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 December 31, 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 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)
============= ==============
December 31, March 31,
2004 2004
------------- -------------
ASSETS
Operating Assets:
Property and equipment at cost,
net of accumulated depreciation
of $122,997,360 and $123,219,520,
respectively $ 150,824,263 $ 163,934,774
Cash and cash equivalents 3,328,060 3,656,322
Cash held in escrow 13,100,640 13,258,260
Deferred costs, net of accumulated
amortization of $2,234,349
and $2,172,279, respectively 2,541,062 2,670,475
Other assets 2,969,039 2,776,525
------------- -------------
Total operating assets 172,763,064 186,296,356
------------- -------------
Discontinued Assets (Note 5):
Property and equipment held for sale,
net of accumulated depreciation of
$5,327,579 and $0, respectively 5,014,661 0
Net assets held for sale 1,670,117 0
------------- -------------
Total discontinued assets 6,684,778 0
------------- -------------
Total assets $ 179,447,842 $ 186,296,356
============= =============
2
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(continued)
============= ==============
December 31, March 31,
2004 2004
------------- -------------
LIABILITIES AND PARTNERS' DEFICIT
Operating Liabilities:
Mortgage notes payable $ 163,786,053 $ 172,456,295
Due to debt guarantor 52,929,553 49,958,612
Accounts payable and other
liabilities 26,772,528 24,044,416
Due to local general partners and
affiliates 11,502,911 11,682,238
Due to general partners and
affiliates 12,213,958 11,905,206
------------- -------------
Total operating liabilities 267,205,003 270,046,767
------------- -------------
Discontinued Liabilities (Note 5):
Mortgage notes payable of assets
held for sale 3,527,256 0
Net liabilities held for sale 26,575 0
------------- -------------
Total discontinued liabilities 3,553,831 0
------------- -------------
Total liabilities 270,758,834 270,046,767
------------- -------------
Minority interest (1,472,059) (1,481,127)
------------- -------------
Commitments and contingencies
(Note 4)
Partners' deficit:
Limited partners (139,101.5 BACs
issued and outstanding) (87,705,086) (80,211,134)
General Partners (2,133,847) (2,058,150)
------------- -------------
Total partners' deficit (89,838,933) (82,269,284)
------------- -------------
Total liabilities and partners'
deficit $ 179,447,842 $ 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 Nine Months Ended
December 31, December 31,
---------------------------- ----------------------------
2004 2003* 2004 2003*
---------------------------- ----------------------------
Operations:
Revenues
Rental income $ 7,704,403 $ 7,907,480 $ 23,040,570 $ 23,401,714
Other 276,138 331,319 934,114 898,615
------------ ------------ ------------ ------------
Total revenue 7,980,541 8,238,799 23,974,684 24,300,329
------------ ------------ ------------ ------------
Expenses
General and
administrative 1,962,826 1,925,971 5,551,160 5,729,161
General and
administrative-
related parties
(Note 2) 822,118 851,419 2,458,289 2,540,060
Operating 815,502 815,044 2,723,408 2,730,610
Repairs and
maintenance 1,280,293 1,332,661 3,900,052 3,805,610
Real estate taxes 496,155 480,394 1,490,889 1,421,790
Insurance 501,107 419,488 1,572,180 1,299,379
Interest 3,292,686 3,258,096 9,667,802 10,023,277
Depreciation and
amortization 2,366,943 2,301,329 7,035,667 7,101,625
------------ ------------ ------------ ------------
Total expenses 11,537,630 11,384,402 34,399,447 34,651,512
------------ ------------ ------------ ------------
Loss from operations
before minority
interest (3,557,089) (3,145,603) (10,424,763) (10,351,183)
Minority interest
in losses of
subsidiary
partnerships from
operations 66,507 61,558 206,291 191,256
------------ ------------ ------------ ------------
Loss from operations (3,490,582) (3,084,045) (10,218,472) (10,159,927)
------------ ------------ ------------ ------------
Discontinued Operations:
Income from discon-
tinued operations
(including gain (loss)
on sale of properties
and minority interest)
(Notes 3 and 5) 2,365,482 127,465 2,648,823 13,563,269
------------ ------------ ------------ ------------
Net (loss) income $ (1,125,100) $ (2,956,580) $ (7,569,649) $ 3,403,342
============ ============ ============ ============
4
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(continued)
============================ ============================
Three Months Ended Nine Months Ended
December 31, December 31,
---------------------------- ----------------------------
2004 2003* 2004 2003*
---------------------------- ----------------------------
Loss from operations
limited partners $ (3,455,676) $ (3,053,204) $(10,116,287) $(10,058,328)
Income from discon-
tinued operations
(including gain (loss)
on sale of properties)
- limited partners 2,341,827 126,190 2,622,335 13,427,637
------------ ------------ ------------ ------------
Net (loss) income -
limited partners $ (1,113,849) $ (2,927,014) $ (7,493,952) $ 3,369,309
============ ============ ============ ============
Number of BACs
outstanding 139,101.5 139,101.5 139,101.5 139,101.5
============ ============ ============ ============
Loss from operations
- per BAC $ (24.84) $ (21.95) $ (72.73) $ (72.31)
Income from discon-
tinued operations
(including gain (loss)
on sale of properties)
- per BAC 16.83 0.91 18.85 96.53
------------ ------------ ------------ ------------
Net (loss) income -
per BAC $ (8.01) $ (21.04) $ (53.88) $ 24.22
============ ============ ============ ============
* Reclassified for comparative purposes.
