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, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - --- EXCHANGE ACT OF 1934
Commission File Number 0-24650
INDEPENDENCE TAX CREDIT PLUS L.P. III
-------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3746339
- - ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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. III
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
----------- -----------
<S> <C> <C>
Property and equipment at cost, net of accumulated depreciation
of $1,147,262 and $609,470, respectively $37,141,247 $35,436,367
Construction in progress 9,330,676 5,532,919
Cash and cash equivalents 8,420,624 9,333,536
Investments available for sale 10,100,000 11,502,412
Cash held in escrow 7,463,783 9,406,563
Deferred costs, net of accumulated amortization of $117,454 and
$92,374, respectively 2,271,990 2,302,208
Other assets 1,562,150 934,439
----------- -----------
Total assets $76,290,470 $74,448,444
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage notes payable $20,918,308 $18,790,300
Construction loan payable 9,890,337 8,261,957
Accounts payable and other liabilities 2,949,626 3,070,015
Due to local general partners and affiliates 3,147,352 4,496,145
Due to general partner and affiliates 153,920 29,033
----------- -----------
Total liabilities 37,059,543 34,647,450
----------- -----------
Minority interest 1,329,650 1,346,916
----------- -----------
Commitments and contingencies (Note 3)
Partners' capital:
Limited partners (43,440 BACs
issued and outstanding) 37,908,391 38,455,664
General partner (7,114) (1,586)
----------- -----------
Total partners' capital 37,901,277 38,454,078
----------- -----------
Total liabilities and partners' capital $76,290,470 $74,448,444
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
---------------------------- -----------------------------
1996 1995 1996 1995
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues
Rental income $ 614,647 $ 119,150 $ 1,201,897 $ 251,206
Other income
(principally interest on
capital contributions) 175,716 208,411 357,679 500,376
----------- ---------- ----------- ----------
Total revenues 790,363 327,561 1,559,576 751,582
----------- ---------- ----------- ----------
Expenses
General and administrative 274,960 108,674 534,597 256,917
General and administrative-
related parties (Note 2) 114,359 78,892 242,186 137,572
Repairs and maintenance 78,781 16,826 133,958 32,542
Operating and other 79,288 8,623 229,951 23,599
Real estate taxes 24,451 200 40,958 1,806
Insurance 25,045 11,714 74,257 24,202
Financial, principally interest 145,790 18,326 294,077 44,320
Depreciation and amortization 312,096 72,079 562,872 143,359
----------- ---------- ----------- ----------
Total expenses 1,054,770 315,334 2,112,856 664,317
----------- ---------- ----------- ----------
Net income (loss) before minority interest (264,407) 12,227 (553,280) 87,265
Minority interest in loss of
subsidiary partnerships 452 356 479 530
----------- ---------- ----------- ----------
Net income (loss) $ (263,955) $ 12,583 $ (552,801) $ 87,795
=========== ========== =========== ==========
Net income (loss)-limited partners $ (261,315) $ 12,457 $ (547,273) $ 86,917
=========== ========== =========== ==========
Weighted average number of
BAC's outstanding 43,440 43,440 43,440 41,374
=========== ========== =========== ==========
Net income (loss) per weighted
average BAC $ (6.02) $ .29 $ (12.60) $ 2.10
=========== ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
Total Limited Partners General Partner
----------- ---------------- ---------------
<S> <C> <C> <C>
Partners' capital - April 1, 1996 $38,454,078 $38,455,664 $ (1,586)
Net loss (552,801) (547,273) (5,528)
----------- ----------- -------------
Partners' capital - September 30, 1996 $37,901,277 $37,908,391 $ (7,114)
=========== =========== =============
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended September 30,
------------------------------
1996 1995
----------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (552,801) $ 87,795
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 562,872 143,359
Minority interest in loss of subsidiaries (479) (530)
(Decrease) increase in accounts payable and other liabilities (457,315) 17,640
Increase in cash held in escrow (21,033) (66,134)
Increase in other assets (627,711) (14,609)
Increase in due to local general partners and affiliates 47,919 135,846
Decrease in due to local general partners and affiliates (142,326) (124,208)
Increase in due to general partner and affiliates 124,887 27,159
------------- --------------
Total adjustments (513,186) 118,523
------------- --------------
