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, 1999
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 of Contents Page
----
Balance Sheets............................................................3
Statements of Operations..................................................4
Statements of Cash Flows..................................................5
Notes to Financial Statements.............................................7
2
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
BALANCE SHEETS
(UNAUDITED)
December 30, March 30,
Notes 1999 1999
----- ---- ----
ASSETS
Cash and cash equivalents $ 153,538 $ 86,232
Investments in bonds available-for-sale 2 2,264,406 2,706,269
Investment in local partnerships 3 2,937,041 3,628,899
Interest receivable 40,910 57,005
------------ ----------
$ 5,395,895 $6,478,405
============ ==========
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses 4 $ 24,816 $ 91,698
Payable to general partner 19,279 43,861
------------ ----------
44,095 135,559
------------ ----------
Commitments and contingencies 3,4
Partners' equity (deficit)
General partner (312,940) (304,341)
Limited partners (41,286 units of limited
partnership interest outstanding) 5,588,831 6,440,125
Accumulated other comprehensive income,
net 2 75,909 207,062
------------ ----------
5,351,800 6,342,846
------------ ----------
$ 5,395,895 $6,478,405
============= ==========
See Notes to Financial Statements.
3
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months Three Months Nine Months
Ended December Ended December Ended December Ended December
Notes 30, 1999 30, 1999 30, 1998 30, 1998
----- -------------- -------------- -------------- --------------
REVENUE
<S> <C> <C> <C> <C> <C>
Interest $ 45,077 $ 139,460 $ 61,690 $ 172,578
Other income from local partnerships 3 2,475 16,225 6,225
------------- -------------- -------------- --------------
TOTAL REVENUE 47,552 155,685 61,690 178,803
------------- -------------- -------------- --------------
EXPENSES
Administration fees 4 45,930 137,792 45,931 137,793
Management fee 43,877 131,611 43,866 131,600
Professional fees 12,250 85,671 11,357 67,059
Printing, postage and other 11,725 29,505 15,091 31,396
------------- -------------- -------------- --------------
TOTAL EXPENSES 113,782 384,579 116,245 367,848
------------- -------------- -------------- --------------
Loss from operations (66,230) (228,894) (54,555) (189,045)
Equity in loss of investment in local
partnerships (169,005) (630,999) (289,205) (912,550)
------------- -------------- -------------- --------------
3
NET LOSS (235,235) (859,893) (343,760) (1,101,595)
Other comprehensive income (loss) 2 (45,673) (131,153) (48,836) 36,353
------------- -------------- -------------- --------------
COMPREHENSIVE LOSS $ (280,908) $ (991,046) $ (392,596) $ (1,065,242)
============= ============== ============== ==============
NET LOSS ATTRIBUTABLE TO
General partner $ (2,352) $ (8,599) $ (3,438) $ (11,016)
Limited partners (232,883) (851,294) (340,322) (1,090,579)
------------- -------------- -------------- --------------
$ (235,235) $ (859,893) $ (343,760) $ (1,101,595)
============= ============== ============== ==============
NET LOSS per unit of limited partnership
interest (41,286 units of limited
partnership interest) $ (5.64) $ (20.62) $ (8.24) $ (26.42)
============= ============== ============== ==============
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 30, 1999 AND 1998
(UNAUDITED)
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 173,013 $ 189,955
Cash paid for
administration fees (140,194) (145,534)
management fee (175,472) (175,461)
professional fees (130,878) (81,759)
printing, postage and other expenses (29,499) (31,355)
---------- -----------
Net cash used in operating activities (303,030) (244,154)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in local partnerships (78,481)
Cash distributions and other income from
local partnerships 155,565 6,225
Investments in bonds (includes $386 of
accrued interest in 1998) (257,558) (260,814)
Maturities/redemptions and sales of bonds 550,810 163,123
---------- -----------
Net cash provided by (used in) investing activities 370,336 (91,466)
---------- -----------
Net increase (decrease) in cash and cash equivalents 67,306 (335,620)
Cash and cash equivalents at beginning of period 86,232 388,431
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 153,538 $52,811
=========== ===========
SIGNIFICANT NON-CASH INVESTING ACTIVITIES
Unrealized gain (loss) on investments in bonds
available-for-sale, net $ (131,153) $ 36,353
=========== ===========
- --------------------------------------------------------------------------------
See reconciliation of net loss to net cash used in operating activities on page
6.
