Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2008
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-21895
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 3
California 33-6163848
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17782 Sky Park Circle
Irvine, CA 92614-6404
(Address of principal executive offices) (Zip Code)
(714) 662-5565
(Telephone number)
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 ___No _X__
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer___ Accelerated filer___ Non-accelerated filer___X__
Smaller reporting company___
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes ___No _X__
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 3
(A California Limited Partnership)
INDEX TO FORM 10 - Q
For the Quarterly Period Ended June 30, 2008
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
As of June 30, 2008 and March 31, 2008.......................3
Statements of Operations
For the Three Months Ended June 30, 2008 and 2007............4
Statement of Partners' Equity (Deficit)
For the Three Months Ended June 30, 2008.....................5
Statements of Cash Flows
For the Three Months Ended June 30, 2008 and 2007............6
Notes to Financial Statements.....................................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................16
Item 3. Quantitative and Qualitative Disclosures about Market Risks..17
Item 4T. Controls and Procedures.....................................17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.18
Item 3. Defaults Upon Senior Securities.............................18
Item 4. Submission of Matters to a Vote of Security Holders.........18
Item 5. Other Information...........................................18
Item 6. Exhibits ...................................................18
Signatures ..........................................................19
2
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 3
(A California Limited Partnership)
BALANCE SHEETS
(Unaudited)
June 30, 2008 March 31, 2008
------------------------ -------------------
ASSETS
Cash $ 85,076 $ 83,448
Investments in Local Limited Partnerships, net
(Notes 2 and 3) - 1,120,103
------------------------ -------------------
Total Assets $ 85,076 $ 1,203,551
======================== ===================
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Accrued expenses $ 4,000 $ 4,000
Accrued fees and expenses due to
General Partner and affiliates (Note 3) 1,795,791 1,781,320
------------------------ -------------------
Total Liabilities 1,799,791 1,785,320
------------------------ -------------------
Partners' Equity ( Deficit):
General Partner 951,532 962,861
Limited Partners (25,000 Partnership Units authorized;
18,000 Partnership Units issued and outstanding) (2,666,247) (1,544,630)
------------------------ -------------------
Total Partners' Equity (Deficit) (1,714,715) (581,769)
------------------------ -------------------
Total Liabilities and Partners' Equity (Deficit) $ 85,076 $ 1,203,551
======================== ===================
See accompanying notes to financial statements
3
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 3
(A California Limited Partnership)
STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2008 and 2007
(Unaudited)
2008 2007
Three Months Three Months
--------------------------- ---------------------------
Distribution income $ 1,617 $ -
--------------------------- ---------------------------
Operating expenses:
Amortization (Note 2) 3,461 3,478
Asset management fees (Note 3) 12,375 12,375
Legal and accounting fees 65 112
Impairment loss (Note 2) 1,115,739 535,600
Other 2,030 1,528
--------------------------- ---------------------------
Total operating expenses 1,133,670 553,093
--------------------------- ---------------------------
Loss from operations (1,132,053) (553,093)
Equity in losses of Local
Limited Partnerships (Note 2) (903) (33,728)
Interest income 10 44
--------------------------- ---------------------------
Net loss $ (1,132,946) $ (586,777)
=========================== ===========================
Net loss allocated to:
General Partner $ (11,329) $ (5,868)
=========================== ===========================
Limited Partners $ (1,121,617) $ (580,909)
=========================== ===========================
Net loss per Partnership Unit $ (62) $ (32)
=========================== ===========================
Outstanding weighted
Partnership Units 18,000 18,000
=========================== ===========================
See accompanying notes to financial statements
4
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 3
(A California Limited Partnership)
STATEMENT OF PARTNERS' EQUITY (DEFICIT)
For the Three Months Ended June 30, 2008
(Unaudited)
General Limited
Partner Partners Total
----------------- ---------------- ------------------
Partners' equity (deficit) at March 31, 2008 $ 962,861 $ (1,544,630) $ (581,769)
Net loss (11,329) (1,121,617) (1,132,946)
----------------- ---------------- ------------------
Partners' equity (deficit) at June 30, 2008 $ 951,532 $ (2,666,247) $ (1,714,715)
================= ================ ==================
See accompanying notes to financial statements
5
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 3
(A California Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Three Months Ended June 30, 2008 and 2007
(Unaudited)
2008 2007
--------------------- ----------------
Cash flows from operating activities:
Net loss $ (1,132,946) $ (586,777)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Amortization 3,461 3,478
Equity in losses of Local Limited Partnerships 903 33,728
Impairment loss 1,115,739 535,600
Change in accrued fees and expenses due to
General Partner and affiliates 14,471 14,016
--------------------- ----------------
Net cash provided by operating activities 1,628 45
--------------------- ----------------
Net increase in cash 1,628 45
Cash, beginning of period 83,448 46,994
--------------------- ----------------
Cash, end of period $ 85,076 $ 47,039
===================== ================
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Taxes paid $ - $ -
===================== ================
See accompanying notes to financial statements
6
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 3
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
For the Quarterly Period Ended June 30, 2008
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
General
-------
The accompanying condensed unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form 10-Q
for quarterly reports under Section 13 or 15(d) of the Securities Exchange Act
of 1934. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three months
ended June 30, 2008 are not necessarily indicative of the results that may be
expected for the fiscal year ending March 31, 2009. For further information,
refer to the financial statements and footnotes thereto included in the
Partnership's annual report on Form 10-K for the fiscal year ended March 31,
2008.
