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, 1997
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
-------------------
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. [ ] Yes [ x ] 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. [ ] Yes [ x ] No
Explanation of Filing
Mid-America Capital Parnters, L.P. (the "Partnership") completed its
offering of Bonds representing beneficial ownership in Mid-America Capital
Partners, L.P. 6.376% First Mortgage Bonds, Due 2003, pursuant to a
registration statement filed on Form S-3 and S-11 which was declared
effective on February 17, 1998. This filing on Form 10-K dated
May 15, 1998 is a special Annual Report and includes only the historical
financial statements for the year ended December 31, 1997 as required
by Section 15(d) of the Securities Exchange Act of 1934 and Rule 15d-
2 thereunder.
MID-AMERICA CAPITAL PARTNERS, L.P.
(a limited partnership)
&
CAPITAL PROPERTIES GROUP
(predecessor to Mid-America Capital Partners, L.P.)
Financial Statements
December 31, 1997 and 1996
Independent Auditors' Report
The Partners
Mid-America Capital Partners, L.P.:
We have audited the accompanying balance sheet of Mid-America
Capital Partners, L.P. (the "Partnership") and the accompanying
combined balance sheet of Capital Properties Group (the
"Predecessor") as of December 31, 1997 and 1996, and the related
statements of operations, partners' capital and cash flows for
the year ended December 31, 1997 for the Partnership and the
related combined statements of operations, partners' capital and
cash flows for each of the two years in the period ended December
31, 1996 for the Predecessor. In connection with our audits of
the financial statements we also have audited the financial
statement Schedule III, Real Estate Investment and Accumulated
Depreciaition. These financial statements and the financial
statement schedule are the responsibility of the management of
the Partnership and the Predecessor. 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 generally accepted
auditing standards. 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 and Predecessor at December 31, 1997 and 1996,
and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1997, in
conformity with generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when
considered in relation to the financial statements taken as a
whole, present fairly, in all material respects, the information
set forth therein.
As discussed in note 1 to the financial statements, the
Partnership and Predecessor changed its accounting method to
capitalize replacement purchases for major appliances and carpet
in 1996.
/s/ KPMG Peat Marwick LLP
Memphis, Tennessee
March 27, 1998
MID-AMERICA CAPITAL PARTNERS, L.P.
(a limited partnership)
Balance Sheet of the Partnership and
Combined Balance Sheet of the Predecessor
December 31, 1997 and 1996
(Dollars in thousands)
(Predecessor)
Assets 1997 1996
- ------ --------- ---------
Real estate assets:
Land $ 21,016 14,569
Buildings and improvements 201,499 140,662
Furniture, fixtures and equipment 3,354 2,224
Construction in progress 1,739 830
--------- ---------
227,608 158,285
Less accumulated depreciation (13,985) (7,586)
--------- ---------
Real estate assets, net 213,623 150,699
Cash 1,570 134
Restricted cash 932 278
Deferred financing costs, net 1,743 35
Due from limited partner 1,264 -
Other assets 231 111
--------- ---------
Total assets $219,363 $151,257
========= =========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Bridge notes payable (note 2) $ 140,000 -
Notes payable (note 3) - 16,461
Accounts payable 390 587
Accrued expenses and other liabilities 2,875 1,709
Due to affiliate 1,596 -
Security deposits 713 549
--------- ---------
Total liabilities 145,574 19,306
--------- ---------
Commitments and contingencies (note 5) - -
Partners' capital:
General Partner 2,363 -
Limited Partner 71,426 -
Predecessor - 131,951
--------- ---------
Total partners' capital 73,789 131,951
--------- ---------
Total liabilities and partners' capital $219,363 $151,257
========= =========
See accompanying notes to financial statements.
MID-AMERICA CAPITAL PARTNERS, L.P.