See Notes to Financial Statements.
5
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
STATEMENTS OF CASH FLOWS - (Continued)
NINE MONTHS ENDED DECEMBER 30, 1999 AND 1998
(UNAUDITED)
1999 1998
---- ----
RECONCILIATION OF NET LOSS TO NET CASH USED IN
OPERATING ACTIVITIES
Net loss $(859,893) $(1,101,595)
Adjustments to reconcile net loss to net cash
used in operating activities
Equity in loss of investment in local partnerships 630,999 912,550
Loss on redemption and sale of bonds 8,596
Distributions from local partnerships
classified as other income (16,225) (6,225)
Amortization of net premium on investments
in bonds 21,127 24,920
Accretion of zero coupon bonds (12,265) (12,265)
Decrease in interest receivable 16,095 4,722
Decrease in accounts payable and accrued expenses (66,882) (22,400)
Decrease in payable to general partner (24,582) (43,861)
---------- -----------
NET CASH USED IN OPERATING ACTIVITIES $(303,030) $ (244,154)
========== ===========
See Notes to Financial Statements.
6
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 30, 1999
(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, 1999 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, 1999 are not
necessarily indicative of the results that may be expected for the entire
year.
2. Investments in Bonds Available-For-Sale
As of December 30, 1999, certain information concerning investments in
bonds available-for-sale is as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
Description and maturity cost gains losses fair value
------------------------ ---- ----- ------ ----------
<S> <C> <C> <C> <C>
Corporate debt securities
After one year through five years $ 150,833 $ 338 $ -- $ 151,171
After five years through ten years 542,819 1,934 (7,042) 537,711
------------ -------------- -------------- ------------
693,652 2,272 (7,042) 688,882
------------ -------------- -------------- ------------
U.S. Treasury debt securities
Within one year 257,140 -- (583) 256,557
After one year through five years 995,490 104,832 -- 1,100,322
------------ -------------- -------------- ------------
1,252,630 104,832 (583) 1,356,879
------------ -------------- -------------- ------------
U.S. government and agency securities
After five years through ten years 242,215 -- (23,570) 218,645
------------ -------------- -------------- ------------
$ 2,188,497 $ 107,104 $ (31,195) $ 2,264,406
============ ============== ============== ============
</TABLE>
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 ("Cobbet") under the terms of the financing documents
whereby the lender has required security for future operating deficits, if
any, of Cobbet. The letter of credit is secured by the Partnership's
investment in a U.S. Treasury bond with an estimated fair value of $256,557
as of December 30, 1999. As of February 8, 2000, no amounts have been drawn
under the terms of the letter of credit.
7
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 1999
(UNAUDITED)
3. Investment in Local Partnerships
The Partnership originally acquired limited partnership interests in Local
Partnerships representing capital contributions in the aggregate amount of
$34,520,823. As of September 30, 1999, the Local Partnerships have
outstanding mortgage loans payable totaling approximately $72,854,000 and
accrued interest payable on such loans totaling approximately $3,725,000,
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, 1999, the investment in local
partnerships activity consists of the following:
Investment in local partnerships as of March 30, 1999 $ 3,628,899
Equity in loss of investment in local partnerships (630,999)*
Investment in local partnership 78,481
Cash distributions received from Local Partnerships (155,565)
Cash distributions from Local Partnerships classified
as other income 16,225
-----------
Investment in local partnerships as of
December 30, 1999 $2,937,041
===========
* 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
$1,682,050 for the nine months ended September 30, 1999 as reflected in
the combined statement of operations of the Local Partnerships reflected
herein Note 3.
The combined unaudited balance sheets of the Local Partnerships as of
September 30, 1999 and December 31, 1998 and the combined unaudited
statements of operations of the Local Partnerships for the three and nine
month periods ended September 30, 1999 and 1998 are reflected on pages 9
and 10, respectively.
