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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
Commission File Number 0-24656
LIBERTY TAX CREDIT PLUS III L.P.
--------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3491408
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
- ---------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212)421-5333
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
----- -----
PART I - Financial Information
Item 1. Financial Statements
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
============ ============
September 30, March 31,
2004 2004
------------ ------------
ASSETS
Property and equipment at cost,
net of accumulated depreciation
of $128,047,728 and $123,219,520
respectively $159,614,729 $163,934,774
Cash and cash equivalents 4,098,867 3,656,322
Cash held in escrow 14,531,714 13,258,260
Deferred costs, net of accumulated
amortization of $2,245,947
and $2,172,729, respectively 2,597,257 2,670,475
Other assets 2,552,675 2,776,525
------------ ------------
Total assets $183,395,242 $186,296,356
============ ============
2
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(continued)
============= ============
September 30, March 31,
2004 2004
------------- -------------
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable $ 169,779,923 $ 172,456,295
Due to debt guarantor 52,106,021 49,958,612
Accounts payable and other
liabilities 28,262,349 24,044,416
Due to local general partners and
affiliates 11,435,454 11,682,238
Due to general partners and
affiliates 12,388,825 11,905,206
------------- -------------
Total liabilities 273,972,572 270,046,767
------------- -------------
Minority interest (1,863,497) (1,481,127)
------------- -------------
Commitments and contingencies
(Note 4)
Partners' deficit:
Limited partners (139,101.5 BACs
issued and outstanding) (86,591,238) (80,211,134)
General Partners (2,122,595) (2,058,150)
------------- -------------
Total partners' deficit (88,713,833) (82,269,284)
------------- -------------
Total liabilities and partners'
deficit $ 183,395,242 $ 186,296,356
============= =============
See accompanying notes to consolidated financial statements.
3
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
---------------------------- ----------------------------
2004 2003* 2004 2003*
---------------------------- ----------------------------
Revenues
Rental income $ 8,243,172 $ 8,723,742 $ 16,551,649 $ 17,589,953
Other 574,512 381,036 912,956 747,533
Gain on sale of
properties (Note 3) 0 13,948,508 0 13,948,508
------------ ------------ ------------ ------------
Total revenue 8,817,684 23,053,286 17,464,605 32,285,944
------------ ------------ ------------ ------------
Expenses
General and
administrative 1,858,204 2,241,654 3,758,204 4,263,506
General and
administrative-
related parties
(Note 2) 877,957 970,503 1,760,192 1,883,416
Operating 983,620 1,018,323 2,085,400 2,171,847
Repairs and
maintenance 1,440,428 1,368,447 2,720,647 2,765,399
Real estate taxes 572,048 569,255 1,115,829 1,127,429
Insurance 589,288 467,407 1,111,604 988,236
Interest 3,320,818 3,858,956 6,569,735 7,490,034
Depreciation and
amortization 2,535,528 2,764,399 4,920,985 5,361,733
------------ ------------ ------------ ------------
Total expenses 12,177,891 13,258,944 24,042,596 26,051,600
------------ ------------ ------------ ------------
(Loss) income before
minority interest (3,360,207) 9,794,342 (6,577,991) 6,234,394
Minority interest
in losses of
subsidiary
partnerships 71,164 62,064 133,442 125,528
------------ ------------ ------------ ------------
Net (loss) income $ (3,289,043) $ 9,856,406 $ (6,444,549) $ 6,359,922
============ ============ ============ ============
Net (loss) income -
limited partners $ (3,256,153) $ 9,757,842 $ (6,380,104) $ 6,296,323
============ ============ ============ ============
Number of BACs
outstanding 139,101.5 139,101.5 139,101.5 139,101.5
============ ============ ============ ============
Net (loss) income
per BAC $ (23.41) $ 70.15 $ (45.87) $ 45.26
============ ============ ============ ============
* Reclassified for comparative purposes.
See accompanying notes to consolidated financial statements.
