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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-Q

 

 

 

(Mark One)

 

þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2012

 

OR

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission File Number 0-24650

  

INDEPENDENCE TAX CREDIT PLUS L.P. III

(Exact name of registrant as specified in its charter)

 

Delaware   13-3746339
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
100 Church Street, New York, New York   10007
(Address of principal executive offices)   (Zip Code)

 

(212) 317-5700
Registrant’s telephone number, including area code
 
 
(Former name, former address and former fiscal year, if changed since last report)

  

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. þ Yes ¨ No

 

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). þ Yes ¨ No

 

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 ¨   Accelerated filer ¨
     
Non-accelerated filer ¨ (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). o Yes þ No

 

 

 
 

 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

INDEPENDENCE TAX CREDIT PLUS L.P. III

AND SUBSIDIARIES

Consolidated Balance Sheets

 

   September 30,   March 31, 
   2012   2012 
   (Unaudited)   (Audited) 
ASSETS          
           
Operating assets          
Property and equipment at cost, net of accumulated depreciation of $9,309,869 and $14,497,051, respectively  $5,810,320   $5,943,626 
Cash and cash equivalents   1,711,091    1,489,623 
Cash held in escrow   3,222,053    3,993,172 
Deferred costs, net of accumulated amortization of $325,940 and $367,019, respectively   168,113    224,695 
Other assets   503,380    457,933 
           
Total operating assets   11,414,957    12,109,049 
           
Assets from discontinued operations (Note 5)          
Property and equipment held for sale, net of accumulated depreciation of $0 and $1,541,394, respectively   -    1,285,678 
Net assets held for sale   324,718    411,857 
Total assets from discontinued operations   324,718    1,697,535 
           
Total assets  $11,739,675   $13,806,584 
           
LIABILITIES AND PARTNERS’ CAPITAL (DEFICIT)          
           
Liabilities          
Mortgage notes payable  $15,559,229   $19,963,691 
Accounts payable   215,080    327,110 
Accrued interest payable   1,793,275    4,602,247 
Security deposit payable   161,288    205,617 
Due to local general partners and affiliates   657,844    1,118,738 
Due to general partners and affiliates   4,346,001    4,246,100 
           
Total operating liabilities   22,732,717    30,463,503 
           
Liabilities from discontinued operations (Note 5)          
Mortgage notes payable of assets held for sale   -    562,445 
Net liabilities held for sale   42,818    298,669 
Total liabilities from discontinued operations   42,818    861,114 
           
Total liabilities   22,775,535    31,324,617 
           
Commitments and contingencies (Note 6)          
           
Partners’ capital (deficit)          
Limited partners (43,440 BACs issued and outstanding)   (12,180,048)   (19,124,560)
General partners   1,602,233    1,519,586 
           
Independence Tax Credit Plus L.P. III total   (10,577,815)   (17,604,974)
           
Noncontrolling interests   (458,045)   86,941 
           
Total partners’ capital (deficit)   (11,035,860)   (17,518,033)
           
Total liabilities and partners’ capital (deficit)  $11,739,675   $13,806,584 

 

See accompanying notes to consolidated financial statements.

 

- 2 -
 

 

INDEPENDENCE TAX CREDIT PLUS L.P. III

AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

 

   Three Months Ended   Six Months Ended 
   September 30,   September 30, 
   2012   2011*   2012   2011* 
                 
Revenues                    
Rental income  $765,221   $719,902   $1,488,637   $1,419,118 
Other income   99,753    54,019    120,528    81,209 
                     
Total revenues   864,974    773,921    1,609,165    1,500,327 
                     
Expenses                    
General and administrative   339,285    283,264    648,356    557,222 
General and administrative-related parties (Note 2)   135,129    136,299    219,427    275,013 
Repairs and maintenance   125,991    134,784    220,189    250,425 
Operating   96,946    99,565    228,311    219,692 
Taxes   23,649    23,656    47,299    47,316 
Insurance   44,126    38,526    83,331    76,632 
Financial, principally interest   95,579    93,941    187,641    184,258 
Depreciation and amortization   76,762    77,004    153,523    154,008 
                     
Total expenses from operations   937,467    887,039    1,788,077    1,764,566 
                     
Loss from operations   (72,493)   (113,118)   (178,912)   (264,239)
Income from discontinued operations   1,080,008    472,167    7,917,467    300,338 
                     
Net income   1,007,515    359,049    7,738,555    36,099 
                     
Net income attributable to noncontrolling interests from operations   (414)   (11)   (642)   (190)
Net income attributable to noncontrolling interests from discontinued operations   (606,799)   (569,011)   (723,254)   (492,448)
                     
Net income attributable to noncontrolling interests   (607,213)   (569,022)   (723,896)   (492,638)
                     
Net income (loss) attributable to Independence Tax Credit Plus L.P. III  $400,302   $(209,973)  $7,014,659   $(456,539)
                     
Loss from operations – limited partners   (72,178)   (111,998)   (177,759)   (261,784)
Income (loss) from discontinued operations – limited partners   468,477    (95,875)   7,122,271    (190,189)
Net income (loss) – limited partners  $396,299   $(207,873)  $6,944,512   $(451,973)
                     
Number of BACs outstanding   43,440    43,440    43,440    43,440 
                     
Loss from operations per BAC  $(1.66)  $(2.58)  $(4.09)  $(6.02)
Income (loss) from discontinued operations per BAC   10.78    (2.20)   163.95    (4.38)
                     
Net income (loss) per BAC  $9.12   $(4.78)  $159.86   $(10.40)

 

* Reclassified for comparative purposes.