(a limited partnership)
Statement of Operations of the Partnership and
Combined Statements of Operations of the Predecessor
Years ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
(Predecessor)
-----------------
1997 1996 1995
------- ------- -------
Revenues:
Rental $30,691 20,056 14,321
Other 258 195 176
------- ------- -------
Total revenues 30,949 20,251 14,497
------- ------- -------
Expenses:
Personnel 3,148 1,996 1,413
Building repairs and maintenance 1,519 917 772
Real estate taxes and insurance 2,985 1,942 1,408
Utilities 1,173 930 749
Landscaping 869 502 371
Other operating 1,291 920 593
Depreciation and amortization -
real estate assets 6,360 3,981 2,600
Depreciation and amortization -
non-real estate assets 29 19 14
General and administrative 1,238 810 580
Interest 1,671 2,169 2,225
Amortization of deferred
financing costs 152 58 48
------- ------- -------
Total expenses 20,435 14,244 10,773
------- ------- -------
Income before extraordinary item 10,514 6,007 3,724
Extraordinary item:
Loss on debt extinguishment 16 - -
------- ------- -------
Net income $10,498 6,007 3,724
======= ======= =======
See accompanying notes to financial statements.
MID-AMERICA CAPITAL PARTNERS, L.P.
(a limited partnership)
Statement of Partners' Capital of the Partnership and
Combined Statements of Partners' Capital of the Predecessor
Years ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
CPG
Partners' Total
MACP, Capital Partners'
Inc. MAAL.P. (Predecessor) Capital
------ -------- ---------- --------
Partners' Capital, December 31, 1994 $ - - 48,938 48,938
Capital contributions, net - - 7,316 7,316
Net income - - 3,724 3,724
------ -------- ---------- --------
Partners' Capital, December 31, 1995 - - 59,978 59,978
Capital contributions, net - - 65,966 65,966
Net income - - 6,007 6,007
------ -------- ---------- --------
Partners' Capital, December 31, 1996 - - 131,951 131,951
Capital contributions, net
(prior to Partnership formation) - - 24,359 24,359
Formation contribution 2,271 166,630 (166,630) 2,271
Merger with Hermitage at
Beechtree,LLC 90 8,890 - 8,980
Capital distributions, net - (104,270) - (104,270)
Net Income 2 176 10,320 10,498
------ -------- ---------- --------
Partners' Capital, December 31, 1997 $2,363 71,426 - 73,789
====== ======== ========== ========
See accompanying notes to financial statements.
MID-AMERICA CAPITAL PARTNERS, L.P.
(a limited partnership)
Statement of Cash Flows of the Partnership and
Combined Statements of Cash Flows of the Predecessor
Years ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
(Predecessor)
-------------
1997 1996 1995
--------- --------- ---------
Cash flows from operating activities:
Net income $ 10,498 6,007 3,724
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 6,541 4,058 2,662
Changes in assets and liabilities:
Restricted cash (654) (29) 21
Due from limited partner (1,264) - -
Other assets (120) (52) 68
Accounts payable (197) 485 (79)
Accrued expenses and other liabilities 1,166 712 14
Due to affiliate 1,596 - -
Security deposits 164 240 22
--------- --------- ---------
Net cash provided by operating activities 17,730 11,421 6,432
--------- --------- ---------
Cash flows from investing activities:
Purchases of real estate assets (33,280) (66,226) (12,006)
Improvements to properties (4,951) (4,819) (155)
Construction of units in progress - - (1,558)
--------- --------- ---------
Net cash used in investing activities (38,231) (71,045) (13,719)
--------- --------- ---------
Cash flows from financing activities:
Principal payments on notes payable (38,573) (6,370) (281)
Proceeds from bridge notes payable 140,000 - -
Deferred financing costs (1,850) - -
Capital contributions, net (Predecessor) 24,359 65,966 7,316
Formation contribution 2,271 - -
Capital distributions, net (104,270) - -
--------- --------- ---------
Net cash provided
by financing activities 21,937 59,596 7,035
--------- --------- ---------
Net increase (decrease) in cash 1,436 (28) (252)
Cash, beginning of period 134 162 414
--------- --------- ---------
Cash, end of period $ 1,570 134 162
========= ========= =========
Supplemental disclosure of
cash flow information -
interest paid $ 947 2,170 2,188
========= ========= =========
Supplemental disclosure of noncash
investing activities -
assumption of debt related to
property acquisitions $ 22,112 - -
========= ========= =========
See accompanying notes to financial statements.
MID-AMERICA CAPITAL PARTNERS, L.P.
(a limited partnership)
Notes to Financial Statements
December 31, 1997, 1996 and 1995
(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.