Organization
------------
WNC Housing Tax Credit Fund V, L.P., Series 3 (the "Partnership"), is a
California Limited Partnership formed under the laws of the State of California
on March 28, 1995. The Partnership was formed to invest primarily in other
limited partnerships ("Local Limited Partnerships") which own multi-family
housing complexes ("Housing Complexes") that are eligible for Federal low income
housing tax credits ("Low Income Housing Tax Credits"). The local general
partners (the "Local General Partners") of each Local Limited Partnership retain
responsibility for maintaining, operating and managing the Housing Complexes.
Each Local Limited Partnership is governed by its agreement of limited
partnership (the "Local Limited Partnership Agreement").
The general partner of the Partnership is WNC & Associates, Inc., (the "General
Partner" or "Associates"). The chairman and president of Associates owns all of
the outstanding stock of Associates. The business of the Partnership is
conducted primarily through Associates, as the Partnership has no employees of
its own.
The Partnership shall continue in full force and effect until December 31, 2050
unless terminated prior to that date pursuant to the partnership agreement or
law.
The financial statements include only activity relating to the business of the
Partnership, and do not give effect to any assets that the partners may have
outside of their interests in the Partnership, or to any obligations, including
income taxes, of the partners.
The Partnership Agreement authorized the sale of up to 25,000 units of limited
partnership interests ("Partnership Units") at $1,000 per Partnership Unit. The
offering of Partnership Units had concluded in January 1996, at which time
18,000 Partnership Units representing subscriptions in the amount of
$17,558,985, net of $441,015 of discounts for volume purchases, had been
accepted. The General Partner has a 1% interest in operating profits and losses,
taxable income and losses, cash available for distribution from the Partnership
and Low Income Housing Tax Credits of the Partnership. The investors (the
"Limited Partners") will be allocated the remaining 99% of these items in
proportion to their respective investments.
Sempra Energy Financial, a California corporation, which is not an affiliate of
the Partnership or General Partner, had purchased 4,560 Units, which represents
25.3% of the Partnership Units outstanding for the Partnership. Sempra Energy
Financial invested $4,282,600. A discount of $277,400 was allowed due to a
volume discount. On July 1, 2006 Sempra Energy Financial transferred their 4,560
Partnership Units to Sempra Section 42, LLC. See Item 12(b) in the year ended
March 31, 2008 10-K. Western Financial Savings Bank, which is not an affiliate
of the Partnership or General Partner, has purchased 1,068 Partnership Units,
which represent 5.9% of the Units outstanding for the Partnership. Western
Financial Savings Bank invested $1,000,000. A discount of $68,000 was allowed
due to a volume discount. See Item 12(b) in the year ended March 31, 2008 10-K.
7
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 3
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended June 30, 2008
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------
The proceeds from the disposition of any of the Local Limited Partnership's
Housing Complexes will be used first to pay debts and other obligations per the
respective Local Limited Partnership Agreement. Any remaining proceeds will then
be paid to the Partnership. The sale of a Housing Complex may be subject to
other restrictions and obligations. Accordingly, there can be no assurance that
a Local Limited Partnership will be able to sell its Housing Complex. Even if it
does so, there can be no assurance that any significant amounts of cash will be
distributed to the Partnership. Should such distributions occur, the Limited
Partners will be entitled to receive distributions from the proceeds remaining
after payment of Partnership obligations and funding reserves, equal to their
capital contributions and their return on investment (as defined in the
Partnership Agreement) and the General Partners would then be entitled to
receive proceeds equal to their capital contributions from the remainder. Any
additional sale or refinancing proceeds will be distributed 90% to the Limited
Partners (in proportion to their respective investments) and 10% to the General
Partner.
Risks and Uncertainties
-----------------------
An investment in the Partnership and the Partnership's investments in Local
Limited Partnerships and their Housing Complexes are subject to risks. These
risks may impact the tax benefits of an investment in the Partnership, and the
amount of proceeds available for distribution to the Limited Partners, if any,
on liquidation of the Partnership's investments. Some of those risks include the
following:
The Low Income Housing Tax Credits rules are extremely complicated.
