UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR
----- 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 33-37704-03
INDEPENDENCE TAX CREDIT PLUS L.P. II
------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3646846
- - -------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
- - -------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212)421-5333
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 X No ____
---
<PAGE>
PART I - Financial Information
Item 1. Financial Statements
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
============== ============
December 31, March 31,
1997 1997
-------------- ------------
ASSETS
Property and equipment at cost,
net of accumulated depreciation
of $8,606,096 and $5,929,690,
respectively $101,895,853 $104,314,397
Cash and cash equivalents 3,088,156 4,622,176
Cash held in escrow 2,890,584 2,867,836
Deferred costs, net of accumulated
amortization of $263,002 and
$175,709, respectively 621,391 599,679
Other assets 429,806 427,412
------------ ------------
Total assets $108,925,790 $112,831,500
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage notes payable $ 51,208,800 $ 39,799,356
Construction loans payable 7,856,669 20,062,725
Accounts payable and other
liabilities 5,609,518 4,949,114
Due to local general partners and
affiliates 2,981,953 3,436,045
Due to general partner and
affiliates 233,861 191,736
------------ ------------
Total liabilities 67,890,801 68,438,976
------------ ------------
Minority interest 292,070 317,189
------------ ------------
Commitments and contingencies (Note 3)
Partners' capital:
Limited partners (58,928 BACs
issued and outstanding) 40,859,439 44,158,531
General partner (116,520) (83,196)
------------ ------------
Total partners' capital 40,742,919 44,075,335
------------ ------------
Total liabilities and partners' capital $108,925,790 $112,831,500
============ ============
See Accompanying Notes to Consolidated Financial Statements
2
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
========================= ==========================
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------- --------------------------
1997 1996 1997 1996
------------------------- --------------------------
REVENUES
Rental income $1,900,510 $ 1,599,435 $ 5,639,860 $ 4,411,583
Other income 81,036 88,405 206,049 292,719
----------- ----------- ----------- -----------
Total revenues 1,981,546 1,687,840 5,845,909 4,704,302
----------- ----------- ----------- -----------
EXPENSES
General and 572,248 333,951 1,536,177 1,074,071
administrative
General and 102,891 124,719 337,896 322,267
administrative-related
parties
(Note 2)
Repairs and 461,076 426,641 1,121,366 949,293
maintenance
Operating 231,963 202,991 741,150 528,853
Taxes 124,831 51,410 489,249 391,269
Insurance 127,143 101,849 393,725 313,660
Financial, 805,147 678,797 1,804,996 1,365,018
principally
interest
Depreciation 954,367 822,181 2,763,699 2,166,160
and amortization ----------- ----------- ----------- -----------
Total expenses 3,379,666 2,742,539 9,188,258 7,110,591
----------- ----------- ----------- -----------
Loss before (1,398,120) (1,054,699) (3,342,349) (2,406,289)
minority interest
Minority interest 5,114 966 9,933 6,157
in loss of ----------- ----------- ----------- -----------
subsidiary
partnerships
Net loss $(1,393,006) $(1,053,733) $(3,332,416) $(2,400,132)
=========== =========== =========== ===========
Net loss-limited $(1,379,076) $(1,043,196) $(3,299,092) $(2,376,131)
partners ----------- ----------- ----------- -----------
Number of
BACs outstanding 58,928 58,928 58,928 58,928
=========== =========== =========== ===========
Net loss per $ (23.40) $ (17.70) $ (55.98) $ (40.32)
BAC ----------- ----------- ----------- -----------
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Consolidated Statement of Changes in Partners' Capital
(Unaudited)
=====================================
Limited General
Total Partners Partner
-------------------------------------
Partners' capital-
April 1, 1997 $44,075,335 $44,158,531 $ (83,196)
Net loss (3,332,416) (3,299,092) (33,324)
----------- ----------- ---------
Partners' capital-
December 31, 1997 $40,742,919 $40,859,439 $(116,520)
=========== =========== =========
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Decrease in Cash and Cash Equivalents
(Unaudited)
=============================
Nine Months Ended
December 31,
-----------------------------
1997 1996
-----------------------------
Cash flows from operating activities:
Net loss $(3,332,416) $(2,400,132)
Adjustments to reconcile net loss to
net cash used in
operating activities:
Depreciation and amortization 2,763,699 2,166,160
Minority interest in loss of
subsidiaries (9,933) (6,157)
Increase (decrease) in accounts
payable and other liabilities 660,404 (1,309,941)
Decrease (increase) in cash held
in escrow 50,658 (13,027)
Increase in other assets (2,394) (123,343)
Increase in due to local general
partners and affiliates 5,943 1,048,588
Decrease in due to local general
partners and affiliates (321,535) (1,360,360)
Increase in due to
general partner and affiliates 42,125 101,401
---------- ----------
Total adjustments 3,188,967 503,321
---------- ----------
Net cash used in operating activities (143,449) (1,896,811)
---------- ----------
Cash flows from investing activities:
Improvements to property and
