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, 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
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. III
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
============ ============
December 31, March 31,
1996 1996
------------ ------------
ASSETS
Property and equipment at cost,
net of accumulated depreciation
of $1,522,570 and $609,470,
respectively $ 45,172,961 $ 35,436,367
Construction in progress 4,676,494 5,532,919
Cash and cash equivalents 5,213,058 9,333,536
Investments available for sale 9,500,000 11,502,412
Cash held in escrow 8,819,161 9,406,563
Deferred costs, net of accumulated
amortization of $129,494 and
$92,374, respectively 2,136,322 2,302,208
Other assets 992,826 934,439
------------ ------------
Total assets $ 76,510,822 $ 74,448,444
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage notes payable $ 21,884,602 $ 18,790,300
Construction loan payable 9,618,160 8,261,957
Accounts payable and other
liabilities 2,736,628 3,070,015
Due to local general partners and
affiliates 3,322,052 4,496,145
Due to general partner and
affiliates 107,213 29,033
------------ ------------
Total liabilities 37,668,655 34,647,450
------------ ------------
Minority interest 1,384,613 1,346,916
------------ ------------
Commitments and contingencies (Note 3)
Partners' capital:
Limited partners (43,440 BACs
issued and outstanding) 37,469,105 38,455,664
General partner (11,551) (1,586)
------------ ------------
Total partners' capital 37,457,554 38,454,078
------------ ------------
Total liabilities and partners'
capital $ 76,510,822 $ 74,448,444
============ ============
See Accompanying Notes to Consolidated Financial Statements
2
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
======================== ==========================
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------ --------------------------
1996 1995 1996 1995
------------------------ --------------------------
Revenues
Rental income $ 559,059 $ 618,317 $ 1,760,956 $ 869,523
Other income
(principally
interest on capital
contributions) 172,404 294,784 530,083 795,160
---------- ---------- ----------- -----------
Total revenues 731,463 913,101 2,291,039 1,664,683
---------- ---------- ----------- -----------
Expenses
General and
administrative 285,966 169,395 820,563 426,312
General and
administrative-
related parties
(Note 2) 144,007 151,558 386,193 289,130
Repairs and
maintenance 102,654 43,323 236,612 75,865
Operating and
other 44,654 67,196 274,605 90,795
Real estate taxes 19,092 22,809 60,050 24,615
Insurance 48,071 40,751 122,328 64,953
Financial, principally
interest 143,605 178,095 437,682 222,415
Depreciation and
amortization 387,348 236,195 950,220 379,554
---------- ---------- ----------- -----------
Total expenses 1,175,397 909,322 3,288,253 1,573,639
---------- ---------- ----------- -----------
Net income (loss)
before minority
interest (443,934) 3,779 (997,214) 91,044
Minority interest in
(income) loss of
subsidiary
partnerships 211 (390) 690 140
---------- ---------- ----------- -----------
Net income
(loss) $ (443,723) $ 3,389 $ (996,524) $ 91,184
========== ========== =========== ===========
Net income (loss) -
limited partners $ (439,286) $ 3,355 $ (986,559) $ 90,272
========== ========== =========== ===========
Weighted average
number of BACs
outstanding 43,440 43,440 43,440 42,065
========== ========== =========== ===========
Net income (loss)
per weighted
average BAC $ (10.11) $ .08 $ (22.71) $ 2.15
========== ========== =========== ===========
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
Consolidated Statement of Changes in Partners' Capital
(Unaudited)
==================================================
Limited General
Total Partners Partner
--------------------------------------------------
Partners' capital -
April 1, 1996 $38,454,078 $38,455,664 $ (1,586)
Net loss (996,524) (986,559) (9,965)
----------- ----------- ---------
Partners' capital -
December 31, 1996 $37,457,554 $37,469,105 $ (11,551)
=========== =========== =========
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)
============================
Nine Months Ended
December 31,
---------------------------
1996 1995
---------------------------
Cash flows from operating activities:
Net income (loss) $ (996,524) $ 91,184
Adjustments to reconcile net income (loss)
to net cash (used in) provided by
operating activities:
Depreciation and amortization 950,220 379,554
Minority interest in loss of
subsidiaries (690) (140)
(Decrease) increase in accounts
payable and other liabilities (732,095) 447,823
Decrease (increase) in cash
held in escrow 42,905 (193,785)
Increase in other assets (58,387) (51,031)
Increase in due to local general
partners and affiliates 62,992 282,621
Decrease in due to local general
partners and affiliates (141,575) (264,354)
Increase in due to general partner
and affiliates 78,180 90,441
---------- -----------
Total adjustments 201,550 691,129
---------- -----------
Net cash (used in) provided by
operating activities (794,974) 782,313
---------- -----------
Cash flows used in investing activities:
Acquisition of property and
equipment (1,842,910) (15,722,938)
