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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
COMMISSION FILE NUMBER: 333-42441
MID-AMERICA CAPITAL PARTNERS, L.P.
(Exact Name of Registrant as Specified in Charter)
TENNESSEE 62-1717980
(State of Incorporation) (I.R.S. Employer Identification Number)
6584 POPLAR AVENUE, SUITE 300
MEMPHIS, TENNESSEE 38138
(Address of principal executive offices)
(901) 682-6600
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS
Commercial Mortgage Pass Through Certificates, Series 1998 -1
Representing Beneficial Ownership in Mid-America Capital Partners,
L.P. 6.376% First Mortgage Bonds, Due 2003
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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. /X/ Yes / / No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's 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. /X/
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MID-AMERICA CAPITAL PARTNERS, L.P.
TABLE OF CONTENTS
<Table>
<Caption>
ITEM
- ----
PART I
1. Business
2. Properties
3. Legal Proceedings
4. Submission of Matters to Vote of Security Holders
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters
6. Selected Financial Data
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations
7.A. Quantitative and Qualitative Disclosures About Market Risk
8. Financial Statements and Supplementary Data
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
PART III
10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management
13. Certain Relationships and Related Transactions
PART IV
14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
</Table>
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This Annual Report on Form 10-K contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbors created thereby. These statements
include, but are not limited to, the plans and objectives of management for
future operations and the future financial performance of Mid-America Capital
Partners, L.P. (the "Partnership"), including plans and objectives relating to
capital expenditures, rehabilitation costs on the apartment communities, and
anticipated growth rates of revenues and expenses. Words such as "expects,"
"plans," "estimates," "projects," "objectives," "goals" and similar expressions
are intended to identify forward-looking statements. Although the Partnership
believes that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could be inaccurate and, therefore, there
can be no assurance that the forward-looking statements included in the Annual
Report on Form 10-K will prove to be accurate. A variety of factors, including
but not limited to those discussed in this report under the headings "Growth
Strategies," "Competition," and "Management's Discussion and Analysis of
Financial Condition and Results of Operations", could cause actual results to
differ materially from the anticipated results and other expectations expressed
in the forward-looking statements. Other factors set forth from time to time in
the Partnership's reports and registration statements filed with the Securities
and Exchange Commission should also be considered. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by the
Partnership or any other person that the objectives of the Partnership will be
achieved.
The Partnership does not assume any obligation to update the forward-looking
statements contained in this report or the reasons why actual results could
differ from those projected in such forward-looking statements.
PART I
ITEM 1. BUSINESS
THE COMPANY
Mid-America Capital Partners, L.P. (the Partnership) is a special purpose
Delaware limited partnership. The Partnership was formed on November 24, 1997
for the sole purpose to own and operate 26 apartment communities (the Mortgaged
Properties) and manage, renovate, improve, lease, sell, transfer, exchange,
mortgage and otherwise deal with the Mortgaged Properties. The sole limited
partner of the Partnership is Mid-America Apartments, L.P., a Tennessee limited
partnership (MAALP), which is a majority owned subsidiary of Mid-America
Apartment Communities, Inc. (MAAC). MAAC owns, directly or through its
subsidiaries, all of the outstanding units of partnership interest. MAAC is a
self-administered and self-managed umbrella partnership real estate investment
trust (REIT). MAAC conducts a substantial portion of its operations through
MAALP and subsidiaries of MAALP. The sole general partner of the Partnership is
MAACP, Inc., a Tennessee corporation (MAACP), a wholly-owned subsidiary of MAAC.
The term of the Partnership shall be to December 31, 2020, unless terminated
earlier as provided in the Partnership Agreement or as otherwise provided by
law.
The Partnership was formed to succeed substantially all the interests in Capital
Properties Group (predecessor to the Partnership, "Predecessor"). Distributions
to the Partners relating to operations of the Mortgaged Properties will be based
upon net cash flow as defined in the Partnership Agreement. Profits and losses
are allocated to the Partners in proportion with their ownership.
Subsequent to the Partnership formation, MAALP contributed its interest in 20 of
the Mortgaged Properties, and the right to acquire the Reorganization Properties
(as defined below) to the Partnership in exchange for 99% limited partnership
interest in the Partnership. MAACP contributed cash in exchange for a 1% general
partnership interest in the Partnership.
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The Mortgaged Properties consist of (i) 20 properties contributed by MAALP
comprising the Predecessor; (ii) 5 properties acquired on November 25, 1997 by
the Partnership in connection with the consummation of the merger of Flournoy
Development Company (FDC) with and into MAAC and the other transactions
(collectively, the Reorganization Properties) as described in the Agreement and
Plan of Reorganization dated as of September 15, 1997 (the Plan of
Reorganization) between FDC, MAAC and MAALP consisting of 4 properties acquired
from Brown-Flournoy Equity Income Fund Limited Partnership (the Brown-Flournoy
Properties) and Willow Creek; and (iii) one property (Hermitage at Beechtree)
which was acquired November 25, 1997 through the merger of Hermitage at
Beechtree, L.L.C. with and into the Partnership. The Partnership recorded the
five properties acquired in connection with the Plan of Reorganization using the
purchase method of accounting.
OPERATING PHILOSOPHY
INTENSIVE MANAGEMENT FOCUS. The Partnership strongly emphasizes on-site property
management. Particular attention is paid to opportunities to increase rents,
raise average occupancy rates, and control costs, with property managers and
regional management being given the responsibility for monitoring market trends
and the discretion to react to such trends.
DECENTRALIZED OPERATIONAL STRUCTURE. The Partnership's operational structure is
organized on a decentralized basis. Management believes that its decentralized
operating structure capitalizes on specific market knowledge, increases personal
accountability relative to a centralized structure and is beneficial in the
acquisition, redevelopment and development process.
GROWTH STRATEGIES
Management's goal is to maximize its return on investment in each community by
increasing rental rates and reducing operating expenses while maintaining high
occupancy levels. The Partnership seeks higher net rental revenues by enhancing
and maintaining the competitiveness of the communities and manages expenses
through its system of detailed management reporting and accountability in order
to achieve increases in operating cash flow. The steps taken to meet these
objectives include:
- - empowering the Partnership's property managers to adjust rents in response
to local market conditions and to concentrate resident turnover in peak
rental demand months;
- - offering new services to residents, including telephone, cable, and
internet access on which it generates fee and commission income;
- - implementing programs to control expenses through investment in cost-saving
initiatives, such as the installation of individual apartment unit water
and utility meters in certain communities;
- - improving the "curb appeal" of the communities through extensive
landscaping and exterior improvements and repositioning communities from
time to time to maintain market leadership positions;
COMPETITION
All of the Partnership's communities are located in areas that include other
apartment communities. Occupancy and rental rates are affected by the number of
competitive apartment communities in a particular area. The Partnership's
properties compete with numerous other multifamily properties, the owners of
which may have greater resources than the Partnership and whose management may
have more experience than the Partnership's management. Moreover, single-family
rental housing, manufactured housing, condominiums and the new and existing home
markets provide housing alternatives to potential residents of apartment
communities.
