UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 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: 0-17619
American Tax Credit Properties L.P.
(Exact name of Registrant as specified in its charter)
Delaware 13-3458875
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Richman Tax Credit Properties L.P.
599 West Putnam Avenue, 3rd Floor
Greenwich, Connecticut 06830
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 869-0900
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 filing requirements
for the past 90 days.
Yes X No ___.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<S> <C>
Table of Contents Page
Balance Sheets as of September 29, 1998 (Unaudited) and March 30, 1998 (Unaudited)...........................3
Statements of Operations for the three and six month periods ended September 29, 1998 (Unaudited)
and September 29, 1997 (Unaudited)......................................................................4
Statements of Cash Flows for the six months ended September 29, 1998 (Unaudited)
and September 29, 1997 (Unaudited)......................................................................5
Notes to Financial Statements as of September 29, 1998 (Unaudited)...........................................7
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
BALANCE SHEETS
(UNAUDITED)
September 29, March 30,
Notes 1998 1998
----- ------------------- ------------
ASSETS
Cash and cash equivalents $ 79,169 $ 388,431
Investments in bonds available-for-sale 3 3,015,765 2,678,595
Investment in local partnerships 3,4 5,267,730 5,891,075
Interest receivable 58,549 53,744
------------- ------------
$ 8,421,213 $ 9,011,845
============= ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 49,680 $ 55,400
Payable to general partner 131,595 43,861
------------- ------------
181,275 99,261
------------- ------------
Commitments and contingencies 3,4
Partners' equity (deficit)
General partner (286,485) (278,907)
Limited partners (41,286 units of limited partnership interest
outstanding) 8,207,796 8,958,053
Accumulated other comprehensive income, net 2,3 318,627 233,438
------------- ------------
8,239,938 8,912,584
------------- ------------
$ 8,421,213 $ 9,011,845
============= ============
</TABLE>
See Notes to Financial Statements.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Six Months Three Months Six Months Ended
Ended September Ended September Ended September September
29, 29, 29, 29,
Notes 1998 1998 1997 1997
----- -----------------------------------------------------------------------
REVENUE
Interest $ 56,594 $ 110,888 $ 60,361 $ 123,066
Other income from local partnerships 3,750 6,225 5,000 7,500
------------ ------------- ---------- ------------
TOTAL REVENUE 60,344 117,113 65,361 130,566
------------ ------------- ---------- ------------
EXPENSES
Administration fees 45,931 91,862 45,931 91,862
Management fee 43,867 87,734 43,867 87,734
Professional fees 36,075 55,702 11,960 33,561
Printing, postage and other 3,475 16,305 3,747 12,917
------------ ------------- ---------- ------------
TOTAL EXPENSES 129,348 251,603 105,505 226,074
------------ ------------- ---------- ------------
Loss from operations (69,004) (134,490) (40,144) (95,508)
Equity in loss of investment in local
partnerships 4 (278,234) (623,345) (251,151) (590,079)
------------ ------------- ---------- ------------
NET LOSS (347,238) (757,835) (291,295) (685,587)
Other comprehensive income 2,3 90,234 85,189 44,254 90,692
------------ ------------- ---------- ------------
COMPREHENSIVE LOSS $ (257,004) $ (672,646) $ (247,041) $ (594,895)
============ ============= ========== ============
NET LOSS ATTRIBUTABLE TO
General partner $ (3,472) $ (7,578) $ (2,913) $ (6,856)
Limited partners (343,766) (750,257) (288,382) (678,731)
------------ ------------- ---------- ------------
$ (347,238) $ (757,835) $ (291,295) $ (685,587)
============ ============= ========== ============
NET LOSS per unit of limited partnership
interest (41,286 units of limited
partnership interest) $ (8.33) $ (18.17) $ (6.99) $ (16.44)
============ ============= ========== ============
</TABLE>
See Notes to Financial Statements.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 29, 1998 AND 1997
(UNAUDITED)
<TABLE>
<S> <C> <C>
1998 1997
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 114,916 $ 133,412
Cash paid for
administration fees (76,380) (76,380)
professional fees (76,902) (72,276)
printing, postage and other expenses (16,307) (21,110)
------------- ------------
Net cash used in operating activities (54,673) (36,354)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash distributions and other income from local partnerships 6,225 16,250
Investments in bonds (includes accrued interest of $386 and $1,301) (260,814) (257,217)
Maturity/redemption and sale of bonds 178,432
------------- ------------
Net cash used in investing activities (254,589) (62,535)
------------ ------------
Net decrease in cash and cash equivalents (309,262) (98,889)
Cash and cash equivalents at beginning of period 388,431 284,108
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 79,169 $ 185,219
============ ===========
SIGNIFICANT NON-CASH INVESTING ACTIVITIES
Unrealized gain on investments in bonds available-for-sale, net $ 85,189 $ 90,692
============ ============
See reconciliation of net loss to net cash used in operating activities on page 6.
