Item 1. Business.
General
Independence Tax Credit Plus L.P. III (the “Partnership”) is a limited partnership which was formed under the laws of the State of Delaware on December 23, 1993. The general partner of the Partnership is Related Independence Associates III L.P., a Delaware limited partnership (the “General Partner”). The general partner of the General Partner is Related Independence Associates III Inc., a Delaware corporation (“RIAI III”). The ultimate parent of the General Partner is Centerline Holding Company (“Centerline”).
On June 7, 1994, the Partnership commenced a public offering (the “Offering”) of Beneficial Assignment Certificates (“BACs”) representing assignments of limited partnership interests in the Partnership (“Limited Partnership Interests”), managed by Related Equities Corporation (the “Dealer Manager”), pursuant to a prospectus dated June 7, 1994 (the “Prospectus”).
As of the termination of the offering on May 9, 1995, the Partnership had received $43,440,000 of gross proceeds of the Offering (the “Gross Proceeds”) from 2,810 investors (“BACs holders”). (See Item 8, “Financial Statements and Supplementary Data,” Note 1).
The Partnership’s business is to invest in other partnerships (“Local Partnerships,” “subsidiaries” or “subsidiary partnerships”) owning leveraged apartment complexes (“Apartment Complexes” or “Properties”) that are eligible for the low-income housing tax credit (“Tax Credit”) enacted in the Tax Reform Act of 1986, some of which may also be eligible for the historic rehabilitation tax credit (“Historic Tax Credit”). The Partnership’s investment in each Local Partnership represents from 98.99% to 99.98%, other than one Local Partnership. The Partnership’s investment in New Zion represents 42.39% of the partnership interests in the Local Partnership (the other 57.59% of limited partnership interests is owned by affiliates of the Partnership, with the same management). The Partnership had originally acquired interests in twenty Local Partnerships. During the year ended March 31, 2012, the Partnership sold its limited partnership interests in five Local Partnerships and transferred the deed to the property and related assets and liabilities in lieu of foreclosure of one Local Partnership. As of March 31, 2012, the Partnership has sold its limited partnership interests in nine Local Partnerships and transferred the deed to the property and related assets and liabilities in lieu of foreclosure of one Local Partnership. In addition, as of March 31, 2012, one Local Partnership has entered into an agreement to sell its property and the related assets and liabilities. Subsequently, the Partnership sold its limited partnership interests in two other Local Partnerships (see Item 8, Note 12). As of March 31, 2012, approximately $35,051,000 (including approximately $3,000 classified as a loan repayable from sale/refinancing proceeds in accordance with the contribution agreement with one Local Partnership and including acquisition fees of approximately $2,510,000) of the net proceeds of the Offering has been invested in Local Partnerships, of which approximately $120,000 remains to be contributed to the Local Partnerships for payment by them to the original sellers of the Properties (including approximately $115,000 being held in escrow), as certain benchmarks such as occupancy levels must be attained prior to the release of such funds. The Partnership does not intend to acquire interests in additional Local Partnerships.
Investment Objectives/General Incentives
The Partnership was formed to invest in low-income Apartment Complexes that are eligible for the Tax Credit enacted in the Tax Reform Act of 1986. Some Apartment Complexes may also be eligible for Historic Tax Credits (“Historic Complexes” or “Properties”). The investment objectives of the Partnership are described below.
1.
Entitle qualified BACs holders to Tax Credits over the period of the Partnership’s entitlement to claim Tax Credits (for each Property, generally ten years from the date of investment or, if later, the date the Property is leased to qualified tenants; referred to herein as the “Credit Period”) with respect to each Apartment Complex.
2.
Preserve and protect the Partnership’s capital.
3.
Participate in any capital appreciation in the value of the Properties and provide distributions of sale or refinancing proceeds upon the disposition of the Properties.
4.
Allocate passive losses to individual BACs holders to offset passive income that they may realize from rental real estate investments and other passive activities, and allocate passive losses to corporate BACs holders to offset business income.
One of the Partnership’s objectives is to entitle qualified BACs holders to Tax Credits over the Credit Period. Each of the Local Partnerships in which the Partnership has acquired an interest has been allocated by the relevant state credit agencies the authority to recognize Tax Credits during the Credit Period provided that the Local Partnership satisfies the rent restriction, minimum set-aside and other requirements for recognition of the Tax Credits at all times during such period. Once a Local Partnership has become eligible to recognize Tax Credits, it may lose such eligibility and suffer an event of “recapture” if its Property fails to remain in compliance with the Tax Credit requirements during the 15-year period commencing at the beginning of the Credit Period (“Compliance Period”). Through December 31, 2009, only Mansion Court Phase II Venture was required to recapture $489,362 of low-income housing tax credits. As of December 31, 2009, all the Local Partnerships had completed their Credit Periods. However, each Local Partnership must continue to comply with the Tax Credit requirements until the end of the Compliance Period in order to avoid recapture of the Tax Credits. The Compliance Periods will continue through December 31, 2014 with respect to the Properties depending upon when the Compliance Period commenced.
A loss on impairment of assets is recorded when management estimates amounts recoverable through future operations and sale of the Property on an undiscounted basis are below depreciated cost. At that time the Property investments themselves are reduced to estimated fair value (generally using the direct capitalization method). During the year ended March 31, 2012, the Partnership recorded approximately $131,000 as an aggregate loss on impairment of assets or reduction to estimated fair value. Through March 31, 2012, the Partnership has recorded approximately $30,481,000 as an aggregate loss on impairment of assets or reduction to estimated fair value.
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While the value of the remaining Tax Credits are a factor in calculating fair value, the expiration of the Credit Period, in and of itself, has not been the only factor in determining whether there is an impairment and generally has not had any adverse impact on the fair value of the Local Partnerships.
There can be no assurance that the Partnership will achieve its investment objectives as described above, and it is unlikely that the Partnership will meet objectives 2 and 3, also as noted above.
The Partnership is subject to the risks incident to potential losses arising from the management and ownership of improved real estate. The Partnership can also be affected by poor economic conditions generally; however, no more than 30% of the Properties are located in any single state. There are also substantial risks associated with owning interests in properties, as does the Partnership, which receive government assistance, for example the possibility that Congress may not appropriate funds to enable the Department of Housing and Urban Development (“HUD”) to make rental assistance payments. HUD also restricts annual cash distributions to partners based on operating results and a percentage of the owner’s equity contribution. The Partnership cannot sell or substantially liquidate its investments in subsidiary partnerships during the period that the subsidy agreements are in existence without HUD’s approval. Furthermore, there may not be market demand for apartments at full market rents when the rental assistance contracts expire.
Sale of Underlying Local Partnerships
The Partnership is in the process of disposing of all of its investments. It is anticipated that this process will continue to take a number of years. During the year ended March 31, 2012, the Partnership sold its limited partnership interests in five Local Partnerships and transferred the deed to the property and related assets and liabilities in lieu of foreclosure of one Local Partnership. As of March 31, 2012, the Partnership has sold its limited partnership interests in nine Local Partnerships and transferred the deed to the property and related assets and liabilities in lieu of foreclosure of one Local Partnership. In addition, as of March 31, 2012, one Local Partnership has entered into an agreement to sell its property and the related assets and liabilities. Subsequently, the Partnership sold its limited partnership interests in two other Local Partnerships (see Item 8, Note 12). There can be no assurance as to when the Partnership will dispose of its remaining investments or the amount of proceeds which may be received. However, based on the historical operating results of the Local Partnerships and the current economic conditions, including changes in tax laws, it is unlikely that the proceeds from such sales received by the Partnership will be sufficient to return to the limited partners their original investment.