Net cash (used in) provided by operating activities (1,065,987) 206,318
------------- --------------
Cash flows from investing activities:
Acquisition of property and equipment (207,585) (2,369,424)
Decrease (increase) in investments available for sale 1,402,412 (2,000,000)
Increase in construction in progress (5,832,844) (5,609,027)
Decrease (increase) in cash held in escrow 1,963,813 (936,129)
Decrease (increase) in deferred costs 28,330 (987,038)
Increase (decrease) in accounts payable and other liabilities 336,926 (1,121)
Increase in due to local general partners and affiliates 42,792 1,053,436
Decrease in due to local general partners and affiliates (1,297,178) (335,905)
------------- --------------
Net cash used in investing activities (3,563,334) (11,185,208)
------------- --------------
Cash flows from financing activities:
Proceeds from mortgage notes 3,038,686 1,317,495
Repayments of mortgage notes (910,678) (787,345)
Proceeds from construction loans 2,466,603 2,260,610
Repayments of construction loans (838,223) (26,680)
Capital contributions received 0 12,010,000
Decrease in due to general partner and affiliates 0 (314,300)
Decrease in accounts payable and other liabilities 0 (34,758)
Increase in offering costs 0 (1,321,100)
Increase in deferred costs (23,192) 0
(Decrease) increase in capitalization of consolidated subsidiaries
attributable to minority interest (16,787) 650,013
------------- --------------
Net cash provided by financing activities 3,716,409 13,753,935
------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(continued)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended September 30,
------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Net (decrease) increase in cash and cash equivalents $ (912,912) 2,775,045
Cash and cash equivalents at beginning of year 9,333,536 4,678,955
------------- --------------
Cash and cash equivalents at end of period $ 8,420,624 $ 7,454,000
============= ==============
Supplemental disclosure of noncash investing and financing activities:
Capitalization of deferred acquisition costs 0 585,971
Conversion of construction loan to mortgage note payable 0 2,188,210
Property and equipment reclassified from construction in progress 2,035,087 0
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
NOTE 1 - General
Independence Tax Credit Plus L.P. III (a Delaware limited
partnership) (the "Partnership") was organized on December 23, 1993, and
commenced the public offering on June 7, 1994. The general partner of the
Partnership is Related Independence Associates III 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
apartment complexes that are eligible for the low-income housing tax credit
("Housing Tax Credit") enacted in the Tax Reform Act of 1986, some of which
complexes may also be eligible for the historic rehabilitation tax credit
("Historic Tax Credit"; together with Housing Tax Credits, "Tax Credits").
As of September 30, 1996, the Partnership has acquired a limited
partnership interest in fifteen subsidiary partnerships and anticipates
acquiring a limited partnership interest in additional subsidiary partnerships
in the future. 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 local
partnerships.
The Partnership was authorized to issue a total of 100,000
($100,000,000) Beneficial Assignment Certificates ("BACs") which have been
registered with the Securities and Exchange Commission for sale to the public.
Each BAC represents all of the economic and virtually all of the ownership
rights attributable to a limited partnership interest. The offering terminated
as of May 9, 1995. As of September 30, 1996 the Partnership raised a total of
$43,440,000, representing 43,440 BACs.
The terms of the Amended and Restated Agreement of Limited
Partnership of the Partnership ("Partnership Agreement") provide, among other
things, that, net profits or losses and distributions of cash flow are, in
general, allocated 99% to the limited partners and BACs holders and 1% to the
General Partner.
The Partnership's fiscal quarter ends September 30. All
subsidiaries have fiscal quarters ending June 30. Accounts of the subsidiaries
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
subsidiaries attributable to minority interest arises from cash contributions
and cash distributions to the minority interest partners.
Losses attributable to minority interest which exceed the minority
interests' investment in a subsidiary have been charged to the Partnership. Such
losses aggregated $1,608, and $151, and $4,013 and $416 for the three and six
months ended September 30, 1996 and 1995, 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.
