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 June 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 Identification No.)
incorporation or organization)
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 of Contents
Balance Sheets as of June 29, 1998 (Unaudited) and March 30, 1998 (Unaudited).
Statements of Operations for the three months ended June 29, 1998 (Unaudited)
and June 29, 1997 (Unaudited)..............................................
Statements of Cash Flows for the three months ended June 29, 1998 (Unaudited)
and June 29, 1997 (Unaudited)..............................................
Notes to Financial Statements as of June 29, 1998 (Unaudited).................
<PAGE> AMERICAN TAX CREDIT PROPERTIES L.P.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 29, March 30,
Notes 1998 1998
----- ------------------- ------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 130,241 $ 388,431
Investments in bonds available-for-sale 3 2,929,733 2,678,595
Investment in local partnerships 3,4 5,545,964 5,891,075
Interest receivable 53,122 53,744
--------------- ---------------
$ 8,659,060 $ 9,011,845
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 74,390 $ 55,400
Payable to general partner 87,728 43,861
--------------- ---------------
162,118 99,261
-------------- ---------------
Commitments and contingencies 3,4
Partners' equity (deficit)
General partner (283,013) (278,907)
Limited partners (41,286 units of limited partnership interest
outstanding) 8,551,562 8,958,053
Accumulated other comprehensive income 2,3 228,393 233,438
-------------- --------------
8,496,942 8,912,584
------------- -------------
$ 8,659,060 $ 9,011,845
============ ============
</TABLE>
See Notes to Financial Statements.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 29, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Notes 1998 1997
----- ---------------- --------------
<S> <C> <C> <C>
REVENUE
Interest $ 54,294 $ 62,705
Other income from local partnerships
2,475 2,500
---------------- ---------------
TOTAL REVENUE 56,769 65,205
--------------- ---------------
EXPENSES
Administration fees 45,931 45,931
Management fee 43,867 43,867
Professional fees 19,627 21,601
Printing, postage and other 12,830 9,170
--------------- --------------
TOTAL EXPENSES 122,255 120,569
--------------- --------------
Loss from operations (65,486) (55,364)
Equity in loss of investment in local partnerships 4 (345,111) (338,928)
---------------- --------------
NET LOSS (410,597) (394,292)
Other comprehensive income (loss) 2,3 (5,045) 46,438
---------------- ---------------
COMPREHENSIVE LOSS $ (415,642) $ (347,854)
============ ============
NET LOSS ATTRIBUTABLE TO
General partner $ (4,106) $ (3,943)
Limited partners (406,491) (390,349)
------------- -------------
$ (410,597) $ (394,292)
============ ============
NET LOSS per unit of limited partnership interest
(41,286 units of limited partnership interest) $ (9.85) $ (9.45)
=============== ===============
</TABLE>
See Notes to Financial Statements.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JUNE 29, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
-------------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 59,547 $ 67,573
Cash paid for
administration fees (38,190) (38,190)
professional fees (8,377) (37,541)
printing, postage and other expenses (12,831) (10,228)
------------- ------------
Net cash provided by (used in) operating activities 149 (18,386)
-------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash distributions and other income from local partnerships 2,475 10,000
Investments in bonds (includes $386 and $217 of accrued interest) (260,814) (257,217)
Maturity/redemption and sale of bonds 103,432
------------ ------------
Net cash used in investing activities (258,339) (143,785)
------------ -------------
Net decrease in cash and cash equivalents (258,190) (162,171)
Cash and cash equivalents at beginning of period 388,431 284,108
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 130,241 $ 121,937
========= =========
SIGNIFICANT NON-CASH INVESTING ACTIVITIES
Unrealized gain (loss) on investments in bonds available-for-sale, net $ (5,045) $ 46,438
=========== ==========
</TABLE>
- ------------------------------------------------------------------------------
See reconciliation of net loss to net cash provided by (used in) operating
activities on page 6.
See Notes to Financial Statements.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
STATEMENTS OF CASH FLOWS - (Continued)
THREE MONTHS ENDED JUNE 29, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
-------------- ---------
<S> <C> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES
Net loss $ (410,597) $ (394,292)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities
Equity in loss of investment in local partnerships 345,111 338,928
Distributions from local partnerships classified as other income (2,475) (2,500)
Amortization of net premium on investments in bonds 8,303 7,253
Accretion of zero coupon bonds (4,058) (4,076)
Increase in payable to general partner 43,867 43,867
Increase (decrease) in accounts payable and accrued expenses 18,990 (9,257)
Decrease in interest receivable 1,008 1,691
---------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 149 $(18,386)
========== ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 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 June 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 months
ended June 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 (loss), 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 loss in the accompanying statement of
operations for the three months ended June 29, 1998 resulted from a net
unrealized loss on investments in bonds available-for-sale of $5,045.
