SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - --- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - --- EXCHANGE ACT OF 1934
Commission File Number 0-24652
FREEDOM TAX CREDIT PLUS L.P.
----------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3533987
- - ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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
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>
FREEDOM TAX CREDIT PLUS L.P.
AND CONSOLIDATED PARTNERSHIPS
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996*
<S> <C> <C>
Property and equipment - (at cost, net of accumulated depreciation
of $27,965,790 and $24,353,844, respectively) $115,571,073 $118,149,068
Cash and cash equivalents 1,368,385 2,243,763
Investment in marketable securities 109,942 115,961
Cash held in escrow 3,797,762 3,511,010
Deferred costs (net of accumulated amortization of $1,053,355 and
$947,180, respectively) 2,355,196 2,461,371
Other assets 896,129 1,142,343
------------ ------------
Total Assets $124,098,487 $127,623,516
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage notes payable $ 71,991,492 $ 72,249,613
Accounts payable and other liabilities 2,280,163 2,515,873
Due to local general partners and affiliates 3,021,721 3,385,520
Due to general partners and affiliates (Note 2) 1,035,062 959,842
------------ ------------
Total Liabilities 78,328,438 79,110,848
Minority interests 7,728,851 7,930,508
------------ ------------
Partners' Capital:
Limited partners (72,896 BAC's
issued and outstanding) 38,336,399 40,845,993
General partners (300,283) (274,934)
Unrealized gain on marketable securities 5,082 11,101
------------ ------------
Total Partners' Capital 38,041,198 40,582,160
------------ ------------
Total Liabilities and Partners' Capital $124,098,487 $127,623,516
============ ============
</TABLE>
* Reclassified for comparative purposes
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
FREEDOM TAX CREDIT PLUS L.P.
AND CONSOLIDATED PARTNERSHIPS
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------------ ------------------------------
1996 1995* 1996 1995*
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Rental income $ 2,962,674 $ 2,878,929 $ 5,909,644 $ 5,777,285
Other (principally interest) 340,965 332,459 648,196 649,618
------------ ------------ ------------ ------------
3,303, 639 3,211,388 6,557,840 6,426,903
------------ ------------ ------------ ------------
Expenses
General and administrative 478,679 502,466 1,024,853 991,419
General and administrative-
related parties (Note 2) 251,009 307,799 501,280 593,004
Operating and other 333,267 272,896 664,769 581,700
Repairs and maintenance 551,036 457,679 1,022,169 848,388
Real estate taxes 223,094 205,375 452,957 416,028
Insurance 106,814 99,597 228,758 218,177
Financial, principally interest 1,288,113 1,219,042 2,511,137 2,441,208
Depreciation and amortization 1,350,462 1,371,138 2,718,121 2,784,281
------------ ------------ ------------ ------------
4,582,474 4,435,992 9,124,044 8,874,205
------------ ------------ ------------ ------------
Loss before minority interest (1,278,835) (1,224,604) (2,566,204) (2,447,302)
Minority interest in loss of
subsidiary partnerships 15,803 14,179 31,261 28,525
------------ ------------ ------------ ------------
Net loss $ (1,263,032) $ (1,210,425) $ (2,534,943) $ (2,418,777)
============ ============ ============ ============
Net loss - limited partners $ (1,250,402) $ (1,198,321) $ (2,509,594) $ (2,394,589)
============ ============ ============ ============
Number of BACs outstanding $ 72,896 72,896 72,896 72,896
============ ============ ============ ============
Net loss per BAC $ (17.15) $ (16.44) $ (34.42) $ (32.85)
============ ============ ============ ============
</TABLE>
* Reclassified for comparative purposes
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
FREEDOM TAX CREDIT PLUS L.P.
AND CONSOLIDATED PARTNERSHIPS
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
Net unrealized
Gain (Loss) on
Limited General Marketable
Total Partners Partners Securities
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Partners' capital - April 1, 1996 $40,582,160 $40,845,993 $(274,934) $ 11,101
Net loss (2,534,943) (2,509,594) (25,349) 0
Change in net unrealized gain
on marketable securities (6,019) 0 0 (6,019)
----------- ----------- ------------ -----------
Partners' capital - September 30, 1996 $38,041,198 $38,336,399 $ (300,283) $ 5,082
=========== =========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
FREEDOM TAX CREDIT PLUS L.P.