8
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 1999
(UNAUDITED)
3. Investment in Local Partnerships (continued)
The combined balance sheets of the Local Partnerships as of September 30,
1999 and December 31, 1998 are as follows:
September 30, December 31,
1999 1998
---- ----
ASSETS
Cash and cash equivalents $ 1,226,709 $ 950,402
Rents receivable 235,395 158,840
Escrow deposits and reserves 3,213,529 2,902,738
Land 3,850,061 3,850,061
Buildings and improvements (net of accumulated
depreciation of $39,751,072 and $36,919,031) 66,153,189 68,839,045
Intangible assets (net of accumulated
amortization of $630,714 and $581,155) 1,702,700 1,752,259
Other 646,557 717,846
------------- -------------
$ 77,028,140 $79,171,191
============= ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 973,864 $ 1,012,318
Due to related parties 5,208,461 5,102,192
Mortgage loans 72,854,229 73,082,152
Notes payable 1,078,546 1,103,781
Accrued interest 3,725,152 3,396,688
Other 412,736 311,163
------------- -------------
84,252,988 84,008,294
------------- -------------
Partners' equity (deficit)
American Tax Credit Properties L.P.
Capital contributions, net of distributions 33,901,947 33,929,447
Cumulative loss (29,932,267) (29,301,268)
------------- -------------
3,969,680 4,628,179
------------- -------------
General partners and other limited partners,
including ATCP II
Capital contributions, net of distributions 507,226 509,267
Cumulative loss (11,701,754) (9,974,549)
------------- -------------
(11,194,528) (9,465,282)
------------- -------------
(7,224,848) (4,837,103)
------------- -------------
$ 77,028,140 $ 79,171,191
============= ============
9
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 1999
(UNAUDITED)
3. Investment in Local Partnerships (continued)
The combined statements of operations of the Local Partnerships for the three
and nine month periods ended September 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months Three Months
Ended Ended Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1999 1999 1998 1998
---- ---- ---- ----
REVENUE
<S> <C> <C> <C> <C>
Rental $ 3,829,923 $ 11,472,357 $ 3,743,828 $ 11,454,016
Interest and other 59,523 180,468 98,902 183,771
--------------- --------------- --------------- ---------------
TOTAL REVENUE 3,889,446 11,652,825 3,842,730 11,637,787
--------------- --------------- --------------- ---------------
EXPENSES
Administrative 636,053 1,747,740 613,572 1,677,491
Utilities 281,540 925,395 266,831 946,136
Operating, maintenance and other 814,570 2,276,434 792,160 2,263,006
Taxes and insurance 448,215 1,339,990 471,155 1,385,906
Financial (including amortization of $16,416,
$49,559, $25,627 and $58,997) 1,646,859 4,878,976 1,587,197 4,901,975
Depreciation 946,636 2,842,494 968,666 2,935,573
--------------- --------------- --------------- ---------------
TOTAL EXPENSES 4,773,873 14,011,029 4,699,581 14,110,087
NET LOSS FROM OPERATIONS BEFORE EXTRAORDINARY ITEM --------------- --------------- --------------- ---------------
(884,427) (2,358,204) (856,851) (2,472,300)
Extraordinary gain on extinguishment of debt 704,103 3,171,629
--------------- --------------- --------------- ----------------
NET INCOME (LOSS) $ (884,427) $ (2,358,204) $ (152,748) $ 699,329
================ ================ ================ ================
NET INCOME (LOSS) ATTRIBUTABLE TO
American Tax Credit Properties L.P. $ (169,005) $ (630,999) $ (289,205) $ (912,550)
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 and
$699,979, $1,682,050, $550,527 and
$1,514,348 of Partnership loss
in excess of investment (715,422) (1,727,205) 136,457 1,611,879
---------------- ---------------- ---------------- ----------------
$ (884,427) $ (2,358,204) $ (152,748) $ 699,329
================ ================ ================ ================
</TABLE>
The combined results of operations of the Local Partnerships for the three
and nine month periods ended September 30, 1999 are not necessarily
indicative of the results that may be expected for an entire operating
period.