On February 3, 2012, the Partnership sold its limited partnership interest in Brannon Group, L.C. (“Keys”) to an unaffiliated third party purchaser for a sales price of $4,000. The Partnership received $4,000 from the sale. The sale resulted in a gain of approximately $6,882,000, resulting from the write-off of the basis in the Local Partnership of approximately $6,878,000 at the date of the sale and the $4,000 received from the sale, which was recorded during the quarter ended March 31, 2012. In addition, the sale resulted in a non-cash contribution to the Local Partnership from the General Partner of approximately $288,000 as a result of the write-off of fees and loans owed by the Local Partnership to an affiliate of the General Partner.
On December 31, 2011, the Partnership sold its limited partnership interests in Mansion Court Phase II Venture (“Mansion Court”) and Aspen-Olive Associates (“Aspen-Olive”), to an affiliate of the Local General Partner for a sales price of $10. The Partnership did not receive any cash after the repayment of other liabilities. The sale resulted in a gain of approximately $3,700,000, resulting from the write-off of the basis in the Local Partnerships of the same amount at the date of the sale, which was recorded during the quarter ended December 31, 2011. An adjustment to the gain of approximately $29,000 was recorded during the quarter ended March 31, 2012, resulting in an overall gain $3,729,000. In addition, the sale resulted in a non-cash contribution to the Local Partnerships from the General Partner of approximately $50,000 as a result of the write-off of fees owed by the Local Partnerships to an affiliate of the General Partner.
On October 11, 2011, Park Housing Limited Partnership (“Park Terrace”) transferred the deed to the property and the related assets and liabilities to an unaffiliated third party in lieu of foreclosure. The transfer of assets of approximately $244,000 and liabilities of $1,784,000 resulted in a gain of approximately $1,540,000, which was recognized during the quarter ended March 31, 2012. As of the transfer date, Park Terrace had property and equipment, at cost, of approximately $1,201,000, accumulated depreciation of approximately $1,140,000 and mortgage debt of approximately $784,000. In addition, the sale resulted in a non-cash contribution to the Local Partnership from the General Partner of approximately $20,000 as a result of the write-off of fees owed by the Local Partnership to an affiliate of the General Partner.
On August 23, 2011, the Partnership sold its limited partnership interest in BK-9-A Partners, L.P. (“Lafayette Avenue”) to an affiliate of the Local General Partner for a sales price of $30,000. The Partnership did not receive any cash after the repayment of other liabilities. The sale resulted in a gain of approximately $874,000, resulting from the write-off of the basis in the Local Partnership of the same amount at the date of the sale, which was recorded during the quarter ended September 30, 2011. Adjustments to the gain of approximately $8,000 and $23,000 were recorded during the quarters ended December 31, 2011 and March 31, 2012, respectively, resulting in an overall gain of approximately $905,000.
On August 23, 2011, the Partnership sold its limited partnership interest in BK-10K Partners, L.P. (“Knickerbocker Apartments”) to an affiliate of the Local General Partner for a sales price of $250,000. The Partnership received approximately $236,000 after the repayment of other liabilities of approximately $14,000. The sale resulted in a loss of approximately $433,000, resulting from the write-off of the basis in the Local Partnership of approximately $669,000 at the date of the sale and the $236,000 cash received from the sale, which was recorded during the quarter ended September 30, 2011. Adjustments to the loss of approximately of $6,000 and $(11,000) were recorded during the quarters ended December 31, 2011 and March 31, 2012, respectively, resulting in an overall loss of approximately $427,000.
On December 31, 2010, the Partnership sold its limited partnership interest in Jefferis Square Housing Partnership L.P. (“Jefferis”) to an affiliate of the Local General Partner for a sales price of $25,000. The Partnership received approximately $2,000 after the repayment of other liabilities of approximately $23,000. The sale resulted in a gain of approximately $4,832,000, resulting from the write-off of the deficit basis in the Local Partnership of approximately $4,830,000 at the date of the sale and the $2,000 cash received from the sale, which was recorded during the quarter ended December 31, 2010. An adjustment to the gain of approximately $196,000 was recorded during the quarter ended March 31, 2011, resulting in an overall gain of $5,028,000. In addition, the sale resulted in a non-cash contribution to the Local Partnership from the General Partner of approximately $12,500 as a result of the write-off of fees owed by the Local Partnership to an affiliate of the General Partner.
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On March 31, 2010, the Partnership sold its limited partnership interest in Livingston Manor Urban Renewal Associates, L.P. (“Livingston Manor”) to an affiliate of the Local General Partner for a sales price of $20,000. The Partnership received approximately $7,000 after the repayment of other liabilities of approximately $13,000. The sale resulted in a loss of approximately $1,870,000, resulting from the write-off of the basis in the Local Partnership of approximately $1,877,000 at the date of the sale and the $7,000 cash received from the sale which was recorded during the year ended March 31, 2010. An adjustment to the loss of approximately $42,000 was recorded during the quarter ended June 30, 2010, resulting in an overall loss of approximately $1,912,000. In addition, the sale resulted in a non-cash contribution to the Local Partnership from the Local General Partner of approximately $324,000 as a result of the write-off of fees owed by the Local Partnership to the Local General Partner.
Assets Held for Sale
On August 29, 2011, New Zion Apartments (“New Zion”) entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an unaffiliated third party purchaser for a sales price of $2,450,000. As of March 31, 2012, New Zion had property and equipment, at cost, of approximately $2,814,000, accumulated depreciation of approximately $1,511,000 and mortgage debt of approximately $562,000. The Partnership owns a 42.39% limited partnership interest in New Zion. The sale is expected to be consummated during the fourth quarter of 2012. There can be no assurance of when and if the sale will be consummated by this time.
Segments
The Partnership operates in one segment, which is the investment in multi-family residential property. Financial information about this segment is set forth in Item 8 hereto.
Competition
The real estate business is highly competitive and substantially all of the Properties acquired by the Partnership are expected to have active competition from similar properties in their respective vicinities. In addition, various other limited partnerships have, in the past, and may, in the future, be formed by the General Partner and/or its affiliates to engage in businesses which may be competitive with the Partnership.
Employees
The Partnership does not have any direct employees. All services are performed for the Partnership by the General Partner and its affiliates. The General Partner receives compensation in connection with such activities as set forth in Items 11 and 13. In addition, the Partnership reimburses the General Partner and certain of its affiliates for expenses incurred in connection with the performance by their employees of services for the Partnership in accordance with the Partnership’s Amended and Restated Agreement of Limited Partnership (the “Partnership Agreement”).
Item 1A.
Item 1A. Risk Factors.
Not applicable.
Item 1B.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2.
Item 2. Properties.
The Partnership is subject to the risks incidental to potential losses arising from the management and ownership of improved real estate. The Partnership can also be affected by poor economic conditions. The Partnership had originally acquired interests in twenty Local Partnerships, all of which have been consolidated for accounting purposes. During the year ended March 31, 2012, the Partnership has sold its limited partnership interests in five Local Partnerships and transferred the deed to the property and related assets and liabilities in lieu of foreclosure of one Local Partnership. As of March 31, 2012, the Partnership has sold its limited partnership interests in nine local partnerships and transferred the deed to the property and related assets and liabilities in lieu of foreclosure of one Local Partnership. In addition, as of March 31, 2012, one Local Partnership has entered into an agreement to sell its property and the related assets and liabilities. Subsequently, the Partnership sold its limited partnership interests in another Local Partnership (see Item 8, Note 11). There can be no assurance as to when the Partnership will dispose of its remaining investments or the amount of proceeds which may be received. Except for the interest in New Zion Apartments, L.P. (“New Zion”), the Partnership’s investment in each Local Partnership represents 98.99% or 99.98% of the partnership interests in the Local Partnership. The Partnership’s investment in New Zion represents 42.39% of the partnership interests in the Local Partnership (the other 57.59% of limited partnership interests is owned by affiliates of the Partnership, with the same management). Set forth below is a schedule of the Local Partnerships including certain information concerning their respective Apartment Complexes (the “Local Partnership Schedule”). Further information concerning these Local Partnerships and their Properties, including any encumbrances affecting the Properties, may be found in Schedule III to the financial statements which are included herein.
