Attached files
file | filename |
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EX-32.2 - EX-32.2 - INDEPENDENCE TAX CREDIT PLUS L P II | ind2-20170630ex3226371d9.htm |
EX-32.1 - EX-32.1 - INDEPENDENCE TAX CREDIT PLUS L P II | ind2-20170630ex321ec7812.htm |
EX-31.2 - EX-31.2 - INDEPENDENCE TAX CREDIT PLUS L P II | ind2-20170630ex312438122.htm |
EX-31.1 - EX-31.1 - INDEPENDENCE TAX CREDIT PLUS L P II | ind2-20170630ex311fd1098.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 June 30, 2017
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 |
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13-3646846 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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1225 17th Street, Denver, Colorado |
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80202 |
(Address of principal executive offices) |
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(Zip Code) |
(303) 927-5000 |
Registrant’s telephone number, including area code |
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(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, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ |
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Accelerated filer ☐ |
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Non-accelerated filer ☐ (Do not check if a smaller reporting company)
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Smaller reporting company ☑ |
Emerging growth company ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the elected transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No
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Condensed Consolidated Statement of Changes in Partners’ (Deficit) Equity |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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2
PART I – Financial Information
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
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June 30, |
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March 31, |
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2017 |
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2017 |
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(Unaudited) |
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(Audited) |
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ASSETS |
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Operating assets |
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Cash and cash equivalents |
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$ |
1,523,795 |
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$ |
1,513,762 |
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Other assets |
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3,347 |
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11,773 |
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Total operating assets |
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1,527,142 |
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1,525,535 |
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Assets from discontinued operations (Note 5) |
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Other assets held for sale |
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— |
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433,398 |
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Total assets from discontinued operations |
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— |
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433,398 |
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Total assets |
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$ |
1,527,142 |
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$ |
1,958,933 |
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LIABILITIES AND PARTNERS’ (DEFICIT) EQUITY |
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Operating liabilities |
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Accounts payable |
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$ |
45,001 |
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$ |
40,044 |
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Due to general partner and affiliates |
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1,902,808 |
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1,878,558 |
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Total operating liabilities |
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1,947,809 |
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1,918,602 |
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Liabilities from discontinued operations (Note 5) |
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Mortgage notes payable |
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— |
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6,641,508 |
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Other liabilities held for sale |
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— |
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8,945,245 |
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Total liabilities from discontinued operations |
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— |
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15,586,753 |
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Total liabilities |
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1,947,809 |
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17,505,355 |
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Commitments and contingencies (Note 6) |
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Partners’ (deficit) equity |
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Limited partners (58,928 BACs issued and outstanding) |
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(4,144,754) |
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(18,553,228) |
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General partner |
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3,724,087 |
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3,578,547 |
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Independence Tax Credit Plus L.P. II total |
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(420,667) |
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(14,974,681) |
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Noncontrolling interests |
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— |
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(571,741) |
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Total partners’ (deficit) equity |
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(420,667) |
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(15,546,422) |
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Total liabilities and partners’ (deficit) equity |
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$ |
1,527,142 |
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$ |
1,958,933 |
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See accompanying notes to condensed consolidated financial statements.
