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, 2005
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 incorporation or (I.R.S. Employer
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) 317-5700
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]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes No X
--- ---
The approximate aggregate book value of the voting and non-voting common
equity held by non-affiliates of the Registrant as of September 30, 2004, was
($11,062,000), based on Limited Partner equity (deficit) as of such date.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1. Business
General
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Patriot Tax Credit Properties L.P. (the "Registrant"), a Delaware limited
partnership, was formed on May 3, 1989 and will terminate on December 31, 2029
unless terminated sooner under the provisions of the Amended and Restated
Agreement of Limited Partnership (the "Partnership Agreement"). The Registrant
was formed to invest in low-income, multi-family residential complexes
("Apartment Complexes" or "Properties") and, to a lesser extent, in historic
apartment complexes undergoing rehabilitation ("Historic Complexes" or
"Properties") through the acquisition of interests (the "Local Partnership
Interests") in local partnerships (the "Local Partnerships") that are the owners
of the Properties. These investments were made with proceeds from the initial
sale of 38,125 Beneficial Unit Certificates ("BUC$"). 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,
10-year 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. (the former general partner) 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 had
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 from operations to provide distributions
to the holders of BUC$ ("BUC$ holders") or 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 ("Compliance Period") and may be
substantially longer.
The tax credits ("Tax Credits") are attached to a subsidiary partnership ("Local
Partnership") for a period of 10 years (the "Tax Credit Period") and are
transferable with property during the entirety of such ten year period. If
trends in the real estate market warranted the sale of a property, the remaining
Tax Credits would transfer to the new owner, thereby adding value to the
property on the market. However, such value declines each year and is not
included in the financial statement carrying amount.
A loss on impairment of assets is recorded when management estimates amounts
recoverable through future operations and sale of the property on an
undiscounted basis are below depreciated cost. At that time the property
investments themselves are reduced to estimated fair value (generally using the
discounted cash flow valuation method). Through March 31, 2005, the Partnership
has not recorded any loss on impairment of assets or reduction to estimated fair
value.
While the value of the remaining Tax Credits are a factor in calculating fair
value, the expiration of Tax Credit Period, in and of itself, is not the only
factor in determining whether there is an impairment and generally does not have
any adverse impact on the fair value of the Local Partnerships.
As of December 31, 2002, all the Local Partnerships completed their tax credit
periods and the Partnership has met its primary objective of generating Housing
Tax Credits for qualified BUC$ holders. However, each Local Partnership must
continue to comply with the Housing Tax Credit requirements until the end of the
compliance period in order to avoid recapture of the Housing Tax Credits. The
compliance period will end at various dates through December 31, 2007 with
respect to the Properties depending upon when the Housing Tax Credit Period
commenced.
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. All of these guarantees and
escrows have expired.
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.
One Property had revenue which exceeded 15% of the Registrant's total revenue in
each of the three years ended March 31, 2005, 2004 and 2003. Revenue from Palm
Beach Apartments Ltd. ("Summer Creek Villas") as a percentage of the
Registrant's total revenue was 56.03%, 55.31%, and 52.10% and during the years
ended March 31, 2005, 2004 and 2003, 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, 2005.
General Partner
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The general partner of the Registrant is RCC Partners 96 L.L.C. (the "General
Partner") and is an affiliate of Related Capital Company ("RCC"). Independence
SLP L.P. ("SLP"), an affiliate of RCC, is the special limited partner. On
2
November 17, 2003, CharterMac acquired RCC, which is the indirect parent of RCC
Manager L.L.C., the managing member of the General Partner. Pursuant to the
acquisition, CharterMac acquired controlling interests in the General Partner.
This acquisition did not affect the Registrant or its day-to-day operations, as
the majority of the General Partner's management team remained unchanged.
Segments
- --------
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. The Registrant operates in one segment, which is
the investment in multi-family residential property.
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 Part III and Notes 1, 3 and 6 to the consolidated
financial statements set forth in Item 8.
The Local Partnerships are impacted by inflation in several ways. Inflation
allows for increases in rental rates generally to reflect the impact of higher
operating and replacement costs. Furthermore, inflation generally does not
impact the fixed long-term financing under which real property investments were
purchased. Inflation also affects the Local Partnerships adversely by increasing
operating costs, such as fuel, utilities, and labor.
Item 2. Properties.
As of March 31, 2005, 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:
Occupancy
Number of Rents as of Rate as of
Property Units May 1, 2005 May 1, 2005
- --------------------------------------------- ------------ -------------- -------------
RMB Limited Partnership (Hubbard's Ridge)
Garland, TX 196 $408-755 83%
Cutler Canal II Associates, Ltd.
Miami, FL 216 433-744 97%
Diamond Street Venture
Philadelphia, PA 48 473-540 92%
Papillion Heights Apartments L.P.
Papillion, NE 48 495 88%
Hill Top Homes Apartments Limited Partnership
Arlington, TX 171 565-770 82%
Palm Beach Apartments, Ltd. (Summer Creek Villas)
West Palm Beach, FL 770 605-860 90%
Brookland Park Plaza Limited Partnership
Richmond, VA 77 563 95%
Compton Townhouses Limited Partnership
Cincinnati, OH 39 765 97%
(a) At March 31, 2005, 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.