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. Distributions from
ongoing operations of the Partnership are distributed 100%
to MAALP and charged to its capital account.
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.
Basis of Presentation
---------------------
The accompanying 1997 financial statements include the
accounts of the Partnership from November 24, 1997 (the
Partnership Formation Date) through December 31, 1997 and
the accounts of the Predecessor for the period from January
1, 1997 through the Partnership Formation Date. Financial
statements for 1996 and 1995 included the combined accounts
of the Predecessor. As part of the Partnership formation,
the contribution of all Mortgaged Property interests was
reflected at historical cost in a manner similar to that
used in pooling of interests accounting.
The accompanying combined financial statements of the
Predecessor have been presented on a combined basis because
of their common ownership and because the Mortgaged
Properties were contributed to the Partnership. The
accounts of each of the Mortgaged Properties comprising the
Predecessor are combined in the financial statements. All
significant inter-entity accounts and transactions have been
eliminated in combination. The combined financial
statements include the assets and liabilities, as well as
the operations of the Predecessor, from the date that each
Property was acquired by MAALP or MAAC.
The accompanying combined financial statements include the
revenues and direct operating expenses of the Properties.
Certain general and administrative expenses and other costs
which are incurred by MAALP on behalf of the Predecessor are
not included in the financial statements. Instead, the
accompanying combined Predecessor financial statements
reflect a management fee (calculated as 4% of revenues) to
MAALP for providing these services. In addition, MAALP
incurred debt to fund the acquisition and improvement of
certain of the Properties. The debt and related interest
expenses are not included in the accompanying financial
statements.
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. The escrow deposits are designated for certain
operating expense payments.
Real Estate Assets and Depreciation
-----------------------------------
Real estate assets are carried at the lower of depreciated
cost or net realizable value. Interest, property taxes and
other development costs incurred during construction is
capitalized until completion. 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.
In conjunction with acquisitions of properties, the
Partnership's policy is to provide in its acquisition
budgets adequate funds to complete any deferred maintenance
items to bring the properties to the required standards,
including the cost of replacement appliances, carpet,
interior painting, vinyl flooring and blinds. These costs
are capitalized.
Following a review of its capital expenditure and
depreciation policy, effective January 1, 1996, the
Partnership and Predecessor implemented a new policy of
which the primary changes are as follows:
(a) Increase minimum dollar amounts to capitalize from $500
to $1,000;
(b) For stabilized properties (generally, properties owned
and operated for at least one year), capitalize
replacement purchases for major appliances and carpeting
of an entire apartment unit which was previously expensed; and
(c) Reduce depreciation life for certain assets from 20
years to 10 to 15 years.
The Partnership and Predecessor believe that the newly
adopted accounting policy is preferable because it is
consistent with policies currently being used by the
majority of the largest apartment REITs and provides a
better matching of expenses with the estimated benefit
period. The Predecessor's 1995 financial statements were
not restated for the effect of the change in accounting
policy. The policy has been implemented prospectively
effective January 1, 1996. The effect of the change in
depreciable lives was not material to the combined net
income of the Predecessor.
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. Depreciation
of non-real estate assets was $29,000, $19,000 and $14,000
at December 31, 1997, 1996 and 1995, respectively.
The Partnership periodically evaluates its real estate
assets for impairment based upon undiscounted cash flows and
measures impairment based on fair value. This determination
is dependent primarily on the Partnership's estimates on
occupancy, rent and expense increases, which involves
numerous assumptions and judgments as to future events over
a period of many years. At December 31, 1996 the
Partnership does not hold any assets which meet the
impairment criteria.
The Predecessor adopted FAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," effective January 1, 1996. The new
standard did not have a material impact on the combined
financial statements of the Predecessor.
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.
Capital Contributions, Net
--------------------------
MAALP provided cash management and vendor remittance
services for the Predecessor. Net cash flows resulting from
these services are treated as capital contributions or
distributions. In addition, MAALP provided funding for the
Predecessor's property acquisition and improvement projects
and for debt service related to the notes payable included
in the Predecessor combined financial statements. The
amount of these funded activities are contributed by MAALP
to the Predecessor as capital contributions. Capital
contributions, net for the years ended December 31, 1997,
1996 and 1995, consisted of funds utilized (provided) by
(dollars in thousands):
1997 1996 1995
Acquisitions and improvements
of properties $19,064 71,045 13,719
Principal payments on notes payable 16,461 6,370 281
Intercompany remittances, net (11,166) (11,449) (6,684)
------- ------- -------
$24,359 65,966 7,316
======= ======= =======
Income Taxes
------------
No provision for federal income taxes has been made in the
accompanying combined financial statements. Each partner is
responsible for reporting his share of taxable income or
loss from the real estate investments.