</TABLE>
See Notes to Financial Statements.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
STATEMENTS OF CASH FLOWS - (Continued)
SIX MONTHS ENDED SEPTEMBER 29, 1998 AND 1997
(UNAUDITED)
<TABLE>
<S> <C> <C>
1998 1997
------------- ------------
RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES
Net loss $ (757,835) $ (685,587)
Adjustments to reconcile net loss to net cash used in operating activities
Equity in loss of investment in local partnerships 623,345 590,079
Distributions from local partnerships classified as other income (6,225) (7,500)
Amortization of net premium on investments in bonds 16,609 14,288
Accretion of zero coupon bonds (8,162) (7,666)
Decrease (increase) in interest receivable (4,419) 3,724
Decrease in accounts payable and accrued expenses (5,720) (31,426)
Increase in payable to general partner 87,734 87,734
------------- ------------
NET CASH USED IN OPERATING ACTIVITIES $ (54,673) $ (36,354)
============ ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 29, 1998
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information. They do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. The results of operations are impacted significantly by the
combined results of operations of the Local Partnerships, which are
provided by the Local Partnerships on an unaudited basis during interim
periods. Accordingly, the accompanying financial statements are dependent
on such unaudited information. In the opinion of the General Partner, the
financial statements include all adjustments necessary to present fairly
the financial position as of September 29, 1998 and the results of
operations and cash flows for the interim periods presented. All
adjustments are of a normal recurring nature. The results of operations for
the three and six month periods ended September 29, 1998 are not
necessarily indicative of the results that may be expected for the entire
year.
Certain reclassifications of amounts have been made to conform to the
current period presentation.
2. Comprehensive Income
On March 31, 1998, the Partnership adopted Statement of Financial
Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income." As
a result, the statements of operations include an amount for other
comprehensive income as well as comprehensive loss. Other comprehensive
income (loss) consists of revenues, expenses, gains and losses that have
affected partners' equity (deficit) but which are excluded from net loss.
Other comprehensive income in the accompanying statements of operations for
the three and six month periods ended September 29, 1998 resulted from a
net unrealized gain on investments in bonds available-for-sale of $90,234
and $85,189, respectively. Accumulated other comprehensive income in the
accompanying balance sheet as of September 29, 1998 reflects the net
unrealized gain on investments in bonds available-for-sale of $318,627. The
balance sheet as of March 30, 1998 and the statements of operations for the
three and six month periods ended September 29, 1997 include certain
reclassifications to reflect the adoption of SFAS No. 130.
3. Investments in Bonds Available-For-Sale
As of September 29, 1998, certain information concerning investments in
bonds available-for-sale is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Gross Gross
Amortized unrealized unrealized Estimated
Description and maturity cost gains losses fair value
Corporate debt securities
Within one year $ 44,133 $ 206 $ (247) $ 44,092
After one year through five years 399,127 16,327 -- 415,454
After five years through ten years 655,560 57,616 -- 713,176
After ten years 101,267 -- (42) 101,225
---------- ----------- -------------- -------------
1,200,087 74,149 (289) 1,273,947
---------- ----------- --------------- ------------
U.S. Treasury debt securities
Within one year 258,714 1,657 -- 260,371
After one year through five years 660,322 128,509 -- 788,831
After five years through ten years 356,182 95,440 -- 451,622
---------- ----------- -------------- -------------
1,275,218 225,606 -- 1,500,824
---------- ----------- -------------- -------------
U.S. government and agency securities
After five years through ten years 221,833 19,161 -- 240,994
---------- ----------- -------------- -------------
$ 2,697,138 $ 318,916 $ (289) $ 3,015,765
=========== ========== =============== ============
</TABLE>
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 29, 1998
(UNAUDITED)
3. Investments in Bonds Available-For-Sale (continued)
The Partnership has provided collateral for a standby letter of credit in
the amount of $242,529 issued in connection with Cobbet Hill Associates
Limited Partnership (the "Cobbet Local Partnership"). Pursuant to the terms
of the financing documents, the lender has required security for future
operating deficits, if any, of the Cobbet Local Partnership. The letter of
credit is secured by the Partnership's investment in a U.S. Treasury bond
in the amount of $257,000. As of November 1, 1998, no amounts have been
drawn under the terms of the letter of credit.
4. Investment in Local Partnerships
The Partnership originally acquired limited partnership interests in Local
Partnerships representing capital contributions in the aggregate amount of
$34,510,290. As of June 30, 1998, the Local Partnerships' combined
unaudited balance sheet, which includes the unaudited balance sheet of Erie
Associates Limited Partnership (see discussion herein Note 4), have
outstanding mortgage loans payable totaling approximately $74,356,000 and
accrued interest payable on such loans totaling approximately $3,279,000,
which are secured by security interests and liens common to mortgage loans
on the Local Partnerships' real property and other assets.
