UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 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
N/A
(Former name, former address and former fiscal year, if changed
since last report)
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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Number of Shares Outstanding
Class at July 31, 1998
---------------- ----------------------------
none
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets of Mid-America Capital Partners, L.P.
(the "Partnership") as of June 30, 1998 and December 31, 1997
Statement of Operations of the Partnership for the three and
six months ended June 30, 1998 and Combined Statement of
Operations of Capital Properties Group ("Predecessor"
to Mid-America Capital Partners, L.P.) for the three
and six months ended June 30, 1997
Statement of Cash Flows of the Partnership for the six
months ended June 30, 1998 and Combined Statement of
Cash Flows of the Predecessor for the six months ended
June, 30, 1997
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
PART I. Financial Information
ITEM 1.
Mid-America Capital Partners, L.P.
(a limited partnership)
Balance Sheets
June 30, 1998 (Unaudited) and December 31, 1997
(Dollars in thousands)
1998 1997
---- ----
Assets:
Real estate assets:
Land $ 21,016 $ 21,016
Buildings and improvements 203,060 201,499
Furniture, fixtures and equipment 4,342 3,354
Construction in progress 838 1,739
------- -------
229,256 227,608
Less accumulated depreciation (18,099) (13,985)
------- ------
Real estate assets, net 211,157 213,623
Cash 2,197 1,570
Restricted cash 1,146 932
Deferred financing costs, net 4,731 1,743
Due from limited partner 2,804 1,264
Due from affiliate 141 -
Other assets 263 231
------- -------
Total assets $ 222,439 $ 219,363
======= =======
Liabilities and Partner's Capital
Liabilities:
Bonds payable $ 142,000 $ -
Bridge notes payable - 140,000
Accounts payable 481 390
Accrued expenses and other
liabilities 3,158 2,875
Due to affiliate - 1,596
Security deposits 727 713
------- -------
Total liabilities 146,366 145,574
Partner's Capital:
General Partner 2,386 2,363
Limited Partner 73,687 71,426
------- -------
Total partner's capital 76,073 73,789
------- -------
Total liabilities and partner's
capital $ 222,439 $ 219,363
======= =======
[FN]
See accompanying notes to financial statements
Mid-America Capital Partners, L.P.
(a limited partnership)
Statement of Operations of the Partnership and
Combined Statement of Operations of the Predecessor
Three and six months ended June 30, 1998 and 1997
(Dollars in thousands)
(Unaudited)
Three months ended June 30, Six months ended June 30,
-------------------------- ------------------------
Predecessor Predecessor
1998 1997 1998 1997
---- ----------- ---- -----------
Revenues:
Rental $ 9,441 $ 7,490 $ 19,042 $ 14,550
Other 126 60 231 121
----- ----- ------ ------
Total revenues 9,567 7,550 19,273 14,671
----- ----- ------ ------
Expenses:
Personnel 1,089 823 2,138 1,538
Building repairs and
maintenance 509 378 911 646
Real estate taxes and
insurance 918 699 1,867 1,384
Utilities 362 287 752 553
Landscaping 248 230 489 419
Other operating 338 280 736 603
Depreciation and amortization
- real estate assets 2,043 1,557 4,099 3,020
Depreciation and amortization -
- non-real estate assets 7 7 15 13
General and administrative 368 302 738 587
Interest 2,281 353 4,626 724
Amortization of deferred
financing costs 247 12 532 21
----- ----- ------ -----
Total expenses 8,410 4,928 16,903 9,508
----- ----- ------ -----
Income before extraordinary
item 1,157 2,622 2,370 5,163
----- ----- ------ -----
Extraordinary item:
Loss on debt extinguishment - - 86 -
----- ----- ----- -----
Net income $ 1,157 $ 2,622 $ 2,284 $ 5,163
===== ===== ===== =====
[FN]
See accompanying notes to financial statements
Mid-America Capital Partners, L.P.
