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 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number 0-20638
PATRIOT TAX CREDIT PROPERTIES L.P.,
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3519080
- - ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
- - ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212)421-5333
N/A
-------------------------------------------------
Former name, former address and
former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
<PAGE>
PART I - Financial Information
Item 1. Financial Statements
PATRIOT TAX CREDIT PROPERTIES L.P.
(a limited partnership)
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(Unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
------------ ------------
<S> <C> <C>
ASSETS
Investment in property:
Land $ 4,005,633 $ 4,005,633
Buildings and improvements 75,042,825 75,041,752
Accumulated depreciation (17,081,717) (15,450,304)
------------ ------------
Net investment in property 61,966,741 63,597,081
Cash and cash equivalents 398,658 573,775
Cash and cash equivalents
held in escrow 1,983,191 1,550,131
Deferred financing costs, net 2,656,343 2,861,272
Other assets 200,698 253,554
------------ ------------
Total Assets $ 67,205,631 $ 68,835,813
============ ============
-3-
<PAGE>
PATRIOT TAX CREDIT PROPERTIES L.P.
(a limited partnership)
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(continued)
(Unaudited)
December 31, March 31,
1998 1998
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage notes payable $ 45,264,886 $ 45,632,851
Accrued interest payable 1,460,592 1,492,961
Other accrued expenses
and liabilities 2,604,565 1,411,705
Due to general partners and
affiliates of local partnerships 2,578,838 2,558,522
Development fees payable 1,579,709 1,579,709
Construction costs payable 605,358 605,358
Real estate taxes payable 608,050 498,390
Due to general partner and
its affiliates $ 539,700 59,930
------------ ------------
Total liabilities 55,241,698 53,839,426
------------ ------------
Minority interest in local
partnerships 2,324,036 2,872,312
------------ ------------
PARTNERS' CAPITAL
Limited partners (38,125 BUC$
issued and outstanding) 8,842,976 11,314,733
General partner (1 BUC
issued and outstanding) 796,921 809,342
------------ ------------
Total Partners' Capital 9,639,897 12,124,075
------------ ------------
Total Liabilities and Partners'
Capital $ 67,205,631 $ 68,835,813
============ ============
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
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<PAGE>
PATRIOT TAX CREDIT PROPERTIES L.P.
(a limited partnership)
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1998 1997 1998 1997
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues
Rental income $ 2,273,683 $ 2,053,426 $ 6,554,365 $ 6,226,699
Other income 189,613 97,638 486,054 328,404
Interest income 2,786 9,513 11,509 18,611
------------ ------------ ------------ ------------
2,466,082 2,160,577 7,051,928 6,573,714
------------ ------------ ------------ ------------
Expenses
Interest 989,868 1,072,237 3,165,510 3,212,946
Depreciation and
amortization 618,779 616,478 1,836,342 1,852,931
Operating and other 199,662 191,820 578,723 573,878
Taxes and insurance 275,192 287,325 846,231 868,720
Repairs and
maintenance 464,116 552,763 1,395,162 1,292,299
General and
administrative 680,063 480,092 1,818,168 1,376,717
Partnership
management fees 59,718 59,718 178,450 221,401
Property
management fees 91,660 89,490 265,438 264,149
------------ ------------ ------------ ------------
3,379,058 3,349,923 10,084,024 9,663,041
------------ ------------ ------------ ------------
Loss before minority
interest (912,976) (1,189,346) (3,032,096) (3,089,327)
Minority interest in
loss of
local partnerships 151,956 217,353 547,918 553,819
------------ ------------ ------------ ------------
Net loss $ (761,020) $ (971,993) $ (2,484,178) $ (2,535,508)
============ ============ ============ ============
Allocation of Net Loss
Limited partners $ (757,215) $ (967,133) $ (2,471,757) $ (2,515,013)
============ ============ ============ ============
General partner $ (3,805) $ (4,860) $ (12,421) $ (20,495)
============ ============ ============ ============
Net loss per limited
partner BUC $ (19.86) $ (25.37) $ (64.83) $ (65.97)
============ ============ ============ ============
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
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<PAGE>
PATRIOT TAX CREDIT PROPERTIES L.P.
(a limited partnership)
AND SUBSIDIARIES
Consolidated Statement of Changes in Partners' Capital
(Unaudited)
<TABLE>
<CAPTION>
Limited General
BUC$ Partners Partner Total
------ ----------- -------- -----------
<S> <C> <C> <C> <C>
Partners' capital
March 31, 1998 38,126 $11,314,733 $809,342 $12,124,075
Net loss 0 (2,471,757) (12,421) (2,484,178)
------ ----------- -------- -----------
Partners' capital-
December 31, 1998 38,126 $ 8,842,976 $796,921 $ 9,639,897
====== =========== ======== ===========
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
-6-
<PAGE>
PATRIOT TAX CREDIT PROPERTIES L.P.