 

See accompanying notes to consolidated financial statements.

 

- 3 -
 

 

INDEPENDENCE TAX CREDIT PLUS L.P. III

AND SUBSIDIARIES

Consolidated Statement of Changes in Partners’ (Deficit) Capital

(Unaudited)

 

       Limited   General   Noncontrolling 
   Total   Partners   Partner   Interests 
                     
Partners’ (deficit) capital– April 1, 2012  $(17,518,033)  $(19,124,560)  $1,519,586   $86,941 
                     
Net income – six months ended September 30, 2012   7,738,555    6,944,512    70,147    723,896 
                     
Contributions – write-off of related party debt   283,930    -    12,500    271,430 
                     
Distributions   (1,540,312)   -    -    (1,540,312)
                     
Partners’ (deficit) capital – September 30, 2012  $(11,035,860)  $(12,180,048)  $1,602,233   $(458,045)

 

See accompanying notes to consolidated financial statements.

 

- 4 -
 

 

INDEPENDENCE TAX CREDIT PLUS L.P. III

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

 

   Six Months Ended 
   September 30, 
   2012   2011 
         
Cash flows from operating activities:          
Net income  $7,738,555   $36,099 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:          
Gain on sale of properties   (7,899,335)   (441,490)
Depreciation and amortization   163,973    308,255 
Changes in assets and liabilities:          
Increase (decrease) in accounts payable   139,730    (54,869)
Increase in accrued interest payable   211,334    370,802 
Increase in security deposit payable   19,804    26,481 
Decrease (increase) in cash held in escrow   320,361    (133,414)
Increase in other assets   (185,157)   (75,721)
Decrease in due to local general partners and affiliates   (442,709)   (28,732)
(Decrease) increase in due to general partner and affiliates   (165,684)   139,053 
           
Total adjustments   (7,837,683)   110,365 
           
Net cash (used in) provided by operating activities   (99,128)   146,464 
           
Cash flows from investing activities:          
Purchase of property and equipment   (6,932)   (4,991)
Proceeds from sale of properties   2,474,991    280,000 
Costs related to sale of properties   (548,976)   (43,985)
Increase in cash held in escrow   (18,457)   (32,402)
Increase in due to local general partners and affiliates   -    9,418 
           
Net cash (used in) provided by  investing activities   1,900,626    208,040 
           
Cash flows from financing activities:          
Repayments of mortgage notes   (111,821)   (181,905)
Distributions to noncontrolling interests   (1,540,312)   (190,650)
           
Net cash used in financing activities   (1,652,133)   (372,555)
           
Net increase (decrease) in cash and cash equivalents   149,365    (18,051)
Cash and cash equivalents at beginning of period   1,590,135    1,854,271 
Cash and cash equivalents at end of period *  $1,739,500   $1,836,220 
           
Summarized below are the components of the gain on sale of properties:          
           
Proceeds from sale of properties – net  $(1,926,015)  $(236,015)
Property and equipment, net of accumulated depreciation   1,279,242    1,974,108 
Deferred costs   39,283    72,728 
Prepaid expenses and other assets   150,257    141,789 
Cash held in escrow   473,704    150,277 
Accounts payable and other liabilities   (221,956)   73,818 
Accrued interest payable   (3,023,588)   - 
Security deposit payable   (77,750)   (51,366)
Mortgage note payable   (4,855,086)   (2,556,237)
Due to local general partners and affiliates   (21,354)   (10,592)
Capital contribution – General Partners   12,500    - 
Capitalization of consolidated subsidiaries attributable to minority interest   271,428    - 

 

* Cash and cash equivalents at end of period, includes cash and cash equivalents from discontinued operations of $28,409 and $0, respectively.

 

See accompanying notes to consolidated financial statements.

 

- 5 -
 

 

INDEPENDENCE TAX CREDIT PLUS L.P. III

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2012

(Unaudited)

 

NOTE 1 – General

 

The consolidated financial statements include the accounts of Independence Tax Credit Plus L.P. III (the “Partnership”) and eleven other limited partnerships (“subsidiary partnerships”, “subsidiaries” or “Local Partnerships”) owning apartment complexes that are eligible for the federal low-income housing tax credit (“Tax Credit”). The general partner of the Partnership is Related Independence Associates III L.P., a Delaware limited partnership (the “General Partner”), which is managed by an affiliate of Centerline Holding Company (“Centerline”), the ultimate parent of the general partner of the General Partner. For information on Centerline’s audited balance sheet for the most recent fiscal year, see http://sec.gov. 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 partnerships (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 (“Local 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.

