UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
OR
£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-24843
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
(Exact name of registrant as specified in its charter)
|
| |
Delaware | 47-0810385 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| |
1004 Farnam Street, Suite 400 | Omaha, Nebraska 68102 |
(Address of principal executive offices) | (Zip Code) |
(402) 444-1630 |
(Registrant's telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO £
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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| | | |
Large accelerated filer £ | Accelerated filer Q | Non- accelerated filer £ | Smaller reporting company £ |
| | (do not check if a smaller reporting company) | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES £ NO Q
INDEX
PART I – FINANCIAL INFORMATION
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| | | |
| Financial Statements (Unaudited) | | |
| Condensed Consolidated Balance Sheets | |
| Condensed Consolidated Statements of Operations | |
| Condensed Consolidated Statements of Partners’ Capital and Comprehensive Income (Loss) | |
| Condensed Consolidated Statements of Cash Flows | |
| Notes to Condensed Consolidated Financial Statements | |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| Quantitative and Qualitative Disclosures About Market Risk | |
| Controls and Procedures | |
PART II – OTHER INFORMATION
Forward-Looking Statements
This report (including, but not limited to, the information contained in “Management's Discussion and Analysis of Financial Condition and Results of Operations”) contains forward-looking statements. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. When used, statements which are not historical in nature, including those containing words such as “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” and similar expressions, are intended to identify forward-looking statements. We have based forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. This report also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other industry data. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We have not independently verified the statistical and other industry data generated by independent parties and contained in this report and, accordingly, we cannot guarantee their accuracy or completeness.
These forward-looking statements are subject to various risks and uncertainties, including those relating to:
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• | defaults on the mortgage loans securing our tax-exempt mortgage revenue bonds; |
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• | risks associated with investing in multifamily apartments, including changes in business conditions and the general economy; |
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• | changes in short-term interest rates; |
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• | our ability to use borrowings to finance our assets; |
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• | current negative economic and credit market conditions; and |
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• | changes in government regulations affecting our business. |
Other risks, uncertainties and factors could cause our actual results to differ materially from those projected in any forward-looking statements we make. We are not obligated to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, projections, assumptions and estimates of our future performance and the future performance of the industries in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described under the headings “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and in Item 1A of Part II of this report.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
| | | | | | | | |
| | September 30,
2011 | | December 31,
2010 |
Assets | | | | |
Cash and cash equivalents | | $ | 10,411,071 |
| | $ | 13,277,048 |
|
Restricted cash | | 16,853,085 |
| | 25,252,756 |
|
Interest receivable | | 8,562,286 |
| | 4,670,182 |
|
Tax-exempt mortgage revenue bonds held in trust, at fair value (Notes 4 & 7) | | 91,654,982 |
| | 73,451,479 |
|
Tax-exempt mortgage revenue bonds, at fair value (Note 4) | | 47,435,630 |
| | 27,115,164 |
|
Real estate assets: (Note 5) | | | | |
Land | | 13,446,385 |
| | 12,946,831 |
|
Buildings and improvements | | 114,414,173 |
| | 91,802,694 |
|
Real estate assets before accumulated depreciation | | 127,860,558 |
| | 104,749,525 |
|
Accumulated depreciation | | (19,580,720 | ) | | (23,467,105 | ) |
Net real estate assets | | 108,279,838 |
| | 81,282,420 |
|
Other assets (Note 6) | | 14,212,716 |
| | 16,558,200 |
|
Total Assets | | $ | 297,409,608 |
| | $ | 241,607,249 |
|
| | | | |
Liabilities | | | | |
Accounts payable, accrued expenses and other liabilities | | $ | 3,516,836 |
| | $ | 3,528,303 |
|
Distribution payable | | 3,803,399 |
| | 3,803,399 |
|
Debt financing (Note 7) | | 109,187,000 |
| | 95,608,000 |
|
Mortgages payable (Note 8) | | 43,667,892 |
| | 10,645,982 |
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Total Liabilities | | 160,175,127 |
| | 113,585,684 |
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| | | | |
Commitments and Contingencies (Note 12) | |
|
| |
|
|
| | | | |
Partners' Capital | | | | |
General Partner (Note 2) | | (298,694 | ) | | (280,629 | ) |
Beneficial Unit Certificate holders | | 160,388,092 |
| | 161,389,189 |
|
Unallocated deficit of Consolidated VIEs | | (23,163,457 | ) | | (32,945,669 | ) |
Total Partners' Capital | | 136,925,941 |
| | 128,162,891 |
|
Noncontrolling interest (Note 5) | | 308,540 |
| | (141,326 | ) |
Total Capital | | 137,234,481 |
| | 128,021,565 |
|
Total Liabilities and Partners' Capital | | $ | 297,409,608 |
| | $ | 241,607,249 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
| | | | | | | | | | | | | | | | |
| | For the Three Months Ended, | | For the Nine Months Ended, |
| | September 30, 2011 | | September 30, 2010 | | September 30, 2011 | | September 30, 2010 |
Revenues: | | | | | | | | |
Property revenues | | $ | 4,319,370 |
| | $ | 3,698,181 |
| | $ | 12,453,647 |
| | $ | 10,948,483 |
|
Mortgage revenue bond investment income | | 2,465,876 |
| | 2,011,059 |
| | 7,094,549 |
| | 5,029,943 |
|
Gain on early extinguishment of debt | | — |
| | — |
| | — |
| | 438,816 |
|
Other income | | 359,167 |
| | 112,400 |
| | 759,478 |
| | 325,226 |
|
Total Revenues | | 7,144,413 |
| | 5,821,640 |
| | 20,307,674 |
| | 16,742,468 |
|
Expenses: | | | | | | | | |
Real estate operating (exclusive of items shown below) | | 2,452,229 |
| | 2,282,147 |
| | 7,192,751 |
| | 7,430,764 |
|
Asset impairment charge - Weatherford | | — |
| | 2,716,330 |
| | — |
| | 2,716,330 |
|
Provision for loss on receivables | | 14,525 |
| | — |
| | 725,215 |
| | — |
|
Depreciation and amortization | | 1,536,591 |
| | 1,430,847 |
| | 4,171,142 |
| | 3,868,105 |
|
Interest | | 2,138,532 |
| | 1,184,293 |
| | 4,646,590 |
| | 3,029,572 |
|
General and administrative | | 725,115 |
| | 637,624 |
| | 2,044,132 |
| | 1,736,400 |
|
Total Expenses | | 6,866,992 |
| | 8,251,241 |
| | 18,779,830 |
| | 18,781,171 |
|
Net income (loss) | | 277,421 |
| | (2,429,601 | ) | | 1,527,844 |
| | (2,038,703 | ) |
Net income (loss) attributable to noncontrolling interest | | 145,369 |
| | (221,878 | ) | | 449,866 |
| | (745,086 | ) |
Net income (loss) - America First Tax Exempt Investors, L.P. | | $ | 132,052 |
| | $ | (2,207,723 | ) | | $ | 1,077,978 |
| | $ | (1,293,617 | ) |
| | | | | | | | |
Net income (loss) allocated to: | | | | | | | | |
General Partner | | $ | 3,750 |
| | $ | (13,454 | ) | | 75,212 |
| | 13,813 |
|
Limited Partners - Unitholders | | 371,286 |
| | (1,331,945 | ) | | 1,942,800 |
| | 1,126,689 |
|
Unallocated loss of Consolidated Property VIEs | | (242,984 | ) | | (862,324 | ) | | (940,034 | ) | | (2,434,119 | ) |
Noncontrolling interest | | 145,369 |
| | (221,878 | ) | | 449,866 |
| | (745,086 | ) |
| | $ | 277,421 |
| | $ | (2,429,601 | ) | | $ | 1,527,844 |
| | $ | (2,038,703 | ) |
Unitholders' interest in net income per unit (basic and diluted): | | | | | | | | |
Net income (loss), basic and diluted, per unit | | $ | 0.01 |
| | $ | (0.04 | ) | | $ | 0.06 |
| | $ | 0.04 |
|
Weighted average number of units outstanding, basic and diluted | | 30,122,928 |
| | 30,122,928 |
| | 30,122,928 |
| | 26,607,324 |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL AND COMPREHENSIVE INCOME (LOSS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 and 2010
(UNAUDITED)
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| | | | | | | | | | | | | | | | | | | | | | | | | | |
| General Partner | | # of Units | | Beneficial Unit Certificate Holders | | Unallocated Deficit of Consolidated VIEs | | Non- controlling Interest | | Total | | Accumulated Other Comprehensive Income (Loss) |