4
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Consolidated Statement of Changes in Partners' Deficit
(Unaudited)
=================================================
Limited General
Total Partners Partners
-------------------------------------------------
Partners' deficit -
April 1, 2004 $(82,269,284) $(80,211,134) $ (2,058,150)
Net loss - six
months ended
September 30, 2004 (6,444,549) (6,380,104) (64,445)
------------ ------------ ------------
Partners' deficit -
September 30, 2004 $(88,713,833) $(86,591,238) $ (2,122,595)
See accompanying notes to consolidated financial statements.
5
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
============================
Six Months Ended
September 30,
----------------------------
2004 2003*
----------------------------
Cash flows from operating activities:
Net (loss) income $ (6,444,549) $ 6,359,922
Adjustments to reconcile net (loss) income
to net cash provided by operating
activities:
Gain on sale of properties (Note 3) 0 (13,948,508)
Depreciation and amortization 4,920,985 5,361,733
Minority interest in loss of
subsidiaries (133,442) (125,528)
Increase in accounts
payable and other liabilities 3,565,646 1,142,995
Increase in cash held in escrow (1,244,049) (469,697)
Decrease (increase) in other assets 223,850 (204,954)
Increase in due to general partners
and affiliates 483,619 940,477
Increase in due to local
general partners and affiliates 195,824 265,726
Decrease in due to local general
partners and affiliates (440,170) (469,557)
Increase in due to debt guarantor 2,147,409 1,727,872
------------ ------------
Net cash provided by operating
activities 3,275,123 580,481
------------ ------------
Cash flows from investing activities:
Acquisition of property and equipment (566,080) (346,849)
Net proceeds from sale of properties 690,645 0
Increase in cash held in escrow (29,405) (318,365)
Increase in due to local general
partners and affiliates 0 2,427
------------ ------------
Net cash provided by (used in) investing
activities 95,160 (662,787)
------------ ------------
6
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(continued)
=============================
Six Months Ended
September 30,
-----------------------------
2004 2003*
-----------------------------
Cash flows from financing activities:
Principal payments of mortgage
notes payable (2,676,372) (1,594,035)
Decrease in due to local general
partners and affiliates (2,438) (12,817)
Decrease in capitalization of
consolidated subsidiaries
attributable to minority interest (248,928) (344,440)
------------ ------------
Net cash used in financing activities (2,927,738) (1,951,292)
------------ ------------
Net increase (decrease) in cash and
cash equivalents 442,545 (2,033,598)
Cash and cash equivalents at
beginning of period 3,656,322 5,098,740
------------ ------------
Cash and cash equivalents at
end of period $ 4,098,867 $ 3,065,142
============ ============
Summarized below are the components
of the gain on sale of properties:
Decrease in property and equipment,
net of accumulated depreciation $ 0 $ 3,267,097
Decrease in deferred costs 0 223,110
Decrease in prepaid expenses and
other assets 0 63,022
Decrease in accounts payable,
accrued expenses and other liabilities 0 (382,580)
Decrease in mortgage notes payable 0 (10,760,000)
Decrease in due to local general
partners and their affiliates 0 (6,359,157)
* Reclassified for comparative purposes.
See accompanying notes to consolidated financial statements.
7
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
Note 1 - General
The consolidated financial statements for the six months ended September 30,
2004 and 2003 include the accounts of Liberty Tax Credit Plus III L.P. (the
"Partnership") and 60 and 61 subsidiary partnerships (the "subsidiary
partnerships", "Local Partnerships" or "subsidiaries"), respectively. The
Partnership holds a 98% limited partnership interest in each subsidiary
partnership except one subsidiary partnership, in which the Partnership holds a
27% limited partnership interest (the other 71% limited partnership interest is
owned by an affiliate of the Partnership with the same management). Through the
rights of the Partnership and/or an affiliate of Related Credit Properties III
L.P. and Liberty GP III Inc. (the "General Partners"), which affiliate has a
contractual obligation to act on behalf of the Partnership to remove the general
partner of each subsidiary partnership (each a "Local General Partner") and to
approve certain major operating and financial decisions, the Partnership has a
controlling financial interest in the subsidiary partnerships. As of September
30, 2004, the Partnership has disposed of three of its sixty-two original
investments (See Note 4).
