Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
______________
FORM
10-Q
______________
(Mark
One)
|
þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended September 30, 2009
OR
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Commission
File Number 0-20476
INDEPENDENCE
TAX CREDIT PLUS L.P.
(Formerly
known as Independence Tax Credit Plus Program)
(Exact
name of registrant as specified in its charter)
|
Delaware
|
13-3589920
|
|
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
625
Madison Avenue, New York, New York
|
10022
|
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code (212) 317-5700
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 þ No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
|
Large
accelerated filer o
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Accelerated
filer o
|
|
|
Non-accelerated
filer o (Do
not check if a smaller reporting company)
|
Smaller
reporting company þ
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange
Act). Yes [ ] No þ
PART I -
Financial Information
Item 1.
Financial Statements
INDEPENDENCE
TAX CREDIT PLUS L.P.
AND
SUBSIDIARIES
Consolidated
Balance Sheets
|
September
30,
2009
|
March
31,
2009
|
||||||
|
(Unaudited)
|
(Audited)
|
||||||
|
ASSETS
|
|||||||
|
Operating
Assets
|
|||||||
|
Property
and equipment, at cost, net of accumulated depreciation of $23,009,614 and
$22,315,148, respectively
|
$
|
21,998,689
|
$
|
22,693,155
|
|||
|
Cash
and cash equivalents
|
5,100,266
|
5,253,902
|
|||||
|
Cash
held in escrow
|
1,991,707
|
2,005,856
|
|||||
|
Deferred
costs, net of accumulated amortization of $275,972 and $269,495,
respectively
|
193,067
|
199,544
|
|||||
|
Other
assets
|
754,577
|
792,384
|
|||||
|
Total
operating assets
|
30,038,306
|
30,944,841
|
|||||
|
Assets
from discontinued operations (Note 6)
|
|||||||
|
Property
and equipment held for sale, net of accumulated depreciation of
$21,796,073 and $21,815,503, respectively
|
28,991,157
|
29,015,203
|
|||||
|
Net
assets held for sale
|
4,201,308
|
4,246,142
|
|||||
|
Total
assets from discontinued operations
|
33,192,465
|
33,261,345
|
|||||
|
Total
assets
|
$
|
63,230,771
|
$
|
64,206,186
|
|||
|
LIABILITIES
AND PARTNERS’ DEFICIT
|
|||||||
|
Operating
Liabilities
|
|||||||
|
Mortgage
notes payable
|
$
|
20,312,605
|
$
|
20,705,851
|
|||
|
Accounts
payable
|
1,070,860
|
1,181,205
|
|||||
|
Accrued
interest payable
|
11,038,473
|
10,496,943
|
|||||
|
Security
deposits payable
|
172,242
|
169,564
|
|||||
|
Due
to local general partners and affiliates
|
744,318
|
745,843
|
|||||
|
Due
to general partners and affiliates
|
9,630,640
|
9,756,202
|
|||||
|
Total
operating liabilities
|
42,969,138
|
43,055,608
|
|||||
|
Liabilities
from discontinued operations (Note 6)
|
|||||||
|
Mortgage
notes payable of assets held for sale
|
18,904,543
|
19,248,504
|
|||||
|
Net
liabilities held for sale
|
16,049,573
|
15,690,152
|
|||||
|
Total
liabilities from discontinued operations
|
34,954,116
|
34,938,656
|
|||||
|
Total
liabilities
|
77,923,254
|
77,994,264
|
|||||
|
Commitments
and contingencies (Note 7)
|
|||||||
|
Partners’
deficit
|
|||||||
|
Limited
partners (76,786 BACs issued and outstanding)
|
(21,908,427
|
)
|
(20,269,539
|
)
|
|||
|
General
partners
|
2,908,030
|
2,924,584
|
|||||
|
Independence
Tax Credit Plus L.P. total
|
(19,000,397
|
)
|
(17,344,955
|
)
|
|||
|
Noncontrolling
interests
|
4,307,914
|
3,556,877
|
|||||
|
Total
partners’ deficit
|
(14,692,483
|
)
|
(13,788,078
|
)
|
|||
|
Total
liabilities and partners’ deficit
|
$
|
63,230,771
|
$
|
64,206,186
|
|||
|
See
accompanying notes to consolidated financial statements.
|
|||||||
- 2
-
INDEPENDENCE
TAX CREDIT PLUS L.P.
AND
SUBSIDIARIES
Consolidated
Statements of Operations
(Unaudited)
|
Three
Months Ended
September
30,
|
Six
Months Ended
September
30,
|
||||||||||||
|
2009
|
2008*
|
2009
|
2008*
|
||||||||||
|
Revenues
|
|||||||||||||
|
Rental
income
|
$
|
1,761,995
|
$
|
1,708,211
|
$
|
3,528,558
|
$
|
3,406,067
|
|||||
|
Other
income
|
52,755
|
5
|
56,673
|
99,667
|
5
|
106,619
|
|||||||
|
Total
revenues
|
1,814,750
|
1,764,884
|
3,628,225
|
3,512,686
|
|||||||||
|
Expenses
|
|||||||||||||
|
General
and administrative
|
349,826
|
379,070
|
736,338
|
795,712
|
|||||||||
|
General
and administrative-related parties (Note 2)
|
269,985
|
369,594
|
538,393
|
737,468
|
|||||||||
|
Repairs
and maintenance
|
467,972
|
493,812
|
944,018
|
982,348
|
|||||||||
|
Operating
|
292,002
|
342,909
|
727,106
|
756,382
|
|||||||||
|
Taxes
|
126,848
|
128,930
|
247,897
|
256,852
|
|||||||||
|
Insurance
|
106,756
|
113,384
|
217,168
|
225,817
|
|||||||||
|
Financial,
principally interest
|
384,320
|
360,820
|
736,427
|
719,970
|
|||||||||
|
Depreciation
and amortization
|
346,939
|
404,482
|
700,944
|
809,437
|
|||||||||
|
Total
expenses from operations
|
2,344,648
|
2,593,001
|
4,848,291
|
5,283,986
|
|||||||||
|
Loss
from operations
|
(529,898
|
)
|
(828,117
|
)
|
(1,220,066
|
)
|
(1,771,300
|
)
|
|||||
|
Income
(loss) from discontinued operations
|
422,692
|
308,212
|
515,061
|
(73,022
|
)
|
||||||||
|
Net
loss
|
(107,206
|
)
|
(519,905
|
)
|
(705,005
|
)
|
(1,844,322
|
)
|
|||||
|
Net
loss attributable to noncontrolling interests from operations
|
7,021
|
10,174
|
15,147
|
17,210
|
|||||||||
|
Net
income attributable to noncontrolling interests from discontinued
operations
|
(764,755
|
)
|
(2,429
|
)
|
(965,584
|
)
|
(872,914
|
)
|
|||||
|
Net
(income) loss attributable to noncontrolling interests
|
(757,734
|
)
|
7,745
|
(950,437
|
)
|
(855,704
|
)
|
||||||
|
Net
loss attributable to Independence Tax Credit Plus
|
$
|
(864,940
|
)
|
$
|
(512,160
|
)
|
$
|
(1,655,442
|
)
|
$
|
(2,700,026
|
)
|
|
|
Loss
from operations – limited partners
|
$
|
(517,648
|
)
|
$
|
(809,763
|
)
|
$
|
(1,192,870
|
)
|
$
|
(1,736,549
|
)
|
|
|
(Loss)
income from discontinued operations (including (loss) gain on sale of
properties) – limited partners
|
(338,643
|
)
|
302,725
|
(446,018
|
)
|
(936,477
|
)
|
||||||
|
Net
loss – limited partners
|
$
|
(856,291
|
)
|
$
|
(507,038
|
)
|
$
|
(1,638,888
|
)
|
$
|
(2,673,026
|
)
|
|
|
Number
of BACs outstanding
|
76,786
|
76,786
|
76,786
|
76,786
|
|||||||||
|
Loss
from operations per weighted average BAC
|
$
|
(6.74
|
)
|
$
|
(10.54
|
)
|
$
|
(15.53
|
)
|
$
|
(22.61
|
)
|
|
|
(Loss)
income from discontinued operations per weighted average
BAC
|
(4.41
|
)
|
3.94
|
(5.81
|
)
|
(12.20
|
)
|
||||||
|
Net
loss per weighted average BAC
|
$
|
(11.15
|
)
|
$
|
(6.60
|
)
|
$
|
(21.34
|
)
|
$
|
(34.81
|
)
|
|
|
*
Reclassified for comparative purpose.