Noncompliance with these rules results in the loss of future Low Income Housing
Tax Credits and the fractional recapture of Low Income Housing Tax Credits
already taken. In most cases the annual amount of Low Income Housing Tax Credits
that an individual can use is limited to the tax liability due on the person's
last $25,000 of taxable income. The Local Limited Partnerships may be unable to
sell the Housing Complexes at a price which would result in the Partnership
realizing cash distributions or proceeds from the transaction. Accordingly, the
Partnership may be unable to distribute any cash to its Limited Partners. Low
Income Housing Tax Credits may be the only benefit from an investment in the
Partnership.
The Partnership has invested in a limited number of Local Limited Partnerships.
Such limited diversity means that the results of operation of each single
Housing Complex will have a greater impact on the Partnership. With limited
diversity, poor performance of one Housing Complex could impair the
Partnership's ability to satisfy its investment objectives. Each Housing Complex
is subject to mortgage indebtedness. If a Local Limited Partnership failed to
pay its mortgage, it could lose its Housing Complex in foreclosure. If
foreclosure were to occur during the first 15 years, the loss of any remaining
future Low Income Housing Tax Credits, a fractional recapture of prior Low
Income Housing Tax Credits, and a loss of the Partnership's investment in the
Housing Complex would occur. The Partnership is a limited partner or a
non-managing member of each Local Limited Partnership. Accordingly, the
Partnership will have very limited rights with respect to management of the
Local Limited Partnerships. The Partnership will rely totally on the Local
General Partners. Neither the Partnership's investments in Local Limited
Partnerships, nor the Local Limited Partnerships' investments in Housing
Complexes, are readily marketable. To the extent the Housing Complexes receive
government financing or operating subsidies, they may be subject to one or more
of the following risks: difficulties in obtaining tenants for the Housing
Complexes; difficulties in obtaining rent increases; limitations on cash
distributions; limitations on sales or refinancing of Housing Complexes;
limitations on transfers of interests in Local Limited Partnerships; limitations
on removal of Local General Partners; limitations on subsidy programs; and
possible changes in applicable regulations. Uninsured casualties could result in
loss of property and Low Income Housing Tax Credits and recapture of Low Income
Housing Tax Credits previously taken. The value of real estate is subject to
risks from fluctuating economic conditions, including employment rates,
inflation, tax, environmental, land use and zoning policies, supply and demand
of similar Housing Complexes, and neighborhood conditions, among others.
The ability of Limited Partners to claim tax losses from the Partnership is
limited. The IRS may audit the Partnership or a Local Limited Partnership and
challenge the tax treatment of tax items. The amount of Low Income Housing Tax
8
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 3
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended June 30, 2008
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------
Credits and tax losses allocable to Limited Partners could be reduced if the IRS
were successful in such a challenge. The alternative minimum tax could reduce
tax benefits from an investment in the Partnership. Changes in tax laws could
also impact the tax benefits from an investment in the Partnership and/or the
value of the Housing Complexes.
All of the Low Income Housing Tax Credits anticipated to be realized from the
Local Limited Partnerships have been realized. The Partnership does not
anticipate being allocated any Low Income Housing Tax Credits from the Local
Limited Partnerships in the future. Until the Local Limited Partnerships have
completed the 15 year Low Income Housing Tax Credit compliance period, risks
exist for potential recapture of prior Low Income Housing Tax Credits received.
No trading market for the Partnership Units exists or is expected to develop.
Limited Partners may be unable to sell their Partnership Units except at a
discount and should consider their Partnership Units to be a long-term
investment. Individual Limited Partners will have no recourse if they disagree
with actions authorized by a vote of the majority of Limited Partners.
The Partnership currently has insufficient working capital to fund its
operations. Associates has agreed to continue providing advances sufficient
enough to fund the operations and working capital requirements of the
Partnership through November 30, 2010.
Anticipated future and existing cash resources of the Partnership are not
sufficient to pay existing liabilities of the Partnership. However,
substantially all of the existing liabilities of the Partnership 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
Partnership 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 Partnership. The Partnership
would be adversely affected should the General Partner and/or its affiliates
demand current payment of the existing contractual obligations and or suspend
services for this or any other reason.
Exit Strategy
-------------
The Compliance Period for a Housing Complex is generally 15 years following
construction or rehabilitation completion. Associates was one of the first in
the industry to offer syndicated investments in Low Income Housing Tax Credits.
The initial programs are completing their Compliance Periods.
With that in mind, the General Partner is continuing its review of the Housing
Complexes, with special emphasis on the more mature Housing Complexes such as
any that have satisfied the IRS compliance requirements. The review considers
many factors, including extended use requirements (such as those due to mortgage
restrictions or state compliance agreements), the condition of the Housing
Complexes, and the tax consequences to the Limited Partners from the sale of the
Housing Complexes.