For financial reporting purposes, the Partnership's fiscal quarter ends
September 30. All subsidiaries have fiscal quarters ending June 30. Accounts of
the subsidiaries have been adjusted for intercompany transactions from July 1
through September 30. The Partnership's fiscal quarter ends September 30 in
order to allow adequate time for the subsidiaries financial statements to be
prepared and consolidated.
All intercompany accounts and transactions have been eliminated in
consolidation.
Increases (decreases) in the capitalization of consolidated subsidiaries
attributable to minority interest arise from cash contributions from and cash
distributions to the minority interest partners.
Losses attributable to minority interests which exceed the minority interests'
investment in a subsidiary have been charged to the Partnership. Such losses
aggregated approximately $59,000 and $0 and $112,000 and $0 for the three and
six months ended September 30, 2004 and 2003, respectively. The Partnership's
investment in each subsidiary is generally equal to the respective subsidiary
partners' equity less minority interest capital, if any. In consolidation, all
8
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
subsidiary partnership losses are included in the Partnership's capital account
except for losses allocated to minority interest capital.
The books and records of the Partnership are maintained on the accrual basis of
accounting in accordance with generally accepted accounting principles ("GAAP").
In the opinion of the General Partners of the Partnership, the accompanying
unaudited financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial position
of the Partnership as of September 30, 2004, the results of operations for the
three and six months ended September 30, 2004 and 2003 and cash flows for the
six months ended September 30, 2004 and 2003. However, the operating results for
the six months ended September 30, 2004 may not be indicative of the results for
the year.
Certain information and note disclosure normally included in financial
statements prepared in accordance with GAAP have been omitted or condensed.
These consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Partnership's Annual
Report on Form 10-K for the period ended March 31, 2004.
Note 2 - Related Party Transactions
Liberty Associates IV L.P. ("Liberty Associates"), an affiliate of the General
Partners, has a 1% and .998% interest as a special limited partner in 58 and 1
of the Local Partnerships, respectively. Affiliates of the General Partners also
have a minority interest in certain Local Partnerships.
9
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
The General Partners and their affiliates and the Local General Partners and
their affiliates perform services for the Partnership and the Local General
Partners, respectively. The costs incurred to related parties for the three and
six months ended September 30, 2004 and 2003 were as follows:
Three Months Ended Six Months Ended
September 30, September 30,
----------------------- -----------------------
2004 2003 2004 2003
----------------------- -----------------------
Partnership management
fees (a) $ 308,750 $ 354,000 $ 646,000 $ 708,000
Expense reimburse-
ment (b) 101,414 95,837 156,094 151,898
Local administrative
fee (d) 48,500 50,000 75,500 100,000
---------- ---------- ---------- ----------
Total general and ad-
ministrative-General
Partners 458,664 499,837 877,594 959,898
---------- ---------- ---------- ----------
Property management
fees incurred to af-
filiates of the subsidi-
ary partnerships'
general partners (c) 419,293 470,666 882,598 923,518
---------- ---------- ---------- ----------
Total general and ad-
ministrative-related
parties $ 877,957 $ 970,503 $1,760,192 $1,883,416
========== ========== ========== ==========
(a) The General Partners are entitled to receive a partnership management fee
after payment of all Partnership expenses, which together with the annual local
administrative fees will not exceed a maximum of 0.5% per annum of invested
assets (as defined in the Partnership Agreement), for administering the affairs
of the Partnership. The partnership management fee, subject to the foregoing
limitation, will be determined by the General Partners in their sole discretion
based upon their review of the Partnership's investments. Unpaid partnership
management fees for any year will be accrued without interest and will be
payable only to the extent of available funds after the Partnership has made
distributions to the limited partners of sale or refinancing proceeds equal to
their original capital contributions plus a 10% priority return thereon (to the
extent not theretofore paid out of cash flow). Partnership management fees owed
to the General Partners amounting to approximately $10,456,000 and $9,810,000
10
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
were accrued and unpaid at September 30, 2004 and March 31, 2004, respectively.