Decrease in investments
available for sale 2,002,412 5,400,000
Increase in construction in progress (7,797,398) (8,546,318)
Decrease (increase) in cash held
in escrow 544,497 (2,518,187)
Decrease (increase) in deferred costs 13,997 (1,251,339)
Increase in accounts payable
and other liabilities 398,708 644,008
Increase in due to local general
partners and affiliates 454,055 2,062,503
Decrease in due to local general
partners and affiliates (1,549,565) (401,879)
---------- -----------
Net cash used in investing activities (7,776,204) (20,334,150)
---------- -----------
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)
============================
Nine Months Ended
December 31,
---------------------------
1996 1995
---------------------------
Cash flows provided by financing activities:
Proceeds from mortgage notes 4,026,715 10,047,794
Repayments of mortgage notes (932,413) (794,635)
Proceeds from construction loans 2,554,522 2,877,061
Repayments of construction loans (1,198,319) (26,680)
Capital contributions received 0 12,010,000
Decrease in due to general partner
and affiliates 0 (314,300)
Increase in deferred costs (38,192) (84,109)
Increase in offering costs 0 (1,321,100)
Increase in capitalization
of consolidated subsidiaries
attributable to minority interest 38,387 146,897
------------ ------------
Net cash provided by financing
activities 4,450,700 22,540,928
------------ ------------
Net (decrease) increase in cash and
cash equivalents (4,120,478) 2,989,091
Cash and cash equivalents at
beginning of period 9,333,536 4,678,955
------------ ------------
Cash and cash equivalents at
end of period $ 5,213,058 $ 7,668,046
============ ============
Supplemental disclosures of noncash
investing and financing activities:
Capitalization of deferred
acquisition costs 152,961 1,225,842
Conversion of construction notes
payable to mortgage notes payable 0 2,188,210
Property and equipment reclassified
from construction in progress 8,653,823 1,846,616
See Accompanying Notes to Consolidated Financial Statements
6
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 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 December 31, 1996, the Partnership has acquired a limited partnership
interest in sixteen subsidiary partnerships, one of which has not been
consolidated and is shown on the balance sheet, at cost, as property and
equipment 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
December 31, 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 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.
7
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996
(Unaudited)
Note 1 - General (continued)
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 $3,763 and $1,290 and $7,776 and $1,706 for the three and nine months
ended December 31, 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.
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 December
31, 1996, the Partnership has not recorded any
8
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996
(Unaudited)
Note 1 - General (continued)
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 December 31, 1996, the results of operations for the three and
nine months ended December 31, 1996 and 1995 and changes in cash flows for the
nine months ended December 31, 1996 and 1995. However, the operating results for
the nine months ended December 31, 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 both December 31, 1996 and March 31, 1996,
$2,606,400 of such costs have been incurred, of which $1,962,092 and $1,501,552,
respectively, have been capitalized.
B) Public Offering Costs
Costs incurred to organize the Partnership and certain costs of offering the
BACs including but not limited to legal, accounting
9
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996
(Unaudited)
Note 2 - Related Party Transactions (continued)
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 December 31, 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 December 31, 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 nine months ended
December 31, 1996 and 1995 were as follows:
Three Months Ended Nine Months Ended
December 31, December 31,
1996 1995 1996 1995
--------------------- ---------------------
Partnership
management
fees (a) $ 73,934 $109,892 $196,815 $183,351
Expense
reimburse-
ment (b) 37,249 9,604 95,074 61,409
Property manage-
ment fees (c) 28,824 32,062 82,304 44,370
Local adminis-
trative fees (d) 4,000 0 12,000 0
-------- -------- -------- --------
$144,007 $151,558 $386,193 $289,130
======== ======== ======== ========
10
<PAGE>
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996
(Unaudited)
Note 2 - Related Party Transactions (continued)
(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 $205,000 and $8,000 were accrued and unpaid as of December 31,
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 $41,311
and $35,390 and $113,587 and $53,748 for the three and nine months ended
December 31, 1996 and 1995, respectively. Of these fees $28,824 and $32,062 and
$82,304 and $44,370 were incurred to affiliates of the subsidiary partnerships'
general partner.
(d) Independence SLP III, 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, 1996.