3
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
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Three months ended |
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June 30, |
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2017 |
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2016 |
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Total revenues |
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$ |
— |
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$ |
— |
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Expenses |
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General and administrative |
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30,271 |
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70,250 |
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General and administrative-related parties (Note 2) |
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23,903 |
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23,070 |
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Total expenses |
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54,174 |
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93,320 |
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Loss from operations |
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(54,174) |
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(93,320) |
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Income (loss) from discontinued operations |
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15,179,929 |
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(126,422) |
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Net income (loss) |
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15,125,755 |
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(219,742) |
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Less: net (income) loss attributable to noncontrolling interests from discontinued operations |
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(571,741) |
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1,277 |
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Net income (loss) attributable to Independence Tax Credit Plus L.P. II |
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$ |
14,554,014 |
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$ |
(218,465) |
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Loss from operations – limited partners |
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(53,632) |
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(92,387) |
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Income (loss) from discontinued operations – limited partners |
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14,462,106 |
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(123,894) |
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Net income (loss) – limited partners |
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$ |
14,408,474 |
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$ |
(216,280) |
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Number of BACs outstanding |
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58,928 |
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58,928 |
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Loss from operations per weighted average BAC |
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$ |
(0.91) |
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$ |
(1.57) |
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Income (loss) from discontinued operations per weighted average BAC |
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245.42 |
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(2.10) |
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Net income (loss) per weighted average BAC |
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$ |
244.51 |
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$ |
(3.67) |
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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)
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Limited |
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General |
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Noncontrolling |
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Total |
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Partners |
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Partner |
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Interests |
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Partners’ (deficit) equity – April 1, 2017 |
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$ |
(15,546,422) |
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$ |
(18,553,228) |
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$ |
3,578,547 |
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$ |
(571,741) |
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Net income |
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15,125,755 |
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14,408,474 |
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145,540 |
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571,741 |
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Partners’ (deficit) equity – June 30, 2017 |
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$ |
(420,667) |
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$ |
(4,144,754) |
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$ |
3,724,087 |
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$ |
— |
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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)
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Three months ended |
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June 30, |
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2017 |
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2016 |
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Cash flows from operating activities: |
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Net income (loss) |
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$ |
15,125,755 |
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$ |
(219,742) |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Gain on sale of property |
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(15,254,923) |
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— |
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Changes in operating assets and liabilities: |
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Increase in accounts payable |
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1,882 |
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58,262 |
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Increase (decrease) in security deposit payable |
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429 |
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(375) |
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Increase in accrued interest payable |
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101,471 |
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101,461 |
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Increase in cash held in escrow |
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(17,026) |
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(21,536) |
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Decrease in other assets |
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35,557 |
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19,389 |
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Decrease in due to local general partners and affiliates |
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(4,703) |
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(5,699) |
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(Decrease) increase in due to general partner and affiliates |
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(70,750) |
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27,378 |
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Total adjustments |
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(15,208,063) |
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178,880 |
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Net cash used in operating activities |
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(82,308) |
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(40,862) |
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Cash flows from investing activities: |
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Increase in cash held in escrow |
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(9,216) |
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(9,217) |
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Proceeds from sale of property |
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35,000 |
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— |
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Net cash provided by (used in) investing activities |
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25,784 |
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(9,217) |
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Cash flows from financing activities: |
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Principal payments of mortgage notes |
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(5,100) |
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(4,785) |
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Net cash used in financing activities |
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(5,100) |
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(4,785) |
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Net decrease in cash and cash equivalents |
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(61,624) |
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(54,864) |
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Cash and cash equivalents at beginning of year |
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1,585,419 |
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1,943,788 |
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Cash and cash equivalents at end of year |
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$ |
1,523,795 |
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$ |
1,888,924 |
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Summarized below are the components of the gain on sale of property: |
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Proceeds from sale of property |
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(35,000) |
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— |
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Other assets |
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29,759 |
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— |
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Cash held in escrow |
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331,093 |
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— |
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Accounts payable and other liabilities |
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(22,986) |
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— |
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Mortgage payable |
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(6,636,408) |
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— |
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Accrued interest |
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(8,747,012) |
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— |
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Security deposits |
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(49,369) |
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— |
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Due to local general partners and affiliates |
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(120,000) |
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— |
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Due to general partners and affiliates |
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(5,000) |
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— |
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See accompanying notes to condensed consolidated financial statements.
6
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2017
(Unaudited)
NOTE 1 –Summary of Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements as of June 30, 2017 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. The Partnership sold its last remaining investment on May 15, 2017. 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.
For financial reporting purposes, the Partnership’s fiscal quarter ends June 30. The remaining Local Partnership’s fiscal quarter ends March 31st. Accounts of the remaining Local Partnership have been adjusted for intercompany transactions from April 1 through June 30. The Partnership’s fiscal quarter ends on June 30 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 (income) loss attributable to noncontrolling interests from discontinued operations amounted to approximately $(571,741) and $1,277 for the three months ended June 30, 2017 and 2016, respectively. The Partnership’s investment in the subsidiary partnership is equal to the respective subsidiary’s partnership equity less noncontrolling interest capital, if any.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and applicable rules and regulations of the Security and Exchange Commission regarding interim financial reporting. Certain information and note disclosures normally included in financial statements prepared in accordance GAAP have been omitted or condensed pursuant to such regulations. These condensed 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, 2017.