10
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 1999
(UNAUDITED)
3. Investment in Local Partnerships (continued)
After pursuing various legal efforts which were ultimately unsuccessful,
the property of B & V Phase I, Ltd. ("B & V Phase I") was transferred to
the lender in May 1998. In addition, while negotiations were ongoing, the
lender conducted a foreclosure sale of the property of Erie Associates
Limited Partnership ("Erie") in April 1998. As a result, the combined
statements of operations of the Local Partnerships for the three and nine
month periods ended September 30, 1999, presented herein Note 3, do not
include the results of operations of B & V Phase I and Erie.
The Partnership has advanced $78,481 during the nine months ended December
30, 1999 to 4611 South Drexel Limited Partnership ("South Drexel") to fund
an operating deficit which includes making necessary capital improvements
to the property. The advance has been recorded as investment in local
partnerships in the accompanying balance sheet as of December 30, 1999.
Cobbet 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 Cobbet no longer receives the ODL, without which
Cobbet is unable to make the full mandatory debt service payments on its
first mortgage. MHFA has notified Cobbet and, to the Local General
Partners' knowledge, other ODL recipients as well, that MHFA considers such
mortgages to be in default. MHFA has recently adopted a plan to
recapitalize several of the ODL program properties with funds to be
contributed from the admission of a new limited partner, and MHFA has
commissioned an institutional broker (the "Broker") to identify such a new
limited partner. However, MHFA has communicated with Cobbet (confirmed by
letter dated February 7, 2000) that Cobbet has not been included in MHFA's
current recapitalization program because Cobbet is party to a project based
Section 8 contract. However, MHFA has communicated that Cobbet is free to
identify a new limited partner, independent of MHFA's process, with the
intention similar to that of the recapitalization plan. In the February 7,
2000 letter, MHFA provided Cobbet until March 3, 2000 to notify MHFA of its
desire to modify its mortgage loan by paying the required fee (which as a
practical matter would require a recapitalization investor) and made no
reference in the letter to the previous discussion in which MHFA indicated
that Cobbet could locate a separate recapitalization investor. The Local
General Partners have contacted the Broker, which has indicated that a
private investor may be interested in a recapitalization plan for Cobbet,
and Cobbet is in the process of forwarding such information to MHFA. If
such a plan were implemented, such new limited partner would receive a
substantial portion of the annual allocation of Cobbet'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 Cobbet to avoid recapture of Low-income Tax Credits. There can
be no assurance that a plan will be implemented, and if not, MHFA is likely
to retain its rights under the loan documents. The Partnership's investment
balance in Cobbet, after cumulative equity losses, became zero during the
year ended March 30, 1994.
4. Administration Fees
Pursuant to the Partnership Agreement, the Partnership is authorized to
contract for administrative services provided to the Partnership. Since the
inception of the Partnership, such administrative services have been
provided by ML Fund Administrators, Inc. ("MLFA") pursuant to an
Administrative Services Agreement. MLFA discontinued the performance of its
basic services under the Administrative Services Agreement effective
November 23, 1999, with certain transitional services to be continued until
April 30, 2000. The General Partner has transitioned the administrative
services to an affiliate of the General Partner without any changes to the
terms of the Administrative Services Agreement. Under the terms of the
Partnership Agreement, the Partnership currently incurs an annual
Administration Fee and an annual Additional Administration Fee of $152,758
and $30,965, respectively.
11
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 1999
(UNAUDITED)
5. Additional Information
Additional information, including the audited March 30, 1999 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, 1999 on file with the Securities
and Exchange Commission.
12
<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, 1999, American Tax Credit Properties L.P. (the "Registrant")
has not experienced a significant change in financial condition as compared to
March 30, 1999. 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, 1999,
Registrant received cash from interest revenue, maturities/redemptions and sales
of bonds and distributions from Local Partnerships and utilized cash for
operating expenses, investments in bonds and advances to 4611 South Drexel
Limited Partnership ("South Drexel") (see Local Partnership Matters below). Cash
and cash equivalents and investments in bonds available-for-sale decreased, in
the aggregate, by approximately $375,000 during the nine months ended December
30, 1999 (which includes a net unrealized loss on investments in bonds of
approximately $131,000, amortization of net premium on investments in bonds of
approximately $21,000 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,
1999, 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, 1999 of $630,999 and cash distributions received from Local Partnerships of
$139,340 (exclusive of distributions from Local Partnerships of $16,225
classified as other income from local partnerships), partially offset by
advances to South Drexel of $78,481 recorded as additional investments in local
partnerships.