Without the General Partners' continued accrual without payment of these fees
and expense reimbursements, the Partnership will not be in a position to meet
its obligations. The General Partners have allowed for the accrual without
payment of these amounts but are under no obligation to continue to do so.
(b) The Partnership reimburses the General Partners and their affiliates for
actual Partnership operating expenses incurred by the General Partners and their
affiliates on the Partnership's behalf. The amount of reimbursement from the
Partnership is limited by the provisions of the Partnership Agreement. Another
affiliate of the General Partners performs asset monitoring for the Partnership.
These services include site visits and evaluations of the subsidiary
partnerships' performance.
(c) The subsidiary partnerships incurred property management fees amounting to
$545,402 and $603,169 and $1,116,652 and $1,202,861 for the three and six months
ended September 30, 2004 and 2003, respectively, of which $419,293 and $470,666
and $882,598 and $923,518 for the three and six months ended September 30, 2004
and 2003, respectively, were incurred to affiliates of the Local General
Partners. There were no property management fees incurred to affiliates of the
General Partners.
(d) Liberty Associates, a special limited partner of the subsidiary
partnerships, is entitled to receive a local administrative fee of up to $2,500
per year from each subsidiary partnership.
Note 3 - Sale of Properties
The Partnership is currently in the process of disposing of its investments. It
is anticipated that this process will take a number of years. As of September
30, 2004, the Partnership has sold its limited partnership interest in two Local
Partnerships and the property and related assets and liabilities of another
Local Partnership. Subsequently, on October 7, 2004 the Partnership sold its
limited partnership interests in three additional Local Partnerships. See Notes
3 and 5 for discussion of Sale of Properties. There may be no assurance as to
when the Partnership will dispose of its last remaining investments or the
amount of proceeds which may be received. However, based on the historical
operating results of the Local Partnerships and the current economic conditions
11
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
including changes in tax laws, it is unlikely that the proceeds from such sales
received by the Partnership will be sufficient to return to the limited partners
their original investment.
On July 15, 2004, the Partnership's limited partnership interest in Benjamin's
Corner was sold to an unaffiliated third party purchaser for approximately
$690,000, resulting in a gain in the amount of approximately $2,355,000 which
will be recognized during the quarter ending December 31, 2004.
On June 26, 2003, the property and the related assets and liabilities of
Jefferson Place L.P. ("Jefferson Place") were sold to an unaffiliated third
party for $13,650,000 resulting in a gain of approximately $13,949,000 which was
recognized during the quarter ended September 30, 2003. Additionally, a loss of
approximately $6,000 was recorded during the quarter ended December 31, 2003.
Note 4 - Commitments and Contingencies
R.P.P. Limited Dividend Housing Association Limited Partnership ("River Place")
- -------------------------------------------------------------------------------
River Place has been unable to generate sufficient cash flow to make the
required principal and interest payments under its loan agreements. River
Place's debt guarantor, General Retirement System of the City of Detroit
("GRS"), entered into an agreement with the Michigan State Housing Authority
(the "Authority") to purchase these loans upon the occurrence of certain events.
GRS has declared River Place in default under its obligation to make the
required payments. During 1996, GRS agreed to waive its right of foreclosure
under the mortgages, unless certain events occur, through February 1, 2006. GRS
has made advances for debt service and has incurred certain fees relating to
these loans. As of September 30, 2004, these advances and fees totaled
$52,106,021, including accrued interest on such advances at a rate of 15%. Such
amount is included in the amount due to debt guarantor on the balance sheet.
Management anticipates that River Place will be unable to make all of the
required debt service payments during 2004. However, there is no guarantee that
GRS, or any other persons, will continue to make these payments on behalf of
River Place.
12
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
Brandywine Court Associates, L.P. ("Brandywine")
- ------------------------------------------------
Brandywine has had recurring net losses and continues to have a substantial
working capital deficit. Furthermore, Brandywine's management continues to
anticipate that the property will need a new roof in the near future, the cost
of which is expected to exceed $150,000. Also, Brandywine's HAP Contract expires
in 2004 and there can be no assurance that it will be renewed. Brandywine's
management has determined that the Property is not eligible for financial relief
from the United States Department of Housing and Urban Development ("HUD"),
since the Property would require relief of debt in excess of the parameters
allowed. Brandywine's management continues to seek a buyer for the Property.