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 June 30, 2017, the results of its operations for the three months ended June 30, 2017 and 2016 and its cash flows for the three months ended June 30, 2017 and 2016. However, the operating results and cash flows for the three months ended June 30, 2017 may not be indicative of the results for the entire year.
Recently Issued Accounting Pronouncements
In March of 2016, the Financial Accounting Standards Board issued Accounting Standards Update ASU No. 2016-09, “Compensation – Stock Compensation: Improvements to Employee Shared Based Payment Accounting: Topic 718” (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of how companies account for share-based compensation, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification
7
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2017
(Unaudited)
in the statements of cash flows. ASU 2016-09 is affective for annual periods beginning after December 15, 2016 and early adoption is permitted. The new guidance does not have an impact on the Partnership’s condensed consolidated financial statements.
In February 2016, the Financial Accounting Standards Board issued ASU No. 2016-02 “Leases – Topic 842” (“ASU 2016-02”). ASU 2016-02 requires recognition of lease assets and lease liabilities by lessees for all leases greater than one year in duration and classified as operating leases under previous GAAP. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and for interim periods within that fiscal year. The new guidance did not have an impact on the Partnership’s condensed consolidated financial statements.
In May 2015, the Financial Accounting Standards Board issued Accounting Standards Update No. 2015-07 ("ASU 2015-07") regarding ASC Topic 820 "Fair Value Measurement: Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)." The amendments in ASU 2015-07 remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendments also limit certain disclosures to investments for which the entity has elected to measure at fair value using the net asset value per share practical expedient. The amendments in ASU 2015-07 are effective for annual and interim periods beginning after December 15, 2015. Early adoption is permitted. The amendments should be applied retrospectively by removing from the fair value hierarchy any investments for which fair value is measured using the net asset value per share practical expedient. The new guidance did not have an impact on the Partnership’s consolidated financial statements.
On April 7, 2015, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2015-03, which changed the presentation of deferred financing costs. The new standard requires these costs to be presented as a reduction of the carrying amount of the associated debt. The new guidance required the amortization of the deferred financing costs to be reported as interest expense. The ASU was effective for periods beginning after December 15, 2015 and required retrospective application. The new guidance did not have an impact on the Partnership’s consolidated financial statements.
In February 2015, the Financial Accounting Standards Board issued Accounting Standard Update 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. The ASU modifies existing consolidation guidance related to (i) limited partnerships and similar legal entities, (ii) the evaluation of variable interests for fees paid to decision makers or service providers, (iii) the effect of fee arrangements and related parties on the primary beneficiary determination, and (iv) certain investment funds. These changes are expected to limit the number of consolidation models and place more emphasis on risk of loss when determining a controlling financial interest. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2015 and early adoption is permitted. The new guidance did not have an impact on the Partnership’s consolidated financial statements.
In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08 “Reporting Discontinued Operations and Disclosures of Disposal of Components of an Entity.” ASU 2014-08 provides narrower definition of discontinued operations than under existing accounting principles generally accepted in the United States of America (“GAAP”). The standard update requires that only disposal of components of an entity (or group of components) that represent a strategic shift that has or will have a major effect on the reporting entity’s operations are reported in the financial statements as discontinued operations. The standard also provides guidance on the financial statement presentation and disclosures of discontinued operations. The ASU is effective prospectively for disposals (or classifications of business as held-for-sale) or components of an entity that occur in an annual or interim periods beginning after December 15, 2014. As such the net amount of assets amounting to $433,398 and net amount of liabilities amounting to $15,586,753 at March 31, 2017 have been reclassified as discontinued operations. The result of implementing the ASU had no effect on 2016 net income as previously reported.
8
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2017
(Unaudited)
In May 14, 2014, 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 and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and 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.
In August 2014, FASB issued ASU No 2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern. This standard update provides guidance about management’s responsibility to evaluate whether there is a substantial doubt about an entity’s ability to continue as 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 did not have an impact on the Partnership’s consolidated financial statements.
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., had a 0.01% interest as a special limited partner in each of the subsidiary partnerships. An affiliate of the General Partner also had a minority interest in certain local partnerships.
