UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended December 30, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the transition period from to ___________
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Commission file number: 0-18405
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American Tax Credit Properties II L.P.
(Exact name of Registrant as specified in its charter)
Delaware 13-3495678
- ------------------------------------ -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Richman Tax Credit Properties II L.P.
599 West Putnam Avenue, 3rd Floor
Greenwich, Connecticut 06830
- -------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 869-0900
--------------
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 filing requirements
for the past 90 days.
Yes X No .
----- -----
AMERICAN TAX CREDIT PROPERTIES II L.P.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Table of Contents Page
----------------- ----
Balance Sheets.........................................................3
Statements of Operations...............................................4
Statements of Cash Flows...............................................5
Notes to Financial Statements..........................................7
2
AMERICAN TAX CREDIT PROPERTIES II L.P.
BALANCE SHEETS
(UNAUDITED)
December 30, March 30,
Notes 2000 2000
----- ----------- ---------
ASSETS
Cash and cash equivalents $ 91,666 $ 641,463
Investments in bonds 2 3,162,903 2,979,827
Investment in local partnerships 3 10,872,232 11,739,248
Interest receivable 50,125 46,569
------------ ------------
$ 14,176,926 $ 15,407,107
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 716,056 $ 707,884
Payable to general partner 771,561 738,627
Other 34,600 41,600
------------ ------------
1,522,217 1,488,111
------------ ------------
Commitments and contingencies 3
Partners' equity (deficit)
General partner (365,914) (352,423)
Limited partners (55,746 units of limited partnership
interest outstanding) 13,051,627 14,387,277
Accumulated other comprehensive loss, net 2 (31,004) (115,858)
------------ ------------
12,654,709 13,918,996
------------ ------------
$ 14,176,926 $ 15,407,107
============ ============
See Notes to Financial Statements.
3
AMERICAN TAX CREDIT PROPERTIES II L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
December 30, December 30, December 30, December 30,
Notes 2000 2000 1999 1999
----- ------------ ------------ ------------ ------------
REVENUE
Interest $ 60,196 $ 183,919 $ 68,545 $ 196,976
Other income from local partnerships 3 1,812 2,463 11,132
------------ ------------ ----------- -----------
TOTAL REVENUE 60,196 185,731 71,008 208,108
------------ ------------ ----------- -----------
EXPENSES
Administration fees 74,827 224,480 74,826 224,479
Management fees 74,827 224,480 74,826 224,479
Professional fees 18,137 74,289 17,116 61,176
Printing, postage and other 14,207 38,320 11,675 32,105
------------ ------------ ----------- -----------
TOTAL EXPENSES 181,998 561,569 178,443 542,239
------------ ------------ ----------- -----------
Loss from operations (121,802) (375,838) (107,435) (334,131)
Equity in loss of investment in local
partnerships 3 (136,241) (973,303) (271,237) (1,045,328)
------------ ------------ ----------- -----------
NET LOSS (258,043) (1,349,141) (378,672) (1,379,459)
Other comprehensive income (loss) 2 45,739 84,854 (65,894) (172,252)
------------ ------------ ----------- -----------
COMPREHENSIVE LOSS $ (212,304) $ (1,264,287) $ (444,566) $ (1,551,711)
============ ============= ============ ============
NET LOSS ATTRIBUTABLE TO
General partner $ (2,580) $ (13,491) $ (3,787) $ (13,795)
Limited partners (255,463) (1,335,650) (374,885) (1,365,664)
------------ ------------ ----------- -----------
$ (258,043) $ (1,349,141) $ (378,672) $ (1,379,459)
============ ============= ============ ============
NET LOSS per unit of limited partnership
interest (55,746 units of limited
partnership interest) $ (4.58) $ (23.96) $ (6.73) $ (24.50)
============ ============= ============ ============
See Notes to Financial Statements.
