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, 2000
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 340
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 ]
MID-AMERICA CAPITAL PARTNERS, L.P.
TABLE OF CONTENTS
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
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.
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:
o 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;
o offering new services to residents, including telephone, cable, and
internet access on which it generates fee and commission income;
o 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;
o 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 Mortgaged Properties 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.
ITEM 2. PROPERTIES
The following table sets forth certain historical information on an historical
basis for the 26 Mortgaged Properties owned at December 31, 2000:
The following table presents information concerning the properties at December
31, 2000:
Average
Approximate Average Rent Per Occupancy
Year Rentable Unit Unit at % at
Year Management Number Area Size December 31, December 31,
Property (1) Location Completed Commenced Of Units (Square Ft.)(Square Ft.) 2000 2000
Belmere Tampa, FL 1984 1994 210 202,440 964 $680 95.7%
Crosswinds Jackson, MS 1988/1989 1996 360 443,200 1,231 $626 93.1%
Fairways at Royal Oak Cincinnati, OH 1988 1994 214 214,477 1,002 $652 91.6%
Hermitage at Beechtree Cary, NC 1988 1997 194 169,776 875 $705 96.9%
Hidden Lake II Union City, GA 1987 1997 160 154,000 963 $683 95.3%
High Ridge Athens, GA 1987 1997 160 186,608 1,166 $779 93.1%
Howell Commons Greenville, SC 1986/1988 1997 348 292,840 841 $537 99.4%
Kirby Station Memphis, TN 1978 1994 371 310,173 836 $607 94.9%
Lakepointe Lexington, KY 1986 1994 118 90,614 768 $582 99.2%
Lakeside Jacksonville, FL 1985 1996 416 344,192 827 $617 97.4%
Marsh Oaks Atlantic Beach, FL 1986 1995 120 93,280 777 $585 98.3%
Napa Valley Little Rock, AR 1984 1996 240 183,216 763 $558 94.6%
Park Haywood Greenville, SC 1983 1993 208 156,776 754 $570 95.7%
Park Place Spartanburg, SC 1987 1997 184 195,312 1,061 $630 97.8%
Pear Orchard Jackson, MS 1985 1994 389 338,400 870 $589 85.9%
Savannah Creek Memphis, TN 1989 1996 204 237,200 1,162 $644 97.5%
Shenandoah Ridge Augusta, GA 1975/1984 1994 272 222,800 819 $500 90.1%
Somerset Place Jackson, MS 1981 1995 144 126,848 881 $527 96.5%
Southland Station I Warner Robins, GA 1987 1997 160 186,704 1,167 $662 99.4%
Steeplechase Chattanooga, TN 1986 1991 108 98,602 913 $589 96.3%
Sutton Place Memphis, TN 1991 1996 253 267,600 1,062 $628 93.7%
Tiffany Oaks Altamonte Spring, FL 1985 1996 288 234,224 813 $625 97.6%
Village, The Lexington, KY 1989 1994 252 182,716 725 $611 91.3%
Westside Creek I Little Rock, AR 1984 1997 142 148,030 1,042 $644 91.5%
Williamsburg Village Jackson, TN 1987 1994 148 121,412 820 $556 95.9%
Willow Creek Columbus, GA 1968/1978 1997 285 246,668 866 $517 96.8%
- -------------------------------------------------------------------------------------------------------------------------
Total Properties 5,948 916 $607 94.8%
=========================================================================================================================
(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%.
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
consolidated 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)
Year Ended December 31,
-----------------------------------------------------
(Predecessor)
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
Operating Data:
Total revenues $ 41,109 $ 39,683 $ 38,742 $ 30,949 $ 20,251
Expenses:
Property expenses 14,752 14,517 14,207 10,985 7,207
Depreciation and amortization 9,360 8,853 8,324 6,389 4,000
General and administrative 1,758 1,596 1,515 1,238 810
Interest 9,078 9,083 9,162 1,671 2,169
Amortization of deferred financing costs 1,056 990 1,026 152 58
-----------------------------------------------------
Total expenses 36,004 35,039 34,234 20,435 14,244
Loss on disposition of assets 44 - - - -
-----------------------------------------------------
Income before extraordinary item 5,061 4,644 4,508 10,514 6,007
Extraordinary item - - (86) (16) -
-----------------------------------------------------
Net income $ 5,061 $ 4,644 $ 4,422 $ 10,498 $ 6,007
=====================================================
Balance Sheet Data:
Real estate owned, at cost $ 241,478 $ 238,319 $ 233,164 $ 227,608 $ 158,285
Real estate owned, net $ 200,966 $ 207,157 $ 210,855 $ 213,623 $ 150,699
Total assets $ 204,563 $ 214,195 $ 224,324 $ 219,363 $ 151,257
Total debt $ 142,000 $ 142,000 $ 142,000 $ 140,000 $ 16,461
Partners' capital $ 57,608 $ 66,603 $ 78,211 $ 73,789 $ 131,951
Other Data (at end of period):
Number of properties owned 26 26 26 26 18
Number of apartment units owned 5,948 5,948 5,948 5,948 4,314
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following is a discussion of the financial condition and results of
operations of the Partnership and its Predecessor for the years ended December
31, 2000, 1999 and 1998. 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, 2000, 1999 and 1998.