 

In accordance with FASB Accounting Standards Codification (“ASC”) Topic 810, Noncontrolling Interests in Consolidated Financial Statements (“ASC 810”), net income attributable to noncontrolling interests amounted to approximately $(607,000) and $(569,000) and $(724,000) and $(493,000) for the three and six months ended September 30, 2012 and 2011, 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 year ended March 31, 2012.

 

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 of the Partnership, the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of the Partnership as of September 30, 2012 and the results of operations for the three and six months ended September 30, 2012 and 2011 and its cash flows for the six months ended September 30, 2012 and 2011. However, the operating results and cash flows for the six months ended September 30, 2012 may not be indicative of the results for the year.

 

Recent Accounting Pronouncements

 

In June 2012, the FASB issued under Accounting Standards update No. 2012-02Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment.”  The objective of these amendments in this ASU is to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories.  The amendments are effective for fiscal years beginning after September 15, 2012.  Early adoption is permitted.  The adoption of this accounting standard will not have a material effect on the Partnership’s condensed consolidated financial statements.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

 

- 6 -
 

  

INDEPENDENCE TAX CREDIT PLUS L.P. III

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2012

(Unaudited)

  

NOTE 2 – Related Party Transactions

 

An affiliate of the General Partner has a 0.01% interest, as a special limited partner, in each of the Local Partnerships.

 

The costs incurred to related parties from operations for the three and six months ended September 30, 2012 and 2011 were as follows:

 

   Three Months Ended   Six Months Ended 
   September 30,   September 30, 
   2012   2011*   2012   2011* 
                 
Partnership management fees (a)  $32,700   $62,500   $51,025   $127,325 
Expense reimbursement (b)   73,224    49,171    111,225    98,343 
Local administrative fee (c)   8,747    4,876    17,497    9,750 
Total general and administrative - General Partner   114,671    116,547    179,747    235,418 
Property management fees incurred to affiliates of the subsidiary partnerships’ general partners   20,458    19,752    39,680    39,595 
Total general and administrative-related parties  $135,129   $136,299   $219,427   $275,013 
                     
* Reclassified for comparative purposes.                    

The costs incurred to related parties from discontinued operations for the three and six months ended September 30, 2012 and 2011 were as follows:

 

   Three Months Ended   Six Months Ended 
   September 30,   September 30, 
   2012   2011*   2012   2011* 
                 
Local administrative fee (c)  $375   $7,562   $2,000   $15,125 
Total general and administrative-General Partner   375    7,562    2,000    15,125 
Property management fees incurred to affiliates of the subsidiary partnerships' general partners   26,055    42,914    54,769    85,564 
Total general and administrative-related parties  $26,430   $50,476   $56,769   $100,689 
                     
* Reclassified for comparative purposes.                    

 

(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 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 are to be deferred without interest and will be payable out of sales or refinancing proceeds only to the extent of available funds after payments on all Partnership liabilities have been made other than to those owed to the General Partner and its affiliates. Partnership management fees owed to the General Partner amounting to approximately $3,008,000 and $2,957,000 were accrued and unpaid as of September 30, 2012 and March 31, 2012, respectively. Current year partnership management fees may be paid out of operating reserves or refinancing and sales proceeds. As such the General Partner cannot demand payment of the deferred fees except as noted above. During the year ended March 31, 2012, the General Partner deemed the unpaid partnership management fees that were related to the properties sold and the transfer of the deed-in-lieu of foreclosure of one property during the year ended March 31, 2012 uncollectible and as a result, the Partnership wrote them off in the amount of approximately $757,000, resulting in a non-cash General Partner contribution of the same amount.

 

(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 and asset monitoring fees owed to the General Partners and its affiliates amounting to approximately $922,000 and $849,000 were accrued and unpaid as of September 30, 2012 and March 31, 2012, respectively. The General Partner does not intend to demand payment of the deferred payables beyond the Partnership’s ability to pay them. The Partnership anticipates that these will be paid, if at all, from working capital reserves or future sales proceeds.

 

(c)Independence SLP III L.P., a limited partner of the subsidiary partnerships, is entitled to receive a local administrative fee of up to $5,000 per year from each subsidiary partnership. Local administrative fee owed to Independence SLP III L.P. amounting to $329,000 and $360,000 were accrued and unpaid as of September 30, 2012 and March 31, 2012, respectively. These fees have been deferred in certain cases and the Partnership anticipates that they will be paid, if at all, from working capital reserves or future sales proceeds.

  

- 7 -
 

  

INDEPENDENCE TAX CREDIT PLUS L.P. III

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2012

(Unaudited)

  

As of September 30, 2012 and March 31, 2012, the Partnership owed Related Capital, an affiliate of the General Partner, approximately $86,000 for expenditures paid on its behalf and voluntary operating advances made by the General Partner and its affiliates to fund operations of the Partnership. Payment of these operating advances have been deferred and may be paid out of operating reserves or refinancing and sales proceeds. The General Partner does not intend to demand payment of the deferred advances beyond the Partnership’s ability pay them.