-7-
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
NOTE 1 - General (continued)
In March 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". Under SFAS No. 121, the Partnership is required to review long-lived assets
and certain identifiable intangibles for impairment whenever events or changes
in circumstances indicate that the book value of an asset may not be
recoverable. An impairment loss should be recognized whenever the review
demonstrates that the book value of a long-lived asset is not recoverable.
Effective April 1, 1996, the Partnership adopted SFAS No. 121, consistent with
the required adoption period.
Property and equipment are carried at the lower of depreciated
cost or estimated amounts recoverable through future operations and ultimate
disposition of the property. Cost includes the purchase price, acquisition fees
and expenses, and any other costs incurred in acquiring the properties. As
required by SFAS No. 121, a provision for loss on impairment of assets is
recorded when estimated amounts recoverable through future operations and sale
of the property on an undiscounted basis are below depreciated cost. However,
depreciated cost, adjusted for such reductions in value, if any, may be greater
than the fair value. Property investments themselves are reduced to estimated
fair value (generally using discounted cash flows) when the property is
considered to be impaired and the depreciated cost exceeds estimated fair value.
Through September 30, 1996, the Partnership has not recorded any provisions for
loss on impairment of assets or reduction to estimated fair value.
Certain information and note disclosure normally included in
financial statements prepared in accordance with generally accepted accounting
principles has been omitted or condensed. These condensed financial statements
should be read in conjunction with the financial statements and notes thereto
included in Partnership's Annual Report on Form 10-K for the period ended March
31, 1996.
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 Partners 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 September 30, 1996, the results of operations
for the three and six months ended September 30, 1996 and 1995 and changes in
cash flows for the six months ended September 30, 1996 and 1995. However, the
operating results for the six months ended September 30, 1996 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.
The General Partner and its affiliates perform services for the
Partnership. The costs incurred to related parties are as follows:
A) Acquisition Fees and Expenses
The General Partner is entitled to a consulting and monitoring
fee equal to 6.0% of the gross proceeds of the offering paid upon investor
closings, for its services in connection with assisting the Local Partnerships
in acquiring apartment complexes and supervising the construction of the
complexes. Such fees will be capitalized as a cost of the investments upon
closing of subsidiary partnership acquisitions. As of September 30, 1996 and
March 31, 1996, $2,606,400 of such costs have been incurred, of which $1,501,552
at each date has been capitalized.
-8-
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
NOTE 2 - Related Party Transactions (continued)
B) Public Offering Costs
Costs incurred to organize the Partnership and certain costs
of offering the BACs including but not limited to legal, accounting and
registration fees are considered organization and offering expenses. These costs
have been capitalized. Related Equities Corporation (the "Dealer Manger") is
entitled to a non-accountable organization and offering expense allowance equal
to 2.5% of Gross Proceeds, in consideration of which it is obligated to pay all
such expenses up to the amount of such allowance. The Partnership is obligated
to pay all such expenses that are in excess of 2.5% of Gross Proceeds and up to
3.5% of Gross Proceeds, and the Dealer Manager is responsible for all such
expenses in excess of 3.5% of Gross Proceeds. As of both September 30, 1996 and
March 31, 1996, offering costs totalled $1,470,400, and along with selling
commissions (see Note 2C) are charged directly to limited partners' capital.
C) Selling Commissions and Fees
The Partnership has paid up to 7.5% of the aggregate purchase
price of BACs sold, without regard to quantity discounts, to Related Equities
Corporation. To the extent other broker/dealers sold the interests such amounts
were fully reallowed to the other broker/dealers. As of both September 30, 1996
and March 31, 1996, $3,258,000 was paid or incurred to Related Equities
Corporation and then fully reallowed to other unaffiliated broker/dealers.