4
AMERICAN TAX CREDIT PROPERTIES II L.P.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 30, 2000 AND 1999
(UNAUDITED)
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received $ 161,492 $ 199,452
Cash used for local partnerships for deferred expenses (7,000) (7,000)
Cash paid for
administration fees (228,889) (184,056)
management fees (187,137) (157,128)
professional fees (82,974) (81,277)
printing, postage and other expenses (21,463) (27,717)
----------- ----------
Net cash used in operating activities (365,971) (257,726)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Advances to local partnerships (184,834) (85,143)
Cash distributions and other income from local partnerships 80,359 183,031
Purchase of bonds (includes accrued interest of $5,844) (306,142)
Maturities/redemptions and sales of bonds 226,791 570,868
----------- ----------
Net cash provided by (used in) investing activities (183,826) 668,756
----------- ----------
Net increase (decrease) in cash and cash equivalents (549,797) 411,030
Cash and cash equivalents at beginning of period 641,463 739,118
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 91,666 $ 1,150,148
=========== ===========
SIGNIFICANT NON-CASH INVESTING ACTIVITIES
Unrealized gain (loss) on investments in bonds, net $ 84,854 $ (172,252)
=========== ===========
- -----------------------------------------------------------------------------------------
See reconciliation of net loss to net cash used in operating activities on page
6.
See Notes to Financial Statements.
5
AMERICAN TAX CREDIT PROPERTIES II L.P.
STATEMENTS OF CASH FLOWS - (Continued)
NINE MONTHS ENDED DECEMBER 30, 2000 AND 1999
(UNAUDITED)
2000 1999
---- ----
RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES
Net loss $(1,349,141) $(1,379,459)
Adjustments to reconcile net loss to net cash used in operating activities
Equity in loss of investment in local partnerships 973,303 1,045,328
Distributions from local partnerships classified as other income (1,812) (11,132)
Loss on redemption of bonds 10,000
Amortization of net premium on investments in bonds 4,730 6,965
Accretion of zero coupon bonds (29,445) (29,339)
Decrease in interest receivable 2,288 14,850
Increase in payable to general partner 32,934 98,706
Increase (decrease) in accounts payable and accrued expenses 8,172 (6,645)
Decrease in other liabilities (7,000) (7,000)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES $ (365,971) $ (257,726)
=========== ===========
See Notes to Financial Statements.
6
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 30, 2000
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information. They do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. The results of operations are impacted significantly by the
combined results of operations of the Local Partnerships, which are
provided by the Local Partnerships on an unaudited basis during interim
periods. Accordingly, the accompanying financial statements are dependent
on such unaudited information. In the opinion of the General Partner, the
financial statements include all adjustments necessary to present fairly
the financial position as of December 30, 2000 and the results of
operations and cash flows for the interim periods presented. All
adjustments are of a normal recurring nature. The results of operations for
the three and nine month periods ended December 30, 2000 are not
necessarily indicative of the results that may be expected for the entire
year.
2. Investments in Bonds
As of December 30, 2000, certain information concerning investments in
bonds is as follows:
Gross Gross
Amortized unrealized unrealized Estimated
Description and maturity cost gains losses fair value
------------------------ --------- ---------- ---------- -----------
Corporate debt securities
After one year through five years $ 1,288,690 $ 25,120 $ (3,035) $ 1,310,775
After five year through ten years 1,211,717 8,836 (73,672) 1,146,881
After ten years 79,833 -- (1,283) 78,550
----------- ----------- ----------- -----------
2,580,240 33,956 (77,990) 2,536,206
----------- ----------- ----------- -----------
U.S. Treasury debt securities
After five years through ten years 590,754 12,521 -- 603,275
----------- ----------- ----------- -----------
U.S. government and agency securities
After five years through ten years 22,913 509 -- 23,422
----------- ----------- ----------- -----------
$ 3,193,907 $ 46,986 $ (77,990) $ 3,162,903
=========== =========== =========== ===========
3. Investment in Local Partnerships
The Partnership owns limited partnership interests in fifty Local
Partnerships representing capital contributions in the aggregate amount of
$46,763,554, which includes advances made to certain Local Partnerships. As
of September 30, 2000, the Local Partnerships have outstanding mortgage
loans payable totaling approximately $88,530,000 and accrued interest
payable on such loans totaling approximately $6,163,000, which are secured
by security interests and liens common to mortgage loans on the Local
Partnerships' real property and other assets.
7
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 2000
(UNAUDITED)
3. Investment in Local Partnerships (continued)
For the nine months ended December 30, 2000, the investment in local
partnerships activity consists of the following:
Investment in local partnerships as of March 30, 2000 $11,739,248
Advances to Local Partnerships 184,834
Equity in loss of investment in local partnerships (973,303)*
Cash distributions received from Local Partnerships (80,359)
Cash distributions from Local Partnerships classified
as other income 1,812
-----------
Investment in local partnerships as of December 30, 2000 $10,872,232
===========
*Equity in loss of investment in local partnerships is limited to the
Partnership's investment balance in each Local Partnership; any excess is
applied to other partners' capital in any such Local Partnership. The
amount of such excess losses applied to other partners' capital was
$1,581,599 for the nine months ended September 30, 2000 as reflected in the
combined statement of operations of the Local Partnerships reflected herein
Note 3.
