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 June 30, 2013

 

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 0-17015

 

INDEPENDENCE TAX CREDIT PLUS L.P. IV

(Exact name of registrant as specified in its charter)

Delaware		13-3809869
(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. IV

AND SUBSIDIARIES

Consolidated Balance Sheets

 

		June 30,				March 31,
		2013				2013
		(Unaudited)				(Audited)
ASSETS
Operating assets
Property and equipment - (at cost, net of accumulated depreciation of $19,142,626 and $19,056,585, respectively)		$	5,182,549			$	5,268,589
Cash and cash equivalents			1,022,199				1,117,442
Cash held in escrow			1,337,381				1,299,719
Deferred costs (net of accumulated amortization of $265,844 and $257,455, respectively)			310,271				318,660
Due from local general partners and affiliates (Note 2)			628,942				662,083
Other assets			381,290				249,829
Total assets		$	8,862,632			$	8,916,322
LIABILITIES AND PARTNERS’ DEFICIT
Operating liabilities
Mortgage notes payable		$	18,037,390			$	18,102,636
Accounts payable			421,460				309,287
Accrued interest payable			4,441,327				4,350,317
Security deposits payable			269,490				261,472
Interest rate swap (Note 3)			62,000				69,000
Due to local general partners and affiliates (Note 2)			1,764,368				1,852,020
Due to general partners and affiliates (Note 2)			2,963,123				2,851,598
Total liabilities			27,959,158				27,796,330
Commitments and contingencies (Note 6)
Partners’ deficit
Limited partners  (45,844 BACs issued and outstanding)			(19,285,600	)			(19,102,162	)
General partners			(584,904	)			(583,051	)
Independence Tax Credit Plus L.P. IV total			(19,870,504	)			(19,685,213	)
Noncontrolling interests			773,978				805,205
Total partners’ deficit			(19,096,526	)			(18,880,008	)
Total liabilities and partners’ deficit		$	8,862,632			$	8,916,322

 

See accompanying notes to consolidated financial statements.

 

 

INDEPENDENCE TAX CREDIT PLUS L.P. IV

AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

 

		Three Months Ended
		June 30,
		2013				2012 *
Revenues
Rental income		$	1,047,584			$	1,018,557
Other			5,623				11,738
Total revenues			1,053,207				1,030,295
Expenses
General and administrative			324,382				282,244
General and administrative-related parties (Note 2)			150,068				151,017
Repairs and maintenance			202,973				143,137
Operating and other			177,131				171,080
Real estate taxes			31,284				29,317
Insurance			40,011				35,892
Interest			225,639				229,107
Change in fair value of interest rate swap (Note 3)			(7,000	)			1,000
Depreciation and amortization			94,430				173,368
Total expenses from operations			1,238,918				1,216,162
Loss from operations			(185,711	)			(185,867	)
Income from discontinued operations (including gain on sale of property) (Note 5)			-				2,144,484
Net (loss) income			(185,711	)			1,958,617
Net loss (income) attributable to noncontrolling interests from operations			420				(67	)
Net income attributable to noncontrolling interests from discontinued operations			-				(25,060	)
Net loss (income) attributable to noncontrolling interests			420				(25,127	)
Net (loss) income attributable to Independence Tax Credit Plus L.P. IV		$	(185,291	)		$	1,933,490
Loss from operations – limited partners			(183,438	)			(184,075	)
Income from discontinued operations – limited partners			-				2,098,230
Net (loss) income  – limited partners		$	(183,438	)		$	1,914,155
Number of BACs outstanding			45,844				45,844
Loss from operations per weighted average BAC		$	(4.00	)		$	(4.02	)
Income from discontinued operations per weighted average BAC			-				45.77
Net (loss) income per weighted average BAC		$	(4.00	)		$	41.75

 

* Reclassified for comparative purposes.

 

See accompanying notes to consolidated financial statements.