Gentle Pines - West Columbia Associates, L.P. ("Gentle Pines")
- --------------------------------------------------------------
Gentle Pines has had recurring net losses and continues to have a substantial
working capital deficit. A material number of apartment units are no longer
supported by project-based housing subsidies and the project-based HAP contract
for the remaining units expired on May 31, 2004. As of June 1, 2004, Gentle
Pines has been unable to make its mortgage payments and is in default on its
loan. Management is seeking a nonprofit organization with an affordable housing
mission to acquire Gentle Pines.
WPL Associates XXIII L.P. ("Benjamin's Corner")
- -----------------------------------------------
Benjamin's Corner was party to a lawsuit filed against the landlord and owner of
the ground on which the Property is located. The lawsuit sought declaratory
judgment that Benjamin's Corner can deduct debt service from "Net Cash Flow"
under terms of the ground leases and that Benjamin's Corner is not in default of
the leases and is entitled to exercise its purchase options. The landlord filed
a counter-claim seeking damages of back rent and interest totaling $843,884 plus
interest and late charges on the ground lease payments. In May 2004, Benjamin's
Corner reached a mediated settlement with the owner of the land. Terms of the
settlement require that Benjamin's Corner exercise its option and purchase the
two parcels of land for $669,586 plus it pay deferred ground lease and accrued
interest of $1,238,590, for a total settlement amount of $1,908,176. On July 15,
2004, the Partnership sold its limited partnership interest in Benjamin's
Corner, at which time the lawsuits were settled (See Note 3).
Citrus Meadows Apartments, LTD. ("Citrus Meadows")
- --------------------------------------------------
Citrus Meadows incurred a net loss during the current period and has incurred a
Partner's deficit since inception. Current economic conditions have limited the
13
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
ability of Citrus Meadows to increase tenant occupancy. In response to these
economic conditions, management has implemented expense reductions and increased
advertising to attract new tenants. Also, nonessential capital expenditures have
either been eliminated or postponed. With interest rates being at record lows,
more people are purchasing housing instead of renting. In the interim, the local
general partner is funding the deficit. It is unclear whether Citrus Meadows
will be successful in accomplishing these objectives.
Jefferson Limited Partnership ("Jefferson")
- -------------------------------------------
At September 30, 2004, Jefferson's current liabilities exceeded its current
assets by over $122,000. However, approximately $58,000 of current liabilities
at September 30, 2004 are to related parties which do not intend to pursue
payment beyond Jefferson's ability to pay.
Site H Development Co. ("Site H")
- ---------------------------------
The Partnership has not been provided with the Site H audited financial
statements for fiscal years 2003 and 2002 and as such has used estimates in its
Consolidated Financial Statements for both years.
Note 5 - Subsequent Events
On October 7, 2004, the Partnership's limited partnership interest in Ashby
Apartments, Ltd. ("Ashby") was sold to the Local General Partner for
approximately $50,000, resulting in a gain in the amount of approximately
$48,000 which will be recognized in the March 31, 2005 10-K.
On October 7, 2004, the Partnership's limited partnership interest in Meridith
Apartments ("Meridith") was sold to the Local General Partner for approximately
$50,000, resulting in a loss in the amount of approximately $128,000 which will
be recognized in the March 31, 2005 10-K.
On October 7, 2004, the Partnership's limited partnership interest in Ritz
Apartments LTD. ("Ritz") was sold to the Local General Partner for approximately
$50,000, resulting in a loss in the amount of approximately $13,000 which will
be recognized in the March 31, 2005 10-K.
14
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
- -------------------------------
The Partnership's primary sources of funds include (i) working capital reserves,
(ii) cash distributions from the operations of the Local Partnerships and (iii)
sales proceeds. All of these sources of funds, none of which are significant,
are available to meet the obligations of the Partnership.