3
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 Proceedings
None
Item 4. Submission of Matters to a Vote of Limited Partners
None
4
PART II
Item 5. Market for the Registrant BUC$, Related Limited 's artner Matters and
PIssuer Purchases of Equity Securities
As of May 17, 2005, there were 2,231 BUC$ holders of record owning a total of
38,125 BUC$. Additionally, the General Partner holds one BUC$. A significant
Pondary market for BUC$ has not developed, 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 on the Registrant's present or future ab upty
to make distributions in accordance ilith the provisions of the Partnership A
wiement; however, the Registrant has gred no distributions from operations or
paierwise since inception. No distributions are anticipated in the foreseeable
future.
Item 6. Selected Financial Data
The following table presents selected financial data of the Registrant. This
data should be read in conjuction with the consolidated financial statements of
the Registrant and the notes thereto set forth in Item 8.
Years Ended March 31,
----------------------------------------------------------------------------
OPERATIONS 2005 2004 2003 2002 2001
- -------------------------------------- ------------ ------------ ------------ ------------ ------------
Rental and other income $ 10,945,610 $ 10,747,362 $ 10,803,448 $ 10,333,034 $ 9,761,295
============ ============ ============ ============ ============
Interest income $ 10,174 $ 12,093 $ 15,827 $ 38,065 $ 39,888
============ ============ ============ ============ ============
Interest expense $ 4,804,227 $ 4,755,090 $ 4,747,765 $ 4,689,172 $ 4,729,740
============ ============ ============ ============ ============
Depreciation and amortization expenses $ 2,412,369 $ 2,440,364 $ 2,429,909 $ 2,447,028 $ 2,445,646
============ ============ ============ ============ ============
Loss before minority interest and
extraordinary item $ (5,194,694) $ (4,848,759) $ (4,776,862) $ (4,815,277) $ (5,563,134)
============ ============ ============ ============ ============
Minority interest in loss of local
partnerships $ 1,095,727 $ 1,048,921 $ 1,139,863 $ 1,207,124 $ 1,135,959
============ ============ ============ ============ ============
Loss before extraordinary item $ (4,098,967) $ (3,799,838) $ (3,636,999) $ (3,608,103) $ (4,427,175)
============ ============ ============ ============ ============
Extraordinary item - forgiveness of
indebtedness $ 0 $ 0 $ 0 $ 0 $ 833,002
============ ============ ============ ============ ============
Net loss $ (4,098,967) $ (3,799,838) $ (3,636,999) $ (3,608,103) $ (3,594,173)
============ ============ ============ ============ ============
Loss before extraordinary item per
limited partner BUC$ $ (106.98) $ (99.17) $ (94.92) $ (94.17) $ (115.54)
Extraordinary item per limited partner
BUC$ $ 0 $ 0 $ 0 $ 0 $ 21.74
------------ ------------ ------------ ------------ ------------
Net loss per limited partner BUC$ $ (106.98) $ (99.17) $ (94.92) $ (94.17) $ (93.80)
============ ============ ============ ============ ============
Total assets $ 53,860,978 $ 55,556,172 $ 58,143,529 $ 60,492,083 $ 62,137,819
============ ============ ============ ============ ============
Mortgage notes payable $ 43,771,002 $ 44,697,118 $ 45,294,215 $ 46,015,770 $ 43,955,708
============ ============ ============ ============ ============
5
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, 2005, there was approximately
$51,000 in working capital reserves available to fund Registrant level expenses.
Substantially all of the existing liabilities of the Registrant are payable to
the General Partner and/or its affiliates. Though the amounts payable to the
General Partner and/or its affiliates are contractually currently payable, the
Registrant anticipates that the General Partner and/or its affiliates will not
require the payment of these contractual obligations until capital reserves are
in excess of the aggregate of then existing contractual obligations and then
anticipated future foreseeable obligations of the Registrant. 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.
Other accrued expenses and liabilities are short term liabilities which are
expected to be paid from operating cash flows, working capital balances at the
Local Partnership level, local general partner advances and in certain
circumstances advances from the Registrant. Because the provisions of the
secondary loans defer the payment of accrued interest of the respective Local
Partnerships, the Registrant believes it (and the applicable Local Partnerships)
has sufficient liquidity and ability to generate cash and to meet existing and
known or reasonably likely future cash requirements over both the short and long
term.
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. 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, 2005 and 2004 also reflect
payables of $501,271 and $426,961, respectively, under operating deficit
guaranty agreements at Hill Top Homes, which have expired. As of March 31, 2005,
all operating deficit guaranty agreements have expired.
For a discussion of contingencies affecting certain Local Partnerships, see
Summer Creek Villas Local Partnership below. Since the maximum loss the
Registrant would be liable for is its net investment in the respective Local
Partnerships, the resolution of the existing contingencies is not anticipated to
impact future results of operations, liquidity or financial condition in a
material way. However, the Registrant's loss of its investment in a Local
Partnership may result in recapture of Tax Credits if the investment is lost
before expiration of the Compliance Period.
Except as described above, management is not aware of any trends or events,
commitments or uncertainties which have not otherwise been disclosed that will
or are likely to impact liquidity in a material way. Management believes the
only impact would be from laws that have not yet been adopted. The portfolio is
diversified by the location of the Properties around the United States so that
if one area of the country is experiencing downturns in the economy, the
remaining properties in the portfolio may be experiencing upswings. However, the
geographic diversification of the portfolio may not protect against a general
downturn in the national economy.