A)Other Related Party Expenses
The costs incurred to related parties for the three months ended June 30, 2017 and 2016 were as follows:
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Three Months Ended |
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June 30, |
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2017 |
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2016 |
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Partnership management fees (a) |
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$ |
8,901 |
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$ |
16,750 |
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Expense reimbursement (b) |
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15,000 |
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6,320 |
|
Total general and administrative - General Partner |
|
$ |
23,901 |
|
$ |
23,070 |
|
The cost incurred to related parties from discontinued operations for the three months ended June 30, 2017 and 2016 were as follows:
|
|
|
|
|
|
|
|
|
Three Months Ended |
||||
|
|
June 30, |
||||
|
|
2017 |
|
2016 |
||
Local administrative fee (c) |
|
$ |
— |
|
$ |
1,250 |
|
|
|
|
|
|
|
Total general and administrative-General Partner |
|
|
— |
|
|
1,250 |
|
|
|
|
|
|
|
Property management fees incurred to affiliates of the subsidiary partnerships' general partners |
|
|
13,248 |
|
|
14,026 |
|
|
|
|
|
|
|
Total general and administrative-related parties |
|
$ |
13,248 |
|
$ |
15,276 |
9
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2017
(Unaudited)
(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 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 $1,850,000 and $1,842,000 were accrued and unpaid as of June 30, 2017 and March 31, 2017, respectively, and are included in the line item Due to general partner and affiliates in the accompanying 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 $52,000 and $37,000 were accrued and unpaid as of June 30, 2017 and March 31, 2017, 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. |
(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 June 30, 2017 and March 31, 2017, the subsidiary partnerships owed approximately $0 and $100,000, 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. On May 15, 2017, the Partnership sold its last remaining investment and $95,000 of these fees were paid out of sale proceeds. |
As of June 30, 2017 and March 31, 2017, the Partnership owed approximately $349 and $0, respectively, to the General Partner for expenses paid on its behalf.
B)Due to Local General Partners and Affiliates
Due to local general partners and affiliates from discontinued operations at June 30, 2017 and March 31, 2017 consists of the following:
|
|
June 30, |
|
March 31, |
|
||
|
|
2017 |
|
2017 |
|
||
|
|
|
|
|
|
|
|
Construction costs payable |
|
$ |
— |
|
$ |
120,000 |
|
Management and other operating advances |
|
|
— |
|
|
4,703 |
|
|
|
$ |
— |
|
$ |
124,703 |
|
10
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2017
(Unaudited)
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 Partnership’s cash and cash equivalents include cash on hand and deposits in bank. Due to their short term nature, the carrying amounts reported in the condensed consolidated balance sheets approximate fair value.
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 June 30, 2017 |
|
At March 31, 2017 |
|
||||||||
|
|
Carrying |
|
|
|
|
Carrying |
|
|
|
|
||
|
|
Amount |
|
Fair Value |
|
Amount |
|
Fair Value |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes |
|
$ |
— |
|
$ |
— |
|
$ |
6,641,508 |
|
$ |
3,669,108 |
|
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.
11
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2017
(Unaudited)
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
On May 15, 2015, the Partnership sold its limited partnership interest in Renaissance Plaza ’93 Associates LP., (“Renaissance”) to an affiliate of the Local General Partner for a sale price of $35,000. The sale resulted in a gain of approximately $15,255,000 resulting from the write off of the deficit basis in the Local Partnership of the same amount at the date of the sale, which was recorded during the quarter ended June 30, 2017.
NOTE 5 – Discontinued Operations
The following table summarizes the financial position of the last remaining Local Partnership which was sold on May 15, 2017 and has been classified as discontinued operations in the consolidated financial statements.
|
|
June 30, |
|
March 31, |
||
|
|
2017 |
|
2017 |
||
|
|
(Unaudited) |
|
(Audited) |
||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
— |
|
$ |
71,657 |
Cash held in escrow |
|
|
— |
|
|
304,851 |
Other assets |
|
|
— |
|
|
56,890 |
Total assets |
|
$ |
— |
|
$ |
433,398 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Mortgage notes payable |
|
$ |
— |
|
$ |
6,641,508 |
Accounts payable |
|
|
— |
|
|
26,061 |
Accrued interest payable |
|
|
— |
|
|
8,645,541 |
Security deposits payable |
|
|
— |
|
|
48,940 |
Due to local general partners and affiliates (Note 2) |
|
|
— |
|
|
224,703 |
Total liabilities |
|
$ |
— |
|
$ |
15,586,753 |
12
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2017
(Unaudited)
The following table summarizes the results of operations of the last remaining Local Partnership that is classified as discontinued operations. For the three months ended June 30, 2017, Renaissance Plaza which was sold on May 15, 2017, was classified as discontinued operations in the consolidated financial statements. In order to present comparable results for the three months ended June 30, 2016, Renaissance Plaza was classified as discontinued operations in the consolidated financial statements.
