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EX-32.1 - EX-32.1 - INDEPENDENCE TAX CREDIT PLUS L P IIind2-20151231ex321fd07ad.htm
EX-31.1 - EX-31.1 - INDEPENDENCE TAX CREDIT PLUS L P IIind2-20151231ex3118e02b0.htm
EX-32.2 - EX-32.2 - INDEPENDENCE TAX CREDIT PLUS L P IIind2-20151231ex3227611e7.htm
EX-31.2 - EX-31.2 - INDEPENDENCE TAX CREDIT PLUS L P IIind2-20151231ex312cf4dcc.htm

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 


 

FORM 10-Q

 


(Mark One)

 

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

 

For the quarterly period ended December 31, 2015

 

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 033-37704-03

 

INDEPENDENCE TAX CREDIT PLUS L.P. II

(Exact name of registrant as specified in its charter)

 

Delaware

 

13-3646846

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

1225 17th Street, Denver, Colorado

 

80202

(Address of principal executive offices)

 

(Zip Code)

 

 

(303) 927-5000

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.  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).  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 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No

 

 

 


 

Table of Contents

 

 

 

 

 

 

Page
Numbers

 

 

 

Part I 

 

Item 1. 

Financial Statements

 

Condensed Consolidated Balance Sheets

 

Condensed Consolidated Statements of Operations

 

Condensed Consolidated Statement of Changes in Partners’ (Deficit) Equity

 

Condensed Consolidated Statements of Cash Flows

 

Notes to Condensed Consolidated Financial Statements

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

13 

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

16 

Item 4. 

Controls and Procedures

16 

 

 

 

Part II 

 

Item 1. 

Legal Proceedings

17 

Item 1A. 

Risk Factors

17 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

17 

Item 3. 

Defaults Upon Senior Securities

17 

Item 4. 

Mine Safety Disclosures

17 

Item 5. 

Other Information

17 

Item 6. 

Exhibits

17 

 

 

 

Signatures 

 

18 

 

 

 

 

2


 

PART I – Financial Information

Item 1.  Financial Statements.

INDEPENDENCE TAX CREDIT PLUS L.P. II

AND SUBSIDIARIES

Condensed Consolidated Balance Sheets  

 

 

 

 

 

 

 

 

 

 

    

December 31,

    

March 31,

 

 

 

2015

 

2015

 

 

 

(Unaudited)

 

(Audited)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,947,404

 

$

2,309,123

 

Cash held in escrow

 

 

289,374

 

 

299,490

 

Deferred costs

 

 

 —

 

 

8,426

 

Other assets

 

 

97,096

 

 

61,170

 

 

 

 

 

 

 

 

 

Total assets

 

$

2,333,874

 

$

2,678,209

 

 

 

 

 

 

 

 

 

LIABILITIES AND PARTNERS’ (DEFICIT) EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Mortgage notes payable

 

$

6,665,815

 

$

6,679,503

 

Accounts payable

 

 

78,162

 

 

103,619

 

Security deposit payable

 

 

52,207

 

 

57,435

 

Accrued interest payable

 

 

8,199,920

 

 

7,989,688

 

Due to local general partners and affiliates

 

 

120,000

 

 

125,766

 

Due to general partner and affiliates

 

 

1,923,537

 

 

1,966,858

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

17,039,641

 

 

16,922,869

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partners’ (deficit) equity

 

 

 

 

 

 

 

Limited partners (58,928 BACs issued and outstanding)

 

 

(17,725,731)

 

 

(17,302,450)

 

General partner

 

 

3,586,906

 

 

3,591,181

 

 

 

 

 

 

 

 

 

Independence Tax Credit Plus L.P. II total

 

 

(14,138,825)

 

 

(13,711,269)

 

 

 

 

 

 

 

 

 

Noncontrolling interests

 

 

(566,942)

 

 

(533,391)

 

 

 

 

 

 

 

 

 

Total partners’ (deficit) equity

 

 

(14,705,767)

 

 

(14,244,660)

 

 

 

 

 

 

 

 

 

Total liabilities and partners’ (deficit) equity

 

$

2,333,874

 

$

2,678,209

 

 

See accompanying notes to condensed consolidated financial statements.