See accompanying notes to consolidated financial statements.
5
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 -
nine months ended
December 31, 2004 (7,569,649) (7,493,952) (75,697)
------------ ------------ ------------
Partners' deficit -
December 31, 2004 $(89,838,933) $(87,705,086) $ (2,133,847)
============ ============ ============
See accompanying notes to consolidated financial statements.
6
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
===============================
Nine Months Ended
December 31,
-------------------------------
2004 2003*
-------------------------------
Cash flows from operating activities:
Net (loss) income $ (7,569,649) $ 3,403,342
Adjustments to reconcile net(loss) income
to net cash provided by operating
activities:
Income from discontinued operations (2,648,823) (13,563,269)
Depreciation and amortization 7,035,667 7,101,625
Increase in cash held in escrow (951,946) (569,568)
Increase in other assets (282,979) (475,139)
Increase in due to debt guarantor 2,970,941 2,529,161
Increase in accounts
payable and other liabilities 4,475,140 1,150,286
Increase in due to local
general partners and affiliates 314,863 331,640
Decrease in due to local general
partners and affiliates (458,176) (472,154)
Increase in due to general partners
and affiliates 390,114 1,308,715
Minority interest in loss of
subsidiaries (206,291) (191,256)
------------ ------------
Net cash provided by operating
activities 3,068,861 553,383
------------ ------------
Cash flows from investing activities:
Acquisition of property and equipment (1,118,776) (936,802)
Proceeds from sale of properties 690,645 0
Decrease (increase) in cash held in escrow 48,492 (34,841)
Decrease in due to local general
partners and affiliates 0 2,427
------------ ------------
Net cash used in investing activities (379,639) (969,216)
------------ ------------
7
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(continued)
===============================
Nine Months Ended
December 31,
-------------------------------
2004 2003*
-------------------------------
Cash flows from financing activities:
Principal payments of mortgage
notes payable (2,950,086) (1,451,264)
Decrease in due to local general
partners and affiliates (2,438) (12,817)
Decrease in capitalization of
consolidated subsidiaries
attributable to minority interest (64,960) (363,785)
------------ ------------
Net cash used in financing activities (3,017,484) (1,827,866)
------------ ------------
Net decrease in cash and cash equivalents (328,262) (2,243,699)
Cash and cash equivalents at
beginning of period 3,656,322 5,098,740
------------ ------------
Cash and cash equivalents at
end of period $ 3,328,060 $ 2,885,041
============ ============
Summarized below are the components
of discontinued operations:
Decrease in property and equipment,
net of accumulated depreciation $ 2,304,990 $ 4,098,721
Increase in cash held in escrow (261,661) (239,644)
Decrease in deferred costs 0 223,110
Decrease in prepaid expenses and
other assets 52,847 123,735
Decrease in accounts payable,
accrued expenses and other liabilities (1,573,979) (329,420)
Decrease in mortgage notes payable (2,192,900) (11,078,432)
Decrease in due to local general
partners and their affiliates (33,576) (6,366,557)
Decrease in due to general partners
and affiliates (73,862) (2,013)
(Decrease) increase in capitalization of consolidated
subsidiaries attributable to minority interest (180,037) 7,231
* Reclassified for comparative purposes.