D) Other Related Party Expenses
The costs incurred to related parties for the three and six
months ended September 30, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
-------------------------- --------------------------
1996 1995 1996 1995
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Partnership management
fees (a) $ 61,430 $45,101 $122,881 $ 73,459
Expense reimbursement (b) 21,595 27,865 57,825 51,805
Property management fees (c) 27,334 5,926 53,480 12,308
Local administrative fees (d) 4,000 0 8,000 0
-------- ------- -------- --------
$114,359 $78,892 $242,186 $137,572
======== ======= ======== ========
</TABLE>
(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
-9-
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
NOTE 2 - Related Party Transactions (continued)
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 $131,000 and $8,000 were accrued and
unpaid as of September 30, 1996 and March 31, 1996, respectively.
(b) The Partnership reimburses the General Partners and their
affiliates for actual Partnership operating expenses incurred by the General
Partners and their 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 Partners performs asset
monitoring for the Partnership. These services include site visits and
evaluations of the subsidiary partnerships' performance.
(c) Property management fees incurred by Local Partnerships
amounted to $37,640 and $11,976, and $72,276 and $18,358 for the three and six
months ended September 30, 1996 and 1995, respectively. Of these fees $27,334
and $5,926, and $53,480 and $12,308 were incurred to affiliates of the
subsidiary partnerships' general partner.
(d) Independence SLP III, L.P., a 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, 1996.
NOTE 4 - Subsequent Events
The Partnership has invested in one Local Partnership during the
period October 1, 1996 to November 13, 1996.
Partnership Name Equity Investment Units
---------------- ----------------- -----
Aspen-Olive Associates $ 2,179,699 22
-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 is the proceeds of its
offering. Other sources of funds include interest earned on such proceeds which
will be invested in tax-exempt money market instruments pending acquisition of
Local Partnerships and a working capital reserve in the original amount of 2.5%
of gross equity raised. The offering terminated as of May 9, 1995. The
Partnership has received $43,440,000 in gross proceeds for BACs pursuant to a
public offering resulting in net proceeds available for investment of
approximately $34,535,000 after payment of sales commissions, acquisition fees
and expenses, organization and offering expenses and establishment of a working
capital reserve.
As of September 30, 1996, the Partnership has invested
approximately $20,722,000 (including approximately $2,950,000 classified as a
loan repayable from sale/refinancing proceeds in accordance with the
Contribution Agreement and not including acquisition fees of approximately
$1,502,000) of net proceeds in fifteen Local Partnerships of which approximately
$3,751,000 remains to be paid to the Local Partnerships (including approximately
$2,091,000 being held in escrow) as certain benchmarks, such as occupancy level,
must be attained prior to the release of the funds. The Partnership has
approximately $13,813,000 available for future investments. During the six
months ended September 30, 1996, approximately $1,724,000 was paid to Local
Partnerships, including purchase price adjustments (of which approximately
$730,000 was released from escrow). An additional $75,000 was placed into escrow
for purchase price payments during the six months ended September 30, 1996. The
Partnership will be acquiring additional properties, and the Partnership may be
required to fund potential purchase price adjustments based on tax credit
adjustor clauses. Such adjustments resulted in a net decrease in purchase price
of approximately $8,700 during the six months ended September 30, 1996.
For the six months ended September 30, 1996, cash and cash
equivalents for the Partnership and its fifteen consolidated properties
decreased approximately $913,000 primarily due to cash used in operating
activities ($1,066,000), an increase in construction in progress ($5,833,000),
acquisitions of property and equipment ($208,000) and a decrease in due to local
general partners and affiliates ($1,254,000) which exceeded net proceeds from
mortgage and construction loans ($3,756,000), a decrease in cash held in escrow
from investing activities ($1,964,000), a decrease in investments available for
sale ($1,402,000) and an increase in accounts payable and other liabilities
related to investing activities ($337,000). Included in the adjustments to
reconcile the net loss to cash used in operations is depreciation and
amortization in the amount of approximately $563,000.
A working capital reserve in the amount of approximately
$1,086,000 (2.5% of gross equity) was established from the Partnership's funds
available for investment. The working capital reserve at September 30, 1996 and
March 31, 1996 was approximately $1,086,000 and $888,000, respectively, which
includes amounts which may be required for potential purchase price adjustments
based on tax credit adjustor clauses. The General Partners believe that these
reserves, plus any cash distributions received from the operations of the Local
Partnerships will be sufficient to fund the Partnership's ongoing operations for
the foreseeable future. During the six months ended September 30, 1996 and 1995,
the Partnership received cash flow distributions from operations of the Local
Partnerships of approximately $2,000 and $0, respectively. Management
anticipates they will continue to receive distributions in the future, although
not to a level sufficient to permit providing cash distributions to the BACs
holders.