AND CONSOLIDATED PARTNERSHIPS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,534,943) $ (2,418,777)
------------ ------------
Adjustments to reconcile net loss to net cash (used in) provided by operating
activities:
Depreciation and amortization 2,718,121 2,784,281
Minority interest in loss of subsidiaries (31,261) (28,525)
Decrease in other assets 246,214 144,430
(Decrease) increase in accounts payable and other liabilities (235,710) 1,406
Increase in cash held in escrow (286,752) (338,127)
Increase in due to general partners and affiliates 75,220 170,300
Decrease in due to local general partners and affiliates (363,799) (65,795)
------------ ------------
Net cash (used in) provided by operating activities (412,910) 249,193
------------ ------------
Cash flows from investing activities:
Acquisition of property and equipment (33,951) (5,549)
------------ ------------
Net cash used in investing activities (33,951) (5,549)
------------ ------------
Cash flows from financing activities:
Repayments of mortgage notes (258,121) (216,376)
Decrease in capitalization of consolidated subsidiaries
attributable to minority interest (170,396) (176,237)
------------ ------------
Net cash used in financing activities (428,517) (392,613)
------------ ------------
Net decrease in cash and cash equivalents (875,378) (148,969)
Cash and cash equivalents at beginning of period 2,243,763 2,421,179
------------ ------------
Cash and cash equivalents at end of period $ 1,368,385 $ 2,272,210
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
FREEDOM TAX CREDIT PLUS L.P.
AND CONSOLIDATED PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
NOTE 1 - General
The consolidated financial statements include the accounts of
Freedom Tax Credit Plus L.P. ("the Partnership") and 42 subsidiary partnerships
("subsidiary partnerships" or "Local Partnerships") in which the Partnership is
a limited partner. Through the rights of the Partnership and/or the General
Partner, which General Parnter has a contractual obligation to act on behalf of
the Partnership, to remove the general partner of the subsidiary local
partnerships and to approve certain major operating and financial decisions, the
Partnership has a controlling financial interest in the subsidiary local
partnerships. All intercompany accounts and transactions with the subsidiary
partnerships have been eliminated in consolidation.
The Partnership's fiscal quarter ends September 30. All
subsidiaries have fiscal quarters ending June 30. Accounts of the subsidiaries
have been adjusted for intercompany transactions from July 1 through September
30.
All intercompany accounts and transactions have been eliminated in
consolidation.
Increases (decreases) in the capitalization of consolidated
subsidiaries attributable to minority interest arise from cash contributions and
cash distributions to the minority interest partners.
Losses attributable to minority interests which exceed the
minority interests' investment in a subsidiary have been charged to the
Partnership. Such losses aggregated approximately $16,000 and $14,000 and
$31,000 and $29,000 for the three and six months ended September 30, 1996 and
1995, respectively. The Partnership's investment in each subsidiary is generally
equal to the respective subsidiary's partners' equity less minority interest
capital, if any.
In March 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Asset and for Long-Lived Assets to Be Disposed
Of". Under SFAS No. 121, the Partnership is required to review long-lived assets
and certain identifiable intangibles for impairment whenever events or changes
in circumstances indicate that the book value of an asset may not be
recoverable. An impairment loss should be recognized whenever the review
demonstrates that the book value of a long-lived asset is not recoverable.
Effective April 1, 1996, the Partnership adopted SFAS No. 121, consistent with
the required adoption period.
Property and equipment are carried at the lower of depreciated
cost or estimated amounts recoverable through future operations and ultimate
disposition of the property. Cost includes the purchase price, acquisition fees
and expenses, and any other costs incurred in acquiring the properties. As
required by SFAS 121, a provision for loss on impairment of assets is recorded
when estimated amounts recoverable through future operations and sale of the
property on an undiscounted basis are below depreciated cost. However,
depreciated cost, adjusted for such reductions in value, if any, may be greater
than the fair value. Property investments themselves are reduced to estimated
fair value (generally using discounted cash flows) when the property is
considered to be impaired and the depreciated cost exceeds estimate fair value.
Through September 30, 1996, the Partnership has not recorded any provisions for
loss on impairment of assets or reduction to estimated fair value.
The books and records of the Partnership are maintained on the
accrual basis of accounting in accordance with generally accepted accounting
principles. In the opinion of the general partners of the Partnership, the
accompanying unaudited financial statements contain all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the financial
position of the Partnership as of September 30, 1996, the results of operations
for the three and six months ended September 30, 1996 and 1995 and its cash
flows for the six months ended September 30, 1996 and 1995. However, the
operating results for the six months ended September 30, 1996 may not be
indicative of the results for the year.
-6-
<PAGE>
FREEDOM TAX CREDIT PLUS L.P.
AND CONSOLIDATED PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
NOTE 1 - General (continued)
Certain information and note disclosure normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted or condensed. These condensed financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Partnership's Annual Report on Form 10-K for the period ended
March 31, 1996.
