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 September 30, 1999
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 Securi-
ties 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>
<TABLE>
PART I - Financial Information
Item 1. Financial Statements
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<CAPTION>
September 30, March 31,
1999 1999
<S> <C> <C>
ASSETS
Property and equipment at cost,
net of accumulated depreciation
of $14,557,702 and $12,842,757,
respectively $93,447,526 $95,123,555
Cash and cash equivalents 1,106,205 1,051,505
Cash held in escrow 2,756,387 2,487,110
Deferred costs, net of accumulated
amortization of $433,373
and $385,360, respectively 377,199 425,212
Other assets 707,115 757,455
Total assets $98,394,432 $99,844,837
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Liabilities:
Mortgage notes payable $58,933,211 $59,105,602
Accounts payable and other
liabilities 1,466,648 1,304,205
Accrued interest 6,751,218 6,449,318
Due to local general partners and
affiliates 1,844,364 1,839,744
Due to general partner and
affiliates 1,161,348 851,420
Total liabilities 70,156,789 69,550,289
Minority interest 146,727 152,233
Commitments and contingencies (Note 3)
Partners' capital (deficit):
Limited partners (58,928 BACs
issued and outstanding) 28,333,956 30,364,841
General partner (243,040) (222,526)
Total partners' capital (deficit) 28,090,916 30,142,315
Total liabilities and partners'
capital (deficit) $98,394,432 $99,844,837
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1999 1998* 1999 1998*
<S> <C> <C> <C> <C>
Revenues
Rental income $ 1,953,667 $ 1,899,734 $ 3,898,257 $ 3,743,323
Other income 43,353 48,777 79,115 100,658
Total revenues 1,997,020 1,948,511 3,977,372 3,843,981
Expenses
General and
administrative 484,672 477,553 975,715 934,068
General and
administrative-
related parties
(Note 2) 233,483 368,071 456,817 471,517
Repairs and
maintenance 460,879 418,233 839,471 800,828
Operating 184,104 181,910 410,879 403,687
Taxes 184,910 197,783 360,008 376,343
Insurance 107,928 120,905 229,749 261,345
Financial 432,047 455,550 998,680 998,276
Depreciation and
amortization 906,315 920,609 1,762,958 1,776,264
Total expenses 2,994,338 3,140,614 6,034,277 6,022,328
Loss before
minority
interest (997,318) (1,192,103) (2,056,905) (2,178,347)
Minority interest
in loss of
subsidiary
partnerships 2,849 2,727 5,506 5,747
Net loss $ (994,469) $(1,189,376) $(2,051,399) $(2,172,600)
Net loss-limited
partners $ (984,524) $(1,177,482) $(2,030,885) $(2,150,874)
Number of BACs
outstanding 58,928 58,928 58,928 58,928
Net loss per BAC $ (16.70) $ (19.98) $ (34.46) $ (36.50)
*Reclassified for comparative purposes.
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Consolidated Statement of Changes in
Partners' Capital (Deficit)
(Unaudited)
<CAPTION>
Limited General
Total Partners Partner
<S> <C> <C> <C>
Partners' capital
(deficit) -
April 1, 1999 $30,142,315 $30,364,841 $(222,526)
Net loss (2,051,399) (2,030,885) (20,514)
Partners' capital
(deficit) -
September 30, 1999 $28,090,916 $28,333,956 $(243,040)
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Decrease in Cash and Cash Equivalents
(Unaudited)
<CAPTION>
Six Months Ended
September 30,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,051,399) $(2,172,600)
Adjustments to reconcile net loss to
net cash provided by
operating activities:
Depreciation and amortization 1,762,958 1,776,264
Minority interest in loss of
subsidiaries (5,506) (5,747)
Increase in accounts payable and
other liabilities 162,443 86,898
Increase in accrued interest 301,900 263,317
Decrease in cash held in escrow 12,141 187,042
Decrease in other assets 50,340 20,445
Increase in due to local general
partners and affiliates 23,118 10,717
Decrease in due to local general
partners and affiliates (52,577) (47,064)
Increase in due to
general partner and affiliates 309,928 278,077
Total adjustments 2,564,745 2,569,949
Net cash provided by
operating activities 513,346 397,349
Cash flows from investing activities:
Improvements to property and
equipment (38,916) (68,732)
Increase in cash held
in escrow (281,418) (561,158)
Increase in due to local general
partners and affiliates 12,071 0
Net cash used in investing activities (308,263) (629,890)
Cash flows from financing activities:
Principal payments of mortgage
notes (172,391) (161,323)
Increase in due to local
general partner and affiliates 24,899 0
Decrease in due to local
general partner and affiliates (2,891) 0
Decrease in capitalization
of consolidated subsidiaries
attributable to minority interest 0 (20,198)
Net cash used in financing activities (150,383) (181,521)
Net increase (decrease) in cash and
cash equivalents 54,700 (414,062)
Cash and cash equivalents at
beginning of period 1,051,505 2,651,208
Cash and cash equivalents at
end of period $ 1,106,205 $ 2,237,146
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999
(Unaudited)
Note 1 - General
Independence Tax Credit Plus L.P. II (a Delaware limited partner-
ship) (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 ("Lo-
cal 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 September 30, 1999, the Partnership has interests 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 re-
move the general partner of the subsidiary partnerships and to
approve certain major operating and financial decisions, the Part-
nership has a controlling financial interest in the subsidiary part-
nerships.