See
accompanying notes to consolidated financial
statements.
|
- 3
-
INDEPENDENCE
TAX CREDIT PLUS L.P.
AND
SUBSIDIARIES
Consolidated
Statement of Changes in Partners’ Deficit
(Unaudited)
|
Total
|
Limited
Partners
|
General
Partner
|
Noncontrolling
Interests |
||||||||||
|
Partners’
deficit – April 1, 2009
|
$
|
(13,788,078
|
)
|
$
|
(20,269,539
|
)
|
$
|
2,924,584
|
$
|
3,556,877
|
|||
|
Net
(loss) income
|
(705,005
|
)
|
(1,638,888
|
)
|
(16,554
|
)
|
950,437
|
||||||
|
Distributions
|
(199.400
|
)
|
0
|
0
|
(199,400
|
)
|
|||||||
|
Partners’
deficit – September 30, 2009
|
$
|
(14,692,483
|
)
|
$
|
(21,908,427
|
)
|
$
|
2,908,030
|
$
|
4,307,914
|
|||
|
See
accompanying notes to consolidated financial
statements.
|
|||||||||||||
- 4
-
INDEPENDENCE
TAX CREDIT PLUS L.P.
AND
SUBSIDIARIES
Consolidated
Statements of Cash Flows
(Unaudited)
|
Six
Months Ended
September
30,
|
|||||||
|
2009
|
2008*
|
||||||
|
Cash
flows from operating activities:
|
|||||||
|
Net
loss
|
$
|
(705,005
|
)
|
$
|
(1,844,322
|
)
|
|
|
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
|||||||
|
Loss
(gain) on sale of properties
|
49,060
|
(239,184
|
)
|
||||
|
Depreciation
and amortization
|
710,636
|
1,850,435
|
|||||
|
Increase
in due to local general partners and affiliates
|
41,415
|
90,554
|
|||||
|
Increase
(decrease) in due to general partner and affiliates
|
275,689
|
(999,813
|
)
|
||||
|
(Decrease)
increase in accounts payable
|
(402,125
|
)
|
37,902
|
||||
|
Increase
in accrued interest payable
|
662,764
|
657,755
|
|||||
|
Increase
(decrease) in security deposit payable
|
5,723
|
(12,909
|
)
|
||||
|
Decrease
in other assets
|
134,146
|
41,210
|
|||||
|
(Increase)
decrease in cash held in escrow
|
(50,794
|
)
|
387,132
|
||||
|
Total
adjustments
|
1,426,514
|
1,813,082
|
|||||
|
Net
cash provided by (used in) operating activities
|
721,509
|
(31,240
|
)
|
||||
|
Cash
flows from investing activities:
|
|||||||
|
Acquisition
of property and equipment
|
0
|
(16,098
|
)
|
||||
|
Proceeds
from sale of properties
|
0
|
4,564,230
|
|||||
|
Costs
paid relating to sale of properties
|
0
|
(223,374
|
)
|
||||
|
Increase
in cash held in escrow
|
(116,722
|
)
|
(1,004,542
|
)
|
|||
|
Increase
in due to local general partners and affiliates
|
0
|
218,334
|
|||||
|
Net
cash (used in) provided by investing activities
|
(116,722
|
)
|
3,538,550
|
||||
|
Cash
flows from financing activities:
|
|||||||
|
Repayment
of mortgage notes
|
(737,207
|
)
|
(5,245,762
|
)
|
|||
|
Decrease
in deferred costs
|
0
|
136,165
|
|||||
|
Decrease
in due to local general partners and affiliates
|
(31,137
|
)
|
(12,130
|
)
|
|||
|
Decrease
in capitalization of consolidated subsidiaries attributable to
noncontrolling interests
|
0
|
(67,607
|
)
|
||||
|
Net
cash used in financing activities
|
(768,344
|
)
|
(5,189,334
|
)
|
|||
|
Net
decrease in cash and cash equivalents
|
(163,557
|
)
|
(1,682,024
|
)
|
|||
|
Cash
and cash equivalents at beginning of period
|
5,292,033
|
4,413,853
|
|||||
|
Cash
and cash equivalents at end of period**
|
$
|
5,128,476
|
$
|
2,731,829
|
|||
|
Summarized
below are the components of the loss (gain) on sale of
properties:
|
|||||||
|
Proceeds
from sale of properties – net
|
$
|
0
|
$
|
(4,340,856
|
) | ||
|
Property
and equipment, net of accumulated depreciation
|
24,046
|
8,604,001
|
|||||
|
Other
assets
|
33,054
|
171,450
|
|
||||
|
Cash
held in escrow
|
77,493
|
506,969
|
|
||||
|
Deferred
costs
|
0
|
20,255
|
|
||||
|
Mortgage
notes payable
|
0
|
(4,298,678
|
) | ||||
|
Accounts
payable and other liabilities
|
(85,533
|
)
|
(337,409
|
) | |||
|
Due
to general partners and affiliates
|
0
|
(85,000
|
) | ||||
|
Due
to local general partners and affiliates
|
199,400
|
(519,916
|
) | ||||
|
Decrease
in capitalization of consolidated subsidiaries attributable to
noncontrolling interests
|
(199,400
|
)
|
0
|
||||
|
Capital
Contribution – General Partner
|
0
|
40,000
|
|
||||
|
*
Reclassified for comparative purposes.
**
Cash and cash equivalents at end of period, includes cash and cash
equivalents from discontinued operations of $28,210 and $399,099,
respectively.
|
|||||||
|
See
accompanying notes to consolidated financial
statements.
|
|||||||
- 5
-
INDEPENDENCE
TAX CREDIT PLUS L.P.
AND
SUBSIDIARIES
Notes to
Consolidated Financial Statements
September
30, 2009
(Unaudited)
NOTE 1 –
General
The
consolidated financial statements include the accounts of Independence Tax
Credit Plus L.P. (the “Partnership”) and twelve other limited partnerships
(“subsidiary partnerships”, “subsidiaries” or “Local Partnerships”) owning
leveraged apartment complexes (“Properties”) that are eligible for the
low-income housing tax credit (“Tax Credit”). The general partner of
the Partnership is Related Independence Associates L.P., a Delaware limited
partnership (the “General Partner”). Through the rights of the Partnership
and/or an affiliate of the General Partner, which affiliate has a contractual
obligation to act on behalf of the Partnership to remove the general partner of
the subsidiary local partnerships (“Local General Partners”) and to approve
certain major operating and financial decisions, the Partnership has a
controlling financial interest in the subsidiary partnerships.
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 with the subsidiary partnerships have
been eliminated in consolidation.
The
Partnership has adopted FASB Accounting Standards Codification (“ASC”) Topic
810, Noncontrolling Interests
in Consolidated Financial Statements, (“ASC 810”) which is effective for
fiscal year ends beginning after December 15, 2008. In accordance
with ASC 810, income attributable to noncontrolling interests amounted to
approximately $950,000 and $758,000 for the three and six months ended September
30, 2009, respectively. Prior to the adoption of this ASC, losses
attributable to noncontrolling interests which exceeded the noncontrolling
interests’ investment in a subsidiary partnership were charged to the
Partnership. Such losses aggregated approximately $4,000 and $14,000
for the three and six months ended September 30, 2008,
respectively. The Partnership’s investment in each subsidiary is
equal to the respective subsidiary’s partners’ equity less noncontrolling
interest capital, if any.
Certain
information and note disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America (“GAAP”) have been omitted or
condensed. These condensed 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,
2009.
The books
and records of the Partnership are maintained on the accrual basis of accounting
in accordance with GAAP. In the opinion of the General Partner, 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, 2009, the results of operations
for the three and six months ended September 30, 2009 and 2008 and its cash
flows for the six months ended September 30, 2009 and 2008. However,
the operating results and cash flows for the six months ended September 30, 2009
may not be indicative of the results for the year.