Year 2000
---------
The Partnership is aware of the issues associated with the
programming code in existing computer systems as the
millennium (Year 2000) approaches. The "Year 2000" issue is
pervasive and complex as virtually every computer operation
will be affected in some way by the rollover of the two
digit year value to 00. The issue is whether computer
systems will properly recognize date sensitive information
when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or
cause a system to fail.
The Partnership is utilizing both internal and external
resources to identify, correct or reprogram, and test the
systems for the Year 2000 compliance. During 1997, the
Partnership developed a plan to deal with the Year 2000
issue. Management has conducted a comprehensive review of
the Partnership's computer systems to identify the systems
that could be affected by the Year 2000 issue and has
developed an implementation plan to resolve potential
issues. The Partnership has reviewed our core mainframe
systems and application subsystems and have obtained the
Year 2000 compliant releases and are developing the
installation and testing plan for each of these
applications. The Partnership has corresponded with our
third party service providers and other providers of
software and hardware for certification of their compliance
with Year 2000 issues. It is anticipated that all
reprogramming efforts will be completed by December 31,
1998, allowing adequate time for testing. Management has
assessed the Year 2000 compliance expense and believe that
the related potential effect on the Partnership's business,
financial condition and results of operations should be
immaterial. The Partnership is expensing all costs
associated with the Year 2000 as the costs are incurred.
Use of Estimates
----------------
Management of the Partnership and Predecessor 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 generally accepted accounting
principles. Actual results could differ from those
estimates.
Recent Accounting Pronouncements
--------------------------------
In June 1997, SFAS No. 130, Reporting Comprehensive Income, was
issued effective for years beginning after December 15,1997.
This statement establishes standards for
reporting and display of comprehensive income and its
components in a full set of general purpose financial
statements. Based on current accounting standards, this new
accounting statement is not expected to have a material
impact on the Partnership's financial statements. The
Partnership will adopt this accounting standard in 1998.
Also in June 1997, SFAS No. 131, Disclosure about Segments
if an Enterprise and Related Information, was issued,
effective for years beginning after December 15, 1997. This
statement requires companies to identify segments consistent
with the manner in which management makes decisions about
allocating resources to segments and measuring their
performance. Disclosures for the newly identified segments
are similar to those required under current standards, with
the addition of certain quarterly disclosure requirements.
It also establishes standards for related disclosures about
products and services, geographic areas and major customers.
The Partnership will adopt this accounting standard in 1998.
(2) Bridge Notes Payable
--------------------
On November 24, 1997 the Mortgaged Properties were acquired
by the Partnership and were pledged to secure a $140 million
loan (the MSMC Loan) received from Morgan Stanley Mortgage
Capital Inc. A portion of the proceeds from the MSMC Loan
were utilized in connection with the acquisition of certain
of the Reorganization Properties, the funding of MSMC
deferred financing costs, the establishment of replacement
reserves and the remainder being distributed to MAALP.
The MSMC Loan has a variable interest rate of LIBOR plus
1.00%, which is 6.72% at December 31, 1997. The MSMC Loan
has a maturity date of 90 days from the purchase of the MSMC
Loan, but in no event shall be later than February 16, 1998.
The Partnership shall have a one-time right to extend the
MSMC Loan maturity date for up to an additional 90 days to a
date no later than May 15, 1998. Subsequent to December 31,
1997, the MSMC Loan was repaid. See note 8.
A portion of the MSMC Loan proceeds was used to repay
certain debt attributable to Willow Creek, resulting in an
extraordinary loss of $16,000.
