10-K 1 a2052946z10-k.txt 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES --- EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2001 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. --------------------------------------------------------------- (formerly known as Prudential-Bache 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 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Beneficial Unit Certificates (Title of Class) 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 --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] DOCUMENTS INCORPORATED BY REFERENCE None CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN THIS ANNUAL REPORT ON FORM 10-K PURSUANT TO THE "SAFE HARBOR" PROVISION OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. -2- PART I Item 1. Business. GENERAL Patriot Tax Credit Properties L.P. (the "Registrant"), a Delaware limited partnership, was formed on May 3, 1989 and will terminate on December 31, 2029 unless terminated sooner under the provisions of the Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement"). The Registrant was formed to invest in low-income, multi-family residential complexes ("Apartment Complexes" or "Properties") and, to a lesser extent, in historic apartment complexes undergoing rehabilitation ("Historic Complexes" or "Properties") through the acquisition of interests (the "Local Partnership Interests") in local partnerships (the "Local Partnerships") that are the owners of the Properties. These investments were made with proceeds from the initial sale of 38,125 Beneficial Unit Certificates ("BUC$"). The Registrant's fiscal year for tax and financial reporting purposes ends on December 31 and March 31, respectively. The primary objectives of the Registrant are to provide the limited partners with low-income housing tax credits allowed under Section 42 of the Internal Revenue Code of 1986, as amended ("Housing Tax Credits") over the credit period for each Property in which the Registrant has invested and to a lesser extent, historic rehabilitation tax credits allowed under Section 48(g) of the Internal Revenue Code of 1986, as amended. The Registrant invested only in Local Partnerships that owned Properties which qualified for Housing Tax Credits. No properties were acquired from any entity in which Prudential-Bache Properties, Inc. or any affiliate had an interest. The Registrant's investments are composed of limited partnership interests in Local Partnerships owning then newly constructed or existing structures that have undergone substantial rehabilitation. The Local Partnerships in which the Registrant has invested must be operated in accordance with the low-income housing rules and regulations to protect the related tax credits. It is not expected that any of the Local Partnerships in which the Registrant has invested will generate any significant cash flow to provide distributions to the limited partners. The Registrant expects that in order to avoid recapture of Housing Tax Credits, its holding period with respect to each Local Partnership Interest will be at least as long as the 15-year compliance period and may be substantially longer. Each Property in which the Registrant invested is substantially mortgaged. However, the aggregate indebtedness did not exceed 85% of the appraised fair market value of any Property at the time of acquisition. The first mortgage financing encumbering the Properties was arranged by the general partner of the Local Partnership (the "Local General Partner") owning the Properties prior to the time the Registrant became a limited partner therein. The Registrant acquired its Local Partnership Interest in each Local Partnership by purchasing it directly from the existing limited and/or general partner of the Local Partnership. In each of the Registrant's investments, the Local General Partner of the Local Partnership owning the complex was required to provide personal guarantees and/or establish cash escrows, financial bonds and/or letters of credit to protect the Registrant against, among other things, the failure to meet certain operating criteria. The Registrant is engaged solely in the business of investing in Local Partnerships that own Properties; therefore, presentation of industry segment information is not applicable. For more information regarding the Properties, see Item 2, Properties. For more information regarding the Registrant's operations, see Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations. -3- One Property had income which exceeded 15% of the Registrant's total revenue. Income from Palm Beach Apartments Ltd. ("Summer Creek Villas") as a percentage of the Registrant's total revenue was 56.56%, 53.56% and 53.57% during the years ended March 31, 2001, 2000 and 1999, respectively. No single tenant accounted for 10% or more of the Registrant's total revenue for any of the three years in the period ended March 31, 2001. GENERAL PARTNER On October 1, 1997, as part of the settlement of class action litigation known as Prudential Securities Inc. Limited Partnership Litigation, MDL No. 1005, Prudential-Bache Properties, Inc. ("PBP") withdrew as the general partner and transferred its general partner interest in the Partnership to RCC Partners 96, L.L.C. (the "New GP"), an affiliate of Related Capital Company ("RCC") pursuant to a purchase agreement dated as of December 19, 1996 among PBP and its affiliates and RCC (the "Purchase Agreement"). Affiliates of RCC have in the past provided and currently provide services to the Registrant and also serve as general or co-general partner of five of the eight Local Partnerships in which the Registrant has an interest. The Registrant's Partnership Agreement was amended to reflect this withdrawal and admission and authorized PBP to transfer and assign its interest in the Registrant to the New GP and to withdraw from the Registrant. The terms of the transaction are more fully described in the Registrant's Information Statement dated June 18, 1997 (the "Information Statement"), which was previously distributed to all partners of the Registrant. Pursuant to the Purchase Agreement, P-B Tax Credit S.L.P. ("PBSLP") withdrew as special limited partner of each of the Local Partnerships and was replaced by Independence SLP L.P. (the "New SLP"), an affiliate of RCC. All special limited partnership interests in the Local Partnerships were transferred to the New SLP. Also pursuant to the Purchase Agreement, Prudential-Bache Investor Services II, Inc. ("P-B II") withdrew as assignor limited partner of the Partnership and was replaced by Related Insured BUC$ Associates, Inc., an affiliate of RCC, (the "New ALP"). All assignor limited partnership interests in the Registrant were transferred to the New ALP. The New GP is a Delaware limited liability company which was formed in July 1996, and is owned and controlled by the partners of RCC. The New GP has no material net worth. Affiliates of the New GP and RCC have had significant involvement with the Registrant and the Local Partnerships, of which five are owned by RCC affiliates. During the acquisition phase of the Registrant's operation, affiliates of RCC provided among other services, various services to PBP pursuant to a Real Estate Consulting Services Agreement. These services included the identification, evaluation, negotiation and closing of certain of the Registrant's investments for which RCC was paid a portion of the acquisition fees and expenses paid to PBP. RCC provided, in the past and will continue to provide ongoing monitoring services with respect to the Registrant's investments pursuant to the Property Investment Monitoring Agreement for which RCC, in the past, received from PBP a portion of the partnership management fee payable to PBP and an annual expense allowance of up to $1,300 per site visit (after the initial four site visits). Pursuant to the Purchase Agreement, the following changes were made to the Partnership Agreement: (a) amended to change the name of the Registrant to "Patriot Tax Credit Properties L.P.", a Delaware limited partnership. (b) amended to confirm that PBP continues to be party to the indemnification provisions set forth in the Partnership Agreement. (c) amended to reflect: (1) the reduction in the General Partner's maximum participating interest in cash flow from 0.5% annually of invested assets to 0.375% annually; (2) the reduction by 50% of the -4- General Partner's residual interest in the Registrant, comprised of (i) subordinated interest in disposition proceeds and (ii) interest in distributions of sale or refinancing proceeds; and (3) corresponding reductions in the General Partner's interest in profits and losses. Finally, pursuant to the Purchase Agreement, PBP and PBSLP forgave all deferred and unpaid fees due to them by the Registrant and the Local Partnerships. The aggregate amount of such deferred and unpaid fees was $1,034,498 as of September 30, 1997 and was reflected as a capital contribution in the Consolidated Statement of Changes in Partners' Capital. COMPETITION The General Partner has formed various entities to engage in businesses that may be competitive with the Registrant. The Registrant's business is affected by competition to the extent that the underlying Properties from which it derives tax credits may be subject to competition relating to rental rates and amenities from comparable neighboring properties. EMPLOYEES The Registrant has no employees. Management and administrative services for the Registrant are performed by the General Partner and its affiliates pursuant to the Partnership Agreement. See Notes 1, 3 and 6 to the consolidated financial statements set forth in Item 8. -5- Item 2. Properties. As of March 31, 2001, the Registrant holds interests in Local Partnerships which own the following Properties which continue to be operated in a manner to qualify for Housing Tax Credits:
Registrant's Low-Income Occupancy Housing Tax Credit Number Rents as of Rate as of for the Year Ended Property (a) of Units June 1, 2001 June 1, 2001 December 31, 2000 ------------ -------- ------------ ------------ ------------------ RMB Limited Partnership 196 $445-$710 96% $ 184,464 (Hubbard's Ridge) Garland, TX Cutler Canal II 216 361-626 99% 777,093 Associates, Ltd. Miami, FL Diamond Street Venture 48 473-540 96% 258,188 Philadelphia, PA Papillion Heights 48 435-480 88% 173,661 Apartments L.P. Papillion, NE Hill Top Homes 171 530-725 95% 616,545 Apartments Limited Partnership Arlington, TX Palm Beach 770 555-775 87% 2,241,160 Apartments, Ltd. (Summer Creek Villas) West Palm Beach, FL Brookland Park Plaza 77 526 92% 429,238 Limited Partnership Richmond, VA Compton Townhouses 39 744 95% 205,620 Limited Partnership ---------- Cincinnati, OH $4,885,969 ==========