|
|
Three Months Ended |
|
||||
|
|
June 30, |
|
||||
|
|
2017 |
|
2016 |
|
||
|
|
|
|
|
|
|
|
Revenues |
|
$ |
— |
|
$ |
— |
|
|
|
|
|
|
|
|
|
Rental income |
|
|
188,906 |
|
|
204,609 |
|
Other |
|
|
3,585 |
|
|
4,754 |
|
Gain on sale of property (Note 4) |
|
|
15,254,923 |
|
|
— |
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
15,447,414 |
|
|
209,363 |
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
General and administrative |
|
|
58,947 |
|
|
126,477 |
|
General and administrative-related parties (Note 2) |
|
|
13,248 |
|
|
15,276 |
|
Repairs and maintenance |
|
|
40,464 |
|
|
45,505 |
|
Operating and other |
|
|
29,286 |
|
|
21,038 |
|
Real estate taxes |
|
|
13,626 |
|
|
14,021 |
|
Insurance |
|
|
7,500 |
|
|
8,750 |
|
Interest |
|
|
104,414 |
|
|
104,718 |
|
Depreciation and amortization |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
267,485 |
|
|
335,785 |
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
|
15,179,929 |
|
|
(126,422) |
|
|
|
|
|
|
|
|
|
Noncontrolling interest in (income) loss of subsidiaries from discontinued operations |
|
|
(571,741) |
|
|
1,277 |
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations – Independence Tax Credit Plus L.P. IV |
|
$ |
14,608,188 |
|
$ |
(125,144) |
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations – limited partners |
|
$ |
14,462,106 |
|
$ |
(123,894) |
|
|
|
|
|
|
|
|
|
Number of BACs outstanding |
|
|
58,928 |
|
|
58,928 |
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations per weighted average BAC |
|
$ |
245.42 |
|
$ |
(2.10) |
|
13
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2017
(Unaudited)
Cash flows from discontinued operations:
|
|
Three Months Ended |
|
||||
|
|
June 30, |
|
||||
|
|
2017 |
|
2016 |
|
||
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
6,383,620 |
|
$ |
10,081 |
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
$ |
186,231 |
|
$ |
(9,217) |
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
$ |
(6,641,508) |
|
$ |
(4,785) |
|
NOTE 6 – Commitments and Contingencies
a) Liquidity
At June 30, 2017, the Partnership’s liabilities exceeded its assets by $420,667 and for the three months ended June 30, 2017, the Partnership had a net gain of $15,125,755. As discussed in Note 2, partnership management fees of approximately $1,850,000 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 Partnership has cash reserves of approximately $1,524,000 at June 30, 2017. 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 $30,000 for the three months ended June 30, 2017.
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) Property Management Fees
Property management fees incurred by the last remaining Local Partnership amounted to $13,248 and $14,026 for the three months ended June 30, 2017 and 2016, respectively. Of these fees $13,248 and $14,026 were earned by an affiliate of the remaining Local General Partner and related to discontinued operations for the three months ended June 30, 2017 and 2016, respectively.
d) 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
14
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2017
(Unaudited)
occurring during the subsequent event reporting period which require recognition or disclosure in the condensed consolidated financial statements other than the following:
On May 15, 2017, the Partnership sold its last remaining investment. At this time, the amount of reserves to be set aside for the payment of accrued operating expenses and liquidation expenses has not yet been determined. There can be no assurance that there will be any remaining funds available for distributions to BACs holders.
15
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 sold its last remaining investment on May 15, 2017. As of June 30, 2017, the Partnership had sold its limited partnership interests in fourteen Local Partnerships and one Local Partnership sold its property and the related assets and liabilities. All gains and losses on sales are included in discontinued operations.