RESULTS OF OPERATIONS
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.
COMPARISON OF THE PARTNERSHIP'S YEAR ENDED DECEMBER 31, 1999 TO THE YEAR ENDED
DECEMBER 31, 1998
Total revenues increased $941,000 in 1999 due to increased rental revenues.
Rental revenues increased as compared to 1998 due to a 2.4% increase in the
average rental rate and a .5% increase in the average occupancy during 1999 for
the total 5,948 units owned.
Property operating expenses for 1999 increased by $310,000 mainly due to
increases of $218,000 in real estate taxes and insurance, $112,000 in
landscaping, and $107,000 in other operating costs. These increases were offset
by costs reductions of $89,000 in building repair and maintenance and $38,000 in
utilities.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities decreased to $14,461,000 in 2000 from
$17,128,000 in 1999. The decrease was primarily due to changes in operating
assets and liabilities during the period primarily related to timing of payments
for real estate taxes and amounts due to affiliates.
The Partnership used $3,213,000 in cash for investing activities in 2000. 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 $14,056,000 in financing activities during 2000, 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).
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.
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, future development, 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.
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 or to
effectively lock the interest rate on a portion of its variable debt. The
Partnership does not enter into derivative or interest rate transactions for
trading purposes. The Bonds outstanding at December 31, 2000 have a fixed
interest rate of 6.376% and mature in 2003. The Partnership estimates that as of
December 31, 2000, 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 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 $1,642,000, $1,587,000, and
$1,530,000 for the years ended 2000, 1999 and 1998, respectively.
MAALP employees at the Mortgaged Properties participate in employee benefit
plans sponsored by MAAC.
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, 2000 and 1999
Statements of Operations for the years ended
December 31, 2000, 1999 and 1998
Statements of Partners' Capital for the years ended
December 31, 2000, 1999 and 1998
Statement of Cash Flows for the years ended
December 31, 2000, 1999 and 1998
Notes to Financial Statements for the years ended
December 31, 2000, 1999 and 1998
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, 2000
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.
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
- ----------------------------------------
* 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 2000:
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: March 27, 2001 /s/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: March 27, 2001 /s/Simon R. C. Wadsworth
President
(Principal Executive Officer)
Date: March 26, 2001 /s/Mark S. Martini
(Principal Financial and Accounting Officer)
Date: March 26, 2001 /s/George E. Cates
Director
Date: March 26, 2001 /s/H. Eric Bolton, Jr.
Director
Date: March 22, 2001 /s/Stephen M. Carpenter
Director
Date: March 14, 2001 /s/Howard Eddings, Jr.
Director
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, 2000 and 1999, and the related
statements of operations, partners' capital and cash flows for each of the years
in the three-year period ended December 31, 2000. In connection with our audits
of the financial statements we also have audited the financial statement
Schedule III, Real Estate Investment 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 Unites 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, 2000 and 1999, and the results of operations and cash flows of the
Partnership for each of the years in the three-year period ended December 31,
2000, 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
February 23, 2001
PART I. Financial Information
ITEM 1.
Mid-America Capital Partners, L.P.
(a limited partnership)
Balance Sheets
December 31, 2000 and 1999
(Dollars in thousands)
2000 1999
- ---------------------------------------------------------------------------
ASSETS:
Real estate assets:
Land $ 21,305 $ 21,305
Buildings and improvements 212,941 210,761
Furniture, fixtures and equipment 5,801 5,439
Construction in progress 1,431 814
- ----------------------------------------------------------------------------
241,478 238,319
Less accumulated depreciation (40,512) (31,162)
- ----------------------------------------------------------------------------
Real estate assets, net 200,966 207,157
Cash 859 3,667
Restricted cash 35 34
Deferred financing costs, net 2,202 3,258
Other assets 501 79
- ----------------------------------------------------------------------------
Total assets $ 204,563 $ 214,195
============================================================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Bonds payable $ 142,000 $ 142,000
Accounts payable 118 404
Accrued expenses and other liabilities 2,652 2,895
Due to affiliate 1,382 1,499
Security deposits 803 794
- ----------------------------------------------------------------------------
Total liabilities 146,955 147,592
- ----------------------------------------------------------------------------
Partners' Capital:
General Partner 2,504 2,453
Limited Partner 85,412 80,402
Due from Limited Partner (30,308) (16,252)
- ----------------------------------------------------------------------------
Total partners' capital 57,608 66,603
- ----------------------------------------------------------------------------
Total liabilities and partners' capital $ 204,563 $ 214,195
============================================================================
See accompanying notes to financial statements.