Rental
income is earned primarily under standard residential operating leases and is
typically due the first day of each month, but can vary by property due to the
terms of the tenant leases. Rental income is recognized when earned and charged
to tenants’ accounts receivable if not received by the due
date. Rental payments received in advance of the due date are
deferred until earned. Rental subsidies are recognized as rental income during
the month in which it is earned.
Other
revenues are recorded when earned and consist of the following
items: Interest income earned on cash and cash equivalent balances
and cash held in escrow balances, income from forfeited security deposits, late
charges, laundry and vending income and other rental related items.
Recent Accounting
Pronouncements
On August
26, 2009, the FASB issued Accounting Standard Update (ASU)
2009-05, Measuring Liabilities at Fair Value, to clarify how entities
should estimate the fair value of liabilities un the ASC Topic 820, Fair Value Measurements and
Disclosures. The amendments in ASU 2009-05 reduce potential
ambiguity in financial reporting when measuring the fair value of
liabilities. Therefore, preparers, investors, and other users of
financial statements will have a better understanding of how the fair value of
liabilities was measured, helping to improve consistency in the application of
Topic 820. The FASB issued ASU 2009-05 as a result of expressed
concern that there may be a lack of observable market information to measure the
fair value of a liability. For example, in the hypothetical transfer
of an asset subject to a restriction there will be no observable data available
to measure the liability because it is restricted from being
transferred. This guidance is effective for the first reporting
period (including interim periods) beginning after issuance. The
adoption of this accounting standard is not expected to have a material effect
on the Partnership’s consolidated financial statements.
In June
2009, the FASB issued ASC 105-10 (formerly SFAS No. 168), The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles. The objective of this statement is to replace SFAS
No. 162 and to establish the FASB Accounting Standards Codification as the
source of the authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements
in conformity with GAAP. The rules and interpretive releases of the
SEC under authority of federal securities laws are also sources of authoritative
GAAP for SEC registrants. This statement shall be effective for
financial statements issued for interim and annual periods ending after
September 15, 2009 and was adopted by the Partnership for its second quarter
reporting. The adoption did not have a significant impact on the
reporting of our financial position, results of operations or cash
flows.
- 6
-
INDEPENDENCE
TAX CREDIT PLUS L.P.
AND
SUBSIDIARIES
Notes to
Consolidated Financial Statements
September
30, 2009
(Unaudited)
In June
2009, the FASB issued under ASC Topic 810-Consolidation, SFAS No. 167, an
amendment to FASB Interpretation 46(R), “Consolidation of Variable Interest
Entities.” The statement requires an entity to perform an analysis to
determine whether the entity’s variable interest give it a controlling financial
interest in a variable interest entity by rationalizing characteristics that
would give it power to direct the activities of a variable interest entity and
the obligation to absorb losses or the right to receive benefits from the entity
that could potentially be significant to the variable interest
entity. The statement is effective for years beginning after November
15, 2009 and is not expected to have a material effect on the Partnership’s
consolidated financial statements.
In June
2009, the FASB issued under ASC Topic 860 – Transfers and Servicing, SFAS
No. 166, “Accounting for Transfers of Financial Assets”, an amendment to SFAS
No. 140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities.” The statement defines the term
”participating interest” to establish specific conditions for reporting a
transfer of financial assets as a sale and improves financial reporting by
eliminating (a) the exception for qualifying special-purpose entities from
consolidation guidance and (b) the exception that permitted sale accounting for
certain mortgage securitizations when a transferor has not surrendered control
over the transferred financial assets. The statement is effective for
annual reports for years beginning after November 15, 2009 and is not expected
to have a material effect on the Partnership’s consolidated financial
statements.
NOTE 2 –
Related Party Transactions
An
affiliate of the General Partner, Independence SLP L.P., has either a 0.1% or 1%
interest as a special limited partner in each of the Local Partnerships. An
affiliate of the General Partner also has a noncontrolling interest in certain
Local Partnerships.
As of
September 30, 2009 and March 31, 2009, the Partnership owes an affiliate of the
General Partner approximately $2,441,000 for operating
advances. These advances are non-interest bearing and have no set
repayment terms. The Partnership has advanced monies to Rolling Green
Associates, L.P. (“Rolling Green”) to fund its operations. As of
March 31, 2009, the advances from the Partnership to Rolling Green amounted to
approximately $5,170,000. As of September 30, 2009, the property and
the related assets and liabilities of Rolling Green were sold to an unaffiliated
third party purchaser, and $4,770,000 of advances were deemed uncollectible and
written off.
The
General Partner and its affiliates perform services for the
Partnership. The costs incurred from operations to related parties
for the six months ended September 30, 2009 and 2008 were as
follows:
|
Three
Months Ended
September
30,
|
Six
Months Ended
September
30,
|
||||||||||||
|
2009
|
2008*
|
2009
|
2008*
|
||||||||||
|
Partnership
management fees (a)
|
$
|
128,000
|
$
|
209,000
|
$
|
256,000
|
$
|
418,000
|
|||||
|
Expense
reimbursement (b)
|
38,183
|
55,729
|
75,830
|
110,920
|
|||||||||
|
Local
administrative fee (c)
|
3,125
|
1,250
|
6,250
|
2,500
|
|||||||||
|
Total
general and administrative-General Partner
|
169,308
|
265,979
|
338,080
|
531,420
|
|||||||||
|
Property
management fees incurred to affiliates of the subsidiary partnerships'
general partners
|
100,677
|
103,615
|
200,313
|
206,048
|
|||||||||
|
Total
general and administrative-related parties
|
$
|
269,985
|
$
|
369,594
|
$
|
538,393
|
$
|
737,468
|
|||||
|
*
Reclassified for comparative purpose.
|
|||||||||||||
The
General Partner and its affiliates perform services for the
Partnership. The costs incurred from discontinued operations to
related parties for the six months ended September 30, 2009 and 2008 were as
follows:
|
Three
Months Ended
September
30,
|
Six
Months Ended
September
30,
|
||||||||||||
|
2009
|
2008*
|
2009
|
2008*
|
||||||||||
|
Local
administrative fee (c)
|
$
|
2,500
|
$
|
9,875
|
$
|
5,000
|
$
|
19,750
|
|||||
|
Property
management fees incurred to affiliates of the General Partner
(d)
|
0
|
42,047
|
0
|
87,829
|
|||||||||
|
Total
general and administrative-General Partner
|
2,500
|
51,922
|
5,000
|
107,579
|
|||||||||
|
Property
management fees incurred to affiliates of the subsidiary partnerships'
general partners
|
10,435
|
94,636
|
19,916
|
208,722
|
|||||||||
|
Total
general and administrative-related parties
|
$
|
12,935
|
$
|
146,558
|
$
|
24,916
|
$
|
316,301
|
|||||
|
*
Reclassified for comparative purpose.
|
|||||||||||||
(a) The
General Partner is 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’s Amended and Restated Agreement of
Limited Partnership (the “Partnership Agreement”)), for administering the
affairs of the Partnership. Subject to the foregoing limitation, the
partnership management fee will be determined by the General Partner in its sole
discretion based upon its review of the Partnership’s
investments. Unpaid partnership management fees for any year have
been 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 Partner amounting to approximately $6,475,000 and $6,219,000 were
accrued and unpaid as of September 30, 2009 and March 31, 2009,
respectively. Without the General Partner’s advances and continued
accrual without payment of certain fees and expense reimbursements, the
Partnership would not be in a position to meet its obligations.
- 7
-
INDEPENDENCE
TAX CREDIT PLUS L.P.
AND
SUBSIDIARIES
Notes to
Consolidated Financial Statements
September
30, 2009
(Unaudited)
(b) The
Partnership reimburses the General Partner and its affiliates for actual
Partnership operating expenses incurred by the General Partner and its
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 Partner performs asset
monitoring for the Partnership. These services include site visits and
evaluations of the subsidiary partnerships’ performance. Expense
reimbursements owed to the General Partner and its affiliates amounting to
approximately $979,000 and $963,000 were accrued and unpaid as of September 30,
2009 and March 31, 2009, respectively.