As a result of increasing deficits and declining occupancy caused by
deteriorating physical conditions, Forest Village Housing Partnership
("Forest Village") filed for protection under Chapter 11 of the federal
Bankruptcy Code in the United States Bankruptcy Court, Western District of
Washington (the "Court") on March 25, 1999. Forest Village filed a plan of
reorganization (the "Plan") which was confirmed by the Court on December
14, 1999. The terms of the Plan call for the Partnership to provide up to
$500,000, all of which has been advanced as of December 30, 2000, which
Forest Village can utilize to pay certain obligations including all first
mortgage arrears and certain secured and unsecured creditors and to make
necessary repairs to the complex. The Plan also recasts the second mortgage
and cumulative arrears over a new 30 year amortization period that will
reduce Forest Village's mandatory debt service by approximately $77,000 per
annum. The first mortgage is now current. In addition to the $500,000 noted
above, the Partnership has made cumulative advances of $262,803 to Forest
Village as of December 30, 2000, of which $145,000 was advanced during the
nine months ended December 30, 2000 and all of which has been recorded as
investment in local partnerships. Such amounts advanced by the Partnership
include $679,500 that accrue interest at 8.5% and are repayable out of net
cash flow from the operations of the property. No interest has been
recorded by the Partnership during the nine months ended December 30, 2000.
Effective October 1, 1998, in an attempt to avoid potential adverse tax
consequences, the Partnership and the local general partners of 2000-2100
Christian Street Associates ("2000 Christian Street") and Christian Street
Associates Limited Partnership ("Christian Street") agreed to equally share
the funding of operating deficits through June 30, 2000 in the case of
Christian Street and through September 30, 2000 in the case of 2000
Christian Street (the respective "Funding Agreements"). The Funding
Agreements were extended through June 30, 2001. The Partnership has made
cumulative advances of $50,724 and $53,847 under the Funding Agreements to
2000 Christian Street and Christian Street, respectively, as of December
30, 2000, of which $39,834 was advanced during the nine months ended
December 30, 2000 and all of which has been recorded as investment in local
partnerships.
York Park Associates Limited Partnership ("York Park") has been informally
notified by Baltimore County (the "County") that due to recently enacted
legislation, the County may elect to execute its rights of eminent domain
and acquire the property during 2001. As of February 2001, the County has
not provided an offer for the property; however, the County is aware that
its intention to exercise eminent domain rights would result in adverse tax
consequences for the owners as a result of York Park not holding the
property through the Compliance Period. The management of York Park intends
to contest the decision of the County and/or negotiate a sale price that
would cover the resulting recapture of Low-income Tax Credits. However, the
outcome of management's efforts is highly uncertain.
8
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 2000
(UNAUDITED)
3. Investment in Local Partnerships (continued)
The combined balance sheets of the Local Partnerships as of September 30,
2000 and December 31, 1999 are as follows:
September 30, December 31,
2000 1999
------------- -----------
ASSETS
Cash and cash equivalents $ 3,079,690 $ 3,273,341
Rents receivable 687,836 1,733,810
Escrow deposits and reserves 6,207,004 5,252,052
Land 4,180,673 4,180,673
Buildings and improvements (net of accumulated depreciation
of $55,238,878 and $51,665,678) 86,969,720 89,910,362
Intangible assets (net of accumulated amortization of
$1,203,207 and $1,210,963) 1,459,345 1,526,385
Other 1,134,550 1,302,924
------------- -------------
$ 103,718,818 $ 107,179,547
============= =============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Accounts payable and accrued expenses $ 1,965,312 $ 1,862,090
Due to related parties 3,788,358 4,152,464
Mortgage loans 88,530,315 89,499,287
Notes payable 2,164,443 2,363,472
Accrued interest 6,163,226 5,825,921
Other 679,640 754,902
------------- -------------
103,291,294 104,458,136
------------- -------------
Partners' equity (deficit)
American Tax Credit Properties II L.P.