For financial reporting purposes, the Partnership's fiscal quarter
ends September 30. The Partnership's fiscal quarter ends Septem-
ber 30, in order to allow adequate time for the subsidiary partner-
ships financial statements to be prepared and consolidated. All
subsidiaries have fiscal quarters ending June 30. Accounts of the
subsidiary partnerships have been adjusted for intercompany
transactions from July 1 through September 30.
All intercompany accounts and transactions with the subsidiary
partnerships have been eliminated in consolidation.
Increases (decreases) in the capitalization of consolidated subsidi-
aries attributable to minority interest arise from cash contributions
from and cash distributions to the minority interest partners.
Such losses aggregated approximately $6,000 and $6,000 and
$12,000 and $12,000 for the three and six months ended September
30, 1999 and 1998, respectively. The Partnership's investment in
each subsidiary is equal to the respective subsidiary's partners'
equity less minority interest capital, if any. Losses attributable to
minority interests which exceed the minority interests' investment
in a subsidiary partnership have been charged to the Partnership.
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 ac-
cepted accounting principles have been omitted or condensed.
These condensed financial statements should be read in conjunc-
tion with the financial statements and notes thereto included in
the Partnership's Annual Report on Form 10-K for the period
ended March 31, 1999.
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 ad-
justments) necessary to present fairly the financial position of the
Partnership as of September 30, 1999, the results of operations for
the three and six months ended September 30, 1999 and 1998 and
cash flows for the six months ended September 30, 1999 and 1998.
However, the operating results for the six months ended Septem-
ber 30, 1999 may not be indicative of the results for the year.
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.
<TABLE>
The costs incurred to related parties for the three and six months
ended September 30, 1999 and 1998 were as follows:
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Partnership manage-
ment fees (a) $136,500 $260,500 $273,000 $273,000
Expense reimburse-
ment (b) 21,000 35,955 35,601 54,955
Local administra-
tive fee (c) 8,000 8,000 16,000 16,000
Total general and
administrative-
General Partner 165,500 304,455 324,601 343,955
Property manage-
ment fees incurred
to affiliates of the
subsidiary
partnerships'
general
partners (d) 67,983 63,616 132,216 127,562
Total general and
administrative-
related parties $233,483 $368,071 $456,817 $471,517
</TABLE>
(a) The General Partner is entitled to receive a partnership man-
agement 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 invest-
ments. 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 refinanc-
ing 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 $932,000 and $659,000 were
accrued and unpaid as of September 30, 1999 and March 31, 1999,
respectively. Without the General Partners' advances and contin-
ued accrual without payment of certain fees and expense reim-
bursements, the Partnership will not be in a position to meet its
obligations. The General Partners have continued advancing and
allowing the accrual without payment of these amounts but are
under no obligation to continue to do so.
(b) The Partnership reimburses the General Partner and its affili-
ates 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) Independence SLP L.P., a special limited partner of the sub-
sidiary partnerships, is entitled to receive a local administrative fee
of up to $5,000 per year from each subsidiary partnership.
(d) Property management fees incurred by the Local Partnerships
amounted to $154,646 and $136,590 and $303,821 and $285,777 for
the three and six months ended September 30, 1999 and 1998,
respectively. Of these fees, $67,983 and $63,616 and $132,216 and
$127,562 were incurred to affiliates of the subsidiary partnerships'
general partners.
Note 3 - Commitments and Contingencies
There were no material 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, 1999.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Con-
dition 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 Part-
nerships and a working capital reserve and interest thereon. All
these sources of funds are available to meet obligations of the
Partnership.
As of September 30, 1999, the Partnership has approximately
$890,000 remaining to be paid (including approximately $631,000
being held in escrow) as certain benchmarks, such as occupancy
level, must be attained prior to the release of the funds. The Part-
nership does not intend to acquire additional properties. During
the six months ended September 30, 1999, $0 was paid to Local
Partnerships.
For the six months ended September 30, 1999, cash and cash
equivalents of the Partnership and its fifteen consolidated Local
Partnerships increased approximately $55,000. This increase is
attributable to cash provided by operating activities ($513,000) and
a net increase in due to local general partners and affiliates for
financing and investing activities ($34,000) which exceeded im-
provements to property and equipment ($39,000), an increase in
cash held in escrow from investing activities ($281,000) and prin-
cipal payments of mortgage notes ($172,000). Included in the
adjustments to reconcile the net loss to cash provided by operating
activities is depreciation and amortization of approximately
$1,763,000.
At September 30, 1999, there is approximately $120,000 in the
working capital reserves. For the six months ended September 30,
1999 and 1998, the Partnership did not receive any distributions.
Management anticipates receiving distributions in the future, al-
though not to a level sufficient to permit providing cash distribu-
tions to the BACs holders.