Balance at January 1, 2011 | $ | (280,629 | ) | | 30,122,928 |
| | $ | 161,389,189 |
| | $ | (32,945,669 | ) | | $ | (141,326 | ) | | $ | 128,021,565 |
| | $ | (9,692,233 | ) |
Deconsolidation of VIEs (Note 3) | (7,262 | ) | | — |
| | (718,981 | ) | | 10,722,246 |
| | — |
| | 9,996,003 |
| | (726,243 | ) |
Distributions paid or accrued | (177,643 | ) | | — |
| | (11,296,098 | ) | | — |
| | — |
| | (11,473,741 | ) | | — |
|
Comprehensive income: | | | | | | | | | | | | | |
Net income (loss) | 75,212 |
| | — |
| | 1,942,800 |
| | (940,034 | ) | | 449,866 |
| | 1,527,844 |
| | — |
|
Unrealized gain on securities | 91,628 |
| | — |
| | 9,071,182 |
| | — |
| | — |
| | 9,162,810 |
| | 9,162,810 |
|
Comprehensive income | | | | | | | | | | | 10,690,654 |
| | |
Comprehensive income attributable to noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
| | 449,866 |
| | — |
|
Comprehensive income attributable to Partnership | — |
| | — |
| | — |
| | — |
| | — |
| | 10,240,788 |
| | — |
|
Balance at September 30, 2011 | $ | (298,694 | ) | | 30,122,928 |
| | $ | 160,388,092 |
| | $ | (23,163,457 | ) | | $ | 308,540 |
| | $ | 137,234,481 |
| | $ | (1,255,666 | ) |
| | | | | | | | | | | | | |
| General Partner | | # of Units | | Beneficial Unit Certificate Holders | | Unallocated Deficit of Consolidated VIEs | | Non- controlling Interest | | Total | | Accumulated Other Comprehensive Income (Loss) |
Balance at January 1, 2010 | $ | 271,051 |
| | 21,842,928 |
| | $ | 130,482,881 |
| | $ | (32,215,697 | ) | | $ | 62,505 |
| | $ | 98,600,740 |
| | $ | (11,009,231 | ) |
Sale of Beneficial Unit Certificates | — |
| | 8,280,000 |
| | 41,591,763 |
| | — |
| | — |
| | 41,591,763 |
| | — |
|
Deconsolidation of VIEs | 15,881 |
| | — |
| | 1,572,185 |
| | 1,736,288 |
| | — |
| | 3,324,354 |
| | 1,588,066 |
|
Consolidation of VIEs | 27,523 |
| | — |
| | 2,724,760 |
| | — |
| | — |
| | 2,752,283 |
| | 2,752,283 |
|
Distributions paid or accrued | | | | | | | | | | | | | |
Regular distribution | (89,532 | ) | | — |
| | (8,863,649 | ) | | — |
| | — |
| | (8,953,181 | ) | | — |
|
Distribution of Tier II earnings | (465,816 | ) | | — |
| | (1,397,449 | ) | | — |
| | — |
| | (1,863,265 | ) | | — |
|
Comprehensive income: | | | | | | | | | | | | | |
Net income (loss) | 13,813 |
| | — |
| | 1,126,689 |
| | (2,434,119 | ) | | (745,086 | ) | | (2,038,703 | ) | | — |
|
Unrealized gain on securities | 28,978 |
| | — |
| | 2,868,831 |
| | — |
| | — |
| | 2,897,809 |
| | 2,897,809 |
|
Comprehensive income | | | | | | | | | | | 859,106 |
| | |
Comprehensive loss attributable to noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
| | (745,086 | ) | | — |
|
Comprehensive income attributable to Partnership | — |
| | — |
| | — |
| | — |
| | — |
| | 1,604,192 |
| | — |
|
Balance at September 30, 2010 | $ | (198,102 | ) | | 30,122,928 |
| | $ | 170,106,011 |
| | $ | (32,913,528 | ) | | $ | (682,581 | ) | | $ | 136,311,800 |
| | $ | (3,771,073 | ) |
The accompanying notes are an integral part of the condensed consolidated financial statements.
AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
| | | | | | | | |
| | For the Nine Months Ended, |
| | September 30, 2011 | | September 30, 2010 |
Cash flows from operating activities: | | | | |
Net income (loss) | | $ | 1,527,844 |
| | $ | (2,038,703 | ) |
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: | | | | |
Depreciation and amortization expense | | 4,171,142 |
| | 3,868,105 |
|
Asset impairment charge - Weatherford | | — |
| | 2,716,330 |
|
Provision for loss on receivables | | 725,215 |
| | — |
|
Non-cash loss on derivatives | | 1,962,016 |
| | 564,773 |
|
Bond discount accretion | | (366,013 | ) | | (362,243 | ) |
Gain on asset sold | | (21,103 | ) | | — |
|
Gain on early extinquishment of debt | | — |
| | (438,816 | ) |
Debt forgiveness | | (104,988 | ) | | — |
|
Changes in operating assets and liabilities, net of effect of acquisitions | | | | |
Increase in interest receivable | | (2,590,871 | ) | | (2,646,580 | ) |
Decrease (increase) in other assets | | 1,466,137 |
| | (2,077,042 | ) |
Increase (decrease) in accounts payable and accrued expenses | | 302,403 |
| | (9,961 | ) |
Net cash provided (used) by operating activities | | 7,071,782 |
| | (424,137 | ) |
Cash flows from investing activities: | | | | |
Investments in other assets | | — |
| | (1,115,000 | ) |
Acquisition of tax-exempt mortgage revenue bonds | | (20,117,500 | ) | | (15,867,588 | ) |
Acquisition of MF Properties, net of cash acquired | | (24,779,613 | ) | | — |
|
Capital expenditures | | (7,220,528 | ) | | (880,626 | ) |
Proceeds from asset sold | | 36,500 |
| | — |
|
Increase in restricted cash | | (154,371 | ) | | (1,437,735 | ) |
Restricted cash - debt collateral (paid) released | | 230,046 |
| | (15,706,900 | ) |
Change in restricted cash - Ohio sale | | 2,684,876 |
| | (2,684,876 | ) |
Cash released upon foreclosure | | 2,235,335 |
| | — |
|
Proceeds from bond retirement | | 6,119,573 |
| | — |
|
Proceeds from payments on taxable loans | | 4,528,137 |
| | — |
|
Transfer of cash to deconsolidated VIE upon deconsolidation | | (5,135 | ) | | (88,949 | ) |
Transfer of cash from consolidated VIE upon consolidation | | — |
| | 1,979 |
|
Principal payments received on tax-exempt mortgage revenue bonds | | 370,688 |
| | 349,149 |
|
Net cash used by investing activities | | (36,071,992 | ) | | (37,430,546 | ) |
Cash flows from financing activities: | | | | |
Distributions paid | | (11,473,741 | ) | | (9,770,991 | ) |
Decrease in liabilities related to restricted cash | | 154,371 |
| | 1,437,735 |
|
Proceeds from debt financing | | 48,233,354 |
| | 95,810,000 |
|
Deferred financing costs | | (222,307 | ) | | (3,725,103 | ) |
Principal payments on debt financing and mortgage payable | | (10,557,444 | ) | | (74,350,571 | ) |
Loan extension payment | | — |
| | (246,485 | ) |
Acquisition of interest rate cap agreements | | — |
| | (2,694,600 | ) |
Sale of Beneficial Unit Certificates | | — |
| | 41,591,763 |
|
Net cash provided by financing activities | | 26,134,233 |
| | 48,051,748 |
|
Net (decrease) increase in cash and cash equivalents | | (2,865,977 | ) | | 10,197,065 |
|
Cash and cash equivalents at beginning of period | | 13,277,048 |
| | 17,280,535 |
|
Cash and cash equivalents at end of period | | $ | 10,411,071 |
| | $ | 27,477,600 |
|
| | | | |
Cash paid during the period for interest | | $ | 2,607,888 |
| | $ | 2,981,247 |
|
Distributions declared but not paid | | $ | 3,803,399 |
| | $ | 3,803,400 |
|
Cash received for sale of MF Properties eliminated in consolidation (Note 2 and Note 5) | | $ | — |
| | 16,192,000 |
|
Cash paid for purchase of tax exempt bond eliminated in consolidation (Note 4) | | $ | — |
| | (18,313,000 | ) |
Cash paid for taxable loan eliminated in consolidation (Note 2 and 5) | | $ | — |
| | (1,236,236 | ) |
Capital expenditures financed through payables | | $ | 9,000,099 |
| | — |
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011
(UNAUDITED)
1. Basis of Presentation
General
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 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 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. The Partnership may also invest in other types of tax-exempt securities that may or may not be secured by real estate and may make taxable mortgage loans secured by multifamily properties which are financed by tax-exempt mortgage revenue bonds held by the Partnership. The Partnership generally does not seek to acquire direct interests in real property as long term or permanent investments. The Partnership may, however, acquire real estate securing its tax-exempt mortgage revenue bonds or taxable mortgage loans through foreclosure in the event of a default. In addition, the Partnership may acquire interests in multifamily apartment properties (“MF Properties”) in order to position itself for future investments in tax-exempt bonds issued to finance these properties. The Partnership expects to sell its interest in these MF Properties in connection with the future syndication of low income housing tax credits under Section 42 of the Internal Revenue Code ("LIHTCs") or to a tax-exempt organization and to acquire tax-exempt bonds on these properties to provide debt financing to the new owners.
Our general partner is America First Capital Associates Limited Partnership Two (“AFCA 2” or “General Partner”). The general partner of AFCA2 is The Burlington Capital Group LLC ("Burlington"). The Partnership has issued Beneficial Unit Certificates (“BUCs”) representing assigned limited partner interests to investors (“unitholders”). The Partnership will terminate on December 31, 2050, unless terminated earlier under provisions of its Agreement of Limited Partnership.