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Local Partnership Schedule
(a)
The Partnership’s limited partnership interest was sold during the fiscal year ended March 31, 2009 (see Note 10 in Item 8).
(b)
The Partnership’s limited partnership interest was sold during the fiscal year ended March 31, 2010 (see Note 10 in Item 8).
(c)
The Partnership’s limited partnership interest was sold during the fiscal year ended March 31, 2011 (see Note 10 in Item 8).
(d)
The Partnership’s limited partnership interest was sold during the fiscal year ended March 31, 2012 (see Note 10 in Item 8).
(e)
The Partnership transferred the deed to the property and related assets and liabilities in lieu of foreclosure during the fiscal year ended March 31, 2012 (see Note 10 in Item 8).
All leases are generally for periods not greater than one to two years and no tenant occupies more than 10% of the total rentable square footage in any single Apartment Complex.
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Commercial tenants (to which average rental per square foot applies) comprise less than 5% of the rental revenues of the Partnership. Maximum rents for the residential units are determined annually by HUD and reflect increases/decreases in consumer price indices in various geographic areas. Market conditions, however, determine the amount of rent actually charged.
Management continuously reviews the physical state of the Properties and suggests to the respective general partners of the Local Partnerships (“Local General Partners”) budget improvements which are generally funded from cash flow from operations or release of replacement reserve escrows to the extent available.
Management continuously reviews the insurance coverage of the Properties and believes such coverage is adequate.
See Item 1, Business, above for the general competitive conditions to which the Properties described above are subject.
Real estate taxes are calculated using rates and assessed valuations determined by the township or city in which the Property is located. Such taxes have approximated 1% of the aggregate cost of the Properties as shown in Schedule III to the financial statements included herein.
In connection with investments in development-stage Apartment Complexes, the General Partner generally required that the Local General Partners provide completion guarantees and/or undertake to repurchase the Partnership’s interest in the Local Partnership if construction or rehabilitation was not completed substantially on time or on budget (“Development Deficit Guarantees”). The Development Deficit Guarantees generally also required the Local General Partner to provide any funds necessary to cover net operating deficits of the Local Partnership until such time as the Apartment Complex had achieved break-even operations. The General Partner generally required that the Local General Partners undertake an obligation to fund operating deficits of the Local Partnership (up to a stated maximum amount) during a limited period of time (typically three to five years) following the achievement of break-even operations (“Operating Deficit Guarantees”). As of March 31, 2012, the gross amount of the Operating Deficit Guarantees aggregate approximately $5,487,000, of which approximately $3,931,000 have expired. In cases where the General Partner deemed it appropriate, the obligations of a Local General Partner under the Development Deficit, Operating Deficit and/or Rent-Up Guarantees were secured by letters of credit and/or cash escrow deposits.
Tax Credits with respect to a given Apartment Complex were available for a ten-year period that commenced when the property was leased to qualified tenants. However, the annual Tax Credits available in the year in which the Apartment Complex was leased was prorated based upon the number of months remaining in the year. The amount of the annual Tax Credit not available in the first year was available in the eleventh year. In certain cases, the Partnership acquired its interest in a Local Partnership after the Local Partnership had placed its Apartment Complex in service. In these cases, the Partnership was allocated Tax Credits beginning in the month following the month in which it acquired its interest and Tax Credits allocated in any prior period were not available to the Partnership.
Item 3.
Item 3. Legal Proceedings.
None.
Item 4.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
As of March 31, 2012, the Partnership had issued and outstanding 43,440 Limited Partnership Interests, each representing a $1,000 capital contribution to the Partnership, or an aggregate capital contribution of $43,440,000. All of the issued and outstanding Limited Partnership Interests have been issued to Independence Assignor Inc. (the “Assignor Limited Partner”), which has in turn issued 43,440 BACs to the purchasers thereof for an aggregate purchase price of $43,440,000. Each BAC represents all of the economic and virtually all of the ownership rights attributable to a Limited Partnership Interest held by the Assignor Limited Partner. BACs may be converted into Limited Partnership Interests at no cost to the holder (other than the payment of transfer costs not to exceed $100), but Limited Partnership Interests so acquired are not thereafter convertible into BACs.
Neither the BACs nor the Limited Partnership Interests are traded on any established trading market. The Partnership does not intend to include the BACs for quotation on NASDAQ or for listing on any national or regional stock exchange or any other established securities market. The Revenue Act of 1987 contained provisions which have an adverse impact on investors in “publicly traded partnerships.” Accordingly, the General Partner has imposed limited restrictions on the transferability of the BACs and the Limited Partnership Interests in secondary market transactions. Implementation of the restrictions should prevent a public trading market from developing and may adversely affect the ability of an investor to liquidate his or her investment quickly. It is expected that these procedures will remain in effect until such time, if ever, as further revision of the Revenue Act of 1987 may permit the Partnership to lessen the scope of the restrictions.
As of May 25, 2012, the Partnership has approximately 2,533 registered holders of an aggregate of 43,440 BACs.
All of the Partnership’s general partnership interests, representing an aggregate capital contribution of $1,000, are held by the General Partner.
There are no material legal restrictions in the Partnership Agreement on the ability of the Partnership to make distributions. However, the Partnership has made no distributions to the BACs holders as of March 31, 2012. The Partnership does not anticipate providing cash distributions to its BACs holders other than from net refinancing or sales proceeds.
Transfer Procedures
The Partnership from time to time receives requests by unit holders and others to transfer BACs and/or Limited Partnership Interests. Such requests may occur in connection with tender offers for the Partnership’s units. Such requests implicate the Partnership’s policies and procedures concerning transfers generally and tender offers in particular, which were adopted by the Partnership pursuant to the terms of its Partnership Agreement, to ensure compliance with applicable law, avoid adverse tax consequences for the Partnership and its investors, and preserve the Partnership’s advantageous tax status.
The Partnership relies on a 2% safe harbor established by an Internal Revenue Service (“IRS”) regulation to avoid being characterized as a “publicly-traded partnership” that is taxed as a corporation.
A brief summary of certain of the Partnership’s key policies, practices and requirements with respect to transfers and tender offers is as follows:
·
No transfer (whether for substitution, assignment or otherwise) is effective or binding on the Partnership unless and until it is approved by the General Partner.
·
No transfer will be approved unless the transferor and transferee submit complete and properly executed forms of the Partnership’s own transfer documentation. The Partnership does not accept forms of transfer documentation other than its own and does not accept signatures made by power of attorney in lieu of original signatures by each of the transferors and transferees.
·
The Partnership will not approve transfers that in the cumulative aggregate for any tax year exceed the IRS 2% safe harbor, unless a financially responsible person provides the Partnership and its partners with (i) an indemnity (in form and substance in all ways acceptable to the General Partner) for all liability (including, without limitation, any adverse tax consequences) arising from or relating to exceeding the 2% safe harbor and (ii) a legal opinion (in form and substance in all ways acceptable to the General Partner) that there will be no adverse tax consequences to the Partnership and its partners from exceeding the 2% safe harbor.
·
In order to avoid the undesirable situation of one or more tender offers consuming the entire safe harbor limitation early in the tax year and leaving the Partnership’s remaining investors with no liquidity opportunity for the rest of that tax year, the Partnership restricts the cumulative aggregate total of transfers made pursuant to all tender offers to 1.5% of its outstanding units in each tax year, unless a financially responsible person conducting such tender offer provides the Partnership with an acceptable indemnity and legal opinion of the type described above. At the end of each tax year, the General Partner, in its discretion, may allow the cumulative total number of transfers (including those by tender offer) to reach the 2% safe harbor limit.