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 3 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, 1999 and 1998
resulted in net losses of $235,235 and $343,760, respectively. The decrease in
net loss is primarily attributable to a decrease in equity in loss of investment
in local partnerships of approximately $120,000, which is primarily the result
of decreases in the net operating losses of those Local Partnerships in which
Registrant continues to have an investment balance, partially offset by a
decrease in interest revenue of approximately $17,000. Other comprehensive loss
for the three months ended December 30, 1999 and 1998 resulted from a net
unrealized loss on investments in bonds available-for-sale of $45,673 and
$48,836, respectively.
The Local Partnerships' net loss of approximately $884,000 for the three months
ended September 30, 1999 was attributable to rental and other revenue of
approximately $3,889,000, exceeded by operating and interest expense (including
interest on non-mandatory debt) of approximately $3,810,000 and approximately
$963,000 of depreciation and amortization
13
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
expense. 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 expense (including interest on non-mandatory debt) of
approximately $3,706,000 and approximately $994,000 of depreciation and
amortization expense. The Local Partnerships' net loss, adjusted to reflect
those Local Partnerships currently owned, of approximately $860,000 for the
three months ended September 30, 1998 was attributable to rental and other
revenue of approximately $3,860,000, exceeded by operating and interest expense
(including interest on non-mandatory debt) of approximately $3,735,000 and
approximately $985,000 of depreciation and amortization expense. The results of
operations of the Local Partnerships for the three months ended September 30,
1999 are not necessarily indicative of the results that may be expected in
future periods.
Registrant's operations for the nine months ended December 30, 1999 and 1998
resulted in net losses of $859,893 and $1,101,595, respectively. The decrease in
net loss is primarily attributable to a decrease in equity in loss of investment
in local partnerships of approximately $282,000, which is primarily the result
of a decrease in the net operating losses of those Local Partnerships in which
Registrant continues to have an investment balance, partially offset by an
increase in professional fees of approximately $19,000 in connection with Local
Partnership matters and a decrease in interest revenue of approximately $33,000.
Other comprehensive income (loss) for the nine months ended December 30, 1999
and 1998 resulted from a net unrealized gain (loss) on investments in bonds
available-for-sale of ($131,153) and $36,353, respectively.
The Local Partnerships' net loss of approximately $2,358,000 for the nine months
ended September 30, 1999 was attributable to rental and other revenue of
approximately $11,653,000, exceeded by operating and interest expense (including
interest on non-mandatory debt) of approximately $11,119,000 and approximately
$2,892,000 of depreciation and amortization expense. 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 expense
(including interest on non-mandatory debt) of approximately $11,115,000 and
approximately $2,995,000 of depreciation and amortization expense. The Local
Partnerships' net loss, adjusted to reflect those Local Partnerships currently
owned, of approximately $2,415,000 for the nine months ended September 30, 1998
was attributable to rental and other revenue of approximately $11,575,000,
exceeded by operating and interest expense (including interest on non-mandatory
debt) of approximately $11,037,000 and approximately $2,953,000 of depreciation
and amortization expense. The results of operations of the Local Partnerships
for the nine months ended September 30, 1999 are not necessarily indicative of
the results that may be expected in future periods.
Local Partnership Matters
Registrant's primary objective is to provide Low-income Tax Credits to limited
partners generally over a ten year period. The required holding period of each
Property, in order to avoid Low-income Tax Credit recapture, is fifteen years
from the year in which the Low-income Tax Credits commence on the last building
of the Property (the "Compliance Period"). The Properties must satisfy various
requirements including rent restrictions and tenant income limitations (the
"Low-income Tax Credit Requirements") in order to maintain eligibility for the
recognition of the Low-income Tax Credit at all times during the Compliance
Period. Once a Local Partnership has become eligible for the Low-income Tax
Credit, it may lose such eligibility and suffer an event of recapture if its
Property fails to remain in compliance with the Low-income Tax Credit
Requirements. The Local Partnerships have generated substantially all of the
Low-income Tax Credits allocated to limited partners as of December 31, 1999.