 

 

INDEPENDENCE TAX CREDIT PLUS L.P. IV

AND SUBSIDIARIES

Consolidated Statement of Changes in Partners’ Deficit

(Unaudited)

 

						Limited				General				Noncontrolling
		Total				Partners				Partner				Interests
Partners’ deficit – April 1, 2013		$	(18,880,008	)		$	(19,102,162	)		$	(583,051	)		$	805,205
Net loss			(185,711	)			(183,438	)			(1,853	)			(420	)
Distributions			(30,807	)			-				-				(30,807	)
Partners’ deficit  – June 30, 2013		$	(19,096,526	)		$	(19,285,600	)		$	(584,904	)		$	773,978

 

See accompanying notes to consolidated financial statements.

 

 

INDEPENDENCE TAX CREDIT PLUS L.P. IV

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

 

		Three Months Ended
		June 30,
		2013				2012
Cash flows from operating activities:
Net (loss) income		$	(185,711	)		$	1,958,617
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization			94,430				195,128
Gain on sale of property			-				(2,125,079	)
Change in fair value of rate swap			(7,000	)			1,000
Changes in assets and liabilities:
Increase in cash held in escrow			(63,362	)			(136,750	)
Decrease (increase) in due from local general partners and affiliates			33,141				(5,216	)
(Increase) decrease in other assets			(131,461	)			16,245
Increase in accounts payable			112,172				30,807
Increase in accrued interest payable			91,010				105,955
Increase in security deposit payable			8,018				31,969
Decrease in due to local general partners and affiliates			(4,395	)			(145	)
Increase in due to general partner and affiliates			111,525				114,120
Total adjustments			244,078				(1,771,966	)
Net cash provided by operating activities			58,367				186,651
Cash flows from investing activities:
Decrease in cash held in escrow			25,700				70,633
Net repayments to local general partners and affiliates			(83,257	)			(131,111	)
Net cash used in investing activities			(57,557	)			(60,478	)
Cash flows from financing activities:
Repayments of mortgage notes			(65,246	)			(91,321	)
Increase in deferred costs			-				(600	)
Distributions to noncontrolling interests			(30,807	)			(90,077	)
Net cash used in financing activities			(96,053	)			(181,998	)
Net decrease in cash and cash equivalents			(95,243	)			(55,825	)
Cash and cash equivalents at beginning of period			1,117,442				893,534
Cash and cash equivalents at end of period*		$	1,022,199			$	837,709
Summarized below are the components of the gain on sale of property:
Property and equipment, net of accumulated depreciation		$	-			$	49,715
Deferred costs			-				14,112
Other assets			-				18,963
Cash held in escrow			-				55,433
Accounts payable			-				4,171
Mortgage payable			-				(1,849,000	)
Accrued interest			-				(370,798	)
Security deposits			-				(9,475	)
Due to local general partners and affiliates			-				(38,200	)

 

* Cash and cash equivalents at end of period, includes cash and cash equivalents from discontinued operations of $0 and $34,939, respectively.

 

See accompanying notes to consolidated financial statements.

 

  

INDEPENDENCE TAX CREDIT PLUS L.P. IV

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013

(Unaudited)

 

NOTE 1 – General

 

The consolidated financial statements, as of June 30, 2013, include the accounts of Independence Tax Credit Plus L.P. IV (the “Partnership”) and eight other limited partnerships (“subsidiary partnerships”, “subsidiaries” or “Local Partnerships”) owning affordable apartment complexes (“Properties”) that are eligible for the low-income housing tax credits. Some of the Properties may also be eligible for the historic rehabilitation tax credits. The general partner of the Partnership is Related Independence L.L.C., a Delaware limited liability company (the “General Partner”), which is managed by an affiliate of Centerline Holding Company (“Centerline”), the ultimate parent of the manager of the general partner of the General Partner. For information on Centerline’s unaudited 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 (“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 first fiscal quarter ends June 30^th. The first quarter for all subsidiaries ends March 31^st. Accounts of the subsidiaries have been adjusted for intercompany transactions from April 1^st through June 30^th. The Partnership’s fiscal quarter ends three months after the subsidiaries 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 net loss (income) attributable to noncontrolling interests amounted to approximately $500 and $(25,000) for the three months ended June 30, 2013 and 2012, 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 consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Partnership’s Annual Report on Form 10-K for the year ended March 31, 2013.