equipment (257,862) (728,926)
Increase in construction in progress 0 (4,656,172)
Increase in cash held
in escrow (73,406) (299,685)
Increase in deferred costs 0 (14,045)
Decrease in due to local general
partners and affiliates (138,500) (2,828,626)
---------- ----------
Net cash used in investing activities (469,768) (8,527,454)
---------- ----------
See Accompanying Notes to Consolidated Financial Statements
5
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Decrease in Cash and Cash Equivalents
(continued)
(Unaudited)
=============================
Nine Months Ended
December 31,
-----------------------------
1997 1996
-----------------------------
Cash flows from financing activities:
Proceeds from mortgage notes 217,895 159,360
Principal payments of mortgage
notes (233,307) (1,229,308)
Proceeds from construction loans 99,751 6,279,465
Principal payments on construction
loans (880,951) 0
Increase in deferred costs (109,005) 0
Decrease in capitalization
of consolidated subsidiaries
attributable to minority interest (15,186) (166,322)
----------- -----------
Net cash (used in) provided by
financing activities (920,803) 5,043,195
----------- -----------
Net decrease in cash and
cash equivalents (1,534,020) (5,381,070)
Cash and cash equivalents at
beginning of period 4,622,176 13,646,746
----------- -----------
Cash and cash equivalents at
end of period $ 3,088,156 $ 8,265,676
=========== ===========
Supplemental disclosure of noncash
financing activities:
Property and equipment reclassified
from construction in progress $ 0 $13,593,811
Conversion of construction notes
payable to mortgage notes
payable 11,424,856 5,025,622
See Accompanying Notes to Consolidated Financial Statements
6
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997
(Unaudited)
Note 1 - General
Independence Tax Credit Plus L.P. II (a Delaware limited partnership) (the
"Partnership") was organized on February 11, 1992, and commenced its public
offering on January 19, 1993. The general partner of the Partnership is Related
Independence Associates L.P., a Delaware limited partnership (the "General
Partner").
The Partnership's business is to invest in other partnerships ("Local
Partnerships", "subsidiaries" or "subsidiary partnerships") owning leveraged
apartment complexes that are eligible for the low-income housing tax credit
("Tax Credit") enacted in the Tax Reform Act of 1986, some of which complexes
may also be eligible for the historic rehabilitation tax credit.
As of December 31, 1997, the Partnership has acquired an interest in fifteen
Local Partnerships. The Partnership does not intend to acquire additional
properties. Through the rights of the Partnership and/or an affiliate of the
General Partner, which affiliate has a contractual obligation to act on behalf
of the Partnership, to remove the general partner of the subsidiary local
partnerships and to approve certain major operating and financial decisions, the
Partnership has a controlling financial interest in the subsidiary partnerships.
The Partnership's fiscal quarter ends December 31. All subsidiaries have fiscal
quarters ending September 30. Accounts of the subsidiaries have been adjusted
for intercompany transactions from October 1 through December 31.
All intercompany accounts and transactions with the subsidiary partnerships have
been eliminated in consolidation.
Increases (decreases) in the capitalization of consolidated subsidiaries
attributable to minority interest arise from cash contributions from and cash
distributions to the minority interest partners.
Losses attributable to minority interests which exceed the minority interests'
investment in a subsidiary partnership have been charged to the Partnership.
Such losses aggregated approximately $9,000 and $9,000 and $22,000 and $16,000
for the three and nine
7
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997
(Unaudited)
months ended December 31, 1997 and 1996, respectively. The Partnership's
investment in each subsidiary is equal to the respective subsidiary's partners'
equity less minority interest capital, if any. In consolidation, all subsidiary
partnership losses are included in the Partnership's capital account except for
losses allocated to minority interest capital.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted or condensed. These condensed financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Partnership's Annual Report on Form 10-K for the period ended March 31,
1997.
The books and records of the Partnership are maintained on the accrual basis of
accounting in accordance with generally accepted accounting principles. In the
opinion of the General Partner of the Partnership, the accompanying unaudited
financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial position of the
Partnership as of December 31, 1997, the results of operations for the three and
nine months ended December 31, 1997 and 1996 and changes in cash flows for the
nine months ended December 31, 1997 and 1996. However, the operating results for
the nine months ended December 31, 1997 may not be indicative of the results for
the year.
8
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997
(Unaudited)
Note 2 - Related Party Transactions
An affiliate of the General Partner has a .01% interest as a special limited
partner in each of the Local Partnerships.