Capital contributions, net of distributions 45,495,563 44,891,790
Cumulative loss (33,843,911) (32,870,608)
------------- -------------
11,651,652 12,021,182
------------- -------------
General partners and other limited partners, including
ATCP & ATCP III
Capital contributions, net of distributions 3,209,889 3,248,862
Cumulative loss (14,434,017) (12,548,633)
------------- -------------
(11,224,128) (9,299,771)
------------- -------------
427,524 2,721,411
------------- -------------
$ 103,718,818 $ 107,179,547
============= =============
9
AMERICAN TAX CREDIT PROPERTIES II L.P.
NOTES TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 30, 2000
(UNAUDITED)
3. Investment in Local Partnerships (continued)
The combined statements of operations of the Local Partnerships for the
three and nine month periods ended September 30, 2000 and 1999 are as
follows:
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2000 2000 1999 1999
------------ ------------ ------------ ------------
REVENUE
Rental $ 5,261,116 $ 15,656,563 $ 5,064,396 $ 15,199,028
Interest and other 134,914 398,729 201,993 458,642
------------ ------------ ------------ ------------
Total Revenue 5,396,030 16,055,292 5,266,389 15,657,670
------------ ------------ ------------ ------------
EXPENSES
Administrative 883,801 2,765,632 856,871 2,564,341
Utilities 575,692 1,928,020 538,507 1,916,697
Operating, maintenance and other 1,455,490 4,125,747 1,188,427 3,370,936
Taxes and insurance 585,665 1,755,474 599,798 1,797,284
Financial (including amortization of
$22,341, $67,041, $23,252 and $76,743)
1,576,918 4,762,409 1,569,774 4,814,345
Depreciation 1,169,611 3,576,697 1,324,340 3,743,908
------------ ------------ ------------ ------------
Total Expenses 6,247,177 18,913,979 6,077,717 18,207,511
------------ ------------ ------------ ------------
NET LOSS $ (851,147) $ (2,858,687) $ (811,328) $ (2,549,841)
============ ============ ============ ============
NET LOSS ATTRIBUTABLE TO
American Tax Credit Properties II L.P. $ (136,241) $ (973,303) $ (271,237) $ (1,045,328)
General partners and other limited
partners, including ATCP & ATCP III,
which includes $591,263,
$1,581,599, $476,241 and $1,258,076
of Partnership loss in excess of investment (714,906) (1,885,384) (540,091) (1,504,513)
------------ ------------ ------------ ------------
$ (851,147) $ (2,858,687) $ (811,328) $ (2,549,841)
============ ============ ============ ============
The combined results of operations of the Local Partnerships for the three
and nine month periods ended September 30, 2000 are not necessarily
indicative of the results that may be expected for an entire operating
period.
4. Additional Information
Additional information, including the audited March 30, 2000 Financial
Statements and the Organization, Purpose and Summary of Significant
Accounting Policies, is included in the Partnership's Annual Report on Form
10-K for the fiscal year ended March 30, 2000 on file with the Securities
and Exchange Commission.
10
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Material Changes in Financial Condition
As of December 30, 2000, American Tax Credit Properties II L.P. (the
"Registrant") has not experienced a significant change in financial condition as
compared to March 30, 2000. Principal changes in assets are comprised of
periodic transactions and adjustments and anticipated equity in loss from
operations of the local partnerships (the "Local Partnerships") which own
low-income multifamily residential complexes (the "Properties") which qualify
for the low-income tax credit in accordance with Section 42 of the Internal
Revenue Code (the "Low-income Tax Credit"). During the nine months ended
December 30, 2000, Registrant received cash from interest revenue,
maturities/redemptions and sales of bonds and distributions from Local
Partnerships and utilized cash for operating expenses and making advances to
2000-2100 Christian Street Associates ("2000 Christian Street"), Christian
Street Associates Limited Partnership ("Christian Street") and Forest Village
Housing Partnership ("Forest Village") (see Local Partnership Matters below).