See accompanying notes to consolidated financial statements.
8
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004
(Unaudited)
Note 1 - General
The consolidated financial statements for the nine months ended December 31,
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
December 31, 2004, the Partnership has disposed of five of its sixty-two
investments (see Note 3).
For financial reporting purposes, the Partnership's fiscal quarter ends December
31. All subsidiaries have fiscal quarters ending September 30. Accounts of the
subsidiaries have been adjusted for intercompany transactions from October 1
through December 31. The Partnership's fiscal quarter ends December 31 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 $25,000 and $0 and $136,000 and $0 for the three and
nine months ended December 31, 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
9
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 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 U.S. 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 December 31, 2004, the results of operations
for the three and nine months ended December 31, 2004 and 2003 and cash flows
for the nine months ended December 31, 2004 and 2003. However, the operating
results for the nine months ended December 31, 2004 may not be indicative of the
results for the year.
In accordance with FASB 144, the results of discontinued operations are reported
as a separate component of income before extraordinary items on the Consolidated
Statements of Operations. Discontinued operations include the results of
operations and any gain or loss recognized for Local Partnerships that have been
disposed of or are held for sale. A gain or loss recognized on the disposal is
disclosed in the notes to the consolidated financial statements. Adjustments to
amounts previously reported in operations that are directly related to the
disposal of a Local Partnership are reclassified in the current period as
discontinued operations for comparability purposes. Assets and liabilities of a
Local Partnership that are classified as held for sale are presented separately
in the asset and liability sections, respectively, of the Consolidated Balance
Sheets.
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 year ended March 31, 2004.
Rental income is recognized as rent becomes due and charged to tenants' accounts
receivable if not received by the due date. Rental income is typically due the
first day of each month, but can vary by property due to the terms of each
tenant's lease. Rental payments received in advance of the due date are deferred
until earned. Rental subsidies are recognized as rental income during the month
in which it is received and applied. The related rental subsidy programs have
10
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004
(Unaudited)
expiration dates that terminate upon total disbursement of the assistance
obligation.
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 56 and 1
of the Local Partnerships, respectively. Affiliates of the General Partners also
have a minority interest in certain Local Partnerships.
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
nine months ended December 31, 2004 and 2003 were as follows:
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------- -------------------------
2004 2003 2004 2003
------------------------- -------------------------
Partnership management
fees (a) $ 257,250 $ 354,000 $ 903,250 $1,062,000
Expense reimbursement (b) 121,825 53,378 277,919 205,276
Local administrative
fee (d) 23,000 23,000 68,000 68,000
---------- ---------- ---------- ----------
Total general and ad-
ministrative-General
Partners 402,075 430,378 1,249,169 1,335,276
---------- ---------- ---------- ----------
Property management
fees incurred to af-
filiates of the subsidi-
ary partnerships'
general partners (c) 420,043 421,041 1,209,120 1,204,784
---------- ---------- ---------- ----------
Total general and ad-
ministrative-related
parties $ 822,118 $ 851,419 $2,458,289 $2,540,060
========== ========== ========== ==========
(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
11
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004
(Unaudited)
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 $10,713,000 and $9,810,000
were accrued and unpaid at December 31, 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
$600,241 and $616,274 and $1,766,893 and $1,819,135 for the three and nine
months ended December 31, 2004 and 2003, respectively, of which $420,043 and
$421,041 and $1,209,120 and $1,204,784 for the three and nine months ended
December 31, 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 IV L.P., 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.
12
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004
(Unaudited)
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 December 31,
2004, the Partnership has sold its limited partnership interest in four Local
Partnerships and the property and the related assets and liabilities of a fifth
Local Partnership. In addition, on December 29, 2004, the Partnership entered
into an agreement to sell its limited partnership interest in another Local
Partnership. There may be no assurance as to when the Partnership will dispose
of its 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 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 December 29, 2004, the Partnership entered into an agreement for the sale of
its Limited Partnership Interest in Lancashire Towers Associates, Ltd.
("Lancashire") to an affiliate of the Local General Partner for a purchase price
of $800,000. The sales documents have been executed and the funds are being held
in escrow waiting for approval of the sale from the Department of Housing and
Urban Development ("HUD"). No assurances can be given that HUD will approve the
sale.