(a) At March 31, 2001, the Registrant 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. Hubbard's Ridge is comprised of seven separate three-story buildings on approximately 6.5 acres. The buildings are wood-framed structures on post-tensioned flat slab grade foundations and have white stucco exteriors with asphalt shingles on sloped roofs. Each building contains an average of 28 units. The unit mix consists of 164 one-bedroom units ranging in size from 657 square feet to 783 square feet and 32 two-bedroom units ranging in size from 1,145 square feet to 1,167 square feet. Cutler Canal II is comprised of 216 units in 13 two-story garden-style residential buildings on approximately 9.4 acres. It borders on a Metro-Dade Water Management District Canal on the east with approximately 1,200 square feet of frontage giving certain units waterfront views. Each building has a laundry room and two storage rooms. There are three basic floor plans with sizes ranging from 700 square feet for a one-bedroom apartment to 1,100 square feet for a three-bedroom unit. -6- Diamond Street consists of 48 units in 16 buildings. The buildings are three-story brownstone row houses with historic features and similar layouts. Of the 48 apartment units, 46 are two-bedroom apartment units and two are efficiency apartment units. Papillion Heights consists of two buildings, each containing 24 units. The buildings are 2 1/2 stories of wood frame and brick exterior with pitched roofs. Of the total 48 apartment units, two are one-bedroom units and 46 are two-bedroom units. Hill Top Homes is comprised of a two-story building surrounded by 13 one-story fourplexes which are brick with wood siding and pitched roofs. The buildings are surrounded by a security gate of brick columns and wrought iron fencing with a guard house at the entrance. Of the total 171 apartment units, 18 are three-bedroom/one bath apartment units, each comprising approximately 925 square feet; 52 are two-bedroom/two bath apartment units, each comprising approximately 1,100 square feet; 98 are two-bedroom/one bath apartment units, each comprising approximately 936 square feet; and three are one-bedroom/one bath apartment units, each comprising approximately 1,000 square feet. Summer Creek Villas consists of 61 concrete block and stucco buildings housing 770 apartment units situated on approximately 60 acres of residential-planned unit-development zoned land. 182 of the units are one-bedroom/one-bath apartments, each comprising 570 square feet; 372 are two-bedroom/one-bath apartments, each comprising 773 square feet; 144 are three-bedroom/two-bath apartments, each comprising 980 square feet; and 72 are three-bedroom/two-bath villa units, each comprising 1,050 square feet. In September 1997, the Local General Partner for Summer Creek Villas decided to divide the apartment complex into two individual entities called the Arbors and the Crossings. Brookland Park Plaza is a three-level brick building and is a registered historic landmark. The building is comprised of stucco and brick exterior and a sloped red glazed tile roof. It is a 77-unit development with 68,564 net rentable square feet. All 77 units are one-bedroom apartment units each comprising approximately 890 square feet. Each unit contains a refrigerator, range oven, carpeting and air-conditioning. Brookland Park Plaza also maintains a community room for tenants. The Compton Townhouses consists of six two-story buildings containing a total of 39 townhouse units. Four of the buildings contain six units; one building has seven units; and one has eight units. All units have three bedrooms and two-and-one-half baths. Total gross building area is 52,595 square feet; net rentable area is 47,814 square feet. The average net area of the subject units is 1,226 square feet. For additional information describing the Registrant's properties and encumbrances, see Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations and Schedule III - Real Estate and Accumulated Depreciation. Item 3. Legal Proceeding None. Item 4. Submission of Matters to a Vote of Limited Partners None. PART II Item 5. Market for the Registrant's BUC$ and Related Limited Partner Matters As of June 1, 2001, there were 2,232 holders of record owning a total of 38,125 BUC$. Additionally, the General Partner holds one BUC$. A significant secondary market for BUC$ has not developed, -7- and it is not expected that one will develop in the future. There are also certain restrictions set forth in the Partnership Agreement limiting the ability of a limited partner to transfer BUC$. There are no material restrictions upon the Registrant's present or future ability to make distributions in accordance with the provisions of the Partnership Agreement; however, the Registrant has paid no distributions from operations or otherwise since inception. No distributions are anticipated in the foreseeable future. -8- Item 6. Selected Financial Data. The following table presents selected financial data of the Registrant. This data should be read in conjunction with the consolidated financial statements of the Registrant and the notes thereto set forth in Item 8.
For the Years ended March 31, ------------------------------------------------------------------------- OPERATIONS 2001 2000 1999 1998 1997 ---------- ----------- ----------- ----------- ----------- ----------- Rental and other income $ 9,340,800 $ 7,915,054 $ 9,079,891 $ 9,517,723 $ 9,775,005 =========== =========== =========== =========== =========== Interest income $ 39,888 $ 24,826 $ 32,104 $ 51,349 $ 41,291 =========== =========== =========== =========== =========== Interest expense $ 4,729,740 $ 4,408,997 $ 4,354,244 $ 4,362,919 $ 4,428,530 =========== =========== =========== =========== =========== Depreciation and amortization expenses $ 2,445,646 $ 2,433,206 $ 2,428,529 $ 2,448,723 $ 2,517,547 =========== =========== =========== =========== =========== Loss before minority interest and extraordinary item $(5,563,134) $(5,435,229) $(4,270,762) $(3,101,859) $(2,920,508) =========== =========== =========== =========== =========== Minority interest in loss of local partnerships $ 1,135,959 $ 637,201 $ 496,863 $ 428,961 $ 409,993 =========== =========== =========== =========== =========== Loss before extraordinary item $(4,427,175) $(4,798,028) $(3,773,899) $(2,672,898) $(2,510,515) =========== =========== =========== =========== =========== Extraordinary item - forgiveness of indebtedness $ 833,002 $ 1,656,843 $ 809,460 $ 0 $ 0 =========== =========== =========== =========== =========== Net loss $(3,594,173) $(3,141,185) $(2,964,439) $(2,672,898) $(2,510,515) =========== =========== =========== =========== =========== Loss before extraordinary item per limited partnership unit $ (115.54) $ (125.22) $ (98.49) $ (69.55) $ (65.19) Extraordinary item per limited partnership unit 21.74 43.24 21.13 0 0 ----------- ----------- ----------- ----------- ----------- Net loss per limited partner BUC$ $ (93.80) $ (81.98) $ (77.36) $ (69.55) $ (65.19) =========== =========== =========== =========== =========== Total assets $62,137,819 $64,662,321 $65,885,709 $68,835,813 $70,502,375 =========== =========== =========== =========== =========== Mortgage notes payable $43,955,708 $44,569,822 $45,127,197 $45,632,851 $46,099,028 =========== =========== =========== =========== ===========
-9- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. LIQUIDITY AND CAPITAL RESOURCES The Registrant 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 of Section 42 of the Internal Revenue Code in order to protect the Housing Tax Credits. The Registrant's primary source of funds is rental revenues, which are fully utilized at the property level. As of March 31, 2001, there were no working capital reserves available to fund Registrant level expenses. The Registrant is dependent upon the support of the General Partner and certain of its affiliates in order to meet its obligations at the Registrant level. The General Partner and these affiliates have agreed to continue such support for the foreseeable future. At the Local Partnership level, certain Local General Partners and/or their affiliates have made deficit guaranty agreements with respect to the Local Partnerships which, under certain circumstances, required the Local General Partners and/or their affiliates to fund cash flow deficits. All operating deficit guaranty agreements have expired. These operating deficit advances do not bear interest and are repayable by the Local Partnership in accordance with the respective deficit guaranty agreements. In addition, the Registrant's financial statements as of March 31, 2001 and 2000 also reflect payables of $427,000 under operating deficit guaranty agreements at Hubbard's Ridge and Hill Top Homes, which have expired. As of March 31, 2001, all operating deficit guaranty agreements have expired. SUMMER CREEK VILLAS LOCAL PARTNERSHIP The Summer Creek Villas has experienced significant declining occupancy levels over the course of the last few years, which has resulted in recurring losses from operations and has adversely affected the liquidity of Summer Creek Villas. Despite an increase in occupancy levels during 2000, Summer Creek Villas' operations are impeded by the inability to significantly raise economic rents. Summer Creek Villas has been unable to obtain maximum rents due to the competitive market. Potential residents are restricted based on county median income levels, which limit the maximum income that a prospective resident can earn. The Summer Creek Villas has been obligated, since 1996, to repay significant amounts of principal on its mortgage. During 1999 and 2000, in an effort to improve occupancy, the Summer Creek Villas invested funds to improve the physical condition of the property. Such improvements primarily consisted of landscaping, new playground, asphalt repairs, and individual units fixture and finish replacement. The Local General Partner of Summer Creek Villas was formerly obligated to fund operating deficits under two separate operating deficit guaranty agreements. Total advances made by the Local General Partner under the operating deficit guaranties totaled $2,742,460. In addition, the Local General Partner has made voluntary loans in excess of its obligations under the guaranties to fund operations of $1,945,074, even though as of December 31, 1997, the Local General Partner was no longer required to fund operations of the Summer Creek Villas. Effective January 1, 1999, Summer Creek Villas entered into a funding agreement with its Class C local limited partner which provides for a series of loans to be made to Summer Creek Villas in each of the years 1999, 2000 and 2001, in amounts not to exceed $2,000,000 in the aggregate. Although no formal agreements have been reached with the other partners, the Partnership (which is the Class A limited partner) and the other limited partners have in the past provided, and expect to continue to provide in the future loans under the funding agreement. Loans made in 2001 and 2000 to fund operating deficit's total $2,436,936 and $3,169,761, respectively. These loans, if obtained, are expected to enable the Summer Creek Villas to continue operations and make payments on its mortgage while management endeavors to sustain the improved occupancy rates and rental rates to sufficient levels to sustain operations independent of such funding. -10- The Local General Partner has been considering restructuring the Summer Creek Villas' debt. As of March 31, 2001, however, no definitive agreements have been reached. Additionally, the Partnership expects that the anticipated project shortfall in 2001 will be approximately $1,300,000 and anticipated capital expenditures in 2001 will be approximately $700,000. As of March 31, 2001 and 2000, the consolidated financial statements include total assets of $33,168,512 and $34,674,355, respectively, total liabilities of $33,486,564 and $31,495,783, respectively, and a minority interest of $409,237and $1,543,965, respectively, attributable to this subsidiary. Summer Creek Villas' ability to continue its operations is dependent upon management achieving the plans described in the foregoing paragraphs. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Any adjustments would be limited solely to Summer Creek Villas' financial statements included herein. RESULTS OF OPERATIONS The operating results of the Local Partnerships consolidated herein are for the twelve-month periods ended December 31. Information disclosed below with respect to each Local Partnership is consistent with this method. FISCAL 2001 VS. FISCAL 2000 Rental income increased approximately $1,196,000 for the year ended March 31, 2001 as compared to 2000, primarily due to an increase in occupancy and rental rates at Summer Creek Villas, Hubbard's Ridge and Diamond Street Venture. Other income increased approximately $229,000 for the year ended March 31, 2001 as compared to 2000, primarily due to an increase in application fees, termination fees and tenant damage fees at Summer Creek Villas. Interest income increased approximately $15,000 for the year ended March 31, 2001 as compared to 2000, primarily due to an increase in interest income from the restricted replacement reserve cash at Summer Creek Villas. Repairs and maintenance increased approximately $614,000 for the year ended March 31, 2001 as compared to 2000, primarily due to the rehabilitation of apartments at Summer Creek Villas and Diamond Street Venture.. General and administrative increased approximately $481,000 for the year ended March 31, 2001 as compared to 2000, primarily due to an increase of salaries and employee costs, administration, marketing and promotion costs at Summer Creek Villas. Property management fees increased approximately $91,000 for the year ended March 31, 2001 as compared to 2000, primarily due to an increase in rental income resulting in higher management fees at Hubbard's Ridge, Summer Creek Villas, and a change in the management agent at Papillion. FISCAL 2000 VS. FISCAL 1999 Rental income decreased approximately $902,000 for the year ended March 31, 2000 as compared to 1999, primarily due to a decrease in occupancy at Summer Creek Villas due to an increase in evictions necessary to stabilize the tenant profile. -11- Other income decreased approximately $263,000 for the year ended March 31, 2000 as compared to 1999, primarily due to a decrease in application fees, termination fees and tenant damage fees at Summer Creek Villas. Interest income decreased approximately $7,000 for the year ended March 31, 2000 as compared to 1999, primarily due to a decrease in cash and cash equivalents during 1998 at Diamond Street Venture. Repairs and maintenance increased approximately $480,000 for the year ended March 31, 2000 as compared to 1999, primarily due to repairs made at Summer Creek Villas. General and administrative decreased approximately $503,000 for the year ended March 31, 2000 as compared to 1999, primarily due to increased legal expenses during 1999 at the Partnership level. Property management fees decreased approximately $38,000 for the year ended March 31, 2000 as compared to 1999, primarily due to the change in management agent at Summer Creek Villas. -12- PROPERTY INFORMATION The Registrant currently holds interests in eight Local Partnerships. The following schedule gives specific details about the related Properties.
Registrant's Gross Carrying Occupancy Low-Income Value of Rate at Housing Tax Credit Number Property at December 31, for the Year Ended Property (a) of Units March 31, 2001 2000(c) December 31, 2000 ------------ -------- -------------- ------------ ------------------ RMB Limited Partnership 196 $ 5,310,849 100% $ 184,464 (Hubbard's Ridge) Garland, TX Cutler Canal II 216 11,389,769 97 777,093 Associates, Ltd. Miami, FL Diamond Street Venture (b) 48 2,910,022 98 258,188 Philadelphia, PA Papillion Heights 48 2,206,424 77 173,661 Apartments L.P. Papillion, NE Hill Top Homes 171 8,104,661 92 616,545 Apartments Limited Partnership Arlington, TX Palm Beach 770 40,832,871 94 2,241,160 Apartments, Ltd. (Summer Creek Villas) West Palm Beach, FL Brookland Park Plaza 77 6,449,682 98 429,238 Limited Partnership Richmond, VA Compton Townhouses 39 2,445,632 100 205,620 Limited Partnership ----------- ---------- Cincinnati, OH $79,649,910 $4,885,969 =========== ==========
(a) At March 31, 2001, the Registrant 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. (b) The investment in property relating to the Diamond Street Venture was reduced by $2,700,000 as of March 31, 1995 representing a loss on impairment of assets. (c) Occupancies are calculated by dividing occupied units by total available units. -13- Net operating income before debt service of the Local Partnerships for each of the years in the three-year period ended March 31, 2001, was as follows:
2001 2000 1999 ---------- ---------- ---------- Hubbard's Ridge $ 403,000 $ 312,000 $ 227,000 Cutler Canal II 675,000 540,000 482,000 Diamond Street 16,000 96,000 131,000 Papillion Heights 89,000 76,000 109,000 Hill Top Homes 437,000 387,000 214,000 Summer Creek Villas 99,000 63,000 2,471,000 Brookland Park Plaza 193,000 205,000 373,000 Compton Townhouses 138,000 141,000 157,000 ---------- ---------- ---------- $2,050,000 $1,820,000 $4,164,000 ========== ========== ==========
Item 7A. Quantitative and Qualitative Disclosure About Market Risk. Not applicable. -14- Item 8. Financial Statements and Supplementary Data.
Sequential Page ---------- (a) 1. Financial Statements Independent Auditors' Reports 16 Consolidated Statements of Financial Condition as of March 31, 2001 and 2000 34 Consolidated Statements of Operations for the years ended March 31, 2001, 2000 and 1999 35 Consolidated Statements of Changes in Partners' Capital for the years ended March 31, 2001, 2000 and 1999 36 Consolidated Statements of Cash Flows for the years ended March 31, 2001, 2000 and 1999 37 Notes to Consolidated Financial Statements 38
-15- INDEPENDENT AUDITORS' REPORT To the Partners of Patriot Tax Credit Properties L.P. and Subsidiaries We have audited the accompanying consolidated balance sheets of Patriot Tax Credit Properties L.P. and Subsidiaries as of March 31, 2001 and 2000, and the related consolidated statements of operations, changes in partners' capital (deficit) and cash flows for the years ended March 31, 2001, 2000 and 1999. The consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Patriot Tax Credit Properties L.P. and Subsidiaries as of March 31, 2001, 2000, and the results of their operations and their cash flows for the years ended March 31, 2001, 2000 and 1999, in conformity with generally accepted accounting principles. Our report on the 2001 financial statements of a subsidiary included an explanatory paragraph describing conditions that raised substantial doubt regarding its ability to continue as a going concern, as discussed in note 10 to the consolidated financial statements. REZNICK FEDDER & SILVERMAN Bethesda, Maryland May 14, 2001 -16- [Letterhead of Dickey, Wolf & Humbard, LLC] INDEPENDENT AUDITORS' REPORT To The Partners RMB Limited Partnership We have audited the accompanying balance sheets of RMB LIMITED PARTNERSHIP (a Texas Limited Partnership) as of December 31, 2000 and 1999, and the related statements of income, partners' equity/(deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of RMB LIMITED PARTNERSHIP as of December 31, 2000 and 1999, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ DICKEY, WOLF & HUMBARD, LLC Certified Public Accountants Harrisonville, MO January 18, 2001 -17- [Letterhead of Dickey & Wolf, LLC] INDEPENDENT AUDITORS' REPORT To The Partners RMB Limited Partnership We have audited the accompanying balance sheets of RMB LIMITED PARTNERSHIP (a Texas Limited Partnership) as of December 31, 1999 and 1998, and the related statements of operations, partners' equity/(deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of RMB LIMITED PARTNERSHIP as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ Dickey & Wolf, LLC Certified Public Accountants Harrisonville, MO January 21, 2000 -18- [Letterhead of Reznick Fedder & Silverman] INDEPENDENT AUDITORS' REPORT To the Partners Cutler Canal II Associates, Ltd. We have audited the accompanying balance sheets of Cutler Canal II Associates, Ltd., as of December 31, 2000 and 1999, and the related statements of operations, partners' capital (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cutler Canal II Associates, Ltd., as of December 31, 2000 and 1999, and the results of its operations, and its cash flows for the years then ended, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 18 and 19 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Reznick Fedder & Silverman Atlanta, Georgia January 30, 2001 -19- [Letterhead of Reznick Fedder & Silverman] INDEPENDENT AUDITORS' REPORT To the Partners Cutler Canal II Associates, Ltd. We have audited the accompanying balance sheets of Cutler Canal II Associates, Ltd., as of December 31, 1999 and 1998, and the related statements of operations, partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cutler Canal II Associates, Ltd., as of December 31, 1999 and 1998, and the results of its operations, and its cash flows for the years then ended, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 18 and 19 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Reznick Fedder & Silverman Atlanta, Georgia January 25, 2000 -20- [Letterhead of Ziner, Kennedy & Lehan LLP] INDEPENDENT AUDITORS' REPORT To the Partners of Diamond Street Venture We have audited the accompanying balance sheets of Diamond Street Venture (a Pennsylvania limited partnership) as of December 31, 2000 and 1999, and the related statements of operations, changes in partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's general partners and contracted management agent. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's general partners and contracted management agent, as well as evaluating the overall financial statement presentation. We believe that our audits provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Diamond Street Venture as of December 31, 2000 and 1999, and the results of its operations, changes in partners' equity and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Ziner, Kennedy & Lehan LLP Boston, Massachusetts January 29, 2001 -21- [Letterhead of Ziner, Kennedy & Lehan LLP] INDEPENDENT AUDITORS' REPORT To the Partners of Diamond Street Venture We have audited the accompanying balance sheets of Diamond Street Venture (a Pennsylvania limited partnership) as of December 31, 1999 and 1998, and the related statements of operations, changes in partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's general partners and contracted management agent. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's general partners and contracted management agent, as well as evaluating the overall financial statement presentation. We believe that our audits provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Diamond Street Venture as of December 31, 1999 and 1998, and the results of its operations, changes in partners' equity and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Ziner, Kennedy & Lehan LLP Quincy, Massachusetts January 26, 2000 -22- [Letterhead of Schultz, Durham & Rapp, P.C.] INDEPENDENT AUDITOR'S REPORT To the Partners Papillion Heights Apartments, L.P. (A Limited Partnership) Springfield, Missouri We have audited the balance sheets of Papillion Heights Apartments, L.P. (a limited partnership), as of December 31, 2000 and 1999, and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Papillion Heights Apartments, L.P. (a limited partnership) as of December 31, 2000 and 1999, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Schultz, Durham & Rapp, P.C. Springfield, Missouri February 1, 2001 -23- [Letterhead of Schultz, Durham & Rapp, P.C.] INDEPENDENT AUDITOR'S REPORT To the Partners Papillion Heights Apartments, L.P. (A Limited Partnership) Springfield, Missouri We have audited the balance sheets of Papillion Heights Apartments, L.P. (a limited partnership), as of December 31, 1999 and 1998, and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Papillion Heights Apartments, L.P. (a limited partnership) as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Schultz, Durham & Rapp, P.C. Springfield, Missouri February 7, 2000 -24- [Letterhead of Dickey, Wolf & Humbard, LLC] INDEPENDENT AUDITORS' REPORT To the Partners Hill Top Homes Apartments Limited Partnership We have audited the accompanying balance sheets of HILL TOP HOMES APARTMENTS LIMITED PARTNERSHIP, (a Texas Limited Partnership) as of December 31, 2000 and 1999, and the related statements of operations, partners' equity/(deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of HILL TOP HOMES APARTMENTS LIMITED PARTNERSHIP as of December 31, 2000 and 1999, and the results of its operations and its cash flows for they years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Dickey, Wolf & Humbard, LLC Certified Public Accountants Harrisonville, MO January 18, 2001 -25- [Letterhead of Dickey & Wolf, LLC] INDEPENDENT AUDITORS' REPORT To the Partners Hill Top Homes Apartments Limited Partnership We have audited the accompanying balance sheets of HILL TOP HOMES APARTMENTS LIMITED PARTNERSHIP, (a Texas Limited Partnership) as of December 31, 1999 and 1998, and the related statements of operations, partners' equity/(deficit) and cash flows for they years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of HILL TOP HOMES APARTMENTS LIMITED PARTNERSHIP as of December 31, 1999 and 1998, and the results of its operations and its cash flows for they years then ended, in conformity with generally accepted accounting principles. /s/ Dickey & Wolf, LLC Certified Public Accountants Harrisonville, MO January 21, 2000 -26- [Letterhead of Reznick Fedder & Silverman] INDEPENDENT AUDITORS' REPORT To the Partners Palm Beach Apartments, Ltd. We have audited the accompanying balance sheets of Palm Beach Apartments, Ltd. as of December 31, 2000 and 1999, and the related statements of operations, partners' capital (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Palm Beach Apartments, Ltd., as of December 31, 2000 and 1999, and the results of its operations, and its cash flows for the years then ended, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note B to the financial statements, the Partnership has suffered recurring losses from operations and has a capital deficiency that raises substantial doubt regarding its ability to continue as a going concern. Management's plans in connection with these matters are also described in Note B. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 21 and 22 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Reznick Fedder & Silverman Atlanta, Georgia February 16, 2001 -27- [Letterhead of Reznick Fedder & Silverman] INDEPENDENT AUDITORS' REPORT To the Partners Palm Beach Apartments, Ltd. We have audited the accompanying balance sheets of Palm Beach Apartments, Ltd. as of December 31, 1999 and 1998, and the related statements of operations, partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Palm Beach Apartments, Ltd., as of December 31, 1999 and 1998, and the results of its operations, and its cash flows for the years then ended, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note B to the financial statements, the Partnership has suffered recurring losses from operations and has a capital deficiency that raises substantial doubt regarding its ability to continue as a going concern. Management's plans in connection with these matters are also described in Note B. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 22 and 23 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Reznick Fedder & Silverman Atlanta, Georgia February 16, 2000 -28- [Letterhead of Reznick Fedder & Silverman] INDEPENDENT AUDITORS' REPORT To the Partners Brookland Park Plaza Limited Partnership We have audited the accompanying balance sheet of Brookland Park Plaza Limited Partnership as of December 31, 2000, and the related statements of operations, partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards and GOVERNMENT AUDITING STANDARDS, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Brookland Park Plaza Limited Partnership as of December 31, 2000, and the results of its operations, the changes in partners' equity equity (deficit) and cash flows for the year then ended, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 21 through 25 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with GOVERNMENT AUDITING STANDARDS and the "Consolidated Audit Guide for Audits of HUD Programs," we have also issued reports dated January 16, 2001 on our consideration of Brookland Park Plaza Limited Partnership's internal control and on its compliance with specific requirements applicable to major HUD programs and fair housing and non-discrimination. Those reports are an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. /s/ Reznick Fedder & Silverman Lead Auditor: Renee G. Scruggs Bethesda, Maryland Taxpayer Identification Number: 52-1088612 January 16, 2001 -29- [Letterhead of Reznick Fedder & Silverman] INDEPENDENT AUDITORS' REPORT To the Partners Brookland Park Plaza Limited Partnership We have audited the accompanying balance sheet of Brookland Park Plaza Limited Partnership as of December 31, 1999, and the related statements of operations, partners' (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Brookland Park Plaza Limited Partnership as of December 31, 1999, and the results of its operations, the changes in partners' equity (deficit) and cash flows for the year then ended, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 21 through 25 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards and the "Consolidated Audit Guide for Audits of HUD Programs," we have also issued reports dated January 20, 2000 on our consideration of Brookland Park Plaza Limited Partnership's internal control and on its compliance with specific requirements applicable to major HUD programs, fair housing and non-discrimination. /s/ Reznick Fedder & Silverman Lead Auditor: Renee G. Scruggs Bethesda, Maryland Taxpayer Identification Number: 52-1088612 January 20, 2000 -30- [Letterhead of Reznick Fedder & Silverman] INDEPENDENT AUDITORS' REPORT To the Partners Brookland Park Plaza Limited Partnership We have audited the accompanying balance sheet of Brookland Park Plaza Limited Partnership as of December 31, 1998, and the related statements of operations, partners' (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Brookland Park Plaza Limited Partnership as of December 31, 1998, and the results of its operations, the changes in partners' equity and cash flows for the year then ended, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 21 through 24 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards and the "Consolidated Audit Guide for Audits of HUD Programs," we have also issued reports dated January 20, 1999 on our consideration of Brookland Park Plaza Limited Partnership's internal control and on its compliance with specific requirements applicable to major HUD programs, fair housing and non-discrimination. /s/ Reznick Fedder & Silverman Lead Auditor: Renee G. Scruggs Bethesda, Maryland Taxpayer Identification Number: 52-1088612 January 20, 1999 -31- [Letterhead of Barnes, Dennig & Co., Ltd.] Report of Independent Certified Public Accountants To the Partners Compton Townhouses Limited Partnership (An Ohio Limited Partnership) We have audited the accompanying balance sheets of Compton Townhouses Limited Partnership (An Ohio Limited Partnership), as of December 31, 2000 and 1999, and the related statements of operations, changes in partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Compton Townhouses Limited Partnership (An Ohio Limited Partnership), as of December 31, 2000 and 1999, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ Barnes, Dennig & Co., Ltd. Cincinnati, Ohio January 24, 2001 -32- [Letterhead of Barnes, Dennig & Co., Ltd.] Report of Independent Certified Public Accountants To the Partners Compton Townhouses Limited Partnership (An Ohio Limited Partnership) We have audited the accompanying balance sheets of Compton Townhouses Limited Partnership (An Ohio Limited Partnership), as of December 31, 1999 and 1998, and the related statements of operations, changes in partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Compton Townhouses Limited Partnership (An Ohio Limited Partnership), as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ Barnes, Dennig & Co., Ltd. Cincinnati, Ohio January 28, 2000 -33- PATRIOT TAX CREDIT PROPERTIES L.P. (a limited partnership) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION ASSETS
MARCH 31, ------------------------ 2001 2000 ------------------------ Investment in property: Land $ 4,005,633 $ 4,005,633 Building and improvements 75,644,277 75,557,527 Accumulated depreciation (21,934,135) (19,762,979) ------------ ----------- Net investment in property 57,715,775 59,800,181 Cash and cash equivalents 667,371 956,906 Cash and cash equivalents held in escrow 1,487,333 1,283,893 Deferred financing costs, net 2,039,513 2,313,555 Other assets 227,827 307,786 ------------ ------------ Total assets $ 62,137,819 $ 64,662,321 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Liabilities: Mortgage notes payable $ 43,955,708 $ 44,569,822 Accrued interest payable 2,043,728 1,818,537 Other accrued expenses and liabilities 1,523,198 2,019,849 Due to local general partners and affiliates of local partnerships 4,165,340 3,057,164 Development fees payable 1,450,709 1,450,709 Real estate taxes payable 139,405 124,014 Due to General Partner and its affiliates 5,834,513 3,866,475 ---------- ---------- Total liabilities 59,112,601 56,906,570 ---------- ---------- Minority interests in local partnerships 600,940 1,737,300 ----------- ----------- Partners' capital: Limited partners (38,125 BUC$ issued and outstanding) 1,663,435 5,239,637 General partner (1 BUC$ issued and outstanding) 760,843 778,814 ----------- ----------- Total partners' capital 2,424,278 6,018,451 ----------- ----------- Total liabilities and partners' capital $ 62,137,819 $ 64,662,321 ========== ==========