Mid-America Capital Partners, L.P.
(a limited partnership)
Statements of Operations
Years ended December 31, 2000, 1999 and 1998
(Dollars in thousands)
2000 1999 1998
- --------------------------------------------------------------------------------------------
Revenues:
Rental $ 40,652 $ 39,260 $ 38,316
Other 457 423 426
- --------------------------------------------------------------------------------------------
Total revenues 41,109 39,683 38,742
Expenses:
Personnel 4,353 4,251 4,251
Building repairs and maintenance 1,943 1,964 2,053
Real estate taxes and insurance 4,017 4,044 3,826
Utilities 1,447 1,516 1,554
Landscaping 1,198 1,090 978
Other operating 1,794 1,652 1,545
Depreciation and amortization real estate assets 9,328 8,825 8,284
Depreciation and amortization non-real estate assets 32 28 40
General and administrative 1,758 1,596 1,515
Interest 9,078 9,083 9,162
Amortization of deferred financing costs 1,056 990 1,026
- --------------------------------------------------------------------------------------------
Total expenses 36,004 35,039 34,234
Loss on disposition of assets 44 - -
- --------------------------------------------------------------------------------------------
Income before extraordinary item 5,061 4,644 4,508
- --------------------------------------------------------------------------------------------
Extraordinary item:
Loss on debt extinguishment - - 86
- --------------------------------------------------------------------------------------------
Net income $ 5,061 $ 4,644 $ 4,422
============================================================================================
See accompanying notes to financial statements.
Mid-America Capital Partners, L.P.
(a limited partnership)
Statements of Partners' Capital
Years ended December 31, 2000, 1999 and 1998
(Dollars in thousands)
Due
From Total
General Limited Limited Partners'
Partner Partner Partner Capital
- -----------------------------------------------------------------------------------------
Balance December 31, 1997 $ 2,363 $ 71,426 $ (1,264) $ 72,525
Net cash payments to Limited Partner - - (7,349) (7,349)
Net income 44 4,378 - 4,422
-----------------------------------------------------------------------------------------
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
==========================================================================================
See accompanying notes to financial statements.
Mid-America Capital Partners, L.P.
(a limited partnership)
Statements of Cash Flows
Years ended December 31, 2000, 1999 and 1998
(Dollars in thousands)
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 5,061 $ 4,644 $ 4,422
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 10,416 9,843 9,350
Loss on disposition of assets 44 - -
Extraordinary item - loss on early extinguishment of debt - - 86
Changes in assets and liabilities:
Restricted cash (1) 372 526
Due to/from affiliate (117) 1,025 (1,122)
Other assets (422) 123 29
Accounts payable (286) (34) 48
Accrued expenses and other liabilities (243) 1,067 (1,047)
Security deposits 9 88 (7)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 14,461 17,128 12,285
- ------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net cash used in investing activities - improvements to properties (3,213) (5,155) (5,556)
- ------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Bank overdraft - (667) 667
Proceeds from notes payable - - 142,000
Principal payments on bridge notes payable - - (140,000)
Deferred financing costs - - (3,617)
Distributions to limited partner (14,056) (7,639) (7,349)
- ------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (14,056) (8,306) (8,299)
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (2,808) 3,667 (1,570)
- ------------------------------------------------------------------------------------------------------------
Cash, beginning of period 3,667 - 1,570
- ------------------------------------------------------------------------------------------------------------
Cash, end of period $ 859 $ 3,667 $ -
============================================================================================================
Supplemental disclosure of cash flow information:
Interest paid $ 9,077 $ 9,083 $ 9,276
See accompanying notes to financial statements.
MID-AMERICA CAPITAL PARTNERS, L.P.
(a limited partnership)
Notes to Financial Statements
December 31, 2000, 1999 and 1998
(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.
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
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." This Statement
requires that long-lived assets and certain identifiable intangibles be
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, MAAC.