The consolidated financial statements of the “Company” reported in this Form 10-Q include the assets, liabilities and results of operations of the Partnership, its Consolidated Subsidiaries and three other consolidated entities in which the Partnership does not hold an ownership interest but which own multifamily apartment properties financed with tax-exempt bonds held by the Partnership and which are treated as variable interest entities ("VIEs") of which the Partnership has been determined to be the primary beneficiary (“Consolidated VIEs”). The Consolidated Subsidiaries of the Partnership consist of:
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• | ATAX TEBS I, LLC, a special purpose entity owned and controlled by the Partnership, created to facilitate the Tax Exempt Bond Securitization (“TEBS”) Financing with Freddie Mac, and |
| |
• | Nine multifamily apartments ("MF Properties") owned by various Partnership subsidiaries. Such subsidiaries hold a 99% limited partner interest in five limited partnerships and 100% member positions in four limited liability companies. Three apartment properties which are subject to a sales agreement and are also reported as MF Properties – Note 2 and Note 5. |
Stand alone financial information of the Partnership reported in this Form 10-Q includes only the assets and results of operations of the Partnership and its Consolidated Subsidiaries (hereafter the “Partnership”) without the Consolidated VIEs. In the Company’s consolidated financial statements, all transactions and accounts between the Partnership, the Consolidated Subsidiaries and the Consolidated VIEs have been eliminated in consolidation. The Partnership does not believe that the consolidation of VIEs for reporting under accounting principles generally accepted in the United States of America (“GAAP”) affects the Partnership’s status as a partnership for federal income tax purposes or the status of unitholders as partners of the Partnership, the treatment of the tax-exempt bonds on the properties owned by Consolidated VIEs as debt, the tax exempt nature of the interest payments received on bonds secured by the properties owned by Consolidated VIEs or the manner in which the Partnership’s income is reported to unitholders on IRS Form K-1.
The preparation of 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The accompanying interim unaudited condensed consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted according to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. These condensed consolidated financial statements and notes have been prepared consistently with the 2010 Form 10-K. In the opinion of management, all adjustments (consisting of normal and recurring accruals) necessary to present fairly the financial position as of September 30, 2011, and the results of operations for the interim periods presented have been made. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year.
2. 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, for the allocation of income or loss from operations and for the allocation of income and loss arising from a repayment, sale or liquidation of investments. Income and losses will be allocated to each unitholder on a periodic basis, as determined by the General Partner, based on the number of BUCs held by each unitholder 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 unitholder of record on the last day of each distribution period based on the number of BUCs held by each unitholder as of such date. For purposes of the Agreement of Limited Partnership, cash distributions, if any, received by the Partnership from its indirect interest in MF Properties (Note 5) will be included in the Partnership’s Interest Income and cash distributions received by the Partnership from the sale of such properties will be included in the Partnership Residual Proceeds.
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. On each distribution date, Net Interest Income is distributed 99% to the unitholders and 1% to AFCA 2 and Net Residual Proceeds are distributed 100% to unitholders except that Net Interest Income 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 (defined as Net Interest Income (Tier 2) and Net Residual Proceeds (Tier 2), respectively) are distributed 75% to the unitholders and 25% to AFCA 2.
In June 2010, the Company completed a sales transaction whereby four of the MF Properties, Crescent Village, Post Woods (I and II) and Willow Bend apartments in Ohio (the “Ohio Properties”), were sold to three new ownership entities controlled by an unaffiliated not-for-profit entity. The Company acquired 100% of the $18.3 million tax-exempt mortgage revenue bonds issued by the Ohio Housing Finance Agency as part of a plan of financing for the acquisition and rehabilitation of the Ohio Properties. The tax-exempt mortgage bonds secured by the Ohio Properties were acquired by the Company at par and consisted of two series. The Series A bond has a par value of $14.7 million and bears interest at an annual rate of 7.0%. The Series B bond has a par value of $3.6 million and bears interest at an annual interest rate of 10.0%. Both series of bonds mature in June 2050. The Company had previously acquired a 99% interest in the Ohio Properties as part of its strategy of acquiring existing multifamily apartment properties that it expects will be partially financed with new tax-exempt mortgage bonds at the time the properties become eligible for the issuance of additional low-income housing tax credits. In addition to the new tax-exempt bonds acquired by the Company, the plan of financing for the acquisition included other subordinated debt issued by the Company. The new owners ultimately plan to sell limited partnership interests in the properties and syndicate LIHTCs as part of the overall plan of finance. The new owners have not contributed any capital to the transaction and the Company has effectively provided 100% of the capital structure to the new owners as part of the sale transaction. Pursuant to the guidance on property, plant, and equipment for real estate sales, the sale and restructure does not meet the criteria for derecognition of the properties or full accrual accounting for the gain. The guidance requires sufficient equity capital as part of a sales transaction to indicate a commitment from the buyer (typically a minimum of 3 to 5% investment by the new owners). As the buyer has no equity capital in this transaction and the property operations are the current support for the debt service, the Company, in substance, remains the owner for accounting purposes. As such, the Company will continue to consolidate the Ohio Properties. Under the sales agreement, the Ohio properties were sold for a total purchase price of $16.2 million. Cash received by the selling limited partnerships as part of the sale transaction represents a gain on the sale transaction of approximately $1.8 million. The properties will continue to be presented as MF Properties and no gain will be recognized until such time as the transaction meets the criteria for derecognition of the properties and gain recognition can be accounted for as a sale.
In October 2011, the current owners of the Ohio properties subject to the sales agreement entered into a transaction with an unrelated third party investor to sell the Ohio properties limited partnership interests. The initial approximate $336,000 equity contributed does not meet the minimum investment requirement to recognize the sale transaction (Note 12)
The unallocated deficit of the Consolidated VIEs is primarily comprised of the accumulated historical net losses of the Consolidated VIEs since the applicable consolidation date. The unallocated deficit of the VIEs and the VIEs' net losses subsequent to that date are not allocated to the General Partner and unitholders as such activity is not contemplated by, or addressed in, the Agreement of Limited Partnership.
3. Variable Interest Entities
The Partnership invests in federally tax-exempt mortgage revenue bonds which have been issued to provide construction and/or permanent financing of multifamily residential apartments. The Partnership owns 100% of these bonds and each bond is secured by a first mortgage on the property. The Partnership has also made taxable loans to the property owners in certain cases which are secured by second mortgages on these properties. Although each multifamily property financed with tax-exempt mortgage bonds held by the Partnership is owned by a separate entity in which the Partnership has no equity ownership interest, the debt financing provided by the Partnership creates a variable interest in these ownership entities that may require the Partnership to report the assets, liabilities and results of operations of these entities on a consolidated basis under GAAP.
On January 1, 2010, the Partnership determined that eight of the entities financed by tax-exempt bonds owned by the Partnership were held by VIEs. These VIEs are Ashley Square, Bent Tree, Cross Creek, Fairmont Oaks, Iona Lakes, Lake Forest, Residences at DeCordova ("DeCordova") and Residences at Weatherford ("Weatherford"). See below for further discussion on which VIEs are consolidated as of the reporting date.
During the fourth quarter of 2010, the Partnership began foreclosure proceedings related to the DeCordova and Weatherford properties. The foreclosure on these entities, replacing the ownership with a Partnership subsidiary, was completed in February 2011. The bonds are no longer in existence and the properties are reported as part of the MF Property portfolio (Note 5.) These two properties no longer meet the criteria of a variable interest entity.
In June 2011, the Iona Lakes Consolidated VIE merged with and into Agape Iona Lakes Inc ("AIL"), an unaffiliated Florida not-for-profit entity, with AIL being the surviving entity. The merger was a reconsideration event under applicable consolidation guidance and the Partnership determined that AIL does not meet the criteria to be reported as a Consolidated VIE since it is an unrelated not-for-profit organization. For accounting purposes, the Partnership deconsolidated Iona Lakes as of May 31, 2011.
At September 30, 2011, the Partnership determined it is the primary beneficiary of three of the remaining VIEs; Bent Tree, Fairmont Oaks, and Lake Forest and has continued to consolidate these entities. During 2010, the Partnership reported six properties as Consolidated VIEs: Bent Tree, DeCordova, Fairmont Oaks, Iona Lakes, Lake Forest, and Weatherford.
The Partnership does not hold an equity interest in these VIEs and, therefore, the assets of the VIEs cannot be used to settle the general commitments of the Partnership and the Partnership is not responsible for the commitments and liabilities of the VIEs. The primary risks to the Partnership associated with these VIEs relate to the entities ability to meet debt service obligations to the Partnership and the valuation of the underlying multifamily apartment property which serves as bond collateral.
The following is a discussion of the significant judgments and assumptions made by the Partnership in determining the primary beneficiary of the VIE and, therefore, whether the Partnership must consolidate the VIE.
Consolidated VIEs
In January 2011, the Partnership determined it was the primary beneficiary of the the following properties: Bent Tree, Fairmont Oaks, Iona Lakes, Lake Forest, DeCordova and Weatherford and reported these as Consolidated VIEs. Once the foreclosure and merger noted above were completed, only three properties met the primary beneficiary criteria, Bent Tree, Fairmont Oaks, and Lake Forest. The capital structure of each of these remaining VIEs consists of senior debt, subordinated debt and equity capital. The senior debt is in the form of a tax-exempt multifamily housing mortgage revenue bond and accounts for the majority of each VIE's total capital. As the bondholder, the Partnership is entitled to principal and interest payments and has certain protective rights as established by the bond documents. The equity ownership of the consolidated VIEs, Bent Tree, Fairmont Oaks, and Lake Forest, is ultimately held by corporations which are owned by four individuals, three of which are related parties. Additionally, each of these properties is managed by an affiliate of the Partnership, America First Properties Management Company, LLC (“Properties Management”) which is an affiliate of Burlington.