(c) Independence
SLP L.P. is entitled to receive a local administrative fee of up to $2,500 per
year from each subsidiary partnership.
Pursuant
to the Partnership Agreement and the partnership agreements of the Local
Partnerships (the “Local Partnership Agreements”), the General Partner and
Independence SLP L.P. received their prorata share of profits, losses and tax
credits.
NOTE 3 –
Fair Value of Financial Instruments
The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments (all of which are held for nontrading purposes)
for which it is practicable to estimate that value:
Cash and Cash Equivalents,
Investments Available-for-Sale and Cash Held in Escrow
The
carrying amount approximates fair value.
Mortgage Notes
Payable
The
Partnership adopted FASB ASC 820 – “Fair Value Measurements” for
financial assets and liabilities. ASC 820 defines fair value,
establishes a framework for measuring fair value, and expands disclosures about
fair value measurements. ASC 820 applies to reported balances that
are required or permitted to be measured at fair value under existing accounting
pronouncements; accordingly, the standard does not require any new fair value
measurements of reported balances.
As
permitted, we chose not to elect the fair value option as prescribed by FASB
SFAS No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities” – Including an
Amendment of FASB Statement No. 115, for our financial assets and liabilities
that had not been previously carried at fair value. Therefore, we did
not elect to fair value any additional items under SFAS No. 159.
The
estimated fair value of financial instruments has been determined using
available market information or other appropriate valuation
methodologies. However, considerable judgment is required in
interpreting market data to develop estimates of fair
value. Consequently, the estimates are not necessarily indicative of
the amounts that could be realized or would be paid in a current market
exchange. The following are financial instruments for which the
Partnership’s estimate of fair value differs from the carrying
amounts:
|
At
September 30, 2009
|
At
March 31, 2009
|
||||||||||||
|
Carrying
Amount
|
Fair
Value
|
Carrying
Amount
|
Fair
Value
|
||||||||||
|
LIABILITIES:
|
|||||||||||||
|
Mortgage notes
|
$
|
39,217,148
|
$
|
31,333,557
|
$
|
39,954,355
|
$
|
37,186,773
|
|||||
For the
mortgage notes, fair value is calculated using present value cash flow models
based on a discount rate. It was determined that the Tender Option Bond market,
through which these bonds have been securitized in the past, continued to see a
dramatic slowdown with limited liquidity and significantly reduced transaction
levels. To assist in valuing these notes, the Partnership held
separate discussions with various third party investment banks who are leaders
in the municipal bond business. The discussions produced assumptions
that were based on market conditions as well as the credit quality of the
underlying property partnerships, which held the mortgage notes, to determine
what discount rates to utilize.
NOTE 4 –
Sale of Properties
The
Partnership is currently in the process of disposing of its
investments. It is anticipated that this process will continue to
take a number of years. During the six months ended September 30,
2009, one Local Partnership sold its property and related assets and
liabilities. As of September 30, 2009, the Partnership sold its
limited partnership interest in twelve Local Partnerships, the property and the
related assets and liabilities of four Local Partnerships and has transferred
the deed to the property and the related assets and liabilities of one Local
Partnership. In addition, as of September 30, 2009, two Local
Partnerships have entered into agreements to sell their property and the related
assets and liabilities (see Note 5). There can 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.
- 8
-
INDEPENDENCE
TAX CREDIT PLUS L.P.
AND
SUBSIDIARIES
Notes to
Consolidated Financial Statements
September
30, 2009
(Unaudited)
On
September 30, 2009, the property and related assets and liabilities of Rolling
Green were sold to an affiliate of the General Partner for a sales price of
$12,000,000. The Partnership will receive no distributions from this
sale after the repayment of the mortgages, other liabilities and closing costs
and $400,000 of the sales proceeds will be used to repay to the Partnership a
portion of the funds advanced by it to Rolling Green. The sale will
result in a gain of approximately $928,000 resulting from the write-off of the
deficit basis in the property at the date of sale, which will be recognized
during the quarter ending December 31, 2009.
On August
22, 2008, the Partnership sold its limited partnership interest in Lares
Apartments Limited Partnership (“Lares”) to the Local General Partner for a
sales price of $125,000. The sale resulted in a gain of approximately
$691,000 resulting from the write-off of the deficit basis in the Local
Partnership at the date of the sale of approximately $566,000 and the receipt of
$125,000 in cash from the sale, which was recorded during the quarter ended
December 31, 2008. An adjustment to the gain of approximately $(31,000) was
recorded during the quarter ended March 31, 2009, resulting in an overall gain
of approximately $660,000.
On August
22, 2008, the Partnership sold its limited partnership interest in Lajas
Apartments Limited Partnership (“Lajas”) to the Local General Partner for a
sales price of $121,250. The sale resulted in a gain of approximately
$690,000, resulting from the write-off of the deficit basis in the Local
Partnership at the date of the sale of approximately $568,000 and the receipt of
$121,730 in cash from the sale, which was recorded during the quarter ended
December 31, 2008. An adjustment of approximately $(40,000) to the gain was
recorded during the quarter ended March 31, 2009, resulting in an overall gain
of approximately $650,000.
On May 6,
2008, the Partnership sold its limited partnership interest in Susquehanna
Partners (“Susquehanna”) to an affiliate of the Local General Partner for a
sales price of $1. During the quarter ended March 31, 2008, in
accordance with ASC 360, Property, Plant and Equipment
(“ASC 360”), the Partnership deemed the building impaired and wrote it
down to its fair value, which resulted in a loss on impairment of
$630,000. The sale resulted in a loss of approximately $49,000,
resulting from the write-off of the basis in the Local Partnership of
approximately $49,000 at the date of the sale, which was recorded during the
quarter ended June 30, 2008. Adjustments to the loss of approximately
$(1,000) and $(37,000) were recorded during the quarters ended September 30,
2008 and March 31, 2009, resulting in an overall loss of approximately
$11,000. The sale also resulted in a non-cash contribution to the
Local Partnership from the General Partner of approximately $41,000 as a result
of write-off of the fees owed by the Local Partnership to an affiliate of the
General Partner.
On April
1, 2008, the Partnership sold its limited partnership interest in Landreth
Venture (“Landreth”) to the Local General Partner for a sales price of
$17,500. During the years ended March 31, 2009 and 2008, in
accordance with ASC 360, the building was deemed impaired and written down to
its fair value, resulting in a loss on impairment of approximately $3,000,000
and $730,000, respectively. The sale resulted in a gain of
approximately $10,000, resulting from the write-off of the basis in the Local
Partnership at the date of the sale of approximately $7,000 and the $17,500 cash
received from the sale, which was recorded during the quarter ended June 30,
2008. Adjustments to the gain of approximately $1,000 and $3,009,000
were recorded during the quarter ended September 30, 2008 and March 31, 2009,
resulting in an overall gain of approximately $3,020,000.
On March
20, 2008, the property and the related assets and liabilities of Homestead
Apartments Associates Ltd. (“Homestead”) were sold to an unaffiliated third
party purchaser for a sales price of $4,000,000. The Partnership
received $32,500 as a distribution from this sale after the repayment of the
mortgages, other liabilities and closing costs of approximately
$3,967,500. The sale resulted in a gain of approximately $75,000
resulting from the write-off of the deficit basis in the property at the date of
sale, which was recorded during the quarter ended June 30,
2008. Adjustments to the gain of approximately $201,000, $(7,000) and
$(324,000) were recorded during the quarters ended September 30, 2008, December
31, 2008 and March 31, 2009, resulting in an overall loss of approximately
$55,000.
On
November 30, 2007, the property and the related assets and liabilities of Harbor
Court Limited Partnership (“Harbor Court”) were sold to an unaffiliated third
party purchaser for a sales price of $2,100,000. The Partnership
received $1,991,996 as a distribution from this sale after the repayment of
other liabilities, closing costs and distributions to minority interests of
approximately $108,000. The sale resulted in a gain of approximately
$1,260,000, which was recorded during the quarter ended March 31,
2008. An adjustment to the gain of approximately $(49,000) was
recorded during the quarter ended June 30, 2009, resulting in an overall gain of
approximately $1,211,000. The sale also resulted in a non-cash
distribution to the Local General Partner of approximately $199,000 as a result
of the write-off of receivables from the Local General Partner to Harbor
Court.