For the six months ended September 29, 1998, the investment in Local
Partnerships activity consists of the following:
<TABLE>
<S> <C> <C>
Investment in Local Partnerships as of March 30, 1998 $ 5,891,075
Equity in loss of investment in Local Partnerships (623,345)*
Cash distributions received from Local Partnerships (6,225)
Cash distributions classified as other income 6,225
------------
Investment in Local Partnerships as of September 29, 1998 $ 5,267,730
============
</TABLE>
* Equity in loss of investment in Local Partnerships is limited to the
Partnership's investment balance in each Local Partnership; any excess is
applied to other partners' capital in any such Local Partnership. The
amount of such excess losses applied to other partners' capital was
$963,821 for the six months ended June 30, 1998 as reflected in the
combined statement of operations of the Local Partnerships reflected
herein Note 4.
The combined unaudited balance sheets of the Local Partnerships as of June
30, 1998 and December 31, 1997 and the combined unaudited statements of
operations of the Local Partnerships for the three and six month periods
ended June 30, 1998 and 1997 are reflected on pages 9 and 10, respectively.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 29, 1998
(UNAUDITED)
4. Investment in Local Partnerships (continued)
The combined balance sheets of the Local Partnerships as of June 30, 1998
and December 31, 1997 are as follows:
<TABLE>
<S> <C> <C>
June 30, December 31,
1998 1997
------------- ------------
ASSETS
Cash and cash equivalents $ 925,482 $ 1,219,986
Rents receivable 168,844 243,316
Escrow deposits and reserves 3,001,396 3,044,733
Land 3,884,905 4,075,735
Buildings and improvements (net of accumulated depreciation of
$35,745,507 and $34,628,370) 70,848,949 74,439,165
Intangible assets (net of accumulated amortization of $554,090 and
$640,058) 1,794,568 1,827,938
Other 706,722 803,251
------------- ------------
$ 81,330,866 $ 85,654,124
============= ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 1,108,811 $ 1,065,374
Due to related parties 4,956,970 5,376,344
Mortgage loans 74,356,463 77,119,187
Notes payable 994,200 1,000,841
Accrued interest 3,279,014 4,959,061
Other 315,489 353,188
------------- ------------
85,010,947 89,873,995
------------- ------------
Partners' equity (deficit)
American Tax Credit Properties L.P.
Capital contributions, net of distributions 33,933,197 33,941,389
Cumulative loss (28,682,942) (28,059,597)
------------- ------------
5,250,255 5,881,792
------------- ------------
General partners and other limited partners, including ATCP II
Capital contributions, net of distributions 373,842 677,937
Cumulative loss (9,304,178) (10,779,600)
------------- ------------
(8,930,336) (10,101,663)
------------- ------------
(3,680,081) (4,219,871)
------------- ------------
$ 81,330,866 $ 85,654,124
============== ============
</TABLE>
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 29, 1998
(UNAUDITED)
4. Investment in Local Partnerships (continued)
The combined statements of operations of the Local Partnerships for the
three and six month periods ended June 30, 1998 and 1997 are as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1998 1998 1997 1997
-------------- ------------ ------------ ------------
REVENUE
Rental $ 3,746,733 $ 7,710,188 $ 3,989,511 $ 8,042,842
Interest and other 33,020 84,869 52,665 105,516
-------------- ------------ ------------ ------------
TOTAL REVENUE 3,779,753 7,795,057 4,042,176 8,148,358
-------------- ------------ ------------ ------------
EXPENSES
Administrative 450,101 1,063,919 544,152 1,147,671
Utilities 302,804 679,305 315,320 749,726
Operating, maintenance and other 747,311 1,470,846 691,706 1,501,849
Taxes and insurance 420,250 914,751 482,850 1,009,510
Financial (including amortization of
$16,686, $33,370, $19,650, and $44,579) 1,597,486 3,314,778 1,736,283 3,676,844
Depreciation 958,031 1,966,907 1,007,905 2,019,501
-------------- ------------ ------------ ------------
TOTAL EXPENSES 4,475,983 9,410,506 4,778,216 10,105,101
-------------- ------------ ------------ ------------
NET LOSS FROM OPERATIONS BEFORE EXTRAORDINARY ITEM (696,230) (1,615,449) (736,040) (1,956,743)
Extraordinary gain on extinguishment of debt 2,467,526 2,467,526
-------------- ------------ ------------ ------------
NET INCOME (LOSS) $ 1,771,296 $ 852,077 $ (736,040) $ (1,956,743)
============= =========== ============ =============
NET INCOME (LOSS) ATTRIBUTABLE TO
American Tax Credit Properties L.P. $ (278,234) $ (623,345) $ (251,151) $ (590,079)
General partners and other limited partners,
including ATCP II, which includes specially
allocated items of net revenue to certain
general partners of $2,163,456 for the three and
six month periods ended June 30, 1998 and
$405,715, $963,821, $488,446 and $1,332,985 of
American Tax Credit Properties L.P. net
loss in excess of investment 2,049,530 1,475,422 (484,889) (1,366,664)
------------- ----------- ----------- -------------