·
The Partnership requires that all tender offers for its units be conducted in accordance with all applicable law including, without limitation, the federal securities laws.
The foregoing is solely a summary of the Partnership’s policies, requirements and practices with respect to transfers and tender offers. More complete information, including a copy of the Partnership’s transfer documentation package, may be obtained from the Partnership.
Item 6.
Item 6. Selected Financial Data.
Not applicable.
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Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Liquidity and Capital Resources
The Partnership had originally invested approximately $35,051,000 (including approximately $3,000 classified as loans repayable from sale/refinancing proceeds in accordance with the contribution agreement with one Local Partnership and not including acquisition fees of approximately $2,510,000) of the net proceeds of its Offering in twenty Local Partnerships of which approximately $120,000 remains to be contributed to the Local Partnerships for payment by them to the original sellers of the Properties (not including approximately $115,000 being held in escrow) as certain benchmarks, such as occupancy level, must be attained prior to the release of the funds. The Partnership does not intend to acquire additional Properties. During the year ended March 31, 2012, the Partnership did not make any advances to the Local Partnerships.
The Partnership is in the process of disposing of all of its investments. During the year ended March 31, 2012, the Partnership sold its limited partnership interests in five Local Partnerships and transferred the deed to the property and related assets and liabilities in lieu of foreclosure of one Local Partnership. As of March 31, 2012, the Partnership has sold its limited partnership interests in nine Local Partnerships and transferred the deed to the property and related assets and liabilities in lieu of foreclosure of one Local Partnership. In addition, as of March 31, 2012, one Local Partnership has entered into an agreement to sell its property and the related assets and liabilities. Subsequently, the Partnership sold its limited partnership interests in two other Local Partnerships (see Item 8, Note 12). There can be no assurance as to when the Partnership will dispose of its remaining investments or the amount of proceeds which may be received. However, based on the historical operating results of the Local Partnerships and the current economic conditions, including changes in tax laws, it is unlikely that the proceeds from such sales received by the Partnership will be sufficient to return to the limited partners their original investments. All gains and losses on sales are included in discontinued operations.
Short-term
During the year ended March 31, 2012, the Partnership’s primary sources of funds included: (i) working capital reserves; (ii) interest earned on the working capital reserves; (iii) cash distributions from operations of the Local Partnerships; and (iv) sales proceeds and distributions. Such funds are available to meet the obligations of the Partnership. The Partnership does not anticipate providing cash distributions to BACs holders in circumstances other than refinancing or sales. Cash distributions received from the Local Partnerships, as well as the working capital reserves referred to above, will be used towards the future operating expenses of the Partnership. During the years ended March 31, 2012 and 2011, the amounts received from operations of the Local Partnerships were approximately $117,000 and $91,000, respectively. Additionally, during the years ended March 31, 2012 and 2011, the Partnership received approximately $225,000 and $0, respectively, in net proceeds from the sale of Local Partnerships’ limited partnership interest. The Partnership does not anticipate being able to make distributions sufficient to return to BACs holders their original capital contributions.
For the year ended March 31, 2012, cash and cash equivalents of the Partnership and its consolidated Local Partnerships decreased approximately ($260,000). This decrease was due to the repayment of mortgage notes ($306,000), costs related to sale of properties ($59,000), purchase of property and equipment ($50,000), a net decrease in due to local general partners and affiliates relating to financing activities ($6,000) and a decrease in capitalization of consolidated subsidiaries attributable to noncontrolling interests ($240,000), which exceeded net cash provided by operating activities ($115,000), proceeds from sale of properties ($284,000) and a decrease in cash held in escrow relating to investing activities ($2,000). Included in the adjustments to reconcile the net income to net cash provided by operating activities is depreciation and amortization in the amount of approximately ($588,000), gain on sale of properties of approximately $12,629,000 and loss on impairment of fixed assets of approximately ($131,000).
Total expenses for the year ended March 31, 2012 and 2011, respectively, excluding depreciation and amortization, interest, general and administrative - related parties and loss on impairment of fixed assets, totaled $3,282,896 and $3,176,913, respectively.
Accounts payable as of March 31, 2012 and 2011 were $327,110 and $1,018,576, respectively. Accounts payable from discontinued operations totaled $9,016 and $0 as of March 31, 2012 and March 31, 2011, respectively. Accounts payable are short term liabilities which are expected to be paid from operating cash flows, working capital balances at the Local Partnership level, Local General Partner advances and in certain circumstances advances from the Partnership. Accrued interest as of March 31, 2012 and 2011 was $4,602,247 and $9,248,146, respectively. Accrued interest payable from discontinued operations totaled $3,282 and $0 as of March 31, 2012 and March 31, 2011, respectively. Such amount represents the accrued interest on all mortgage loans, which include primary and secondary loans. Certain secondary loans have provisions such that interest is accrued but not payable until a future date. The Partnership anticipates the payment of accrued interest on the secondary loans (which make up the majority of the accrued interest payable amount and which have been accumulating since the Partnership’s investment in the respective Local Partnership) will be made from future refinancings or sales proceeds of the respective Local Partnerships. In addition, each Local Partnership’s mortgage notes are collateralized by the land and buildings of the respective Local Partnership, and are without further recourse to the Partnership.
Because the provisions of the secondary loans defer the payment of accrued interest of the respective Local Partnerships, the Partnership believes it (and the applicable Local Partnerships) has sufficient liquidity and ability to generate cash and to meet existing and known or reasonably likely future cash requirements over both the short and long term. In addition, assuming the General Partner continues to defer the payment of fees as discussed below and in Note 8 to the Financial Statements in Item 8, the Partnership believes it has sufficient liquidity and ability to generate cash and to meet existing and known or reasonably likely future cash requirements over both the short and long term.
The Partnership has an unconsolidated working capital reserve of approximately $842,000 at March 31, 2012.
Long-term
Partnership management fees owed to the General Partner amounting to approximately $2,957,000 and $3,520,000 were accrued and unpaid as of March 31, 2012 and 2011, respectively, and are included in the line item Due to general partner and affiliates in the consolidated balance sheets. During the year ended March 31, 2012, management deemed the unpaid partnership management fees that were related to the properties sold during the year ended March 31, 2012, uncollectible and as a result, wrote them off in the amount of approximately $757,000, resulting in a non-cash General Partner contribution of the same amount. Unpaid partnership management fees for any year are to be deferred without interest and will be payable out of sales or refinancing proceeds only to the extent of available funds after payments on all Partnership liabilities have been made other than to those owed to the General Partner and its affiliates, and after the Limited Partners have received a 10% return on their capital contributions.
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All other payables included in Due to general partner and affiliates are expected to be paid, if at all, from working capital reserves. See Note 12 in Item 8 for further discussion of amounts due to the General Partner and its affiliates. The General Partner does not anticipate advancing going forward any operating funds to any of the Local Partnerships in which the Partnership has invested. Even if a situation arose where the General Partner and its affiliates needed to but were not able to make operating advances in the future due to lack of funds, the only impact on the Partnership would be that it would lose its investment in that particular Local Partnership. The Partnership’s ability to continue its operations would not be affected.
For discussion of contingencies affecting certain subsidiary partnerships, see Results of Operations of Certain Local Partnerships, below. Since the maximum loss the Partnership would be liable for is its net investment in the respective subsidiary partnerships, the resolution of the existing contingencies is not anticipated to impact future results of operations, liquidity or financial condition in a material way. However, the Partnership’s loss of its investment in a Local Partnership may result in recapture of Tax Credits if the investment is lost before the expiration of the Compliance Period. Through December 31, 2011, only Mansion Court Phase II Venture (“Mansion Court”) was required to recapture $489,362 of low-income housing Tax Credits.