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 Partnership's Annual Report on Form 10-K
for the year ended March 31, 2005.
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 Partnership's Annual Report on Form 10-K for the year ended
March 31, 2005.
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 Partnership's Annual Report on Form 10-K for the year ended
March 31, 2005.
13
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004
(Unaudited)
On July 15, 2004, the Partnership's limited partnership interest in WPL
Associates XXIII ("Benjamin's Corner) was sold to an unaffiliated third party
purchaser for approximately $690,000, resulting in a gain in the amount of
approximately $2,124,000.
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 $13,943,000.
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 December 31, 2004, these advances and fees totaled
$52,929,553, 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 2005. However, there is no guarantee that
GRS, or any other persons, will continue to make these payments on behalf of
River Place.
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. Brandywine's HAP contract which was
scheduled to expire in 2004 has been extended through August 31, 2005.
Brandywine's management has determined that the Property is not eligible for
financial relief from the United States Department of Housing and Urban
14
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004
(Unaudited)
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. The property had been experiencing decreases in occupancy which
reached a low of approximately 74% in August of 2004. However, the occupancy has
increased to approximately 90% as of December 31, 2004.
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. The property has been experiencing decreases in
occupancy which reached a low of approximately 40% in July of 2004. However, the
occupancy has increased to approximately 70% as of December 31, 2004.
Citrus Meadows Apartments, LTD. ("Citrus Meadows")
- --------------------------------------------------
Citrus Meadows incurred a net loss of approximately $568,000 for the year ended
March 31, 2004 and approximately $270,000 for the nine months ended December 31,
2004 and has incurred a Partner's deficit since inception. Current economic
conditions have limited the ability of Citrus Meadows to increase tenant
occupancy. In response to these economic conditions the Local General Partners
has made some building improvements, and management has implemented expense
reductions and increased advertising to attract new tenants. Management feels
that as a direct result of these recent changes their activity level and
interest from potential residents has increased dramatically. Occupancy is now
at 82% with fourteen new applications pending with seven of these approved for
move-in in late January or during the month of February. In the interim, the
local general partner is funding the deficit. It is unclear whether Citrus
Meadows will be successful in accomplishing these objectives.
15
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004
(Unaudited)
Jefferson Limited Partnership ("Jefferson")
- -------------------------------------------
At December 31, 2004, Jefferson's current liabilities exceeded its current
assets by over $134,000. However, approximately $65,000 of current liabilities
at December 31, 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.
16
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004
(Unaudited)
Note 5 - Discontinued Operations:
The following table summarizes the financial position and results of operations
of the Local Partnerships that are classified as discontinued operations. As of
December 31, 2004 and for the three and nine month periods ended December 31,
2004, Ashby, Meredith, Ritz, Benjamin's Corner and Lancashire were classified as
discontinued operations in the Consolidated Financial Statements. For the three
and nine month periods ended December 31, 2003, Ashby, Meredith, Ritz,
Benjamin's Corner, Lancashire and Jefferson Place were classified as
discontinued operations on the consolidated financial statements.
=========== ===========
December 31, March 31,
2004 2004
----------- -----------
Assets
Property and equipment - less
accumulated depreciation of
$5,327,579 and $0, respectively $ 5,014,661 $ 0
Cash and cash equivalents 306,385 0
Cash held in escrow 1,322,735 0
Deferred costs, net of accumul-
ated amortization of $64,414
and $0, respectively 3,379 0
Other assets 37,618 0
----------- -----------
Total assets $ 6,684,778 $ 0
=========== ===========
Liabilities
Mortgage notes payable 3,527,256 0
Accounts payable and other 479,431 0
Due to general partners and
affiliates 7,500 0
Minority interest (460,356) 0
----------- -----------
Total liabilities $ 3,553,831 $ 0
=========== ===========
17
LIBERTY TAX CREDIT PLUS III L.P.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004
(Unaudited)
============================== ==============================
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------------ ------------------------------
2004 2003 2004 2003
------------------------------ ------------------------------
Revenues $ 705,132 $ 657,825 $ 2,175,594 $ 2,933,780
Gain (loss) on sale
of properties
(Note 3) 2,124,097 (5,830) 2,124,097 13,942,678
------------ ------------ ------------ ------------
Total revenue 2,829,299 651,995 4,299,691 16,876,458
------------ ------------ ------------ ------------
Total expenses 463,414 522,109 1,644,193 3,306,598
------------ ------------ ------------ ------------
Income before
minority interest 2,365,815 129,886 2,655,498 13,569,860
Minority interest in
income of sub-
sidiaries from
discontinued
operations (333) (2,421) (6,675) (6,591)
------------ ------------ ------------ ------------
Total income
from discontinued
operations (includ-
ing gain (loss) on
sale of properties) $ 2,365,482 $ 127,465 $ 2,648,823 $ 13,563,269
============ ============ ============ ============
Income - limited
partners from
discontinued
operations (in-
cluding gain
(loss) on sale of
properties) $ 2,341,827 $ 126,190 $ 2,622,335 $ 13,427,637
============ ============ ============ ============
Number of BACs
outstanding 139,101.5 139,101.5 139,101.5 139,101.5
============ ============ ============ ============
Income from dis-
continued oper-
ations (includ-
ing gain (loss) on
sale of properties)
per BAC $ 16.83 $ 0.91 $ 18.85 $ 96.53
============ ============ ============ ============
18
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 December
31, 2004, the Partnership has sold its limited partnership interest in four
Local Partnerships and the property and the related assets and liabilities of a
fifth Local Partnership were also sold. See Note 3 for a discussion of property
sales.