NOTE 2 - Related Party Transactions
The costs incurred to related parties for the three and six
months ended September 30, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
--------------------------- ---------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Partnership management
fees (a) $ 50,000 $ 100,000 $ 100,000 $ 200,000
Expense reimbursement (b) 34,241 32,833 73,935 65,066
Property management fees (c) 150,768 157,966 295,345 293,938
Local administrative fee (d) 16,000 17,000 32,000 34,000
--------- --------- --------- ---------
$ 251,009 $ 307,799 $ 501,280 $ 593,004
========= ========= ========= =========
</TABLE>
(a) The General Partners are entitled to receive a Partnership
Management Fee, after payment of all Partnership expenses, which together with
the Annual Local Administrative Fees will not exceed a maximum of 0.5% per annum
of Invested Assets (as defined in the Partnership Agreement), for administering
the affairs of the Partnership. Subject to the foregoing limitation, the
partnership management fee will be determined by the General Partners in their
sole discretion based upon their review of the Partnership's investment. Unpaid
Partnership Management Fees for any year will be accrued without interest and
will be payable only to the extent of available funds after the Partnership has
made distributions to the Limited Partners and BACs holders of sale or
refinancing proceeds equal to their original Capital Contributions plus a 10%
Priority Return thereon (to the extent not theretofore paid out of Cash Flow).
Partnership management fees owed to the General Partners amounting to
approximately $850,000 and $950,000 were accrued and unpaid as of September 30,
1996 and March 31, 1996, respectively.
(b) The Partnership reimburses the General Partners and their
affiliates for actual Partnership operating expenses incurred by the General
Partners and their affiliates on the Partnership's behalf. The amount of
reimbursement from the Partnership is limited by the provisions of the
Partnership Agreement. Another affiliate of the General Partners performs asset
monitoring for the Partnership. These services include site visits and
evaluations of the subsidiary partnerships' performance.
(c) Property management fees incurred by subsidiary partnerships
amounted to $210,212 and $211,401, and $414,956 and $405,777 for the three and
six months ended September 30, 1996 and 1995, respectively. Of these fees
$142,085 and $149,700, and $278,059 and $277,406 were incurred to affiliates of
the subsidiary partnerships for the three and six months ended September 30,
1996 and 1995, respectively. In addition,
-7-
<PAGE>
FREEDOM TAX CREDIT PLUS L.P.
AND CONSOLIDATED PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
NOTE 2 - Related Party Transactions (continued)
$21,941 and $23,127, and $43,033 and $45,055 were incurred to affiliates of the
Related General Partner for the three and six months ended September 30, 1996
and 1995, respectively. Of such amounts incurred to affiliates of the Related
General Partner, $13,258 and $14,861, and $25,747 and $28,523 for the three and
six months ended September 30, 1996 and 1995, respectively, are also included in
amounts incurred to affiliates of the subsidiary partnerships because they are
incurred to affiliates of both.
(d) Freedom SLP L.P., a special limited partner of the subsidiary
partnerships is entitled to receive an annual local administrative fee of up to
$2,500 per year from each subsidiary partnership.
-8-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
- - -------------------------------
The Partnership's primary source of funds was from the proceeds of
its public offering. During the six months ended September 30, 1996, the primary
sources of liquidity included working capital reserves, interest earned on
working capital reserves and distributions received from the Local Partnerships.
A working capital reserve of approximately $2,551,360 (3.8% of
gross equity raised) was initially established. Approximately $714,000 remains
in the reserve as of September 30, 1996 and the balance was previously used to
pay operating expenses of the Partnership including Partnership management fees
payable to the General Partners.
During the six months ended September 30, 1996 and 1995, the
distributions received from the Local Partnerships approximated $114,000 and
$123,000. Cash distributions from Local Partnerships are not expected to reach a
level sufficient to permit cash distributions to BACs holders. These
distributions as well as the working capital reserves referred to in the
preceding paragraph will be used to meet the operating expenses of the
Partnership.
During the six months ended September 30, 1996, cash and cash
equivalents of the Partnership and its forty two consolidated Local Partnerships
decreased approximately $875,000 primarily as a result of cash used in operating
activities ($413,000), acquisition of property and equipment ($34,000), a
decrease in the capitalization of Local Partnerships attributable to minority
interest ($170,000) and repayments of mortgage loans ($258,000). Included in the
adjustments to reconcile the net loss to cash used in operating activities is
depreciation and amortization in the amount of approximately $2,718,000.
Management is not aware of any trends or events, commitments or
uncertainties, which have not otherwise been disclosed, that will or are likely
to impact liquidity in a material way. Management believes the only impact would
be from laws that have not yet been adopted. The portfolio is diversified by the
location of the properties around the United States so that if one area of the
country is experiencing downturns in the economy, the remaining properties in
the portfolio may not be experiencing downswings. However, the geographic
diversification of the portfolio may not protect against a general downturn in
the national economy. The Partnership has fully invested the proceeds of its
offering in 42 local partnerships, all of which fully have their tax credits in
place. The tax credits are attached to the project for a period of ten years and
are transferable with the property during the remainder of the ten year period.