Upon identifying those Housing Complexes with the highest potential for a
successful sale, refinancing or syndication, the Partnership expects to proceed
with efforts to liquidate them. The objective is to maximize the Limited
Partners' return wherever possible and, ultimately, to wind down the
Partnership. Local Limited Partnership interests may be disposed of any time by
the General Partner in its discretion. While liquidation of the Housing
Complexes continues to be evaluated, the dissolution of the Partnership was not
imminent as of June 30, 2008. One Local Limited Partnership, Patten Towers II,
L.P. has been identified for disposition.
9
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 3
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended June 30, 2008
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------
Method of Accounting for Investments in Local Limited Partnerships
------------------------------------------------------------------
The Partnership accounts for its investments in Local Limited Partnerships using
the equity method of accounting, whereby the Partnership adjusts its investment
balance for its share of the Local Limited Partnerships' results of operations
and for any contributions made and distributions received. The Partnership
reviews the carrying amount of an individual investment in a Local Limited
Partnership for possible impairment whenever events or changes in circumstances
indicate that the carrying amount of such investment may not be recoverable.
Recoverability of such investment is measured by the estimated value derived by
management, generally consisting of the sum of the remaining future Low Income
Housing Tax Credits estimated to be allocable to the Partnership and the
estimated residual value to the Partnership. If an investment is considered to
be impaired, the Partnership reduces the carrying value of its investment in any
such Local Limited Partnership. The accounting policies of the Local Limited
Partnerships, generally, are expected to be consistent with those of the
Partnership. Costs incurred by the Partnership in acquiring the investments are
capitalized as part of the investment account and are being amortized over 30
years (see Note 2).
"Equity in losses of Local Limited Partnerships" for the periods ended June 30,
2008 and 2007 have been recorded by the Partnership. Management's estimate for
the three-month period is based on either actual unaudited results reported by
the Local Limited Partnerships or historical trends in the operations of the
Local Limited Partnerships. In subsequent annual financial statements, upon
receiving the actual annual results reported by the Local Limited Partnerships,
management reverses its prior estimate and records the actual results reported
by the Local Limited Partnerships. Equity in losses of Local Limited
Partnerships allocated to the Partnership are not recognized to the extent that
the investment balance would be adjusted below zero. If the Local Limited
Partnerships reported net income in future years, the Partnership will resume
applying the equity method only after its share of such net income equals the
share of net losses not recognized during the period(s) the equity method was
suspended (see Note 2).
The Partnership does not consolidate the accounts and activities of the Local
Limited Partnerships, which are considered Variable Interest Entities under
Financial Accounting Standards Board ("FASB") Interpretation No. 46-Revised,
"Consolidation of Variable Interest Entities", because the Partnership is not
considered the primary beneficiary. The Partnership's balance in investments in
Local Limited Partnerships, plus the risk of recapture of Low Income Housing Tax
Credits previously recognized on such investments, represents the maximum
exposure to loss in connection with such investments. The Partnership's exposure
to loss on the Local Limited Partnerships is mitigated by the condition and
financial performance of the underlying Housing Complexes as well as the
strength of the Local General Partners and their guarantees against Low Income
Housing Tax Credits recapture.
Distributions received by the Partnership are accounted for as a reduction of
the investment balance. Distributions received after the investment has reached
zero are recognized as income. As of June 30, 2008 all of the investment
balances had reached zero.
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could materially differ from those
estimates.
10
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 3
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended June 30, 2008
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------
Cash and Cash Equivalents
-------------------------
The Partnership considers all highly liquid investments with original maturities
of three months or less when purchased to be cash equivalents. As of June 30,
2008 and March 31, 2008, the Partnership had no cash equivalents.
Reporting Comprehensive Income
------------------------------
The Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income established standards for the reporting and display of
comprehensive income (loss) and its components in a full set of general-purpose
financial statements. The Partnership had no items of other comprehensive income
for all periods presented, as defined by SFAS No. 130.
Income Taxes
------------
No provision for income taxes has been recorded in the accompanying financial
statements as any liabilities and/or benefits for income taxes flow to the
partners of the Partnership and are their obligations and/or benefits. For
income tax purposes, the Partnership reports on a calendar year basis.
In June 2006, FASB issued Interpretation No. 48 "Accounting for Uncertainty in
Income Taxes" (FIN 48), an interpretation of FASB Statement No. 109. FIN 48
provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken or expected to be taken in the course of
preparing the Partnership's tax returns to determine whether the tax positions
are more-likely-than-not of being sustained upon examination by the applicable
tax authority, based on the technical merits of the tax position, and then
recognizing the tax benefit that is more-likely-than-not to be realized. Tax
positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax expense in the current reporting period. As required, the
Partnership adopted FIN 48 effective April 1, 2007 and concluded that the effect
is not material to its financial statements. Accordingly, no cumulative effect
adjustment related to the adoption of
FIN 48 was recorded.