During the nine months ended December 31, 2004, cash and cash equivalents of the
Partnership and its consolidated Local Partnerships decreased approximately
$328,000. This decrease was attributable to acquisitions of property and
equipment ($1,119,000), principal payments on mortgage notes payable
($2,950,000), a decrease in capitalization of consolidated subsidiaries
attributable to minority interest ($65,000) and a net decrease in due to local
general partners and affiliates relating to investing activities ($2,000) which
exceeded cash provided by operating activities ($3,069,000), proceeds from sale
of properties ($691,000) and a decrease in cash held in escrow relating to
investing activities ($48,000). Included in the adjustments to reconcile the net
loss to net cash provided by operating activities are income from discontinued
operations (including gain (loss) on sale of properties) ($2,649,000),
depreciation and amortization ($7,036,000) and an increase in due to debt
guarantor ($2,971,000).
The Partnership has a working capital reserve of approximately $210,000 at
December 31, 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 nine months ended December 31,
2004, the amounts received from operations of the Local Partnerships
approximated $24,000.
Partnership management fees owed to the General Partners amounting to
approximately $10,713,000 and $9,810,000 were accrued and unpaid at December 31,
2004 and March 31, 2004, respectively. Without the General Partners' continued
19
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
also 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
equipment are retired or otherwise disposed of, the cost and accumulated
20
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 nine months ended
December 31, 2004 as compared to the corresponding periods in 2003, excluding
other income and insurance.
Rental income decreased approximately 3% and 2% for the three and nine months
ended December 31, 2004 as compared to the corresponding periods in 2003,
primarily due to decreases in occupancy at two Local Partnerships (see Note 4).
Other income (decreased) increased approximately $(55,000) and $36,000 for the
three and nine months ended December 31, 2004 as compared to the corresponding
periods in 2003. The decrease for the three months ended December 31, 2004 is
primarily due to the reversal of overaccruals of certain payables in the third
quarter of 2003 at one Local Partnership and the increase for the nine months
ended December 31, 2004 is primarily due to the return of escrow money held at a
second Local Partnership.
Total operating expenses, excluding insurance remained fairly consistent with
decreases of approximately 1% and 2% for the three and nine months ended
December 31, 2004 as compared to the corresponding periods in 2003.
Insurance expense increased approximately $82,000 and $273,000 for the three and
nine months ended December 31, 2004 as compared to the corresponding periods in
21
2003, primarily due to an underaccrual in 2003 and increases in insurance
premiums at the Local Partnerships.
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.
(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.
22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Unregistered Sales of Equity 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
(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)
23
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: February 11, 2005
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
Director, President, Chief Executive
Officer and Chief Financial Officer
Date: February 11, 2005
By: /s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer
(Principal Accounting Officer)
By: LIBERTY GP III INC.,
a General Partner
Date: February 11, 2005
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
Director, President, Chief Executive Officer
and Chief Financial Officer
Date: February 11, 2005
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 December 31, 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 December 31, 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: February 11, 2005
------------------
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 December 31, 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
February 11, 2005