Cash and cash equivalents and investments in bonds decreased, in the aggregate,
by approximately $367,000 during the nine months ended December 30, 2000 (which
includes a net unrealized gain on investments in bonds of approximately $85,000,
amortization of net premium on investments in bonds of approximately $5,000 and
accretion of zero coupon bonds of approximately $29,000). Notwithstanding
circumstances that may arise in connection with the Properties, Registrant does
not expect to realize significant gains or losses on its investments in bonds,
if any. During the nine months ended December 30, 2000, the investment in local
partnerships decreased as a result of Registrant's equity in the Local
Partnerships' net loss for the nine months ended September 30, 2000 of $973,303
and cash distributions received from Local Partnerships of $78,547 (exclusive of
distributions from Local Partnerships of $1,812 classified as other income from
local partnerships), partially offset by advances made to certain Local
Partnerships of $184,834. Accounts payable and accrued expenses and payable to
general partner and affiliate in the accompanying balance sheet as of December
30, 2000 include deferred administration fees and management fees of $702,361
and $712,940, respectively.
Results of Operations
Registrant's operating results are dependent upon the operating results of the
Local Partnerships and are significantly impacted by the Local Partnerships'
policies. In addition, the operating results herein are not necessarily the same
for tax reporting. Registrant accounts for its investment in local partnerships
in accordance with the equity method of accounting. Accordingly, the investment
is carried at cost and is adjusted for Registrant's share of each Local
Partnership's results of operations and by cash distributions received. Equity
in loss of each investment in Local Partnership allocated to Registrant is
recognized to the extent of Registrant's investment balance in each Local
Partnership. Equity in loss in excess of Registrant's investment balance in a
Local Partnership is allocated to other partners' capital in any such Local
Partnership. As a result, the reported equity in loss of investment in local
partnerships is expected to decrease as Registrant's investment balances in the
respective Local Partnerships become zero. The combined statements of operations
of the Local Partnerships reflected in Note 3 to Registrant's financial
statements include the operating results of all Local Partnerships, irrespective
of Registrant's investment balances.
Cumulative losses and cash distributions in excess of investment in local
partnerships may result from a variety of circumstances, including a Local
Partnership's accounting policies, subsidy structure, debt structure and
operating deficits, among other things. Accordingly, cumulative losses and cash
distributions in excess of the investment are not necessarily indicative of
adverse operating results of a Local Partnership. See discussion below under
Local Partnership Matters regarding certain Local Partnerships currently
operating below economic break even levels.
Registrant's operations for the three months ended December 30, 2000 and 1999
resulted in net losses of $258,043 and $378,672, respectively. The decrease in
net loss is primarily attributable to a decrease in equity in loss of investment
in local partnerships, which decrease of approximately $135,000 is primarily the
result of (i) a decrease in the net operating losses of certain Local
Partnerships and (ii) an increase in the nonrecognition of losses in excess of
Registrant's investment in local partnerships in accordance with the equity
method of accounting. Other comprehensive income (loss) for the three months
ended December 30, 2000 and 1999 resulted from a net unrealized gain (loss) on
investments in bonds of $45,739 and $(65,894), respectively.
11
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
The Local Partnerships' net loss of approximately $851,000 for the three months
ended September 30, 2000 was attributable to rental and other revenue of
approximately $5,396,000, exceeded by operating and interest expense (including
interest on non-mandatory debt) of approximately $5,055,000 and approximately
$1,192,000 of depreciation and amortization expense. The Local Partnerships' net
loss of approximately $811,000 for the three months ended September 30, 1999 was
attributable to rental and other revenue of approximately $5,266,000, exceeded
by operating and interest expense (including interest on non-mandatory debt) of
approximately $4,729,000 and approximately $1,348,000 of depreciation and
amortization expense. The results of operations of the Local Partnerships for
the three months ended September 30, 2000 are not necessarily indicative of the
results that may be expected in future periods.
Registrant's operations for the nine months ended December 30, 2000 and 1999
resulted in net losses of $1,349,141 and $1,379,459, respectively. Other
comprehensive income (loss) for the nine months ended December 30, 2000 and 1999
resulted from a net unrealized gain (loss) on investments in bonds of $84,854
and $(172,252), respectively.
The Local Partnerships' net loss of approximately $2,859,000 for the nine months
ended September 30, 2000 was attributable to rental and other revenue of
approximately $16,055,000, exceeded by operating and interest expense (including
interest on non-mandatory debt) of approximately $15,270,000 and approximately
$3,644,000 of depreciation and amortization expense. The Local Partnerships' net
loss of approximately $2,550,000 for the nine months ended September 30, 1999
was attributable to rental and other revenue of approximately $15,658,000,
exceeded by operating and interest expense (including interest on non-mandatory
debt) of approximately $14,387,000 and approximately $3,821,000 of depreciation
and amortization expense. The results of operations of the Local Partnerships
for the nine months ended September 30, 2000 are not necessarily indicative of
the results that may be expected in future periods.