Net Loss Per Partnership Unit
-----------------------------
Net loss per Partnership Unit is calculated pursuant to Statement of Financial
Accounting Standards No. 128, Earnings per Share. Net loss per Partnership Unit
includes no dilution and is computed by dividing loss allocated to Limited
Partners by the weighted average number of Partnership Units outstanding during
the period. Calculation of diluted net loss per Partnership Unit is not
required.
Revenue Recognition
-------------------
The Partnership is entitled to receive reporting fees from the Local Limited
Partnerships. The intent of the reporting fees is to offset (in part)
administrative costs incurred by the Partnership in corresponding with the Local
Limited Partnerships. Due to the uncertainty of the collection of these fees,
the Partnership recognizes reporting fees as collections are made.
Impairment
----------
A loss in value from a Local Limited Partnership other than a temporary decline
is recorded as an impairment loss.Impairment is measured by comparing the
investment carrying amount to the sum of the total of the remaining Low Income
Housing Tax Credits allocated to the Partnership and the estimated residual
value to the Partnership. For the three months ended June 30, 2008 and 2007
impairment loss related to investments in Local Limited Partnerships was
11
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 3
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended June 30, 2008
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------
$945,801 and $535,600, respectively. The Partnership also evaluates its
intangibles for impairment in connection with its investments in Local Limited
Partnerships. Impairment on the intangibles is measured by comparing the
investment's carrying amount after impairment and the related intangible assets
to the sum of the total of the remaining Low Income Housing Tax Credits
allocated to the Partnership and the estimated residual value of the investment.
During the three months ended June 30, 2008 and 2007, an impairment loss of
$169,938 and $0, respectively, was recorded on the related intangibles.
Amortization
------------
Acquisition fees and costs were being amortized over 30 years using the
straight-line method. Amortization expense for each of the three months ended
June 30, 2008 and 2007 was $3,461 and $3,478, respectively. During the three
months ended June 30, 2008 and 2007, an impairment loss of $169,938 and $0,
respectively, was recorded against these fees and costs.
NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS
--------------------------------------------------
As of the periods presented, the Partnership owns Local Limited Partnership
interests in 16 Local Limited Partnerships. All of these Local Limited
Partnership's own one Housing Complex consisting of an aggregate of 744
apartment units. The respective Local General Partners of the Local Limited
Partnerships manage the day to day operations of the entities. Significant Local
Limited Partnership business decisions require approval from the Partnership.
The Partnership, as a Limited Partner, is generally entitled to 99%, as
specified in the Local Limited Partnership governing agreements, of the
operating profits and losses, taxable income and losses, and Low Income Housing
Tax Credits of the Local Limited Partnerships, except for one of the investments
in which it is entitled to 49.49% of such amount.
A loss in value from a Local Limited Partnership other than a temporary decline
is recorded as an impairment loss. Impairment is measured by comparing the
investment carrying amount to the sum of the total amount of remaining Low
Income Housing Tax Credits allocated to the Partnership and the estimated
residual value to the Partnership. As of June 30, 2008, all Local Limited
Partnerships were not considered to have any residual value in consideration of
the current economic circumstances. Accordingly, the Partnership recorded an
impairment loss of $945,801 and $535,600 during the three months ended June 30,
2008 and 2007 respectively. Beginning in the quarter ended June 30, 2008, the
Partnership started evaluating its intangibles for impairment in connection with
its investment in Local Limited Partnerships. During the three months ended June
30, 2008 and 2007, an impairment loss of $169,938 and $0, respectively, was
recorded on the related intangibles.