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Apartment communities compete on the basis of monthly rent, discounts, and
facilities offered such as apartment size and internal amenities, and apartment
community amenities, including recreational facilities, management services, and
physical property condition. The Partnership makes capital improvements to both
the communities and individual apartments on a regular basis in order to
maintain a competitive position in each individual market.
ITEM 2. PROPERTIES
The following table sets forth certain historical information on an historical
basis for the 26 Mortgaged Properties owned at December 31, 2001:
<Table>
<Caption>
APPROXIMATE AVERAGE
YEAR RENTABLE UNIT
YEAR MANAGEMENT NUMBER AREA SIZE
PROPERTY (1) LOCATION COMPLETED COMMENCED OF UNITS (SQUARE FT.) (SQUARE FT.)
- ------------ -------- --------- --------- ---------- ------------- ------------
Belmere Tampa, FL 1984 1994 210 202,440 964
Crosswinds Jackson, MS 1988/1989 1996 360 443,200 1,231
Fairways at Royal Oak Cincinnati, OH 1988 1994 214 214,477 1,002
Hermitage at Beechtree Cary, NC 1988 1997 194 169,776 875
Hidden Lake II Union City, GA 1987 1997 160 154,000 963
High Ridge Athens, GA 1987 1997 160 186,608 1,166
Howell Commons Greenville, SC 1986/1988 1997 348 292,840 841
Kirby Station Memphis, TN 1978 1994 371 310,173 836
Lakepointe Lexington, KY 1986 1994 118 90,614 768
Lakeside Jacksonville, FL 1985 1996 416 344,192 827
Marsh Oaks Atlantic Beach, FL 1986 1995 120 93,280 777
Napa Valley Little Rock, AR 1984 1996 240 183,216 763
Park Haywood Greenville, SC 1983 1993 208 156,776 754
Park Place Spartanburg, SC 1987 1997 184 195,312 1,061
Pear Orchard Jackson, MS 1985 1994 389 338,400 870
Savannah Creek Memphis, TN 1989 1996 204 237,200 1,162
Shenandoah Ridge Augusta, GA 1975/1984 1994 272 222,800 819
Somerset Place Jackson, MS 1981 1995 144 126,848 881
Southland Station I Warner Robins, GA 1987 1997 160 186,704 1,167
Steeplechase Chattanooga, TN 1986 1991 108 98,602 913
Sutton Place Memphis, TN 1991 1996 253 267,600 1,062
Tiffany Oaks Altamonte Springs, FL 1985 1996 288 234,224 813
Village, The Lexington, KY 1989 1994 252 182,716 725
Westside Creek I Little Rock, AR 1984 1997 142 148,030 1,042
Williamsburg Village Jackson, TN 1987 1994 148 121,412 820
Willow Creek Columbus, GA 1968/1978 1997 285 246,668 866
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TOTAL PROPERTIES 5,948 916
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<Caption>
AVERAGE
RENT PER OCCUPANCY
UNIT AT % AT
DECEMBER 31, DECEMBER 31,
PROPERTY (1) 2001 2001
- ------------ ------------ ------------
Belmere $ 701 93.8%
Crosswinds $ 630 93.9%
Fairways at Royal Oak $ 661 88.3%
Hermitage at Beechtree $ 716 91.8%
Hidden Lake II $ 699 93.8%
High Ridge $ 784 82.5%
Howell Commons $ 545 91.1%
Kirby Station $ 622 90.8%
Lakepointe $ 593 97.5%
Lakeside $ 639 95.9%
Marsh Oaks $ 608 98.3%
Napa Valley $ 591 90.4%
Park Haywood $ 569 88.5%
Park Place $ 628 95.7%
Pear Orchard $ 607 92.0%
Savannah Creek $ 657 93.6%
Shenandoah Ridge $ 505 94.1%
Somerset Place $ 533 94.4%
Southland Station I $ 673 91.9%
Steeplechase $ 599 97.2%
Sutton Place $ 642 91.7%
Tiffany Oaks $ 645 94.4%
Village, The $ 606 90.1%
Westside Creek I $ 672 87.3%
Williamsburg Village $ 562 93.2%
Willow Creek $ 542 92.3%
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TOTAL PROPERTIES $ 619 92.4%
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</Table>
(1) All 26 of these communities are encumbered by the Bonds of $142 million
which mature on March 3, 2003 and have an interest rate of 6.376%.
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ITEM 3. LEGAL PROCEEDINGS
The Partnership is not presently subject to any material litigation nor, to the
Partnership's knowledge, is any material litigation threatened against the
Partnership, other than routine litigation arising in the ordinary course of
business, some of which is expected to be covered by liability insurance and
none of which is expected to have a material adverse effect on the business,
financial condition, liquidity or results of operations of the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
None.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data on an historical basis
for the Partnership. This data should be read in conjunction with the financial
statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Annual Report on Form 10-K.
MID - AMERICA CAPITAL PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
(Predecessor)
2001 2000 1999 1998 1997
------------ ------------ ------------ ------------ --------------
OPERATING DATA:
Total revenues $ 41,458 $ 41,109 $ 39,683 $ 38,742 $ 30,949
Expenses:
Property expenses 15,185 14,752 14,517 14,207 10,985
Depreciation and amortization 9,529 9,360 8,853 8,324 6,389
General and administrative 1,717 1,758 1,596 1,515 1,238
Interest 9,073 9,078 9,083 9,162 1,671
Amortization of deferred financing costs 1,004 1,056 990 1,026 152
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Total expenses 36,508 36,004 35,039 34,234 20,435
Loss on disposition of assets - 44 - - -
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Income before extraordinary item 4,950 5,061 4,644 4,508 10,514
Extraordinary item - - - (86) (16)
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Net income $ 4,950 $ 5,061 $ 4,644 $ 4,422 $ 10,498
=============================================================================
BALANCE SHEET DATA:
Real estate owned, at cost $ 245,130 $ 241,189 $ 238,319 $ 233,164 $ 227,608
Real estate owned, net $ 195,090 $ 200,677 $ 207,157 $ 210,855 $ 213,623
Total assets $ 198,329 $ 204,274 $ 214,195 $ 224,324 $ 219,363
Total debt $ 142,000 $ 142,000 $ 142,000 $ 142,000 $ 140,000
Partners' capital $ 52,383 $ 57,608 $ 66,603 $ 78,211 $ 73,789
OTHER DATA (AT END OF PERIOD):
Number of properties owned 26 26 26 26 26
Number of apartment units owned 5,948 5,948 5,948 5,948 5,948
</Table>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The following discussion and analysis of financial condition and results of
operations are based upon the Partnership's financial statements, and the notes
thereto, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires the Partnership to make a number of estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. On an ongoing basis, the Partnership evaluates its estimates and
assumptions based upon historical experience and various other factors and
circumstances. The Partnership believes that its estimates and assumptions are
reasonable in the circumstances; however, actual results may differ from these
estimates and assumptions under different future conditions.