(a limited partnership)
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,484,178) $(2,535,508)
----------- -----------
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,836,342 1,852,931
Minority interest in loss of
local partnerships (547,918) (553,819)
Increase in cash held in escrow (433,060) (949,499)
Increase in real estate
taxes payable 109,660 520,738
(Decrease) increase in accrued
interest payable (32,369) 317,366
Decrease (increase) in other assets 52,856 (23,609)
Increase in other liabilities 1,192,860 468,529
Increase in due to General Partner
and its affiliates 479,770 0
Increase in due to general
partners and affiliates
of local partnerships 20,316 0
----------- -----------
Total adjustments 2,678,457 1,632,637
----------- -----------
Net cash provided by (used in)
operating activities 194,279 (902,871)
----------- -----------
Cash flows from investing activities:
Investment in property (1,073) (318,247)
----------- -----------
</TABLE>
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<PAGE>
PATRIOT TAX CREDIT PROPERTIES L.P.
(a limited partnership)
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(continued)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from financing activities:
Payments of mortgage notes (367,965) (333,234)
Advances pursuant to operating
deficit guaranties 0 1,224,927
Distribution to minority interest (358) 0
----------- -----------
Net cash (used in) provided by
financing activities (368,323) 891,693
----------- -----------
Net decrease in cash and cash
equivalents (175,117) (329,425)
Cash and cash equivalents at
beginning of period 573,775 839,134
----------- -----------
Cash and cash equivalents at
end of period $ 398,658 $ 509,709
=========== ===========
Supplemental disclosure of cash flow information:
Non-cash Financing activity:
Capital contribution resulting
from forgiveness of debt by
general partner and its affiliates $ 0 $ 1,048,871
=========== ===========
Interest paid $ 3,197,879 $ 2,843,644
=========== ===========
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
-8-
<PAGE>
PATRIOT TAX CREDIT PROPERTIES L.P.
(a limited partnership)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
(Unaudited)
Note 1 - General
These consolidated financial statements have been prepared without audit. In the
opinion of management, the consolidated financial statements contain all
adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position of Patriot Tax Credit Properties L.P. (the
"Partnership") as of December 31, 1998, the results of operations for the three
and nine months ended December 31, 1998 and 1997 and cash flows for the nine
months ended December 31, 1998 and 1997. However, the operating results for the
interim periods may not be indicative of the results expected for a full year.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these consolidated financial
statements be read in conjunction with the consolidated financial statements and
notes thereto included in the Partnership's Annual Report on Form 10-K filed
with the Securities and Exchange Commission for the year ended March 31, 1998.
Also, certain balances from prior periods have been reclassified to conform with
the current financial statement presentation.
The Partnership invests in partnerships (the "Local Partnerships") which own the
properties. The financial statements of the Local Partnerships consolidated
herein are for the nine month periods ended September 30, and occupancy rates
are as of September 30.
Prior to October 1, 1997, the general partner of the Partnership was Prudential
Bache Properties, Inc. ("PBP") and commencing on October 1, 1997, the general
partner has been RCC Partners 96, L.L.C. (the "New GP"). PBP and the New GP are
sometimes referred to as the "General Partner" or "General Partners" as the
context requires.
-9-
<PAGE>
PATRIOT TAX CREDIT PROPERTIES L.P.
(a limited partnership)
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
(Unaudited)
Note 2 - Related Parties
During their respective ownership periods, the General Partners and their
affiliates have performed services for the Partnership which include, but are
not limited to: accounting and financial management, registrar, transfer and
assignment functions, asset management, investor communications, printing and
other administrative services. The General Partners and their affiliates receive
management fees and reimbursements for general and administrative costs incurred
in connection with these services, the amount of which is limited by the
provisions of the Partnership Agreement. In order to assist in the transition
from PBP to the New GP as General Partner, the New GP engaged PBP to perform
certain of the forgoing services and paid PBP from amounts which would otherwise
have been payable to the New GP pursuant to the terms of the Partnership
Agreement. These services terminated March 31, 1998. The costs and expenses
incurred to the General Partner were:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Management fees $ 59,718 $ 59,718 $ 178,450 $ 221,401
Local administrative
fees 5,062 5,062 15,186 15,186
General and adminis-
trative 31,837 3,000 80,120 45,552
------------ ------------ ------------ ------------
$ 96,617 $ 67,780 $ 273,756 $ 282,139
============ ============ ============ ============
</TABLE>
At December 31, 1998, the properties owned by four of the Local Partnerships are
managed by a Local General Partner or its affiliates. Five of the Local
Partnerships general partners are owned by affiliates of the New GP.