$ 1,771,296 $ 852,077 $ (736,040) $ (1,956,743)
============= =========== =========== ============
</TABLE>
The combined results of operations of the Local Partnerships for the three
and six month periods ended June 30, 1998 are not necessarily indicative of
the results that may be expected for an entire operating period.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 29, 1998
(UNAUDITED)
4. Investment in Local Partnerships (continued)
B & V Phase I, Ltd. (the "B & V Phase I Local Partnership"), owned a
97-unit, Section 8 assisted apartment complex located in Homestead,
Florida. Prior to the Partnership's investment during the year ended March
30, 1995, the B & V Phase I Local Partnership was damaged by Hurricane
Andrew in August 1992. Since May 1, 1996, all 97 of the rental units were
complete and occupied. Pursuant to an agreement with the lender, the B & V
Phase I Local Partnership was to commence paying debt service in January
1995 which was to coincide with the completion of construction. However,
due to construction delays, the B & V Phase I Local Partnership had not
commenced making such payments. The lender declared a default under the
terms of the mortgage and, on December 9, 1996 the lender commenced a
foreclosure action. After pursuing various legal efforts which were
ultimately unsuccessful because alternative sources of financing could not
be secured, the property was transferred to the lender in May 1998. As a
result, the combined balance sheet as of June 30, 1998 and statements of
operations for the periods ended June 30, 1998 of the Local Partnerships
presented herein Note 4 do not include the assets and liabilities and
results of operations of the B &V Phase I Local Partnership with the
exception of an extraordinary gain recognized on the extinguishment of debt
in the amount of $2,467,526 and a loss on disposal of the property in the
amount of $304,070. The Partnership's investment balance in the B & V Phase
I Local Partnership, after cumulative equity losses, became zero during the
year ended March 30, 1996. The aforementioned transfer had no effect on the
financial position, results of operations or cash flows of the Partnership.
Cobbet Hill Associates Limited Partnership (the "Cobbet Local Partnership")
was originally financed with a first mortgage with mandatory monthly
payment terms with the Massachusetts Housing Finance Agency ("MHFA") and a
second mortgage with MHFA under the State Housing Assistance for Rental
Production Program (the "SHARP Operating Loan") whereby proceeds would be
advanced monthly as an operating subsidy (the "Operating Subsidy
Payments"). The terms of the SHARP Operating Loan called for declining
Operating Subsidy Payments over its term (not more than 15 years). However,
due to the economic condition of the Northeast region in the early 1990's,
MHFA instituted an operating deficit loan (the "ODL") program which
supplemented the scheduled reduction in the Operating Subsidy Payments.
Effective October 1, 1997, MHFA announced its intention to eliminate the
ODL program, such that the Cobbet Local Partnership no longer receives the
ODL, without which the Cobbet Local Partnership is unable to make the full
mandatory debt service payments on its first mortgage. MHFA has notified
the Cobbet Local Partnership and, to the Local General Partners' knowledge,
other ODL recipients as well, that MHFA considers the mortgages to be in
default. The Local General Partners have agreed to a plan, with
modifications proposed by MHFA, to recapitalize the Cobbet Local
Partnership from capital to be received from the admission of a new limited
partner. As of the date of this report, MHFA has not executed the plan. If
the plan were to be implemented, such new limited partner would receive a
substantial portion of the annual allocation of the Cobbet Local
Partnership's tax losses commencing January 1, 1999, plus cash flows and
residuals, if any. The Partnership and the Local General Partners would
retain a sufficient interest in the Cobbet Local Partnership to avoid
recapture of Low-income Tax Credits. There can be no assurance the plan
will be implemented, and if not, MHFA would be expected to retain its
rights under the loan documents. The Partnership's investment balance in
the Cobbet Local Partnership, after cumulative equity losses, became zero
during the year ended March 30, 1994.
Erie Associates Limited Partnership (the "Erie Local Partnership"), which
is in the tenth year of the Low-income Tax Credit period, is subject to an
amended and restated note (the "Amended Note") dated December 1, 1994
(which matured on December 1, 1997) and is entitled to a project-based
rental subsidy under Chapter 707 of the Acts of 1966 of the Commonwealth of
Massachusetts, which contract is subject to a year to year renewal. The
original financing called for mandatory debt service of $7,647 per month,
while the Amended Note required monthly mandatory debt service of $5,883.