The Partnership believes that the estimates and assumptions that are most
important to the portrayal of its financial condition and results of operations,
in that they require the most subjective judgments, form the basis of accounting
policies deemed to be most critical. These critical accounting policies include
capitalization of expenditures and depreciation of assets, and impairment of
long-lived assets.
CAPITALIZATION OF EXPENDITURES AND DEPRECIATION OF ASSETS
The Partnership carries its real estate assets at their depreciated cost.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the related assets, which range from 8 to 40 years for land
improvements and buildings, to 5 years for furniture, fixtures, and equipment,
all of which are judgmental determinations. Repairs and maintenance costs are
expensed as incurred while significant improvements, renovations, and
replacements are capitalized.
IMPAIRMENT OF LONG-LIVED ASSETS
The Partnership accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." The Partnership
periodically evaluates its long-lived assets for indicators that would
suggest that the carrying amount of the assets may not be recoverable. The
judgments regarding the existence of such indicators are based on factors
such as operating performance, market conditions, costs to complete
development projects, and legal factors. Future events could occur which
would cause the Partnership to conclude that impairment indicators exist and
that the Partnership should record an impairment loss.
OVERVIEW
The following is a discussion of the financial condition and results of
operations of the Partnership for the years ended December 31, 2001, 2000 and
1999. This discussion should be read in conjunction with the financial
statements included in this report.
The Partnership 26 communities consisting of 5,948 total apartment units at
December 31, 2001, 2000 and 1999.
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RESULTS OF OPERATIONS
COMPARISON OF THE PARTNERSHIP'S YEAR ENDED DECEMBER 31, 2001 TO THE YEAR ENDED
DECEMBER 31, 2000
Total revenues increased $349,000 in 2001 mainly due to increased rental
revenues. Rental revenues increased due to a 2.8% increase in the average rental
rate. This increase was partially offset by a decrease of .8% in average
occupancy from 2000 to 2001.
Property operating expenses include costs for personnel, building repairs and
maintenance, real estate taxes and insurance, utilities, landscaping and other
operating costs. Property operating expenses for 2001 increased by $433,000 due
to increases of $244,000 in personnel costs, $376,000 in real estate taxes and
insurance, and $58,000 in landscaping. These increases were partially offset by
cost reductions of $69,000 in building repairs and maintenance, $129,000 in
utilities, and $47,000 in other operating expenses.
COMPARISON OF THE PARTNERSHIP'S YEAR ENDED DECEMBER 31, 2000 TO THE YEAR ENDED
DECEMBER 31, 1999
Total revenues increased $1,426,000 in 2000 mainly due to increased rental
revenues. Rental revenues increased 3.5% from 1999 due to a 3.6% increase in the
average rental rate.
Property operating expenses include costs for personnel, building repairs and
maintenance, real estate taxes and insurance, utilities, landscaping and other
operating costs. Property operating expenses for 2000 increased by $235,000
mainly due to increases of $102,000 in personnel costs, $108,000 in landscaping,
and $142,000 in other operating costs. These increases were offset by cost
reductions of $69,000 in utilities, $27,000 in real estate taxes and insurance,
and $21,000 in building repairs and maintenance.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased to $14,703,000 in 2001 from
$14,172,000 in 2000, mainly related to changes in operating assets and
liabilities.
The Partnership used $3,941,000 in cash for investing activities in 2001. The
funds were used for preventive maintenance and recurring capital needs, as well
as, improving the "curb appeal" of the properties through landscaping and
exterior improvements.
The Partnership used $10,175,000 in financing activities during 2001, all of
which was related to payments of excess cash flows to the Limited Partner.
The Partnership believes that cash provided by operations is adequate and
anticipates that it will continue to be adequate in both the short and long-term
to meet operating requirements (including recurring capital expenditures at the
Mortgaged Properties).
The following table reflects the Partnership's total contractual cash
obligations as of December 31, 2001 (Dollars in 000's):
<Table>
<Caption>
TOTAL 2002 2003 2004 2005 2006 THEREAFTER
--------- ------ --------- ----- ------- ------ ----------
Long Term Debt $ 142,000 $ - $ 142,000 $ - $ - $ - $ -
</Table>
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At December 31, 2001 and 2000, the Partnership did not have any relationships
with unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purposes. In addition, 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
Partnership or its related parties other than what is disclosed in Item 13
Certain Relationships and Related Transactions.
INSURANCE
In the opinion of management, property and casualty insurance is in place which
provides adequate coverage to provide financial protection against normal
insurable risks such that it believes that any loss experienced would not have a
significant impact on the Partnership's liquidity, financial position, or
results of operations.
INFLATION
Substantially all of the resident leases at the Mortgaged Properties allow, at
the time of renewal, for adjustments in the rent payable thereunder, and thus
may enable the Partnership 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 Partnership of the adverse effects of
inflation.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also specifies
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill, noting that any
purchase price allocable to an assembled workforce may not be accounted for
separately. Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 will also require that intangible assets with estimable useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with FAS
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of.
The Partnership adopted the provisions of Statement 141 as of July 1, 2001,
except with regard to business combinations initiated prior to July 1, 2001.
The Partnership will adopt the provisions of Statement 142 effective January 1,
2002. Furthermore, goodwill and intangible assets determined to have an
indefinite useful life acquired in a purchase business combination completed
after June 30, 2001, but before Statement 142 is adopted in full will not be
amortized, but will continue to be evaluated for impairment in accordance with
the appropriate pre-Statement 142 accounting literature. Goodwill and
intangible assets acquired in business combinations completed before July 1,
2001 will continue to be amortized and tested for impairment in accordance with
the appropriate pre-Statement 142 accounting requirements prior to the adoption
of Statement 142.