(3) Notes Payable
-------------
Notes payable of the Predecessor were secured by real estate
assets and consisted of the following at December 31, 1996
(dollars in thousands):
Note payable to an insurance company, interest
and principal paid monthly at 8.75%, monthly
interest and principal payments of $26 with
the balance due June 15, 1997, collateralized
by Lakepoint Apartments. $ 2,562
Note payable to an insurance company, interest
and principal paid monthly at 10%, monthly
interest and principal payments of $86 with
the balance due November 1, 1997,
collateralized by Pear Orchard Apartments. 8,643
Note payable to an insurance company, interest
and principal paid monthly at 8.75%, monthly
interest and principal payments of $46 with
the balance due June 15, 1997, collateralized
by The Village Apartments. 5,256
--------
$16,461
========
During the year ended December 31, 1997 all notes payable were repaid.
Certain of the mortgage notes payable required, among other things,
escrow balances for the payments of insurance, taxes, improvements
and repairs.
(4) Fair Value Disclosure of Financial Instruments
----------------------------------------------
Cash, rental receivable, accounts payable and accrued
expenses and other liabilities and security deposits are
carried at amounts which reasonably approximate their fair
value.
The carrying value of the variable rate MSMC Loan at
December 31, 1997 is $140 million and reasonably
approximates its fair value. The fixed rate notes payable
at December 31, 1996 total $16.5 million and has an
estimated fair value of $16.7 million (excluding prepayment
penalties) based upon interest rates available for the
issuance of debt with similar terms and remaining maturities
as of December 31, 1996. These notes were 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, 1997
and 1996. 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.
(5) Commitments and Contingencies
-----------------------------
The Partnership, through its ownership in the Mortgaged
Properties, will be party to various legal actions resulting
from the operation of the Mortgaged Properties. Management
believes that these actions will not have a materially
adverse effect on the Partnership.
(6) Employee Benefit Plans
----------------------
MAALP employees at the Mortgaged Properties participate in
employee benefit plans sponsored by MAAC. Provided below is
a summary of MAAC benefit plans available to the employees.
401(k) Savings Plan
-------------------
The Mid-America Apartment Communities, Inc. 401(k) Savings
Plan is a defined contribution plan that satisfies the
requirements of Section 401(a) and 401(k) of the Code. MAAC
may, but is not obligated to, make a matching contribution
of $.50 for each $1.00 contributed, up to 6% of the
participant's compensation. During 1997 and 1996, MAALP
made contributions to this plan of approximately $22,900 and
$13,000 respectively, on behalf of employees at the
Mortgaged Properties. These contributions are not included
in the accompanying financial statements.
Employee Stock Purchase Plan
----------------------------
The Mid-America Apartment Communities, Inc. Employee Stock
Purchase Plan (the ESPP) provides means for employees at the
Mortgaged Properties to purchase common stock of MAAC. The
Board of Directors of MAAC has authorized the issuance of
150,000 shares for the plan. The ESPP is administered by
the Compensation Committee of the Board of Directors of MAAC
who may annually grant options to employees to purchase
annually up to an aggregate of 15,000 shares of common
stock at a price equal to 85% of the market price of the
common stock. During 1997 and 1996, the ESPP purchased 105
and 138 shares, respectively.
Employee Stock Ownership Plan
-----------------------------
The Mid-America Apartment Communities, Inc. Employee Stock
Ownership Plan (the ESOP) is a non-contributory stock bonus
plan that satisfies the requirements of Section 401(a) of
the Internal Revenue Code. Each employee at the Mortgaged
Properties is eligible to participate in the ESOP after
attaining the age of 21 years and completing one year of
service with MAAC. Participants' ESOP accounts will be 100%
vested after five years of continuous service, with no
vesting prior to that time. During 1997 and 1996, MAAC
contributed approximately $53,000 and $28,000, respectively,
to the ESOP which purchased an additional 1,883 and 1,138
shares, respectively. These contributions are not included
in the accompanying financial statements.
Stock Option Plan
-----------------
MAAC has the 1994 Restricted Stock and Stock Option Plan
(the Plan) which provides incentives to attract and retain
independent directors, executive officers and key employees.
The Compensation Committee of the Board of Directors of MAAC
is responsible for granting Options and shares of Restricted
Stock and for establishing the exercise price of Options and
terms and conditions of Restricted Stock. During 1997 and
1996 options were granted to employees at the Mortgaged
properties to acquire 10,500 and 500 shares of MAAC common
stock at an exercise price of $29.50 and $26.50 per share,
respectively. No options were granted to employees at the
Mortgaged properties during 1995.