The Partnership has negotiated development deficit guarantees with
the Local Partnerships in which it has invested. The Local General Partners have
agreed to fund development deficits through the breakeven dates of each of the
Local Partnerships.
The Partnership has negotiated Operating Deficit Guaranty
Agreements with all Local Partnerships by which the general partners of the
Local Partnerships have agreed to fund operating deficits for a specified period
of time. The terms of the Operating Deficit Guaranty Agreements vary for each
Local Partnership, with maximum dollar amounts to be funded for a specified
period of time, generally three years, commencing on the break-even date. The
gross amount of the Operating Deficit Guarantees aggregates approximately
$2,952,000 as of September 30, 1996.
-11-
<PAGE>
The Partnership has also negotiated rent-up guaranty agreements in
which the Local General Partners agreed to pay a liquidated damage if
predetermined occupancy rates are not achieved.
The development deficit, operating deficit and the rent-up
guaranty agreements were negotiated to protect the Partnership's interest in the
Local Partnerships and to provide incentive to the Local General Partners to
generate positive cash flow.
The Partnership and BACs holders will begin to recognize Housing
Tax Credits with respect to a property when the credit period for such property
commences. Because of the time required for the acquisition, completion and
rent-up of properties, it is expected that the amount of Tax Credits per BAC
will gradually increase over the first three years of the Partnership. Housing
Tax Credits not recognized in the first three years will be recognized in the
11th through 13th years.
The Partnership's investment as a limited partner in the Local
Partnerships is subject to the risks of potential losses arising from management
and ownership of improved real estate. The Partnership's investments also could
be adversely affected by poor economic conditions generally, which could
increase vacancy levels and rental payment defaults and by increased operating
expenses, any or all of which could threaten the financial viability of one or
more of the Local Partnerships.
For discussion of contingencies affecting certain Local
Partnerships, see Note 3 to the financial statements. The resolution of the
existing contingencies is not anticipated to impact future results of
operations, liquidity or financial condition in a material way.
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 on
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 the
ten year period. If trends in the real estate market warranted the sale of a
property, the remaining tax credits would transfer to the new owner; thereby
adding significant value to the property on the market, which are not included
in the financial statement carrying amount.
Results of Operations
- - ---------------------
In March 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". Under SFAS No. 121, the Partnership is required to review long-lived assets
and certain identifiable intangibles for impairment whenever events or changes
in circumstances indicate that the book value of an asset may not be
recoverable. An impairment loss should be recognized whenever the review
demonstrates that the book value of a long-lived asset is not recoverable.
Effective April 1, 1996, the Partnership adopted SFAS No. 121, consistent with
the required adoption period.
Property and equipment are carried at the lower of depreciated
cost or estimated amounts recoverable through future operations and ultimate
disposition of the property. Cost includes the purchase price, acquisition fees
and expenses, and any other costs incurred in acquiring the properties. As
required by SFAS No. 121, a provision for loss on impairment of assets is
recorded when estimated amounts recoverable through future operations and sale
of the property on an undiscounted basis are below depreciated cost. However,
depreciated cost, adjusted for such reductions in value, if any, may be greater
than the fair value. Property investments themselves are reduced to estimated
fair value (generally using discounted cash flows) when the property is
considered to be impaired and the depreciated cost exceeds estimated fair value.
Through September 30, 1996, the Partnership has not recorded any provisions for
loss on impairment of assets or reduction to estimated fair value.
-12-
<PAGE>
As of September 30, 1996 and 1995, the Partnership had acquired an
interest in fifteen and eight Local Partnerships, fifteen and seven of which
were consolidated, respectively. The Partnership intends to utilize the net
proceeds of the offering to acquire additional interests in Local Partnerships.