The following is a summary of the equity method activity of the investments in
Local Limited Partnerships for the periods presented below:
For the Three Months For the Year
Ended Ended
June 30, 2008 March 31, 2008
---------------------- ----------------------
Investments per balance sheet, beginning of period $ 1,120,103 $ 1,912,366
Equity in losses of Local Limited Partnerships (903) (208,618)
Impairment loss (1,115,739) (559,408)
Distributions received from Local Limited Partnerships - (11,950)
Amortization of capitalized acquisition fees and costs (3,461) (12,287)
---------------------- ----------------------
Investments per balance sheet, end of period $ - $ 1,120,103
====================== ======================
12
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 3
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended June 30, 2008
(Unaudited)
NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS, continued
-------------------------------------------------------------
For the Three Months For the Year Ended
Ended
June 30, 2008 March 31, 2008
---------------------- ----------------------
Investments in Local Limited Partnerships, net $ - $ 946,703
Acquisition fees and costs, net of accumulated
amortization of $0 and $1,147,895 - 173,400
---------------------- ----------------------
Investments per balance sheet, end of period $ - $ 1,120,103
====================== ======================
Selected financial information for the three months ended June 30, 2008 and 2007
from the unaudited combined condensed financial statements of the Local Limited
Partnerships in which the partnership has invested is as follows:
COMBINED CONDENSED STATEMENTS OF OPERATIONS
2008 2007
--------------------- --------------------
Revenues $ 1,124,000 $ 1,354,000
--------------------- --------------------
Expenses
Interest expense 196,000 199,000
Depreciation and amortization 326,000 316,000
Operating expenses 1,006,000 956,000
--------------------- --------------------
Total expenses 1,528,000 1,471,000
--------------------- --------------------
Net loss $ (404,000) $ (117,000)
===================== ====================
Net loss allocable to the Partnership $ (396,000) $ (120,000)
===================== ====================
Net loss recorded by the Partnership $ (1,000) $ (34,000)
===================== ====================
Certain Local Limited Partnerships have incurred significant operating losses
and/or have working capital deficiencies. In the event these Local Limited
Partnerships continue to incur significant operating losses, additional capital
contributions by the Partnership may be required to sustain operations of such
Local Limited Partnerships. If additional capital contributions are not made
when they are required, the Partnership's investments in certain of such Local
Limited Partnerships could be impaired, and the loss and recapture of the
related Low Income Housing Tax Credits could occur.
Troubled Housing Complexes
--------------------------
One Local Limited Partnership, Patten Towers L.P. II ("Patten Towers"), had a
less-than-satisfactory score from HUD on the 2006 and 2007 property inspection.
HUD currently has the authority to revoke their housing assistance program
("HAP") with Patten Towers and thereby suspend all rental assistance for the
tenants of Patten Towers. If HUD were to revoke the HAP contract then most of
the current tenants would be unable to make their rental payments
13
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 3
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended June 30, 2008
(Unaudited)
NOTE 2 - INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS, continued
-------------------------------------------------------------
thereby denying Patten Towers with the necessary monthly revenue it needs to pay
all costs and expenses. Patten Towers requested and received approval from HUD
to participate in a follow-up inspection. As of January 2009, HUD re-inspected
the property and Patten Towers received an acceptable score from HUD thereby
allowing the property to continue to participate in the housing assistance
program. Patten Towers is currently listed for sale with a national brokerage
firm. Any sale transaction contemplated will require that the property maintain
compliance with the Section 42 tax credit provisions, thereby avoiding recapture
of any previously claimed tax credits.
The Partnership has a 99% limited partnership investment in Heritage Apartments,
L.P. ("Heritage"). Heritage is a defendant in several wrongful death lawsuits
and related injury lawsuits. Heritage carries general liability and extended
liability insurance. Discovery for these lawsuits is ongoing, but the management
of Heritage and WNC are unable to determine the outcome of these lawsuits at
this time or their impact, if any, on the Partnership's financial statements.
Should Heritage be unsuccessful in its defense and the insurer denies coverage
or the insurance coverage proves to be inadequate, the Partnership may be
required to sell its investment or may otherwise lose its investment in
Heritage, which was $0 at June 30, 2008. Loss of the Heritage investment could
result in the cessation and recapture of tax credits and certain prior tax
deductions. As of the date of this report no losses have been recognized and
management does not expect losses to occur.
NOTE 3 - RELATED PARTY TRANSACTIONS
-----------------------------------
Under the terms of the Partnership Agreement, the Partnership has paid or is
obligated to the General Partner or its affiliates the following fees:
(a) Acquisition fees of up to 7.5% of the gross proceeds from the sale of
Partnership Units as compensation for services rendered in connection
with the acquisition of Local Limited Partnerships. At the end of all
periods presented, the Partnership incurred acquisition fees of
$1,200,785. Accumulated amortization of these capitalized costs was $0
and $1,027,384 as of June 30, 2008 and March 31, 2008, respectively.
During the three months ended June 30, 2008, an impairment loss was
recorded against these fees. No further amortization expense will be
recorded in future periods.
(b) Reimbursement of costs incurred by the General Partner or an affiliate
in connection with the acquisition of Local Limited Partnerships.
These reimbursements have not exceeded 1% of the gross proceeds. As of
the end of all periods presented, the Partnership incurred acquisition
costs of $120,510, which have been included in investments in Local
Limited Partnerships. The acquisition costs were fully amortized for
all periods presented.