(7) Related Party Transactions
--------------------------
The accompanying financial statements include the revenues
and certain direct operating expenses of the Mortgaged
Properties. 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 Properties.
(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 occasionally utilizes derivative
financial instruments as hedges in anticipation of future
debt transactions to manage well-defined interest rate risk.
In anticipation of the March 6, 1998 Bond issuance discussed
in Note 9, "Subsequent Events (Unaudited)", the Partnership
entered into four separate interest rate contracts in 1997
with notional amounts aggregating $140 million. As of
December 31, 1997, the fair value of these interest rate
contracts, based on broker estimates, was an unrealized loss
of approximately $1.1 million ($1.4 million realized loss as
of March 6, 1998). Unrealized changes in the market value
off interest rate contracts are deferred until the hedged
transaction is consummated and realized gains and losses
resulting from changes in the market value of these
contracts are deferred and amortized into interest expense
over the life of the related debt issuance.
(9) Subsequent Events (Unaudited)
-----------------------------
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 Mortgaged Properties. The net proceeds
from the sale of the Bonds were applied to the MSMC Loan,
utilized to fund costs of the offering and the remainder
were distributed to MAALP.
The Partnership has entered into four separate interest rate
contracts the effect of which was to lock the interest rate
on $140 million of the Bonds at an average interest rate of
6.62%.
MID-AMERICA CAPITAL PARTNERS, L.P.
Schedule III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1997
(Dollars in thousands)
TABLE IS FIVE PAGES IN LENGTH.
PAGE 1 OF 5
Initial Cost
----------------
Building
and
Property Name Metropolitan Area Encumbrances Land Fixtures
- ---------------------- -------------------- ------------ ------ --------
Belmere Tampa, FL $ - (2) 851 7,667
Crosswinds Jackson, MS - (2) 1,535 13,826
Fairways at Royal Oaks Cincinnati, OH - (2) 814 7,335
Hermitage at Beechtree Cary, NC - (2) 900 8,099
Hidden Lake II Union City, GA - (2) 621 5,587
High Ridge Athens, GA - (2) 884 7,958
Howell Commons Greenville, SC - (2) 1,304 11,740
Kirby Station Memphis, TN - (2) 1,148 10,337
Lakepointe Lexington, KY - (2) 411 3,699
Lakeside Jacksonville, FL - (2) 1,431 12,883
Marsh Oaks Atlantic Beach, FL - (2) 244 2,829
Napa Valley Little Rock, AR - (2) 960 8,642
Park Haywood Greenville, SC - (2) 325 2,925
Park Place Spartanburg, SC - (2) 723 6,504
Pear Orchard Jackson, MS - (2) 1,352 12,168
Savannah Creek Memphis, TN (4) - (2) 778 7,013
Shenandoah Ridge Augusta, GA - (2) 650 5,850
Somerset Jackson, MS - (2) 477 4,294
Southland Station I Warner Robins, GA - (2) 777 6,992
Steeplechase Chattanooga, TN - (2) 217 1,957
Sutton Place Memphis, TN (4) - (2) 894 8,053
The Village Lexington, KY - (2) 900 8,097
Tiffany Oaks Altamonte Springs,FL - (2) 1,024 9,219
Westside Creek I Little Rock, AR - (2) 616 5,559
Williamsburg Village Jackson, TN - (2) 523 4,711
Willow Creek Columbus, GA - (2) 614 5,523
------- ------ --------
Total $ 0 20,973 189,467
======= ====== ========
PAGE 2 OF 5
Cost Capitalized
Subsequent to
Acquisition
-------------------
Building
and
Property Name Metropolitan Area Land Fixtures
- ---------------------- -------------------- ------ ----------
Belmere Tampa, FL 808
Crosswinds Jackson, MS 830