See accompanying notes to consolidated financial statements. -34- PATRIOT TAX CREDIT PROPERTIES L.P. (a limited partnership) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 31, ---------------------------------- 2001 2000 1999 --------- -------- -------- Revenues Rental income $8,586,010 $7,389,657 $ 8,291,456 Other income 754,790 525,397 788,435 Interest income 39,888 24,826 32,104 ----------- ----------- ----------- 9,380,688 7,939,880 9,111,895 ---------- --------- ----------- Expenses Interest 4,729,740 4,408,997 4,354,244 Depreciation and amortization 2,445,646 2,433,206 2,428,529 Operating and other 921,562 929,421 896,974 Taxes and insurance 1,079,256 1,012,106 1,051,509 Repairs and maintenance 2,618,238 2,004,251 1,524,090 General and administrative 2,509,461 2,028,747 2,531,475 Property management fees 395,297 304,317 351,060 Partnership management fees 244,622 254,064 244,876 ----------- ----------- ---------- Total expenses 14,943,822 13,375,109 13,382,757 ---------- ---------- ---------- Loss before minority interest and extraordinary item (5,563,134) (5,435,229) (4,270,762) Minority interest in loss of local partnerships 1,135,959 637,201 496,863 ---------- ---------- ---------- Loss before extraordinary item (4,427,175) (4,798,028) (3,773,899) Extraordinary item - forgiveness of indebtedness income (Note 9) 833,002 1,656,843 809,460 ----------- ----------- ----------- Net loss $(3,594,173) $(3,141,185) $(2,964,439) ========== ========== ========== Loss before extraordinary item - limited partners (4,405,039) (4,774,038) (3,755,030) Extraordinary item-limited partners 828,837 1,648,559 805,413 ----------- ----------- ---------- Net loss-limited partners $(3,576,202) $(3,125,479) $(2,949,617) ========== ========== ========== Number of limited partnership units outstanding 38,125 38,125 38,125 =========== =========== ========== Loss before extraordinary item per limited partnership unit $ (115.54) $ (125.22) $ (98.49) Extraordinary item per limited partnership unit 21.74 43.24 21.13 ----------- ---------- ---------- Net loss per limited partnership unit $ (93.80) $ (81.98) $ (77.36) =========== =========== ==========
-35- PATRIOT TAX CREDIT PROPERTIES L.P. (a limited partnership) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
Limited General Total Partners Partner BUC$ ----------- ----------- -------- ------ Partners' capital April 1, 1998 $12,124,075 $11,314,733 $809,342 38,126 Net loss (2,964,439) (2,949,617) (14,822) 0 ----------- ----------- -------- ------ Partners' capital March 31, 1999 9,159,636 8,365,116 794,520 38,126 Net loss (3,141,185) (3,125,479) (15,706) 0 ----------- ----------- -------- ------ Partners' capital March 31, 2000 6,018,451 5,239,637 778,814 38,126 Net Loss (3,594,173) (3,576,202) (17,971) 0 ----------- ----------- -------- ------ Partners' capital March 31, 2001 $2,424,278 $ 1,663,435 $760,843 38,126 =========== =========== ======== ======
See accompanying notes to consolidated financial statements. -36- PATRIOT TAX CREDIT PROPERTIES L.P. (a limited partnership) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31, ---------------------------------------- 2001 2000 1999 ------------ ------------ ------------ Cash flows from operating activities: Net loss $(3,594,173) $(3,141,185) $(2,964,439) ------------ ------------ ------------ Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 2,445,646 2,433,206 2,428,529 Minority interest in loss of local partnerships (1,135,959) (637,201) (496,863) Forgiveness of debt (Note 9) (833,002) (1,656,843) (963,960) (Increase) decrease in cash held in escrow (203,440) (275,974) 542,212 Increase (decrease) in real estate taxes payable 15,391 18,696 (393,072) Increase in accrued interest payable 765,364 384,984 97,283 Decrease (increase) in other assets 79,511 (29,541) (26,034) (Decrease) increase in other accrued expenses and liabilities (230,107) 36,834 1,083,201 ------------ ------------ ------------ Total adjustments 903,404 274,161 2,271,296 ------------ ------------ ------------ Net cash used in operating activities (2,690,769) (2,867,024) (693,143) ------------ ------------ ------------ Cash flows from investing activities: Investments in property (86,750) (201,936) (313,839) Decrease in development fees payable 0 0 (129,000) ------------ ------------ ------------ Net cash used in investing activities (86,750) (201,936) (442,839) ------------ ------------ ------------ Cash flows from financing activities Payments on mortgage notes (614,114) (557,375) (505,654) Advances from Local General Partners 0 326,000 288,458 Advances from General Partner 0 18,000 0 Increase in due to Local General Partners and affiliates of Local Partnerships, General Partner and its affiliates 2,249,564 3,285,292 1,034,300 Advance from local limited partner 852,935 700,000 0 Distribution to minority interest (401) (590) (358) ------------ ------------ ------------ Net cash provided by financing activities 2,487,984 3,771,327 816,746 ------------ ------------ ------------ Net (decrease) increase in cash and cash equivalents (289,535) 702,367 (319,236) Cash and cash equivalents at beginning of year 956,906 254,539 573,775 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 667,371 $ 956,906 $ 254,539 ============ ============ ============ Supplemental disclosures of cash flow information: Interest paid $ 3,570,449 $ 3,981,754 $ 4,145,162 ============ ============ ============
See accompanying notes to consolidated financial statements. -37- PATRIOT TAX CREDIT PROPERTIES L.P. (a limited partnership) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE 1 - General Patriot Tax Credit Properties L.P., a Delaware limited partnership (the "Partnership"), was formed on May 3, 1989, and will terminate on December 31, 2029, unless terminated sooner under the provisions of the Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement"). The Partnership was formed to invest as a limited partner in other partnerships ("Local Partnerships" or "subsidiaries") owning apartment complexes ("Apartment Complexes" or "Properties") that are eligible for the low-income housing tax credit or the historic rehabilitation tax credit ("Tax Credit"). The general partner of the Partnership, from inception to September 30, 1997, Prudential-Bache Properties, Inc. (the "General Partner" or "PBP"), is not affiliated with a general partner of any Local Partnership ("Local General Partner"). P.B. Tax Credit S.L.P. ("PBSLP"), an affiliate of PBP, acted as special limited partner of each Local Partnership entitling it to certain rights with respect to the operation and management of each Local Partnership. At March 31, 2001, the Partnership has investments in eight Local Partnerships. On October 1, 1997, RCC Partners 96, L.L.C. became the new General Partner (the "New GP" or "General Partner") and is an affiliate of Related Capital Company ("RCC"). Also Independence SLP L.P. became the new SLP (the "New SLP") and is an affiliate of RCC, and Related Insured BUC$ Associates, Inc., an affiliate of RCC, became the new assignor Limited Partner (the "New ALP"). NOTE 2 - Summary of Significant Accounting Policies a) Basis of Accounting and Principles of Consolidation The books and records of the Partnership are maintained on the accrual basis of accounting in accordance with generally accepted accounting principles. The preparation of financial statements in conformity with generally accepted accounting principles requires the General Partner to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The consolidated financial statements include the assets, liabilities and results of operations of the subsidiaries. All subsidiaries have fiscal years ending December 31. Intercompany transactions have been eliminated. Minority interest in Local Partnerships represents the minority partners' share of the net assets of the Local Partnerships. Certain balances for prior years have been reclassified to conform with the current year's financial statement presentation. -38- PATRIOT TAX CREDIT PROPERTIES L.P. (a limited partnership) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 b) Investment in Property The impairment of Properties to be held and used is determined to exist when estimated amounts recoverable through future operations on an undiscounted basis are below the Properties' carrying value. If a property is determined to be impaired, it is recorded at the lower of its carrying value or its estimated fair value. The determination of estimated fair value is based not only upon future cash flows, which rely upon estimates and assumptions including expense growth, occupancy and rental rates, and Tax Credits, but also upon market capitalization and discount rates as well as other market indicators. However, changes in market conditions and circumstances may occur in the near term which would cause these estimates and assumptions to change, which, in turn, could cause the amounts ultimately realized upon the sale or other disposition of the Properties to differ materially from their estimated fair value. Such changes may also require write-downs in future years. The cost of buildings and improvements is depreciated using the straight-line method over their estimated useful lives, which range from 27.5 to 40 years. c) Cash and Cash Equivalents Cash and cash equivalents include money market funds whose cost approximates market value. d) Cash and Cash Equivalents Held in Escrow Cash and cash equivalents held in escrow include restricted funds held for payment of real estate taxes and insurance, tenant security deposits and replacement reserves. e) Taxes The Partnership is not required to provide for, or pay, any Federal or state income taxes. Income tax attributes that arise from its operations are passed directly to the partners. The Partnership may be subject to other state and local taxes in jurisdictions in which it operates. For income tax purposes, the Partnership's year ends on December 31. f) Profits and Loss Allocations/Distributions Net income or loss is allocated 99.5% to the limited partners and .5% to the General Partner. Distributions of cash may be made in accordance with the Partnership Agreement and, if made, are allocated 99.5% to the limited partners and .5% to the General Partner. As of March 31, 2001, no distributions have been paid. g) Rental Income Rental income is recognized as rents become due. Rental payments received in advance are deferred until earned. All leases between the Partnership and the tenants of the property are operating leases. h) Reclassification -39- PATRIOT TAX CREDIT PROPERTIES L.P. (a limited partnership) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 Certain items in the 1999 financial statements have been reclassified to conform to the 2000 and 2001 presentation. NOTE 3 - Costs, Fees and Expenses a) Deferred Financing Costs Deferred financing costs include amounts paid for services rendered in arranging the financing for the Local Partnerships. These costs were capitalized and are being amortized over the lives of the related debt. The accumulated amortization as of March 31, 2001 and 2000 is $3,191,270 and $2,917,228, respectively. b) Management Fees Each individual Property has a managing agent who performs the necessary functions in operating the Property. The property management fee is equal to a percentage of the annual gross revenues of a Property paid in consideration of the property management services provided (See Note 7). The General Partner is entitled to receive a partnership management fee, payable from operations and reserves, in an amount not to exceed the difference between .375% per annum of Invested Assets (as defined in the Partnership Agreement) and the local administrative fee payable to the New SLP. This partnership management fee is for administering the affairs of the Partnership (See Note 6). Unpaid portions of the management fee for any year accrue without interest. c) General and Administrative The Partnership reimburses the General Partner and its affiliates for actual Partnership operating expenses payable by or allocable to the Partnership (See Note 6). The Partnership also pays amounts directly to unrelated third parties for certain operating expenses. -40- PATRIOT TAX CREDIT PROPERTIES L.P. (a limited partnership) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE 4 - Investment in Property The Partnership's Properties and related debt at March 31 were:
NET INVESTMENT IN PROPERTY MORTGAGE NOTES PAYABLE -------------------------- ----------------------- DESCRIPTION (a) 2001 2000 2001 2000 -------------- ---------- --------- --------- -------- Apartment Complexes: RMB Limited Partnership $ 3,445,540 $ 3,616,447 $ 1,852,154 $ 1,876,026 (Hubbard's Ridge) Garland, TX Cutler Canal II 8,637,004 8,888,728 5,833,480 5,876,166 Associates, Ltd. Miami, FL Diamond Street Venture (b) 1,775,726 1,843,060 2,953,299 2,971,187 Philadelphia, PA Papillion Heights 1,595,843 1,648,748 988,475 1,000,505 Apartments L.P. Papillion, NE Hill Top Homes 6,087,713 6,272,463 3,379,941 3,455,028 Apartments Limited Partnership Arlington, TX Palm Beach 30,768,100 31,801,848 25,249,155 25,644,065 Apartments, Ltd. (Summer Creek Villas) West Palm Beach, FL Brookland Park Plaza 4,029,609 4,259,111 2,405,392 2,431,080 Limited Partnership Richmond, VA Compton Townhouses 1,376,240 1,469,776 1,293,812 1,315,765 ----------- ----------- ----------- ----------- Limited Partnership Cincinnati, OH $57,715,775 $59,800,181 $43,955,708 $44,569,822 ========== ========== ========== ==========
(a) 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. (b) The investment in property relating to the Diamond Street Venture was reduced by $2,700,000 as of March 31, 1995 representing a loss on impairment of assets. -41- PATRIOT TAX CREDIT PROPERTIES L.P. (a limited partnership) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE 5 - Mortgage Notes Payable Mortgage notes are collateralized by land, buildings and improvements and leases related thereto. Annual principal payment requirements for each of the next five years ending December 31, the date at which the Local Partnerships are reporting, and thereafter are as follows:
AMOUNT ----------- 2001 $ 678,063 2002 746,240 2003 822,395 2004 905,971 2005 997,518 Thereafter 39,805,521 ---------- $43,955,708 ==========
Mortgage notes consist of both first mortgages and support loans (second and third mortgages). First mortgages amounting to $39,015,708 bear interest at rates ranging from 6.25% to 10.75% and have final maturities ranging from September 1, 2006 to May 1, 2031. First mortgages include $25,249,155 in the form of a guaranteed bond bearing interest at 10.451% (including a .125% service fee payable to an affiliate of the Local General Partner) maturing on June 20, 2008. The support loans include two loans totaling $2,440,000 maturing on May 1, 2016 and December 15, 2029, the latter of which bears interest at 1%, and the former being non-interest bearing, and a $2,500,000 loan bearing interest at a maximum rate of 9% and maturing on January 16, 2005. The $2,500,000 loan includes a base interest rate of 3% and an additional interest rate of 6%. The base interest rate is payable annually from Project Income, as defined in the loan agreement, and can be deferred if Project Income is inadequate. The additional interest is payable from Project Income, if available, and only after payment of a cumulative annual 12% return on capital to the limited partners of the Local Partnership. Currently, only the base interest rate is being paid; however, the additional interest of 6% continues to be accrued in the accompanying consolidated financial statements. At March 31, 2001 and 2000, the estimated fair values of the mortgage notes payable were approximately $47,022,241 and $47,968,000, respectively. These estimates were based upon the present value of expected cash flows discounted at rates currently available to the Local Partnerships for similar loans. Fair value estimates are made at a specific point in time, based on relevant market information, and are subjective in nature and involve uncertainties and matters of significant judgment. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Local Partnerships would pay upon maturity or disposition of the loans. -42- PATRIOT TAX CREDIT PROPERTIES L.P. (a limited partnership) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE 6 - 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 partnership 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. The costs and expenses incurred to the General Partner were:
YEAR ENDED MARCH 31, -------------------------------- 2001 2000 1999 ------ ----- ------ Partnership management fees $244,622 $254,064 $244,876 Property management fees 126,630 76,700 125,917 Local administrative fees 20,250 20,250 21,500 General and administrative 114,145 94,417 98,826 Interest 330,667 87,852 0 ------- -------- ---------- $836,314 $533,283 $491,119 ======= ======= =======
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. During 2001, the General Partner and its affiliates advanced $1,968,038 to the Partnership and as of March 31, 2001 and 2000, total advances outstanding are $5,834,513 and $3,866,475, respectively. The advances are unsecured, and bear interest at 11.5% and due on demand. NOTE 7 - Local General Partners and Affiliates of Local Partnerships Certain Local General Partners and their affiliates provided services in connection with the construction, financing and development of the Apartment Complexes. Interest is accrued on certain loans made by three, three and two, respectively, of the Local General Partners during the years ended March 31, 2001, 2000 and 1999, respectively. Additionally, during the years ended March 31, 2001, 2000 and 1999, five of the Local Partnerships were managed by a Local General Partner or its affiliates. The costs were:
YEAR ENDED MARCH 31, ---------------------------------- 2001 2000 1999 -------- ------- ------- Interest $240,174 $ 99,468 $ 69,280 Management fees 282,710 203,597 244,626 ------- ------- ------- $522,884 $303,065 $313,906 ======= ======= =======
Due to Local General Partners and affiliates of Local Partnerships includes amounts payable for accrued interest, advances, property management fees and operating loans made in accordance with operating deficit guaranty agreements. -43- PATRIOT TAX CREDIT PROPERTIES L.P. (a limited partnership) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 The Local General Partner of Summer Creek Villas was formerly obligated to fund operating deficits under two separate operating deficit guaranty agreements. Total advances made by the Local General Partner under the operating deficit guaranties totaled $2,742,460. In addition, the Local General Partner has made voluntary loans in excess of its obligations under the guaranties to fund operations of $1,945,074, even though as of December 31, 1997, the Local General Partner was no longer required to fund operations of the Summer Creek Villas. At March 31, 2001, the properties owned by four of the Local Partnerships are managed by a Local General Partner or its affiliates and one Local Partnership is managed by an affiliate of the General Partner and Local General Partner. At March 31, 2001 and 2000, development fees of $1,450,709 were payable to various Local General Partners. NOTE 8 - Concentration of Credit Risk The Partnership maintains its cash in several banks which are insured by the Federal Deposit Insurance Corporation (FDIC) for a balance up to $100,000. At times during 1999, 2000 and 2001, the account balance exceeded the FDIC limit. NOTE 9 - Forgiveness of Indebtedness Income BROOKLAND PARK PLAZA ("BROOKLAND") The Virginia Housing Development Authority ("VHDA") forgave a noninterest bearing loan in the amount of $618,000 at a rate of 25% per year commencing in 1995. During the year ended March 31, 2000, the final installment of $154,500 was recorded as forgiveness of indebtedness income on the consolidated statements of operations of the Partnership. RMB LIMITED PARTNERSHIP ("HUBBARDS RIDGE") During the year ended March 31, 2000 it was determined that construction costs payable in the amount of $605,358 would not be paid and such amounts were subsequently written off and recorded as forgiveness of indebtedness income on the consolidated statements of operations of the Partnership. SUMMER CREEK VILLAS LOCAL PARTNERSHIP During 2001, 2000 and 1999, various partners made voluntary loans to the Partnership. The Local General Partner also elected to treat portions of such loans in the amount of $593,589, $1,051,485 and $809,460 as nonrepayable in 2001, 2000 and 1999. During 2001, it was determined management fees in the amount of $239,413 payable to the former management agent would not be paid and such amounts were subsequently written off. These amounts were recorded as forgiveness of indebtedness income on the consolidated statements of operations of the Partnership. NOTE 10 - Commitments and Contingencies Subsidiary Partnership - Going Concern SUMMER CREEK VILLAS LOCAL PARTNERSHIP The Summer Creek Villas has experienced significant declining occupancy levels over the course of the last few years, which has resulted in recurring losses from operations and has adversely affected -44- PATRIOT TAX CREDIT PROPERTIES L.P. (a limited partnership) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 the liquidity of Summer Creek Villas. Despite an increase in occupancy levels during 2000, Summer Creek Villas' operations are impeded by the inability to significantly raise economic rents. Summer Creek Villas has been unable to obtain maximum rents due to the competitive market. Potential residents are restricted based on county median income levels, which limit the maximum income that a prospective resident can earn. The Summer Creek Villas has been obligated, since 1996 to repay significant amounts of principal on its mortgage. During 1999 and 2000, in an effort to improve occupancy, the Summer Creek Villas invested funds to improve the physical condition of the property. Such improvements primarily consisted of landscaping, new playground, asphalt repairs, and individual units fixture and finish replacement. The Local General Partner of Summer Creek Villas was formerly obligated to fund operating deficits under two separate operating deficit guaranty agreements. Total