 

The books and records of the Partnership are maintained on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. In the opinion of the General Partner of the Partnership, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the consolidated financial position of the Partnership as of June 30, 2013, the results of its operations and its cash flows for the three months ended June 30, 2013 and 2012. However, the operating results and cash flows for the three months ended June 30, 2013 may not be indicative of the results for the entire year.

 

Recent Accounting Pronouncements

 

In February 2013, the Financial Accounting Standards Board issued an accounting standards update ("ASU") No. 2013-02 "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income," requiring new disclosures for items reclassified out of accumulated other comprehensive income ("AOCI"), including (1) changes in AOCI balances by component and (2) significant items reclassified out of AOCI. The guidance does not amend any existing requirements for reporting net income or OCI in the financial statements. The standards update was effective for reporting periods beginning after December 15, 2012, to be applied prospectively. The adoption of this standard did not have a significant impact on these consolidated financial statements.

 

Use of Estimates

 

The preparation of consolidated financial statements requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

NOTE 2 – Related Party Transactions

 

A)

Related Party Expenses

 

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 months ended June 30, 2013 and 2012 were as follows:

 

 

INDEPENDENCE TAX CREDIT PLUS L.P. IV

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013

(Unaudited)

 

		Three Months Ended
		June 30,
		2013				2012 *
Partnership management fees (a)		$	47,000			$	69,575
Expense reimbursement (b)			57,944				36,274
Local administrative fee (c)			8,000				8,000
Total general and administrative-General Partners			112,944				113,849
Property management fees incurred to affiliates of the subsidiary partnerships’ general partners			37,124				37,168
Total general and administrative-related parties		$	150,068			$	151,017
* Reclassified for comparative purposes.

  

The costs incurred to related parties from discontinued operations for the three months ended June 30, 2013 and 2012 were as follows:

 

		Three Months Ended
		June 30,
		2013				2012 *
Local administrative fee (c)		$	-			$	3,000
Total general and administrative-General Partner			-				3,000
Property management fees incurred to affiliates of the subsidiary partnerships' general partners			-				16,452
Total general and administrative-related parties		$	-			$	19,452
* 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 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 those owed to the General Partner and its affiliates. Partnership management fees owed to the General Partner amounting to approximately $2,591,000 and $2,544,000 were accrued and unpaid as of June 30, 2013 and March 31, 2013, respectively. Current year partnership management fees may be paid out of operating reserves or refinancing and sales proceeds. However, the General Partner cannot demand payment of the deferred fees beyond the Partnership’s ability to pay them.

 

(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 Partner and its affiliates amounting to approximately $95,000 and $37,000 were accrued and unpaid as of June 30, 2013 and March 31, 2013, 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 IV L.P., a special 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 fees owed to Independence SLP IV L.P. amounting to $277,000 and $271,000 were accrued and unpaid as of June 30, 2013 and March 31, 2013, 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.

  

 

INDEPENDENCE TAX CREDIT PLUS L.P. IV

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013

(Unaudited)

 

B) Due to/from Local General Partners and Affiliates

 

The amounts due to Local General Partners and affiliates from operating liabilities consist of the following:

 

		June 30,				March 31,
		2013				2013
Development fee payable		$	1,441,171			$	1,441,171
Consulting fee payable			50,000				50,000
Operating advances			272,955				356,212
Management and other fees			242				4,637
		$	1,764,368			$	1,852,020

 

Due from Local General Partners and affiliates from operating assets consists of the following:

 

		June 30,				March 31,
		2013				2013
Local general partner loan receivable		$	628,942			$	662,083

 

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 and Cash Held in Escrow

 

The carrying amount approximates fair value.