Summer Creek Villas Local Partnership
- -------------------------------------
The Summer Creek Villas has experienced lower than expected economic occupancy
levels over the course of the last several years, which has resulted in
recurring losses from operations and has adversely affected the liquidity of
Summer Creek Villas. Despite an increase in rent levels during 2004 and 2003,
Summer Creek Villas' operations are impeded by the inability to raise rents
sufficiently to pay for the operating and debt costs. Summer Creek Villas has
been unable to obtain maximum rents as 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 2002, 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 painting, landscaping, new playgrounds, and individual
units fixture and finish replacements.
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 $1,645,074, even though as of December 31, 1997, the Local General
Partner was no longer required to fund operations of Summer Creek Villas.
Effective January 1, 1999, Summer Creek Villas entered into a funding agreement
with Palm Beach Investor, L.P. (the Class C limited partner) which provided 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. On
September 9, 2002, Summer Creek Villas entered into a second funding agreement
with the Class C limited partner which provides for a second series of loans to
Summer Creek Villas in the years 2002, 2003 and 2004, in an amount not to exceed
$1,500,000 in aggregate. Although no formal agreements have been reached with
the other partners, additional loans from the Registrant (which is the Class A
limited partner) are expected to be obtained in accordance with the loans to be
provided under the funding agreement. Loans made in 2004 and 2003 under these
funding agreements to fund operating deficit's total $2,118,334 and $2,418,647,
respectively. Of such amounts, $1,555,000 and $1,913,331 were loaned by the
Registrant in 2004 and 2003, respectively.
These loans are expected to enable the Summer Creek Villas to continue
operations and make payments on its mortgage while management endeavors to
improve occupancy rates and rental rates to sufficient levels to sustain
operations independent of such funding.
During 2003, the management agent, an affiliate of Summer Creek Villas, was
reimbursed by Summer Creek Villas for operating advances, made in the current
and prior years, in the form of unreimbursed payroll in the net amount of
$720,678. As of December 31, 2004 and 2003, the management agent was due
$182,719 and $122,649, respectively. The management agent is not obligated to
provide such advances.
6
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.
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 2005 vs. Fiscal 2004
- ---------------------------
Rental income increased approximately $274,000 for the year ended March 31, 2005
as compared to 2004, primarily due to increases in occupancy at Hill Top Homes
Apartments Limited Partnership and Palm Beach Apartments, Ltd.
Total expenses remained fairly consistent with an increase of approximately
3.5%.
Fiscal 2004 vs. Fiscal 2003
- ---------------------------
Rental income decreased approximately $97,000 for the year ended March 31, 2004
as compared to 2003, primarily due to a decrease in occupancy at three Local
Partnerships.
Interest income decreased approximately $4,000 for the year ended March 31, 2004
as compared to 2003, primarily due to lower cash and cash equivalent balances
earning interest at the Local Partnership and Registrant level.
Tabular Disclosure of Contractual Obligations
- ---------------------------------------------
The following table summarizes the Registrant's commitments as of March 31, 2005
to make future payments under its debt agreements and other contractual
obligations.
Less than 1-3 3-5 More than
Total 1 Year Years Years 5 Years
----------- ----------- ----------- ----------- -----------
Mortgage notes payable (a) $43,771,002 $ 3,516,725 $ 5,213,046 $22,813,045 $12,228,186
=========== =========== =========== =========== ===========
(a) Mortgage notes are collateralized by land, buildings and improvements and
leases related thereto. Mortgage notes consist of both first mortgages and
support loans (second and third mortgages).
Off Balance Sheet Arrangements
- ------------------------------
The Partnership has no off-balance sheet arrangements.
Critical Accounting Estimates
- -----------------------------
The preparation of consolidated financial statements requires management to make
estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
accounting estimate considered critical by the Registrant.
Critical Accounting Policies
- ----------------------------
In preparing the consolidated financial statements, management has made
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates. Set forth below is a summary of the accounting policies
that management believes are critical to the preparation of the consolidated
financial statements.
a) Property and Equipment
Property and equipment to be held and used are carried at cost which includes
the purchase price, acquisition fees and expenses, and any other costs incurred
in acquiring the properties. The cost of property and equipment is depreciated
over their estimated useful lives using accelerated and straight-line methods.
Expenditures for repairs and maintenance are charged to expense as incurred;
major renewals and betterments are capitalized. At the time property and
equipment are retired or otherwise disposed of, the cost and accumulated
depreciation are eliminated from the assets and accumulated depreciation
accounts and the profit or loss on such disposition is reflected in earnings.
The Partnership complies with Statement of Financial Accounting Standards (SFAS)
No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". A loss
on impairment of assets is recorded when management estimates amounts
recoverable through future operations and sale of the property on an
undiscounted basis are below depreciated cost. At that time property investments
themselves are reduced to estimated fair value (generally using discounted cash
flows) when the property is considered to be impaired and the depreciated cost
exceeds estimated fair value.
Through March 31, 2005, the Partnership has not recorded any loss on impairment
of assets or reductions to estimated fair value.
7
b) Revenue Recognition
Rental income is earned primarily under standard residential operating leases
and is typically due the first day of each month, but can vary by property due
to the terms of the tenant leases. Rental income is recognized when earned and
charged to tenants' accounts receivable if not received by the due date. Rental
payments received in advance of the due date are deferred until earned. Rental
subsidies are recognized as rental income during the month in which it is
earned.
Other revenues are recorded when earned and consist of the following items:
Interest income earned on cash and cash equivalent balances and cash held in
escrow balances, income from forfeited security deposits, late charges, laundry
and vending income and other rental related items.
c) Income 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.