3


 

INDEPENDENCE TAX CREDIT PLUS L.P. II

AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

December 31,

 

December 31,

 

 

    

2015

    

2014

  

2015

    

2014

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

188,174

 

$

203,200

 

$

610,557

 

$

623,120

 

Other income

 

 

8,856

 

 

6,185

 

 

24,253

 

 

23,039

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

 

197,030

 

 

209,385

 

 

634,810

 

 

646,159

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

103,870

 

 

85,960

 

 

293,398

 

 

263,263

 

General and administrative-related parties (Note 2)

 

 

59,816

 

 

38,431

 

 

159,427

 

 

115,875

 

Repairs and maintenance

 

 

56,661

 

 

46,732

 

 

140,703

 

 

148,481

 

Operating

 

 

31,437

 

 

30,966

 

 

87,604

 

 

93,404

 

Taxes

 

 

13,955

 

 

17,790

 

 

41,866

 

 

54,281

 

Insurance

 

 

8,750

 

 

8,750

 

 

26,250

 

 

26,250

 

Financial, principally interest

 

 

104,823

 

 

105,273

 

 

314,808

 

 

315,819

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total expenses

 

 

379,312

 

 

333,902

 

 

1,064,056

 

 

1,017,373

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(182,282)

 

 

(124,517)

 

 

(429,246)

 

 

(371,214)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to noncontrolling interests

 

 

918

 

 

643

 

 

1,690

 

 

1,948

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to Independence Tax Credit Plus L.P. II

 

$

(181,364)

 

$

(123,874)

 

$

(427,556)

 

$

(369,266)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss  – limited partners

 

$

(179,550)

 

$

(122,635)

 

$

(423,281)

 

$

(365,573)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of BACs outstanding

 

 

58,928

 

 

58,928

 

 

58,928

 

 

58,928

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per weighted average BAC

 

$

(3.05)

 

$

(2.08)

 

$

(7.18)

 

$

(6.20)

 

 

See accompanying notes to condensed consolidated financial statements.

4


 

INDEPENDENCE TAX CREDIT PLUS L.P. II

AND SUBSIDIARIES

Condensed Consolidated Statement of Changes in Partners’ (Deficit) Equity

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Limited

    

General

    

Noncontrolling

 

 

 

Total

 

Partners

 

Partner

 

Interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partners’ (deficit) equity –  April 1, 2015

 

$

(14,244,660)

 

$

(17,302,450)

 

$

3,591,181

 

$

(533,391)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(429,246)

 

 

(423,281)

 

 

(4,275)

 

 

(1,690)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions

 

 

(31,861)

 

 

 —

 

 

 —

 

 

(31,861)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partners’ (deficit) equity – December 31, 2015

 

$

(14,705,767)

 

$

(17,725,731)

 

$

3,586,906

 

$

(566,942)

 

 

See accompanying notes to condensed consolidated financial statements.

5


 

INDEPENDENCE TAX CREDIT PLUS L.P. II

AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

December 31,

 

 

    

2015

    

2014

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

 

$

(429,246)

 

$

(371,214)

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Decrease in accounts payable

 

 

(25,457)

 

 

(17,079)

 

Decrease in security deposit payable

 

 

(5,228)

 

 

(1,553)

 

Increase in accrued interest payable

 

 

210,232

 

 

251,574

 

Decrease in cash held in escrow

 

 

37,764

 

 

12,411

 

Decrease in other assets

 

 

(27,500)

 

 

(17,271)

 

Decrease in due to local general partners and affiliates

 

 

(5,766)

 

 

(5,968)

 

(Decrease) increase in due to general partner and affiliates

 

 

(43,321)

 

 