 

Accounts Payable and Other Liabilities

 

The carrying amounts approximate fair value due to their short-term nature.

 

Mortgage Notes Payable, Accrued Interest and Interest Rate Swap Agreement

 

The Partnership has categorized the fair value of financial assets and liabilities based upon the fair value hierarchy specified by ASC Topic 820, Fair Value Measurements (“ASC 820”). This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). This standard provides for a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

 

Level 1:

Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2:

Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

 

Level 3:

Unobservable inputs that reflect the Partnership’s own assumptions.

 

The estimated fair value of mortgage notes payable 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:

 

 

INDEPENDENCE TAX CREDIT PLUS L.P. IV

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013

(Unaudited)

 

		At June 30, 2013								At March 31, 2013
		Carrying								Carrying
		Amount				Fair Value				Amount				Fair Value
LIABILITIES:
Mortgage notes		$	18,037,390			$	10,341,024			$	18,102,636			$	10,388,375

 

For the mortgage notes, fair value is estimated using Level 3 inputs and calculated using present value cash flow models based on a discount rate. Centerline has not been active in the tender option bond market, through which these bonds have been securitized in the past. 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.

 

Interest Rate Swap Agreement

 

For the interest rate swap, in the absence of readily determinable fair values, the fair value is estimated by the Partnership with the assistance of valuations obtained from the Bank of Hawaii (the “Bank”), at which the swap transaction is held. The interest rate swap is valued based on the Bank’s estimate of the net present value of the expected cash flows from each transaction subject to the interest rate swap using relevant mid-market data inputs and based on the assumption of no unusual market conditions or forced liquidation. The preceding method described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Partnership believes its valuation method is appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

 

On August 24, 2010, GP Kaneohe Limited Partnership (“Kaneohe”), a subsidiary partnership, entered into an interest rate swap agreement with the Bank as a prerequisite for obtaining refinancing on its original mortgage note payable in the amount of $2,297,000. The agreement provides a fixed rate of interest on the notional amount, as provided in the agreement, in exchange for the variable rate. The swap contract became effective September 1, 2010. The following are the terms under the swap:

 

Fixed swap – initial notional amount		$	3,050,000
Fixed swap – current notional amount			2,927,000
Fixed rate			4.65	%
Variable rate at March 31, 2013			3.75	%
Termination date			September 1, 2015

 

Fair value for the interest rate swap is estimated using Level 2 inputs. At March 31, 2013, the fair value of the interest rate swap was approximately $62,000.

 

Derivative Instruments not meeting the criteria for hedge accounting (or for which an entity elects not to apply hedge accounting to the derivative in the event that the criteria are met) are recorded at fair value with any change in fair value reflected in the statement of operations in the period of change.

 

Due to General Partner and Affiliates and Due to/from Local General Partners and Affiliates

 

Management believes it is not practical to estimate the fair value of due to General Partner and affiliates and due to/from Local General Partners and affiliates because market information on such obligations is not currently available.

 

 

INDEPENDENCE TAX CREDIT PLUS L.P. IV

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013

(Unaudited)

 

NOTE 4 – Sale of Properties

 

The Partnership is currently in the process of developing a plan to dispose of all of its investments. It is anticipated that this process will continue to take a number of years. Through June 30, 2013, the Partnership has sold its limited partnership interest in four Local Partnerships and the property and the related assets and liabilities of two Local Partnerships have been sold. There can be no assurance as to when the Partnership will dispose of its eight 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 investments. All gains and losses on sales are included in discontinued operations.

 

On June 11, 2012, the Partnership sold its limited partnership interest in Marlton Housing Partnership, L.P (“Marlton”) to an affiliate of the Local General Partner for a sales price of $1. The sale resulted in a gain of approximately $2,125,000 resulting from the write-off of the deficit basis in the Local Partnership of the same amount at the date of sale, which was recorded during the quarter ended June 30, 2012. An adjustment to the gain of approximately $(91,000) was recorded during the quarter ended September 30, 2012, resulting in an overall gain of approximately $2,034,000.