advances made by the Local General Partner under the operating deficit guaranties totaled $2,742,460. In addition, the Local General Partner has made voluntary loans in excess of its obligations under the guaranties to fund operations of $1,945,074, which includes $300,000 from 1999, even though as of December 31, 1997, the Local General Partner was no longer required to fund operations of the Summer Creek Villas. Effective January 1, 1999, Summer Creek Villas entered into a funding agreement with its Class C local limited partner which provides for a series of loans to be made to Summer Creek Villas in each of the years 1999, 2000 and 2001, in amounts not to exceed $2,000,000 in the aggregate. Although no formal agreements have been reached with the other partners, the Partnership (which is the Class A limited partner) and the other limited partners have in the past provided, and expect to continue to provide in the future loans under the funding agreement. Loans made in 2001 and 2000 to fund operating deficits total $2,436,936 and $3,169,761, respectively. These loans, if obtained, are expected to enable the Summer Creek Villas to continue operations and make payments on its mortgage while management endeavors to sustain the improved occupancy rates and rental rates to sufficient levels to sustain operations independent of such funding. The Local General Partner has been considering restructuring the Summer Creek Villas' debt, however, as of December 31, 2000, no definitive agreements have been reached. Additionally, the Summer Creek Villas expects that the anticipated capital expenditures in 2001 will be approximately $700,000. Loans from the funding agreement will be used to pay for approved expenditures and shortfalls. As of March 31, 2001 and 2000, the consolidated financial statements include total assets of $33,168,512 and $34,674,355, respectively, total liabilities of $33,486,564 and $31,495,783, respectively, and a minority interest of $409,237 and $1,543,965, respectively, attributable to this subsidiary. Summer Creek Villas' ability to continue its operations is dependent upon management achieving the plans described in the foregoing paragraphs. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Any adjustments would be limited solely to Summer Creek Villas' financial statements included herein. -45- Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. The independent auditor for the Partnership, Anchin, Block, & Anchin LLP resigned on April 28, 1999 and was replaced by Reznick Fedder & Silverman, P.C. as was reported on Form 8K on May 13, 1999. PART III Item 10. Directors and Executive Officers of the Registrant. There are no directors or executive officers of the Registrant. The Registrant is managed by the General Partner. The Registrant, the Registrant's General Partner and its members and executive officers, and any persons holding more than ten percent of the Registrant's BUC$ are required to report their initial ownership of such BUC$ and any subsequent changes in that ownership to the Securities and Exchange Commission on Forms 3, 4 and 5. Such executive officers, directors, and persons who own greater than ten percent of the Registrant's BUC$ are required by Securities and Exchange Commission regulations to furnish the Registrant with copies of all Forms 3, 4 and 5 they file. All of these filing requirements were satisfied on a timely basis. In making these disclosures, the Registrant relied solely on written representations of the General Partner, and its members and certain officers, if any, or copies of the reports they have filed with the Securities and Exchange Commission during and with respect to its most recent fiscal year. The members and executive officers of the General Partner and their positions with regard to managing the Registrant are as follows:
NAME POSITION ---- -------- Alan P. Hirmes Member, President and Chief Executive and Financial Officer Stuart J. Boesky Member, Executive Vice President and Chief Operating Officer Denise L. Kiley Vice President Mark J. Schlacter Vice President Marc D. Schnitzer Vice President Glenn F. Hopps Treasurer Teresa Wicelinski Secretary
ALAN P. HIRMES, 46, is the sole stockholder of one of the general partners of RCC, the real estate finance affiliate of The Related Companies, L.P. Mr. Hirmes has been a Certified Public Accountant in New York since 1978. Prior to joining Related in October 1983, Mr. Hirmes was employed by Wiener & Co., certified public accountants. Mr. Hirmes graduated from Hofstra University with a Bachelor of Arts degree. Mr. Hirmes also serves on the Board of Directors of Aegis Realty, Inc. and Charter Municipal Mortgage Acceptance Company. STUART J. BOESKY, 45, is the sole stockholder of one of the general partners of RCC, the real estate finance affiliate of The Related Companies, L.P. Mr. Boesky practiced real estate and tax law -46- in New York City with the law firm of Shipley & Rothstein from 1984 until February 1986 when he joined Related. From 1983 to 1984 Mr. Boesky practiced law with the Boston law firm of Kaye, Fialkow, Richmond & Rothstein (which subsequently merged with Strook & Strook & Lavan) and from 1978 to 1980 was a consultant specializing in real estate at the accounting firm of Laventhol & Horwath. Mr. Boesky graduated from Michigan State University with a Bachelor of Arts degree and from Wayne State School of Law with a Juris Doctor degree. He then received a Master of Laws degree in Taxation from Boston University School of Law. Mr. Boesky also serves on the Board of Directors of Aegis Realty, Inc., Charter Municipal Mortgage Acceptance Company and American Mortgage Acceptance Company. DENISE L. KILEY, 41, is an Executive Vice President and Chief Underwriter for RCC, responsible for overseeing the investment underwriting and approval of all multifamily residential properties invested in RCC-sponsored corporate, public and private equity and debt funds. Ms. Kiley is also responsible for the strategic planning and implementation of the firm's mortgage financing programs. Prior to joining Related in 1990, Ms. Kiley had experience acquiring, financing, and managing the assets of multifamily residential properties. From 1981 through 1985 she was an auditor with a national accounting firm. Ms. Kiley holds a Bachelor of Science degree in Accounting from Boston College and is a Member of the Affordable Housing Roundtable. MARK J. SCHLACTER, 50, is a Vice President of Mortgage Acquisitions of RCC, and has been with Related since June 1989. Mr. Schlacter is responsible for the origination of Related's taxable participating debt programs and low-income housing tax credit debt programs. Prior to joining Related, Mr. Schlacter garnered 16 years of direct real estate experience covering commercial and residential construction, single and multifamily mortgage origination and servicing, commercial mortgage origination and servicing, multifamily property acquisition and financing, and multifamily mortgage lending program underwriting and development. He was a Vice President with Bankers Trust Company from 1986 to June 1989, and held prior positions with Citibank, Anchor Savings Bank and the Pyramid Companies covering the 1972-1986 period. Mr. Schlacter holds a Bachelor of Arts degree in Political Science from Pennsylvania State University and periodically teaches multifamily underwriting at the New York University School of Continuing Education, Real Estate Institute. MARK D. SCHNITZER, 40, is an Executive Vice President of RCC and Director of the firm's Tax Credit Acquisitions Group. Mr. Schnitzer received a Master of Business Administration degree from The Wharton School of the University of Pennsylvania in December 1987, and joined Related in January 1988. From 1983 to 1986, Mr. Schnitzer was a Financial Analyst in the Fixed Income Research department of The First Boston Corporation in New York. Mr. Schnitzer received a Bachelor of Science degree, summa cum laude, in Business Administration from the School of Management at Boston University. GLENN F. HOPPS, 38, joined RCC in December, 1990, and prior to that date was employed by Marks Shron & Company and Weissbarth, Altman and Michaelson, certified public accountants. Mr. Hopps graduated from New York State University at Albany with a Bachelor of Science degree in Accounting. TERESA WICELINSKI, 35, joined RCC in June 1992, and prior to that date was employed by Friedman, Alpren & Green, certified public accountants. Ms. Wicelinski graduated from Pace University with a Bachelor of Arts Degree in Accounting. Item 11. Executive Compensation. The Registrant does not pay or accrue any fees, salaries or any other form of compensation to directors and officers of the General Partner for its services. Certain executive officers and directors of the General Partner receive compensation from affiliates of the General Partner, not from the Registrant, for services performed for various affiliated entities, which may include services performed for the -47- Registrant; however, the General Partner believes that any compensation attributable to services performed for the Registrant is immaterial. See Item 13, Certain Relationships and Related Transactions, for information regarding compensation to the General Partner. Item 12. Security Ownership of Certain Beneficial Owners and Management. As of June 1, 2001, Messrs. Boesky and Hirmes own directly or beneficially 100% of the interest in the voting securities of the General Partner. As of June 1, 2001, no director or executive officer of the General Partner owns directly or beneficially any of the BUC$ issued by the Registrant. As of June 1, 2001, no limited partner beneficially owns more than five percent (5%) of the BUC$ issued by the Registrant. Item 13. Certain Relationships and Related Transactions. The Registrant has and will continue to have certain relationships with the General Partner and its affiliates. However, there have been no direct financial transactions between the Registrant and the directors or executive officers of the General Partner. Reference is made to Notes 1, 3, 6 and 7, to the consolidated financial statements in the Registrant's financial statements, which identify the related parties and discuss the services provided by these parties and the amounts paid or payable for their services. -48- PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
SEQUENTIAL PAGE ---------- (a) 1. Financial Statements Independent Auditors' Report 16 Consolidated Statements of Financial Condition as of March 31, 2001 and 2000 34 Consolidated Statements of Operations for the years ended March 31, 2001, 2000 and 1999 35 Consolidated Statements of Changes in Partners' Capital for the years ended March 31, 2001, 2000 and 1999 36 Consolidated Statements of Cash Flows for the years ended March 31, 2001, 2000 and 1999 37 Notes to Consolidated Financial Statements 38 (a) 2. FINANCIAL STATEMENT SCHEDULES AND INDEPENDENT AUDITORS' REPORT ON SCHEDULES Independent Auditors' Report on Schedules 53 Schedule III - Real Estate and Accumulated Depreciation 54 All other schedules have been omitted because they are not required or because the required information is contained in the financial statements or notes thereto.
