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 December 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
---
For the transition period from ____________ to ____________
Commission file number: 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 .
G:\American Tax\ATCP1\AT-1298.doc
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Table of Contents Page
Balance Sheets as of December 30, 1998 (Unaudited) and
March 30, 1998 (Unaudited)...................................................3
Statements of Operations for the three and nine month
periods ended December 30, 1998 (Unaudited)
and December 30, 1997 (Unaudited)............................................4
Statements of Cash Flows for the nine months ended
December 30, 1998 (Unaudited) and December 30, 1997 (Unaudited)..............5
Notes to Financial Statements as of December 30, 1998 (Unaudited)..............7
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
December 30, March 30,
Notes 1998 1998
------- ------------- ------------
ASSETS
Cash and cash equivalents $ 52,811 $ 388,431
Investments in bonds available-for-sale 3 2,799,598 2,678,595
Investment in local partnerships 3,4 4,978,525 5,891,075
Interest receivable 49,408 53,744
------------ ------------
$ 7,880,342 $ 9,011,845
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 33,000 $ 55,400
Payable to general partner 43,861
------------ ------------
33,000 99,261
------------ ------------
Commitments and contingencies 3,4
Partners' equity (deficit)
General partner (289,923) (278,907)
Limited partners (41,286 units of limited partnership
interest outstanding) 7,867,474 8,958,053
Accumulated other comprehensive income, net 2,3 269,791 233,438
------------ ------------
7,847,342 8,912,584
------------ ------------
$ 7,880,342 $ 9,011,845
============ ============
</TABLE>
See Notes to Financial Statements.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
December30, December 30, December 30, December 30,
Notes 1998 1998 1997 1997
------- ------------ ----------- ------------ ------------
REVENUE
Interest $ 61,690 $ 172,578 $ 62,289 $ 185,355
Other income from local partnerships 4 6,225 7,500
----------- ----------- ----------- -----------
TOTAL REVENUE 61,690 178,803 62,289 192,855
----------- ----------- ----------- -----------
EXPENSES
Administration fees 45,931 137,793 45,931 137,793
Management fee 43,866 131,600 43,866 131,600
Professional fees 11,357 67,059 23,588 57,149
Printing, postage and other 15,091 31,396 12,520 25,437
----------- ----------- ----------- -----------
TOTAL EXPENSES 116,245 367,848 125,905 351,979
----------- ----------- ----------- -----------
Loss from operations (54,555) (189,045) (63,616) (159,124)
Equity in loss of investment in local
partnerships 4 (289,205) (912,550) (250,459) (840,538)
----------- ----------- ----------- -----------
NET LOSS (343,760) (1,101,595) (314,075) (999,662)
Other comprehensive income (loss) 2,3 (48,836) 36,353 24,559 115,251
----------- ----------- ----------- -----------
COMPREHENSIVE LOSS $ (392,596) $(1,065,242) $ (289,516) $ (884,411)
=========== =========== =========== ===========
NET LOSS ATTRIBUTABLE TO
General partner $ (3,438) $ (11,016) $ (3,141) $ (9,997)
Limited partners (340,322) (1,090,579) (310,934) (989,665)
----------- ----------- ----------- -----------
$ (343,760) $(1,101,595) $ (314,075) $ (999,662)
=========== =========== =========== ===========
NET LOSS per unit of limited
partnership interest (41,286 units
of limited partnership interest) $ (8.24) $ (26.42) $ (7.53) $ (23.97)
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 189,955 $ 201,504
Cash paid for
administration fees (145,534) (145,534)
management fee (175,461) (175,461)
professional fees (81,759) (84,939)
printing, postage and other expenses (31,355) (36,868)
--------- ---------
Net cash used in operating activities (244,154) (241,298)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash distributions and other income from local partnerships 6,225 18,750
Investments in bonds (includes accrued interest of $386 and $1,301) (260,814) (257,217)
Maturity/redemption and sale of bonds 163,123 311,432
--------- ---------
Net cash provided by (used in) investing activities (91,466) 72,965
--------- ---------
Net decrease in cash and cash equivalents (335,620) (168,333)
Cash and cash equivalents at beginning of period 388,431 284,108
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 52,811 $ 115,775
========= =========
SIGNIFICANT NON-CASH INVESTING ACTIVITIES
Unrealized gain on investments in bonds available-for-sale, net $ 36,353 $ 115,251
========= =========
- ---------------------------------------------------------------------------------------------------------------------
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)
NINE MONTHS ENDED DECEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
---------- ----------
RECONCILIATION OF NET LOSS TO NET CASH USED IN
OPERATING ACTIVITIES
Net loss $(1,101,595) $ (999,662)
Adjustments to reconcile net loss to net cash used in operating activities
Equity in loss of investment in local partnerships 912,550 840,538
Distributions from local partnerships classified as other income (6,225) (7,500)
Amortization of net premium on investments in bonds 24,920 21,432
Accretion of zero coupon bonds (12,265) (11,769)
Decrease in interest receivable 4,722 6,486
Decrease in accounts payable and accrued expenses (22,400) (46,962)
Decrease in payable to general partner (43,861) (43,861)
----------- ----------
NET CASH USED IN OPERATING ACTIVITIES $ (244,154) $ (241,298)
=========== ==========
</TABLE>
See Notes to Financial Statements.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 30, 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 December
30, 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 nine month periods ended December 30, 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
income (loss) in the accompanying statements of operations for the three and
nine month periods ended December 30, 1998 resulted from a net unrealized gain
(loss) on investments in bonds available-for-sale. Accumulated other
comprehensive income in the accompanying balance sheet as of December 30, 1998
reflects the net unrealized gain on investments in bonds available-for-sale. The
balance sheet as of March 30, 1998 and the statements of operations for the
three and nine month periods ended December 30, 1997 include certain
reclassifications to reflect the adoption of SFAS No. 130.