The Properties are principally comprised of subsidized and leveraged low-income
multifamily residential complexes located throughout the United States and
Puerto Rico. Many of the Local Partnerships receive rental subsidy payments,
including payments under Section 8 of Title II of the Housing and Community
Development Act of 1974 ("Section 8"). The subsidy agreements expire at various
times during and after the Compliance Periods of the Local Partnerships. In
October 1997, Congress passed the Multifamily Assisted Housing and Reform and
Affordability Act, whereby the United States Department of Housing and Urban
Development ("HUD") was given the authority to renew certain project based
Section 8 contracts expiring during HUD's fiscal year 1998, where requested by
an owner, for an additional one year term generally at or below existing rent
levels, subject to certain guidelines. In October 1998, HUD issued a directive
related to project based Section 8 contracts expiring during HUD's fiscal year
1999 which defined owners' notification
14
<PAGE>
responsibilities, advised owners of project based Section 8 properties of what
their options are regarding the renewal of Section 8 contracts,
AMERICAN TAX CREDIT PROPERTIES L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
provided guidance and procedures to owners, management agents, contract
administrators and HUD staff on renewing Section 8 contracts, provided guidance
on setting renewal rents and handling renewal rent increases and provided the
requirements and procedures for opting-out of a Section 8 project based
contract. In January 2000, HUD issued a new notice that provides updated
guidance for those project based Section 8 contracts expiring during HUD's
fiscal year 2000. Registrant cannot reasonably predict legislative initiatives
and governmental budget negotiations, the outcome of which could result in a
reduction in funds available for the various federal and state administered
housing programs including the Section 8 program. Such changes could adversely
affect the future net operating income and debt structure of any or all Local
Partnerships currently receiving such subsidy or similar subsidies. Four Local
Partnerships' Section 8 contracts are currently subject to annual year-to-year
renewals.
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 nine months ended September 30, 1999, revenue
from operations of the Local Partnerships have generally been sufficient to
cover operating expenses and Mandatory Debt Service. Most of the Local
Partnerships are effectively operating above 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
("Cobbet"), 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 September 1997, Registrant provided funds to establish
collateral to secure a replacement letter of credit. Although the repairs have
been completed and Cobbet has notified MHFA of such completion, Cobbet has not
received the anticipated notice from MHFA that the default has been cured.
Cobbet 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
Cobbet no longer receives the ODL, without which Cobbet is unable to make the
full Mandatory Debt Service payments on its first mortgage. MHFA has notified
Cobbet and, to the Local General Partners' knowledge, other ODL recipients as
well, that MHFA considers such mortgages to be in default. MHFA has recently
adopted a plan to recapitalize several of the ODL program properties with funds
to be contributed from the admission of a new limited partner, and MHFA has
commissioned an institutional broker (the "Broker") to identify such a new
limited partner. However, MHFA has communicated with Cobbet (confirmed by letter
dated February 7, 2000) that Cobbet has not been included in MHFA's current
recapitalization program because Cobbet is party to a project based Section 8
contract. However, MHFA has communicated that Cobbet is free to identify a new
limited partner, independent of MHFA's process, with the intention similar to
that of the recapitalization plan. In the February 7, 2000 letter, MHFA provided
Cobbet until March 3, 2000 to notify MHFA of its desire to modify its mortgage
loan by paying the required fee (which as a practical matter would require a
recapitalization investor) and made no reference in the letter to the previous
discussion in which MHFA indicated that Cobbet could locate a separate
recapitalization investor. The Local General Partners have contacted the Broker,
which has indicated that a private investor may be interested in a
recapitalization plan for Cobbet, and Cobbet is in the process of forwarding
such information to MHFA. If such a plan were implemented, such new limited
partner would receive a substantial portion of the annual allocation of Cobbet'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
Cobbet to avoid recapture of Low-income Tax Credits. There can be no assurance
that a plan will be implemented, and if not, MHFA is likely to retain
15
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
its rights under the loan documents. The future financial viability of Cobbet is
highly uncertain. The Property's historic tax credit was allocated in 1988 and
all of the Low-income Tax Credits have been allocated since 1989. Registrant's
investment balance in Cobbet, after cumulative equity losses, became zero during
the year ended March 30, 1994. Cobbet has generated approximately $19 per Unit
per year to the limited partners upon the expiration of its Low-income Tax
Credit allocation in 1999.