Fairways at Royal Oaks Cincinnati, OH 617
Hermitage at Beechtree Cary, NC 7
Hidden Lake II Union City, GA 3
High Ridge Athens, GA 2
Howell Commons Greenville, SC 316
Kirby Station Memphis, TN 1,753
Lakepointe Lexington, KY 571
Lakeside Jacksonville, FL 2,034
Marsh Oaks Atlantic Beach, FL 459
Napa Valley Little Rock, AR 448
Park Haywood Greenville, SC 35 2,250
Park Place Spartanburg, SC 2
Pear Orchard Jackson, MS 982
Savannah Creek Memphis, TN (4) 365
Shenandoah Ridge Augusta, GA 1,678
Somerset Jackson, MS 523
Southland Station I Warner Robins, GA 14
Steeplechase Chattanooga, TN 1,087
Sutton Place Memphis, TN (4) 537
The Village Lexington, KY 757
Tiffany Oaks Altamonte Springs,FL 500
Westside Creek I Little Rock, AR 180
Williamsburg Village Jackson, TN 407
Willow Creek Columbus, GA 3
------ ----------
Total 35 17,133
====== ==========
PAGE 3 OF 5
Gross Amount
Carried at
December 31, 1997 (3)
--------------------
Building
and
Property Name Metropolitan Area Land Fixtures Total
- ---------------------- -------------------- -------- -------- --------
Belmere Tampa, FL 851 8,475 9,326
Crosswinds Jackson, MS 1,535 14,656 16,191
Fairways at Royal Oaks Cincinnati, OH 814 7,952 8,766
Hermitage at Beechtree Cary, NC 900 8,106 9,006
Hidden Lake II Union City, GA 621 5,590 6,211
High Ridge Athens, GA 884 7,960 8,844
Howell Commons Greenville, SC 1,304 12,056 13,360
Kirby Station Memphis, TN 1,148 12,090 13,238
Lakepointe Lexington, KY 411 4,270 4,681
Lakeside Jacksonville, FL 1,431 14,917 16,348
Marsh Oaks Atlantic Beach, FL 244 3,288 3,532
Napa Valley Little Rock, AR 960 9,090 10,050
Park Haywood Greenville, SC 360 5,175 5,535
Park Place Spartanburg, SC 723 6,506 7,229
Pear Orchard Jackson, MS 1,352 13,150 14,502
Savannah Creek Memphis, TN (4) 778 7,378 8,156
Shenandoah Ridge Augusta, GA 650 7,528 8,178
Somerset Jackson, MS 477 4,817 5,294
Southland Station I Warner Robins, GA 777 7,006 7,783
Steeplechase Chattanooga, TN 217 3,044 3,261
Sutton Place Memphis, TN (4) 894 8,590 9,484
The Village Lexington, KY 900 8,854 9,754
Tiffany Oaks Altamonte Springs,FL 1,024 9,719 10,743
Westside Creek I Little Rock, AR 616 5,739 6,355
Williamsburg Village Jackson, TN 523 5,118 5,641
Willow Creek Columbus, GA 614 5,526 6,140
------ -------- --------
Total 21,008 206,600 227,608
====== ======== ========
PAGE 4 OF 5
Accumulated
Property Name Metropolitan Area Depreciation Net
- ---------------------- -------------------- ------------ ---------
Belmere Tampa, FL (960) 8,366
Crosswinds Jackson, MS (738) 15,453
Fairways at Royal Oaks Cincinnati, OH (876) 7,890
Hermitage at Beechtree Cary, NC (47) 8,959
Hidden Lake II Union City, GA (21) 6,190
High Ridge Athens, GA (29) 8,815
Howell Commons Greenville, SC (380) 12,980
Kirby Station Memphis, TN (1,367) 11,871
Lakepointe Lexington, KY (501) 4,180
Lakeside Jacksonville, FL (1,026) 15,322
Marsh Oaks Atlantic Beach, FL (315) 3,217
Napa Valley Little Rock, AR (374) 9,676
Park Haywood Greenville, SC (583) 4,952
Park Place Spartanburg, SC (22) 7,207
Pear Orchard Jackson, MS (1,717) 12,785
Savannah Creek Memphis, TN (4) (372) 7,784
Shenandoah Ridge Augusta, GA (930) 7,248
Somerset Jackson, MS (540) 4,754
Southland Station I Warner Robins, GA (22) 7,761
Steeplechase Chattanooga, TN (576) 2,685
Sutton Place Memphis, TN (4) (436) 9,048
The Village Lexington, KY (1,067) 8,687
Tiffany Oaks Altamonte Springs,FL (332) 10,411
Westside Creek I Little Rock, AR (150) 6,205
Williamsburg Village Jackson, TN (578) 5,063
Willow Creek Columbus, GA (26) 6,114
-------- ---------