3. Investments in Bonds Available-For-Sale
As of December 30, 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 $ 15,095 $ 135 $ - $ 15,230
After one year through five years 263,268 14,990 - 278,258
After five years through ten years 654,119 46,170 - 700,289
After ten years 101,233 - (5,460) 95,773
---------- --------- -------- ----------
1,033,715 61,295 (5,460) 1,089,550
---------- --------- -------- ----------
U.S. Treasury debt securities
Within one year 257,857 2,396 - 260,253
After one year through five years 657,364 112,999 - 770,363
After five years through ten years 354,935 85,970 - 440,905
---------- --------- -------- ----------
1,270,156 201,365 - 1,471,521
---------- --------- -------- ----------
U.S. government and agency securities
After five years through ten years 225,936 12,591 - 238,527
---------- --------- -------- ----------
$2,529,807 $ 275,251 $ (5,460) $2,799,598
========== ========= ======== ==========
</TABLE>
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 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 with an
estimated fair value of $260,253 as of December 30, 1998. As of February 1,
1999, 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 September 30, 1998, the Local Partnerships have outstanding
mortgage loans payable totaling approximately $73,376,000 and accrued interest
payable on such loans totaling approximately $3,108,000, which are secured by
security interests and liens common to mortgage loans on the Local Partnerships'
real property and other assets.
For the nine months ended December 30, 1998, the investment in Local
Partnerships activity consists of the following:
Investment in Local Partnerships as of March 30, 1998 $ 5,891,075
Equity in loss of investment in Local Partnerships (912,550)*
Cash distributions received from Local Partnerships (6,225)
Cash distributions classified as other income 6,225
-------------
Investment in Local Partnerships as of December 30, 1998 $ 4,978,525
=============
* 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
$1,514,348 for the nine months ended September 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
September 30, 1998 and December 31, 1997 and the combined unaudited statements
of operations of the Local Partnerships for the three and nine month periods
ended September 30, 1998 and 1997 are reflected on pages 9 and 10, respectively.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 1998
(UNAUDITED)
4 Investment in Local Partnerships (continued)
The combined balance sheets of the Local Partnerships as of September 30,
1998 and December 31, 1997 are as follows:
<TABLE>
<S> <C> <C>
September 30, December 31,
1998 1997
------------- -------------
ASSETS
Cash and cash equivalents $ 1,070,950 $ 1,219,986
Rents receivable 167,744 243,316
Escrow deposits and reserves 2,999,351 3,044,733
Land 3,850,061 4,075,735
Buildings and improvements (net of accumulated depreciation of
$36,052,611 and $34,628,370) 69,603,273 74,439,165
Intangible assets (net of accumulated amortization of $564,473
and $640,058) 1,768,941 1,827,938
Other 598,223 803,251
------------- -------------
$ 80,058,543 $ 85,654,124
============= =============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 1,120,902 $ 1,065,374
Due to related parties 4,945,547 5,376,344
Mortgage loans 73,376,161 77,119,187
Notes payable 993,557 1,000,841
Accrued interest 3,108,148 4,959,061
Other 315,524 353,188
------------- -------------
83,859,839 89,873,995
------------- -------------
Partners' equity (deficit)
American Tax Credit Properties L.P.