NOTE 5 –
Assets Held for Sale
On May 9,
2008, Creative Choice Homes II, Ltd. (“Opa-Locka”) entered into a purchase and
sale agreement to sell the property and the related assets and liabilities to an
unaffiliated third party purchaser for a sales price of
$17,000,000. This agreement expired in April of 2009. The
property is currently being actively marketed for sale and management is seeking
a potential buyer. As of September 30, 2009, Opa-Locka had property
and equipment, at cost, of approximately $22,812,000, accumulated depreciation
of approximately $7,946,000 and mortgage debt of approximately
$5,420,000.
- 9
-
INDEPENDENCE
TAX CREDIT PLUS L.P.
AND
SUBSIDIARIES
Notes to
Consolidated Financial Statements
September
30, 2009
(Unaudited)
On April
1, 2008, Homestead Apartments Associates II Ltd. (“Homestead II”) entered into a
purchase and sale agreement to sell the property and the related assets and
liabilities to an unaffiliated third party purchaser for a sales price of
$4,000,000. This agreement expired in April of 2009. The
property is currently being actively marketed for sale and management is seeking
a potential buyer. As of September 30, 2009, Homestead II had
property and equipment, at cost, of approximately $5,594,000, accumulated
depreciation of approximately $2,076,000 and mortgage debt of approximately
$3,149,000.
NOTE 6 –
Discontinued Operations
The
following table summarizes the financial position of the Local Partnerships that
are classified as discontinued operations because the respective Local
Partnerships were classified as assets held for sale. As of September
30, 2009 and March 31, 2009, Harbor Court, Homestead II, Rolling Green and
Opa-Locka were classified as discontinued operations on the consolidated balance
sheets.
Consolidated Balance
Sheets:
|
September
30,
2009
|
March
31,
2009
|
||||||
|
Assets
|
|||||||
|
Property
and equipment – less accumulated depreciation of $21,796,073 and
$21,815,503, respectively
|
$
|
28,991,157
|
$
|
29,015,203
|
|||
|
Cash
and cash equivalents
|
28,210
|
38,131
|
|||||
|
Cash
held in escrow
|
3,675,394
|
3,571,222
|
|||||
|
Deferred
costs, net of accumulated amortization of $878,677 and $868,985,
respectively
|
228,170
|
237,862
|
|||||
|
Other
assets
|
269,534
|
398,927
|
|||||
|
Total
assets
|
$
|
33,192,465
|
$
|
33,261,345
|
|||
|
Liabilities
|
|||||||
|
Mortgage
notes payable
|
$
|
18,904,543
|
$
|
19,248,504
|
|||
|
Accounts
payable
|
2,307,769
|
2,685,081
|
|||||
|
Accrued
interest payable
|
801,582
|
680,348
|
|||||
|
Security
deposit payable
|
143,535
|
140,490
|
|||||
|
Due
to local general partners and affiliates
|
11,906,148
|
11,694,945
|
|||||
|
Due
to general partners and affiliates
|
890,539
|
489,288
|
|||||
|
Total
liabilities
|
$
|
34,954,116
|
$
|
34,938,656
|
|||
The
following table summarizes the results of operations of the Local Partnerships
that are classified as discontinued operations. For the three and six
months ended September 30, 2009, Rolling Green, which was sold during the six
months ended September 30, 2009, and Homestead II and Opa-Locka, which are
classified as assets held for sale, were all classified as discontinued
operations in the consolidated financial statements. For the three
and six months ended September 30, 2008, Lares, Lajas, Landreth and Susquehanna,
which were sold during the six months ended September 30, 2008, Homestead and
Harbor Court, which were sold during the year ended March 31, 2008, and Bethel
Villa, Homestead II, Lancaster, Rolling Green and Opa-Locka, which were
classified as an assets held for sale, were all classified as discontinued
operations in the consolidated financial statements.
- 10
-
INDEPENDENCE
TAX CREDIT PLUS L.P.
AND
SUBSIDIARIES
Notes to
Consolidated Financial Statements
September
30, 2009
(Unaudited)
Consolidated Statements of
Discontinued Operations:
|
Three
Months Ended
September
30,
|
Six
Months Ended
September
30,
|
||||||||||||
|
2009
|
2008*
|
2009
|
2008*
|
||||||||||
|
Revenues
|
|||||||||||||
|
Rental
income
|
$
|
1,911,100
|
$
|
3,098,531
|
$
|
3,806,481
|
$
|
6,499,178
|
|||||
|
Other
|
7,840
|
132,293
|
27,427
|
266,217
|
|||||||||
|
(Loss)
gain on sale of properties
|
0
|
203,863
|
(49,060
|
)
|
239,184
|
||||||||
|
Total
revenue
|
1,918,940
|
3,434,687
|
3,784,848
|
7,004,579
|
|||||||||
|
Expenses
|
|||||||||||||
|
General
and administrative
|
376,178
|
715,601
|
882,877
|
1,556,993
|
|||||||||
|
General
and administrative-related parties (Note 2)
|
12,935
|
146,558
|
24,916
|
316,301
|
|||||||||
|
Repairs
and maintenance
|
269,042
|
592,873
|
590,295
|
1,192,811
|
|||||||||
|
Operating
and other
|
123,647
|
272,803
|
344,820
|
666,498
|
|||||||||
|
Real
estate taxes
|
205,623
|
266,937
|
413,227
|
563,471
|
|||||||||
|
Insurance
|
149,723
|
225,902
|
292,748
|
517,476
|
|||||||||
|
Interest
|
354,679
|
584,747
|
711,212
|
1,223,053
|
|||||||||
|
Depreciation
and amortization
|
4,421
|
321,054
|
9,692
|
1,040,998
|
|||||||||
|
Total
expenses
|
1,496,248
|
3,126,475
|
3,269,787
|
7,077,601
|
|||||||||
|
Income
(loss) from discontinued operations
|
$
|
422,692
|
$
|
308,212
|
$
|
515,061
|
$
|
(73,022
|
)
|
||||
|
(Loss)
income from discontinued operations – limited partners
|
$
|
(338,643
|
)
|
$
|
302,725
|
$
|
(446,018
|
)
|
$
|
(936,477
|
)
|
||
|
Number
of BACs outstanding
|
76,786
|
76,786
|
76,786
|
76,786
|
|||||||||
|
(Loss)
income from discontinued operations per weighted average
BAC
|
$
|
(4.41
|
)
|
$
|
3.94
|
$
|
(5.81
|
)
|
$
|
(12.20
|
)
|
||
|
*
Reclassified for comparative
purposes.
|
|||||||||||||
Cash
Flows from Discontinued Operations:
|
Six
Months Ended
September
30,
|
|||||||
|
2009
|
2008*
|
||||||
|
Net
cash provided by operating activities
|
$
|
910,799
|
$
|
1,459,334
|
|||
|
Net
cash (used in) provided by investing activities
|
$
|
(176,758
|
)
|
$
|
3,690,397
|
||
|
Net
cash used in financing activities
|
$
|
(144,561
|
)
|
$
|
(4,803,114
|
)
|
|
|
*
Reclassified for comparative
purposes.
|
|||||||
NOTE 7 –
Commitments and Contingencies
a) Subsidiary
Partnerships – Going Concern
Creative Choice Homes II
L.P. (“Opa-Locka”)
Opa-Locka
is in default on its third and fourth mortgage notes, which were incurred to
affiliates of the Local General Partner. The Local General Partner
has not sent a notice of default with respect to the notes as of June 30, 2009
and will be unable to call the notes until the first and second mortgage notes,
which are current, are paid in full.
- 11
-
INDEPENDENCE
TAX CREDIT PLUS L.P.