The Local General Partners had reported that the Erie Local Partnership was
several months in arrears under the terms of the Amended Note, that a
default was declared by the lender and that discussions were being held
with the lender. While negotiations were ongoing, the lender conducted a
foreclosure sale of the property in April 1998. The Partnership has been
advised by its counsel that the foreclosure sale can be "unwound" for tax
purposes (thereby avoiding any recapture of Low-income Tax Credit benefits)
if, prior to December 31, 1998, the Erie Local Partnership repurchases the
property and the Partnership (or a third party) purchases and reinstates
the Amended Note. The Partnership has offered to purchase the Amended Note
(provided that the property is reconveyed to the Erie Local Partnership in
1998), but to date, the lender has not agreed. The Partnership's investment
in the Erie Local Partnership, after cumulative equity losses, became zero
during the year ended March 30, 1998.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 29, 1998
(UNAUDITED)
5. Additional Information
Additional information, including the audited March 30, 1998 Financial
Statements and the Organization, Purpose and Summary of Significant
Accounting Policies, is included in the Partnership's Annual Report on Form
10-K for the fiscal year ended March 30, 1998 on file with the Securities
and Exchange Commission.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Material Changes in Financial Condition
As of September 29, 1998, American Tax Credit Properties L.P. (the "Registrant")
has not experienced a significant change in financial condition as compared to
March 30, 1998. Principal changes in assets are comprised of periodic
transactions and adjustments and anticipated equity in loss from operations of
the local partnerships (the "Local Partnerships") which own low-income
multifamily residential complexes (the "Properties") which qualify for the
low-income tax credit in accordance with Section 42 of the Internal Revenue Code
(the "Low-income Tax Credit"). During the six months ended September 29, 1998,
Registrant received cash from interest revenue and distributions from Local
Partnerships and utilized cash for operating expenses and investing in bonds.
Cash and cash equivalents and investments in bonds available-for-sale increased,
in the aggregate, by approximately $28,000 during the six months ended September
29, 1998 (which included a net unrealized gain on investments in bonds of
approximately $85,000, amortization of net premium on investments in bonds of
approximately $17,000 and accretion of zero coupon bonds of approximately
$8,000). Notwithstanding circumstances that may arise in connection with the
Properties, Registrant does not expect to realize significant gains or losses on
its investments in bonds, if any. During the six months ended September 29,
1998, the investment in Local Partnerships decreased as a result of Registrant's
equity in the Local Partnerships' net loss for the six months ended June 30,
1998 of $623,345. Payable to general partner in the accompanying balance sheet
as of September 29, 1998 represents accrued management fees.
Results of Operations
Registrant's operating results are dependent upon the operating results of the
Local Partnerships and are significantly impacted by the Local Partnerships'
policies. In addition, the operating results herein are not necessarily the same
for tax reporting. Registrant accounts for its investment in Local Partnerships
in accordance with the equity method of accounting. Accordingly, the investment
is carried at cost and is adjusted for Registrant's share of each Local
Partnership's results of operations and by cash distributions received. Equity
in loss of each investment in Local Partnership allocated to Registrant is
recognized to the extent of Registrant's investment balance in each Local
Partnership. Equity in loss in excess of Registrant's investment balance in a
Local Partnership is allocated to other partners' capital in any such Local
Partnership. As a result, the reported equity in loss of investment in Local
Partnerships is expected to decrease as Registrant's investment balances in the
respective Local Partnerships become zero. The combined statements of operations
of the Local Partnerships reflected in Note 4 to Registrant's financial
statements include the operating results of all Local Partnerships, irrespective
of Registrant's investment balances.
Cumulative losses and cash distributions in excess of investment in Local
Partnerships may result from a variety of circumstances, including a Local
Partnership's accounting policies, subsidy structure, debt structure and
operating deficits, among other things. Accordingly, cumulative losses and cash
distributions in excess of the investment are not necessarily indicative of
adverse operating results of a Local Partnership. See discussion below under
Local Partnership Matters regarding certain Local Partnerships currently
operating below economic break even levels.
Registrant's operations for the three months ended September 29, 1998 and 1997
resulted in net losses of $347,238 and $291,295, respectively. The increase in
net loss is primarily attributable to an increase in equity in loss of
investment in Local Partnerships of approximately $27,000, which is primarily
the result of an increase in the net operating losses of those Local
Partnerships in which Registrant continues to have an investment balance and an
increase in professional fees of approximately $24,000 in connection with the
Local Partnership matters. Other comprehensive income for the three months ended
September 29, 1998 and 1997 resulted from a net unrealized gain on investments
in bonds available-for-sale of $90,234 and $44,254, respectively.