The costs incurred to related parties for the three and nine months ended
December 31, 1997 and 1996 were as follows:
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------- ------------------
1997 1996 1997 1996
-------------------- ------------------
Partnership $ 12,500 $ 25,000 $ 37,500 $ 75,000
management fees (a)
Expense 23,000 39,405 98,089 90,021
reimbursement (b)
Property 62,391 57,314 187,307 148,246
management fees (c)
Local administrative 5,000 3,000 15,000 9,000
fee (d) -------- -------- -------- --------
$102,891 $124,719 $337,896 $322,267
======== ======== ======== ========
(a) The General Partner is entitled to receive a partnership management fee,
after payment of all Partnership expenses, which together with the annual local
administrative fees will not exceed a maximum of 0.5% per annum of invested
assets (as defined in the Partnership Agreement), for administering the affairs
of the Partnership. Subject to the foregoing limitation, the partnership
management fee will be determined by the General Partner in its sole discretion
based upon its review of the Partnership's investments. Unpaid partnership
management fees for any year 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 $150,000 and $115,000 were accrued and unpaid as of December 31,
1997 and March 31, 1997, respectively.
9
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997
(Unaudited)
(b) The Partnership reimburses the General Partner and its affiliates for actual
Partnership operating expenses incurred by the General Partner and its
affiliates on the Partnership's behalf. The amount of reimbursement from the
Partnership is limited by the provisions of the Partnership Agreement. Another
affiliate of the General Partner performs asset monitoring for the Partnership.
These services include site visits and evaluations of the subsidiary
partnerships' performance.
(c) Property management fees incurred by the Local Partnerships amounted to
$141,975 and $102,848 and $403,699 and $279,479 for the three and nine months
ended December 31, 1997 and 1996, respectively. Of these fees, $62,391 and
$57,314 and $187,307 and $148,246 were incurred to affiliates of the subsidiary
partnerships' general partners.
(d) 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.
Note 3 - Commitments and Contingencies
There were no changes and/or additions to disclosures regarding the subsidiary
partnerships which were included in the Partnership's Annual Report on Form 10-K
for the period ended March 31, 1997.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
The Partnership's primary source of funds include interest earned on proceeds
from the offering which were invested in tax-exempt money market instruments
pending final payments to Local Partnerships and a working capital reserve and
interest thereon. All these sources of funds are available to meet obligations
of the Partnership.
As of December 31, 1997, the Partnership has invested approximately $47,055,000
(not including acquisition fees of approximately $3,502,000) of net proceeds in
fifteen Local Partnerships of which approximately $2,321,000 remains to be paid
(including approximately $1,102,000 being held in escrow) as certain benchmarks,
such as occupancy level, must be attained prior to the release of the funds. The
Partnership does not intend to acquire additional properties. During the nine
months ended December 31, 1997, approximately $2,005,000 was paid to Local
Partnerships (of which approximately $176,000 was released from escrow). An
additional $46,000 was placed into escrow for purchase price payments during the
nine months ended December 31, 1997. Although the Partnership will not be
acquiring additional properties, the Partnership may be required to fund
potential purchase price adjustments based on tax credit adjustor clauses. Such
adjustments resulted in a net increase in purchase price of approximately
$59,000 during the nine months ended December 31, 1997.
For the nine months ended December 31, 1997, cash and cash equivalents of the
Partnership and its fifteen consolidated Local Partnerships decreased
approximately $1,534,000 due to net cash used in operating activities
($143,000), a decrease in due to local general partners and affiliates relating
to investing activities ($139,000), improvements to property and equipment
($258,000), an increase in cash held in escrow from investing activities
($73,000), net principal payments from mortgage notes and construction loans
($797,000), a decrease in capitalization of consolidated subsidiaries
attributable to minority interest ($15,000) and an increase in deferred costs
($109,000). Included in the adjustments to reconcile the net loss to cash used
in operating activities is depreciation and amortization of approximately
$2,764,000.
At December 31, 1997 and March 31, 1997, approximately $287,000 and $493,000 of
the working capital reserve remains unused, respectively, which includes amounts
which may be required for potential purchase price adjustments based on tax
credit adjustor clauses. The General Partner believes that these
11
<PAGE>
reserves, plus cash distributions received and to be received from the
operations of the Local Partnerships, will be sufficient to fund the
Partnership's ongoing operations for the foreseeable future. During the nine
months ended December 31, 1997 and 1996, amounts received from operations of the
Local Partnerships were approximately $700 and $0, respectively. Management
anticipates receiving distributions in the future, although not to a level
sufficient to permit providing cash distributions to the BACs holders.
Partnership management fees owed to the General Partner amounting to
approximately $150,000 and $115,000 were accrued and unpaid as of December 31,
1997 and March 31, 1997, respectively (see Note 2).