Statement 141 will require upon adoption of Statement 142, that the Partnership
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in Statement 141 for recognition apart
from goodwill. Upon adoption of Statement 142, the Partnership will be required
to reassess the useful lives and residual values of all intangible assets
acquired, and make any necessary amortization period adjustments by the end of
the first interim period after adoption. In addition, to the extent an
intangible asset is identified as
<Page>
having an indefinite useful life, the Partnership will be required to test the
intangible asset for impairment in accordance with the provisions of Statement
142 within the first interim period. Any impairment loss will be measured as of
the date of adoption and recognized as the cumulative effect of a change in
accounting principle in the first interim period.
As of the date of adoption, the Partnership expects to have no unamortized
goodwill which will be subject to the transition provisions of Statements 141
and 142.
In August 2001, FASB issued Statement No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (Statement 144), which supersedes both FASB
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of (Statement 121) and the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions
(Opinion 30), for the disposal of a segment of a business (as previously defined
in that Opinion). Statement 144 retains the fundamental provisions in Statement
121 for recognizing and measuring impairment losses on long-lived assets held
for use and long-lived assets to be disposed of by sale, while also resolving
significant implementation issues associated with Statement 121. For example,
Statement 144 provides guidance on how a long-lived asset that is used as part
of a group should be evaluated for impairment, establishes criteria for when a
long-lived asset is held for sale, and prescribes the accounting for a
long-lived asset that will be disposed of other than by sale. Statement 144
retains the basic provisions of Opinion 30 on how to present discontinued
operations in the income statement but broadens that presentation to include a
component of an entity (rather than a segment of a business). Unlike Statement
121, an impairment assessment under Statement 144 will not result in a
write-down of goodwill. Rather, goodwill is evaluated for impairment under
Statement No. 142, Goodwill and Other Intangible Assets.
The Partnership is required to adopt Statement 144 no later than the year
beginning after December 15, 2001, and plans to adopt its provisions for the
quarter ending March 31, 2002. Management does not expect the adoption of
Statement 144 for long-lived assets held for use to have a material impact on
the Partnership's financial statements because the impairment assessment under
Statement 144 is largely unchanged from Statement 121. The provisions of the
Statement for assets held for sale or other disposal generally are required to
be applied prospectively after the adoption date to newly initiated disposal
activities. Therefore, management cannot determine the potential effects that
adoption of Statement 144 will have on the Partnership's financial statements.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
The Management's Discussion and Analysis of Financial Condition and Results of
Operations contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered
by the safe harbors created thereby. These statements include, but are not
limited to, the plans and objectives of management for future operations,
including plans and objectives relating to capital expenditures, rehabilitation
costs on the apartment communities, and anticipated growth rates of revenues
and expenses. Although the Partnership believes that the assumptions underlying
the forward-looking statements are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this report on Form 10-K will prove to be accurate. In
light of the significant uncertainties inherent in the forward-looking
statements included herein, the inclusion of such information should not be
regarded as a representation by the Partnership or any other person that the
objectives and plans of the Partnership will be achieved.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary market risk exposure is to changes in interest rates
obtainable on the Bonds. The Partnership's interest rate risk objective is to
limit the impact of interest rate fluctuations on earnings and cash flows and
to lower its overall borrowing costs. To achieve this objective, the
Partnership manages its exposure to fluctuations in market interest rates for
its borrowings through the use of fixed rate debt instruments to the extent
that reasonably favorable rates are obtainable with such arrangements and may
enter into derivative financial instruments such as interest rate swaps, caps
and treasury locks to mitigate its interest rate risk on a related financial
instrument. The Partnership does not enter into derivative or interest rate
transactions for trading purposes. The Bonds outstanding at December 31, 2001
have a fixed interest rate of 6.376% and mature in 2003. The Partnership
estimates that as of December 31, 2001, the attainable interest rate on a debt
instrument with similar terms was 7.0%. The Partnership does not have any other
material market-sensitive financial instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Independent Auditors' Report, Financial Statements and Selected Quarterly
Financial Information are set forth herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements with the Partnership's independent accountants
on any matter of accounting principles or practices or financial statement
disclosure.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference to the Registrant's filing on Form S-3 relating
to the issuance of the Bonds, filed with the Securities and Exchange Commission
December 17, 1997.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to the Registrant's filing on Form S-3 relating
to the issuance of the Bonds, filed with the Securities and Exchange Commission
December 17, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to the Registrant's filing on Form S-3 relating
to the issuance of the Bonds, filed with the Securities and Exchange Commission
December 17, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MAALP provides property management and other services (including employee
benefits) at a 4% management fee and also provides funds for the improvement of
the Mortgaged Properties. Management fees incurred by the Partnership under the
terms of the agreement with MAALP were approximately $1,655,000, $1,642,000,
and $1,587,000 for the years ended 2001, 2000 and 1999, respectively.
MAALP employees at the Mortgaged Properties participate in employee benefit
plans sponsored by MAAC.
<Page>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on Form
10-K:
1. Independent Auditors' Report
Balance Sheets as of December 31, 2001 and 2000
Statements of Operations for the years ended
December 31, 2001, 2000 and 1999
Statements of Partners' Capital for the years ended
December 31, 2001, 2000 and 1999
Statement of Cash Flows for the years ended
December 31, 2001, 2000 and 1999
Notes to Financial Statements for the years ended
December 31, 2001, 2000 and 1999
2. Financial Statement Schedule required to be filed by item 8 and
Paragraph (d) of this item 14:
Schedule III - Real Estate Investments and Accumulated Depreciation as
of December 31, 2001
3. The exhibits required by Item 601 of Regulation S-K, except as
otherwise noted, have been filed with previous reports by the
registrant and are herein incorporated by reference.
<Table>
<Caption>
EXHIBIT
NUMBERS EXHIBIT DESCRIPTION
- ------- -------------------
1.1* Underwriting Agreement
3.1* Certificate of Limited Partnership of Mid-America Capital
Partners, L.P.
3.2* Limited Partnership Agreement between MAAC, Inc., as General
Partner and Mid-America Apartments, L.P., a limited partner
relating to the formation of Mid-America Capital Partners,
L.P., a Delaware limited partnership
3.3* Certificate of Incorporation of MAACP, Inc.