(a limited partnership)
Statement of Cash Flows of the Partnership and
Combined Statement of Cash Flows of the Predecessor
Six months ended June 30, 1998 and 1997
(Dollars in thousands)
(Unaudited)
Predecessor
1998 1997
---- -----------
Cash flows from operating activities:
- ------------------------------------
Net income 2,284 5,163
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 4,646 3,054
Extraordinary item 86 -
Changes in assets and liabilities:
Restricted cash (214) 200
Due from limited partner (1,540) -
Due to/from affiliate (1,737) -
Other assets (32) 114
Accounts payable 91 (304)
Accrued expenses and other
liabilities 283 122
Security deposits 14 23
------- -------
Net cash provided by operating
activties 3,881 8,372
------- -------
Cash flows from investing activities:
- ------------------------------------
Purchases of real estate assets - (19,064)
Improvements to properties (1,648) (2,657)
------- -------
Net cash used in investing activities (1,648) (21,721)
------- -------
Cash flows from financing activities:
- ------------------------------------
Proceeds from notes payable 142,000 -
Principal payments on bridge
notes payable (140,000) -
Principal payments on
notes payable - (7,883)
Deferred financing costs (3,606) -
Capital contributions, net
(Predecessor) - 21,590
--------- -------
Net cash provided by (used in)
financing (1,606) 13,707
--------- -------
Net increase in cash and cash
equivalents 627 358
Cash and cash equivalents, --------- -------
beginning of period 1,570 134
Cash and cash equivalents, --------- -------
end of period $ 2,197 $ 492
========= =======
Supplemental disclosure of cash flow information:
Interest paid $ 4,710 $ 718
===== ====
[FN]
See accompanying notes to financial statements.
MID-AMERICA CAPITAL PARTNERS, L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited financial statements have been
prepared in accordance with the accounting policies in effect as
of December 31, 1997, as set forth in the annual financial
statements of Mid-America Capital Partners, L.P. (the
"Partnership"), as of such date. In the opinion of management,
all adjustments necessary for a fair presentation of the
financial statements have been included and all such adjustments
were of a normal recurring nature. The results of operations for
the six-month period ended June 30, 1998 are not necessarily
indicative of the results to be expected for the full year.
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.
2. Financing Transactions
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 bridge notes payable and utilized to
fund costs of the offering.
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 Bonds issuance discussed
above, the Partnership entered into four separate interest rate
contracts 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 interest rate of 6.62%. On March 6,
1998 the Partnership realized a $1.4 million realized loss on the
interest rate contracts. The realized loss resulting from the
change in the market value of these contracts are amortized into
interest expense over the life of the related debt issuance.
3. Recent Accounting Pronouncements
In June 1998, SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activity," was issued effective for years
beginning after June 15, 1999. This new accounting statement is
not expected to have a material impact on the Company's
consolidated financial statements. The Company will adopt this
accounting standard in 2000.
PART I. Financial Information
ITEM 2.
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 for the three and six
months ended June 30, 1998 and the combined financial condition
and results of operations of the Partnership for the three and six
months ended June 30, 1997. This discussion should be read in
conjunction with the financial statements included in this report.
These financial statements include all adjustments, which are, in
the opinion of management, necessary to reflect a fair statement
of the results for the interim periods presented, and all such
adjustments are of a normal recurring nature.
The total number of apartment units owned at June 30, 1998 was
5,947 in 26 apartment communities, compared to 4,804 in 20
communities at June 30, 1997. Average monthly rental per apartment
unit increased to $561 at June 30, 1998 from $536 at June 30,
1997. Overall occupancy was 94.9% at June 30, 1998 and 95.2% at
June 30, 1997.
RESULTS OF OPERATIONS
COMPARISON OF THE PARTNERSHIP'S THREE MONTHS ENDED JUNE 30, 1998
TO THE PREDECESSOR'S THREE MONTHS ENDED JUNE 30, 1997
Total revenues for the three months ended June 30, 1998 increased
by approximately $2,017,000 due primarily to (i) approximately
$1,185,000 from the communities acquired in 1997and (ii)
approximately $832,000 from the communities owned throughout both
periods.
Property operating expenses for the three months ended June 30,
1998 increased by approximately $767,000 due primarily to (i)
approximately $478,000 from the communities acquired in 1997 and
(ii) approximately $289,000 from the communities owned throughout
both periods.
Depreciation and amortization expense increased approximately
$721,000 for the three months ended June 30, 1998 compared to the
same period a year earlier primarily due to depreciation expense
for (i) approximately $260,000 from the communities acquired in
1997 (ii) approximately $226,000 from the communities owned
throughout both periods,mainly as a result of the application
of the purchase method of accounting relating to the FDC
merger, and (iii) approximately $235,000 of
additional amortization expense for the deferred financing costs
incurred on the March 6, 1998 offering of $142,000,000 bonds
payable (the "First Mortgage Bonds").