-10-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
The Partnership invested in eight Local Partnerships that are owners of
affordable multi-family residential complexes. The Local Partnerships are
operated in accordance with the rules and regulations under Section 42 of the
Internal Revenue Code in order to protect the related tax credits. The
Partnership's primary source of funds is rental revenues which are fully
utilized at the property level. The Partnership is dependent upon the support of
the General Partner and certain of its affiliates in order to meet its
obligations at the Partnership level. The General Partner and these affiliates
have agreed to continue such support for the foreseeable future.
At the Local Partnership level, the Local General Partner at Papillion Heights
has made a guarantee with respect to the Local Partnership which, under certain
circumstances, requires the Local General Partner to fund cash flow deficits
pursuant to the deficit guaranty agreement. These operating deficit advances do
not bear interest and are repayable by the Local Partnership in accordance with
the respective Local Partnership agreement. The Papillion Heights operating
deficit guaranty agreement is in effect until such date that the net operating
income is sufficient to cover 115% of the debt service for twelve consecutive
months, as defined. Of the $170,000 maximum funding obligation, $40,000 has been
funded to date.
The Summer Creek Villas Local Partnership continues to experience severe cash
flow deficits. The maximum funding obligation of the Local General Partner for
the initial guaranty period under the Summer Creek Villas operating deficit
guaranty agreement (which expired on December 31, 1996) was $3,392,000, of which
$2,742,000 was funded. Of the total funded, the Local General Partner has
elected to treat $1,933,000 as non-repayable advances. The Local General Partner
is also obligated to fund operating deficits during a second guaranty period
which commenced August 1996 and expires July 1999. The maximum funding
obligation during this second guaranty period is $924,000. Through December 31,
1998, the entire obligation has been funded pursuant to this second guaranty. As
of December 31, 1998, the financial statements of the Partnership include
approximately $809,000 as "Due to general partners and affiliates of local
partnerships" for the two
-11-
<PAGE>
guaranty periods under the Summer Creek Villas operating deficit guaranty
agreement due to the three-month lag in recording the financial information of
the Local Partnerships. The Local General Partner is currently reviewing
different alternatives to improve property cash flow and reduce operating
deficits. Also the management agent has been replaced so as to implement a new
strategy for increasing property performance.
The Local Partnerships have generated net operating income before debt service
and depreciation of $2,476,000 and $2,515,000 for the nine months ended December
31, 1998 and 1997, respectively. Debt service payments (principal and interest)
made during the same periods were $3,566,000 and $3,177,000, respectively.
Results of Operations
The operating results of the Local Partnerships consolidated herein are for the
nine month periods ended September 30. Information disclosed below with respect
to each Local Partnership is consistent with this method of presentation.
Rental income increased $220,000 and $328,000 for the three and nine months
ended December 31, 1998 as compared to the corresponding periods in 1997,
primarily due to an increase in occupancy at Summer Creek Villas.
Other income increased $92,000 and $158,000 for the three and nine months ended
December 31, 1998 as compared to the corresponding periods in 1997 due to an
increase in application and termination fees received at Summer Creek Villas for
screening new tenants.
Repairs and maintenance decreased $89,000 for the three months ended December
31, 1998 as compared to the corresponding period in 1997 primarily due to higher
general maintenance costs incurred in 1997 at Cutler Canal II, Hill Top Homes,
and Brookland Park Plaza.
General and administrative increased $200,000 and $441,000 for the three and
nine months ended December 31, 1998 as compared to the corresponding periods in
1997 due to increases in marketing and legal expenses at Summer Creek Villas and
increased legal and administrative fees at the Partnership level.
Partnership management fees decreased $43,000 for the nine months ended December
31, 1998 as compared to the corre-
-12-
<PAGE>
sponding period in 1997 primarily due to a reduction of the fee for
participating interest of the invested assets from 0.5% to 0.375% annually.