Local Partnership Matters
Registrant's primary objective is to provide Low-income Tax Credits to limited
partners generally over a ten year period. The relevant state tax credit agency
has allocated each of Registrant's Local Partnerships an amount of Low-income
Tax Credits, which are generally available for a ten year period from the year
the Property is placed in service (the ("Ten Tear Credit Period"). The Ten Year
Credit Period is expected to be exhausted by the Local Partnerships as of
December 31, 2001. The required holding period of each Property, in order to
avoid Low-income Tax Credit recapture, is fifteen years from the year in which
the Low-income Tax Credits commence on the last building of the Property (the
"Compliance Period"). In addition, certain of the Local Partnerships have
entered into agreements with the relevant state tax credit agencies whereby the
Local Partnerships must maintain the low-income nature of the Properties for a
period which exceeds the Compliance Period, regardless of any sale of the
Properties by the Local Partnerships after the Compliance Period. The Properties
must satisfy various requirements including rent restrictions and tenant income
limitations (the "Low-income Tax Credit Requirements") in order to maintain
eligibility for the recognition of the Low-income Tax Credit at all times during
the Compliance Period. Once a Local Partnership has become eligible for the
Low-income Tax Credit, it may lose such eligibility and suffer an event of
recapture if its Property fails to remain in compliance with the Low-income Tax
Credit Requirements. Through December 31, 2000, none of the Local Partnerships
have reported an event of recapture of Low-income Tax Credits.
12
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
The Properties are principally comprised of subsidized and leveraged low-income
multifamily residential complexes located throughout the United States and
Puerto Rico. Many of the Local Partnerships receive rental subsidy payments,
including payments under Section 8 of Title II of the Housing and Community
Development Act of 1974 ("Section 8"). The subsidy agreements expire at various
times during and after the Compliance Periods of the Local Partnerships. Since
October 1997, the United States Department of Housing and Urban Development
("HUD") has issued a series of directives related to project based Section 8
contracts that define owners' notification responsibilities, advise owners of
project based Section 8 properties of what their options are regarding the
renewal of Section 8 contracts, provide guidance and procedures to owners,
management agents, contract administrators and HUD staff concerning renewal of
Section 8 contracts, provide policies and procedures on setting renewal rents
and handling renewal rent adjustments and provide the requirements and
procedures for opting-out of a Section 8 project based contract. Registrant
cannot reasonably predict legislative initiatives and governmental budget
negotiations, the outcome of which could result in a reduction in funds
available for the various federal and state administered housing programs
including the Section 8 program. Such changes could adversely affect the future
net operating income and debt structure of any or all Local Partnerships
currently receiving such subsidy or similar subsidies. Seven Local Partnerships'
Section 8 contracts, certain of which cover only certain rental units, are
currently subject to renewal under applicable HUD guidelines.
The Local Partnerships have various financing structures which include (i)
required debt service payments ("Mandatory Debt Service") and (ii) debt service
payments which are payable only from available cash flow subject to the terms
and conditions of the notes, which may be subject to specific laws, regulations
and agreements with appropriate federal and state agencies ("Non-Mandatory Debt
Service or Interest"). During the nine months ended September 30, 2000, revenue
from operations of the Local Partnerships have generally been sufficient to
cover operating expenses and Mandatory Debt Service. Substantially all of the
Local Partnerships are effectively operating at or above break even levels,
although certain Local Partnerships' operating information reflects operating
deficits that do not represent cash deficits due to their mortgage and financing
structure and the required deferral of property management fees. However, as
discussed below, certain Local Partnerships' operating information indicates
below break even operations after taking into account their mortgage and
financing structure and any required deferral of property management fees.
York Park Associates Limited Partnership ("York Park") has been informally
notified by Baltimore County (the "County") that due to recently enacted
legislation, the County may elect to execute its rights of eminent domain and
acquire the property during 2001. As of February 2001, the County has not
provided an offer for the property; however, the County is aware that its
intention to exercise eminent domain rights would result in adverse tax
consequences for the owners as a result of York Park not holding the property
through the Compliance Period. Although the property recently received a
superior rating from the Maryland Community Development Administration, because
the County's intent is public knowledge, management of the property expects
higher rates of tenant turnover and more difficulty attracting replacement
tenants. The management of York Park intends to contest the decision of the
County and/or negotiate a sale price that would cover the resulting recapture of
Low-income Tax Credits. However, the outcome of management's efforts is highly
uncertain. York Park generated approximately $7 per Unit per year to the limited
partners upon the expiration of its Low-income Tax Credit allocations in 2000.