(c) An annual asset management fee equal to the greater amount of (i)
$2,000 for each Housing complex, or (ii) 0.275% of gross proceeds. In
either case, the fee will be decreased or increased annually based on
changes to the Consumer Price Index. However, in no event will the
maximum amount exceed 0.2% of the invested assets of the limited
Partnerships, as defined. "Invested Assets" means the sum of the
Partnership's investment in Local Limited Partnership interests and
the Partnership's Allocable share of mortgage loans on and other debts
related to the Housing Complexes owned by such Local Limited
Partnerships. Asset management fees of $12,375 were incurred during
each of the three months ended June 30, 2008 and 2007. The Partnership
paid the General Partner and or its affiliates $0 of those fees during
each of the three months ended June 30, 2008 and 2007.
(d) The Partnership reimburses the General Partner or its affiliates for
operating expenses incurred by the Partnership and paid for by the
General Partner or its affiliates on behalf of the Partnership.
Operating expense reimbursements were $0 during each of the three
months ended June 30, 2008 and 2007.
14
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 3
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For the Quarterly Period Ended June 30, 2008
(Unaudited)
NOTE 3 - RELATED PARTY TRANSACTIONS, continued
----------------------------------------------
(e) A subordinated disposition fee in an amount equal to 1% of the sales
price of real estate sold. Payment of this fee is subordinated to the
limited partners receiving a preferred return of 14% through December
31, 2006 and 6% thereafter (as defined in the Partnership Agreement)
and is payable only if the General Partner or its affiliates render
services in the sales effort. No such fees were incurred for all
periods presented.
The accrued fees and expenses due to the General Partner and affiliates consist
of the following at:
June 30, 2008 March 31, 2008
---------------------- -----------------
Expenses paid by the General Partner or an affiliate
on behalf of the Partnership $ 178,141 $ 176,045
Advances made to the Partnership from the General
Partner or affiliates 1,231,650 1,231,650
Asset management fee payable 386,000 373,625
---------------------- -----------------
Total $ 1,795,791 $ 1,781,320
====================== =================
The General Partner and/or its affiliates does not anticipate that these accrued
fees will be paid until such time as capital reserves are in excess of future
foreseeable working capital requirements of the Partnership.
NOTE 4 - ADVANCES TO LOCAL LIMITED PARTNERSHIPS
-----------------------------------------------
During the three months ended June 30, 2008, the Partnership did not advance any
funds to any of the Local Limited Partnerships in which the Partnership is a
limited partner.In the past, Local Limited Partnerships have experienced
operational issues. As of June 30, 2008 total advances made to Local Limited
Partnerships were $1,449,417, of which $1,449,417 was reserved.The Partnership
determined the recoverability of these advances to be improbable and,
accordingly, a reserve had been recorded.
NOTE 5-SUBSEQUENT EVENTS
------------------------
Subsequent to June 30, 2008, in December 2008, the Partnership was relieved of
debt owed to the General Partner totaling $1,432,824. In previous years the
Partnership had received cash advances from the General Partner, which were in
turn advanced by the Partnership to certain Local Limited Partnerships to help
aid the Local Limited Partnerships with their operational issues. The advances
were deemed to be uncollectible by the General Partner, and as such, the debt
was forgiven. The cancellation of debt was recorded by the Partnership as a
capital contribution from the General Partner.
15
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
With the exception of the discussion regarding historical information, this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other discussions elsewhere in this Form 10-Q contain forward
looking statements. Such statements are based on current expectations subject to
uncertainties and other factors which may involve known and unknown risks that
could cause actual results of operations to differ materially from those
projected or implied. Further, certain forward-looking statements are based upon
assumptions about future events which may not prove to be accurate.
Risks and uncertainties inherent in forward looking statements include, but are
not limited to, the Partnership future cash flows and ability to obtain
sufficient financing, level of operating expenses, conditions in the Low Income
Housing Tax Credit property market and the economy in general, as well as legal
proceedings. Historical results are not necessarily indicative of the operating
results for any future period.
Subsequent written and oral forward looking statements attributable to the
Partnership or persons acting on its behalf are expressly qualified in their
entirety by cautionary statements in this Form 10-Q and in other reports filed
with the Securities and Exchange Commission. The following discussion should be
read in conjunction with the condensed unaudited financial statements and the
notes thereto included elsewhere in this filing.
The following discussion and analysis compares the results of operations for the
three months ended June 30, 2008 and 2007, and should be read in conjunction
with the condensed unaudited financial statements and accompanying notes
included within this report.
Financial Condition
The Partnership's assets at June 30, 2008 consisted of $85,000 in cash.
Liabilities at June 30, 2008 consisted of $1,796,000 accrued fees and expenses
due to the General Partner and/or its affiliates and $4,000 in accrued expenses.
Results of Operations
Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007.