Accumulated other comprehensive income in the accompanying balance sheet as
of June 29, 1998 reflects the cumulative net unrealized gain on investments
in bonds available-for-sale. The balance sheet as of March 30, 1998 and the
statement of operations for the three months ended June 29, 1997 include
certain reclassifications to reflect the adoption of SFAS No. 130.
3. Investments in Bonds Available-For-Sale
As of June 29, 1998, certain information concerning investments in bonds
available-for-sale is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Gross Gross
Amortized unrealized unrealized Estimated
Description and maturity cost gains losses fair value
--------------------------
Corporate debt securities
Within one year $ 44,384 $ 169 $ (217) $ 44,336
After one year through five years 400,650 13,325 -- 413,975
After five years through ten years 657,000 30,003 (714) 686,289
After ten years 101,301 -- (1,782) 99,519
----------- ------------ ----------- ------------
1,203,335 43,497 (2,713) 1,244,119
----------- ------------ ------------ ------------
U.S. Treasury debt securities
Within one year 259,571 199 -- 259,770
After one year through five years 663,277 107,002 -- 770,279
After five years through ten years 357,428 77,356 -- 434,784
----------- -------------- ----------- -------------
1,280,276 184,557 -- 1,464,833
----------- -------------- ----------- -------------
U.S. government and agency securities
After five years through ten years 217,729 3,052 -- 220,781
---------- ----------- ------------ -----------
$ 2,701,340 $ 231,106 $ (2,713) $ 2,929,733
=========== ========== ============ ===========
</TABLE>
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
JUNE 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 the Cobbet Hill Associates
Limited Partnership (the "Cobbet Local Partnership") under the terms of the
financing documents whereby 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 August 13, 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 March 31, 1998, the Local Partnerships' combined
unaudited balance sheet (which includes the unaudited balance sheets of
Erie Associates Limited Partnership and B & V Phase I, Ltd., see discussion
herein Note 4) have outstanding mortgage loans payable totaling
approximately $77,058,000 and accrued interest payable on such loans
totaling approximately $5,067,000, which are secured by security interests
and liens common to mortgage loans on the Local Partnerships' real property
and other assets.
For the three months ended June 29, 1998, the investment in Local
Partnerships activity consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Investment in Local Partnerships as of March 30, 1998 $ 5,891,075
Equity in loss of investment in Local Partnerships (345,111) *
Cash distributions received from Local Partnerships 2,475
Cash distributions classified as other income
(2,475)
------------
Investment in Local Partnerships as of June 29, 1998 $ 5,545,964
============
</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 $558,106 for the three months ended
March 31, 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 March
31, 1998 and December 31, 1997 and the combined unaudited statements of
operations of the Local Partnerships for the three months ended March 31,
1998 and 1997 are reflected on pages 9 and 10, respectively.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
JUNE 29, 1998
(UNAUDITED)
4. Investment in Local Partnerships (continued)
The combined balance sheets of the Local Partnerships as of March 31, 1998
and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------------- ---------------
<S> <C> <C>
ASSETS
Cash and other investments $ 1,073,214 $ 1,219,986
Rents receivable 222,909 243,316
Escrow deposits and reserves 2,776,078 3,044,733
Land 4,075,735 4,075,735
Buildings and improvements (net of accumulated depreciation of
$35,637,246 and $34,628,370) 73,650,747 74,439,165
Intangible assets (net of accumulated amortization of $656,742 and
$640,058) 1,811,254 1,827,938
Other 853,961 803,251
------------- ---------------
$ 84,463,898 $ 85,654,124
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 1,189,139 $ 1,065,374
Due to related parties 4,968,037 5,376,344
Mortgage loans 77,058,452 77,119,187
Notes payable 1,000,223 1,000,841
Accrued interest 5,067,328 4,959,061
Other 328,026 353,188
------------- --------------
89,611,205 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 (28,404,708) (28,059,597)
------------ ------------
5,528,489 5,881,792
-------------- --------------
General partners and other limited partners, including ATCP II
Capital contributions, net of distributions 677,912 677,937
Cumulative loss (11,353,708) (10,779,600)
------------ ------------
(10,675,796) (10,101,663)
(5,147,307) (4,219,871)
$ 84,463,898 $ 85,654,124
============ ============
</TABLE>
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
JUNE 29, 1998
(UNAUDITED)
4. Investment in Local Partnerships (continued)
The combined statements of operations of the Local Partnerships for
the three months ended March 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