The terms of the partnership agreement of Hilltop North Associates, A Virginia
Limited Partnership ("Hilltop") require the management agent to defer property
management fees in order to avoid a default under the mortgage. Hilltop reported
an operating deficit of approximately $133,000 for the nine months ended
September 30, 1999. The Local General Partner has been conducting discussions
with the local housing authority in an effort to resolve what the Local General
Partner considers to be excessive requirements placed on the Property by the
local housing authority. Payments on the mortgage and real estate taxes are
current. Registrant's investment balance in Hilltop, after cumulative equity
losses and an adjustment to the investment's carrying value, became zero during
the year ended March 30, 1999. Hilltop has generated approximately $7 per Unit
per year to the limited partners upon the expiration of its Low-income Tax
Credit allocation in 1999.
South Drexel reported an operating deficit of approximately $96,000 for the nine
months ended September 30, 1999 due to declining occupancy resulting from
deferred unit maintenance and required capital improvements. Registrant has
advanced approximately $78,000 during the nine months ended December 30, 1999,
and it is anticipated that Registrant will make additional advances to make
needed capital improvements to the property. Payments on the mortgage and real
estate taxes are current. Registrant's investment balance in South Drexel, after
cumulative equity losses, became zero during the year ended March 30, 1996.
South Drexel will have generated approximately $2 per Unit per year to the
limited partners upon the expiration of its Low-income Tax Credit allocation in
2000.
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 unfolds, certain 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. Registrant has performed
an assessment of its computer software and hardware and believes it has made the
necessary upgrades in an effort to ensure compliance. 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 sufficiently
converted. To date, Registrant is not aware of any problems caused by Y2K. 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 a failure to convert by Registrant
or another entity would not have a material adverse impact on Registrant.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Registrant has invested a significant portion of its working capital reserves in
corporate bonds, U.S. government and agency securities and U.S. Treasury
instruments. The market value of such investments is subject to fluctuation
based upon changes in interest rates relative to each investment's maturity
date. Since Registrant's investments in bonds have various maturity dates
through 2007, the value of such investments may be adversely impacted in an
environment of rising interest rates in the event Registrant decides to
liquidate any such investment prior to its maturity. Although Registrant may
utilize reserves to assist an underperforming Property, it otherwise intends to
hold such investments to their respective maturities. Therefore, Registrant does
not anticipate any material adverse impact in connection with such investments.
The Properties are generally located where there is a demand for low-income
housing. Accordingly, there is a significant likelihood that new low-income
housing properties could be built in the general vicinity of the respective
Properties. As a result, the respective Properties' ability to operate at high
occupancy levels is subject to competition from newly built low-income housing.
16
<PAGE>
AMERICAN TAX CREDIT PROPERTIES L.P.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
Registrant is not aware of any material legal proceedings.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None; see Item 5 regarding mortgage defaults of a Local Partnership.
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, Cobbet Hill
Associates Limited Partnership ("Cobbet") 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. The
lender has notified Cobbet that the lender considers such mortgages to
be in default. The local general partners are exploring alternatives to
recapitalize Cobbet.
Item 6. Exhibits and Reports on Form 8-K
None
17
<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: February 14, 2000 /s/ Richard Paul Richman
------------------------------------------
by: Richard Paul Richman
President, Chief Executive Officer and
Director of the general partner of the
General Partner
Dated: February 14, 2000 /s/ Neal Ludeke
------------------------------------------
by: 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 article contains summary information extracted from the nine months ended
December 30, 1999 Form 10-Q and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000830159
<NAME> Neal Ludeke
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-30-2000
<PERIOD-START> MAR-31-1999
<PERIOD-END> DEC-30-1999
<EXCHANGE-RATE> 1.00
<CASH> 153,538
<SECURITIES> 2,264,406
<RECEIVABLES> 0
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0
0
<COMMON> 0
<OTHER-SE> 5,351,800
<TOTAL-LIABILITY-AND-EQUITY> 5,395,895
<SALES> 0
<TOTAL-REVENUES> 155,685
<CGS> 0
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<OTHER-EXPENSES> 1,015,578
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</TABLE>