Except as described above, 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 for laws that have not yet been adopted. The portfolio is diversified by the location of the Properties around the United States so that if one area of the country is experiencing downturns in the economy, the remaining Properties in the portfolio may be experiencing upswings. However, the geographic diversification of the portfolio may not protect against a general downturn in the national economy. The Partnership has invested the proceeds of its Offering in twenty Local Partnerships, all of which, other than Mansion Court, had their Tax Credits fully in place. As of December 31, 2009, the Credit Periods had expired and the Partnership has met its objective of generating Tax Credits for qualified BACs holders. The Compliance Periods will continue through December 31, 2014 with respect to the Properties depending upon when the Credit Period commenced.
Off Balance Sheet Arrangements
The Partnership has no off-balance sheet arrangements.
Critical Accounting Policies
In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Set forth below is a summary of the accounting policies that management believes are critical to the preparation of the consolidated financial statements. The summary should be read in conjunction with the more complete discussion of the Partnership’s accounting policies included in Item 8, Note 2 to the consolidated financial statements in this annual report on Form 10-K.
Property and Equipment
Property and equipment to be held and used are carried at cost which includes the purchase price, acquisition fees and expenses, construction period interest and any other costs incurred in acquiring the properties. The cost of property and equipment is depreciated over their estimated useful lives using accelerated and straight-line methods. Expenditures for repairs and maintenance are charged to expense as incurred; major renewals and betterments are capitalized. At the time property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the assets and accumulated depreciation accounts and the profit or loss on such disposition is reflected in earnings. The Partnership complies with ASC 360, Property, Plant and Equipment. A loss on impairment of assets is recorded when management estimates amounts recoverable through future operations and sale of the property on an undiscounted basis are below depreciated cost. At that time, property investments themselves are reduced to estimated fair value (generally using the direct capitalization method) when the Property is considered to be impaired and the depreciation cost exceeds estimated fair value.
During the year ended March 31, 2012, the Partnership recorded $131,000 as a loss on impairment of assets or reduction to estimated fair value. Through March 31, 2012, the Partnership has recorded approximately $30,481,000 as an aggregate loss on impairment of assets or reduction to estimated fair value.
At the time management commits to a plan to dispose of assets, said assets are adjusted to the lower of carrying amount or fair value less costs to sell. These assets are classified as property and equipment-held for sale and are not depreciated. The assets of one Local Partnership are classified as property and equipment as held for sale as of March 31, 2012.
Revenue Recognition
Rental income is earned primarily under standard residential operating leases and is typically due the first day of each month, but can vary by property due to the terms of the tenant leases. Rental income is recognized when earned and charged to tenants’ accounts receivable if not received by the due date. Rental payments received in advance of the due date are deferred until earned. Rental subsidies are recognized as rental income during the month in which it is earned.
Other revenues are recorded when earned and consist of the following items: Interest income earned on cash and cash equivalent balances and cash held in escrow balances, income from forfeited security deposits, late charges, laundry and vending income and other rental related items (see Note 2e in Item 8).
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Income Taxes
The Partnership is not required to provide for, or pay, any federal income taxes. Net income or loss generated by the Partnership is passed through to the partners and is required to be reported by them. The Partnership may be subject to state and local taxes in jurisdictions in which it operates. For income tax purposes, the Partnership has a fiscal year ending December 31.
Results of Operations
The following is a summary of the results of operations of the Partnership for the years ended March 31, 2012 and 2011 (the 2011 and 2010 Fiscal Years) excluding the results of its discontinued operation which are not reflected in the following discussion (see Item 8, Note 13).
The net income for the 2011 and 2010 Fiscal Years aggregated $(11,327,889) and $(1,071,859), respectively.
The Partnership and BACs holders began recognizing Tax Credits with respect to a Property when the Credit Period for such Property commenced. Because of the time required for the acquisition, completion and rent-up of Properties, the amount of Tax Credits per BAC gradually increased over the first three years of the Partnership. Tax Credits not recognized in the first three years were recognized in the 11th through 13th years. As of December 31, 2009, Credit Periods had expired for all properties.
2011 vs. 2010
Rental income increased by approximately 7% for the 2011 Fiscal Year as compared to the 2010 Fiscal Year, primarily due to an increase in rental rates, occupancies and tenant assistance payments at several Local Partnerships.
Total expenses excluding depreciation and amortization and loss on impairment of fixed assets remained consistent with an increase of less than 2% for the 2011 Fiscal Year as compared to the 2010 Fiscal Year.
Depreciation and amortization expense decreased approximately $83,000 for the 2011 Fiscal Year as compared to the 2010 Fiscal Year, primarily due to the reduction in carrying amounts relating to impairment of assets recorded during the 2010 Fiscal Year at six Local Partnerships.
Loss on impairment of fixed assets amounted to approximately $131,000 and $1,570,000 for the 2011 and 2010 Fiscal Year, respectively. See Note 4 in Item 8 for detailed discussion on impairments.
Results of Operations of Certain Local Partnerships
Subsidiary Partnerships - Going Concerns and Uncertainties
Mansion Court Phase II Venture (“Mansion Court”)
On December 31, 2011, the Partnership sold its limited partnership interest in Mansion Court. The financial statements for Mansion Court were prepared in conformity with accounting principles generally accepted in the United States of America, which contemplated continuation of Mansion Court as a going concern. In prior years and in 2011, Mansion Court sustained operating losses and did not generate sufficient cash flow from operations to meet its obligations. The Local General Partner provided funding in the past years; however, there was no obligation to do so. Mansion Court also experienced a high number of vacancies due to deteriorating conditions in the area.
During the year ended March 31, 2011, in accordance with ASC 360, Property, Plant and Equipment, the Partnership deemed the building of Mansion Court impaired and wrote it down to its fair value of zero, which resulted in a loss on impairment of approximately $194,000. Fair value was obtained from an assessment made by management after indications that the carrying value of the assets were not recoverable, evidenced by a history of net operating losses over the past few years.
Brannon Group, L.C. (“Keys”)
On February 3, 2012, the Partnership sold its limited partnership interest in Keys. The financial statements for Keys were prepared in conformity with accounting principles generally accepted in the United States of America, which contemplated continuation of Keys as a going concern. Keys had obligations that matured on January 1, 2012 in the amount of $1,199,501. However, on January 17, 2012, Keys closed on the refinancing of its mortgages.
Other
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 increase operating expenses, any or all of which could threaten the financing viability of one or more of the Local Partnerships.
There also are substantial risks associated with the operation of Apartment Complexes receiving government assistance. These include governmental regulations concerning tenant eligibility, which may make it more difficult to rent apartments in the Apartment Complexes; difficulties in obtaining government approval for rent increases; limitations on the percentage of income which low and moderate-income tenants may pay as rent; the possibility that Congress may not appropriate funds to enable HUD to make the rental assistance payments it has contracted to make; and that when the rental assistance contracts expire there may not be market demand for apartments at full market rents in a Local Partnership’s Apartment Complex.
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The Local Partnerships are impacted by inflation in several ways. Inflation allows for increases in rental rates generally to reflect the impact of higher operating and replacement costs. Inflation also affects the Local Partnerships adversely by increasing operating costs, for example, for such items as fuel, utilities and labor.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
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Item 8.
Item 8.
Financial Statements and Supplementary Data.