The Partnership has invested all of the net proceeds of its original offering in
62 Local Partnerships. Approximately $178,000 of the purchase price remains to
be paid (which includes approximately $160,000 held in escrow). As of September
30, 2004, the Partnership has sold its limited partnership interest in two Local
Partnerships and the property and related assets and liabilities of another
Local Partnership. Subsequently on October 7, 2004, the Partnership sold the
limited partnership interests in three additional Local Partnerships. See Note 3
and 5 for a discussion of Sale of Properties.
During the six months ended September 30, 2004, cash and cash equivalents of the
Partnership and its consolidated Local Partnerships increased approximately
$443,000. This increase was attributable to cash provided by operating
activities ($3,275,000) and net proceeds from sale of limited partnership
interest ($691,000) which exceeded acquisitions of property and equipment
($566,000), principal payments on mortgage notes payable ($2,676,000), an
increase in cash held in escrow relating to investing activities ($29,000), a
decrease in capitalization of consolidated subsidiaries attributable to minority
interest ($249,000) and a decrease in due to local general partners and
affiliates relating to financing activities (2,000). Included in the adjustments
to reconcile the net loss to cash provided by operating activities are
depreciation and amortization ($4,921,000) and an increase in due to debt
guarantor ($2,147,000).
The Partnership has a working capital reserve of approximately $673,000 at
September 30, 2004.
Cash distributions received from the Local Partnerships remain relatively
immaterial. These distributions, as well as the working capital reserves
referred to in the preceding paragraph, will be used towards the future
operating expenses of the Partnership. During the six months ended September 30,
2004, the amounts received from operations of the Local Partnerships
approximated $24,000.
Partnership management fees owed to the General Partners amounting to
approximately $10,456,000 and $9,810,000 were accrued and unpaid at September
30, 2004 and March 31, 2004, respectively. Without the General Partners'
15
continued accrual without payment of these fees and expense reimbursements, the
Partnership will not be in a position to meet its obligations. The General
Partners have allowed for the accrual without payment of these amounts but are
under no obligation to continue to do so.
For a discussion of contingencies affecting certain Local Partnerships, see Note
4 to the financial statements. Since the maximum loss the Partnership would be
liable for is its net investment in the respective Local Partnerships, the
resolution of the existing contingencies is not anticipated to impact future
results of operations, liquidity or financial condition in a material way.
However, the Partnership's loss of its investment in a Local Partnership may
result in recapture of tax credits if the investment is lost prior to the end of
the fifteenth anniversary after the beginning of the tax credit period.
Management is not aware of any trends or events, commitments or uncertainties,
which have not otherwise been disclosed, that will or are likely to impact
liquidity in a material way. Management believes the only impact would be for
laws that have not yet been adopted. The portfolio is diversified by the
location of the properties around the United States so that if one area of the
country is experiencing downturns in the economy, the remaining properties in
the portfolio may be experiencing upswings. However, the geographic
diversification of the portfolio may not protect against a general downturn in
the national economy.
Critical Accounting Policies
- ----------------------------
In preparing the consolidated financial statements, management has made
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates. Set forth below is a summary of the accounting policies
that management believes are critical to the preparation of the consolidated
financial statements. The summary should be read in conjunction with the more
complete discussion of the Company's accounting policies included in Note 2 to
the consolidated financial statements, which are included in the Partnership's
Annual Report on Form 10-K for the year ended March 31, 2004.
a) Property and Equipment
Property and equipment to be held and used are carried at cost which includes
the purchase price, acquisition fees and expenses, and any other costs incurred
in acquiring the properties. The cost of property and equipment is depreciated
over their estimated useful lives using accelerated and straight-line methods.
Expenditures for repairs and maintenance are charged to expense as incurred;
major renewals and betterments are capitalized. At the time property and
16
equipment are retired or otherwise disposed of, the cost and accumulated
depreciation are eliminated from the assets and accumulated depreciation
accounts and the profit or loss on such disposition is reflected in earnings.