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 and the
disclosure of contingent assets and liabilities 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.
(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 and 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 $201.0 million at December 31, 2000. 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, 2000 and
1999 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, 2000 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, 2000 and 1999. 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
In June 2000, FASB Statement 138, "Accounting for Derivative Instruments
and Hedging Activity-Deferral of Effective Date of FASB Statement 133", was
issued. This Statement shall be effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. 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 a
material 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 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
$1,642,000, $1,587,000, and $1,530,000 for the years ended 2000, 1999 and
1998, respectively.
MAALP employees at the Mortgaged Properties participate in employee benefit
plans sponsored by MAAC.
(8) Financial Instruments with Off-Balance Sheet Risk
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, 2000, 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, 2000, 1999 and 1998 (in 000's):
2000 1999 1998
- --------------------------------------------------------------------------------------
Multifamily rental revenues $41,109 $39,683 $38,742
Multifamily net operating income 26,357 25,166 24,535
Reconciling items to net income:
Depreciation and amortization (9,360) (8,853) (8,324)
General and administrative expenses (1,758) (1,596) (1,515)
Interest expense (9,078) (9,083) (9,162)
Amortization of deferred financing costs (1,056) (990) (1,026)
Loss on sale of assets (44) - -
Extraordinary item - loss on early extinguishment of debt - - (86)
- --------------------------------------------------------------------------------------
Net income $ 5,061 $ 4,644 $ 4,422
======================================================================================
Assets 2000 1999
- --------------------------------------------------------------------------------
Multifamily real estate assets $ 241,478 $ 238,319
Accumulated depreciation - multifamily assets (40,512) (31,162)
- --------------------------------------------------------------------------------
200,966 207,157
Cash and restricted cash 894 3,701
Other assets 2,703 3,337
- --------------------------------------------------------------------------------
Total assets $ 204,563 $ 214,195
================================================================================
2000 1999 1998
- ------------------------------------------------------------------------------------------
Total expenditures for property additions $ 3,159 $ 5,155 $ 5,556
==========================================================================================
(10) Selected Quarterly Financial Data (Unaudited)
(Dollars in thousands)
Year Ended December 31, 2000
- -----------------------------------------------------------------
First Second Third Fourth
- -----------------------------------------------------------------
Total revenues $10,136 $10,278 $10,365 $10,330
Net income $ 1,301 $ 1,217 $ 1,264 $ 1,279
Year Ended December 31, 1999
- -----------------------------------------------------------------
First Second Third Fourth
- -----------------------------------------------------------------
Total revenues $ 9,655 $ 9,874 $10,063 $10,091
Net income $ 1,088 $ 1,220 $ 1,104 $ 1,232
MID-AMERICA CAPITAL PARTNERS, L.P.
Schedule III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 2000
(Dollars in thousands)
Cost Capitalized Gross Amount
Subsequent to Carried at
Initial Cost Acquisition December 31, 2000
---------------- ---------------- --------------------
Building Building Building
Metropolitan and and and
Property Name Area Encumbrances Land Fixtures Land Fixtures Land Fixture Total
- -------------------------------------------------------------------------------------------------------------------------------
Belmere Tampa, FL $ - (1) $ 851 $ 7,667 $ 1 $ 1,847 $ 852 $ 9,514 $ 10,366
Crosswinds Jackson, MS - (1) 1,535 13,826 - 1,348 1,535 15,174 16,709
Fairways at Royal Oak Cincinnati, OH - (1) 814 7,335 - 1,050 814 8,385 9,199
Hermitage at Beechtree Cary, NC - (1) 900 8,099 - 954 900 9,053 9,953
Hidden Lake II Union City, GA - (1) 621 5,587 - 243 621 5,830 6,451