If trends in the real estate market warranted the sale of a property, the
remaining tax credits would transfer to the new owner; thereby adding
significant value to the property on the market.
Results of Operations
- - ---------------------
In March 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Asset and for Long-Lived Assets to Be Disposed
Of". Under SFAS No. 121, the Partnership is required to review long-lived assets
and certain identifiable intangibles for impairment whenever events or changes
in circumstances indicate that the book value of an asset may not be
recoverable. An impairment loss should be recognized whenever the review
demonstrates that the book value of a long-lived asset is not recoverable.
Effective April 1, 1996, the Partnership adopted SFAS No. 121, consistent with
the required adoption period.
Property and equipment are carried at the lower of depreciated
cost or estimated amounts recoverable through future operations and ultimate
disposition of the property. Cost includes the purchase price, acquisition fees
and expenses, and any other costs incurred in acquiring the properties. As
required by SFAS 121, a provision for loss on impairment of assets is recorded
when estimated amounts recoverable through future operations and sale of the
property on an undiscounted basis are below depreciated cost. However,
depreciated cost, adjusted for such reductions in value, if any, may be greater
than the fair value. Property investments themselves are reduced to
-9-
<PAGE>
estimated fair value (generally using discounted cash flows) when the property
is considered to be impaired and the depreciated cost exceeded estimated fair
value. Through September 30, 1996, the Partnership has not recorded any
provisions for loss on impairment of assets or reduction to estimated fair
value.
The results of operations for the three and six months ended
September 30, 1996 continues to be in the form of rental income with
corresponding expenses divided among operations, depreciation and mortgage
interest.
Rental income has remained fairly consistent with increases of 3%
and 2% for the three and six months ended September 30, 1996 as compared to the
corresponding period in 1995, primarily due to rental rate increases.
Total expenses excluding general and administrative-related
parties, operating and other, and repairs and maintenance remained fairly
constant with increases of 1% for both the three and six months ended September
30, 1996 as compared to the corresponding periods in 1995.
General and administrative-related parties expenses decreased
approximately $57,000 and $92,000 for the three and six months ended September
30, 1996 as compared to the corresponding periods in 1995 primarily due to a
decrease in partnership management fees.
Operating and other expenses increased approximately $60,000 and
$83,000 for the three and six months ended September 30, 1996 as compared to the
corresponding periods in 1995 primarily due to an increase in utilities at four
Local Partnerships.
Repairs and maintenance increased approximately $93,000 and
$174,000 for the three and six months ended September 30, 1996, as compared to
the corresponding periods in 1995. These increases are primarily due to an
increase in painting expenses at two Local Partnerships, parking lot and asphalt
repairs as well as carpet replacement at a third Local Partnership, landscaping
and carpet replacement at a fourth Local Partnership, as well as small increases
at two other Local Partnerships.
-10-
<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:
27 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K - No reports on Form 8-K were filed
during the quarter.
-11-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
FREEDOM TAX CREDIT PLUS L.P.
----------------------------
(Registrant)
By: RELATED FREEDOM ASSOCIATES L.P.,
a General Partner
By: RELATED FREEDOM ASSOCIATES INC.,
a General Partner
Date: November 13, 1996
By: /s/ Alan Hirmes
---------------
Alan Hirmes, Vice President
(Principal Financial Officer)
Date: November 13, 1996
By: /s/ Richard A. Palermo
----------------------
Richard A. Palermo, Treasurer
(Principal Accounting Officer)
and
By: FREEDOM G.P. INC.,
a General Partner
Date: November 13, 1996
By: /s/ Paul L. Abbott
------------------
Paul L. Abbott, President
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the
financial statements for Freedom Tax Credit Plus L.P. and is qualified in
its entirety by reference to such financial statements
</LEGEND>
<CIK> 0000854926
<NAME> Freedom Tax Credit Plus L.P.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,276,089
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,251,325
<PP&E> 143,536,863
<DEPRECIATION> 27,965,790
<TOTAL-ASSETS> 124,098,487
<CURRENT-LIABILITIES> 78,328,438
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 45,770,049
<TOTAL-LIABILITY-AND-EQUITY> 124,098,487
<SALES> 0
<TOTAL-REVENUES> 6,557,840
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,612,907
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,511,137
<INCOME-PRETAX> (2,566,204)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,566,204)
<EPS-PRIMARY> (34.42)
<EPS-DILUTED> 0
</TABLE>