3.4* Bylaws of MAACP, Inc.
3.5* Certificate of Incorporation of Mid-America Finance, Inc.
3.6* Bylaws of Mid-America Finance, Inc.
4.1* Form of Amended and Restated Indenture among Mid-America Capital
Partners, L.P. and Mid-America Apartments, as issuer and La Salle
National Bank, as Trustee
4.2* Form of Trust Agreement between Mid-America Finance, Inc. as
depositor and La Salle National Bank, as Trustee
4.3* Form of Certificate
4.4* Form of Bond
5.1* Opinion of Baker, Donelson, Bearman & Caldwell, a professional
corporation
10.1* Cash Collateral Account Security, Pledge and Assignment Agreement
among Mid-America Capital Partners, L.P. and Mid-America
Apartments, L.P. and First Union Bank, and Morgan Stanley
Mortgage Capital, Inc., and La Salle National Bank dated November
21, 1997
10.2* Form of Deed of Trust, Assignment of Leases and Rents and
Security Agreement
25.1* Statement of Eligibility and Qualification of Indenture Trustee
on Form T-1
</Table>
- ----------
<Page>
* Previously filed as exhibits to the Partnership's Registration Statement on
Form S-3, filed with the Commission on December 17, 1997 under Commission File
No. 333-42441.
(b) Reports on Form 8-K
The following reports were filed on Form 8-K by the registrant during
the fourth quarter of 2001:
FORM EVENTS REPORTED DATE OF REPORT
None.
(c) Exhibits:
See Item 14(a)(3) above.
(d) Financial Statement Schedules:
See Item 14(a)(2) above.
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.
MID-AMERICA CAPITAL PARTNERS, L.P.
Date: 3/27/02 /s/ Simon R.C. Wadsworth
----------------------------- ----------------------------------
Simon R.C. Wadsworth
President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
Date: 3/27/02 /s/ Simon R.C. Wadsworth
----------------------------- ---------------------------------------
Simon R.C. Wadsworth
President
(Principal Executive Officer)
Date: 3/27/02 /s/ Leslie Wolfgang
----------------------------- ---------------------------------------
Leslie Bratten Cantrell Wolfgang
(Principal Financial and Accounting
Officer)
Date: 3/27/02 /s/ H. Eric Bolton, Jr.
----------------------------- ---------------------------------------
H. Eric Bolton, Jr.
Director
Date: 3/27/02 /s/ Stephen M. Carpenter
----------------------------- ----------------------------------------
Stephen M. Carpenter
Director
Date:
----------------------------- ----------------------------------------
Howard Eddings, Jr.
Director
<Page>
INDEPENDENT AUDITORS' REPORT
The Partners
Mid-America Capital Partners, L.P.:
We have audited the accompanying balance sheets of Mid-America Capital Partners,
L.P. (the "Partnership") as of December 31, 2001 and 2000, and the related
statements of operations, partners' capital and cash flows for each of the years
in the three-year period ended December 31, 2001. In connection with our audits
of the financial statements we also have audited the financial statement
Schedule III, Real Estate Investments and Accumulated Depreciation. These
financial statements and the financial statement schedule are the responsibility
of the management of the Partnership. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 audits provide 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 the Partnership as of December
31, 2001 and 2000, and the results of operations and cash flows of the
Partnership for each of the years in the three-year period ended December 31,
2001, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, the related financial statement
schedule, when considered in relation to the financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG LLP
Memphis, Tennessee
March 27, 2002
<Page>
PART I. FINANCIAL INFORMATION
ITEM 1.
MID-AMERICA CAPITAL PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
2001 2000
------------- -------------
ASSETS:
REAL ESTATE ASSETS:
Land $ 20,727 $ 21,016
Buildings and improvements 217,299 212,941
Furniture, fixtures and equipment 6,457 5,801
Construction in progress 647 1,431
------------- -------------
245,130 241,189
Less accumulated depreciation (50,040) (40,512)
------------- -------------
REAL ESTATE ASSETS, NET 195,090 200,677
Cash 1,446 859
Restricted cash 36 35
Deferred financing costs, net 1,197 2,202
Other assets 560 501
------------- -------------
TOTAL ASSETS $ 198,329 $ 204,274
============= =============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Bonds payable $ 142,000 $ 142,000
Accounts payable 94 118
Accrued expenses and other liabilities 2,494 2,652
Due to affiliate 545 1,093
Security deposits 813 803
------------- -------------
TOTAL LIABILITIES 145,946 146,666
------------- -------------
PARTNERS' CAPITAL:
General Partner 2,554 2,504
Limited Partner 90,312 85,412
Due from Limited Partner (40,483) (30,308)
------------- -------------
TOTAL PARTNERS' CAPITAL 52,383 57,608
------------- -------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 198,329 $ 204,274
============= =============
</Table>
See accompanying notes to financial statements.
<Page>
MID-AMERICA CAPITAL PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
2001 2000 1999
------------ ------------- ------------
REVENUES:
Rental $ 40,880 $ 40,652 $ 39,260
Other 578 457 423
------------ ------------- ------------
Total revenues 41,458 41,109 39,683
EXPENSES:
Personnel 4,597 4,353 4,251
Building repairs and maintenance 1,874 1,943 1,964
Real estate taxes and insurance 4,393 4,017 4,044
Utilities 1,318 1,447 1,516
Landscaping 1,256 1,198 1,090
Other operating 1,747 1,794 1,652
Depreciation and amortization real estate assets 9,497 9,328 8,825
Depreciation and amortization non-real estate assets 32 32 28
General and administrative 1,717 1,758 1,596
Interest 9,073 9,078 9,083
Amortization of deferred financing costs 1,004 1,056 990
------------ ------------- ------------
Total expenses 36,508 36,004 35,039
Loss on disposition of assets - 44 -
------------ ------------- ------------
Net income $ 4,950 $ 5,061 $ 4,644
============ ============= ============
</Table>
See accompanying notes to financial statements.
<Page>
MID-AMERICA CAPITAL PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
DUE
FROM TOTAL
GENERAL LIMITED LIMITED PARTNERS'
PARTNER PARTNER PARTNER CAPITAL
------------- ------------- ------------ ------------
Balance December 31, 1998 $ 2,407 $ 75,804 $ (8,613) $ 69,598
Net cash payments to Limited Partner - - (7,639) (7,639)
Net income 46 4,598 - 4,644
------------- ------------- ------------ ------------
Balance December 31, 1999 2,453 80,402 (16,252) 66,603
Net cash payments to Limited Partner - - (14,056) (14,056)
Net income 51 5,010 - 5,061
------------- ------------- ------------ ------------
Balance December 31, 2000 2,504 85,412 (30,308) 57,608
Net cash payments to Limited Partner - - (10,175) (10,175)
Net income 50 4,900 - 4,950
------------- ------------- ------------ ------------
Balance December 31, 2001 $ 2,554 $ 90,312 $ (40,483) $ 52,383
============= ============= ============ ============
</Table>
See accompanying notes to financial statements.