 

  

INDEPENDENCE TAX CREDIT PLUS L.P. IV

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013

(Unaudited)

 

NOTE 5 – Discontinued Operations

 

The following table summarizes the results of operations of the Local Partnerships that are classified as discontinued operations. For the three months ended June 30, 2013, there were no properties classified as discontinued operations in the consolidated financial statements. For the three months ended June 30, 2012, Marlton which was sold during the period and Belmont and New Zion, which were sold during the year ended March 31, 2013, in order to present comparable results to the three months ended June 30, 2013, were classified as discontinued operations in the consolidated financial statements.

 

Consolidated Statements of Discontinued Operations:

 

		Three Months Ended
		June 30,
		2012 *
Revenues
Rental income		$	299,144
Other			10,039
Gain on sale of property (Note 4)			2,125,079
Total revenue			2,434,262
Expenses
General and administrative			82,945
General and administrative-related parties (Note 2)			19,452
Repairs and maintenance			53,260
Operating and other			31,479
Real estate taxes			8,064
Insurance			12,313
Interest			60,506
Depreciation and amortization			21,759
Total expenses			289,778
Income from discontinued operations			2,144,484
Noncontrolling interest in income of subsidiaries from discontinued operations			(25,060	)
Income from discontinued operations – Independence Tax Credit Plus IV		$	2,119,424
Income from discontinued operations – limited partners		$	2,098,230
Number of BACs outstanding			45,844
Income from discontinued operations per weighted average BAC		$	45.77

 

* Reclassified for comparative purpose.

 

 

INDEPENDENCE TAX CREDIT PLUS L.P. IV

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013

(Unaudited)

 

Cash Flows from Discontinued Operations:

 

		Three Months Ended
		June 30,
		2013				2012 *
Net cash provided by operating activities		$	-			$	1,301,573
Net cash provided by investing activities		$	-			$	500,893
Net cash used in financing activities		$	-			$	(1,877,136	)

 

* Reclassified for comparative purposes.

 

NOTE 6 – Commitments and Contingencies

 

a) Liquidity

 

At June 30, 2013, the Partnership’s liabilities exceeded assets by $19,096,526 and for the three months ended June 30, 2013, the Partnership had net loss of $(185,711). 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 $2,591,000 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.

 

All of the mortgage payable balance of $18,037,390 and the accrued interest payable balance of $4,441,327 is of a nonrecourse nature and secured by the respective properties. The Partnership is currently in the process of developing a plan to dispose of 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 the Tax Credits if the investment is lost before the expiration of the Compliance Period. Dispositions of any investment in a Local Partnership are not anticipated to impact the future results of liquidity or financial condition of the Partnership.

 

The Partnership has unconsolidated working capital reserves of approximately $565,000 at June 30, 2013. 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 $34,000 for the three months ended June 30, 2013.

 

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) Uninsured Cash and Cash Equivalents

 

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

 

c) Leases

 

Certain subsidiary partnerships have land lease arrangements whereby they are obligated to pay $1 per annum through June 2054.

 

d) Cash Distributions

 

Cash distributions from the Local Partnerships to the Partnership are restricted by the provisions of the respective agreements of limited partnership of the Local Partnerships and/or the U.S. Department of Housing and Urban Development.

 

e) Property Management Fees

 

Property management fees incurred by the Local Partnerships amounted to $58,919 and $80,132 for the three months ended June 30, 2013 and 2012, respectively. Of these fees, $37,124 and $53,620 were incurred to the Local General Partners for the three months ended June 30, 2013 and 2012, respectively, which include $0 and $16,452 of fees relating to discontinued operations for the three months ended June 30, 2013 and 2012, respectively.