Impairment of Long-Lived Assets
- -------------------------------
The Registrant is required to assess potential impairments to its long-lived
assets, which is primarily property and equipment. If impairment indicators are
present, the Registrant must measure the fair value of the assets in accordance
with Statement of Financial Standards No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." to determine if adjustments are to be recorded.
New Accounting Pronouncements
- -----------------------------
On December 16, 2004, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 153, Exchanges of Nonmonetary Assets - An Amendment of
APB Opinion NO. 29 ("SFAS No. 153"). The amendments made by SFAS No. 153 are
based on the principle that exchanges of nonmonetary assets should be measured
based on the fair value of the assets exchanged. Further, the amendments
eliminate the narrow exception for exchanges for nonmonetary assets that do not
have "commercial substance." SFAS No. 153 is effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005. The
Registrant does not believe that the adoption of SFAS No. 153 on June 15, 2005
will have a material effect on the Registrant's consolidated financial
statements.
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46").
FIN 46 is applicable immediately for variable interest entities created after
January 31, 2003. For variable interest entities created before February 1,
2003, the provisions of FIN 46 are applicable no later than December 15, 2003.
The Partnership has not created any variable interest entities after January 31,
2003. In December 2003, the FASB redeliberated certain proposed modifications
and revised FIN 46 ("FIN 46 (R)"). The revised provisions were applicable no
later than the first reporting period ending after March 15, 2004. The adoption
of FIN 46 (R) did not have a material impact on the Registrant's financial
reporting and disclosure.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
changes the accounting for certain financial instruments that, under previous
guidance, could be classified as equity or "mezzanine" equity, by now requiring
those instruments to be classified as liabilities ( or assets in some
circumstances) in the Consolidated Balance Sheets. Further, SFAS No. 150
requires disclosure regarding the terms of those instruments and settlement
alternatives. The guidance in SFAS No. 150 generally was effective for all
financial instruments entered into or modified after May 31, 2003, and was
otherwise effective at the beginning of the first interim period beginning after
June 15, 2003. The Registrant has evaluated SFAS No. 150 and determined that it
does not have an impact on the Registrant's financial reporting and disclosures.
Property Information
- --------------------
The Registrant currently holds interests in eight Local Partnerships. The
following schedule gives specific details about the related Properties.
Gross Carrying
Value of Occupancy
Number Property at Rate at
Property (a) of Units March 31, 2005 December 31, 2004 (c)
- --------------------------------------------------- ----------- -------------- ---------------------
RMB Limited Partnership (Hubbard's Ridge) 196 $ 5,310,849 72%
Garland, TX
Cutler Canal II Associates, Ltd. 216 11,540,233 94%
Miami, FL
Diamond Street Venture (b) 48 2,912,536 94%
Philadelphia, PA
Papillion Heights Apartments L.P. 48 2,222,255 90%
Papillion, NE
Hill Top Homes Apartments Limited Partnership 171 8,104,661 79%
Arlington, TX
Palm Beach Apartments, Ltd. (Summer Creek Villas) 770 40,832,871 97%
West Palm Beach, FL
Brookland Park Plaza Limited Partnership 77 6,449,682 96%
Richmond, VA
Compton Townhouses Limited Partnership 39 2,446,959 97%
------------
Cincinnati, OH
$ 79,820,046
============
8
(a) At March 31, 2005, 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.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
The Registrant does not believe there is a material risk associated with the
various interest rates associated with the mortgage notes as the majority of the
Local Partnership mortgage notes have fixed rates. The Registrant currently
discloses in Item 8, Note 3 to the financial statements the fair value of the
mortgage notes payable. The Partnership does not have any other market risk
sensitive instruments.
9
Item 8. Financial Statements and Supplementary Data
Sequential
Page
------------
(a) 1. Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm 11
Consolidated Balance Sheets at March 31, 2005 and 2004 29
Consolidated Statements of Income for the Years Ended March 31, 2005, 2004 and 2003 30
Consolidated Statements of Changes in Partners' Capital (Deficit) for the Years Ended
March 31, 2005, 2004 and 2003 31
Consolidated Statements of Cash Flows for the Years Ended March 31, 2005, 2004 and
2003 32
Notes to Consolidated Financial Statements 33
10
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2005 and 2004, and the
related consolidated statements of operations, changes in partners' capital
(deficit) and cash flows for the years ended March 31, 2005, 2004 and 2003. 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 audits. For the years ended March 31, 2005 and
2004, we did not audit the financial statements of certain investee partnerships
which represent $11,626,764 and $15,334,378, respectively, in total assets and
$597,760 and $915,112, respectively, of the net loss as of and for the years
ended March 31, 2005 and 2004. Those statements were audited by other auditors
whose reports have been furnished to us, and our opinion, insofar as it relates
to those investee partnerships, is based solely on the reports of the other
auditors.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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. The Partnership has determined
that it is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the partnership's internal control
over financial reporting. Accordingly, we express no such opinion. 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, and the reports of the other auditors, provide a reasonable basis for
our opinion.
In our opinion, based on our audits and the reports of the other auditors, 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, 2005 and 2004, and the results of their
operations, changes in Partners' capital (deficit), and their cash flows for the
years ended March 31, 2005, 2004 and 2003, in conformity with accounting
principles generally accepted in the United States of America.
Our report on the 2005 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 GROUP, P.C.
Bethesda, Maryland
May 31, 2005
11
[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, 2004 and 2003, 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 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 RMB LIMITED PARTNERSHIP as of
December 31, 2004 and 2003, 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 27, 2005
12
[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, 2003 and 2002, 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 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 RMB LIMITED PARTNERSHIP as of
December 31, 2003 and 2002, 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 21, 2004
13
[Letterhead of Reznick Group, P.C.]