In determining the primary beneficiary of these VIEs, the Partnership considered the activities of the VIE which most significantly impact the VIEs economic performance, who has the power to control such activities, the risks which the entities were designed to create, the variability associated with those risks and the interests which absorb such variability. The Partnership also considered the related party relationship of the entities involved in the VIEs. It was determined that the Partnership, as part of the related party group, met both of the primary beneficiary criteria and was the most closely associated with the VIEs and, therefore, was determined to be the primary beneficiary.
Non-Consolidated VIEs
Upon adoption of the revised consolidation guidance effective January 1, 2010, the Company deconsolidated two entities, the Ashley Square and Cross Creek VIEs. In determining the primary beneficiary of these VIEs, the Partnership considered the activities of each VIE which most significantly impact the VIEs' economic performance, who has the power to control such activities, the risks which the entities were designed to create, the variability associated with those risks and the interests which absorb such variability. The significant activities of the VIE that impact the economic performance of the entity include leasing and maintaining apartments, determining if the property is to be sold, decisions relating to debt refinancing, the selection of or replacement of the property manager and the approval of the operating and capital budgets. As discussed below, while the capital structures of these VIEs resulted in the Partnership holding a majority of the variable interests in these VIEs, the Partnership determined it does not have the power to direct the activities of these VIEs that most significantly impact the VIEs’ economic performance and, as a result, is not the primary beneficiary of these VIEs.
Ashley Square – Ashley Square Housing Cooperative acquired the ownership of the Ashley Square apartments in December 2008 from Ashley Square LLC through a warranty deed of transfer and an assumption of debt. This transfer of ownership constitutes a reconsideration event as outlined in the consolidation guidance which triggers a re-evaluation of the holders of variable interests to determine the primary beneficiary of the VIE. The capital structure of the VIE consists of senior debt, subordinated loans and equity capital. The senior debt is in the form of tax-exempt mortgage revenue bonds that are 100% owned by the Partnership and account for the majority of the VIE’s total capital. As the bondholder, the Partnership is entitled to principal and interest payments and has certain protective rights as established by the bond documents. The VIE is organized as a housing cooperative and the 99% equity owner of this VIE is The Foundation for Affordable Housing (“FAH”), an unaffiliated Nebraska non-profit organization. Additionally, this property is managed by Properties Management.
Cross Creek – Cross Creek Apartments Holdings LLC is the owner of the Cross Creek Apartments. On January 1, 2010, Cross Creek Apartment Holdings LLC entered into a new operating agreement and admitted three new members. These new members committed approximately $2.2 million of capital payable in three installments including $563,000 on January 1, 2010. The new operating agreement and admission of new owner members constitutes a reconsideration event as outlined in the consolidation guidance which triggers a re-evaluation of the holders of variable interests to determine the primary beneficiary of the VIE. The capital structure of the VIE consists of senior debt, subordinated loans and equity capital at risk. The senior debt is in the form of tax-exempt mortgage revenue bonds that are 100% owned by the Partnership and account for the majority of the VIE’s total capital. As the bondholder, the Partnership is entitled to principal and interest payments and has certain protective rights as established by the bond documents. The three newly admitted members of this VIE are each unaffiliated with the Partnership and have contributed significant equity capital to the VIE. These members collectively control a 99% interest in the VIE. The other 1% member of this VIE is FAH, which is also unaffiliated with the Partnership. Additionally, this property is managed by Properties Management.
The following tables presents information regarding the carrying value and classification of the assets held by the Partnership as of September 30, 2011, which constitute a variable interest in Ashley Square and Cross Creek.
|
| | | | | | | | | |
| Balance Sheet Classification | | Carrying Value | | Maximum Exposure to Loss |
Ashley Square Apartments | | | | | |
Tax Exempt Mortgage Revenue Bond | Bond Investment | | $ | 5,296,741 |
| | $ | 5,320,000 |
|
Property Loan | Other Asset | | 1,190,000 |
| | 6,037,591 |
|
| | | $ | 6,486,741 |
| | $ | 11,357,591 |
|
Cross Creek Apartments | | | | | |
Tax Exempt Mortgage Revenue Bond | Bond Investment | | $ | 7,668,389 |
| | $ | 5,949,988 |
|
Property Loans | Other Asset | | 3,477,755 |
| | 3,477,755 |
|
| | | $ | 11,146,144 |
| | $ | 9,427,743 |
|
The tax exempt mortgage revenue bonds are classified on the balance sheet as available for sale investments and are carried at fair value while property loans are presented on the balance sheet as other assets and are carried at the unpaid principal and interest less any loan loss reserves. See Footnote 4 for additional information regarding the bonds and Footnote 6 for additional information regarding the property loans. The maximum exposure to loss for the bonds is equal to the unpaid principal balance as of September 30, 2011. The difference between the carrying value and the maximum exposure to loss is a function of the fair value of the bond. The maximum exposure to loss for the property loans is equal to the unpaid principal and interest. The difference between the carrying value and the maximum exposure is the value of loan loss reserves that have been previously recorded against the outstanding loan balances.
The following tables present the effects of the consolidation of the Consolidated VIEs on the Company’s Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations.
Condensed Consolidating Balance Sheets as of September 30, 2011 and December 31, 2010:
|
| | | | | | | | | | | | | | | | |
| | Partnership as of September 30, 2011 | | Consolidated VIEs as of September 30, 2011 | | Consolidation -Elimination as of September 30, 2011 | | Total as of September 30, 2011 |
Assets | | | | | | | | |
Cash and cash equivalents | | $ | 10,343,765 |
| | $ | 67,306 |
| | $ | — |
| | $ | 10,411,071 |
|
Restricted cash | | 15,606,940 |
| | 1,246,145 |
| | — |
| | 16,853,085 |
|
Interest receivable | | 12,676,273 |
| | — |
| | (4,113,987 | ) | | 8,562,286 |
|
Tax-exempt mortgage revenue bonds held in trust, at fair value | | 115,122,928 |
| | — |
| | (23,467,946 | ) | | 91,654,982 |
|
Tax-exempt mortgage revenue bonds, at fair value | | 47,435,630 |
| | — |
| | — |
| | 47,435,630 |
|
Real estate assets: | | | | | | | | |
Land | | 10,196,341 |
| | 3,250,044 |
| | — |
| | 13,446,385 |
|
Buildings and improvements | | 82,927,536 |
| | 31,486,637 |
| | — |
| | 114,414,173 |
|
Real estate assets before accumulated depreciation | | 93,123,877 |
| | 34,736,681 |
| | — |
| | 127,860,558 |
|
Accumulated depreciation | | (7,593,478 | ) | | (11,987,242 | ) | | — |
| | (19,580,720 | ) |
Net real estate assets | | 85,530,399 |
| | 22,749,439 |
| | — |
| | 108,279,838 |
|
Other assets | | 24,604,982 |
| | 664,997 |
| | (11,057,263 | ) | | 14,212,716 |
|
Total Assets | | $ | 311,320,917 |
| | $ | 24,727,887 |
| | $ | (38,639,196 | ) | | $ | 297,409,608 |
|
| | | | | | | | |
Liabilities | | | | | | | | |
Accounts payable, accrued expenses and other liabilities | | $ | 2,447,560 |