-49- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (continued)
SEQUENTIAL PAGE ---------- (a) 3. EXHIBITS (3.1) The Partnership's Agreement of Limited Partnership as adopted on May 3, 1989 and Amendments thereto dated May 25, 1989 and June 21, 1989* (3.2) Amendment Number 1 to Prudential-Bache Tax Credit Properties L.P. Amended and Restated Agreement of Limited Partnership, dated October 1, 1997*** (3.3) Form of Amended and Restated Agreement of Limited Partnership (included in Prospectus as Exhibit A)** (3.4) Certificate of Limited Partnership as filed on May 3, 1989 and Amendments thereto dated May 25, 1989 and June 21, 1989* (3.5) Amendment to Certificate of Limited Partnership dated October 1, 1997*** (10.1) Form of Purchase and Sale Agreement pertaining to the Partnership's acquisition of Local Partnership Interests** (10.2) Form of Amended and Restated Agreement of Local Limited Partnership of Local Partnerships** (99.1) Balance Sheet and Independent Auditors' Report, RCC Partners 96, L.L.C., March 31, 2001. 56 (b) REPORTS ON FORM 8-K
Current report on Form 8-K dated April 28, 1999 was filed on May 13, 1999 relating to the change in Registrant's accountant. *Filed as an exhibit to Pre-Effective Amendment No. 1 to Form S-11 Registration Statement (No. 33-28571) and incorporated herein by reference. **Filed as an exhibit to Pre-Effective Amendment No. 2 to Form S-11 Registration Statement (No. 33-28571) and incorporated herein by reference. ***Filed as an exhibit to Registrants Current Report on Form 8-K dated October 1, 1997 and incorporated herein by reference. -50- 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. PATRIOT TAX CREDIT PROPERTIES L.P. ---------------------------------- (Registrant) By: RCC PARTNERS 96, L.L.C., General Partner Date: June 27, 2001 By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes Member, President and Chief Executive and Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE ------------- --------- -------- Member, President and Chief /s/ Alan P. Hirmes Executive and Financial Officer ------------------ (principal executive and financial Alan P. Hirmes officer) of RCC Partners 96., L.L.C. June 27, 2001 Member, Executive Vice President /s/ Stuart J. Boesky and Chief Operating Officer -------------------- (principal operating officer) of Stuart J. Boesky RCC Partners 96., L.L.C. June 27, 2001 /s/ Glenn F. Hopps Treasurer ------------------ (principal accounting officer) of Glenn F. Hopps RCC Partners 96., L.L.C. June 27, 2001
INDEPENDENT AUDITORS' REPORT To the Partners of Patriot Tax Credit Properties L.P. and Subsidiaries In connection with our audit of the consolidated financial statements of Patriot Tax Credit Properties L.P. and Subsidiaries included in this Form 10-K, we have also audited supporting Schedule III for the year ended March 31, 2000. In our opinion, based on our audit and the reports of the other auditors, the consolidated schedule presents fairly, when read in conjunction with the related consolidated financial statements, the financial data required to be set forth therein. REZNICK FEDDER & SILVERMAN Bethesda, Maryland May 14, 2001 PATRIOT TAX CREDIT PROPERTIES L.P. (a limited partnership) AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION MARCH 31, 2001
INITIAL COST TO PARTNERSHIP COSTS CAPITALIZED SUBSEQUENT TO ACQUISITION (7) BUILDINGS AND ------------------------------ DESCRIPTION (4)(6) ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS CARRYING COSTS ------------------ ------------ ------ -------------- ------------ --------------- Apartment Complexes: RMB Limited Partnership (Hubbard's Ridge) (1) Garland, TX $ 1,852,154 $ 107,237 $ 965,136 $ 4,053,296 $ 185,180 Cutler Canal II Associates, Ltd. (2) Miami, FL 5,833,480 807,071 1,388,350 9,126,620 67,728 Diamond Street Venture (3) Philadelphia, PA 2,953,299 9,729 234,465 2,392,610 273,218 Papillion Heights Apartments L.P. (1) Papillion, NE 988,475 63,329 1,816,598 259,945 66,552 Hill Top Homes Apartments L.P. (1) Arlington, TX 3,379,941 553,841 3,690,150 3,544,302 316,368 Palm Beach Apartments Ltd, (1) (Summer Creek Villas) West Palm Beach, FL 25,249,155 2,396,876 10,578,563 25,980,637 1,876,795 Brookland Park Plaza L.P. (1) Richmond, VA 2,405,392 50,000 109,850 5,913,667 376,165 Compton Townhouses L.P. (1) Cincinnati, OH 1,293,812 17,550 476,708 1,923,171 28,203 --------- -------- --------- --------- -------- $43,955,708 $4,005,633 $19,259,820 $53,194,248 $3,190,209 ========== ========= ========== ========== =========
Gross Amounts Life on which AT WHICH CARRIED AT CLOSE OF PERIOD (5) Depreciation in --------------------------------------- Date Latest Income BUILDINGS AND ACCUMULATED CONSTRUCTION DATE STATEMENTS ARE LAND IMPROVEMENTS TOTAL DEPRECIATION COMPLETED ACQUIRED COMPUTED ---------- ----------- ----------- ------------ ------------- -------- -------------- Apartment Complexes: RMB Limited Partnership (Hubbard's Ridge) (1) Garland, TX $ 107,237 $ 5,203,612 $ 5,310,849 $ 1,865,310 5/90 12/89 30 Cutler Canal II Associates, Ltd. (2) Miami, FL 807,071 10,582,698 11,389,769 2,752,765 1/91 1/90 40 Diamond Street Venture (3) Philadelphia, PA 9,729 2,900,293 2,910,022 1,134,296 12/90 1/90 40 Papillion Heights Apartments L.P. (1) Papillion, NE 63,329 2,143,095 2,206,424 610,581 12/90 4/90 40 Hill Top Homes Apartments L.P. (1) Arlington, TX 553,841 7,550,820 8,104,661 2,016,948 12/90 6/90 40 Palm Beach Apartments Ltd, (1) (Summer Creek Villas) West Palm Beach, FL 2,396,876 38,435,995 40,832,871 10,064,771 8/91 6/90 40 Brookland Park Plaza L.P. (1) Richmond, VA 50,000 6,399,682 6,449,682 2,420,073 12/90 7/90 27.5 Compton Townhouses L.P. (1) Cincinnati, OH 17,550 2,428,082 2,445,632 1,069,391 6/92 1/92 40 ---------- ---------- ---------- ---------- $4,005,633 $75,644,277 $79,649,910 $21,934,135 ========= ========== ========== ==========
(1) First mortgage (2) Includes first and second mortgages (3) Includes first, second and third mortgages (4) At March 31, 2001, the Registrant holds a 66.5% interest in the Local Partnerships of 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. (5) The cost basis of Land and Buildings and Improvements for federal income tax purposes as of December 31, 2000 is $80,551,790. (6) The Registrant believes the properties are adequately insured. (7) Costs Capitalized Subsequent to Acquisition included a write-down of $2,700,000 for Diamond Street Venture recorded as of March 31, 1995. PATRIOT TAX CREDIT PROPERTIES L.P. (a limited partnership) AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION MARCH 31, 2001
COST OF PROPERTY AND EQUIPMENT ACCUMULATED DEPRECIATION ------------------------------------------ ----------------------------------------- YEAR ENDED MARCH 31, -------------------------------------------------------------------------------------------- NOTE A - RECONCILIATION 2001 2000 1999 2001 2000 1999 ------- ------ ------ ------ ------ ------ Balance at beginning of year $79,563,160 $79,361,224 $79,047,385 $19,762,979 $17,604,303 $15,450,304 Additions during year: Improvements 86,750 201,936 313,839 Depreciation expense (1) 2,171,156 2,158,676 2,153,999 ---------- ---------- ---------- ---------- ---------- ---------- Balance at close of year $79,649,910 $79,563,160 $79,361,224 $21,934,135 $19,762,979 $17,604,303 ========== ========== ========== ========== ========== ==========
(1) Refer to Notes 2 and 4 to the consolidated financial statements for additional information.