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 September 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 October 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 September 30, 1998 and December 31,
1997
Statement of Operations of the Partnership for the three and
nine months ended September 30, 1998 and Combined Statement
of Operations of Capital Properties Group ("Predecessor" to
Mid-America Capital Partners, L.P.) for the three and nine
months ended September 30, 1997
Statement of Cash Flows of the Partnership for the nine
months ended September 30, 1998 and Combined Statement of
Cash Flows of the Predecessor for the nine months ended
September, 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
September 30, 1998 (Unaudited) and December 31, 1997
(Dollars in thousands)
1998 1997
Assets:
Real estate assets:
Land $ 21,016 $ 21,016
Buildings and improvements 203,356 201,499
Furniture, fixtures and equipment 4,389 3,354
Construction in progress 1,815 1,739
- --------------------------------------------------------------------
230,576 227,608
Less accumulated depreciation (20,196) (13,985)
- --------------------------------------------------------------------
Real estate assets, net 210,380 213,623
Cash 387 1,570
Restricted cash 402 932
Deferred financing costs, net 4,491 1,743
Due from limited partner 9,251 1,264
Other assets 202 231
- ---------------------------------------------------------------------
Total assets $225,113 $219,363
=====================================================================
Liabilities and Partner's Capital
Liabilities:
Bonds payable $ 142,000 $ 0
Bridge notes payable - 140,000
Accounts payable 340 390
Accrued expenses and other liabilities 3,609 2,875
Due to affiliate 1,278 1,596
Security deposits 713 713
- --------------------------------------------------------------------
Total liabilities 147,940 145,574
Partner's Capital:
General Partner 2,397 2,363
Limited Partner 74,776 71,426
- --------------------------------------------------------------------
Total partner's capital 77,173 73,789
- --------------------------------------------------------------------
Total liabilities and
partner's capital $225,113 $219,363
===================================================================
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 nine months ended September 30, 1998 and 1997
(Dollars in thousands)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
------------------ ------------------
Predecessor Predecessor
1998 1997 1998 1997
-------- ------- -------- --------
Revenues:
Rental $ 9,715 $ 7,683 $ 28,757 $ 22,233
Other 104 66 335 187
- -------------------------------------------------------- --------------------
Total revenues 9,819 7,749 29,092 22,420
- -------------------------------------------------------- --------------------
Expenses:
Personnel 1,106 745 3,244 2,283
Building repairs and
maintenance 610 464 1,521 1,110
Real estate taxes
and insurance 921 741 2,788 2,125
Utilities 425 306 1,177 859
Landscaping 239 198 728 617
Other operating 414 337 1,150 940
Depreciation and amortization
real estate assets 2,080 1,566 6,179 4,586
Depreciation and amortization
non-real estate assets 17 8 32 21
General and administrative 392 310 1,130 897
Interest 2,268 0 6,894 724
Amortization of deferred
financing costs 247 14 779 35
- -------------------------------------------------------- --------------------
Total expenses 8,719 4,689 25,622 14,197
- -------------------------------------------------------- --------------------
Income before extraordinary item 1,100 3,060 3,470 8,223
- -------------------------------------------------------- --------------------
Extraordinary item:
Loss on debt extinguishment - - 86 -
- -------------------------------------------------------- --------------------
Net income $ 1,100 $ 3,060 $ 3,384 $ 8,223
======================================================== ====================
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
Nine months ended September 30, 1998 and 1997
(Dollars in thousands)
(Unaudited)
Predecessor
1998 1997
------ ------
Cash flows from operating activities:
Net income $3,384 $8,223
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,990 4,642
Extraordinary item 86 -
Changes in assets and liabilities:
Restricted cash 530 278
Due to affiliate (318) -
Other assets 29 (8)
Accounts payable (50) (160)
Accrued expenses and other
liabilities 734 516
Security deposits - 8
- -----------------------------------------------------------------------------
Net cash provided by operating activities 11,385 13,499
- -----------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of real estate assets (2,968) (19,211)
Improvements to properties - (3,544)
- -----------------------------------------------------------------------------
Net cash used in investing activities (2,968) (22,755)
- -----------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from notes payable 142,000 -
Principal payments on bridge
notes payable (140,000) -
Principal payments on notes payable - (16,460)
Deferred financing costs (3,613) -
Due from limited partner (7,987) -
Capital contributions, net (Predecessor) - 25,674
- -----------------------------------------------------------------------------
Net cash provided by (used in)
financing activities (9,600) 9,214
- -----------------------------------------------------------------------------
Net increase in cash and cash equivalents (1,183) (42)
- -----------------------------------------------------------------------------
Cash, beginning of period 1,570 134
- -----------------------------------------------------------------------------
Cash, end of period $ 387 $ 92
- -----------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Interest paid $ 6,978 $ 658
- -----------------------------------------------------------------------------
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 nine-month period ended September 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 is being amortized into interest expense over
the life of the related debt issuance.