Capital contributions, net of distributions 33,929,447 33,941,389
Cumulative loss (28,972,147) (28,059,597)
------------- -------------
4,957,300 5,881,792
------------- -------------
General partners and other limited partners, including ATCP II
Capital contributions, net of distributions 409,125 677,937
Cumulative loss (9,167,721) (10,779,600)
------------- -------------
(8,758,596) (10,101,663)
------------- -------------
(3,801,296) (4,219,871)
------------- -------------
$ 80,058,543 $ 85,654,124
============= =============
</TABLE>
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 1998
(UNAUDITED)
4. Investment in Local Partnerships (continued)
The combined statements of operations of the Local Partnerships for the three
and nine month periods ended September 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1998 1998 1997 1997
REVENUE
Rental $3,743,828 $11,454,016 $3,889,391 $11,932,233
Interest and other 98,902 183,771 71,925 177,441
TOTAL REVENUE 3,842,730 11,637,787 3,961,316 12,109,674
EXPENSES
Administrative 613,572 1,677,491 500,970 1,648,641
Utilities 266,831 946,136 259,059 1,008,785
Operating, maintenance and other 792,160 2,263,006 801,068 2,302,917
Taxes and insurance 471,155 1,385,906 446,978 1,456,488
Financial (including amortization of $25,627,
- ----------------------------------------------------- 1,587,197 4,901,975 1,620,428 5,297,272
$58,997, $14,371 and $58,950)
Depreciation 968,666 2,935,573 992,507 3,012,008
TOTAL EXPENSES 4,699,581 14,110,087 4,621,010 14,726,111
NET LOSS FROM OPERATIONS BEFORE
- ----------------------------------------------------- (856,851) (2,472,300) (659,694) (2,616,437)
EXTRAORDINARY ITEM
Extraordinary gain on extinguishment of debt 704,103 3,171,629 6,441,935 6,441,935
NET INCOME (LOSS) $(152,748) $ 699,329 $ 5,782,241 $ 3,825,498
NET INCOME (LOSS) ATTRIBUTABLE TO
American Tax Credit Properties L.P. $(289,205) $(912,550) $(250,459) $(840,538)
General partners and other limited partners,
including ATCP II, which includes specially allocated
items of net revenue to certain general partners of $739,361 and
$2,902,817 for the three and nine month periods ended September 30,
1998, respectively, and $550,527, $1,514,348, $397,649 and
$1,730,634 of Partnership net loss in excess 1,611,879 6,032,700 4,666,036
of investment 136,457
$ (152,748) $ 699,329 $ 5,782,241 $ 3,825,498
</TABLE>
The combined results of operations of the Local Partnerships for the three and
nine month periods ended September 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)
DECEMBER 30, 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 September 30, 1998 and
statements of operations for the periods ended September 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 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, 1995. The
aforementioned transfer had no effect on the financial position, results of
operations or cash flows of the Partnership.
Erie Associates Limited Partnership (the "Erie Local Partnership"), which was
in the tenth year of the Low-income Tax Credit period, was subject to an
amended and restated note (the "Amended Note") dated December 1, 1994 (which
matured on December 1, 1997) and was entitled to a project-based rental
subsidy under Chapter 707 of the Acts of 1966 of the Commonwealth of
Massachusetts. 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 made an offer
to repurchase the property and acquire the Amended Note in order to avoid
adverse tax consequences but was ultimately unsuccessful. As a result, the
combined balance sheet as of September 30, 1998 and statements of operations
for the periods ended September 30, 1998 of the Local Partnerships presented
herein Note 4 do not include the assets and liabilities and results of
operations of the Erie Local Partnership with the exception of an
extraordinary gain recognized on the extinguishment of debt in the amount of
$704,103 and a gain on disposal of the property in the amount of $35,258. The
Partnership's investment balance in the Erie Local Partnership, after
cumulative equity losses, became zero during the year ended March 30, 1998.
The aforementioned transfer had no effect on the financial position, results
of operations or cash flows of the 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 such 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 upon such partner's
admission, 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.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 1998
(UNAUDITED)
The Partnership's investment balance in the Cobbet Local Partnership, after
cumulative equity losses, became zero during the year ended March 30, 1994.
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 December 30, 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 nine months ended
December 30, 1998, Registrant received cash from interest revenue,
maturity/redemption and sale of bonds 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 $215,000 during the nine months
ended December 30, 1998 (which included a net unrealized gain on investments
in bonds of approximately $36,000, amortization of net premium on investments
in bonds of approximately $25,000 and accretion of zero coupon bonds of
approximately $12,000). 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
nine months ended December 30, 1998, the investment in Local Partnerships
decreased as a result of Registrant's equity in the Local Partnerships' net
loss for the nine months ended September 30, 1998 of $912,550.