| | $ | 24,364,235 |
| | $ | (23,294,959 | ) | | $ | 3,516,836 |
|
Distribution payable | | 3,803,399 |
| | — |
| | — |
| | 3,803,399 |
|
Debt financing | | 109,187,000 |
| | — |
| | — |
| | 109,187,000 |
|
Mortgages payable | | 43,667,892 |
| | 24,466,000 |
| | (24,466,000 | ) | | 43,667,892 |
|
Total Liabilities | | 159,105,851 |
| | 48,830,235 |
| | (47,760,959 | ) | | 160,175,127 |
|
Partners' Capital | | | | | | | | |
General Partner | | (298,694 | ) | | — |
| | — |
| | (298,694 | ) |
Beneficial Unit Certificate holders | | 152,205,220 |
| | — |
| | 8,182,872 |
| | 160,388,092 |
|
Unallocated deficit of Consolidated VIEs | | — |
| | (24,102,348 | ) | | 938,891 |
| | (23,163,457 | ) |
Total Partners' Capital | | 151,906,526 |
| | (24,102,348 | ) | | 9,121,763 |
| | 136,925,941 |
|
Noncontrolling interest | | 308,540 |
| | — |
| | — |
| | 308,540 |
|
Total Capital | | 152,215,066 |
| | (24,102,348 | ) | | 9,121,763 |
| | 137,234,481 |
|
Total Liabilities and Partners' Capital | | $ | 311,320,917 |
| | $ | 24,727,887 |
| | $ | (38,639,196 | ) | | $ | 297,409,608 |
|
|
| | | | | | | | | | | | | | | | |
| | Partnership as of December 31, 2010 | | Consolidated VIEs as of December 31, 2010 | | Consolidation -Elimination as of December 31, 2010 | | Total as of December 31, 2010 |
Assets | | | | | | | | |
Cash and cash equivalents | | $ | 13,095,306 |
| | $ | 181,742 |
| | $ | — |
| | $ | 13,277,048 |
|
Restricted cash | | 21,259,931 |
| | 3,992,825 |
| | — |
| | 25,252,756 |
|
Interest receivable | | 10,154,676 |
| | — |
| | (5,484,494 | ) | | 4,670,182 |
|
Tax-exempt mortgage revenue bonds held in trust, at fair value | | 95,400,690 |
| | — |
| | (21,949,211 | ) | | 73,451,479 |
|
Tax-exempt mortgage revenue bonds, at fair value | | 47,956,608 |
| | — |
| | (20,841,444 | ) | | 27,115,164 |
|
Real estate assets: | | | | | | | | |
Land | | 6,736,351 |
| | 6,210,480 |
| | — |
| | 12,946,831 |
|
Buildings and improvements | | 37,780,446 |
| | 54,022,248 |
| | — |
| | 91,802,694 |
|
Real estate assets before accumulated depreciation | | 44,516,797 |
| | 60,232,728 |
| | — |
| | 104,749,525 |
|
Accumulated depreciation | | (5,229,598 | ) | | (18,237,507 | ) | | — |
| | (23,467,105 | ) |
Net real estate assets | | 39,287,199 |
| | 41,995,221 |
| | — |
| | 81,282,420 |
|
Other assets | | 33,078,415 |
| | 1,334,439 |
| | (17,854,654 | ) | | 16,558,200 |
|
Total Assets | | $ | 260,232,825 |
| | $ | 47,504,227 |
| | $ | (66,129,803 | ) | | $ | 241,607,249 |
|
| | | | | | | | |
Liabilities | | | | | | | | |
Accounts payable, accrued expenses and other liabilities | | $ | 1,580,642 |
| | $ | 39,069,063 |
| | $ | (37,121,402 | ) | | $ | 3,528,303 |
|
Distribution payable | | 3,803,399 |
| | — |
| | — |
| | 3,803,399 |
|
Debt financing | | 95,608,000 |
| | — |
| | — |
| | 95,608,000 |
|
Mortgages payable | | 10,645,982 |
| | 50,071,000 |
| | (50,071,000 | ) | | 10,645,982 |
|
Total Liabilities | | 111,638,023 |
| | 89,140,063 |
| | (87,192,402 | ) | | 113,585,684 |
|
Partners' Capital | | | | | | | | |
General Partner | | (280,629 | ) | | — |
| | — |
| | (280,629 | ) |
Beneficial Unit Certificate holders | | 149,016,757 |
| | — |
| | 12,372,432 |
| | 161,389,189 |
|
Unallocated deficit of Consolidated VIEs | | — |
| | (41,635,836 | ) | | 8,690,167 |
| | (32,945,669 | ) |
Total Partners' Capital | | 148,736,128 |
| | (41,635,836 | ) | | 21,062,599 |
| | 128,162,891 |
|
Noncontrolling interest | | (141,326 | ) | | — |
| | — |
| | (141,326 | ) |
Total Capital | | 148,594,802 |
| | (41,635,836 | ) | | 21,062,599 |
| | 128,021,565 |
|
Total Liabilities and Partners' Capital | | $ | 260,232,825 |
| | $ | 47,504,227 |
| | $ | (66,129,803 | ) | | $ | 241,607,249 |
|
Condensed Consolidating Statements of Operations for the three and nine months ended September 30, 2011 and 2010:
|
| | | | | | | | | | | | | | | |
| Partnership For the Three Months Ended September 30, 2011 | | Consolidated VIEs For the Three Months Ended September 30, 2011 | | Consolidation -Elimination For the Three Months Ended September 30, 2011 | | Total For the Three Months Ended September 30, 2011 |
Revenues: | | | | | | | |
Property revenues | $ | 3,110,836 |
| | $ | 1,208,534 |
| | $ | — |
| | $ | 4,319,370 |
|
Mortgage revenue bond investment income | 2,849,397 |
| | — |
| | (383,521 | ) | | 2,465,876 |
|
Other income | 359,167 |
| | — |
| | — |
| | 359,167 |
|
Total Revenues | 6,319,400 |
| | 1,208,534 |
| | (383,521 | ) | | 7,144,413 |
|
Expenses: | | | | | | | |
Real estate operating (exclusive of items shown below) | 1,722,516 |
| | 729,713 |
| | — |
| | 2,452,229 |
|
Provision for loss on receivables | 14,525 |
| | — |
| | — |
| | 14,525 |
|
Depreciation and amortization | 1,198,307 |
| | 347,518 |
| | (9,234 | ) | | 1,536,591 |
|
Interest | 2,138,532 |
| | 789,331 |
| | (789,331 | ) | | 2,138,532 |
|
General and administrative | 725,115 |
| | — |
| | — |
| | 725,115 |
|
Total Expenses | 5,798,995 |
| | 1,866,562 |
| | (798,565 | ) | | 6,866,992 |
|
Net income (loss) | 520,405 |
| | (658,028 | ) | | 415,044 |
| | 277,421 |
|
Net income attributable to noncontrolling interest | 145,369 |
| | — |
| | — |
| | 145,369 |
|
Net income (loss) - America First Tax Exempt Investors, L. P. | $ | 375,036 |
| | $ | (658,028 | ) | | $ | 415,044 |
| | $ | 132,052 |
|
|
| | | | | | | | | | | | | | | |
| Partnership For the Three Months Ended September 30, 2010 | | Consolidated VIEs For the Three Months Ended September 30, 2010 | | Consolidation -Elimination For the Three Months Ended September 30, 2010 | | Total For the Three Months Ended September 30 , 2010 |
Revenues: | | | | | | | |
Property revenues | $ | 1,818,580 |
| | $ | 1,879,601 |
| | $ | — |
| | $ | 3,698,181 |
|
Mortgage revenue bond investment income | 2,895,218 |
| | — |
| | (884,159 | ) | | 2,011,059 |
|
Other income | 112,400 |
| | — |
| | — |
| | 112,400 |
|
Total Revenues | 4,826,198 |
| | 1,879,601 |
| | (884,159 | ) | | 5,821,640 |
|
Expenses: | | | | | | | |
Real estate operating (exclusive of items shown below) | 1,002,705 |
| | 1,279,442 |
| | — |
| | 2,282,147 |
|
Asset impairment charge - Weatherford | 2,716,330 |
| | 2,767,070 |
| | (2,767,070 | ) | | 2,716,330 |
|
Depreciation and amortization | 852,523 |
| | 591,579 |
| | (13,255 | ) | | 1,430,847 |
|
Interest | 1,184,293 |
| | 1,414,558 |
| | (1,414,558 | ) | | 1,184,293 |
|
General and administrative | 637,624 |
| | — |
| | — |
| | 637,624 |
|
Total Expenses | 6,393,475 |
| | 6,052,649 |
| | (4,194,883 | ) | | 8,251,241 |
|
Net income (loss) | (1,567,277 | ) | | (4,173,048 | ) | | 3,310,724 |
| | (2,429,601 | ) |
Net loss attributable to noncontrolling interest | (221,878 | ) | | — |
| | — |
| | (221,878 | ) |
Net income (loss) - America First Tax Exempt Investors, L. P. | $ | (1,345,399 | ) | | $ | (4,173,048 | ) | | $ | 3,310,724 |
| | $ | (2,207,723 | ) |
|
| | | | | | | | | | | | | | | |
| Partnership For the Nine Months Ended September 30, 2011 | | Consolidated VIEs For the Nine Months Ended September 30, 2011 | | Consolidation -Elimination For the Nine Months Ended September 30, 2011 | | Total For the Nine Months Ended September 30, 2011 |
Revenues: | | | | | | | |
Property revenues | $ | 7,698,310 |
| | $ | 4,755,337 |
| | $ | — |
| | $ | 12,453,647 |
|
Mortgage revenue bond investment income | 8,729,857 |
| | — |
| | (1,635,308 | ) | | 7,094,549 |
|
Other income | 654,490 |
| | 4,133,477 |
| | (4,028,489 | ) | | 759,478 |
|
Total Revenues | 17,082,657 |
| | 8,888,814 |
| | (5,663,797 | ) | | 20,307,674 |
|
Expenses: | | | | | | | |
Real estate operating (exclusive of items shown below) | 4,366,574 |
| | 2,826,177 |
| | — |
| | 7,192,751 |
|
Provision for loss on receivables | 725,215 |
| | — |
| | — |
| | 725,215 |
|
Depreciation and amortization | 2,832,268 |
| | 1,366,577 |
| | (27,703 | ) | | 4,171,142 |
|
Interest | 4,646,590 |
| | 3,243,737 |
| | (3,243,737 | ) | | 4,646,590 |
|
General and administrative | 2,044,132 |
| | — |