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, 2004 and 2003, and the related statements of operations,
partners' equity 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 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, 2004 and 2003, 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.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information on page 20
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 aspects in relation to the
basic financial statements taken as a whole.
/s/ Reznick Group, P.C.
Atlanta, Georgia
February 2, 2005
14
[Letterhead of Reznick Fedder & Silverman]
INDEPENDENT AUDITORS' REPORT
To the Partners
Cutler Canal II Associates, Ltd.
We have audited the accompanying balance sheet of Cutler Canal II Associates,
Ltd. as of December 31, 2003 and 2002, and the related statements of operations,
partners' equity 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 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, 2003 and 2002, 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/ Reznick Fedder & Silverman
Atlanta, Georgia
January 28, 2004
15
[Letterhead of Reznick Group, P.C.]
INDEPENDENT AUDITORS' REPORT
To the Partners
Diamond Street Venture
We have audited the accompanying balance sheets of Diamond Street Venture as of
December 31, 2004 and 2003, and the related statements of profit and loss,
changes in 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 and the standards applicable to financial audits
contained in 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 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 Diamond Street Venture as of
December 31, 2004 and 2003, and the results of its operations, the changes in
partners' equity (deficit) and its cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.
In accordance with Government Auditing Standards we have also issued our report
for the year ended December 31, 2004, dated January 28, 2005, on our
consideration of Diamond Street Venture's internal control over financial
reporting and on our tests of its compliance with certain provisions of laws,
regulations, contracts and grant agreements and other matters. The purpose of
that report is to describe the scope of our testing of internal control over
financial reporting and compliance and the results of that testing, and not to
provide an opinion on the internal control over financial reporting or on
compliance. That report is an integral part of an audit performed in accordance
with Government Auditing Standards and should be considered in assessing the
results of our audit.
Our audits were made for the purpose of forming an opinion on the basis
financial statements taken as a whole. The 2004 supplemental information on
pages 27 through 30 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.
/s/ Reznick Group, P.C.
Baltimore, Maryland
January 28, 2005
16
[Letterhead of Reznick Fedder & Silverman]
INDEPENDENT AUDITORS' REPORT
To the Partners
Diamond Street Venture
We have audited the accompanying balance sheet of Diamond Street Venture as of
December 31, 2003 and 2002, and the related statements of profit and loss,
changes in 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 and the standards applicable to financial audits
contained in 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 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 Diamond Street Venture as of
December 31, 2003 and 2002, and the results of its operations, the changes in
partners' equity (deficit) and its cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.
In accordance with Government Auditing Standards we have also issued our report
for the year ended December 31, 2003, dated January 23, 2004, on our
consideration of Diamond Street Venture's internal control over financial
reporting and on our tests of its compliance with certain provisions of laws,
regulations, contracts and grants. That report is 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.
Our audits were made for the purpose of forming an opinion on the basis
financial statements taken as a whole. The supplemental information on pages 29
through 32 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.
/s/ Reznick Fedder & Silverman
Baltimore, Maryland
January 23, 2004
17
[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, 2004 and 2003, 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 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 Papillion Heights Apartments,
L.P. (a limited partnership) as of December 31, 2004 and 2003, 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/ Schultz, Durham & Rapp, P.C.
Springfield, Missouri
February 8, 2005
18
[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, 2003 and 2002, 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 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 Papillion Heights Apartments,
L.P. (a limited partnership) as of December 31, 2003 and 2002, 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/ Schultz, Durham & Rapp, P.C.
Springfield, Missouri
February 11, 2004
19
[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, 2004 and
2003, 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, 2004 and 2003, 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 27, 2005
20
[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, 2003 and
2002, 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, 2003 and 2002, 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 21, 2004
21
[Letterhead of Reznick Group, P.C.]
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, 2004 and 2003, and the related statements of operations,
partners' equity, 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 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, 2004 and 2003, 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.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 14 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 14. 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 page 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 Group, P.C.
Atlanta, Georgia
February 8, 2005
22
[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, 2003 and 2002, and the related statements of operations,
partners' equity, 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 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, 2003 and 2002, 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.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 14 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 14. 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 page 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 13, 2004
23
[Letterhead of Reznick Group, P.C.]
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, 2004, 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 auditing standards generally accepted
in the United States of America and the standards applicable to financial audits
contained in 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, 2004, and the results of its operations, the
changes in partners' equity (deficit) and cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note J to the
financial statements, the Partnership has not generated sufficient cash flow
from operations to cover its debt service requirements and there is surplus cash
(deficiency) as of December 31, 2004. These conditions raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note J. The ultimate outcome of the above
matters cannot presently be determined, and the financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
In accordance with Government Auditing Standards and the "Consolidated Audit
Guide for Audits for HUD Programs" (the "Guide"), we have also issued reports
dated February 26, 2005 on our consideration of Brookland Park Plaza Limited
Partnership's internal control over financial reporting and on our tests of 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 the Guide and
should be considered in assessing the results of our audit.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplemental information
on pages 20 through 32 is presented for purposes of additional analysis and is
not a required part of the basic financial statements of BROOKLAND PARK PLAZA
LIMITED PARTNERSHIP. 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.
/s/ Reznick Group, P.C.