The Partnership complies with Statement of Financial Accounting Standards (SFAS)
No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". A loss
on impairment of assets is recorded when management estimates amounts
recoverable through future operations and sale of the property on an
undiscounted basis are below depreciated cost. At that time property investments
themselves are reduced to estimated fair value (generally using discounted cash
flows) when the property is considered to be impaired and the depreciated cost
exceeds estimated fair value.
b) Income Taxes
No provision has been made for income taxes in the accompanying consolidated
financial statements since such taxes, if any, are the responsibility of the
individual partners. For income tax purposes, the Partnership has a fiscal year
ending December 31.
Results of Operations
- ---------------------
The results of the operations of the Partnership, as well as the Local
Partnerships remained fairly consistent during the three and six months ended
September 30, 2004 as compared to the corresponding periods in 2003, other than
financial and capital events with respect to Jefferson Place L.P., which sold
its property and the related assets and liabilities (the "Sold Asset"). The
majority of Local Partnerships' income continues to be in the form of rental
income with the corresponding expenses being divided among operations,
depreciation and mortgage interest.
Rental income decreased approximately 6% for both the three and six months ended
September 30, 2004 as compared to the corresponding periods in 2003. Excluding
the Sold Asset, rental income decreased less than 1% for both the three and six
months ended September 30, 2004 compared to the corresponding periods in 2003
primarily due to decreases in occupancy at three Local Partnerships.
Other income increased approximately $193,000 and $165,000 for the three and six
months ended September 30, 2004 as compared to the corresponding periods in
2003. Excluding the Sold Asset, other income increased $240,000 and $245,000
primarily due to the write-off of certain payables at one Local Partnership and
the write-off of accrued management fees at a second Local Partnership.
Total expenses, excluding the Sold Asset, administrative and management, repairs
and maintenance and insurance, remained fairly consistent with decreases of
approximately 4% and 3% for the three and six months ended September 30, 2004 as
17
compared to the corresponding periods in 2003.
Administrative and management decreased approximately $383,000 and $505,000 for
the three and six months ended September 30, 2004 as compared to the
corresponding periods in 2003. Excluding the Sold Asset, administrative and
management decreased $239,000 and $219,000 primarily due to taxes paid on Ohio
source income in 2003 at the Partnership level.
Repairs and maintenance expenses increased (decreased) approximately $72,000 and
$(48,000) for the three and six months ended September 30, 2004 as compared to
the corresponding periods in 2003. Excluding the Sold Asset, repairs and
maintenance increased $173,000 and $104,000 primarily due to an overaccrual of
security costs in the first quarter of 2003 at one Local Partnership, carpet
replacement at a second Local Partnership and roof and community room floor
repairs at a third Local Partnership.
Insurance expense increased approximately $122,000 and $123,000 for the three
and six months ended September 30, 2004 as compared to the corresponding periods
in 2003. Excluding the Sold Asset, insurance expense increased $180,000 and
$199,000, primarily due to an underaccrual in 2003 at one Local Partnership and
increases in insurance premiums at the other Local Partnerships.
Interest decreased approximately $538,000 and $920,000 for the three and six
months ended September 30, 2004 as compared to the corresponding periods in 2003
primarily due to the Sold Asset.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The Partnership does not have any market risk sensitive instruments.
Item 4. Controls and Procedures
(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Chief Executive
Officer and Chief Financial Officer of Related Credit Properties III Inc., the
general partner of Related Credit Properties III L.P. and of Liberty GP III
Inc., each of which is a general partner of the Partnership, has evaluated the
effectiveness of the Partnership's disclosure controls and procedures (as such
term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended ("Exchange Act"), as of the end of the period covered by
this report. Based on such evaluation, such officer has concluded that, as of
the end of such period, the Partnership's disclosure controls and procedures are
effective.
18
(b) INTERNAL CONTROL OVER FINANCIAL REPORTING. There have not been any changes
in Partnership's internal control over financial reporting during the fiscal
quarter to which this report relates that have materially affected, or are
reasonably likely to materially affect, the Partnership's internal control over
financial reporting.