<Page>
MID-AMERICA CAPITAL PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
2001 2000 1999
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,950 $ 5,061 $ 4,644
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 10,533 10,416 9,843
Loss on disposition of assets - 44 -
Changes in assets and liabilities:
Restricted cash (1) (1) 372
Due to/from affiliate (548) (406) 1,025
Other assets (59) (422) 123
Accounts payable (24) (286) (34)
Accrued expenses and other liabilities (158) (243) 1,067
Security deposits 10 9 88
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 14,703 14,172 17,128
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
NET CASH USED IN INVESTING ACTIVITIES - IMPROVEMENTS TO PROPERTIES (3,941) (2,924) (5,155)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft - - (667)
Distributions to limited partner (10,175) (14,056) (7,639)
---------- ---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (10,175) (14,056) (8,306)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 587 (2,808) 3,667
---------- ---------- ----------
Cash, beginning of year 859 3,667 -
---------- ---------- ----------
Cash, end of year $ 1,446 $ 859 $ 3,667
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 9,073 $ 9,077 $ 9,083
========== ========== ==========
</Table>
See accompanying notes to financial statements.
<Page>
MID-AMERICA CAPITAL PARTNERS, L.P.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Mid-America Capital Partners, L.P. (the Partnership) is a special
purpose Delaware limited partnership. The Partnership was formed on
November 24, 1997 for the sole purpose to own and operate 26 apartment
communities (the Mortgaged Properties) and manage, renovate, improve,
lease, sell, transfer, exchange, mortgage and otherwise deal with the
Mortgaged Properties. The sole limited partner of the Partnership is
Mid-America Apartments, L.P., a Tennessee limited partnership (MAALP),
which is a majority owned subsidiary of Mid-America Apartment
Communities, Inc. (MAAC). MAAC owns, directly or through its
subsidiaries, all of the outstanding units of partnership interest.
MAAC is a self-administered and self-managed umbrella partnership real
estate investment trust (REIT). MAAC conducts a substantial portion of
its operation through MAALP and subsidiaries of MAALP. The sole general
partner of the Partnership is MAACP, Inc., a Tennessee corporation
(MAACP), a wholly-owned subsidiary of MAAC. The term of the Partnership
shall be to December 31, 2020, unless terminated earlier as provided in
the Partnership Agreement or as otherwise provided by law.
Distributions to the Partners relating to operations of the Mortgaged
Properties will be based upon net cash flow as defined in the
Partnership Agreement. Profits and losses are allocated to the Partners
in proportion with their ownership. Distributions from ongoing
operations of the Partnership are distributed 100% to MAALP and charged
to its capital account.
BASIS OF PRESENTATION
All significant intercompany accounts and transactions have been
eliminated in consolidation.
REVENUE RECOGNITION
The Partnership leases residential apartments under operating leases
with terms generally one year or less. Rental and other revenues are
recorded when earned.
RENTAL OPERATIONS
The Partnership owns and operates apartment units which are leased to
tenants on terms of one year or less, with monthly payments due in
advance. In management's opinion, due to the number of tenants, the
type and diversity of submarkets in which the Mortgaged Properties
operate, and the collection terms, there is no concentration of credit
risk.
RESTRICTED CASH
Restricted cash consists of escrow deposits held by lenders for
property taxes, insurance, debt service and replacement reserves.
<Page>
REAL ESTATE ASSETS AND DEPRECIATION
Real estate assets are carried at depreciated cost. Repairs and
maintenance costs are expensed as incurred while significant
improvements, renovations and replacements are capitalized. The cost of
interior painting, vinyl flooring and blinds are expensed as incurred.
Depreciation is computed on a straight-line basis over the estimated
useful lives of the related assets which range from 8 to 40 years for
land improvements and buildings and 5 years for furniture, fixtures and
equipment.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized over the terms of the related
debt using a method which approximates the interest method.
DUE FROM LIMITED PARTNER
The Partnership periodically makes payments to the Limited Partner
based upon the excess cash flows of the Mortgaged Properties (other
than the five properties discussed below) from rental operations or
receives cash from the limited partner to fund capital improvements on
the Mortgaged Properties. These payments and receipts are recorded on
the balance sheet of the Partnership as a receivable or payable to the
Limited Partner.
DUE TO AFFILIATE
The Partnership has five properties, Hidden Lake II, High Ridge, Park
Place, Southland Station I and Willow Creek that make payments or
receive cash from MAAC in a manner similar to that of the Partnership
and Limited Partner described above. These payments and receipts are
recorded on the balance sheet of the Partnership as a receivable or
payable to an affiliate.
INCOME TAXES
No provision for federal income taxes has been made in the accompanying
financial statements. Each partner is responsible for reporting his
share of taxable income or loss from the real estate investments.
USE OF ESTIMATES
Management of the Partnership has made a number of estimates and
assumptions relating to the reporting of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported
amounts of revenues and expenses to prepare these financial statements
in conformity with accounting principles generally accepted in the
United States of America. Actual results could differ from those
estimates.
<Page>
(2) BRIDGE NOTES AND BONDS PAYABLE
On November 24, 1997 the Mortgaged Properties were acquired by the
Partnership and were pledged to secure a $140 million loan (the "Bridge
Notes") received from Morgan Stanley Mortgage Capital Inc. A portion of
the proceeds from the Bridge Notes were utilized in connection with the
acquisition of certain of the Reorganization Properties, the funding of
deferred financing costs, the establishment of replacement reserves
with the remainder being distributed to MAALP.
On March 6, 1998, the Partnership issued $142 million aggregate
principal amount of 6.376% Bonds due 2003 (the "Bonds"). The Bonds are
secured by a first priority deed of trust, security agreement and
assignment of rents and leases in respect of the 26 mortgaged
properties, with a net book value of $195.1 million at December 31,
2001. The net proceeds from the sale of the Bonds were applied to the
Bridge Notes and utilized to fund costs of the issuance.