The Local Partnerships' net loss from operations before extraordinary item of
approximately $696,000 for the three months ended June 30, 1998 was attributable
to rental and other revenue of approximately $3,780,000, exceeded by operating
and interest expenses (including interest on non-mandatory debt) of
approximately $3,501,000 and approximately $975,000 of depreciation and
amortization expenses. The Local Partnerships' net loss of approximately
$736,000 for the three months ended June 30, 1997 was attributable to rental and
other revenue of approximately $4,042,000 exceeded by operating and interest
expenses (including interest on non-mandatory debt) of approximately $3,750,000
and approximately $1,028,000 of depreciation and amortization expenses. The
results of operations of the Local Partnerships for the three months ended June
30, 1998 are not necessarily indicative of the results that may be expected in
future periods.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Registrant's operations for the six months ended September 29, 1998 and 1997
resulted in net losses of $757,835 and $685,587, respectively. The increase in
net loss is primarily attributable to an increase in equity in loss of
investment in Local Partnerships of approximately $33,000, which is primarily
the result of an increase in the net operating losses of those Local
Partnerships in which Registrant continues to have an investment balance and an
increase in professional fees of approximately $22,000 in connection with Local
Partnership matters. Other comprehensive income for the six months ended
September 29, 1998 and 1997 resulted from a net unrealized gain on investments
in bonds available-for-sale of $85,189 and $90,692, respectively.
The Local Partnerships' net loss from operations before extraordinary item of
approximately $1,615,000 for the six months ended June 30, 1998 was attributable
to rental and other revenue of approximately $7,795,000, exceeded by operating
and interest expenses (including interest on non-mandatory debt) of
approximately $7,410,000 and approximately $2,000,000 of depreciation and
amortization expenses. The Local Partnerships' net loss of approximately
$1,957,000 for the six months ended June 30, 1997 was attributable to rental and
other revenue of approximately $8,148,000, exceeded by operating and interest
expenses (including interest on non-mandatory debt) of approximately $8,041,000
and approximately $2,064,000 of depreciation and amortization expenses. The
results of operations of the Local Partnerships for the six months ended June
30, 1998 are not necessarily indicative of the results that may be expected in
future periods.
Local Partnership Matters
The Properties are principally comprised of subsidized and leveraged low-income
multifamily residential complexes located throughout the United States and
Puerto Rico. The rents of the Properties, many of which receive rental subsidy
payments pursuant to subsidy agreements ("HAP Contracts") are subject to
specific laws, regulations and agreements with federal and state agencies. Four
Local Partnerships' HAP Contracts are scheduled to expire in 1999 after being
extended during 1998 for one year. In addition, the Local Partnerships have
various financing structures which include (i) required debt service payments
("Mandatory Debt Service") and (ii) debt service payments which are payable only
from available cash flow subject to the terms and conditions of the notes, which
may be subject to specific laws, regulations and agreements with appropriate
federal and state of the Local Partnership agencies ("Non-Mandatory Debt Service
or Interest"). During the six months ended June 30, 1998, revenue from
operations of the Local Partnerships, Local General Partner advances and
reserves of the Local Partnerships have generally been sufficient to cover the
operating expenses and Mandatory Debt Service. Most of the Local Partnerships
are effectively operating at or near break even levels, although certain Local
Partnerships' operating information reflects operating deficits that do not
represent cash deficits due to their mortgage and financing structure and the
required deferral of property management fees. However, as discussed below,
certain Local Partnerships' operating information indicates below break even
operations after taking into account their mortgage and financing structure and
any required deferral of property management fees.