 

As of September 30, 2012 and March 31, 2012, the Partnership owed the affiliates of the General Partner approximately $0 and $259,000 (non-interest bearing), respectively, for advances made to one Local Partnership. These advances represented amounts loaned in conjunction with the initial capital contributions to the Local Partnerships. Such amounts were written off during the quarter ended September 30, 2012 in conjunction with the sale of a Local Partnership (See Note 4).

 

B) Due to Local General Partners and Affiliates

 

Due to local general partners and affiliates from operating liabilities consists of the following:

 

   September 30,   March 31, 
   2012   2012 
         
Operating advances  $156,878   $617,772 
Development fee payable   52,249    52,249 
Other capitalized costs   16,335    16,335 
Construction costs payable   146,487    146,487 
General Partner loan payable   198,008    198,008 
Management and other operating fees   87,887    87,887 
           
   $657,844   $1,118,738 

 

Due to local general partners and affiliates from discontinued liabilities consists of the following:

 

   September 30,   March 31, 
   2012   2012 
         
Management and other operating advances  $4,000   $7,169 
           
   $4,000   $7,169 

 

C) Advances from Partnership to Local Partnerships

 

As of September 30, 2012 and March 31, 2012, the Partnership has advanced certain Local Partnership operating loans (non-interest bearing) amounting to approximately $5,000 and $8,000 primarily in conjunction with the Local Partnership’s contribution agreements. Such amounts are eliminated in consolidation. The following table summarizes these advances:

 

   September 30,   March 31, 
   2012   2012 
         
New Zion  $-   $2,655 
Sumpter Commons   5,075    5,075 
           
   $5,075   $7,730 

 

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.

  

- 8 -
 

  

INDEPENDENCE TAX CREDIT PLUS L.P. III

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2012

(Unaudited)

  

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 ASC 825 – “Financial Instruments” – Including an Amendment of ASC 320 – “Investments – Debt and Equity Securities”, 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 ASC 825.

 

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, 2012   At March 31, 2012 
   Carrying       Carrying     
   Amount   Fair Value   Amount   Fair Value 
                 
LIABILITIES:                    
Mortgage notes  $15,559,229   $7,551,804   $20,526,136   $9,428,398 

 

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 in the process of disposing of all of its investments. It is anticipated that this process will continue to take a number of years. During the three months ended September 30, 2012, the Partnership sold its limited partnership interests in two Local Partnerships and one Local Partnership sold its property and the related assets and liabilities. As of September 30, 2012, the Partnership has sold its limited partnership interests in eleven Local Partnerships, transferred the deed to the property and related assets and liabilities in lieu of foreclosure of one Local Partnership and one Local Partnership sold its property and the related assets and liabilities. 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.

 

On September 28, 2012, the property and the related assets and liabilities of New Zion Limited Partnership (“New Zion”) were sold to an unaffiliated third party purchaser for a sales price of $2,450,000.  The Partnership received $488,508 as distributions from this sale after the repayment of the mortgages, other liabilities, closing costs and distributions to other partners of approximately $1,961,000.  The sale resulted in a gain of approximately $1,069,000 which was recorded during the quarter ended September 30, 2012. In addition, the sale resulted in a non-cash contribution to the Local Partnership of approximately $262,000 as a result of the write-off of operating advances owed to an affiliate of the General Partner.

 

On June 11, 2012, the Partnership sold its limited partnership interest in Universal Court Associates (“Universal Court”) to an affiliate of the Local General Partner for a sale price of $1. The sale resulted in a gain of approximately $2,138,000, resulting from the write-off of the basis in the Local Partnership of the same amount at the date of the sale, which was recorded during the quarter ended June 30, 2012. An adjustment to the gain of approximately $(29,000) was recorded during the quarter ended September 30, 2012, resulting in an overall gain of approximately $2,109,000. The sale resulted in a non-cash contribution to the Local Partnership from the General Partner of approximately $13,000 as a result of the write-off of fees owed by the Local Partnership to an affiliate of the General Partner. In addition, the sale resulted in a non-cash contribution to the Local Partnership from the Local General Partner of approximately $13,000 resulting from the forgiveness of debt owed by the Local Partnership to the Local General Partner.

 

On May 1, 2012, the Partnership sold its limited partnership interest in West Mill Creek Associates III, L.P. (“Jameson Court”) to an affiliate of the Local General Partner for a sale price of $24,990. The Partnership received $24,990 from the sale. The sale resulted in a gain of approximately $4,690,000, resulting from the write-off of the basis in the Local Partnership of approximately $4,665,000 at the date of the sale and the $24,990 received from the sale, which was recorded during the quarter ended June 30, 2012. An adjustment to the gain of approximately $7,000 was recorded during the quarter ended September 30, 2012, resulting in an overall gain of approximately $4,697,000.  