Total (13,985) 213,623
======== =========
PAGE 5 OF 5
Life Used
To Compute
Deprec. Federal
in Latest Income
Income Tax
Property Name Metropolitan Area Construction Statement Basis(3)
- ---------------------- -------------------- ------------ --------- -------
Belmere Tampa, FL 1984 5 - 40 9,318
Crosswinds Jackson, MS 1988/1990 5 - 40 15,934
Fairways at Royal Oaks Cincinnati, OH 1988 5 - 40 8,773
Hermitage at Beechtree Cary, NC 1988 5 - 40 8,999
Hidden Lake II Union City, GA 1987 5 - 40 6,804
High Ridge Athens, GA 1987 5 - 40 9,201
Howell Commons Greenville, SC 1986/1988 5 - 40 13,075
Kirby Station Memphis, TN 1978 5 - 40 13,211
Lakepointe Lexington, KY 1986 5 - 40 4,541
Lakeside Jacksonville, FL 1985 5 - 40 16,319
Marsh Oaks Atlantic Beach, FL 1986 5 - 40 3,118
Napa Valley Little Rock, AR 1984 5 - 40 10,019
Park Haywood Greenville, SC 1983/1995 5 - 40 5,595
Park Place Spartanburg, SC 1987 5 - 40 7,003
Pear Orchard Jackson, MS 1985 5 - 40 14,554
Savannah Creek Memphis, TN (4) 1989 5 - 40 9,438
Shenandoah Ridge Augusta, GA 1982 5 - 40 8,095
Somerset Jackson, MS 1981 5 - 40 5,277
Southland Station I Warner Robins, GA 1987 5 - 40 6,754
Steeplechase Chattanooga, TN 1986 5 - 40 2,305
Sutton Place Memphis, TN (4) 1991 5 - 40 9,404
The Village Lexington, KY 1989 5 - 40 9,759
Tiffany Oaks Altamonte Springs,FL 1985 5 - 40 9,790
Westside Creek I Little Rock, AR 1984 5 - 40 6,203
Williamsburg Village Jackson, TN 1987 5 - 40 5,642
Willow Creek Columbus, GA 1971/1977 5 - 40 7,904
-------
Total 227,035
=======
[FN]
____________
(1) Depreciation is on a straight line basis over the estimated
useful asset life which ranges from 8 to 40 years for land
improvements and buildings and 5 years for furniture,
fixtures and equipment.
(2) These 26 communities are encumbered by a $140 million MSMC loan
with an average interest rate of 6.62%.
(3) The total gross amount of real estate assets for purposes
of Federal income tax basis exceeds GAAP; principally due
to purchase accounting adjustments recorded under generally
accepted accounting principles.
(4) These properties are located in Desoto County, MS, a suburb
of Memphis, TN. The Company considers the properties
a part of the Memphis, TN market.
Schedule III
- ------------
MID-AMERICA CAPITAL PARTNERS, L.P.
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
Years ended December 31, 1997, 1996 and 1995
A summary of activity for real estate investments and accumulated
depreciation is as follows:
1997 1996 1995
-------- -------- --------
Real estate investments:
Balance at beginning of year $ 158,285 87,240 73,521
Acquisitions 64,372 66,226 12,006
Improvements 4,951 4,819 1,713
-------- -------- --------
Balance at end of year $ 227,608 158,285 87,240
-------- -------- --------
Accumulated depreciation:
Balance at beginning of year $ 7,586 3,587 973
Depreciation 6,399 3,999 2,614
-------- -------- --------
Balance at end of year $ 13,985 7,586 3,587
======== ======== ========
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: May 15, 1998 /s/ Simon R.C. Wadsworth
----------------- ---------------------------------------
Simon R.C. Wadsworth
President and Director
(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: May 15, 1998 /s/ Simon R.C. Wadsworth
---------------- ----------------------------------------
Simon R. C. Wadsworth
President and Director
(Principal Executive Officer)
Date: May 15, 1998 /s/ Mark S. Martini
---------------- ----------------------------------------
Mark S. Martini
Director
(Principal Financial and
Accounting Officer)