For a discussion of contingencies affecting certain Local Partnerships, see Note
3 to the financial statements. Since the maximum loss the Partnership would be
liable for is its net investment in the respective Local Partnerships, the
resolution of the existing contingencies is not anticipated to impact future
results of operations, liquidity or financial condition in a material way.
However, the Partnership's loss of its investment in a Local Partnership will
eliminate the ability to generate future tax credits from such Local Partnership
and may also result in recapture of tax credits, if the investment is lost
before the expiration of the compliance period.
Management is not aware of any trends or events, commitments or uncertainties
which have not otherwise been disclosed that will or are likely to impact
liquidity in a material way. Management believes the only impact would be from
laws that have not yet been adopted. The portfolio is diversified by the
location of the properties around the United States so that if one area of the
country is experiencing downturns in the economy, the remaining properties in
the portfolio may be experiencing upswings. However, the geographic
diversification of the portfolio may not protect against a general downturn in
the national economy. The Partnership has fully invested the proceeds of its
offering in fifteen Local Partnerships, all of which fully have their tax
credits in place. The tax credits are attached to the project for a period of
ten years, and are transferable with the property during the remainder of such
ten-year period. If the General Partner determined that a sale of a property is
warranted, the remaining tax credits would transfer to the new owner, thereby
adding value to the property on the market, which are not included in the
financial statement carrying amount.
Results of Operations
The Partnership's results of operations for the three and nine months ended
December 31, 1997 and 1996 consisted primarily of
12
<PAGE>
(1) approximately $14,000 and $48,000 and $64,000 and $172,000, respectively, of
tax-exempt interest income earned on funds not currently invested in Local
Partnerships and (2) the results of the Partnership's investment in fifteen
consolidated Local Partnerships.
For the three and nine months ended December 31, 1997 as compared to 1996,
rental income and all categories of expenses except general and administrative-
related parties increased and the results of operations are not comparable due
to the construction and rent up of properties. In addition, interest income will
decrease in future periods as proceeds are released to the Local Partnerships.
Other income decreased approximately $7,000 and $87,000 for the three and nine
months ended December 31, 1997 as compared to the corresponding periods in 1996
primarily due to a decrease in interest income as a result of the release of
proceeds to the Local Partnerships. General and administrative-related parties
decreased approximately $22,000 for the three months ended December 31, 1997 as
compared to 1996 primarily due to a decrease in partnership management fees and
expense reimbursements payable to the General Partner. For the three months
ended December 31, 1997 and 1996, two and two of the Partnership's fifteen
consolidated properties, respectively, completed construction in a previous
fiscal quarter, and were in various stages of rent up. In addition, thirteen and
ten of the properties had completed construction and were rented up in a
previous fiscal quarter. For the nine months ended December 31, 1997 and 1996,
zero and two of the Partnership's fifteen consolidated properties, respectively,
completed construction, and were in various stages of rent up. In addition,
three and zero of the properties had completed construction in a previous fiscal
year, and were in various stages of rent up for the nine months. Also, twelve
and ten of the properties had completed construction and were fully rented up in
a previous fiscal year. As of the end of the three and nine months ended
December 31, 1997 and 1996, zero and three of the Partnership's fifteen
consolidated properties, respectively, were still under construction and one and
four of the properties, respectively, had construction loans with commitments
for permanent financing as of December 31, 1997 and 1996.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - The litigation described in Note 3 to the financial
statements contained in Part I, Item 1 of this quarterly report on Form 10-Q is
incorporated herein by reference.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security
Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) 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*
(27) Financial Data Schedule (filed herewith).
*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)
14
<PAGE>
**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)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
15
<PAGE>
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: RELATED INDEPENDENCE
ASSOCIATES INC., General Partner
Date: February 4, 1998
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
Vice President
(principal financial officer)
Date: February 4, 1998
By: /s/ Glenn F. Hopps
------------------
Glenn F. Hopps,
Treasurer
(principal accounting officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the financial
statements for Independence Tax Credit Plus L.P. II and is qualified in its
entirety by reference to such financial statements
</LEGEND>
<CIK> 0000907045
<NAME> Independence Tax Credit Plus L.P. II
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,978,740
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 429,806
<PP&E> 110,501,949
<DEPRECIATION> 8,606,096
<TOTAL-ASSETS> 108,925,790
<CURRENT-LIABILITIES> 8,825,332
<BONDS> 59,065,469
0
0
<COMMON> 0
<OTHER-SE> 41,034,989
<TOTAL-LIABILITY-AND-EQUITY> 108,925,790
<SALES> 0
<TOTAL-REVENUES> 5,845,909
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,383,262
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,804,996
<INCOME-PRETAX> (3,342,349)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,342,349)
<EPS-PRIMARY> (55.98)
<EPS-DILUTED> 0
</TABLE>