The Partnership's results of operations for the three and six
months ended September 30, 1996 and 1995 consisted primarily of (1)
approximately $142,000 and $193,000, and $298,000 and $471,000, 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 of
fifteen and three of seven consolidated Local Partnerships, respectively.
For the three and six months ended September 30, 1996 as compared
to 1995, rental income and all categories of expenses increased and the results
of operations are not comparable due to the continued acquisition, construction
and rent up of properties, and are not reflective of future operations of the
Partnership due to uncompleted property construction, rent up of properties and
the continued utilization of the net proceeds of the offering to invest in Local
Partnerships. In addition, interest income will continue to decrease in future
periods since a substantial portion of the proceeds from the Offering will be
invested in Local Partnerships. Other income decreased approximately $33,000 and
$143,000 for the three and six months ended September 30, 1996 as compared to
1995, primarily due to a decrease in interest income as a result of the release
of proceeds to the Local Partnerships.
For the three months ended September 30, 1996 and 1995, one and
zero of the Partnership's fifteen and seven consolidated properties,
respectively, completed construction, and were in various stages of rent up. In
addition, three and one of the properties had completed construction in a
previous fiscal quarter, and were in various stages of rent up for the three
months. Also, seven and one of the properties completed construction and were
rented up in a previous fiscal quarter. For the six months ended September 30,
1996 and 1995, four and zero of the Partnership's fifteen and seven consolidated
properties completed construction, and were in various stages of rent up. In
addition, zero and two of the properties had completed construction in a
previous fiscal year, and were in various stages of rent up for the six months.
Also, seven and zero of the properties had completed construction and were fully
rented up in a previous fiscal year. As of the end of the three and six months
ended September 30, 1996 and 1995, four and five of the Partnership's fifteen
and seven consolidated properties, respectively, were still under construction
and five and three of the properties, respectively, had construction loans with
commitments for permanent financing as of September 30, 1996 and 1995.
-13-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
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
(4) Form of Amended and Restated Agreement of Limited
Partnership of the Partnership (attached to the
Prospectus as Exhibit A)*
(10A) Form of Subscription Agreement (attached to the
Prospectus as Exhibit B)*
(10B) Escrow Agreement between the Partnership and the
Escrow Agent**
(10C) Form of Purchase and Sales Agreement pertaining
to the Partnership's acquisition of Local
Partnership Interests**
(10D) Form of Amended and Restated Agreement of Limited
Partnership of Local Partnerships**
(27) Financial Data Schedule (filed herewith)
* Incorporated herein by reference to the final
Prospectus as filed pursuant to Rule 424 under
the Securities Act of 1933.
** Filed as an exhibit to Pre-Effective Amendment
No. 3 to the Registration Statement on Form S-11
of the Partnership (File No. 33-73766) and
incorporated herein by reference thereto.
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
this quarter.
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. III
-------------------------------------
(Registrant)
By: RELATED INDEPENDENCE ASSOCIATES III L.P.,
a General Partner
By: RELATED INDEPENDENCE ASSOCIATES III INC.,
a General Partner
Date: November 13, 1996 By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
Vice President
(principal financial officer)
Date: November 13, 1996 By: /s/ Richard A. Palermo
----------------------
Richard A. Palermo,
Treasurer
(principal accounting officer)
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the
financial statements for Independence Tax Credit Plus L.P. III and is
qualified in its entirety by reference to such financial statements
</LEGEND>
<CIK> 0000924124
<NAME> Independence Tax Credit Plus L.P. III
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 15,884,407
<SECURITIES> 10,100,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,834,140
<PP&E> 47,619,185
<DEPRECIATION> 1,147,262
<TOTAL-ASSETS> 76,290,470
<CURRENT-LIABILITIES> 6,250,898
<BONDS> 30,808,645
0
0
<COMMON> 0
<OTHER-SE> 39,230,927
<TOTAL-LIABILITY-AND-EQUITY> 76,290,470
<SALES> 0
<TOTAL-REVENUES> 1,559,576
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,818,779
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 294,077
<INCOME-PRETAX> (553,280)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (553,280)
<EPS-PRIMARY> (12.60)
<EPS-DILUTED> 0
</TABLE>