Baltimore, Maryland
Taxpayer Identification Number: 52-1088612
February 26, 2005
Lead Auditor: Richard G. Schaefer
24
[Letterhead of Dickey, Wolf & Humbard, LLC]
INDEPENDENT AUDITORS' REPORT
To the Partners
Brookland Park Plaza Limited Partnership
We have audited the accompanying balance sheet of BROOKLAND PARK PLAZA LIMITED
PARTNERSHIP (a Maryland Limited Partnership), HUD Project No. 051-36617, as of
December 31, 2003, 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 auditing standards generally accepted
in the United States of America and the standards applicable to financial audits
contained in 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, 2003, and the results of its operations, the
changes in partners' equity/(deficit), and cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.
In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued reports
dated January 21, 2004, on our consideration OF BROOKLAND PARK PLAZA LIMITED
PARTNERSHIP'S internal control and on our tests of its compliance with certain
provisions of laws, regulations, contracts and grants. 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.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplemental information
on pages 14 through 24 is presented for purposes of additional analysis and is
not a required part of the basic financial statements of BROOKLAND PARK PLAZA
LIMITED PARTNERSHIP. 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.
/s/ Dickey, Wolf & Humbard, LLC
Certified Public Accountants
Harrisonville, MO
January 21, 2004
25
[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, 2002, 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 auditing standards generally accepted
in the United States of America and the standards applicable to financial audits
contained in 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, 2002, and the results of its operations, the
changes in partners' equity (deficit) and cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.
In accordance with Government Auditing Standards and the "Consolidated Audit
Guide for Audits of HUD Programs," we have also issued reports dated January 27,
2003 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.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplemental information
on pages 21 through 26 is presented for purposes of additional analysis and is
not a required part of the basic financial statements of the partnership. 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.
/s/ Reznick Fedder & Silverman
Bethesda, Maryland
Taxpayer Identification Number: 52-1088612
January 27, 2003
Lead Auditor: Renee G. Scruggs
26
[Letterhead of Barnes, Dennig & Co., Ltd.]
Report of Independent Certified Public Accountants
To the Partners
Compton Townhouses Limited Partnership
We have audited the accompanying balance sheets of Compton Townhouses Limited
Partnership (Ohio Limited Partnership), as of December 31, 2004 and 2003, and
the related statements of operations, changes in 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 auditing standards generally accepted
in the United States of America. 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 as of December 31, 2004 and 2003, and the results of its operations,
changes in partners' deficit and cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Barnes, Dennig & Co., Ltd.
Cincinnati, Ohio
January 14, 2005
27
[Letterhead of Barnes, Dennig & Co., Ltd.]
Report of Independent Certified Public Accountants
To the Partners
Compton Townhouses Limited Partnership
We have audited the accompanying balance sheets of Compton Townhouses Limited
Partnership (An Ohio Limited Partnership), as of December 31, 2003 and 2002, and
the related statements of operations, changes in 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 auditing standards generally accepted
in the United States of America. 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 as of December 31, 2003 and 2002, and the results of its operations,
changes in partners' deficit and cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Barnes, Dennig & Co., Ltd.
Cincinnati, Ohio
January 16, 2004
28
PATRIOT TAX CREDIT PROPERTIES L.P.
(a limited partnership)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31,
----------------------------
2005 2004
------------ ------------
Investment in property:
Land $ 4,005,633 $ 4,005,633
Building and improvements 75,814,413 75,798,582
Accumulated depreciation (30,492,001) (28,372,375)
------------ ------------
Net investment in property 49,328,045 51,431,840
Cash and cash equivalents 942,431 1,216,053
Cash and cash equivalents held in escrow 1,987,739 1,222,301
Deferred financing costs, net 1,009,427 1,302,170
Other assets 593,336 383,808
------------ ------------
Total assets $ 53,860,978 $ 55,556,172
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Liabilities:
Mortgage notes payable $ 43,771,002 $ 44,697,118
Accrued interest payable 2,358,266 2,180,744
Other accrued expenses and liabilities 2,818,326 2,200,263
Due to local general partners and affiliates of local partnerships 8,017,084 6,378,776
Development fees payable 1,151,510 1,151,510
Real estate taxes payable 571,993 174,018
Due to General Partner and its affiliates 11,784,402 10,190,654
------------ ------------
Total liabilities 70,472,583 66,973,083
------------ ------------
Minority interests in local partnerships (3,891,976) (2,796,249)
------------ ------------
Partners' capital (deficit):
Limited partners (38,125 BUC$ issued and outstanding) (13,404,752) (9,326,280)
General partner (1 BUC$ issued and outstanding) 685,123 705,618
------------ ------------
Total partners' capital (deficit) (12,719,629) (8,620,662)
------------ ------------
Total liabilities and partners' capital (deficit) $ 53,860,978 $ 55,556,172
============ ============
See accompanying notes to consolidated financial statements.
29
PATRIOT TAX CREDIT PROPERTIES L.P.