In anticipation of the March 6, 1998 Bond issuance discussed above, the
Partnership entered four separate forward treasury lock agreements in
1997 with notional amounts aggregating $140 million, the effect of
which was to lock the interest rate on $140 million of the Bonds at an
average rate of 6.62%. On March 6, 1998 the Partnership realized a $1.4
million loss on the interest rate contracts. The realized loss
resulting from the change in the market value of these contracts is
being amortized into interest expense over the life of the related debt
issuance. Thus, the effective borrowing cost of the Bonds is 6.62%
until maturity in March 2003.
(3) FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
Cash, restricted cash, accounts payable and accrued expenses and other
liabilities and security deposits are carried at amounts which
reasonably approximate their fair value.
The fixed rate Bonds payable had a carrying value at December 31, 2001
and 2000 of $142 million. The Partnership estimates that their fair
market value (excluding prepayment penalties) based upon interest rates
available for the issuance of debt with similar terms and remaining
maturities as of December 31, 2001 was $141 million. These notes are
subject to prepayment penalties which would be required to retire these
notes prior to maturity.
The fair value estimates presented herein are based on information
available to management as of December 31, 2001 and 2000. Although
management is not aware of any factors that would significantly affect
the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements
since that date, and current estimates of fair value may differ
significantly from the amounts presented herein.
(4) RECENT PRONOUNCEMENTS
On January 1, 2001, the Partnership adopted SFAS No. 133, "Accounting
for Derivative Instruments and Certain Hedging Acivities." SFAS 133,
as amended, established accounting and reporting standards for
derivative instruments. Specifically, SFAS No. 133 requires an entity
to recognize all derivatives as either assets or liabilities in the
balance sheet and to measure those instruments at fair value.
Additionally, the fair value adjustments will affect either
shareholders' equity or net income depending on whether the derivative
instrument qualifies as a hedge for accounting purposes and, if so,
the nature of the hedging activity. The Partnership has only limited
involvement with derivative financial instruments, and does not use
them for trading purposes. This new accounting statement did not have
any impact on the Partnership's financial statements.
(5) COMMITMENTS AND CONTINGENCIES
The Partnership is not presently subject to any material litigation
nor, to the Partnership's knowledge, is any material litigation
threatened against the Partnership or any of the Mortgaged Properties,
other than routine litigation arising in the ordinary course of
business, some of which is expected to be covered by
<Page>
liability insurance and none of which is expected to have a material
adverse effect on the financial statements of the Partnership.
(7) RELATED PARTY TRANSACTIONS
MAALP provides the properties management and other services (including
employee benefits) at a 4% management fee and also provides funds for
the improvement of the Mortgaged Properties. Management fees incurred
by the Partnership under the terms of the agreement with MAALP were
approximately $1,655,000, $1,642,000, and $1,587,000 for the years
ended 2001, 2000 and 1999, respectively.
MAALP employees at the Mortgaged Properties participate in employee
benefit plans sponsored by MAAC.
(8) DERIVATIVE FINANCIAL INSTRUMENTS
The Partnership has only limited involvement with derivative financial
instruments and does not use them for trading purposes. The Partnership
has utilized derivative financial instruments as hedges in anticipation
of future debt transactions to manage well-defined interest rate risk.
(9) SEGMENT INFORMATION
At December 31, 2001, the Partnership owned and operated 26 multifamily
apartment communities from which it derives all significant sources of
earnings and operating cash flows. The Partnership's operational
structure is organized on a decentralized basis, with individual
property managers having overall responsibility and authority regarding
the operations of their respective properties. Each property manager
individually monitors local and area trends in rental rates, occupancy
percentages, and operating costs. Property managers are given the
on-site responsibility and discretion to react to such trends in the
best interest of the Partnership. The Partnership's chief operating
decision maker evaluates the performance of each individual property
based on its contribution to net operating income in order to ensure
that the individual property continues to meet the Partnership's return
criteria and long term investment goals. The Partnership defines each
of its multifamily communities as an individual operating segment. It
has also determined that all of its communities have similar economic
characteristics and also meet the other criteria which permit the
communities to be aggregated into one reportable segment, which is
acquisition, development, and operation of the multifamily communities
owned.
The revenues, net operating income, assets and real estate investment
capital expenditures for the aggregated multifamily segment are
summarized as follows for the years ended December 31, 2001, 2000 and
1999 (Dollars in 000's):
<Table>
<Caption>
2001 2000 1999
---------- --------- ---------
Multifamily rental revenues $ 41,458 41,109 $ 39,683
========== ========= =========
Multifamily net operating income 26,273 26,357 25,166
Reconciling items to net income:
Depreciation and amortization (9,529) (9,360) (8,853)
General and administrative expenses (1,717) (1,758) (1,596)
Interest expense (9,073) (9,078) (9,083)
Amortization of deferred financing costs (1,004) (1,056) (990)
Loss on sale of assets - (44) -
---------- --------- ---------
Net income $ 4,950 $ 5,061 $ 4,644
========== ========= =========
<Caption>
ASSETS 2001 2000
---------- ---------
Multifamily real estate assets $ 245.130 $ 241,189
Accumulated depreciation- multifamily assets (50,040) (40,512)
---------- ---------
195,090 200,677
Cash and restricted cash 1,482 894
Other assets 1,757 2,703
---------- ---------
Total assets: $ 198,329 $ 204,274
========== =========
<Caption>
2001 2000 1999
---------- --------- ---------
Total expenditures for property additions $ 3,941 $ 2,924 $ 5,155
========== ========= =========
</Table>
<Page>
(10) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<Table>
<Caption>
(DOLLARS IN THOUSANDS)
FIRST SECOND THIRD FOURTH
2001 QUARTER QUARTER QUARTER QUARTER
- --------- --------- --------- ----------- -----------
Total revenues $ 10,333 $ 10,474 $ 10,462 $ 10,189
Net income $ 1,458 $ 1,371 $ 1,284 $ 837
<Caption>
FIRST SECOND THIRD FOURTH
2000 QUARTER QUARTER QUARTER QUARTER
- --------- --------- --------- ----------- -----------
Total revenues $ 10,136 $ 10,278 $ 10,365 $ 10,330
Net income $ 1,301 $ 1,217 $ 1,264 $ 1,279
</Table>
<Page>
MID-AMERICA CAPITAL PARTNERS,L.P.
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
A summary of activity for real estate investments and accumulated depreciation
is as follows:
<Page>
MID-AMERICA CAPITAL PARTNERS, L.P.