Liquidation of the Partnership in accordance with Section 8.1(ii) of the Limited Partnership Agreement requires the Partnership to dissolve 150 days following the sale of the Partnership’s last remaining investment. Following dissolution, the General Partner will cause the Partnership to liquidate as soon thereafter as possible at which time the remaining assets (i.e. cash) of the Partnership will be used to first pay any remaining liabilities of the Partnership and the costs of liquidation with the remaining balance, if any, distributed to the General Partner and the BACs holders in accordance with the Partnership Agreement. Dissolution is expected to take place on or about October 18, 2017, with the liquidation and termination of the Partnership to follow shortly thereafter. At this time, the amount of reserves to be set aside for the payment of accrued operating expenses and liquidation expenses has not yet been determined. There can be no assurance that there will be any remaining funds available for distributions to BACs holders.
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 its remaining Local Partnership; and (iv) sales and/or refinance proceeds and distributions. Such funds are available to meet the obligations of the Partnership. The Partnership does not anticipate providing cash distributions to BACs holders in circumstances other than refinancing or sales. Cash distributions received from the Local Partnership, as well as the working capital reserves referred to above, will be used towards the future operating expenses of the Partnership. During the three months ended June 30, 2017 and 2016, distributions to the Partnership from sale proceeds amounted to $35,000 and $0, respectively.
During the three months ended June 30, 2017, cash and cash equivalents of the Partnership and its remaining consolidated Local Partnership decreased by approximately $61,000. This decrease was due to net cash used in operating activities of approximately $82,000, an increase in cash held in escrow relating to investing activities of approximately $9,000 and principal payments of mortgage notes of approximately $5,000 which exceeded sale proceeds received of approximately $35,000.
Total expenses from operations for the three months ended June 30, 2017 and 2016 excluding interest and general and administrative – related parties, totaled $30,271 and $70,250, respectively.
Accounts payable from operations as of June 30, 2017 and March 31, 2017 were $45,001 and $40,044, 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. Accounts payable from discontinued operations were $0 and $26,061 as of June 30, 2017 and March 31, 2017, respectively. Accrued interest payable from discontinued operations as of June 30, 2017 and March 31, 2017 was $0 and $8,645,541, respectively. Such amount represents the accrued interest on mortgage loans, which include primary and secondary loans. The remaining secondary loan had provisions such that interest was accrued but not payable until a future date. The Partnership anticipated the payment of accrued interest on the secondary loan (which made up the majority of the accrued interest payable amount and which had 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 note was collateralized by its land and buildings, and was without further recourse to the Partnership.
At June 30, 2017, the Partnership’s liabilities exceeded assets by $420,667 and for the three months ended June 30, 2017, the Partnership had a net gain of $15,125,755. However, because 1) the provisions of the secondary loan deferred the payment of accrued interest of the remaining Local Partnership and will only have been made from future refinancing or
16
sales proceeds of the remaining Local Partnership, (if any) 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.
Long-Term
Partnership management fees owed to the General Partner amounting to approximately $1,850,000 and $1,842,000 were accrued and unpaid as of June 30, 2017 and March 31, 2017, 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 Partnership’s liquidity considerations are discussed in Note 5a in Item 1.
Results of Operations
The following is a summary of the Partnership’s results of operations for the three months ended June 30, 2017 and 2016, respectively, excluding the results of its discontinued operations which are not reflected in the following discussion.
General and administrative for non-related parties’ expenses decreased approximately $40,000 for the three months ended June 30, 2017 as compared to the corresponding period ended June 30, 2016, primarily due to an decrease of legal expenses and accrued audit fees at the Partnership level.
No depreciation and amortization was booked for the three months ended June 30, 2017 and 2016, respectively, due to the fact that property and equipment were fully depreciated as of the end of the year ended March 31, 2016.
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 consolidated financial statements in the Partnership’s Annual Report on Form 10-K for the year ended March 31, 2017.
17
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.
During the three months ended June 30, 2017, the Partnership has not recorded any loss on impairment of assets. Through 2017, 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.
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.
18
(b) Changes in Internal Controls over Financial Reporting. During the period ended June 30, 2017, 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.
19
*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.
20
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: |
August 10, 2017 |
|
|
By: |
/s/ Ivyl T. Boyce |
|
|
|
|
|
Ivyl T. Boyce |
|
|
|
|
|
Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: |
August 10, 2017 |
|
|
By: |
/s/ Alan T. Fair |
|
|
|
|
|
Alan T. Fair |
|
|
|
|
|
President and Chief Executive Officer |
21