11
<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 December 31, 1996, the Partnership has invested approximately $22,623,000
(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 $1,645,000) of net proceeds in
sixteen Local Partnerships of which approximately $3,332,000 remains to be paid
to the Local Partnerships (including approximately $2,071,000 being held in
escrow) as certain benchmarks, such as occupancy level, must be attained prior
to the release of the funds. One Local Partnership was acquired during the nine
months ended December 31, 1996 for a combined purchase price of approximately
$2,180,000 (not including acquisition fees of approximately $153,000) of which
approximately $608,000 remains to be paid. The Partnership has approximately
$11,912,000 available for future investments. During the nine months ended
December 31, 1996, approximately $4,170,000 was paid to Local Partnerships,
including purchase price adjustments (of which approximately $825,000 was
released from escrow). An additional $150,000 was placed into escrow for
purchase price payments during the nine months ended December 31, 1996. In
addition, during the nine months ended December 31, 1996, approximately
$1,260,000 was placed into escrow for the potential acquisition of a Local
Partnership. 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 nine months ended December 31,
1996.
For the nine months ended December 31, 1996, cash and cash equivalents for the
Partnership and its fifteen consolidated Local Partnerships decreased
approximately $4,120,000 primarily due to cash
12
<PAGE>
used in operating activities ($795,000), an increase in construction in progress
($7,797,000), acquisitions of property and equipment ($1,843,000) and a decrease
in due to local general partners and affiliates relating to investing activities
($1,096,000) which exceeded net proceeds from mortgage and construction loans
($4,451,000), a decrease in cash held in escrow from investing activities
($544,000), a decrease in investments available for sale ($2,002,000) and an
increase in accounts payable and other liabilities relating to investing
activities ($399,000). Included in the adjustments to reconcile the net loss to
cash used in operating activities is depreciation and amortization in the amount
of approximately $950,000.
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 December 31, 1996 and March 31, 1996
was approximately $979,000 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 nine months ended December 31, 1996 and 1995, the
Partnership received cash flow distributions from operations of the Local
Partnerships amounting to approximately $2,000 and $0, respectively. Management
anticipates continuing 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 $3,060,000 as of December
31, 1996.
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.
13
<PAGE>
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.
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 invested the proceeds of its offering
in seventeen 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.
14
<PAGE>
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 December
31, 1996, the Partnership has not recorded any provisions for loss on impairment
of assets or reduction to estimated fair value.
As of December 31, 1996 and 1995, the Partnership had acquired an interest in
sixteen and fifteen Local Partnerships, fifteen and ten 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 nine months ended
December 31, 1996 and 1995 consisted primarily of (1) approximately $130,000 and
$266,000, and $428,000 and $737,000, 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 thirteen of fifteen and seven of ten
consolidated Local Partnerships, respectively.
15
<PAGE>
For the nine months ended December 31, 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. For the three months ended December 31, 1996 as compared to 1995,
rental income and operating and other, real estate taxes and financial expenses
decreased primarily due to an understatement of such income and expenses at one
Local Partnership in the second quarter of 1995 which was corrected in the third
quarter of 1995. Other income decreased approximately $122,000 and $265,000 for
the three and nine months ended December 31, 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 December 31, 1996 and 1995, one and one of the
Partnership's fifteen and ten consolidated properties, respectively, completed
construction, and were in various stages of rent up. In addition, one 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, ten and three of the
properties had completed construction and were fully rented up in a previous
fiscal quarter. For the nine months ended December 31, 1996 and 1995, five and
three of the Partnership's fifteen and ten 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 nine 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 nine months ended December 31, 1996
and 1995, three and five of the Partnership's fifteen and ten 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 December 31, 1996 and 1995.
16
<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.
17
<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: February 13, 1997
By: /s/ Alan P. Hirmes
----------------------
Alan P. Hirmes,
Vice President
(principal financial officer)
Date: February 13, 1997
By: /s/ Richard A. Palermo
----------------------
Richard A. Palermo,
Treasurer
(principal accounting officer)
18
<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>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 14,032,219
<SECURITIES> 9,500,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,129,148
<PP&E> 51,372,025
<DEPRECIATION> 1,522,570
<TOTAL-ASSETS> 76,510,822
<CURRENT-LIABILITIES> 6,165,893
<BONDS> 31,502,762
0
0
<COMMON> 0
<OTHER-SE> 38,842,167
<TOTAL-LIABILITY-AND-EQUITY> 76,510,822
<SALES> 0
<TOTAL-REVENUES> 2,291,039
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,850,571
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 437,682
<INCOME-PRETAX> (997,214)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (997,214)
<EPS-PRIMARY> (22.71)
<EPS-DILUTED> 0
</TABLE>