AND
SUBSIDIARIES
Notes to
Consolidated Financial Statements
September
30, 2009
(Unaudited)
Opa-Locka
has also continued to incur significant operating losses resulting, in part,
from the effects of a major hurricane (detailed below), which created additional
losses. These conditions continue to raise substantial doubt about
Opa-Locka’s ability to continue as a going concern. The ability for
Opa-Locka to continue as a going concern is based on the Local General Partner’s
continuing ability to fund operating losses and insurance proceeds to cover the
damages to the Property. This condition is alleviated in part by the
fact that the property has had positive operating cash flow for the past several
years.
The
Partnership’s investment in Opa-Locka at September 30, 2009 and March 31, 2009
was reduced to zero as a result of prior years’ losses, and the noncontrolling
interest balance was approximately $10,000 and $5,000 at each
date. Opa-Locka’s net income (loss) after noncontrolling interest
amounted to approximately $535,000 and $(142,000) for September 30, 2009 and
2008, respectively.
In
October 2005, Opa-Locka suffered property damage and business interruption due
to a severe hurricane. Opa-Locka contracted to complete repairs and
renovations of the buildings damaged for a cost of
$7,489,000. Opa-Locka expects to be reimbursed by insurance proceeds
in the amount of approximately $4,420,000. As of September 30, 2009,
$4,000,000 of insurance proceeds has been received by the mortgage company which
is acting as administrator and trustee of the funds. A balance of
$3,970,717 remains payable to the construction company as of September 30, 2009
related to the rehabilitation.
The above
circumstances have called into question the recoverability of the carrying
amounts of the building. On May 9, 2008, Opa-Locka entered into a
purchase and sale agreement to sell its property and related assets and
liabilities to an unaffiliated third party purchaser, which expired in April
2009. The property is currently being actively marketed for sale and
management is seeking a potential buyer (see Note 5).
Morrant Bay Limited
Partnership (“Morrant Bay”)
Morrant
Bay has been experiencing higher operating costs, attributable in part to
escalating energy and repair costs. These conditions, in addition to
regulatory rent restrictions imposed under HUD guidelines, has resulted in
operating cash flow not meeting all current obligations as they become
due. At September 30, 2009, current liabilities exceed current assets
by approximately $343,000. This raises doubt as to whether Morrant
Bay will be able to continue as a going concern. Management
continually monitors operating costs and will request additional rent increases
when allowed by HUD. Additionally, management is in the process of
evaluating refinancing plans. During 2008, Morrant Bay entered into
negotiations with a local non-profit to re-syndicate the property. In
connection with this effort, Morrant Bay is negotiating with the General Partner
to redeem its interest in Morrant Bay for a nominal amount. There can
be no assurance if or when such negotiations will result in a sale of the
limited partnership’s interest.
The
Partnership’s investment in Morrant Bay at September 30, 2009 and March 31, 2009
was reduced to zero as a result of prior years’ losses and the noncontrolling
interest balance was approximately $(230,000) and $(228,000) at each
date. Morrant Bay’s net loss after noncontrolling interest amounted
to approximately $185,000 and $218,000 as of September 30, 2009 and 2008,
respectively.
Boston Bay Limited
Partnership (“Boston Bay”)
Boston
Bay has been experiencing higher operating costs, attributable in part to
escalating energy and repair costs. These conditions, in addition to
regulatory rent restrictions imposed under HUD guidelines, has resulted in
operating cash flow not meeting all current obligations as they become
due. At September 30, 2009, current liabilities exceed current assets
by approximately $247,000. This raises doubt as to whether Boston Bay
will be able to continue as a going concern. Management continually
monitors operating costs and will request additional rent increases when allowed
by HUD. Additionally, management is in the process of evaluating
refinancing plans. During 2008, Boston Bay entered into negotiations
with a local non-profit to re-syndicate the property. In connection
with this effort, Boston Bay is negotiating with the General Partner to redeem
its interest in Boston Bay for a nominal amount. There can be no
assurance if or when such negotiations will result in a sale of the limited
partnership’s interest.
The
Partnership’s investment in Boston Bay at September 30, 2009 and March 31, 2009
was reduced to zero as a result of prior years’ losses and the noncontrolling
interest balance was approximately $(89,000) and $(87,000),
respectively. Boston Bay’s net loss after noncontrolling interest
amounted to approximately $130,000 and $260,000 as of September 30, 2009 and
2008, respectively.
b) Subsidiary
Partnerships – Commitments and Contingencies
Cloisters Limited
Partnership II (“Cloisters”)
Cloisters
was in negotiations for a construction agreement in the estimated amount of
$2,146,000 and construction financing in the estimated amount of $800,000
related to the renovation and conversion of its units to for sale
condominiums. Such negotiations fell through during the quarter ended
June 30, 2009 and are no longer being pursued.
c) Uninsured
Cash and Cash Equivalents
The
Partnership maintains its cash and cash equivalents in various banks. Accounts
at each bank are guaranteed by the Federal Deposit Insurance Corporation up to
$250,000.
d) Cash
Distributions
Cash
distributions from the Local Partnerships to the Partnership are restricted by
the provisions of the respective partnership agreements of the Local
Partnerships and the U.S. Department of Housing and Urban Development (“HUD”)
based on operating results and a percentage of the owner’s equity
contribution. Such cash distributions are typically made from surplus
cash flow.
- 12
-
INDEPENDENCE
TAX CREDIT PLUS L.P.
AND
SUBSIDIARIES
Notes to
Consolidated Financial Statements
September
30, 2009
(Unaudited)
e) Property
Management Fees
Property
management fees incurred by the subsidiary partnerships amounted to $182,999 and
$289,981 and $377,186 and $595,504 for the three and six months ended September
30, 2009 and 2008, respectively.
f) Other
The
Partnership is subject to the risks incident to potential losses arising from
the management and ownership of improved real estate. The Partnership
can also be affected by poor economic conditions generally; however, no more
than 27% of the properties are located in any single state. There are also
substantial risks associated with owning properties receiving government
assistance; for example, the possibility that Congress may not appropriate funds
to enable HUD to make rental assistance payments. HUD also restricts annual cash
distributions to partners based on operating results and a percentage of the
owner’s equity contribution. The Partnership cannot sell or
substantially liquidate its investments in subsidiary partnerships during the
period that the subsidy agreements are in existence without HUD’s
approval. Furthermore, there may not be market demand for apartments
at full market rents when the rental assistance contracts expire.
As of
December 31, 2007, all Credit Periods have expired, and the Partnership has met
its primary objective of generating Tax Credits for qualified BACs holders.
However, each Local Partnership must continue to comply with the Tax Credit
requirements until the end of the Compliance Period in order to avoid recapture
of the Tax Credits. The Compliance Periods will continue through
December 31, 2013 with respect to the Properties depending upon when the Tax
Credit Periods commenced.
g) Subsequent
Events
We
evaluated all subsequent events from the date of the balance sheet through
November 9, 2009, which represent the issuance date of these financial
statements. There were no events or transactions occurring during
this subsequent event reporting period, which require recognition or disclosure
in the financial statements.
- 13
-
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital
Resources
The
Partnership’s capital was originally invested in twenty-eight Local
Partnerships. During the six months ended September 30, 2009, one
Local Partnership has sold its property and related assets and
liabilities. As of September 30, 2009, the Partnership has sold its
limited partnership interest in twelve Local Partnerships, the property and the
related assets and liabilities of four Local Partnerships and has transferred
the deed to the property and the related assets and liabilities of one Local
Partnership. In addition, as of September 30, 2009, two Local
Partnerships have entered into agreements to sell their property and the related
assets and liabilities (see Note 5, Item 1).
Short-Term
The
Partnership’s primary sources of funds include: (i) working capital
reserves; (ii) interest earned on the working capital reserves; (iii) cash
distributions from operations of the Local Partnerships; and (iv) sales proceeds
and distributions. Such funds are available to meet the obligations
of the Partnership. During the six months ended September 30, 2009
and 2008, distributions from operations of the Local Partnerships amounted to
approximately $0 and $65,000, respectively. In addition, during the
six months ended September 30, 2009 and 2008, distributions from the sales of
properties and their related assets and liabilities amounted to approximately $0
and $33,000, respectively. Additionally, during the six months ended
September 30, 2009 and 2008, the Partnership received approximately $0 and
$564,000 of proceeds from the sale of limited partnership
interests.