72,302

 

 

 

 

 

 

 

 

 

Total adjustments

 

 

140,724

 

 

294,416

 

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

 

(288,522)

 

 

(76,798)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Increase in cash held in escrow

 

 

(27,648)

 

 

(9,668)

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

(27,648)

 

 

(9,668)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Principal payments of mortgage notes

 

 

(13,688)

 

 

(12,845)

 

Distributions to noncontrolling interest

 

 

(31,861)

 

 

(18,094)

 

 

 

 

 

 

 

 

 

Net cash used in financing activities

 

 

(45,549)

 

 

(30,939)

 

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(361,719)

 

 

(117,405)

 

Cash and cash equivalents at beginning of period

 

 

2,309,123

 

 

2,421,161

 

Cash and cash equivalents at end of period

 

$

1,947,404

 

$

2,303,756

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

6


 

Table of Contents

 

INDEPENDENCE TAX CREDIT PLUS L.P. II

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

December 31, 2015

(Unaudited)

NOTE 1 – General

 

The condensed consolidated financial statements as of December 31, include the accounts of Independence Tax Credit Plus L.P. II (the “Partnership”) and one remaining (of an original fifteen) other limited partnership (“subsidiary partnership”, “subsidiary” or “Local Partnership”) owning affordable apartment complexes (“Properties”) that are eligible for the low-income housing tax credit. As of December 31, 2015, the Partnership has ownership interests in one remaining investment. The general partner of the Partnership is Related Independence Associates L.P., a Delaware limited partnership (the “General Partner”). The general partner of the General Partner is Independent Associates GP LLC, a Delaware limited liability company. Centerline Holding Company (“Centerline”) was the ultimate parent of Centerline Affordable Housing Advisors LLC (“CAHA”), the sole member of the Manager of the General Partner. On April 15, 2015, Alden Torch Financial, LLC, a newly formed Delaware limited liability company (“ATF”), became the indirect owner of 100% of the equity interests in Centerline. Since April 15, 2015, ATF has been the ultimate parent and indirect owner of 100% of the equity interests in CAHA. Through the rights of the Partnership and/or an affiliate of the General Partner, which affiliate has contractual obligation to act on behalf of the Partnership, to remove the general partner of each 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.

 

For financial reporting purposes, the Partnership’s fiscal quarter ends December 31. The remaining Local Partnership fiscal quarter ends September 30th.  Accounts of the remaining Local Partnership have been adjusted for intercompany transactions from October 1 through December 31.  The Partnership’s fiscal quarter ends on December 31 in order to allow adequate time for the remaining Local Partnership’s financial statements to be prepared and consolidated.  All intercompany accounts and transactions with the subsidiary partnership has been eliminated in consolidation.

 

The net loss attributable to noncontrolling interests amounted to approximately $918 and $643 and $1,690 and $1,948 for the three and nine months ended December 31, 2015 and 2014, 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 consolidated financial statements should be read in conjunction with the condensed consolidated financial statements and notes thereto included in the Partnership’s Annual Report on Form 10-K for the year ended March 31, 2015.

 

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 condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of the Partnership as of December 31, 2015, the results of its operations for the three and nine months ended December 31, 2015  and 2014 and its cash flows for the nine months ended December 31, 2015 and 2014.  However, the operating results and cash flows for the nine months ended December 31, 2015 may not be indicative of the results for the entire year.

 

Recently Issued Accounting Pronouncements

 

In April 2015, the FASB issued Accounting Standard Update 2015-03: Simplifying the Presentation of Debt Issuance Costs. This update requires capitalized debt issuance costs to be presented as a reduction to the carrying value of debt instead of being classified as a deferred charge, as currently required. This update will be effective for the Partnership for all annual and interim periods beginning after December 15, 2015 and is required to be applied retroactively for all periods presented. This update will not have a material impact on the presentation of the Partnership’s financial position.