Property Information
Occupancies at the Local Partnerships were as follows:
<TABLE>
<CAPTION>
September 30,
1998 1997
---- ----
<S> <C> <C>
Property
Hubbard's Ridge 92% 91%
Cutler Canal II 95 97
Diamond Street 98 98
Papillion Heights 94 92
Hill Top Homes 92 92
Summer Creek Villas 91 84
Brookland Park Plaza 96 99
Compton Townhouses 97 100
</TABLE>
(Occupancies are calculated by dividing occupied units by total available
units.)
The Partnership holds a 66.5% interest in Summer Creek Villas, a 98% interest in
Hubbard's Ridge, Hill Top Homes and Compton Townhouses and a 98.99% interest in
Cutler Canal II, Diamond Street, Papillion Heights and Brookland Park Plaza.
There were no significant changes in occupancies at the above properties as of
January 3, 1999, except for a decrease in the occupancy rate to 74% at Summer
Creek Villas due to the implementation of an aggressive lease management program
and slower leasing during the holiday period.
Year 2000 Compliance
The Partnership utilizes the computer services of an affiliate of the General
Partner. The affiliate of the General Partner is in the process of upgrading its
computer information systems to be year 2000 compliant and beyond. The Year 2000
compliance issue concerns the inability of a computerized system to accurately
record dates after 1999. The affiliate of the General Partner recently underwent
a conversion of its financial systems applications and is in the
-13-
<PAGE>
process of upgrading and testing the in house software and hardware inventory.
The workstations that experienced problems from this process were corrected with
an upgrade patch. The costs incurred by the General Partners are not being
charged to the Partnership. In regard to third parties, the Partnership's
General Partner is in the process of evaluating the potential adverse impact
that could result from the failure of material service providers to be year 2000
compliant. A detailed survey and assessment of third party readiness was sent to
material third parties in the fourth quarter of 1998. The results of the surveys
will be compiled in early 1999. No estimate can be made at this time as to the
impact of the readiness of such third parties. The Partnership's General Partner
plans to have these issues fully assessed in early 1999, at which time the risks
will be addressed and a contingency plan will be implemented if necessary.
-14-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Description:
Agreement of Limited Partnership as adopted on May 3, 1989 and
Amendments thereto dated May 25, 1989 and June 21, 1989 (1)
Form of Amended and Restated Agreement of Limited Partnership
(included in Prospectus as Exhibit A)(2)
Form of Purchase and Sale Agreement pertaining to the Partnership's
Acquisition of Local Partnership Interests (2)
Form of Amended and Restated Agreement of Local Limited Partnership
of Local Partnerships (2)
Amendment to Certificate of Limited Partnership dated October 1,
1997 (3)
Amendment Number 1 to Prudential-Bache Tax Credit Properties L.P.
Amended and Restated Agreement of Limited Partnership, dated October 1, 1997 (3)
Financial Data Schedule (filed herewith).
-15-
<PAGE>
(b) Reports on Form 8-K - None
(1) Filed as a exhibit to Pre-Effective Amendment No. 1 to Form
S-11 Registration Statement (No. 33-28571) (the "Registration Statement") and
incorporated herein by reference.
(2) Filed as an exhibit to Pre-Effective Amendment No. 2 to Form
S-11 Registration Statement and incorporated herein by reference.
(3) Filed as an exhibit to Registrant's Current Report on Form 8-K
dated October 1, 1997 and incorporated herein by reference.
-16-
<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.
PATRIOT TAX CREDIT PROPERTIES L.P.
(Registrant)
By: RCC PARTNERS 96, L.L.C.,
General Partner
Date: January 26, 1999
By: /s/ Alan P. Hirmes
--------------------------------
Alan P. Hirmes
Senior Vice President and
Chief Financial Officer
Date: January 26, 1999
By: /s/ Glenn F. Hopps
--------------------------------
Glenn F. Hopps
Treasurer and
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the financial
statements for Patriot Tax Credit Properties L.P. and is qualified in its
entirety by reference to such financial statements
</LEGEND>
<CIK> 0000850184
<NAME> Patriot Tax Credit Properties L.P.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,381,849
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 200,698
<PP&E> 79,048,458
<DEPRECIATION> 17,081,717
<TOTAL-ASSETS> 67,205,631
<CURRENT-LIABILITIES> 9,976,812
<BONDS> 45,264,886
0
0
<COMMON> 0
<OTHER-SE> 11,963,933
<TOTAL-LIABILITY-AND-EQUITY> 67,205,631
<SALES> 0
<TOTAL-REVENUES> 7,051,928
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,918,514
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,165,510
<INCOME-PRETAX> (2,484,178)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,484,178)
<EPS-PRIMARY> (64.83)
<EPS-DILUTED> 0
</TABLE>
