-99997)
filed by America First Tax Exempt Mortgage Fund Limited
Partnership on August 30, 1985).
|
|
4(a)
|
|
|
Form of Certificate of Beneficial
Unit Certificate (incorporated herein by reference to
Exhibit 4.1 to Registration Statement on
Form S-4
(No. 333-50513)
filed by the Partnership on April 17, 1998).
|
|
4(b)
|
|
|
Agreement of Limited Partnership
of the Partnership (incorporated herein by reference to the
Amended Annual Report on
Form 10-K
(No.
000-24843),
filed by the Partnership on June 28, 1999).
|
|
4(c)
|
|
|
Amended Agreement of Merger, dated
June 12, 1998, between the Partnership and America First
Tax Exempt Mortgage Fund Limited Partnership (incorporated
herein by reference to Exhibit 4.3 to Amendment No. 3
to Registration Statement on
Form S-4
(No. 333-50513)
filed by the Partnership on September 14, 1998).
|
|
10(b)
|
|
|
Contract and Agreement dated
November 1, 2002 between America First Tax Exempt
Investors, L.P. and Bank of America, N.A., to confirm the terms
of the interest rate cap transaction between the parties
(incorporated herein by reference to Exhibit 4 to Annual
Report on
Form 10-K
(No.
000-24843)
filed by the Partnership on March 27, 2003).
|
|
10(c)
|
|
|
Contract and Agreement dated
January 15, 2003 between America First Tax Exempt
Investors, L.P. and Bank of America, N.A., to confirm the terms
of the interest rate cap transaction between the parties
(incorporated herein by reference to Exhibit 4 to Annual
Report on
Form 10-K
(No.
000-24843)
filed by the Partnership on March 27, 2003).
|
|
23
|
.1
|
|
Consent of Deloitte &
Touche LLP.
|
|
23
|
.2
|
|
Consent of Katz, Sapper &
Miller, LLP
|
|
23
|
.3
|
|
Consent of Katz, Sapper &
Miller, LLP
|
|
24
|
|
|
Powers of Attorney.
|
|
31
|
.1
|
|
Certification of CEO pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of CFO pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1
|
|
Certification of CEO pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Certification of CFO pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
Associates Limited Partnership Two,
General Partner of the Partnership
|
|
|
|
By
|
The Burlington Capital Group LLC,
|
General Partner of
America First Capital Associates
Limited Partnership Two
Lisa Y. Roskens
Chief Executive Officer
Date: March 5, 2007
Pursuant to the requirements of the Securities and Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
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By /s/ Michael
B. Yanney*
Michael
B. Yanney
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Chairman of the Board and Manager
of Burlington Capital Group LLC
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Date: March 5, 2007
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By /s/ Lisa
Y. Roskens
Lisa
Y. Roskens
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President, Chief Executive Officer
and Manager of The Burlington Capital Group LLC
(Principal Executive Officer)
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Date: March 5, 2007
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By /s/ Michael
J. Draper
Michael
J. Draper
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Chief Financial Officer of The
Burlington Capital Group LLC (Principal Financial Officer and
Principal Accounting Officer)
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Date: March 5, 2007
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By /s/ Mariann
Byerwalter*
Mariann
Byerwalter
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Manager of The Burlington Capital
Group LLC
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Date: March 5, 2007
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By /s/ William
S. Carter*
William
S. Carter
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Manager of The Burlington Capital
Group LLC
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Date: March 5, 2007
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By /s/ Patrick
J. Jung*
Patrick
J. Jung
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Manager of The Burlington Capital
Group LLC
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Date: March 5, 2007
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By /s/ George
H. Krauss*
George
H. Krauss
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Manager of The Burlington Capital
Group LLC
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Date: March 5, 2007
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By /s/ Martin
A. Massengale*
Martin
A. Massengale
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Manager of The Burlington Capital
Group LLC
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Date: March 5, 2007
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By /s/ Gail
Walling Yanney*
Gail
Walling Yanney
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Manager of The Burlington Capital
Group LLC
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Date: March 5, 2007
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By /s/ Clayton
K. Yeutter*
Clayton
K. Yeutter
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Manager of The Burlington Capital
Group LLC
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Date: March 5, 2007
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By /s/ James
O. Ellis*
James
O. Ellis
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Manager of The Burlington Capital
Group LLC
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Date: March 5, 2007
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*By /s/ Michael
J. Draper
Attorney-in-Fact
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/s/ Michael
J. Draper
Michael
J. Draper
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