| | — |
| | 2,044,132 |
|
Total Expenses | 14,614,779 |
| | 7,436,491 |
| | (3,271,440 | ) | | 18,779,830 |
|
Net income (loss) | 2,467,878 |
| | 1,452,323 |
| | (2,392,357 | ) | | 1,527,844 |
|
Net income attributable to noncontrolling interest | 449,866 |
| | — |
| | — |
| | 449,866 |
|
Net income (loss) - America First Tax Exempt Investors, L. P. | $ | 2,018,012 |
| | $ | 1,452,323 |
| | $ | (2,392,357 | ) | | $ | 1,077,978 |
|
|
| | | | | | | | | | | | | | | |
| Partnership For the Nine Months Ended September 30, 2010 | | Consolidated VIEs For the Nine Months Ended September 30, 2010 | | Consolidation -Elimination For the Nine Months Ended September 30, 2010 | | Total For the Nine Months Ended September 30, 2010 |
Revenues: | | | | | | | |
Property revenues | $ | 5,401,098 |
| | $ | 5,547,385 |
| | $ | — |
| | $ | 10,948,483 |
|
Mortgage revenue bond investment income | 7,638,730 |
| | — |
| | (2,608,787 | ) | | 5,029,943 |
|
Gain on early extinguishment of debt | 438,816 |
| | — |
| | — |
| | 438,816 |
|
Other interest income | 335,260 |
| | — |
| | (10,034 | ) | | 325,226 |
|
Total Revenues | 13,813,904 |
| | 5,547,385 |
| | (2,618,821 | ) | | 16,742,468 |
|
Expenses: | | | | | | | |
Real estate operating (exclusive of items shown below) | 3,750,640 |
| | 3,680,124 |
| | — |
| | 7,430,764 |
|
Asset impairment charge - Weatherford | 2,716,330 |
| | 2,767,070 |
| | (2,767,070 | ) | | 2,716,330 |
|
Depreciation and amortization | 2,185,546 |
| | 1,723,675 |
| | (41,116 | ) | | 3,868,105 |
|
Interest | 3,029,572 |
| | 4,171,503 |
| | (4,171,503 | ) | | 3,029,572 |
|
General and administrative | 1,736,400 |
| | — |
| | — |
| | 1,736,400 |
|
Total Expenses | 13,418,488 |
| | 12,342,372 |
| | (6,979,689 | ) | | 18,781,171 |
|
Net income (loss) | 395,416 |
| | (6,794,987 | ) | | 4,360,868 |
| | (2,038,703 | ) |
Net loss attributable to noncontrolling interest | (745,086 | ) | | — |
| | — |
| | (745,086 | ) |
Net income (loss) - America First Tax Exempt Investors, L. P. | $ | 1,140,502 |
| | $ | (6,794,987 | ) | | $ | 4,360,868 |
| | $ | (1,293,617 | ) |
4. Investments in Tax-Exempt Bonds
The tax-exempt mortgage revenue bonds owned by the Company have been issued to provide construction and/or permanent financing of multifamily residential properties and do not include the tax-exempt bonds issued with respect to properties owned by Consolidated VIEs or the Ohio Properties presented as MF Properties (Note 2 and Note 5). Tax-exempt bonds are either held directly by the Company or are held in trusts created in connection with debt financing transactions (Note 7). The Company had the following investments in tax-exempt mortgage revenue bonds as of dates shown:
|
| | | | | | | | | | | | | | | | |
| | September 30, 2011 |
Description of Tax-Exempt Mortgage Revenue Bonds | | Cost adjusted for pay-downs | | Unrealized Gain | | Unrealized Loss | | Estimated Fair Value |
Ashley Square (1) | | $ | 5,320,000 |
| | $ | — |
| | $ | (23,259 | ) | | $ | 5,296,741 |
|
Autumn Pines (2) | | 12,365,449 |
| | — |
| | (404,606 | ) | | 11,960,843 |
|
Bella Vista (1) | | 6,650,000 |
| | — |
| | (531,335 | ) | | 6,118,665 |
|
Bridle Ridge (1) | | 7,815,000 |
| | — |
| | (618,088 | ) | | 7,196,912 |
|
Brookstone (1) | | 7,433,390 |
| | 983,307 |
| | — |
| | 8,416,697 |
|
Cross Creek (1) | | 5,949,988 |
| | 1,718,401 |
| | — |
| | 7,668,389 |
|
Lost Creek (1) | | 16,020,471 |
| | 1,639,259 |
| | — |
| | 17,659,730 |
|
Runnymede (1) | | 10,720,000 |
| | — |
| | (643,522 | ) | | 10,076,478 |
|
Southpark (1) | | 12,000,477 |
| | 1,163,548 |
| | — |
| | 13,164,025 |
|
Woodlynn Village (1) | | 4,507,000 |
| | — |
| | (410,498 | ) | | 4,096,502 |
|
Tax-exempt mortgage revenue bonds held in trust | | $ | 88,781,775 |
| | $ | 5,504,515 |
| | $ | (2,631,308 | ) | | $ | 91,654,982 |
|
| | | | | | | | |
| | September 30, 2011 |
Description of Tax-Exempt Mortgage Revenue Bonds | | Cost adjusted for pay-downs | | Unrealized Gain | | Unrealized Loss | | Estimated Fair Value |
Briarwood Manor | | $ | 4,481,372 |
| | $ | 321,975 |
| | $ | — |
| | $ | 4,803,347 |
|
GMF-Madison Tower | | 3,810,000 |
| | 77,305 |
| | — |
| | 3,887,305 |
|
GMF-Warren/Tulane | | 11,815,000 |
| | 239,726 |
| | — |
| | 12,054,726 |
|
Iona Lakes | | 15,810,000 |
| | — |
| | (81,738 | ) | | 15,728,262 |
|
Woodland Park | | 15,662,000 |
| | — |
| | (4,700,010 | ) | | 10,961,990 |
|
Tax-exempt mortgage revenue bonds | | $ | 51,578,372 |
| | $ | 639,006 |
| | $ | (4,781,748 | ) | | $ | 47,435,630 |
|
| | | | | | |
| | December 31, 2010 |
Description of Tax-Exempt Mortgage Revenue Bonds | | Cost adjusted for pay-downs | | Unrealized Gains | | Unrealized Loss | | Estimated Fair Value |
Ashley Square (1) | | $ | 5,356,000 |
| | $ | — |
| | $ | (643,813 | ) | | $ | 4,712,187 |
|
Bella Vista (1) | | 6,695,000 |
| | — |
| | (1,044,554 | ) | | 5,650,446 |
|
Bridle Ridge (1) | | 7,865,000 |
| | — |
| | (1,342,509 | ) | | 6,522,491 |
|
Brookstone (1) | | 7,418,019 |
| | 287,507 |
| | — |
| | 7,705,526 |
|
Cross Creek (1) | | 5,913,776 |
| | 1,337,352 |
| | — |
| | 7,251,128 |
|
Lost Creek (1) | | 15,928,741 |
| | 516,094 |
| | — |
| | 16,444,835 |
|
Runnymede (1) | | 10,755,000 |
| | — |
| | (1,545,327 | ) | | 9,209,673 |
|
Southpark (1) | | 11,940,458 |
| | 264,143 |
| | — |
| | 12,204,601 |
|
Woodlynn Village (1) | | 4,522,000 |
| | — |
| | (771,408 | ) | | 3,750,592 |
|
Tax-exempt mortgage revenue bonds held in trust | | $ | 76,393,994 |
| | $ | 2,405,096 |
| | $ | (5,347,611 | ) | | $ | 73,451,479 |
|
| | | | | | | | |
| | December 31, 2010 |
Description of Tax-Exempt Mortgage Revenue Bonds | | Cost adjusted for pay-downs | | Unrealized Gain | | Unrealized Loss | | Estimated Fair Value |
Autumn Pines | | $ | 12,334,247 |
| | $ | — |
| | $ | (1,244,227 | ) | | $ | 11,090,020 |
|
Clarkson College | | 5,836,667 |
| | — |
| | (821,753 | ) | | 5,014,914 |
|
Woodland Park | | 15,662,000 |
| | — |
| | (4,651,770 | ) | | 11,010,230 |
|
Tax-exempt mortgage revenue bonds | | $ | 33,832,914 |
| | $ | — |
| | $ | (6,717,750 | ) | | $ | 27,115,164 |
|
(1) Bonds owned by ATAX TEBS I, LLC, Note 7
(2) Bond held by Duetsche Bank in a secured financing transaction, Note 7
Valuation - As all of the Company’s 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. Due to the limited market for the tax-exempt bonds, these estimates of fair value do not necessarily represent what the Company would actually receive in a sale of the bonds. There is no active trading market for the bonds and price quotes for the bonds are not generally available. As of September 30, 2011, all of the Company’s tax-exempt mortgage revenue bonds were valued using discounted cash flow and yield to maturity analyses performed by management. Management’s valuation encompasses judgment in its application. The key assumption in management’s yield to maturity analysis is the range of effective yields on the individual bonds. At September 30, 2011, the range of effective yields on the individual bonds was 6.3% to 8.8%. At December 31, 2010, the range of effective yields on the individual bonds was 7.2% to 8.7%. Additionally, the Company calculated the sensitivity of the key assumption used in calculating the fair values of these bonds. Assuming an immediate 10 percent adverse change in the key assumption, the effective yields on the individual bonds would increase to a range of 6.9% to 9.6% and would result in additional unrealized losses on the bond portfolio of approximately $11.0 million. This sensitivity analysis is hypothetical and is as of a specific point in time. The results of the sensitivity analysis may not be indicative of actual changes in fair value and should be used with caution. If available, the general partner may also consider price quotes on similar bonds or other information from external sources, such as pricing services. Pricing services, broker quotes and management’s analyses provide indicative pricing only.