-------------- ------------
<S> <C> <C>
REVENUE
Rental $ 3,963,455 $ 4,053,331
Interest and other 51,849 52,851
-------------- --------------
TOTAL REVENUE 4,015,304 4,106,182
-------------- ------------
EXPENSES
Administrative 613,818 603,519
Utilities 376,501 434,406
Operating, maintenance and other 723,535 810,143
Taxes and insurance 494,501 526,660
Financial (including amortization of $16,684 and $24,929) 1,717,292 1,940,561
Depreciation 1,008,876 1,011,596
------------ ------------
TOTAL EXPENSES 4,934,523 5,326,885
------------ ------------
NET LOSS $ (919,219) $(1,220,703)
============ ===========
NET LOSS ATTRIBUTABLE TO
American Tax Credit Properties L.P. $ (345,111) $ (338,928)
General partners and other limited partners, including ATCP II,
which includes $558,106 and $864,539 of American Tax Credit
Properties L.P. loss in excess of investment (574,108) (881,775)
------------ ------------
$ (919,219) $(1,220,703)
============ ===========
</TABLE>
The combined results of operations of the Local Partnerships for the three
months ended March 31, 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)
JUNE 29, 1998
(UNAUDITED)
4. Investment in Local Partnerships (continued)
The Partnership acquired a 99% limited partnership interest in B & V Phase
I, Ltd. (the "B & V Phase I Local Partnership"), which owned a 97-unit,
Section 8 assisted apartment complex located in Homestead, Florida during
the year ended March 30, 1995. Prior to the acquisition, 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 and because alternative
sources of financing could not be secured, the property was transferred to
the lender in May 1998. 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. Accordingly, the aforementioned
transfer will have 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 will no longer be
receiving the ODL, without which the Cobbet Local Partnership would be
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 Cobbett
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 Cobbett 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 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)
JUNE 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 June 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 under Section 42 of the Internal Revenue Code (the "Low-income Tax
Credit"). During the three months ended June 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 decreased, in the aggregate, by
approximately $7,000 during the three months ended June 29, 1998 (which included
a net unrealized loss on investments in bonds of approximately $5,000, the
amortization of net premium on investments in bonds of approximately $8,000 and
the accretion of zero coupon bonds of approximately $4,000). 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 three months ended June 29, 1998, the investment in Local
Partnerships decreased as a result of Registrant's equity in the Local
Partnerships' net loss for the three months ended March 31, 1998 of $345,111.
Payable to general partner in the accompanying balance sheet as of June 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, under which 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 June 29, 1998 and 1997
resulted in net losses of $410,597 and $394,292, respectively. The operations of
Registrant and the Local Partnerships were consistent between 1997 and 1998.
Other comprehensive income (loss) for the three months ended June 29, 1998 and
1997 resulted from a net unrealized gain (loss) on investments in bonds
available-for-sale of ($5,045) and $46,438, respectively.
The Local Partnerships' net loss of approximately $919,000 for the three months
ended March 31, 1998 was attributable to rental and other revenue of
approximately $4,015,000, exceeded by operating and interest expenses (including
interest on non-mandatory debt) of approximately $3,909,000 and approximately
$1,026,000 of depreciation and amortization expenses. The Local Partnerships'
net loss of approximately $1,221,000 for the three months ended March 31, 1997
was attributable to rental and other revenue of approximately $4,106,000,
exceeded by operating and interest expenses (including interest on non-mandatory
debt) of approximately $4,290,000 and approximately $1,037,000 of depreciation
and amortization expenses. The Local Partnerships' net loss for the three months
ended March 31, 1997 included the results of operations of B & V Ltd. prior to
its April 1997 foreclosure. The results of operations of the Local Partnerships
for the three months ended March 31, 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)
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 1998. 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 agencies ("Non-Mandatory Debt
Service or Interest"). During the three months ended March 31, 1998, revenue
from operations, 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 will no longer be receiving the ODL, without which the
Cobbet Local Partnership would be 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 Cobbett 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.