(a limited partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended March 31,
-----------------------------------------
2005 2004* 2003*
----------- ------------ ------------
Revenues
Rental income $10,150,683 $ 9,876,634 $ 9,973,773
Other income 794,927 870,728 829,675
Interest income 10,174 12,093 15,827
----------- ------------ ------------
10,955,784 10,759,455 10,819,275
----------- ------------ ------------
Expenses
Interest 3,954,462 4,048,105 4,170,172
Interest-related parties (Note 6 and 7) 849,765 706,985 577,593
Depreciation and amortization 2,412,369 2,440,364 2,429,909
Operating and other 996,430 921,634 914,339
Taxes and insurance 1,555,257 1,501,816 1,374,659
Repairs and maintenance 2,696,126 2,483,200 2,749,023
General and administrative 2,910,149 2,744,390 2,618,709
General and administrative-related parties (Note 6) 775,920 761,720 761,733
----------- ------------ ------------
Total expenses 16,150,478 15,608,214 15,596,137
----------- ------------ ------------
Loss before minority interest (5,194,694) (4,848,759) (4,776,862)
Minority interest in loss of local partnerships 1,095,727 1,048,921 1,139,863
----------- ------------ ------------
Net loss $(4,098,967) $ (3,799,838) $ (3,636,999)
=========== ============ ============
Net loss-limited partners $(4,078,472) $ (3,780,839) $ (3,618,814)
=========== ============ ============
Number of BUC$ outstanding - limited partners 38,125 38,125 38,125
=========== ============ ============
Net loss per BUC$ - limited partners $ (106.98) $ (99.17) $ (94.92)
=========== ============ ============
* Reclassified for comparative purposes.
See accompanying notes to consolidated financial statements.
30
PATRIOT TAX CREDIT PROPERTIES L.P.
(a limited partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
Limited General
Total Partners Partner BUC$
------------ ------------ ------------ ------------
Partners' capital (deficit)
April 1, 2002 $ (1,183,825) $ (1,926,627) $ 742,802 $ 38,126
Net Loss (3,636,999) (3,618,814) (18,185) 0
------------ ------------ ------------ ------------
Partners' capital (deficit)
March 31, 2003 (4,820,824) (5,545,441) 724,617 38,126
Net Loss (3,799,838) (3,780,839) (18,999) 0
------------ ------------ ------------ ------------
Partners' capital (deficit)
March 31, 2004 (8,620,662) (9,326,280) 705,618 38,126
Net Loss (4,098,967) (4,078,472) (20,495) 0
------------ ------------ ------------ ------------
Partners' capital (deficit)
March 31, 2005 $(12,719,629) $(13,404,752) $ 685,123 $ 38,126
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
31
PATRIOT TAX CREDIT PROPERTIES L.P.
(a limited partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31,
-----------------------------------------
2005 2004 2003
----------- ----------- -----------
Cash flows from operating activities:
Net loss $(4,098,967) $(3,799,838) $(3,636,999)
----------- ----------- -----------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 2,412,369 2,440,364 2,429,909
Minority interest in loss of local partnerships (1,095,727) (1,048,921) (1,139,863)
(Increase) decrease in cash held in escrow (765,438) 96,043 363,167
Increase (decrease) in real estate taxes
payable 397,975 (5,858) 97,998
Increase in accrued interest payable 177,522 58,326 81,510
Increase in other assets (209,528) (16,353) (66,008)
Increase (decrease) in other accrued expenses
and liabilities 863,352 (150,028) 1,084,764
----------- ----------- -----------
Total adjustments 1,780,525 1,373,573 2,851,477
----------- ----------- -----------
Net cash used in operating activities (2,318,442) (2,426,265) (785,522)
----------- ----------- -----------
Cash flows from investing activities:
Investments in property (15,831) (52,236) (39,188)
----------- ----------- -----------
Net cash used in investing activities (15,831) (52,236) (39,188)
----------- ----------- -----------
Cash flows from financing activities
Proceeds from mortgage notes 0 1,197,500 0
Payments on mortgage notes (926,116) (1,794,597) (721,555)
Increase in deferred costs 0 (9,362) 0
Advances from General Partner 1,348,459 1,663,375 1,452,201
Increase in due to Local General Partners and affiliates of
Local Partnerships, General Partner and its affiliates 1,074,974 847,278 61,202
Decrease in due to Local General Partners and affiliates of
Local Partnerships, General Partner and its affiliates 0 (59,353) (355,920)
Advance from local limited partner 563,334 505,316 728,415
Distribution to minority interest 0 (557) (307)
----------- ----------- -----------
Net cash provided by financing activities 2,060,651 2,349,600 1,164,036
----------- ----------- -----------
Net (decrease) increase in cash and cash
equivalents (273,622) (128,901) 339,326
Cash and cash equivalents at beginning of year 1,216,053 1,344,954 1,005,628
----------- ----------- -----------
Cash and cash equivalents at end of year $ 942,431 $ 1,216,053 $ 1,344,954
=========== =========== ===========
Supplemental disclosures of cash flow information:
Interest paid $ 4,626,705 $ 4,696,764 $ 4,666,255
=========== =========== ===========
See accompanying notes to consolidated financial statements.
32
PATRIOT TAX CREDIT PROPERTIES L.P.
(a limited partnership)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
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 is RCC Partners 96, L.L.C. (the "General Partner")
and is an affiliate of Related Capital Company ("RCC"). On November 17, 2003,
CharterMac acquired RCC, which is the indirect parent of RCC Manager L.L.C., the
managing member of the General Partner. Pursuant to the acquisition, CharterMac
acquired controlling interests in the General Partner. This acquisition did not
affect the Partnership or its day-to-day operations, as the majority of the
General Partner's management team remained unchanged. Independence SLP L.P.
("SLP"), an affiliate of RCC, is the special limited partner. The SLP acts 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, 2005, the Partnership has investments in eight Local Partnerships.