The terms of the partnership agreement of Cityside Apartments, Phase II, L.P.
("Cityside") require the management agent to defer property management fees in
order to avoid a default under the mortgage. Cityside reported an operating
deficit of approximately $108,000 for the nine months ended September 30, 2000
due to tenant turnover costs, deferred unit maintenance and required capital
improvements, which includes property management fees of approximately $45,000.
Payments on the mortgage and real estate taxes are current. Registrant's
investment balance in Cityside, after cumulative equity losses, became zero
during the year ended March 30, 1996. Cityside will have generated approximately
$21.6 per Unit per year to the limited partners upon the expiration of its
Low-income Tax Credit allocations in 2001.
13
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
As a result of increasing deficits and declining occupancy caused by
deteriorating physical conditions, Forest Village filed for protection under
Chapter 11 of the federal Bankruptcy Code in the United States Bankruptcy Court,
Western District of Washington (the "Court") on March 25, 1999. Forest Village
filed a plan of reorganization (the "Plan") which was confirmed by the Court on
December 14, 1999. The terms of the Plan call for Registrant to provide up to
$500,000, all of which has been funded as of December 30, 2000, which Forest
Village can utilize to pay certain obligations including all first mortgage
arrears and certain secured and unsecured creditors and to make necessary
repairs to the complex. The Plan also recasts the second mortgage and cumulative
arrears over a new 30 year amortization period that will reduce Forest Village's
mandatory debt service by approximately $77,000 per annum. As of October 2000,
significant capital improvements were completed and reported average occupancy
has substantially improved to over 90% for the period October 2000 through
January 2001. The first mortgage is current. In addition to the $500,000 noted
above, Registrant has made cumulative advances of $262,803 to Forest Village as
of December 30, 2000, of which $145,000 was advanced during the nine months
ended December 30, 2000. Registrant's investment balance in Forest Village,
after cumulative equity losses, became zero during the year ended March 30,
1995. Forest Village will have generated approximately $1.5 per Unit per year to
the limited partners upon the expiration of its Low-income Tax Credit
allocations in 2001.
Christian Street and 2000 Christian Street, which Local Partnerships have
certain common general partner interests and a common first mortgage lender,
have experienced ongoing operating deficits. Under terms of the partnership
agreements, the Local General Partners have exceeded their respective operating
deficit guarantees and, as of September 30, 1998, had advanced in excess of
$1,000,000 in the aggregate to Christian Street and 2000 Christian Street. The
Local General Partners approached the lender with the intention to restructure
the loans; however the lender indicated that in connection with any such
restructuring, the respective Local Partnerships would be responsible for
certain costs, which may be significant. If the Local General Partners were to
cease funding the operating deficits, Registrant would likely incur substantial
recapture of Low-income Tax Credits. Effective October 1, 1998, in an attempt to
avoid potential adverse tax consequences, Registrant and the Local General
Partners of Christian Street and 2000 Christian Street agreed to equally share
the funding of operating deficits through June 30, 2000 in the case of Christian
Street and through September 30, 2000 in the case of 2000 Christian Street (the
respective "Funding Agreements"). The Funding Agreements were extended through
June 30, 2001. The Local General Partners of Christian Street and 2000 Christian
Street agreed to cause the management agent to accrue and defer its management
fees during the period of the Funding Agreements. The accrued management fees
are excluded when determining the operating deficits. Christian Street and 2000
Christian Street reported a combined operating deficit of approximately
$107,000, excluding accrued management fees of approximately $31,000, for the
nine months ended September 30, 2000. Under the terms of the Funding Agreements,
Registrant has funded $50,724 and $53,847 to 2000 Christian Street and Christian
Street, respectively, as of December 30, 2000, of which $39,834 was advanced
during the nine months ended December 30, 2000. Payments on the mortgages and
real estate taxes are current. Registrant's investment balances in Christian
Street and 2000 Christian Street, after cumulative equity losses, became zero
during the year ended March 30, 1997. Christian Street and 2000 Christian Street
will have generated approximately $8.2 and approximately $4.4 per Unit per year
to the limited partners upon the expiration of their Low-income Tax Credit
allocations in 2000 and 2001, respectively.