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 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
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
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.
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. In an effort to appease the lender,
Registrant made a payment to the lender during January 1998 and the mortgage is
reportedly current as of June 1998. Although the original Local General Partner
had informed Registrant of its intent to cooperate with Registrant's removal
actions, the original Local General Partner is now disputing the removal and has
not delivered partnership documents and records despite several requests.
Registrant has commenced legal action to remove the original Local General
Partner.
Registrant acquired a 99% limited partnership interest in B & V Phase I, Ltd.
(the "B & V Phase I Local Partnership"), which owned a 97-unit, Section 8
assisted apartment complex located in Homestead, Florida during the year ended
March 30, 1995. Prior to the acquisition, 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 and
because alternative sources of financing could not be secured, the property was
transferred to the lender in May 1998. 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 lost the ability to utilize remaining Low-income
Tax Credits of approximately $2 per Unit for 1998.
The terms of the partnership agreement of Hilltop North Associates, L.P. (the
"Hilltop Local Partnership") require the managing agent to defer property
management fees in order to avoid a default under the mortgage. The Hilltop
Local Partnership incurred an operating deficit of approximately $55,000 for the
three months ended March 31, 1998, which included property management fees of
approximately $17,000. Accordingly, the net operating deficit was approximately
$38,000 resulting primarily from tenant turnover costs. 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
B & V Phase I, Ltd. (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. On
January 14, 1997, by agreement of the B & V Phase I Local Partnership and the
lender, the Circuit Court for Dade County issued an order directing the B & V
Phase I Local Partnership to make mortgage payments to the lender accruing since
December 1996 and to thereafter make monthly mortgage payments to the lender.
The B & V Phase I Local Partnership complied with this order. On April 18, 1997,
a motion for summary judgment in the lender's foreclosure action was scheduled
to be heard. However, on April 17, 1997, the B & V Phase I Local Partnership
filed a Chapter 11 Bankruptcy Petition with the United States Bankruptcy Court,
District of Connecticut, Bridgeport Division. On April 25, 1997, the lender
filed a motion seeking to change the venue for this case to the Southern
District of Florida. Subsequently, hearings were held in order for the
Bankruptcy Court to consider the lender's motion. In the course of these
hearings, the lender and the B & V Phase I Local Partnership reached a tentative
agreement whereby the lender would withdraw its request to change venue and the
B & V Phase I Local Partnership would agree to submit to the Bankruptcy Court a
plan providing for, among other things, a schedule of buy-out prices to be paid
to the lender at future designated dates. On July 14, 1997, the Bankruptcy Court
approved a stipulation between the lender and the B & V Phase I Local
Partnership which incorporated the tentative agreement. On September 10, 1997,
the B & V Phase I Local Partnership filed a plan of reorganization with the
Bankruptcy Court and on October 28, 1997 the Bankruptcy Court issued an order
approving the Disclosure Statement filed in connection therewith and setting a
timetable for confirming the plan. The plan of reorganization was confirmed on
or about December 9, 1997. Because alternative sources of financing could not be
secured, the property was transferred to the lender in May 1998.
4611 South Drexel Limited Partnership (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. In an
effort to appease the lender, Registrant made a payment to the lender during
January 1998 and the mortgage is reportedly current as of June 1998. Although
the original Local General Partner had informed Registrant of its intent to
cooperate with Registrant's removal actions, the original Local General Partner
is now disputing the removal and has not delivered partnership documents and
records despite several requests. On July 1, 1998, Registrant commenced legal
action to remove the original Local General Partner and filed a complaint
seeking declaratory and injunctive relief and an accounting in Cook County,
Illinois, County Department, Chancery Division. A hearing has been scheduled for
August 18, 1998.
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.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
Part II - OTHER INFORMATION (Continued)
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") report that the Erie Local Partnership has not made all
required payments under the terms of its amended and restated mortgage,
that a default has 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 (the "Cobbet
Local Partnership") report that the first mortgage lender has declared
a default pending restoration of the building's parapet. 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.
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 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: August 14 1998 /s/ Richard Paul Richman
--------------- -------------------------
Richard Paul Richman
President, Chief Executive Officer and
Director of the general partner of the
General Partner
Dated: August 14, 1998 /s/ Neal Ludeke
--------------- ----------------
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 June 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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</TABLE>