6. 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 nine months ended September 30,
1998 and the combined financial condition and results of operations of the
Partnership for the three and nine months ended September 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 September 30, 1998 was 5,949 in 26
apartment communities, compared to 4,804 in 20 communities at September 30,
1997. Average monthly rental per apartment unit increased to $569 at September
30, 1998 from $546 at September 30, 1997. Overall occupancy was 94.6% at
September 30, 1998 and 96.4% at September 30, 1997.
RESULTS OF OPERATIONS
COMPARISON OF THE PARTNERSHIP'S THREE MONTHS ENDED SEPTEMBER 30, 1998
TO THE PREDECESSOR'S THREE MONTHS ENDED SEPTEMBER 30, 1997
Total revenues for the three months ended September 30, 1998 increased by
approximately $2,070,000 due primarily to (i) approximately $1,655,000 from the
communities acquired in 1997and (ii) approximately $415,000 from the communities
owned throughout both periods.
Property operating expenses for the three months ended September 30, 1998
increased by approximately $924,000 due primarily to (i) approximately $670,000
from the communities acquired in 1997 and (ii) approximately $254,000 from the
communities owned throughout both periods.
Depreciation and amortization expense increased approximately $756,000 for the
three months ended September 30, 1998 compared to the same period a year earlier
primarily due to (i) depreciation expense of approximately $340,000 from the
communities acquired in 1997, (ii) depreciation expense of approximately
$183,000 from the communities owned throughout both periods, and (iii)
approximately $233,000 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 $2,268,000 during the three months
ended September, 1998 compared to the same period a year earlier primarily due
to the issuance of the First Mortgage Bonds. No debt was carried on the
properties during the quarter ended September 30, 1997. The borrowing cost of
the Partnership First Mortgage Bonds was 6.62% at September 30, 1998.
COMPARISON OF THE PARTNERSHIP'S NINE MONTHS ENDED SEPTEMBER 30, 1998
TO THE PREDECESSOR'S NINE MONTHS ENDED SEPTEMBER 30, 1997
Total revenues for the nine months ended September 30, 1998 increased by
approximately $6,672,000 due primarily to (i) approximately $5,289,000 from the
communities acquired in 1997 and (ii) approximately $1,383,000 from the
communities owned throughout both periods.
Property operating expenses for the nine months ended September 30, 1998
increased by approximately $2,674,000 due primarily to (i) approximately
$1,991,000 from the communities acquired in 1997 and (ii) approximately $683,000
from the communities owned throughout both periods.
Depreciation and amortization expense increased approximately $2,348,000 for the
nine months ended September 30, 1998 compared to the same period a year earlier
primarily due to (i) depreciation expense of approximately $979,000 from the
communities acquired in 1997, (ii) approximately $625,000 from the communities
owned throughout both periods, and (iii) approximately $744,000 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 $6,170,000 during the nine months ended
September, 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 September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow provided by operating activities decreased by approximately
$2,114,000 for the nine months ended September 30, 1998. The decrease in net
cash flow was primarily due to a decrease in net income, mainly related to the
additional interest costs of the First Mortgage Bonds, which was partially
offset by an increase in depreciation and amortization.
Net cash flow used in investing activities decreased by approximately
$19,787,000 for the nine months ended September 30, 1998 from approximately
$22,755,000 for the nine months ended September 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 nine months ended
September 30, 1998.
Net cash flow used in financing activities increased by approximately
$18,814,000 during the nine months ended September 30, 1998. The principal uses
of cash from financing activities were approximately $140,000,000 for repayment
of the bridge notes payable, approximately $7,987,000 in advances to the limited
partner, and approximately $3,613,000 for additional deferred financing costs
related to the issuance of $142,000,000 Bonds payable. During the nine months
ended September 30, 1997 the Predecessor received capital contributions totaling
$25,674,000 used primarily to acquire the properties mentioned above and to
settle the outstanding mortgages relating to the two properties. There were no
capital contributions or property acquisitions during the nine months ended
September 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 and Reports on Form 8-K
(a) The following exhibit is filed as part of this form:
(27) Financial Data Schedule
(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.
/s/Simon R.C. Wadsworth
Date: November 14, 1998 ---------------------------------
Simon R.C. Wadsworth
President and Director
(Principal Executive Officer)
/s/Mark S. Martini
Date: November 14, 1998 ---------------------------------
Mark S. Martini
Director
(Principal Financial and
Accounting Officer)