 

- 9 -
 

  

INDEPENDENCE TAX CREDIT PLUS L.P. III

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2012

(Unaudited)

 

On February 3, 2012, the Partnership sold its limited partnership interest in Brannon Group, L.C. (“Keys”) to an unaffiliated third party purchaser for a sale price of $4,000. The Partnership received $4,000 from the sale. The sale resulted in a gain of approximately $6,882,000, resulting from the write-off of the basis in the Local Partnership of approximately $6,878,000 at the date of the sale and the $4,000 received from the sale, which was recorded during the quarter ended March 31, 2012. An adjustment to the gain of approximately $26,000 was recorded during the quarter ended June 30, 2012, resulting in an overall gain of approximately $6,908,000. In addition, the sale resulted in a non-cash contribution to the Local Partnership from the General Partner of approximately $288,000 as a result of the write-off of fees and loans owed by the Local Partnership to an affiliate of the General Partner.

  

NOTE 5 – 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 or were sold. As of September 30, 2012, New Zion, which was sold during the period, was classified as a discontinued operation on the consolidated balance sheets. As of March 31, 2012, New Zion, which was classified as asset held for sale, was classified as discontinued operations on the consolidated balance sheet.

 

Consolidated Balance Sheets:

 

   September 30,   March 31, 
   2012   2012 
         
Assets          
Property and equipment – less accumulated depreciation of $0 and $1,541,395, respectively  $-   $1,285,678 
Cash and cash equivalents   28,409    100,512 
Cash held in escrow   296,309    300,798 
Other assets   -    10,547 
Total assets  $324,718   $1,697,535 
           
Liabilities          
           
Mortgage notes payable  $-   $562,445 
Accounts payable   38,818    9,016 
Accrued interest payable   -    3,282 
Security deposit payable   -    13,617 
Due to local general partners and affiliates   4,000    7,169 
Due to general partners and affiliates   -    265,585 
Total liabilities  $42,818   $861,114 

 

- 10 -
 

 

INDEPENDENCE TAX CREDIT PLUS L.P. III

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2012

(Unaudited)

 

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, 2012, Jameson Court, Universal Court and New Zion, which were sold during the period and Keys, which was sold during the three months ended March 31, 2012, were classified as discontinued operations in the consolidated financial statements. For the three and six months ended September 30, 2011, Lafayette Avenue, Knickerbocker Apartments, Mansion Court, Aspen-Olive, Keys and Park Terrace, which were sold during the year ended March 31, 2012, and Jameson Court, Universal Court and New Zion, in order to present comparable results to the three and six months ended September 30, 2012, were classified as discontinued operations in the consolidated financial statements.

 

Consolidated Statements of Discontinued Operations:

 

   Three Months Ended   Six Months Ended 
   September 30,   September 30, 
   2012   2011*   2012   2011* 
                 
Revenues                    
                     
Rental income  $254,320   $897,714   $700,989   $1,696,113 
Other   32,060    35,508    45,385    48,813 
Gain on sale of properties (Note 4)   1,046,374    441,490    7,899,335    441,490 
                     
Total revenue   1,332,754    1,374,712    8,645,709    2,186,416 
                     
Expenses                    
General and administrative   71,340    220,850    224,492    476,587 
General and administrative-related parties (Note 2)   26,430    50,476    56,769    100,689 
Repairs and maintenance   73,168    107,422    130,679    253,333 
Operating and other   20,610    94,415    70,062    206,183 
Insurance   10,485    59,389    38,154    114,807 
Taxes   6,687    41,941    25,459    81,544 
Interest   42,809    250,929    172,177    498,687 
Depreciation and amortization   1,217    77,123    10,450    154,248 
                     
Total expenses   252,746    902,545    728,242    1,886,078 
                     
Income from discontinued operations   1,080,008    472,167    7,917,467    300,338 
                     
Noncontrolling interest in income of subsidiaries from discontinued operations   (606,799)   (569,011)   (723,254)   (492,448)
                     
Income (loss) from discontinued operations – Independence Tax Credit Plus LP III  $473,209   $(96,844)  $7,194,213   $(192,110)
                     
Income (loss)— limited partners from discontinued operations  $468,477   $(95,875)  $7,122,271   $(190,189)
                     
Number of BACs outstanding   43,440    43,440    43,440    43,440 
                     
Income (loss) from discontinued operations per BAC  $10.78   $(2.20)  $163.95   $(4.38)

 

* Reclassified for comparative purposes.

 

Cash flows from Discontinued Operations:

 

   Six Months Ended 
   September 30, 
   2012   2011* 
         
Net cash (used in) provided by operating activities  $(1,713,323)  $467,462 
Net cash provided by investing activities  $1,912,235   $1,951,240 
Net cash used in financing activities  $(323,506)  $(2,604,837)

 

* Reclassified for comparative purposes.

 

- 11 -
 

 

INDEPENDENCE TAX CREDIT PLUS L.P. III

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2012

(Unaudited)

 

NOTE 6 – Commitments and Contingencies

 

a)Going Concern Consideration

 

At September 30, 2012, the Partnership’s liabilities exceeded assets by $11,035,860 and for the six months ended September 30, 2012 the Partnership recognized net income of $7,738,555, including the gain on sale of properties of $7,899,335. These factors raise substantial doubt about the Partnership’s ability to continue as a going concern. As discussed in Note 2, partnership management fees of approximately $3,008,000 will be payable out of sales or refinancing proceeds only to the extent of available funds after payments on all other Partnership liabilities have been made other than those owed to the General Partner and its affiliates. As such, the General Partner cannot demand payment of these deferred fees beyond the Partnership’s ability to pay them. In addition, where the Partnership has unpaid partnership management fees related to sold properties, at fiscal year-end such management fees are written off and recorded as capital contributions. During the year ended March 31, 2012, the Partnership wrote off approximately $757,000 of such management fees.