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 December 30, 1998 and 1997
resulted in net losses of $343,760 and $314,075, respectively. The increase in
net loss is primarily attributable to an increase in equity in loss of
investment in Local Partnerships of approximately $39,000, 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
a decrease in professional fees of approximately $12,000 in connection with
certain Local Partnership matters. Other comprehensive income (loss) for the
three months ended December 30, 1998 and 1997 resulted from a net unrealized
gain (loss) on investments in bonds available-for-sale of $(48,836) and
$24,559, respectively.
The Local Partnerships' net loss from operations before extraordinary item of
approximately $857,000 for the three months ended September 30, 1998 was
attributable to rental and other revenue of approximately $3,843,000, exceeded
by operating and interest expenses (including interest on non-mandatory debt)
of approximately $3,706,000 and approximately $994,000 of depreciation and
amortization expenses. The Local Partnerships' net loss from operations before
extraordinary item of approximately $660,000 for the three months ended
September 30, 1997 was attributable to rental and other revenue of
approximately $3,961,000, exceeded by operating and interest expenses
(including interest on non-mandatory debt) of approximately $3,614,000 and
approximately $1,007,000 of depreciation and amortization expenses. The
results of operations of the Local Partnerships for the three months ended
September 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 nine months ended December 30, 1998 and
1997 resulted in net losses of $1,101,595 and $999,662, respectively. The
increase in net loss is primarily attributable to an increase in equity in loss
of investment in Local Partnerships of approximately $72,000, 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, a
decrease in interest revenue of approximately $13,000 and an increase in
professional fees of approximately $10,000 in connection with certain Local
Partnership matters. Other comprehensive income for the nine months ended
December 30, 1998 and 1997 resulted from a net unrealized gain on investments in
bonds available-for-sale of $36,353 and $115,251, respectively.
The Local Partnerships' net loss from operations before extraordinary item of
approximately $2,472,000 for the nine months ended September 30, 1998 was
attributable to rental and other revenue of approximately $11,638,000,
exceeded by operating and interest expenses (including interest on
non-mandatory debt) of approximately $11,115,000 and approximately $2,995,000
of depreciation and amortization expenses. The Local Partnerships' net loss
from operations before extraordinary item of approximately $2,616,000 for the
nine months ended September 30, 1997 was attributable to rental and other
revenue of approximately $12,110,000, exceeded by operating and interest
expenses (including interest on non-mandatory debt) of approximately
$11,655,000 and approximately $3,071,000 of depreciation and amortization
expenses. The results of operations of the Local Partnerships for the nine
months ended September 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. 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"). 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.
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. 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. 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.
Erie Associates Limited Partnership (the "Erie Local Partnership"), which was
in the tenth year of the Low-income Tax Credit period, was subject to an
amended and restated note (the "Amended Note") dated December 1, 1994 (which
matured on December 1, 1997) and was entitled to a project-based rental
subsidy under Chapter 707 of the Acts of 1966 of the Commonwealth of
Massachusetts. The original financing called for Mandatory Debt Service of
$7,647 per month, while
AMERICAN TAX CREDIT PROPERTIES L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
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 made an offer to repurchase the property and
acquire the Amended Note in order to avoid adverse tax consequences but was
ultimately unsuccessful. 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 has lost 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.
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 such 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 upon such partner's
admission, 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.
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.
<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 $70,000 for the nine months
ended September 30, 1998, which included property management fees of
approximately $44,000. The Local General Partner has reported that the Hilltop
Local Partnership has received permission to withdraw funds from the
replacement reserve account to cover a significant portion of the operating
deficit. Payments on the mortgage and real estate taxes are current. 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.
Year 2000 Compliance
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two digit year is commonly referred to as the year 2000 compliance ("Y2K")
issue. As the year 2000 approaches, such systems may be unable to accurately
process certain data-based information. Many businesses may need to upgrade
existing systems or purchase new ones to correct the Y2K issue. The total
cost associated with Y2K implementation is not expected to materially impact
Registrant's financial position or results of operations in any given year.
However, there can be no assurance that the systems of other entities on
which Registrant relies, including the Local Partnerships which report to
Registrant on a periodic basis for the purpose of Registrant's reporting to
its investors, will be timely converted. There can be no assurance that a
failure to convert by another entity would not have a material adverse impact
on Registrant.
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
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 Item 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, resulting in a
default being declared by the lender. The lender proceeded with a
foreclosure sale of the property in April 1998. Registrant made an offer to
repurchase the property and acquire the amended note, in order to avoid
adverse tax consequences, but was ultimately unsuccessful.
As discussed in Part I, Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations, 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: February 16, 1999 /s/ Richard Paul Richman
----------------- --------------------------
Richard Paul Richman
President, Chief Executive Officer and
Director of the general partner of the
General Partner
Dated: February 16, 1999 /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 December 30, 1998 Form 10-Q 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, L.P.
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