Schedule III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 2001
(Dollars in thousands)
<Table>
<Caption>
COST CAPITALIZED
SUBSEQUENT TO
INITIAL COST ACQUISITION
--------------------- --------------------
BUILDING BUILDING
METROPOLITAN AND AND
PROPERTY NAME AREA ENCUMBRANCES LAND FIXTURES LAND FIXTURES
- ------------- ---------------- ------------ ---- -------- ---- --------
Belmere Tampa, FL $ -(1) $ 851 $ 7,667 $ 1 $ 2005
Crosswinds Jackson, MS -(1) 1,535 13,826 - 1,489
Fairways at Royal Oak Cincinnati, OH -(1) 814 7,335 - 1,121
Hermitage at Beechtree Cary, NC -(1) 900 8,099 - 1,060
Hidden Lake II Union City, GA -(1) 621 5,587 - 250
High Ridge Athens, GA -(1) 884 7,958 - 444
Howell Commons Greenville, SC -(1) 1,304 11,740 - 841
Kirby Station Memphis, TN -(1) 1,148 10,337 - 2,692
Lakepointe Lexington, KY -(1) 411 3,699 - 792
Lakeside Jacksonville, FL -(1) 1,142 12,883 - 3,619
Marsh Oaks Atlantic Beach, FL -(1) 244 2,829 - 774
Napa Valley Little Rock, AR -(1) 960 8,642 - 1,079
Park Haywood Greenville, SC -(1) 325 2,925 35 2,867
Park Place Spartanburg, SC -(1) 723 6,504 - 1,005
Pear Orchard Jackson, MS -(1) 1,352 12,168 (1) 1,984
Savannah Creek Memphis, TN -(1) 778 7,013 - 948
Shenandoah Ridge Augusta, GA -(1) 650 5,850 8 2,210
Somerset Jackson, MS -(1) 477 4,294 - 845
Southland Station I Warner Robins, GA -(1) 777 6,992 - 799
Steeplechase Chattanooga, TN -(1) 217 1,957 - 1,457
Sutton Place Memphis, TN -(1) 894 8,053 - 1,211
The Village Lexington, KY -(1) 900 8,097 - 1,366
Tiffany Oaks Altamonte Springs, FL -(1) 1,024 9,219 - 1,510
Westside Creek I Little Rock, AR -(1) 616 5,559 - 702
Williamsburg Village Jackson, TN -(1) 523 4,711 - 740
Willow Creek Columbus, GA -(1) 623 5,523 (9) 1,126
--------- --------- --------- ----- ---------
TOTAL $ 142,000 $ 20,693 $ 189,467 $ 34 $ 34,936
========= ========= ========= ===== =========
<Caption>
GROSS AMOUNT
CARRIED AT LIFE USED
DECEMBER 31, 2001 TO COMPUTE
----------------- DEPRECIATION
BUILDING IN LATEST
AND ACCUMULATED INCOME
PROPERTY NAME LAND FIXTURES TOTAL DEPRECIATION NET CONSTRUCTION STATEMENT
- ------------- ---- -------- ----- ------------ --- ------------ ---------
Belmere $ 852 $ 9,672 $ 10,524 $ (2,559) $ 7,965 1984 5 - 40
Crosswinds 1,535 15,315 16,850 (3,198) 13,652 1988/1989 5 - 40
Fairways at Royal Oak 814 8,456 9,270 (2,258) 7,012 1988 5 - 40
Hermitage at Beechtree 900 9,159 10,059 (1,473) 8,586 1988 5 - 40
Hidden Lake II 621 5,837 6,458 (881) 5,577 1987 5 - 40
High Ridge 884 8,402 9,286 (1,267) 8,019 1987 5 - 40
Howell Commons 1,304 12,581 13,885 (2,305) 11,580 1986/1988 5 - 40
Kirby Station 1,148 13,029 14,177 (3,521) 10,656 1978 5 - 40
Lakepointe 411 4,491 4,902 (1,235) 3,667 1986 5 - 40
Lakeside 1,142 16,502 17,644 (3,946) 13,698 1985 5 - 40
Marsh Oaks 244 3,603 3,847 (987) 2,860 1986 5 - 40
Napa Valley 960 9,721 10,681 (1,881) 8,800 1984 5 - 40
Park Haywood 360 5,792 6,152 (1,481) 4,671 1983 5 - 40
Park Place 723 7,509 8,232 (1,194) 7,038 1987 5 - 40
Pear Orchard 1,351 14,152 15,503 (3,909) 11,594 1985 5 - 40
Savannah Creek 778 7,961 8,739 (1,658) 7,081 1989 5 - 40
Shenandoah Ridge 658 8,060 8,718 (2,314) 6,404 1975/1984 5 - 40
Somerset 477 5,139 5,616 (1,392) 4,224 1981 5 - 40
Southland Station I 777 7,791 8,568 (1,231) 7,337 1987 5 - 40
Steeplechase 217 3,414 3,631 (1,118) 2,513 1986 5 - 40
Sutton Place 894 9,264 10,158 (1,962) 8,196 1991 5 - 40
The Village 900 9,463 10,363 (2,600) 7,763 1985 5 - 40
Tiffany Oaks 1,024 10,729 11,753 (2,054) 9,699 1989 5 - 40
Westside Creek I 616 6,261 6,877 (1,113) 5,764 1984 5 - 40
Williamsburg Village 523 5,451 5,974 (1,440) 4,534 1987 5 - 40
Willow Creek 614 6,649 7,263 (1,063) 6,200 1968/1978 5 - 40
-------- --------- --------- -------- ---------
TOTAL $ 20,727 $ 224,403 $ 245,130 ($ 50,040) $ 195,090
======== ========= ========= ======== =========
</Table>
(1) These 26 communities are encumbered by the $142 million Bonds which mature
on March 3, 2003 and have an interest rate of 6.376%.
<Page>
MID - AMERICA CAPITAL PARTNERS, L.P.
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
(Dollars in thousands)
<Table>
<Caption>
2001 2000 1999
--------- --------- ---------
Real estate investments:
Balance at beginning of year $ 241,189 $ 238,319 $ 233,164
Improvements 3,941 2,924 5,155
Disposals - (54) -
--------- --------- ---------
Balance at end of year $ 245,130 $ 241,189 $ 238,319
========= ========= =========
Accumulated depreciation:
Balance at beginning of year $ 40,512 $ 31,162 $ 22,309
Depreciation 9,528 9,360 8,853
Disposals - (10) -
--------- --------- ---------
Balance at end of year $ 50,040 $ 40,512 $ 31,162
========= ========= =========
</Table>
See accompanying independent auditor's report.