Sequential
Page
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at March 31, 2012 and 2011
Consolidated Statements of Operations for the Years Ended March 31, 2012 and 2011
Consolidated Statements of Changes in Partners’ Capital (Deficit) for the Years Ended March 31, 2012 and 2011
Consolidated Statements of Cash Flows for the Years Ended March 31, 2012 and 2011
Notes to Consolidated Financial Statements
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of
Independence Tax Credit Plus L.P. III and Subsidiaries
(a Delaware limited partnership)
We have audited the consolidated balance sheet of Independence Tax Credit Plus L.P. III and Subsidiaries (a Delaware limited partnership) as of March 31, 2012, and the related consolidated statements of operations, changes in partners' capital (deficit), and cash flows for the year ended March 31, 2012 (the 2011 Fiscal Year). These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements for fourteen subsidiary partnerships whose income aggregated $12,226,776 for the year ended March 31, 2012, and whose assets constituted 51% of the Partnership's assets at March 31, 2012, presented in the accompanying consolidated financial statements. The financial statements for thirteen of these subsidiary partnerships were audited by other auditors whose reports thereon have been furnished to us and our opinion expressed herein, insofar as it relates to the amounts included for these subsidiary partnerships, is based solely upon the reports of the other auditors. The financial statement for one of these subsidiary partnerships is unaudited.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based upon our audit, and the reports of the other auditors referred to above, the consolidated financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Independence Tax Credit Plus L.P. III and Subsidiaries at March 31, 2012, and the results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 12(b), the consolidated financial statements include the financial statements of two subsidiary partnerships with significant uncertainties. The financial statements of these subsidiary partnerships were prepared assuming that they will continue as going concerns. These two subsidiary partnerships’ net income aggregated $8,450,604 (2011 Fiscal Year) and their assets aggregated $0 at March 31, 2012. Management’s plan in regard to this matter is also described in Note 12(b). The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ RAICH ENDE MALTER & CO. LLP
RAICH ENDE MALTER & CO. LLP
New York, New York
June 18, 2012
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of
Independence Tax Credit Plus L.P. III and Subsidiaries
(a Delaware limited partnership)
We have audited the consolidated balance sheet of Independence Tax Credit Plus L.P. III and Subsidiaries (a Delaware limited partnership) as of March 31, 2011, and the related consolidated statements of operations, changes in partners' capital (deficit), and cash flows for the year ended March 31, 2011 (the 2010 Fiscal Year). These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements for fifteen subsidiary partnerships whose income aggregated $2,857,967 for the year ended March 31, 2011, and whose assets constituted 63% of the Partnership's assets at March 31, 2011, presented in the accompanying consolidated financial statements. The financial statements for fourteen of these subsidiary partnerships were audited by other auditors whose reports thereon have been furnished to us and our opinion expressed herein, insofar as it relates to the amounts included for these subsidiary partnerships, is based solely upon the reports of the other auditors. The financial statement for one of these subsidiary partnerships is unaudited.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based upon our audit, and the reports of the other auditors referred to above, the consolidated financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Independence Tax Credit Plus L.P. III and Subsidiaries at March 31, 2011, and the results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 12(b), the consolidated financial statements include the financial statements of two subsidiary partnerships with significant uncertainties. The financial statements of these subsidiary partnerships were prepared assuming that they will continue as going concerns. These two subsidiary partnerships’ net losses aggregated $413,927 (2010 Fiscal Year) and their assets aggregated $1,715,468 at March 31, 2011. Management’s plan in regard to this matter is also described in Note 12(b). The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/TRIEN ROSENBERG
WEINBERG CIULLO & FAZZARI LLP
New York, New York
June 27, 2011
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[HOLTHOUSE CARLIN & VAN TRIGT LLP LETTERHEAD]
Independent Auditors’ Report
To the Partners of the
Edward Hotel Limited Partnership:
We have audited the accompanying balance sheets of Edward Hotel Limited Partnership (a California limited partnership) as of December 31, 2011 and 2010, and the related statements of operations, changes in partners' deficit and cash flows for the years then ended. Three financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements we free of material misstatement The Partnership has determined that it is not required to have, nor we were engaged to perform, an audit of Its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on the test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fatly, in all material respects, the financial position of Edward Hotel Limited Partnership as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Holthouse Carlin & Van Trigt LLP
Los Angeles, California
February 29, 2012
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[SMITH, BUZZI & ASSOCIATES, LLC. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Partners
Overtown Development Group, Ltd.
(A Limited Partnership):
We have audited the accompanying balance sheets of Overtown Development Group, Ltd. (A Limited Partnership) as of December 31, 2011 and 2010, and the related statement of operations, changes in partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of Overtown Development Group, Ltd. management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor we were engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provides a reasonable basis for our opinion.
In our opinion, based on our audits, the financial statements referred to above present fairly, in all material respects, the financial position of Overtown Development Group, Ltd. as of December 31, 2011 and 2010, and the results of its operations changes in partners' equity and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Smith, Buzzi & Associates, LLC.
Miami, Florida
February 2, 2012
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[D. F. O’BRIEN & CO. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners
Sumpter Commons Associates, L.P.
We have audited the accompanying balance sheet of Sumpter Commons Associates, L.P. as of December 31, 2011, and 2010 and the related statements of operations, changes in partners' (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion an these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sumpter Commons Associates, L.P. as of December 31, 2011, and 2010 and the results of its operations, changes in partners' (deficit), and cash flows for the years then ended in conformity with generally accepted accounting principles in the United States of America.
/s/ D. F. O’Brien & Co.
Totowa, New Jersey
February 15, 2012
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[REZNICK GROUP, P.C. LETTERHEAD]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners
Livingston Manor Urban Renewal Associates, L.P.
We have audited the accompanying balance sheet of Livingston Manor Urban Renewal Associates, L.P. as of March 9, 2010, and the related statements of operations, changes in partners’ equity (deficit) and cash flows for the period January 1, 2010 through March 9, 2010 (date of investor transfer). These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Livingston Manor Urban Renewal Associates, L.P. as of March 9, 2010, and the results of its operations, the changes in partners’ equity (deficit) and its cash flows for the period January 1, 2010 through March 9, 2010 (date of investor transfer), in conformity with accounting principles generally accepted in the United States of America.
/s/ Reznick Group, P.C.
Baltimore, Maryland
September 22, 2010
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[REZNICK GROUP, P.C. LETTERHEAD]
REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM
To the Partners
Jefferis Square Housing Partnership, L.P.
We have audited the accompanying balance sheet of Jefferis Square Housing Partnership, L.P. as of December 31, 2010, and the related statements of operations, changes in partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the .financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Jefferis Square Housing Partnership, L.P. as of December 31, 2010, and the results of its operations, the changes in partners' equity (deficit) and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The 2010 supplemental information on pages 18 and 19 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and,' in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
/s/ Reznick Group, P.C.
Baltimore, Maryland
March 10, 2011
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[TOSKI & CO., P.C. LETTERHEAD]
INDEPENDENT AUDITORS’ REPORT
The Partners
Lewis Street Limited Partnership:
We have audited the accompanying balance sheets of Lewis Street Limited Partnership as of December 31, 2011 and 2010 and the related statements of operations, partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Lewis Street Limited Partnership as of December 31, 2011 and 2010 and the results of its operations, changes in partners' equity and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental information is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. in our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.
/s/ Toski & Co., CPAs, P.C.
Williamsville, New York
January 27, 2012
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[ROMANO & MITCHELL, CHARTERED CERTIFIED PUBLIC ACCOUNTANTS/MANAGEMENT CONSULTANTS LETTERHEAD]
INDEPENDENT AUDITOR’S REPORT
To the Partners
Savannah Park Housing Limited Partnership
Washington, D.C.