7


 

Table of Contents

 

INDEPENDENCE TAX CREDIT PLUS L.P. II

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

December 31, 2015

(Unaudited)

 

In August 2014, the FASB issued Accounting Standard Update No. 2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern. This standard update provides guidance around management’s responsibility to evaluate whether there is a substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosure. The new guidance is effective for all annual and interim periods ending after December 16, 2016. The new guidance will not have an impact on the Partnership’s condensed consolidated financial statements.

 

On May 14, 2014 the FASB and IASB issued a new joint revenue recognition standard that supersedes nearly all US GAAP guidance on revenue recognition. The core principal of the standard is that revenue recognition should depict the transfer of goods or services to customers in the amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard is effective for the Partnership for the fiscal year beginning April 1, 2018 and the effects of the standard on the Partnership’s condensed consolidated financial statements are not known at this time.

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

 

NOTE 2 – Related Party Transactions

 

An affiliate of the General Partner, Independence SLP L.P., has a 0.01% interest as a special limited partner in each of the subsidiary partnerships. An affiliate of the General Partner also has a minority interest in certain local partnerships.

 

A)Other Related Party Expenses

 

The costs incurred to related parties for the three and nine months ended December 31, 2015 and 2014 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

December 31,

 

December 31,

 

 

     

2015

     

2014

 

2015

     

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partnership management fees (a)

 

$

16,750

 

$

16,750

 

$

50,250

 

$

50,250

 

Expense reimbursement (b)

 

 

28,257

 

 

6,064

 

 

62,576

 

 

18,303

 

Local administrative fee (c)

 

 

1,250

 

 

1,250

 

 

3,750

 

 

3,750

 

Total general and administrative - General Partner

 

 

46,257

 

 

24,064

 

 

116,576

 

 

72,303

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property management fees incurred to affiliates of the subsidiary partnerships’ general partners

 

 

13,559

 

 

14,367

 

 

42,851

 

 

43,572

 

Total general and administrative-related parties

 

$

59,816

 

$

38,431

 

$

159,427

 

$

115,875

 


(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 0.05% 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 will be

8


 

Table of Contents

 

INDEPENDENCE TAX CREDIT PLUS L.P. II

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

December 31, 2015

(Unaudited)

accrued without interest and will be payable from working capital reserves or to the extent of available funds after the Partnership has made distributions to the limited partners of sale or refinancing proceeds equal to their original capital contributions plus a 10% priority return thereon (to the extent not theretofore paid out of cash flow). Partnership management fees owed to the General Partner amounting to approximately $1,830,000 and $1,847,000 were accrued and unpaid as of December 31, 2015 and March 31, 2015, respectively, and are included in the line item Due to general partner and affiliates in the condensed consolidated balance sheets. 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.

 

(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 $0 and $30,000 were accrued and unpaid as of December 31, 2015 and March 31, 2015, 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 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.  As of December 31, 2015 and March 31, 2015, the subsidiary partnerships owed approximately $93,750 and $90,000, respectively, of these fees to Independence SLP L.P.  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.

 

B)Due to Local General Partners and Affiliates

 

Due to local general partners and affiliates at December 31, 2015 and March 31, 2015 consists of the following:

 

 

 

 

 

 

 

 

 

 

    

December 31,

    

March 31,

 

 

 

2015

 

2015

 

 

 

 

 

 

 

 

 

Construction costs payable

 

$

120,000

 

$

120,000

 

Management and other operating advances

 

 

 —

 

 

5,766

 

 

 

$

120,000

 

$

125,766

 

 

 

 

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.

 

9


 

Table of Contents

 

INDEPENDENCE TAX CREDIT PLUS L.P. II

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

December 31, 2015

(Unaudited)

Mortgage Notes Payable 

 

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2015

 

At March 31, 2015

 

 

 

Carrying

 

 

 

 

Carrying

 

 

 

 

 

    

Amount

    

Fair Value

    

Amount

    

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage notes

 

$

6,665,815

 

$

3,433,088

 

$

6,679,503

 

$

3,267,996

 

 

Fair value for the mortgage notes have been estimated using Level 3 inputs.