19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in 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 and Reports on Form 8-K
(a) Exhibits:
(3A) Form of Amended and Restated Agreement of Limited Partnership of
Liberty Tax Credit Plus III L.P. (attached to Prospectus as
Exhibit A)**
(3B) Certificate of Limited Partnership of Liberty Tax Credit Plus III
L.P., together with amendments filed on November 17, 1988**
(4) Form of Subscription Agreement (attached to Prospectus as Exhibit
B)
(10A) Escrow Agreement between Registrant and Bankers Trust Company**
(10B)Forms of Purchase Agreements for purchase of Local Partnership
Interests**
31.1 Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a).
32.1 Certification Pursuant to Rule 13a-14(b) or Rule 15d-14(b) and
Section 1350 of Title 18 of the United States Code (18 U.S.C.
1350).
** Incorporated herein by reference to exhibits filed with
Pre-Effective Amendment No. 1 to Liberty Tax Credit Plus III
L.P.'s Registration Statement on Form S-11 (Registration No.
33-25732)
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter.
20
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.
LIBERTY TAX CREDIT PLUS III L.P.
--------------------------------
(Registrant)
By: RELATED CREDIT PROPERTIES III L.P.,
a General Partner
By:Related Credit Properties III Inc.,
its General Partner
Date: November 5, 2004
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
Director, President, Chief Executive Officer
and Chief Financial Officer
Date: November 5, 2004
By: /s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer
(Principal Accounting Officer)
By: LIBERTY GP III INC.,
a General Partner
Date: November 5, 2004
By:/s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
Director, President, Chief Executive Officer
and Chief Financial Officer
Date: November 5, 2004
By:/s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer
(Principal Accounting Officer)
Exhibit 31.1
CERTIFICATION PURSUANT TO RULE
13a-14(a) OR RULE 15d-14(a)
I, Alan P. Hirmes, Chief Executive Officer and Chief Financial Officer of
Related Credit Properties III Inc. the general partner of Related Credit
Properties III L.P. and of Liberty GP III Inc., each of which is a General
Partner of Liberty Tax Credit Plus III L.P. (the "Partnership"), hereby certify
that:
1) I have reviewed this quarterly report on Form 10-Q for the period
ending September 30, 2004 of the Partnership;
2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Partnership as of, and for, the periods presented in
this quarterly report;
4) I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Partnership and I
have:
a) designed such disclosure controls and procedures or caused such
disclosure controls and procedures to be designed under my supervision,
to ensure that material information relating to the Partnership
including its consolidated subsidiaries, is made known to me by others
within those entities, particularly during the period in which this
quarterly report was being prepared;
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under my
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles; and
c) evaluated the effectiveness of the Partnership's disclosure controls
and procedures and presented in this report my conclusion about the
effectiveness of the disclosure controls and procedures as of the end
of the period covered by this quarterly report based on such
evaluation; and
d) disclosed in this quarterly report any change in the Partnership's
internal control over financial reporting that occurred during the
period ending September 30, 2004 that has materially affected, or is
reasonably likely to materially affect, the Partnership's internal
control over financial reporting; and
5) I have disclosed, based on my most recent evaluation of internal
control over financial reporting, to the Partnership's auditors and to
the boards of directors of the General Partners:
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the Partnership's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Partnership's
internal control over financial reporting.
Date: November 5, 2004
----------------
By:/s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Chief Executive Officer and
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
RULE 13a-14(b) OR RULE 15d-14(b) AND
SECTION 1350 OF TITLE 18 OF THE
UNITED STATES CODE (18 U.S.C. 1350)
In connection with the Quarterly Report of Liberty Tax Credit Plus III L.P. (the
"Partnership") on Form 10-Q for the period ending September 30, 2004 as filed
with the Securities and Exchange Commission ("SEC") on the date hereof (the
"Report"), I, Alan P. Hirmes, Chief Executive Officer and Chief Financial
Officer of Related Credit Properties III Inc., the General Partner of Related
Credit Properties III, L.P. and of Liberty GP III Inc., each of which is a
general partner of the Partnership, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Partnership.
A signed original of this written statement required by Section 906 has been
provided to the Partnership and will be retained by the Partnership and
furnished to the SEC or its staff upon request.
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Chief Executive Officer and
Chief Financial Officer
November 5, 2004