Cash and
cash equivalents of the Partnership and its consolidated subsidiary partnerships
decreased approximately ($164,000) during the six months ended September 30,
2009, due to a decrease in cash held in escrow relating to investing activities
of approximately ($117,000), a decrease in due to local general partners and
affiliates relating to financing activities ($31,000) and repayments of mortgage
notes of ($737,000), which exceeded net cash provided by operating activities of
($722,000). Included in the adjustments to reconcile the net loss to
net cash provided by operating activities are depreciation and amortization
($711,000) and loss on sale of properties ($49,000).
Total
expenses from operations for the three and six months ended September 30, 2009
and 2008, excluding depreciation and amortization, interest, general and
administrative–related parties, totaled $1,343,404 and $1,458,104 and $2,872,527
and $3,017,111, respectively.
Accounts
payable from operations as of September 30, 2009 and March 31, 2009 totaled
$1,070,860 and $1,181,205, respectively. Accounts payable are short term
liabilities which are expected to be paid from operating cash flows, working
capital balances at the Local Partnership level, Local General Partner advances
and in certain circumstances advances from the Partnership. The
Partnership believes it (and the applicable Local Partnerships except as noted
in Item 1, Note 7) has sufficient liquidity and ability to generate cash and to
meet existing and known or reasonably likely future cash requirements over both
the short and long term. In addition, accounts payable from
discontinued operations, as of September 30, 2009 and March 31, 2009, totaled
$2,307,769 and $2,685,081, respectively.
Accrued
interest payable from operations as of September 30, 2009 and March 31, 2009
totaled $11,038,473 and $10,496,943, respectively. Accrued interest payable
represents the accrued interest on all mortgage loans, which include primary and
secondary loans. Certain secondary loans have provisions such that interest is
accrued but not payable until a future date. The Partnership
anticipates the payment of accrued interest on the secondary loans (which make
up the majority of the accrued interest payable amount and which have been
accumulating since the Partnership’s investment in the respective Local
Partnership) will be made from future refinancing or sales proceeds of the
respective Local Partnerships. In addition, each Local Partnership’s mortgage
notes are collateralized by the land and buildings of the respective Local
Partnership, and are without further recourse to the Partnership. In
addition, accrued interest payable from discontinued operations, as of September
30, 2009 and March 31, 2009, totaled $801,582 and $680,348,
respectively.
The
working capital reserve at September 30, 2009 was approximately $4,897,000 at
the Partnership level.
The
Partnership is not expected to have access to additional sources of
financing.
Long-Term
Partnership
management fees owed to the General Partner amounting to approximately
$6,475,000 and $6,219,000 were accrued and unpaid as of September 30, 2009 and
March 31, 2009, respectively. Without the General Partner’s advances
and continued accrual without payment of certain fees and expense
reimbursements, the Partnership would not be in a position to meet its
obligations.
For a
discussion of contingencies affecting certain Local Partnerships, see Item 1,
Note 7. Since the maximum loss the Partnership would be liable for is
its net investment in the Local Partnerships, the resolution of any 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 before the expiration of the fifteen-year
compliance period.
The Local
Partnerships are impacted by inflation in several ways. Inflation allows for
increases in rental rates generally reflecting the impact of higher operating
and replacement costs. Furthermore, inflation generally does not impact the
fixed long-term financing under which real property investments were purchased.
Inflation also affects the Local Partnerships adversely by increasing operating
costs, such as fuel, utilities, and labor. Since revenues from sales
of assets are driven by market conditions, inflation has little impact on
sales.
Management
is not aware of any trends or events, commitments or uncertainties, which have
not otherwise been disclosed, that will or are likely to impact liquidity in a
material way. Management believes the only impact would be from laws that have
not yet been adopted. The portfolio is diversified by the location of the
Properties around the United States so that if one area of the country is
experiencing downturns in the economy, the remaining Properties in the portfolio
may be experiencing upswings. However, the geographic diversification
of the portfolio may not protect against a general downturn in the national
economy. The Partnership had fully invested the proceeds of its offering in
twenty-eight Local Partnerships, all of which had their Tax Credits fully in
place. As of December 31, 2007, all Credit Periods had
expired. The Compliance Periods will continue through December 31,
2013 with respect to the Properties depending upon when the Tax Credit Periods
commenced.
- 14
-
Off-Balance Sheet
Arrangements
The
Partnership has no off-balance sheet arrangements.
Tabular disclosure of
Contractual Obligations
The
Partnership discloses in Item 7 of the Partnership’s Annual Report on Form 10-K
for the year ended March 31, 2009, the Partnership’s commitments to make future
payments under its debt agreements and other contractual
obligations. There are no material changes to such disclosure or
amounts as of September 30, 2009.
Fair Value
Measurements
The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments (all of which are held for nontrading purposes)
for which it is practicable to estimate that value:
Cash and Cash Equivalents,
Investments Available-for-Sale and Cash Held in Escrow
The
carrying amount approximates fair value.
Mortgage Notes
Payable
The
Partnership adopted FASB ASC 820 – “Fair Value Measurements” for
financial assets and liabilities. ASC 820 defines fair value,
establishes a framework for measuring fair value, and expands disclosures about
fair value measurements. ASC 820 applies to reported balances that
are required or permitted to be measured at fair value under existing accounting
pronouncements; accordingly, the standard does not require any new fair value
measurements of reported balances.
As
permitted, we chose not to elect the fair value option as prescribed by FASB
SFAS No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities” – Including an
Amendment of FASB Statement No. 115, for our financial assets and liabilities
that had not been previously carried at fair value. Therefore, we did
not elect to fair value any additional items under SFAS No. 159.
The
estimated fair value of financial instruments has been determined using
available market information or other appropriate valuation
methodologies. However, considerable judgment is required in
interpreting market data to develop estimates of fair
value. Consequently, the estimates are not necessarily indicative of
the amounts that could be realized or would be paid in a current market
exchange. The following are financial instruments for which the
Partnership’s estimate of fair value differs from the carrying
amounts:
|
At
September 30, 2009
|
At
March 31, 2009
|
||||||||||||
|
Carrying
Amount
|
Fair
Value
|
Carrying
Amount
|
Fair
Value
|
||||||||||
|
LIABILITIES:
|
|||||||||||||
|
Mortgage notes
|
$
|
39,217,148
|
$
|
31,333,557
|
$
|
39,954,355
|
$
|
37,186,773
|
|||||
For the
mortgage notes, fair value is calculated using present value cash flow models
based on a discount rate. It was determined that the Tender Option Bond market,
through which these bonds have been securitized in the past, continued to see a
dramatic slowdown with limited liquidity and significantly reduced transaction
levels. To assist in valuing these notes, the Partnership held
separate discussions with various third party investment banks who are leaders
in the municipal bond business. The discussions produced assumptions
that were based on market conditions as well as the credit quality of the
underlying property partnerships, which held the mortgage notes, to determine
what discount rates to utilize.
Critical Accounting Policies
and Estimates
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 Partnership’s accounting policies included in Item 8,
Note 2 to the consolidated financial statements included in the Partnership’s
Annual Report on Form 10-K for the year ended March 31, 2009.
Property and
Equipment
Property
and equipment to be held and used are carried at cost which includes the
purchase price, acquisition fees and expenses, construction period interest and
any other costs incurred in acquiring the Properties. The cost of property and
equipment is depreciated over their estimated useful lives using accelerated and
straight-line methods. Expenditures for repairs and maintenance are charged to
expense as incurred; major renewals and betterments are capitalized. At the time
property and equipment are retired or otherwise disposed of, the cost and
accumulated depreciation are eliminated from the assets and accumulated
depreciation accounts and the profit or loss on such disposition is reflected in
earnings. The Partnership complies with ASC 360, Property, Plant and Equipment
(“ASC 360”). 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 is 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.