Unrealized gains or losses on these tax-exempt bonds are recorded in accumulated other comprehensive income (loss) to reflect changes in their estimated fair values resulting from market conditions and fluctuations in the present value of the expected cash flows from the underlying properties. As of September 30, 2011, the following bond investments have been in an unrealized loss position for greater than twelve months; Ashley Square, Bella Vista, Bridle Ridge, Iona Lakes, Runnymede, Woodlynn Village and Woodland Park. The Company has reviewed each of its mortgage revenue bonds for impairment. Based upon this evaluation, the current unrealized losses on the bonds are considered to be temporary. Valuations have improved during the first nine months of 2011. If the credit and capital markets would deteriorate, the Company experiences deterioration in the values of its investment portfolio or if the Company’s intent and ability to hold certain bonds changes, the Company may incur impairments to its investment portfolio which could negatively impact the Company’s financial condition, cash flows, and reported earnings.
In fourth quarter 2011, the Briarwood Manor bond was called and retired for approximately $4.9 million par value plus accrued interest. This transaction resulted in approximately $400,000 gain which will be reported in the fourth quarter. The net redemption proceeds will be used by the Company to retire its $4.0 million term credit with Omaha State Bank.
In June 2011, the Partnership acquired at par a $3.8 million tax-exempt mortgage revenue bond and a $315,000 taxable revenue bond secured by the GMF-Madison Tower Apartments, a 147 unit multifamily apartment complex located in Memphis, Tennessee, which represented 100% of the bond issuance. These bonds were issued for the acquisition of the GMF-Madison Tower Apartments by an affiliate of the Global Ministries Foundation, an unaffiliated not-for-profit entity. The tax-exempt bond carries an annual interest rate of 6.75% and matures on December 1, 2046. The taxable bond carries an annual interest rate of 7.75% and matures on December 1, 2019. The bonds do not provide for contingent interest. The Company has determined that the entity which owns GMF-Madison Tower Apartments is an unrelated not -for-profit which under the accounting guidance is not subject to applying the VIE consolidation guidance. As a result, its financial statements are not consolidated into the consolidated financial statements of the Company.
In June 2011, the Partnership acquired at par a $11.8 million tax-exempt mortgage revenue bond and a $485,000 taxable revenue bond secured by the GMF-Warren/Tulane Apartments, a 448 unit multifamily apartment complex located in Memphis, Tennessee, which represented 100% of the bond issuance. These bonds were issued for the acquisition of the GMF-Warren/Tulane Apartments by an affiliate of the Global Ministries Foundation, an unaffiliated not-for-profit entity. The tax-exempt bond carries an annual interest rate of 6.75% and matures on December 1, 2046. The taxable bond carries an annual interest rate of 6.5% and matures on December 1, 2015. The bonds do not provide for contingent interest. The Company has determined that the entity which owns GMF-Warren/Tulane Apartments is an unrelated not-for-profit which under the accounting guidance is not subject to applying the VIE consolidation guidance. As a result, its financial statements are not consolidated into the consolidated financial statements of the Company.
In May 2011, the outstanding Clarkson College tax-exempt revenue bond held by the Company was retired early for an amount equal to the outstanding principal and base interest plus accrued but unpaid contingent interest. As of March 31, 2011, the Company carried the investment in the Clarkson College bond at an estimated fair market value of approximately $5.1 million. The retirement of the bond resulted in a payment to the Partnership of approximately $6.1 million consisting of approximately $5.8 million in principal, approximately $16,000 of base interest and approximately $308,000 of accrued contingent interest.
In February 2011, the Partnership acquired the tax-exempt mortgage revenue bond for a 100 unit multifamily apartment complex located in Montclair, California known as Briarwood Manor Apartments for approximately $4.5 million which represented 100% of the bond issuance. The bond's approximate outstanding par value is $5.5 million and earns interest at an annual rate of 5.3% with a monthly interest and principal payment and stated maturity date of June 1, 2038. Based on the purchase price discount, the bond will yield approximately 7.0% to the Partnership. The bond does not provide for contingent interest. The Company has determined that the entity which owns Briarwood Manor does not meet the definition of a VIE and, accordingly, its financial statements are not consolidated into the consolidated financial statements of the Company.
The Partnership previously identified three tax-exempt mortgage revenue bonds for which certain actions may be necessary to protect the Partnership’s position as a secured bondholder and lender. These bonds are Woodland Park, DeCordova and Weatherford. The Partnership foreclosed on the bonds secured by DeCordova and Weatherford in February 2011 and one of the Partnership's subsidiaries took full ownership of these two properties. These properties are now classified and presented as MF Properties of the Company as discussed in Note 5. The following is a discussion of the circumstances related to the Woodland Park property.
Woodland Park. Woodland Park was completed in November 2008, but has not yet reached stabilization which is defined in the bond documents as the generation of a 1.15:1 debt service coverage ratio for six straight months. Additionally, there were insufficient funds on deposit with the bond trustee to make the debt service payment of approximately $452,000 on the bonds which was due on May 3, 2010 and the property owner did not provide additional capital to fund the shortfall. As a result, a payment default on the bonds has occurred. In order to protect its investment, the Partnership has issued a formal notice of default through the bond trustee and has started the foreclosure process. The foreclosure process has been extended and the Partnership cannot estimate when it will be completed. The Partnership continues to enforce its rights as the first lien position. The Partnership believes it will be successful in removing and replacing the general and limited partners of the property owner through foreclosure. This action would allow a new property owner to re-syndicate the LIHTCs associated with this property. If these LIHTCs can be successfully re-syndicated, it will provide additional capital to the project which can be used to support debt service payments on the tax-exempt mortgage revenue bonds until property operations improve to the point that sufficient cash is generated to pay any past due amounts on the bonds as well as ongoing debt service. If the re-syndication of LIHTCs is not successful, the Partnership may pursue other options including making additional taxable loans to the property or completing the foreclosure process and taking direct ownership of the property. The Partnership believes that the most significant issue in the slow lease-up of the property and its failure to achieve stabilization has been the 100% set aside of the rental units for tenants that make less than 60% of the area median income. At the request of the Partnership, in April 2010, the property owner reduced the number of units set aside for affordable tenants to 75% and began leasing 59 units to market rate tenants. Additionally, the property owner has agreed that, if needed to stabilize the property, it would further reduce the units set aside for affordable tenants to 60% thereby making an additional 35 units available to market rate tenants. As of December 31, 2010, the property had 190 units leased out of total available units of 236, or 81% physical occupancy. As of September 30, 2011, occupancy has increased to 216 units, or 92% physical occupancy, and an additional two leases are pending. Based on the level of leasing activity resulting from the change in the mix of affordable and market rate tenants, the Partnership continues to believe that Woodland is capable of reaching stabilization.
The Company periodically, or as changes in circumstances or operations dictate, evaluates its investments for impairment. The value of the underlying property assets is ultimately the most relevant measure of value to support the investment carrying values. Investments tested for impairment include all fixed assets, bond investments and taxable loans made to various properties and other amounts due to the Company. Such evaluation is based on cash flow and discounted cash flow models. The Company concluded that there was no impairment of fixed assets or bond investments as of September 30, 2011 for any of the Company's investments. However, during the second quarter of 2011, this evaluation did determine that a portion of the interest receivable on the Woodland Park bond was impaired and that an allowance for loss should be recorded. An allowance for loss and associated provision for loss of approximately $700,000 was recorded against the the accrued bond interest in the second quarter of 2011. The Company has recorded an additional reserve of approximately $14,500 against the interest income on the Woodland Park bonds in the third quarter of 2011.
In June 2010, the Company acquired all of the $18.3 million tax-exempt mortgage revenue bonds issued by the Ohio Housing Finance Agency in order to provide debt financing for the acquisition and rehabilitation of Crescent Village, Post Woods I, Post Woods II and Willow Bend Apartments in Ohio (the “Ohio Properties”). The tax-exempt mortgage bonds secured by the Ohio Properties were acquired by the Company at par and were issued in two series. The Series A bond has a par value of $14.7 million and bears interest at a fixed annual rate of 7.0%. The Series B bond has a par value of $3.6 million and bears interest at a fixed annual rate of 10.0%. Neither series provides for contingent interest. Each series of bonds matures in June 2050. In connection with the bond financing transaction, ownership of the Ohio Properties was conveyed by the Company to three new ownership entities controlled by an unaffiliated not-for-profit entity. However, because the new ownership entities had no equity capital at the time of purchase and the property operations are the sole source of debt service on the Company's bonds, the Company is required to continue to account for the Ohio Properties as if it is the owner of real estate rather than as a secured lender. As such, the Company continued to consolidate the Ohio Properties on its financial statements as of September 30, 2011 which, among other things, results in the elimination of the bonds in consolidation (Note 2 and Note 5).