In connection with certain repairs required by the lender (the Massachusetts
Housing Finance Agency) ("MHFA") of Cobbet Hill Associates Limited Partnership
(the "Cobbet Local Partnership"), MHFA drew on a then existing letter of credit
in the amount of $242,529 which had been established for the purpose of covering
future operating deficits, if any. In June 1997, Registrant provided funds to
establish collateral to secure a replacement letter of credit. Although the
repairs have been completed and the Cobbet Local Partnership has notified MHFA
of such completion, the Cobbet Local Partnership has not received the
anticipated notice from MHFA that the default has been cured. The Cobbet Local
Partnership was originally financed with a first mortgage with mandatory monthly
payment terms with MHFA and a second mortgage with MHFA under the State Housing
Assistance for Rental Production Program (the "SHARP Operating Loan") whereby
proceeds would be advanced monthly as an operating subsidy (the "Operating
Subsidy Payments"). The terms of the SHARP Operating Loan called for declining
Operating Subsidy Payments over its term (not more than 15 years). However, due
to the economic condition of the Northeast region in the early 1990's, MHFA
instituted an operating deficit loan (the "ODL") program which supplemented the
scheduled reduction in the Operating Subsidy Payments. Effective October 1,
1997, MHFA announced its intention to eliminate the ODL program, such that the
Cobbet Local Partnership no longer receives the ODL, without which the Cobbet
Local Partnership is unable to make the full Mandatory Debt Service payments on
its first mortgage. MHFA has notified the Cobbet Local Partnership and, to the
Local General Partners' knowledge, other ODL recipients as well, that MHFA
considers the mortgages to be in default. The Local General Partners have agreed
to a plan, with modifications proposed by MHFA, to recapitalize the Cobbet Local
Partnership from capital to be received from the admission of a new limited
partner.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
As of the date of this report, MHFA has not executed the plan. If the plan were
to be implemented, such new limited partner would receive a substantial portion
of the annual allocation of the Cobbet Local Partnership's tax losses commencing
January 1, 1999, plus cash flows and residuals, if any. Registrant and the Local
General Partners would retain a sufficient interest in the Cobbet Local
Partnership to avoid recapture of Low-income Tax Credits. There can be no
assurance the plan will be implemented, and if not, MHFA would be expected to
retain its rights under the loan documents. The future financial viability of
the Cobbet Local Partnership is highly uncertain. The Low-income Tax Credits for
1998 are expected to be approximately $12 per Unit. The Property's historic tax
credit was earned in 1988 and all of the Low-income Tax Credits have been
allocated since 1989 and are scheduled to expire in 1999. Registrant's
investment balance in the Cobbet Local Partnership, after cumulative equity
losses, became zero during the year ended March 30, 1994.
Erie Associates Limited Partnership (the "Erie Local Partnership"), which is in
the tenth year of the Low-income Tax Credit period, is subject to an amended and
restated note (the "Amended Note") dated December 1, 1994 (which matured on
December 1, 1997) and is entitled to a project-based rental subsidy under
Chapter 707 of the Acts of 1966 of the Commonwealth of Massachusetts, which
contract is subject to a year to year renewal. The original financing called for
Mandatory Debt Service of $7,647 per month, while the Amended Note required
monthly Mandatory Debt Service of $5,883. The Local General Partners had
reported that the Erie Local Partnership was several months in arrears under the
terms of the Amended Note, that a default was declared by the lender and that
discussions were being held with the lender. While negotiations were ongoing,
the lender conducted a foreclosure sale of the property in April 1998.
Registrant has been advised by its counsel that the foreclosure sale can be
"unwound" for tax purposes (thereby avoiding any recapture of Low-income Tax
Credit benefits) if, prior to December 31, 1998, the Erie Local Partnership
repurchases the property and Registrant (or a third party) purchases and
reinstates the Amended Note. Registrant has offered to purchase the Amended Note
(provided that the property is reconveyed to the Erie Local Partnership in
1998), but to date, the lender has not agreed. In the event Registrant is
unsuccessful in its attempt to purchase the Amended Note and the property is not
reconveyed to the Erie Local Partnership, Registrant estimates a recapture of
Low-income Tax Credits taken through December 1997, including interest, of
approximately $20 per Unit for Unit holders of record as of April 1998 and it
would lose the ability to utilize remaining Low-income Tax Credits of
approximately $4 per Unit for 1998. Registrant's investment balance in the Erie
Local Partnership, after cumulative equity losses, became zero during the year
ended March 30, 1998.
Although 4611 South Drexel Limited Partnership (the "South Drexel Local
Partnership") reported above break even operations during the year ended
December 31, 1997, the South Drexel Local Partnership was declared in default of
its first mortgage during December 1997 for failure to make required payments
during the four months then ended. As a result, Registrant removed the original
Local General Partner and the affiliated property management agent under the
terms of the partnership agreement, and made a payment to the lender during
January 1998. Although the original Local General Partner was disputing the
removal, resulting in Registrant's commencement of legal action, the original
Local General Partner has since resigned thus ending the dispute. The new
management agent reports that the first mortgage is current as of the date of
this report.