At the
time management commits to a plan to dispose of assets, said assets are adjusted
to the lower of carrying amount or fair value less costs to sell. These assets
are classified as property and equipment-held for sale and are not
depreciated. Property and equipment that are held for sale are
included in discontinued operations. There are two assets classified
as property and equipment-held for sale as of September 30, 2009 (see Note 5 in
Item 1).
- 15
-
During
the six months ended September 30, 2009, the Partnership has not recorded any
loss on impairment of assets. Through September 30, 2009, the
Partnership has recorded approximately $17,731,000 as an aggregate loss on
impairment of assets.
Revenue
Recognition
Rental
income is earned primarily under standard residential operating leases and is
typically due the first day of each month, but can vary by Property due to the
terms of the tenant leases. Rental income is recognized when earned and charged
to tenants’ accounts receivable if not received by the due
date. Rental payments received in advance of the due date are
deferred until earned. Rental subsidies are recognized as rental income during
the month in which it is earned.
Other
revenues are recorded when earned and consist of the following
items: Interest income earned on cash and cash equivalent balances
and cash held in escrow balances, income from forfeited security deposits, late
charges, laundry and vending income, and other rental related
items.
Income
Taxes
The
Partnership is not required to provide for, or pay, any federal income
taxes. Net income or loss generated by the Partnership is passed
through to the partners and is required to be reported by them. The Partnership
may be subject to state and local taxes in jurisdictions in which it operates.
For income tax purposes, the Partnership has a fiscal year ending December
31.
Results of
Operations
The
Partnership’s results of operations for the three and six months ended September
30, 2009 and 2008 consisted primarily of the results of the Partnership’s
investment in Local Partnerships. The following discussion excludes
the Partnership’s results of its discontinued operations, which are not
reflected below.
Rental
income increased approximately 3% and 4% for the three and six months ended
September 30, 2009 as compared to the corresponding periods in 2008, primarily
due to annual rent increases and decreases in vacancies at several Local
Partnerships partially offset by a decrease in occupancy at one Local
Partnership.
Total
expenses, excluding general and administrative-related parties, operating, and
depreciation and amortization, remained fairly consistent with a decrease of
approximately 3% for the three and six months ended September 30, 2009 as
compared to the corresponding periods in 2008.
General
and administrative – related party expenses decreased approximately $100,000 and
$199,000 for the three and six months ended September 30, 2009 as compared to
the corresponding periods in 2008, primarily due to a decrease in partnership
management fees and other expense reimbursement allocations at the Partnership
level due to sale of properties.
Operating
expenses decreased approximately $51,000 for the three months ended September
30, 2009 as compared to the corresponding period in 2008, primarily due to a
decrease in electricity, gas and water expenses at several Local
Partnerships.
Depreciation
and amortization expenses decreased approximately $58,000 and $108,000 for the
three and six months ended September 30, 2009 as compared to the corresponding
periods in 2008, primarily due to a decrease in property value at one Local
Partnership.
Item
3. Quantitative and Qualitative Disclosures about Market
Risk
Mortgage
notes are payable in aggregate monthly installments including principal and
interest at rates varying from 1% to 9% per annum. The Partnership does not
believe there is a material risk associated with the various interest rates
associated with the mortgage notes as the majority of the Local Partnership
mortgage notes have fixed rates. The Partnership currently discloses
in Item 8, Note 3 to the consolidated financial statements in the Partnership’s
Annual Report on Form 10-K for the year ended March 31, 2009, the fair value of
the mortgage notes payable. There are no material changes to such
disclosure or amounts as of September 30, 2009.
The
Partnership does not have any other market risk sensitive
instruments.
Item
4T. Controls and Procedures
(a) Evaluation of Disclosure Controls
and Procedures. The Chief Executive Officer and Chief Financial Officer
of Independence Associates GP LLC, the general partner of the General Partner of
the Partnership, have 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 officers have concluded that, as of the end of such
period, the Partnership’s disclosure controls and procedures are
effective.
(b) Management’s Annual Report on
Internal Control over Financial Reporting. Management is
responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and
15d-15(f). In evaluating the Partnership’s internal control over
financial reporting, management has adopted the framework in Internal
Control-Integrated Framework issued by the Committee of Sponsoring organizations
of the Treadway Commission (the “COSO Framework”). Under the
supervision and with the participation of management, including the Chief
Executive Officer and Chief Financial Officer of the General Partner, the
Partnership conducted an evaluation of the effectiveness of its internal control
over financial reporting as of March 31, 2009. The Partnership’s
internal control system was designed to provide reasonable assurance to the
Partnership’s management regarding the reliability of financial reporting and
the preparation of financial statements for the external purposes in accordance
with generally accepted accounting principles. Internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Partnership; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Partnership are
being made only in accordance with authorizations of management and executive
officers of the Partnership; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the Partnership’s assets that could have a material effect on the financial
statements. However, because of inherent limitations, internal
control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
- 16
-
Based on
management’s evaluation under the COSO Framework, it has concluded that the
Partnership’s internal control over financial reporting, was, as of March 31,
2009, (1) effective at the Partnership level, in that they provide reasonable
assurance that information required to be disclosed by the Partnership in the
reports it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms and (2) ineffective at the subsidiary level due to certain control
deficiencies noted in the audit reports for such
subsidiaries. Management will attempt to cause the Local General
Partner’s to remedy such deficiencies; however, the General Partner does not
have control over the internal controls at the subsidiary
level. Management believes they have sufficient controls at the
Partnership level to mitigate these deficiencies, and such deficiencies do not
have a material impact on the consolidated financial statements.
The
Partnership’s Annual Report on Form 10-K did not include an attestation report
of the Partnership’s registered public accounting firm regarding internal
control over financial reporting. The Partnership’s internal control over
financial reporting was not subject to attestation by the Partnership’s
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Partnership to provide only this
report.
(c) Changes in Internal Controls over Financial
Reporting. Except as noted in (b) above, during the period
ended September 30, 2009, there were no changes in the Partnership’s internal
control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Partnership’s internal control over
financial reporting.
- 17
-
PART
II. OTHER INFORMATION
|
Item
1.
|
Legal
Proceedings – None
|
|
|
Item
1A.
|
Risk
Factors – No Changes
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds – None
|
|
|
Item
3.
|
Defaults
upon Senior Securities – None
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders – None
|
|
|
Item
5.
|
Other
Information – None
|
|
|
Item
6.
|
Exhibits
|
|
|
(3A)
|
Form
of Amended and Restated Agreement of Limited Partnership of Independence
Tax Credit Plus L.P., attached to the Prospectus as Exhibit
A*
|
|
|
(3B)
|
Amended
and Restated Certificate of Limited Partnership of Independence Tax Credit
Plus L.P.*
|
|
|
(10A)
|
Form
of Subscription Agreement attached to the Prospectus as Exhibit
B*
|
|
|
(10B)
|
Form
of Purchase and Sales Agreement pertaining to the Partnership’s
acquisition of Local Partnership Interests*
|
|
|
(10C)
|
Form
of Amended and Restated Agreement of Limited Partnership of Local
Partnerships*
|
|
|
(31.1)
|
||
|
(31.2)
|
||
|
(32.1)
|
||
|
*
|
Incorporated
herein as an exhibit by reference to exhibits filed with Pre-Effective
Amendment No. 1 to the Independence Tax Credit Plus L.P. Registration
Statement on Form S-11 (Registration No.
33-37704)
|
|
- 18
-
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
INDEPENDENCE TAX CREDIT PLUS
L.P.
(Registrant)
|
By:
|
RELATED
INDEPENDENCE ASSOCIATES L.P.,
|
|||||||
|
its
General Partner
|
||||||||
|
By:
|
INDEPENDENCE
ASSOCIATES GP LLC,
|
|||||||
|
a
General Partner
|
||||||||
|
Date:
|
November 9, 2009
|
By:
|
/s/ Robert L. Levy
|
|||||
|
Robert
L. Levy
|
||||||||
|
Chief
Financial Officer, Principal Accounting Officer and
Director
|
||||||||
|
Date:
|
November 9, 2009
|
By:
|
/s/ Andrew J. Weil
|
|||||
|
Andrew
J. Weil
|
||||||||
|
President
and Chief Executive Officer
|
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- 19
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