The Partnership's net loss for the three months ended June 30, 2008 was
$(1,133,000), reflecting an increase of $(546,000) from the $(587,000) net loss
experienced for the three months ended June 30, 2007. The increase was primarily
due to an increase of $(580,000) in impairment loss. For the quarter ended June
30, 2007 the impairment analysis calculated a residual value to the Partnership
in addition to the remaining Low Income Housing Tax Credits available to the
Partnership and compared the total amount to the current carrying value of each
investment in the Partnership resulting in an impairment of $536,000. For the
quarter ended June 30, 2008 all Local Limited Partnerships were not considered
to have any residual value in consideration of the current economic
circumstances resulting in an impairment of $1,116,000. The equity in losses of
Local Limited Partnerships decreased by $33,000 for the three months ended June
30, 2008 compared to the three months ended June 30, 2007. The equity in losses
in Local Limited Partnerships decreased due to the fact that all investments
were reduced to zero during the current quarter. Therefore, no further losses
could be recorded by the Partnership. There was also a $2,000 increase in
distribution income. Distribution income fluctuates from year to year due to the
fact that Local Limited Partnerships pay those fees to the Partnership when the
Local Limited Partnership's cash flow will allow for the payment.
Liquidity and Capital Resources
Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007.
The net increase in cash during the three months ended June 30, 2008 was $2,000
compared to no change in cash for the three months ended June 30, 2007. The
change of $2,000 is due primarily to the fact that during the three months ended
June 30, 2008 the Partnership received distribution income of $2,000, compared
to $0 received for the three months ended June 30, 2007.
16
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
During the three months ended June 30, 2008, accrued payables, which consist
primarily of related party asset management fees and advances due to the General
Partner, increased by $14,000. The General Partner does not anticipate that
these accrued fees and advances will be paid until such time as capital reserves
are in excess of foreseeable working capital requirements of the Partnership.
The Partnership expects its future cash flows, together with its net available
assets as of June 30, 2008, to be insufficient to meet all currently foreseeable
future cash requirements. Associates has agreed to continue providing advances
sufficient enough to fund the operations and working capital requirements of the
Partnership through November 30, 2010.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
NOT APPLICABLE
Item 4T. Controls and Procedures
(a) Disclosure controls and procedures
-----------------------------------
As of the end of the period covered by this report, the Partnership's
General Partner, under the supervision and with the participation of
the Chief Executive Officer and Chief Financial Officer of Associates,
carried out an evaluation of the effectiveness of the Partnership's
"disclosure controls and procedures" as defined in Securities Exchange
Act of 1934 Rule 13a-15 and 15d-15. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded
that, as of the end of the period covered by this report, the
Partnership's disclosure controls and procedures were not effective to
ensure that material information required to be disclosed in the
Partnership's periodic report filings with SEC is recorded, processed,
summarized and reported within the time period specified by the SEC's
rules and forms, consistent with the definition of "disclosure
controls and procedures" under the Securities Exchange Act of 1934.
The Partnership must rely on the Local Limited Partnerships to provide
the Partnership with certain information necessary to the timely
filing of the Partnership's periodic reports. Factors in the
accounting at the Local Limited Partnerships have caused delays in the
provision of such information during past reporting periods, and
resulted in the Partnership's inability to file its periodic reports
in a timely manner.
Once the Partnership has received the necessary information from the
Local Limited Partnerships, the Chief Executive Officer and the Chief
Financial Officer of Associates believe that the material information
required to be disclosed in the Partnership's periodic report filings
with SEC is effectively recorded, processed, summarized and reported,
albeit not in a timely manner. Going forward, the Partnership will use
the means reasonably within its power to impose procedures designed to
obtain from the Local Limited Partnerships the information necessary
to the timely filing of the Partnership's periodic reports.
(b) Changes in internal controls
----------------------------
There were no changes in the Partnership's internal control over
financial reporting that occurred during the quarter ended June 30,
2008 that materially affected, or are reasonably likely to materially
affect, the Partnership's internal control over financial reporting.
17
Part II. Other Information
Item 1. Legal Proceedings
NONE
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits
31.1 Certification of the Principal Executive Officer pursuant to Rule 13a-14
and 15d-14, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of
2002. (filed herewith)
31.2 Certification of the Principal Financial Officer pursuant to Rule 13a-14
and 15d-14, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of
2002. (filed herewith)
32.1 Section 1350 Certification of the Chief Executive Officer. (filed herewith)
32.2 Section 1350 Certification of the Chief Financial Officer. (filed herewith)
18
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WNC HOUSING TAX CREDIT FUND V, L.P., SERIES 3
By: WNC Tax Credit Partners, L.P. General Partner
By: WNC & ASSOCIATES, INC. General Partner
By: /s/ Wilfred N. Cooper, Jr.
---------------------------
Wilfred N. Cooper, Jr.
President and Chief Executive Officer of WNC & Associates, Inc.
Date: November 24, 2009
By: /s/ Melanie R. Wenk
-------------------
Melanie R. Wenk
Vice-President - Chief Financial Officer of WNC & Associates, Inc.
Date: November 24, 2009
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