 

 

INDEPENDENCE TAX CREDIT PLUS L.P. IV

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

June 30, 2013

(Unaudited)

 

f) Other

 

The Partnership is subject to risks incidental to potential losses arising from the management and ownership of real estate. The Partnership can also be affected by poor economic conditions generally; however no more than (25%) 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 the U.S. 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 owners’ 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 contract expires.

 

The Partnership and BACs holders began to recognize Tax Credits with respect to a Property when the Credit Period for such Property commenced (generally ten years from the date of investment or, if later, the date the Property is leased to qualified tenants). 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, 2012, all the Local Partnerships have completed their Credit Periods. 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, 2017 with respect to the Properties depending upon when the Compliance Period commenced.

 

g) Subsequent Events

 

The Partnership 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 consolidated financial statements.

 

  

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 fourteen Local Partnerships of which, approximately $148,000 remains to be paid to the Local Partnerships (including approximately $123,000 being held in escrow). The Partnership is currently in the process of developing a plan to dispose of all its investments. Through June 30, 2013, the Partnership has sold its limited partnership interests in four Local Partnerships and the property and the related assets and liabilities of two Local Partnerships have been sold. There can be no assurance as to when the Partnership will dispose of its eight 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 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 and/or refinance proceeds and distributions. Such funds, although minimal (other than possible sales and/or refinance proceeds and distributions), are available to meet the obligations of the Partnership. During the three months ended June 30, 2013, and 2012, distributions from operations of the Local Partnerships amounted to approximately $21,000 and $12,000, respectively. The Partnership does not anticipate providing cash distributions to BACs holders in circumstances other than refinancing or sales.

 

During the three months ended June 30, 2013, cash and cash equivalents of the Partnership and its consolidated Local Partnerships decreased approximately $95,000. This decrease was due to repayment of mortgage notes ($65,000), net repayments to local general partners and affiliates ($83,000) and distributions to noncontrolling interests ($31,000), which exceeded a decrease in cash held in escrow relating to investing activities ($26,000) and net cash provided by operating activities ($58,000). Included in the adjustments to reconcile the net loss to net cash provided by operating activities is depreciation and amortization in the amount of approximately ($94,000) and a change from interest rate swap of approximately ($7,000).

 

Total expenses from operations for the three months ended June 30, 2013, and 2012, excluding depreciation and amortization, interest, unrealized change in interest rate swap and general and administrative-related parties, totaled $775,781 and $661,670, respectively.

 

Accounts payable from operations as of June 30, 2013 and March 31, 2013 were $421,460 and $309,287, 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. Accrued interest payable from operations as of June 30, 2013 and March 31, 2012 was $4,441,327 and $4,350,317, 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. The maximum loss the Partnership would incur is its net investment in the respective Local Partnership.

 

The Partnership has an unconsolidated working capital reserve of approximately $565,000 at June 30, 2013. 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 fiscal year.

 

At June 30, 2013, the Partnership’s liabilities exceeded assets by $19,096,526 and for the three months ended June 30, 2013, the Partnership had net loss of $(185,711). However, because 1) the provisions of the secondary loans defer the payment of accrued interest of the respective Local Partnerships and will be made from future refinancing or sales proceeds of the respective Local Partnerships, 2) the General Partner continues to defer the payment of fees as discussed below and in Note 2 to the Financial Statements, and 3) the Partnership has sufficient unconsolidated working capital reserves to cover the Partnership’s day to day operating expenses, the Partnership (and the applicable Local Partnerships) 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.

 

Long-Term

 

Partnership management fees owed to the General Partner amounting to approximately $2,591,000 and $2,544,000 were accrued and unpaid as of June 30, 2013, and March 31, 2013, respectively, and are included in the line item Due to general partners and affiliates in the consolidated balance sheets. 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 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 making any future advances of 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.

 

The Partnership’s liquidity considerations are 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 liquidity or the financial condition of the Partnership 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 expiration of the Compliance Period.