 

All of the mortgage payable balance of $15,559,229 and the accrued interest payable balance of $1,793,275 is of a nonrecourse nature and secured by the respective properties. The Partnership is currently in the process of disposing all of its investments. Historically, the mortgage notes and accrued interest thereon have been assumed by the buyer in instances of sales of the Partnership’s interest or have been paid off from sales proceeds in instances of sales of the property. In most instances when the Partnership’s interest was sold and liabilities were assumed, the Partnership recognized a gain from the sale. The Partnership owns the limited partner interest in all its investments, and as such has no financial responsibility to fund operating losses incurred by the Local Partnerships. The maximum loss the Partnership would incur is its net investment in the respective Local Partnerships and the potential recapture of Tax Credits if the investment is lost before the expiration of the Compliance Period. Dispositions of any investment in a Local Partnership should not impact the future results of operations, liquidity, or financial condition of The Partnership.

 

The Partnership has working capital reserves of approximately $1,281,000 at September 30, 2012. Such amount is considered sufficient to cover the Partnership’s day to day operating expenses, excluding fees to the General Partner, for at least the next year. The Partnership’s operating expenses, excluding the Local Partnerships’ expenses and related party expenses amounted to approximately $96,000 for the six months ended September 30, 2012.

 

Management believes the above mitigating factors enable the Partnership to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

b)Subsidiary Partnerships – Going Concerns and Uncertainties

 

Brannon Group, L.C. (“Keys”)

 

On February 3, 2012, the Partnership sold its limited partnership interest in Keys. The financial statements for Keys were prepared in conformity with accounting principles generally accepted in the United States of America, which contemplated continuation of Keys as a going concern. Keys had obligations that matured on January 1, 2012 in the amount of $1,199,501. However, on January 17, 2012, Keys closed on the refinancing of its mortgages.

 

c)Leases

 

Savannah Park Housing L.P. (“Tobias”), one of the subsidiary partnerships, is leasing the land on which its apartment complex is located for a term of 50 years, which commenced in August 1996, with monthly rent payments of $1,771. As of September 30, 2012, the lease agreement was current. Estimated aggregate future minimum payments due under the term of the lease were $726,110 as of June 30 2012.

 

d)Uninsured Cash and Cash Equivalents

 

The Partnership maintains its cash and cash equivalents in various banks. The accounts at each bank are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”).

 

e)Cash Distributions

 

Cash distributions from the Local Partnerships to the Partnership are restricted by the provisions of the respective limited partnership agreements of the Local Partnerships and/or 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.

 

f)Property Management Fees

 

Property management fees incurred by Local Partnerships amounted to $75,437 and $105,751 and $157,099 and $211,818 for the three and six months ended September 30, 2012 and 2011, respectively. Of these fees, $46,513 and $62,666 and $94,449 and $125,159 were incurred to affiliates of the subsidiary partnerships’ general partners, which includes $26,055 and $42,914 and $54,769 and $85,564 of fees relating to discontinued operations.

 

 

 

- 12 -
 

  

INDEPENDENCE TAX CREDIT PLUS L.P. III

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2012

(Unaudited)

  

g)Other

 

The Partnership and BACs holders began to recognize Tax Credits with respect to a property when the credit period for such Property (generally ten years from the date of investment or, if later, the date the property was leased to qualified tenants) commenced. Because of the time required for the acquisition, completion and rent-up of Properties, the amount of Tax Credits per BAC gradually increased over the first three years of the Partnership. Tax Credits not recognized in the first three years were recognized in the 11th through 13th years. As of December 31, 2009, all the Local Partnerships had completed their Credit Periods. The Compliance Periods will continue through December 31, 2014 with respect to the Properties depending upon when the Credit Period commenced.

 

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 43% of the Properties are located in any single state. There are also substantial risks associated with owning interests in properties, as does the Partnership, which receive government assistance, for example the possibility that Congress may not appropriate funds to enable the Department of Housing and Urban Development (“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.

 

h)Subsequent Events

 

Management has evaluated all subsequent events from the date of the balance sheet through the issuance date of this report and determined that there were no events or transactions occurring during the 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 originally invested all of its net proceeds in twenty Local Partnerships of which approximately $120,000 remains to be paid to the Local Partnerships (including approximately $115,000 being held in escrow). The Partnership is in the process of disposing of all of its investments. It is anticipated that the process will continue to take a number of years. During the six months ended September 30, 2012, the Partnership sold its limited partnership interests in two Local Partnerships and one Local Partnership sold its property and the related assets and liabilities. As of September 30, 2012, the Partnership has sold its limited partnership interests in eleven Local Partnerships, transferred the deed to the property and related assets and liabilities in lieu of foreclosure of one Local Partnership and one Local Partnership sold its property and the related assets and liabilities. 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 BACs holders their original investments. All gains and losses on sales are included in discontinued operations.