Partnership management fees owed to the General Partner
amounting to approximately $932,000 and $659,000 were accrued
and unpaid as of September 30, 1999 and March 31, 1999, respec-
tively. Without the General Partners' advances and continued
accrual without payment of certain fees and expense reimburse-
ments, the Partnership will not be in a position to meet its obliga-
tions. The General Partners have continued advancing and al-
lowing the accrual without payment of these amounts but are
under no obligation to continue to do so (see Note 2).
For a discussion of contingencies affecting certain Local Partner-
ships, 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 con-
tingencies 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 Lo-
cal Partnership and may also result in recapture of Tax Credits, if
the investment is lost before the expiration of the compliance pe-
riod.
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 coun-
try is experiencing downturns in the economy, the remaining
properties in the portfolio may be experiencing upswings. How-
ever, the geographic diversification of the portfolio may not pro-
tect 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 re-
mainder of such ten-year period. If the General Partner deter-
mined 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 six
months ended September 30, 1999 and 1998 consisted primarily of
the results of the Partnership's investment in fifteen consolidated
Local Partnerships. The majority of Local Partnership income
continues to be in the form of rental income with the correspond-
ing expenses being divided among operations, depreciation and
mortgage interest.
Rental income increased approximately 3% and 4% for the three
and six months ended September 30, 1999 as compared to the
corresponding periods in 1998 primarily due to rental rate in-
creases as well as an increase in occupancy at two Local Partner-
ships.
Other income decreased approximately $5,000 and $22,000 for the
three and six months ended September 30, 1999 as compared to
the corresponding periods in 1998 primarily due to less interest
earned at the Partnership level due to lower cash and cash
equivalent balances in 1999.
Total expenses, excluding general and administrative-related par-
ties, repairs and maintenance and insurance remained fairly con-
sistent with a decrease of approximately 2% and an increase of less
than 1% for the three and six months ended September 30, 1999 as
compared to the corresponding periods in 1998.
General and administrative-related parties decreased approxi-
mately $135,000 for the three months ended September 30, 1999 as
compared to the corresponding period in 1998 primarily due to an
increase in partnership management fees payable to the General
Partner in 1998.
Repairs and maintenance increased approximately $43,000 for the
three months ended September 30, 1999 as compared to the corre-
sponding period in 1998 primarily due to an increase in land-
scaping and exterminating services at one Local Partnership.
Insurance decreased approximately $13,000 and $32,000 for the
three and six months ended September 30, 1999 as compared to
the corresponding periods in 1998 primarily due to a reduction in
coverage at one Local Partnership and a reduction in the insurance
premium at a second Local Partnership.
Year 2000 Compliance
The Partnership utilizes the computer services of an affiliate of the
General Partner. The affiliate of the General Partner has upgraded
its computer information systems to be year 2000 compliant. The
most likely worst case scenario that the General Partner faces is
that computer operations will be suspended for a few days to a
week commencing on January 1, 2000. The Partnership contin-
gency plan is to have (i) a complete backup done on December 31,
1999 and (ii) both electronic and printed reports generated for all
critical data up to and including December 31, 1999.
In regard to third parties, the General Partner is in the process of
evaluating the potential adverse impact that could result from the
failure of material service providers to be year 2000 compliant. A
detailed survey and assessment was sent to material third parties
in the fourth quarter of 1998. The Partnership has received assur-
ances from a majority of the material service providers with which
it interacts that they have addressed the year 2000 issues and is
evaluating these assurances for their adequacy and accuracy. In
cases where the Partnership has not received assurances from
third parties, it is initiating further mail and/or phone correspon-
dence. The Partnership relies heavily on third parties and is vul-
nerable to the failures of third parties to address their year 2000
issues. There can be no assurance given that the third parties will
adequately address their year 2000 issues.
Item 3. Quantitative and Qualitative Disclosures about Market
Risk
None
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities and Use of Proceeds - 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 Inde-
pendence 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, at-
tached to the Prospectus as Exhibit A**
(3C) Certificate of Limited Partnership of Independ-
ence 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 per-
taining to the Partnership's acquisition of Local Partnership Inter-
ests*
(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 Regis-
tration 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 Regis-
tration 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 quar-
ter.
<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: October 29, 1999
By: /s/ Alan P. Hirmes
Alan P. Hirmes,
Vice President
(principal financial officer)
Date: October 29, 1999
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> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,862,592
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 707,115
<PP&E> 108,005,228
<DEPRECIATION> 14,557,702
<TOTAL-ASSETS> 98,394,432
<CURRENT-LIABILITIES> 11,223,578
<BONDS> 58,933,211
0
0
<COMMON> 0
<OTHER-SE> 28,237,643
<TOTAL-LIABILITY-AND-EQUITY> 98,394,432
<SALES> 0
<TOTAL-REVENUES> 3,977,372
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,035,597
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 998,680
<INCOME-PRETAX> (2,056,905)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,051,399)
<EPS-BASIC> (34.46)
<EPS-DILUTED> 0
</TABLE>