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 accounting principles generally accepted in the
United States of America. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
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 accounts of the Partnership
and 8 subsidiary partnerships, in which the Partnership is a limited partner,
with an ownership interest ranging from approximately 66.5% to 98.99%. All
intercompany accounts and transactions with the subsidiary partnerships have
been eliminated in consolidation. All subsidiary partnerships have fiscal years
ending December 31. The Partnership has a controlling financial interest in the
subsidiary partnerships through its rights to remove the general partner of the
subsidiary partnerships and to approve certain major operating and financial
decisions. These rights may be exercised by the General Partner of the
Partnership and/or an affiliate, which affiliate has a contractual obligation to
act on behalf of the Partnership.
Minority interest in Local Partnerships relates to the general partner interests
in the Local Partnerships (the "Local General Partners") not owned by the
Partnership. The local general partners and their affiliates have advanced funds
to the operating partnerships under the terms of various deficit guarantees,
which are reported as a liability in the accompanying consolidated balance
sheets. Therefore, the Partnership continues to allocate losses to the minority
interests to the extent of the local general partners' capital investment plus
advances. The local general partner advances generally carry a repayment
priority from distributable cash flow generated by the local partnerships.
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 with original maturities of
three months or less from date of acquisition whose cost approximates market
value.
d) Cash and Cash Equivalents Held in Escrow
Cash and cash equivalents held in escrow include restricted funds with original
maturities of three months or less from date of acquisition held for payment of
real estate taxes and insurance, tenant security deposits and replacement
reserves.
33
PATRIOT TAX CREDIT PROPERTIES L.P.
(a limited partnership)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
e) Revenue Recognition
Rental income is earned primarily under standard residential operating leases
and is typically due the first day of each month, but can vary by property due
to the terms of the tenant leases. Rental income is recognized when earned and
charged to tenant's accounts receivable if not received by the due date. Rental
payments received in advance of the due date are deferred until earned. Rental
subsidies are recognized as rental income during the month in which it is
earned.
Other revenues are recorded when earned and consist of the following items:
Interest income earned on cash and cash equivalent balances and cash held in
escrow balances, income from forfeited security deposits, late charges, laundry
and vending income and other rental related items.
f) Income 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.
g) 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, 2005, no distributions have been paid.
h) New Accounting Pronouncements
On December 16, 2004, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 153, Exchanges of Nonmonetary Assets - An Amendment of
APB Opinion No. 29 ("SFAS No. 153"). The amendments made by SFAS No. 153 are
based on the principle that exchanges of nonmonetary assets should be measured
based on the fair value of the assets exchanged. Further, the amendments
eliminate the narrow exception for exchanges for nonmonetary assets that do not
have "commercial substance." SFAS No. 153 is effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005. The
Partnership does not believe that the adoption of SFAS No. 153 on June 15, 2005
will have a material effect on the Partnership's consolidated financial
statements.
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46").
FIN 46 is applicable immediately for variable interest entities created after
January 31, 2003. For variable interest entities created before February 1,
2003, the provisions of FIN 46 are applicable no later than December 15, 2003.
The Partnership has not created any variable interest entities after January 31,
2003. In December 2003, the FASB redeliberated certain proposed modifications
and revised FIN 46 ("FIN 46 (R)"). The revised provisions were applicable no
later than the first reporting period ending after March 15, 2004. The adoption
of FIN 46 (R) did not have a material impact on the Partnership's financial
reporting and disclosure.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
changes the accounting for certain financial instruments that, under previous
guidance, could be classified as equity or "mezzanine" equity, by now requiring
those instruments to be classified as liabilities ( or assets in some
circumstances) in the Consolidated Balance Sheets. Further, SFAS No. 150
requires disclosure regarding the terms of those instruments and settlement
alternatives. The guidance in SFAS No. 150 generally was effective for all
financial instruments entered into or modified after May 31, 2003, and was
otherwise effective at the beginning of the first interim period beginning after
June 15, 2003. The Partnership has evaluated SFAS No. 150 and determined that it
does not have an impact on the Partnership's financial reporting and
disclosures.
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, 2005 and 2004 is $4,319,436 and $4,019,979, 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 SLP. This partnership management fee
34
PATRIOT TAX CREDIT PROPERTIES L.P.
(a limited partnership)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
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.
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) 2005 2004 2005 2004
- ------------------------------------------ ----------- ----------- ----------- -----------
Apartment Complexes:
RMB Limited Partnership (Hubbard's Ridge) $ 2,762,678 $ 2,933,334 $ 4,473,400 $ 4,519,054
Garland, TX
Cutler Canal II Associates, Ltd. 7,568,352 7,875,271 5,610,221 5,675,068
Miami, FL
Diamond Street Venture (b) 1,386,121 1,526,094 2,866,414 2,891,356
Philadelphia, PA
Papillion Heights Apartments L.P. 1,400,163 1,437,773 1,160,969 1,183,317
Papillion, NE
Hill Top Homes Apartments Limited
Partnership 5,346,661 5,531,851 3,001,742 3,109,436
Arlington, TX
Palm Beach Apartments, Ltd. (Summer Creek
Villas) 26,743,429 27,686,049 23,202,835 23,793,641
West Palm Beach, FL
Brookland Park Plaza Limited Partnership 3,117,193 3,344,485 2,285,018 2,317,981
Richmond, VA
Compton Townhouses Limited Partnership 1,003,448 1,096,983 1,170,403 1,207,265
----------- ----------- ----------- -----------
Cincinnati, OH
$49,328,045 $51,431,840 $43,771,002 $44,697,118
=========== =========== =========== ===========
(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.
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
------------
2005 $ 3,516,725
2006 4,074,760
2007 1,138,286
2008 22,450,105
2009 362,940
Thereafter 12,228,186
------------
$ 43,771,002
============
<