 

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. The Partnership does not anticipate providing cash distributions to BACs holders in circumstances other than refinancing or sales. Cash distributions received from the Local Partnerships, as well as the working capital reserves referred to above, will be used towards the future operating expenses of the Partnership. During the six months ended September 30, 2012 and 2011, the amounts received from operations of the Local Partnerships were approximately $78,000 and $114,000, respectively. Additionally, during the six months ended September 30, 2012 and 2011, the Partnership received approximately $513,000 and $236,000, respectively, of distributions from the sale of Local Partnerships. The Partnership does not anticipate being able to make distributions sufficient to return to BACs holders their original capital contributions.

 

During the six months ended September 30, 2012, cash and cash equivalents of the Partnership and its consolidated Local Partnerships increased approximately $149,000. This increase was due to proceeds from sale of properties $(2,475,000), which exceeded cash used in operating activities $(99,000), payments of mortgage notes $(112,000), purchases of property and equipment $(7,000), costs related to sale of properties $(549,000), an increase in cash held in escrow relating to investing activities $(18,000) and a decrease in capitalization of consolidated subsidiaries attributable to noncontrolling interests $(1,540,000). Included in the adjustment to reconcile the net income to cash used in operating activities is depreciation and amortization of approximately $164,000 and gain on sale of properties of approximately $7,899,000.

 

Total expenses for the three and six months ended September 30, 2012 and 2011, respectively, excluding depreciation and amortization, interest, general and administrative – related parties, totaled $629,997 and $579,795 and $1,227,486 and $1,151,287, respectively.

 

Accounts payable as of September 30, 2012 and March 31, 2012 were $215,080 and $327,110, 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. Account payable from discontinued operations totaled $38,818 and $9,016 as of September 30, 2012 and March 31, 2012, respectively. Accrued interest as of September 30, 2012 and March 31, 2012 was $1,793,275 and $4,602,247, respectively. Accrued interest payable from discontinued operations totaled $0 and $3,282 as of September 30, 2012 and March 31, 2012, respectively. Such amount 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 refinancings 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.

 

Because the provisions of the secondary loans defer the payment of accrued interest of the respective Local Partnerships, the Partnership believes it (and the applicable Local Partnerships) 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, assuming the General Partner continues to defer the payment of fees as discussed below and in Note 2 to the Financial Statements, the Partnership believes it 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.

 

The Partnership has an unconsolidated working capital reserve of approximately $1,281,000 at September 30, 2012.

 

Long-term

 

Partnership management fees owed to the General Partner amounting to approximately $3,008,000 and $2,957,000 were accrued and unpaid as of September 30, 2012 and March 31, 2012, respectively, and are included in the line item Due to general partners and affiliates in the consolidated balance sheets. During the year ended March 31, 2012, the General Partner deemed the unpaid partnership management fees that were related to the property sold during the year ended March 31, 2012, uncollectible and as a result, the Partnership wrote them off in the amount of approximately $757,000, resulting in a non-cash General Partner contribution of the same amount. Unpaid partnership management fees for any year are to be deferred without interest and will be payable out of sales or refinancing proceeds only to the extent of available funds after payments on all Partnership liabilities have been made other than to those owed to the General Partner and its affiliates.

 

All other payables included in due to general partners and affiliates are expected to be paid, if at all, from working capital reserves. See Note 2 in Item 1 for further discussion of amounts due to the General Partner and its affiliates. The General Partner does not anticipate advancing going forward any operating funds to any of the Local Partnerships in which the Partnership has invested. Even if a situation arose where the General Partner and its affiliates needed to but were not able to make operating advances in the future due to lack of funds, the only impact on the Partnership would be that it would lose its investment in that particular Local Partnership. The Partnership’s ability to continue its operations would not be affected.  

 

- 14 -
 

  

Based on the foregoing, the Partnership’s going concern consideration is mitigated by factors as discussed in Note 6a in Item 1.

 

Since the maximum loss the Partnership would be liable for is its net investment in the respective subsidiary 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 result in recapture of Tax Credits if the investment is lost before the expiration of the Compliance Period. Through March 31, 2012, only Mansion Court Phase II Venture (“Mansion Court”) was required to recapture $489,362 of low-income housing Tax Credits.

 

Except as described above, 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. The Partnership has invested the proceeds of its Offering in twenty Local Partnerships, all of which, other than Mansion Court, had their Tax Credits fully in place. As of December 31, 2009, the Credit Periods have expired and the Partnership has met its objective of generating Tax Credits for qualified BACs holders. The Compliance Periods will continue through December 31, 2014 with respect to the Properties depending upon when the Credit Period commenced.

 

Off-Balance Sheet Arrangements

 

The Partnership has no off-balance sheet arrangements.

 

Fair Market Valuations

 

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 ASC 825 – “Financial Instruments” – Including an Amendment of ASC 320 – “Investments – Debt and Equity Securities”, 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 ASC 825.