B & V Phase I, Ltd. (the "B & V Phase I Local Partnership"), owned a 97-unit,
Section 8 assisted apartment complex located in Homestead, Florida. Prior to
Registrant's investment during the year ended March 30, 1995, the B & V Phase I
Local Partnership was damaged by Hurricane Andrew in August 1992. Since May 1,
1996, all 97 of the rental units were complete and occupied. Pursuant to an
agreement with the lender, the B & V Phase I Local Partnership was to commence
paying debt service in January 1995 which was to coincide with the completion of
construction. However, due to construction delays, the B & V Phase I Local
Partnership had not commenced making such payments. The lender declared a
default under the terms of the mortgage and, on December 9, 1996 the lender
commenced a foreclosure action. After pursuing various legal efforts which were
ultimately unsuccessful because alternative sources of financing could not be
secured, the property was transferred to the lender in May 1998. Registrant's
investment balance in the B & V Phase I Local Partnership, after cumulative
equity losses, became zero during the year ended March 30, 1995. As a result of
the lender's foreclosure, Registrant estimates a recapture of Low-income Tax
Credits taken through December 1997, including interest, of approximately $3 per
Unit for Unit holders of record as of May 1998 and has lost the ability to
utilize remaining Low-income Tax Credits of approximately $2 per Unit for 1998.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
The terms of the partnership agreement of Hilltop North Associates, L.P. (the
"Hilltop Local Partnership") require the management agent to defer property
management fees in order to avoid a default under the mortgage. The Hilltop
Local Partnership incurred an operating deficit resulting primarily from costs
associated with tenant turnover of approximately $69,000 for the six months
ended June 30, 1998, which included property management fees of approximately
$27,000. Payments on the mortgage and real estate taxes are current. The Local
General Partner has applied for a withdrawal from the replacement reserve
account to cover a significant portion of these costs. Of Registrant's total
annual Low-income Tax Credits, approximately 5% is allocated from the Hilltop
Local Partnership.
Adoption of Accounting Standard
On March 31, 1998, Registrant adopted Statement of Financial Accounting Standard
("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements. The adoption of SFAS No. 130 has not materially impacted
Registrant's financial position and results of operations.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
4611 South Drexel Limited Partnership was declared in default of its first
mortgage during December 1997 for failure to make required payments during the
four months then ended. As a result, Registrant removed the original Local
General Partner and the affiliated property management agent under the terms of
the partnership agreement and made a payment to the lender during January 1998.
Although the original Local General Partner was disputing the removal, resulting
in Registrant's commencement of legal action, the original Local General Partner
has since resigned thus ending the dispute. The new management agent reports
that the first mortgage is current as of the date of this report.
On March 5, 1990, Stonebridge Associates ("Stonebridge") filed a lawsuit against
Federal Apartments Limited Partnership (the "Federal Local Partnership") for
repayment of an unsecured, non-interest bearing note in the amount of $96,000.
The suit was filed in the First Judicial District Court in Caddo Parish,
Louisiana. The suit alleged that the defendant was required to pay down such
note upon the receipt of the second installment of the capital contribution
obligation from Registrant. Such capital contribution payment was made by
Registrant to the Federal Local Partnership on December 27, 1989. The Federal
Local Partnership contended that Stonebridge is not entitled to such payment.
The Court ruled in favor of the Federal Local Partnership and Stonebridge has
appealed the ruling.
Registrant is not aware of any other material legal proceedings.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None; see Items 1 and 5 regarding mortgage defaults of certain Local
Partnerships.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
As discussed in Part I, Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations, the local general
partners of Erie Associates Limited Partnership (the "Erie Local
Partnership") had reported that the Erie Local Partnership had not made
all required payments under the terms of its amended and restated
mortgage, that a default had been declared by the lender and that in
April 1998, the lender conducted a foreclosure sale of the property.
Registrant has offered to purchase the amended and restated note
(provided that the property is reconveyed to the Erie Local Partnership
in 1998), but to date the lender has not agreed.
As discussed in Part I, Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations, the local general
partners of Cobbet Hill Associates Limited Partnership is unable to
make the full mandatory debt service payments on its first mortgage as
a result of the lender's elimination of its operating deficit loan
program.
Item 6. Exhibits and Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
AMERICAN TAX CREDIT PROPERTIES L.P.
(a Delaware limited partnership)
By: Richman Tax Credit Properties L.P.,
General Partner
by: Richman Tax Credit Properties Inc.,
general partner
Dated: November 13, 1998 /s/ Richard Paul Richman
-------------------------
Richard Paul Richman
President, Chief Executive Officer and
Director of the general partner of the
General Partner
Dated: November 13, 1998 /s/ Neal Ludeke
----------------
Neal Ludeke
Vice President and Treasurer
of the General Partner
(Principal Financial and
Accounting Officer of Registrant)
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
AMERICAN TAX CREDIT PROPERTIES L.P.
(a Delaware limited partnership)
By: Richman Tax Credit Properties L.P.,
General Partner
by: Richman Tax Credit Properties Inc.,
general partner
Dated: November 13, 1998 __________________________________
------------------
Richard Paul Richman
President, Chief Executive Officer and
Director of the general partner of the
General Partner
Dated: November 13, 1998 __________________________________
-----------------
Neal Ludeke
Vice President and Treasurer
of the general partner
of the General Partner
(Principal Financial and
Accounting Officer of Registrant)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
quarter ended September 29, 1998 Form 10Q Balance Sheets and
Statements of Operations and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000830159
<NAME> American Tax Credit Properties, I L.P.
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