5. Real Estate Assets
MF Properties
To facilitate its investment strategy of acquiring additional tax-exempt mortgage bonds secured by MF Properties, the Company has acquired through its various subsidiaries 99% limited partner positions in five limited partnerships and 100% member positions in four limited liability companies that own the MF Properties. The financial statements of these properties are consolidated with those of the Company. The general partners of these partnerships are unaffiliated parties and their 1% ownership interest in these limited partnerships is reflected in the Company’s consolidated financial statements as non-controlling interests. The Company expects each of these MF Properties to eventually be sold either to a not-for-profit entity or in connection with a syndication of LIHTCs. The Company expects to purchase tax-exempt mortgage revenue bonds issued by the new property owners as part of the restructuring.
Recent Transactions
In the third quarter of 2010, the Company purchased a minority interest equal to 8.7% ownership in 810 Schutte Road LLC ("Eagle Village"), a 511 bed student housing facility located in Evansville, Indiana. The minority interest investment totaled approximately $1.1 million and was presented in other assets. In June 2011, the Partnership acquired the remaining ownership interest in Eagle Village. Approximately $3.1 million of cash on hand plus a conventional mortgage of approximately $8.9 million was used to purchase the remaining ownership. The mortgage loan carries a variable interest rate of one-month LIBOR plus 2.75% but will not be less than 3.5%. On September 30, 2011 this rate was 3.5%. This mortgage matures on June 1, 2013. Eagle Village returned $125,000 to the Company as a preferred return on their investment . The transaction is eliminated upon consolidation. Eagle Village is wholly owned by a subsidiary of the Partnership and was reported as an MF Property. The Partnership plans to operate the property as a student housing facility. Once stabilized as a student housing property, the Company will seek to restructure the ownership and capital structure through the sale of the property to a student housing not-for-profit entity. The Company anticipates it will purchase tax-exempt bonds issued as part of such a restructuring.
In March 2011, the Partnership purchased The Arboretum on Farnam Drive ("Arboretum"), a 145 unit independent senior living facility located in Omaha, Nebraska, for approximately $20.0 million plus transaction expenses of approximately $449,000. The purchase price was funded through a conventional mortgage of $17.5 million and cash on hand. The mortgage payable is with Omaha State Bank, carries a 5.25% fixed rate and matures on March 31, 2014. The Partnership intends to restructure the property operations by shifting from an entrance fee rental income model utilized by the prior ownership to a current market rent model. Upon lease-up and stabilization of the property, projected to occur within the next 12 months, the Partnership expects to sell the property to a 501(c)3 not-for-profit entity and acquire tax-exempt mortgage revenue bonds collateralized by the property.
Individually these acquisitions are not material but in the aggregate they must be disclosed pursuant to the business combinations guidance. A condensed balance sheet at the date of acquisition for each of the 2011 acquisitions is included below.
|
| | | | |
| | Eagle Village 6/29/2011 (Date of acquisition) |
Cash and cash equivalents | | $ | 244,923 |
|
Restricted cash | | 589,493 |
|
Other current assets | | 46,380 |
|
In-place lease assets | | 96,829 |
|
Real estate assets | | 12,383,605 |
|
Finance costs | | 108,060 |
|
Total Assets | | $ | 13,469,290 |
|
Accounts payable, accrued expenses and other | | $ | 278,230 |
|
Mortgage payable | | 8,925,000 |
|
Stockholders' equity | | 4,266,060 |
|
Total liabilities and stockholders' equity | | $ | 13,469,290 |
|
| | |
| | Arboretum 3/31/2011 (Date of acquisition) |
Cash and cash equivalents | | $ | 186,575 |
|
Restricted cash | | 429,231 |
|
Other current assets | | 116,631 |
|
Real estate assets | | 20,031,050 |
|
Finance costs | | 181,565 |
|
Total Assets | | $ | 20,945,052 |
|
Mortgage payable | | $ | 17,500,000 |
|
Stockholders' equity | | 3,445,052 |
|
Total liabilities and stockholders' equity | | $ | 20,945,052 |
|
The table below shows the pro forma condensed consolidated results of operations of the Company as if the Eagle Village and Arboretum properties had been acquired at the beginning of the periods presented:
|
| | | | | | | | | | | | | | | |
| For the three months ended September 30, 2011 | | For the three months ended September 30, 2010 | | For the nine months ended September 30, 2011 | | For the nine months ended September 30, 2010 |
| | | | | | | |
Revenues | $ | 7,144,413 |
| | $ | 6,605,663 |
| | $ | 21,541,971 |
| | $ | 19,211,715 |
|
Net (loss) income | 132,052 |
| | (2,201,124 | ) | | 1,169,308 |
| | (1,158,590 | ) |
Net income allocated to unitholders | 371,286 |
| | (1,325,346 | ) | | 2,034,130 |
| | 1,261,716 |
|
Unitholder's interest in net income (loss) per unit (basic and diluted) | $ | 0.01 |
| | $ | (0.04 | ) | | $ | 0.07 |
| | $ | 0.05 |
|
In February 2011, the Partnership foreclosed on the bonds secured by DeCordova and Weatherford and one of the Partnership's subsidiaries took 100% ownership interest in these limited liability companies. Both properties are reported as MF Properties. The following is a discussion of the circumstances related to the DeCordova and Weatherford properties.
Residences at DeCordova. This property is a senior (55+) affordable housing project located in Granbury, Texas in the Dallas-Fort Worth area. As of September 30, 2011, the property had 100% physical occupancy. As of December 31, 2010, the property had 65 units leased out of total available units of 76, or 86% physical occupancy. At this time the Partnership expects to operate the property as a market rate rental property for the next 6 months when it will evaluate its options in order to recoup its investment.
Residences at Weatherford. Residences at Weatherford are currently under construction and will contain 76 units upon completion. This property is a senior (55+) affordable housing project located in Weatherford, Texas in the Dallas-Fort Worth area. The construction of this property has begun and the expected completion date is February 2012. The Partnership intends to fund the construction and stabilization of the property. Further, the Partnership expects to operate the property as a market rate property and will evaluate its options in order to recoup its investment.
In July 2011, the Company obtained a $6.5 million construction loan secured by the DeCordova and Weatherford properties. This construction loan will be used to fund the completion of Weatherford and the planned future expansion of DeCordova. The construction loan is with an unrelated third party and carries a fixed annual interest rate of 5.9%, maturing on July 28, 2015. The balance of this note at September 30, 2011 is $2.1 million. This agreement requires $500,000 to be held by the Company as restricted cash.
In June 2010, the Company completed a sales transaction whereby four of the MF Properties were sold to three new ownership entities controlled by an unaffiliated not-for-profit entity. As the buyer has no equity capital in this transaction and the property operations are the current support for the debt service, the Company, in substance, remains the owner for accounting purposes. As such, the Company will continue to consolidate the Ohio Properties as if the sale was not completed. The properties will continue to be presented as MF Properties and no gain will be recognized until such time as the transaction meets the criteria for derecognition of the properties and gain recognition can be accounted for as a sale (Note 2).
|
| | | | | | | | | | | | | | | | | |
MF Properties |
Property Name | | Location | | Number of Units | | Land | | Buildings and Improvements | | Carrying Value at September 30, 2011 |
Arboretum | | Omaha, NE | | 145 |
| | $ | 1,720,740 |
| | $ | 18,631,213 |
| | $ | 20,351,953 |
|
Eagle Ridge | | Erlanger, KY | | 64 |
| | 290,763 |
| | 2,476,117 |
| | 2,766,880 |
|
Eagle Village | | Evansville, IN | | 511 |
| | 564,726 |
| | 12,168,031 |
| | 12,732,757 |
|
Meadowview | | Highland Heights, KY | | 118 |
| | 688,539 |
| | 5,049,648 |
| | 5,738,187 |
|
Churchland | | Chesapeake, VA | | 124 |
| | 1,171,146 |
| | 6,384,412 |
| | 7,555,558 |
|
Glynn Place | | Brunswick, GA | | 128 |
| | 743,996 |
| | 4,668,929 |
| | 5,412,925 |
|
Greens of Pine Glen | | Durham, NC | | 168 |
| | 604,497 |
| | 6,381,234 |
| | 6,985,731 |
|
Residences of DeCordova | | Granbury, TX | | 76 |
| | 527,436 |
| | 4,959,209 |
| | 5,486,645 |
|
Residences of Weatherford | | Weatherford, TX | | 76 |
| | 533,000 |
| | 2,779,385 |
| | 3,312,385 |
|
| | | | | | | | | | 70,343,021 |
|
Less accumulated depreciation (depreciation expense of approximately $1.6 million in 2011) | | (4,870,220 | ) |
Balance at September 30, 2011 | | | | | | | | | | $ | 65,472,801 |
|
| | | | | | | | | | |
MF Properties Subject to Sales Agreement |
Property Name | | Location | | Number of Units | | Land | | Buildings and Improvements | | Carrying Value at September 30, 2011 |
Crescent Village | | Cincinnati, OH | | 90 |
| | $ | 353,117 |
| | $ | 6,138,169 |
| | $ | 6,491,286 |
|
Willow Bend | | Hilliard, OH | | 92 |
| | 580,130 |
| | 4,775,663 |
| | 5,355,793 |
|
Postwoods | | Reynoldsburg, OH | | 180 |
| | 1,148,504 |
| | 9,785,273 |
| | 10,933,777 |
|
| | | | | | | | |