 

  

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 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 originally invested the proceeds of its Offering in 14 Local Partnerships, all of which had their Tax Credits fully in place during the Credit Periods. As of December 31, 2012, all the Local Partnerships have completed their Credit Periods. 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, 2017 with respect to the Properties depending upon when the Compliance Period commenced.

 

Off-Balance Sheet Arrangements

 

The Partnership has no off-balance sheet arrangements.

 

Fair Value Measurements

 

See Note 3 in Item 1 for methods and assumptions 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.

 

Critical Accounting Policies and Estimates

 

The preparation of consolidated financial statements requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of certain accounting estimates considered critical by the Partnership. 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 in the Partnership’s Annual Report on Form 10-K for the year ended March 31, 2013

 

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 (using the fair market value based on comparative sales) 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 a specific asset, said asset is 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 no assets classified as property and equipment-held for sale as of June 30, 2013.

 

During the three months ended June 30, 2013, the Partnership has not recorded any loss on impairment of assets. Through June 30, 2013, the Partnership has recorded approximately $33,280,000 as an aggregate loss on impairment of property.

 

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 results of operations for the three months ended June 30, 2013 and 2012, 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% for the three months ended June 30, 2013, as compared to the corresponding period in 2012, primarily due to an increase in occupancies and rental rates at several Local Partnerships.

 

Total expenses, excluding general and administrative, repairs and maintenance, depreciation and amortization and unrealized loss on interest rate swap remained fairly consistent, with an increase of approximately 1% for the three months ended June 30, 2013 as compared to the corresponding period in 2012.

 

General and administrative expenses increased approximately $42,000 for the three months ended June 30, 2013, as compared to the corresponding period in 2012, primarily due to an increase in repairs, maintenance and office salaries at one Local Partnership and an increase in printing fees at the Partnership level.

 

Repairs and maintenance expense increased approximately $60,000 for the three months ended June 30, 2013 as compared to the corresponding period in 2012, primarily due to window and door replacements at one Local Partnership and parking lot improvements at a second Local Partnership.

 

Depreciation and amortization decreased approximately $79,000 for the three months ended June 30, 2013 as compared to the corresponding period in 2012, primarily due to reduction of the property and equipment as a result of a loss on impairment of assets recorded during the year ended March 31, 2013 at five Local Partnerships.

 

Change in fair value of interest rate swap decreased approximately $8,000 for the three months ended June 30, 2013 as compared to the corresponding period in 2012, primarily due to the change in fair value of the interest rate swap agreement at one Local Partnership.

  

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

Not applicable.

 

Item 4. Controls and Procedures.

 

(a) Evaluation of Disclosure Controls and Procedures. The Chief Executive Officer and Chief Financial Officer of Related Independence L.L.C, 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 June 30, 2013, 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.

  

  

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 Disclsoures. – None
Item 5.	Other Information. – None
Item 6.	Exhibits.
	(4)	Form of Amended and Restated Agreement of Limited Partnership of the Partnership (attached to the Prospectus as Exhibit A)*
	(10A)	Form of Subscription Agreement (attached to the Prospectus as Exhibit B)*
	(10B)	Form of Escrow Agreement between the Partnership and the Escrow Agent**
	(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 by reference to the final Prospectus as filed pursuant to Rule 424 under the Securities Act of 1933.
	**	Filed as an exhibit to the Registration Statement on Form S-11 of the Partnership (File No. 33-89968) and incorporated herein by reference thereto.
	+	Filed herewith.

 

 

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. IV

(Registrant)

 

		By:	RELATED INDEPENDENCE L.L.C.,
			a General Partner
Date:	August 14, 2013			By:	/s/ Robert A. Pace
					Robert A. Pace
					Chief Financial Officer and Principal Accounting Officer
Date:	August 14, 2013			By:	/s/ Robert L. Levy
					Robert L. Levy
					President and Chief Executive Officer