 

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.

 

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.

 

NOTE 4 – Sale of Properties

 

The Partnership is in the process of disposing of its last remaining investment. As of December 31, 2015, the Partnership had sold its limited partnership interests in thirteen Local Partnerships and one Local Partnership sold its property and the

10


 

Table of Contents

 

INDEPENDENCE TAX CREDIT PLUS L.P. II

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

December 31, 2015

(Unaudited)

related assets and liabilities. The Partnership is expecting to dispose of its last remaining investment within the next year; however there can be no assurance when the remaining investment will be disposed of or the amount of proceeds which may be received. However, based on the historical operating results of the remaining Local Partnership and the current economic conditions, the proceeds from such sale received by the Partnership will not be sufficient to return to the limited partners their original investments.

 

NOTE 5 – Commitments and Contingencies

 

a)     Liquidity

 

At December 31, 2015, the Partnership’s liabilities exceeded assets by $14,705,767 and for the nine months ended December 31, the Partnership had net loss of $429,246. 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 $1,830,000 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 and after the Limited Partners have received a 10% return on their capital contributions.  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, such management fees are written off and recorded as capital contributions. 

 

The mortgage payable balance of $6,665,815 and the accrued interest payable balance of $8,199,920, are of a nonrecourse nature and secured by the property.  The Partnership is currently in the process of disposing of its last remaining investment.  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 its last remaining investment, and as such has no financial responsibility to fund operating losses incurred by the Local Partnership.  The maximum loss the Partnership would incur is its net investment in such Local Partnership.

 

The Partnership has cash reserves of approximately $1,842,000 at December 31, 2015.  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 $149,000 for the nine months ended December 31, 2015.

 

Management believes the above mitigating factors enable the Partnership to continue as a going concern.  The accompanying condensed consolidated 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 high quality credit institutions.  The accounts at each bank are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per entity per institution. At times, the balances exceed the FDIC insurance limit.

 

c)     Cash Distributions

 

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

 

11


 

Table of Contents

 

INDEPENDENCE TAX CREDIT PLUS L.P. II

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

December 31, 2015

(Unaudited)

d)     Property Management Fees

 

Property management fees incurred by the Local Partnerships amounted to $13,559 and $14,367 and $42,851 and $43,572 for the three and nine months ended December 31, 2015 and 2014, respectively and earned by an affiliate of the remaining Local General Partner.

 

e)     Other

 

The Partnership is subject to the risks incidental to potential losses arising from the management and ownership of improved real estate.  The Partnership can also be affected by poor economic conditions generally. There are also substantial risks associated with owning properties receiving government assistance; for example, the possibility that Congress may not appropriate funds to enable HUD to make rental assistance payments.  HUD also restricts annual cash distributions to partners based on operating results and a percentage of the owner’s equity contribution.  The Partnership cannot sell or substantially liquidate its remaining investment during the period that the subsidy agreement is 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.

 

f)     Subsequent Events

 

The Partnership evaluated all subsequent events from the date of the condensed consolidated balance sheet through the issuance date of these condensed consolidated financial statements and determined that there were no events or transactions occurring during the subsequent event reporting period which require recognition or disclosure in the condensed consolidated financial statements.

 

 

12


 

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 fifteen Local Partnerships.  The Partnership is in the process of disposing of its last remaining investment. As of December 31, 2015, the Partnership had sold its limited partnership interests in thirteen Local Partnerships and one Local Partnership sold its property and the related assets and liabilities. The Partnership is expecting to dispose of its last remaining investment within the next year; however there can be no assurance when the remaining investment will be disposed of or the amount of proceeds which may be received. However, based on the historical operating results of the remaining Local Partnership and the current economic conditions, the proceeds from such sale received by the Partnership will not 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; and (iii) cash distributions from operations of its remaining Local Partnership.  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 Partnership, as well as the working capital reserves referred to above, will be used towards the future operating expenses of the Partnership.  During the nine months ended December 31, 2015 and 2014, no amounts were received from operations of its remaining Local Partnership.