Interest expense increased approximately $1,928,000 during the
three months ended June, 1998 compared to the same period a year
earlier primarily due to the issuance of the First Mortgage Bonds.
The borrowing cost of the Partnership First Mortgage Bonds was
6.62% at June 30, 1998.
COMPARISON OF THE PARTNERSHIP'S SIX MONTHS ENDED JUNE 30, 1998 TO
THE PREDECESSOR'S SIX MONTHS ENDED JUNE 30, 1997
Total revenues for the six months ended June 30, 1998 increased by
approximately $4,602,000 due primarily to (i) approximately
$3,634,000 from the communities acquired in 1997 and (ii)
approximately $968,000 from the communities owned throughout both
periods.
Property operating expenses for the six months ended June 30, 1998
increased by approximately $1,750,000 due primarily to (i)
approximately $1,321,000 from the communities acquired in and (ii)
approximately $429,000 from the communities owned throughout both
periods.
Depreciation and amortization expense increased approximately
$1,592,000 for the six months ended June 30, 1998 compared to the
same period a year earlier primarily due to depreciation expense
for (i) approximately $742,000 from the communities acquired in
1997, (ii) approximately $339,000 from the communities owned
throughout both periods, mainly as a result of the application
of the purchase method of accounting related to the FDC
merger, and (iii) approximately $511,000 of
additional amortization expense for the deferred financing costs
incurred on the March 6, 1998 offering of $142,000,000 bonds
payable (the "First Mortgage Bonds").
Interest expense increased approximately $3,902,000 during the six
months ended June, 1998 compared to the same period a year earlier
primarily due to the issuance of the First Mortgage Bonds. The
borrowing cost of the Partnership First Mortgage Bonds was 6.62%
at June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow provided by operating activities decreased by
approximately $4,577,00 for the six months ended June 30, 1998.
The decrease in net cash flow was primarily due to a decrease in
net income and increases in balances due from the limited partner
and affiliates, which were partially offset by an increase in
depreciation and amortization.
Net cash flow used in investing activities decreased by
approximately $20,073,000 for the six months ended June 30, 1998
from approximately $21,721,000 for the six months ended June 30,
1997. This decrease is mainly due to the purchase of two
properties by the Predecessor during the first quarter of 1997,
Howell Commons and Westside Creek I, for approximately
$19,064,000. There were no property acquisitions during the six
months ended June 30, 1998.
Net cash flow provided by (used in) financing activities decreased
by approximately $15,227,000 during the six months ended June 30,
1998. The principal uses of cash from financing activities were
approximately $140,000,000 for repayment of the bridge notes
payable and approximately $3,520,000 for additional deferred
financing costs related to the issuance of $142,000,000 Bonds
payable. During the six months ended June 30, 1997 the Predecessor
contributed $21,590,000 to acquire the two properties mentioned
above and paid $7,883,000 to settle the outstanding mortgages
relating to two properties. There were no capital contributions
or property acquisitions during the six months ended June 30,
1998.
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 Communities).
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 Communities 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.
YEAR 2000
The Company has conducted a review of its computer operating
systems and has identified those areas that could be affected by
the "Year 2000" issue and has developed a plan to resolve this
issue. The Company believes that by modifying certain existing
hardware and software and, in other cases, converting to new
application systems, the Year 2000 problem can be resolved without
significant operational difficulties. The Company has initiated
formal communications with all of its significant suppliers to
determine the extent to which the Company's interface systems are
vulnerable to those third parties' failure to remediate their own
Year 2000 issues. Management has assessed the Year 2000
compliance expense and believe that the related potential effect
on the Company's business, financial condition and results of
operations should be immaterial. The Company is expensing all
costs associated with the Year 2000 issue as the costs are
incurred.
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 the plans
and objectives of management for future operations, including
plans and objectives relating to capital expenditures and
rehabilitation costs on the apartment communities. The forward-
looking statements included herein are based on current
expectations that involve numerous risks and uncertainties which
are discussed in "Risk Factors" in this report. 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 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits or Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
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: August 14, 1998 /s/ Simon R.C. Wadsworth
------------------------------------
Simon R.C. Wadsworth
President and Director
(Principal Executive Officer)
Date: August 14, 1998 /s/ Mark S. Martini
-------------------------------------
Mark S. Martini
Director
(Principal Financial and
Accounting Officer)