The terms of the partnership agreement of College Avenue Apartments Limited
Partnership ("College Avenue") require the management agent to defer property
management fees in order to avoid a default under the mortgage. College Avenue
reported an operating deficit of approximately $21,000 for the nine months ended
September 30, 2000, which includes property management fees of approximately
$9,000. Payments on the mortgage and real estate taxes are current. Registrant's
investment balance in College Avenue, after cumulative equity losses, became
zero during the year ended March 30, 1999. College Avenue generated
approximately $1.2 per Unit per year to the limited partners upon the expiration
of its Low-income Tax Credit allocations in 2000.
14
AMERICAN TAX CREDIT PROPERTIES II L.P.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
The terms of the partnership agreement of Trenton Heights Apartments L.P.
("Trenton Heights") require the management agent to defer property management
fees in order to avoid a default under the mortgage. During the nine months
ended September 30, 2000, Trenton Heights incurred an operating deficit of
approximately $36,000, which includes property management fees of approximately
$13,000. Payments on the mortgage and real estate taxes are current.
Registrant's investment balance in Trenton Heights, after cumulative equity
losses, became zero during the year ended March 30, 1999. Trenton Heights
generated less than $1 per Unit per year to the limited partners upon the
expiration of its Low-income Tax Credit allocations in 1999.
During the nine months ended September 30, 2000, Ann Ell Apartments Associates,
Ltd. ("Ann Ell") incurred an operating deficit of approximately $49,000.
Payments on the mortgage and real estate taxes are current. Registrant advanced
$58,000 in January 2001. Registrant's investment balance in Ann Ell, after
cumulative equity losses, became zero during the year ended March 30, 1994. Ann
Ell will have generated approximately $1.7 per Unit per year to the limited
partners upon the expiration of its Low-income Tax Credit allocations in 2001.
Year 2000 Compliance
Registrant successfully completed a program to ensure Year 2000 readiness. As a
result, Registrant had no Year 2000 problems that affected its business, results
of operations or financial condition.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Registrant has invested a significant portion of its working capital reserves in
corporate bonds, U.S. Treasury instruments and U.S. government and agency
securities. The market value of such investments is subject to fluctuation based
upon changes in interest rates relative to each investment's maturity date.
Since Registrant's investments in bonds have various maturity dates through
2023, the value of such investments may be adversely impacted in an environment
of rising interest rates in the event Registrant decides to liquidate any such
investment prior to its maturity. Although Registrant may utilize reserves to
assist an under performing Property, it otherwise intends to hold such
investments to their respective maturities. Therefore, Registrant does not
anticipate any material adverse impact in connection with such investments.
15
AMERICAN TAX CREDIT PROPERTIES II L.P.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On August 13, 1999, Civil Action No. 99C-08-122-WTQ was commenced in
the Superior Court of the State of Delaware in and for New Castle
County against Registrant, the General Partner and the general partner
of the General Partner. On September 20, 1999, a motion to dismiss the
Complaint pursuant to Delaware Superior Court Rules 12(b)(1) and
12(b)(6) was filed. By letter opinion dated January 7, 2000, the
Delaware Superior Court ordered that the Complaint be dismissed in its
entirety. By settlement agreement executed in August 2000 the parties
agreed to waive any right to appeal the order and that each party
would pay its own legal fees.
Registrant is not aware of any other material legal proceedings.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
As discussed in Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations, York Park Associates
Limited Partnership has been informally notified by Baltimore County
(the "County") that due to recently enacted legislation, the County
may elect to execute its rights of eminent domain and acquire the
property during 2001.
Item 6. Exhibits and Reports on Form 8-K
None
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN TAX CREDIT PROPERTIES II L.P.
(a Delaware limited partnership)
By: Richman Tax Credit Properties II L.P.,
General Partner
by: Richman Tax Credits Inc.,
general partner
Dated: February 13, 2001 /s/ Richard Paul Richman
-------------------------------------
by: Richard Paul Richman
President, Chief Executive Officer
and Director of the general
partner of the General Partner
Dated: February 13, 2001 /s/ Neal Ludeke
-------------------------------------
by: Neal Ludeke
Vice President and Treasurer of
the general partner
Of the General Partner
(Principal Financial and Accounting
Officer of Registrant)