 

During the 2015, cash and cash equivalents of the Partnership and its remaining consolidated Local Partnership decreased by approximately $362,000.  This decrease was due to net cash used in operating activities of approximately $288,000,  an increase in cash held in escrow relating to investing activities of approximately $28,000, principal payments of mortgage notes of approximately $14,000 and distributions to noncontrolling interest $32,000.

 

Total expenses from operations for the three and nine months ended December 31, 2015 and 2014 excluding interest and general and administrative – related parties, totaled $214,673 and $190,198 and $589,821 and $585,679, respectively.

 

Accounts payable from operations as of December 31, 2015 and March 31, 2015 were $78,162 and $103,619, 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 December 31, 2015 and March 31, 2015 was $8,199,920 and $7,989,688, respectively. Such amount represents the accrued interest on mortgage loans, which include primary and secondary loans.  The 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 remaining Local Partnership) will be made from future refinancing or sales proceeds of such Local Partnership. In addition, the remaining Local Partnership’s mortgage notes are collateralized by its land and buildings, and are without further recourse to the Partnership.  The maximum loss the Partnership would incur is its net investment in the remaining Local Partnership.

 

At December 31, 2015, the Partnership’s liabilities exceeded assets by $14,705,767 and for the nine months ended December 31, 2015, had a net loss of $429,246. However, because 1) the provisions of the secondary loan defer the payment of accrued interest of the remaining Local Partnership and will be made from future refinancing or sales proceeds of the remaining Local Partnership, 2) the General Partner continues to defer the payment of fees as discussed below and in Note 2 to the Condensed Consolidated 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 remaining Local 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.

 

13


 

Long-Term

 

Partnership management fees owed to the General Partner amounting to approximately $1,830,000 and $1,847,000 were accrued and unpaid as of December 31, 2015 and March 31, 2015, respectively and are included in Due to General Partner and affiliates on the Condensed Consolidated Balance Sheets. 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 to those owed to the General Partner and its affiliates, and after the Limited Partners have received a 10% return on their capital contributions.

 

All other amounts included in Due to General Partner 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 making any future advances of operating funds to the remaining Local Partnership 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 such Local Partnership.  The Partnership’s ability to continue its operations would not be affected.

 

The Partnership’s liquidity considerations are discussed in Note 5a in Item 1.

 

Since the maximum loss the Partnership would be liable for is its net investment in its remaining subsidiary partnership, the resolution of any contingencies is not anticipated to impact future liquidity or the financial condition of the Partnership in a material way.

 

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.

 

Results of Operations

 

The Partnership’s results of operations for the nine months ended December 31, 2015 and 2014 consisted primarily of the results of the Partnership’s investment in the last remaining Local Partnership.

 

Rental income remained fairly consistent with a decrease of approximately 7%  and 2% for the three and nine months ended December 31, 2015,  as compared to the corresponding period ended December 31, 2014,  primarily due to an overall slight increase in vacancy at the remaining Local Partnership. 

 

Total expenses from operations, excluding general and administrative, general and administrative-related parties, and repairs and maintenance, remained fairly consistent with a decrease of approximately 2%  and 4%  for the three and nine months ended December 31, 2015, as compared to the corresponding period ended December 31, 2014.  

 

General and administrative expenses increased approximately $18,000 and $30,000 for the three and nine months ended December 31, 2015  as compared to the corresponding period ended December 31, 2014, primarily due to an increase of legal expenses and consulting fees at the Partnership level, offset by a decrease in salary and benefit expenses, licenses and inspection expenses and legal expenses at the remaining Local Partnership.

 

General and administrative expenses-related parties’ increased approximately $21,000 and $44,000 for the three and nine months ended December 31, 2015,  as compared to the corresponding period ended December 31, 2014, primarily due to an increase of expense reimbursements resulting from a true-up in CAHA’s allocation method.