High Ridge Athens, GA - (1) 884 7,958 - 401 884 8,359 9,243
Howell Commons Greenville, SC - (1) 1,304 11,740 - 767 1,304 12,507 13,811
Kirby Station Memphis, TN - (1) 1,148 10,337 - 2,491 1,148 12,828 13,976
Lakepointe Lexington, KY - (1) 411 3,699 - 723 411 4,422 4,833
Lakeside Jacksonville, FL - (1) 1,431 12,883 289 2,773 1,720 15,656 17,376
Marsh Oaks Atlantic Beach, FL - (1) 244 2,829 - 718 244 3,547 3,791
Napa Valley Little Rock, AR - (1) 960 8,642 - 803 960 9,445 10,405
Park Haywood Greenville, SC - (1) 325 2,925 35 2,744 360 5,669 6,029
Park Place Spartanburg, SC - (1) 723 6,504 - 860 723 7,364 8,087
Pear Orchard Jackson, MS - (1) 1,352 12,168 (1) 1,682 1,351 13,850 15,201
Savannah Creek Memphis, TN - (1) 778 7,013 - 807 778 7,820 8,598
Shenandoah Ridge Augusta, GA - (1) 650 5,850 8 2,028 658 7,878 8,536
Somerset Jackson, MS - (1) 477 4,294 - 779 477 5,073 5,550
Southland Station I Warner Robins, GA - (1) 777 6,992 - 639 777 7,631 8,408
Steeplechase Chattanooga, TN - (1) 217 1,957 - 1,424 217 3,381 3,598
Sutton Place Memphis, TN - (1) 894 8,053 - 1,087 894 9,140 10,034
The Village Lexington, KY - (1) 900 8,097 - 1,192 900 9,289 10,189
Tiffany Oaks Altamonte Springs, FL - (1) 1,024 9,219 - 1,279 1,024 10,498 11,522
Westside Creek I Little Rock, AR - (1) 616 5,559 - 614 616 6,173 6,789
Williamsburg Village Jackson, TN - (1) 523 4,711 - 584 523 5,295 5,818
Willow Creek Columbus, GA - (1) 623 5,523 (9) 869 614 6,392 7,006
- -------------------------------------------------------------------------------------------------------------------------------
Total $142,000 $20,982 $189,467 $323 $30,706 $21,305 $220,173 $241,478
- -------------------------------------------------------------------------------------------------------------------------------
Life Used
to Compute
Depreciation
in Latest
Accumulated Income
Property Name Depreciation Net Construction Statement (1)
- -------------------------------------------------------------------------------
Belmere $ (2,133) $ 8,233 1984 5 - 40
Crosswinds (2,554) 14,155 1988/1989 5 - 40
Fairways at Royal Oak (1,898) 7,301 1988 5 - 40
Hermitage at Beechtree (1,073) 8,880 1988 5 - 40
Hidden Lake II (656) 5,795 1987 5 - 40
High Ridge (930) 8,313 1987 5 - 40
Howell Commons (1,801) 12,010 1986/1988 5 - 40
Kirby Station (2,993) 10,983 1978 5 - 40
Lakepointe (1,051) 3,782 1986 5 - 40
Lakeside (3,193) 14,183 1985 5 - 40
Marsh Oaks (814) 2,977 1986 5 - 40
Napa Valley (1,472) 8,933 1984 5 - 40
Park Haywood (1,227) 4,802 1983 5 - 40
Park Place (869) 7,218 1987 5 - 40
Pear Orchard (3,342) 11,859 1985 5 - 40
Savannah Creek (1,300) 7,298 1989 5 - 40
Shenandoah Ridge (1,984) 6,552 1975/1984 5 - 40
Somerset (1,182) 4,368 1981 5 - 40
Southland Station I (898) 7,510 1987 5 - 40
Steeplechase (967) 2,631 1986 5 - 40
Sutton Place (1,553) 8,481 1991 5 - 40
The Village (2,207) 7,982 1985 5 - 40
Tiffany Oaks (1,572) 9,950 1989 5 - 40
Westside Creek I (857) 5,932 1984 5 - 40
Williamsburg Village (1,231) 4,587 1987 5 - 40
Willow Creek (755) 6,251 1968/1978 5 - 40
- -------------------------------------------------------------------------------
Total $(40,512) $200,966
- -------------------------------------------------------------------------------
(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%.
MID AMERICA CAPITAL PARTNERS, L.P.
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
Years ended December 31, 2000, 1999 and 1998
A summary of activity for real estate investments and accumulated depreciation
is as follows:
Mid - America Capital Partners, L.P.
(a limited partnership)
Real Estate Investments and Accumulated Depreciation
(Dollars in thousands)
2000 1999 1998
- -------------------------------------------------------------------------------
Real estate investments:
Balance at beginning of year $ 238,319 $ 233,164 $ 227,608
Improvements 3,213 5,155 5,556
Disposals (54) - -
- -------------------------------------------------------------------------------
Balance at end of year $ 241,478 $ 238,319 $ 233,164
===============================================================================
Accumulated depreciation:
Balance at beginning of year $ 31,162 $ 22,309 $ 13,985
Depreciation 9,360 8,853 8,324
Disposals (10) - -
- -------------------------------------------------------------------------------
Balance at end of year $ 40,512 $ 31,162 $ 22,309
===============================================================================
See accompanying independent auditor's report.