 

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, 2012   At March 31, 2012 
   Carrying       Carrying     
   Amount   Fair Value   Amount   Fair Value 
                 
LIABILITIES:                    
Mortgage notes  $15,559,229   $7,551,804   $20,526,136   $9,428,398 

 

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 7, Note 2 to the consolidated financial statements in its Annual Report on Form 10-K for the year ended March 31, 2012.  

 

- 15 -
 

  

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. 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 the direct capitalization method) when the property is considered to be impaired and the depreciation cost exceeds estimated fair value.

 

Through September 30, 2012, the Partnership has recorded approximately $30,481,000 as an aggregate loss on impairment of assets or reduction to 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. There are no Local Partnerships whose assets are classified as property and equipment held for sale as of September 30, 2012.

 

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, 2012 and 2011 consisted of the results of the Partnership’s investment in Local Partnerships. The following discussion excludes the Partnership’s results of its discontinued operations which is not reflected below (see Note 5 to the financial statements in Item 1).

 

Rental income increased by approximately 6% and 5% for the three and six months ended September 30, 2012, respectively, as compared to the corresponding period in 2011, primarily due to an increase in occupancies as well as an increase in rental rates at two Local Partnerships.

 

Other income increased approximately $46,000 and $39,000 for the three and six months ended September 30, 2012, respectively, as compared to the corresponding period in 2011, primarily due to a realized gain on investment partially offset by a decrease in interest income at one Local Partnership.

 

Total expenses excluding general and administrative, general and administrative –related parties and repairs and maintenance, remained consistent with an increase of approximately 1% and 3% for the three and six months ended September 30, 2012, respectively, as compared to the corresponding period in 2011.

 

General and administrative expense increased approximately $56,000 and $91,000 for the three and six months ended September 30, 2012, respectively, as compared to the corresponding period in 2011, primarily due to an increase in bad debt and payroll expenses at one Local Partnership, an increase in payroll expenses at a second Local Partnership and an increase in legal expenses at the Partnership level primarily due to sales activity.

 

General and administrative-related parties expenses decreased approximately $56,000 for the six months ended September 30, 2012, as compared to the corresponding period in 2011, primarily due to a decrease in partnership management fees resulting from the sale of properties at the Partnership level. 

 

Repairs and maintenance expense decreased approximately $30,000 for the six months ended September 30, 2012 as compared to the corresponding period in 2011 primarily due to a decrease in snow removal and carpet replacement costs at one Local Partnership and a decrease in trash disposal expenses and repair service expenses at a second Local Partnership.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

Not applicable. 

  

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Item 4. Controls and Procedures.

 

(a) Evaluation of Disclosure Controls and Procedures. The Chief Executive Officer and Chief Financial Officer of Related Independence Associates III, L.P., 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) Changes in Internal Controls over Financial Reporting. During the period ended September 30, 2012, 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.

  

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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. Mine Safety Disclosures. – None
   
Item 5. Other Information. – None
   
Item 6. Exhibits.
     
  (3A) Agreement of Limited Partnership of Independence Tax Credit Plus L.P. III as adopted on December 23, 1993*
     
  (3B) Form of Amended and Restated Agreement of Limited Partnership of Independence Tax Credit Plus L.P. III, attached to the Prospectus as Exhibit A**
     
  (3C) Certificate of Limited Partnership of Independence Tax Credit Plus L.P. III as filed on December 23, 1993*
     
  (10A) Form of Subscription Agreement attached to the Prospectus as Exhibit B**
     
  (10B) Escrow Agreement between Independence Tax Credit Plus L.P. III and Bankers Trust Company*
     
  (10C) Form of Purchase and Sales Agreement pertaining to the Partnership’s acquisition of Local Partnership Interests*
     
  (10D) Form of Amended and Restated Agreement of Limited Partnership of Local Partnerships*
     
  (31.1)+ Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a)
     
  (31.2)+ Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a)
     
  (32.1)+ Certification Pursuant to Section 1350 of Title 18 of the United States Code (18 U.S.C. 1350)
     
  (32.2)+ Certification Pursuant to Section 1350 of Title 18 of the United States Code (18 U.S.C. 1350)
     
  * Incorporated herein as an exhibit by reference to exhibits filed with Post-Effective Amendment No. 4 to the Registration Statement on Form S-11 {Registration No. 33-37704}.
     
  + Filed herewith.
     
  ** Incorporated herein as an exhibit by reference to exhibits filed with Post-Effective Amendment No. 8 to the Registration Statement on Form S-11 {Registration No. 33-37704}.

 

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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.

 

INDEPENDENCE TAX CREDIT PLUS L.P. III

(Registrant)

 

      By: RELATED INDEPENDENCE ASSOCIATES III L.P.,
        General Partner
             
        By: RELATED INDEPENDENCE ASSOCIATES III INC.,
          General Partner
               
Date: November 13, 2012       By: /s/ Robert A. Pace  
            Robert A. Pace  
            Chief Financial Officer and Principal Accounting Officer
               
Date: November 13, 2012       By: /s/ Robert L. Levy  
            Robert L. Levy  
            President and Chief Executive Officer

 

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