 

Repair and maintenance expenses increased approximately $10,000 and decreased $8,000 for the three and nine months ended December 31, 2015, as compared to the corresponding period ended December 31, 2014,  the increase was primarily due to an increase in elevator repair expenses, HVAC expenses, garbage removal expenses and exterminating expenses offset by a decrease in plumbing repairs expenses and general repairs; the overall decrease in 2015 was primarily due to a decrease in cleaning expenses, security expenses, painting and decorating expenses and maintenance expenses at the Local Partnership.

14


 

 

No depreciation and amortization was booked for the nine months ended December 31, 2015 and 2014, respectively, primarily due to property and equipment being fully depreciated at the end of the year ended March 31, 2014.

 

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 condensed 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 dates of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods.  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 condensed consolidated financial statements in the Partnership’s Annual Report on Form 10-K for the year ended March 31, 2015.

 

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 were no assets classified as property and equipment-held for sale as of December 31, 2015.

 

During the nine months ended December 31, 2015, the Partnership has not recorded any loss on impairment of assets.  Through 2015, the Partnership has recorded approximately $31,906,000 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.

 

15


 

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.

 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.

 

Not applicable.

 

Item 4.  Controls and Procedures.

 

(a)    Evaluation of Disclosure Controls and Procedures.  The President (Principal Executive Officer) and Chief Financial Officer of Related Independence Associates, Inc., the general partner of the General Partner of the Partnership, have evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”) as of the end of the period covered by this report.  Based on such evaluation, such officers have concluded that, as of the end of such period, the Partnership’s disclosure controls and procedures are effective.

 

(b)    Changes in Internal Controls over Financial ReportingDuring the period ended December 31, 2015, 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. 

16


 

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. II as adopted on February 11, 1992*

 

 

 

 

(3B)

Form of Amended and Restated Agreement of Limited Partnership of Independence Tax Credit Plus L.P. II, attached to the Prospectus as Exhibit A**

 

 

 

 

(3C)

Certificate of Limited Partnership of Independence Tax Credit Plus L.P. II as filed on February 11, 1992*

 

 

 

 

(10A)

Form of Subscription Agreement attached to the Prospectus as Exhibit B**

 

 

 

 

(10B)

Escrow Agreement between Independence Tax Credit Plus L.P. II 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).

 

 

 

 

101+

The following items from this Quarterly Report on Form 10-Q formatted in Extensible Business Reporting Language: (i) Consolidated Balance Sheet (unaudited), (ii) Consolidated Statement of Operations (unaudited), (iii) Consolidated Statements of Changes in Partners’ (Deficit)  Capital (unaudited), (iv) Consolidated Statement of Cash Flows (unaudited), and (v) Notes to Consolidated Financial Statements (unaudited).


*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).

 

**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).

 

+Filed herewith.

17


 

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. II

(Registrant)

 

 

 

 

 

 

By:

RELATED INDEPENDENCE ASSOCIATES L.P.,

 

 

General Partner

 

 

 

 

By:

INDEPENDENCE ASSOCIATES GP LLC,

 

 

General Partner

 

 

 

 

By:

CENTERLINE MANAGER LLC,

 

 

Manager

 

 

 

 

By:

CENTERLINE AFFORDABLE HOUSING ADVISORS LLC,

 

 

Sole Member

 

 

 

 

By:

CENTERLINE CAPITAL GROUP LLC,

 

 

Sole Member

 

 

 

 

 

 

 

 

Date:

February 16, 2016

 

 

By:

/s/ Mark B. Hattier

 

 

 

 

 

Mark B. Hattier

 

 

 

 

 

Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Date:

February 16, 2016

 

 

By:

/s/ Alan T. Fair

 

 

 

 

 

Alan T. Fair

 

 

 

 

 

President (Principal Executive Officer)

 

 

18