We have audited the accompanying balance sheets of Savannah Park Housing Limited Partnership as of December 31, 2011 and 2010 and the related statements of operations, partners' capital and cash flows for the years then ended. We also have audited Savannah Park Housing Limited Partnership's internal control over financial reporting as of December 31, 2011 and 2010 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Partnership's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in management's report on internal control over financial reporting dated February 24, 2012. Our responsibility is to express an opinion on these financial statements and an opinion on the Partnership's internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exits, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
An organization's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. An organization's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the organization; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the organization are being made only in accordance with authorizations of management and owners of the organization; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the organization's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Savannah Park Housing Limited Partnership as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. Also in our opinion, Savannah Park Housing Limited Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011 and 2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
/s/ Romano & Mitchell, Chartered Certified Public Accountants
Bethesda, Maryland
February 24, 2012
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[NOVOGRADAC & COMPANY LLP CERTIFIED PUBLIC ACCOUNTANTS LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
To the Members of
Brannon Group, L.C.:
We have audited the accompanying balance sheets of Brannon Group, L.C., a Florida limited liability company, as of December 31, 2011 and 2010, and the related statements of operations, members' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards as established by the Auditing Standards Board (United States) and in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Brannon Group, L.C. as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental schedules are presented for purposes of additional analysis and are not a required part of the financial statements of Brannon Group, L.C. Such information has been subjected to the auditing procedures applied in the audits of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole.
/s/ Novogradac & Company LLP
San Francisco, California
March 19, 2012
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[REZNICK GROUP, P.C. LETTERHEAD]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners
Mansion Court Phase II Venture
We have audited the accompanying balance sheet of Mansion Court Phase II Venture as of December 31, 2011, and the related statements of operations, changes in partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mansion Court Phase II Venture as of December 31, 2011 and the results of its operations, the changes in partners' deficit and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. The project has sustained operating losses over the years and has not generated sufficient cash flow from operations to meet its obligations. Furthermore, the Partnership has a net deficiency in partners' equity. Those conditions raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in note 9. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplemental information on pages 17 and 18 is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.
/s/ Reznick Group, P.C.
Baltimore, Maryland
February 28, 2012
- 23 -
[REZNICK GROUP, P.C. LETTERHEAD]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners
Mansion Court Phase II Venture
We have audited the accompanying balance sheet of Mansion Court Phase II Venture as of December 31, 2010, and the related statement of operations, changes in partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mansion Court Phase II Venture as of December 31, 2010 and the results of its operations, the changes in partners' equity (deficit) and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. The project has sustained operating losses over the years and has not generated sufficient cash flow from operations to meet its obligations. Furthermore, the Partnership has a net deficiency in partners' equity. Those conditions raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in note 11. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 18 and 19 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
/s/ Reznick Group, P.C.
Baltimore, Maryland
March 15, 2011
- 24 -
[RAINES AND FISCHER LLP CERTIFIED PUBLIC ACCOUNTANTS LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners of BK-9-A Partners, L.P.:
We have audited the accompanying balance sheet of BK-9-A Partners, L.P. (A New York Limited Partnership) as of August 23, 2011, and the related statements of operations, changes in partners' capital (deficit), and cash flows for the period then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Partnership's internal control over financial reporting. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of BK-9-A Partners, L.P. (A New York Limited Partnership) as of August 23, 2011, and the results of its operations and its cash flows for the period then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Raines & Fischer LLP
New York, New York
May 23, 2012
- 25 -
[RAINES AND FISCHER LLP CERTIFIED PUBLIC ACCOUNTANTS LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners of BK-9-A Partners, L.P.:
We have audited the accompanying balance sheet of BK-9-A Partners, L.P. (A New York Limited Partnership) as of December 31, 2010, and the related statements of operations, changes in partners' capital (deficit), and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Partnership's internal control over financial reporting. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of BK-9-A Partners, L.P. (A New York Limited Partnership) as of December 31, 2010, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Raines & Fischer LLP
New York, New York
May 5, 2011
- 26 -
[RAINES AND FISCHER LLP CERTIFIED PUBLIC ACCOUNTANTS LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners of BK-10K Partners, L.P.:
We have audited the accompanying balance sheet of BK-10K Partners, L.P. (A New York Limited Partnership) as of August 23, 2011, and the related statements of operations, changes in partners' capital (deficit), and cash flows for the period then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Partnership's internal control over financial reporting. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of BK-10K Partners, L.P. (A New York Limited Partnership) as of August 23, 2011, and the results of its operations and its cash flows for the period then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Raines & Fischer LLP
New York, New York
March 23, 2012
- 27 -
[RAINES AND FISCHER LLP CERTIFIED PUBLIC ACCOUNTANTS LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners of BK-10K Partners, L.P.:
We have audited the accompanying balance sheet of BK-10K Partners, L.P. (A New York Limited Partnership) as of December 31, 2010, and the related statements of operations, changes in partners' capital (deficit), and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Partnership's internal control over financial reporting. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of BK-10K Partners, L.P. (A New York Limited Partnership) as of December 31, 2010, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Raines & Fischer LLP
New York, New York
March 28, 2011
- 28 -
[REZNICK GROUP, P.C. LETTERHEAD]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners
Aspen-Olive Associates
We have audited the accompanying balance sheet of Aspen-Olive Associates as of December 31, 2011, and the related statements of operations, changes in partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Aspen-Olive Associates as of December 31, 2011 and the results of its operations, the changes in partners' equity (deficit) and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental information on pages 18 and 19 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.
/s/ Reznick Group, P.C.
Baltimore, Maryland
February 27, 2012
- 29 -
[REZNICK GROUP, P.C. LETTERHEAD]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners
Aspen-Olive Associates
We have audited the accompanying balance sheet of Aspen-Olive Associates as of December 31, 2010, and the related statements of operations, changes in partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Aspen-Olive Associates as of December 31, 2010 and the results of its operations, the changes in partners' equity (deficit) and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental information on pages 18 and 19 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
/s/ Reznick Group, P.C.
Baltimore, Maryland
March 9, 2011
- 30 -
[REZNICK GROUP, P.C. LETTERHEAD]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners
Universal Court Associates
We have audited the accompanying balance sheet of Universal Court Associates as of December 31, 2011, and the related statements of operations, change in partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Universal Court Associates as of December 31, 2011, and the results of its operations, the changes in partners' equity (deficit) and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplemental information on pages 19 and 20 is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.
/s/ Reznick Group, P.C.
Baltimore, Maryland
February 27, 2012
- 31 -
[REZNICK GROUP, P.C. LETTERHEAD]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners
Universal Court Associates
We have audited the accompanying balance sheet of Universal Court Associates as of December 31, 2010, and the related statements of operations, change in partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Universal Court Associates as of December 31, 2010, and the results of its operations, the changes in partners' equity (deficit) and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The 2010 supplemental information on pages 19 and 20 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
/s/ Reznick Group, P.C.
Baltimore, Maryland
March 9, 2011
- 32 -
[REZNICK GROUP, P.C. LETTERHEAD]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners
New Zion Apartments Limited Partnership
We have audited the accompanying balance sheet of New Zion Apartments Limited Partnership, HUD Project No. LA48E000011, as of December 31, 2011, and the related statements of operations, partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States) and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
As described in note 1 to the financial statements, the Partnership's financial statements have been prepared on the basis of accounting and reporting practices prescribed by the U.S. Department of Housing and Urban Development (HUD). These prescribed practices are a comprehensive basis of accounting other than accounting principles accepted in the United States of America.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of New Zion Apartments Limited Partnership as of December 31, 2011, and the results of its operations, the changes in partners' equity (deficit), and cash flows for the year then ended, in conformity with the basis of accounting discussed in note 1.
In accordance with Government Auditing Standard, we have also issued a report, dated February 14, 2012 on our consideration of New Zion Apartments Limited Partnership's internal control over financial reporting. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and the results of that testing and not to provide an opinion on the internal control over financial reporting. In accordance with Government Auditing Standards, we have also issued an opinion dated February 14, 2012, on New Zion Apartments Limited Partnership's compliance with certain provisions of laws, regulations, contracts, and grant agreements, and other matters applicable with certain transactions for certain nonmajor HUD-assisted programs. Those reports are an integral part of an audit in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.
Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplemental information on pages 24 through 36 is presented for purposes of additional analysis as required by the Consolidated Audit Guide for Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General, and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.
/s/ Reznick Group, P.C.
Taxpayer Identification Number:
52-1088612
Baltimore, Maryland
February 14, 2012
Lead Auditor: Scott H. Szeliga, CPA
- 33 -
[REZNICK GROUP, P.C. LETTERHEAD]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners
New Zion Apartments Limited Partnership
We have audited the accompanying balance sheet of New Zion Apartments Limited Partnership, HUD Project No. LA48E000011, as of December 31, 2010, and the related statements of operations, partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States) and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of New Zion Apartments Limited Partnership as of December 31, 2010, and the results of its operations, the changes in partners' equity (deficit), and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
In accordance with Government Auditing Standards, we have also issued a report, dated March 22, 2011 on our consideration of New Zion Apartments Limited Partnership's internal control over financial reporting. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and the results of that testing and not to provide an opinion on the internal control over financial reporting. In accordance with Government Auditing Standards, we have also issued an opinion dated March 22, 2011, on New Zion Apartments Limited Partnership's compliance with certain provisions of laws, regulations, contracts, and grant agreements, and other matters that could have a direct and material effect on a major HUD-assisted program. Those reports are an integral part of an audit in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.
Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental information on pages 24 through 36 is presented for purposes of additional analysis and is not a required part of the basic financial statements of the Partnership. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
/s/ Reznick Group, P.C.
Taxpayer Identification Number:
52-1088612
Baltimore, Maryland
March 22, 2011
Lead Auditor: Scott H. Szeliga, CPA
- 34 -
[PKF O’CONNOR DAVIES LETTERHEAD]
Independent Auditors’ Report
To The Partners
Dreitzer Limited Partnership
We have audited the accompanying balance sheets of Dreitzer Limited Partnership ("the Partnership') as of December 31, 2011 and 2010, and the related statements of operations, partners' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards as established by the Auditing Standards Board (United States) and in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dreitzer Limited Partnership as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The schedules of excess income analysis on page 17 is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audits of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole.
/s/ PKF O’Connor Davies
New York, New York
February 15, 2012
- 35 -
See accompanying notes to consolidated financial statements.
- 36 -
See accompanying notes to consolidated financial statements.
- 37 -
See accompanying notes to consolidated financial statements.
- 38 -
See accompanying notes to consolidated financial statements.
- 39 -
INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012
NOTE 1 - General
Independence Tax Credit Plus L.P. III (the “Partnership”) is a limited partnership which was formed under the laws of the State of Delaware on December 23, 1993. The general partner of the Partnership is Related Independence Associates III L.P., a Delaware limited partnership (the “General Partner”). The general partner of the General Partner is Related Independence Associates III Inc., a Delaware corporation (“RIAI III”). The ultimate parent of the General Partner is Centerline Holding Company (“Centerline”). For information on Centerline’s audited balance sheet for the most recent fiscal year, see http://sec.gov.
The Partnership’s business is to invest in other partnerships (“Local Partnerships,” “subsidiaries” or “subsidiary partnerships”) owning leveraged apartment complexes (“Apartment Complexes” or “Properties”) that are eligible for the low-income housing tax credit (“Tax Credit”) under Section 42 of the Internal Revenue Code, some of which may also be eligible for the historic rehabilitation tax credit.
The Partnership had originally acquired interests in twenty subsidiary partnerships. During the year ended March 31, 2012, the Partnership sold its limited partnership interests in five Local Partnerships and transferred the deed to the property and related assets and liabilities in lieu of foreclosure of one Local Partnership. As of March 31, 2012, the Partnership has sold its limited partnership interests in nine Local Partnerships and transferred the deed to the property and related assets and liabilities in lieu of foreclosure of one Local Partnership. In addition, as of March 31, 2012, one Local Partnership has entered into an agreement to sell its property and the related assets and liabilities. Subsequently, the Partnership sold its limited partnership interests in two other Local Partnerships (see Note 12). There can be no assurance as to when the Partnership will dispose of its remaining investments or the amount of proceeds which may be received.
The Partnership was authorized to issue a total of 100,000 ($100,000,000) Beneficial Assignment Certificates (“BACs”) which were 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 in the Partnership. As of the termination of the offering on May 9, 1995, the Partnership had received $43,440,000 of gross proceeds of its offering (the “Gross Proceeds”) from 2,810 investors (“BACs holders”).
The terms of the Partnership’s Amended and Restated Agreement of Limited Partnership (the “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.
NOTE 2 - Summary of Significant Accounting Policies
a)
Basis of Accounting
For financial reporting purposes the Partnership’s fiscal year ends on March 31. All subsidiaries have fiscal years ending December 31. Accounts of the subsidiaries have been adjusted for intercompany transactions from January 1 through March 31. The Partnership’s fiscal year ends March 31 in order to allow adequate time for the subsidiaries’ financial statements to be prepared and consolidated. The books and records of the Partnership are maintained on the accrual basis of accounting, in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
b)
Basis of Consolidation
The consolidated financial statements include the accounts of the Partnership and seventeen and nineteen subsidiary partnerships in which the Partnership is a limited partner for the years ended March 31, 2012 and 2011, respectively, (the 2011 and 2010 Fiscal Years). 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 partners of the subsidiary local partnerships (“Local General Partners”) and to approve certain major operating and financial decisions, the Partnership has a controlling financial interest in the subsidiary partnerships. All intercompany accounts and transactions with the subsidiary partnerships have been eliminated in consolidation.
In accordance with FASB Accounting Standards Codification (“ASC”) Topic 810, Noncontrolling Interests in Consolidated Financial Statements (“ASC 810”), (income) loss attributable to noncontrolling interests amounted to approximately ($3,499,000) and $192,000 for the year ended March 31, 2012 and 2011, respectively. The Partnership’s investment in each subsidiary is equal to the respective subsidiary’s partners’ equity less noncontrolling interest capital, if any.
c)
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash in banks, and investments in short-term highly liquid investments purchased with original maturities of three months or less.
d)
Property and Equipment
Property and equipment to be held and used are carried at cost which includes the purchase price, acquisition fees and expenses, construction period interest and any other costs incurred in acquiring the properties. The cost of property and equipment is depreciated over their estimated useful lives using accelerated and straight-line methods. Expenditures for repairs and maintenance are charged to expense as incurred; major renewals and betterments are capitalized. At the time property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the assets and accumulated depreciation accounts and the profit or loss on such disposition is reflected in earnings. A loss on impairment of assets is recorded when management estimates amounts recoverable through future operations and sale of the property on an undiscounted basis are below depreciated cost. At that time, property investments themselves are reduced to estimated fair value (generally using the direct capitalization method).
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INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012
During the year ended March 31, 2012, the Partnership recorded approximately $131,000 as a loss on impairment of assets or reduction to estimated fair value. Through March 31, 2012, the Partnership has recorded approximately $30,481,000 as an aggregate loss on impairment of assets or reduction to estimated fair value for several Local Partnerships.
At the time management commits to a plan to dispose of assets, said assets are adjusted to the lower of carrying amount or fair value less costs to sell. These assets are classified as property and equipment-held for sale and are not depreciated. The assets of one Local Partnership are classified as property and equipment held for sale as of March 31, 2012.
e)
Revenue Recognition
Rental income is earned primarily under standard residential operating leases and is typically due the first day of each month, but can vary by property due to the terms of the tenant leases. Rental income is recognized when earned and charged to tenants’ accounts receivable if not received by the due date. Rental payments received in advance of the due date are deferred until earned. Rental subsidies are recognized as rental income during the month in which it is earned.
Other revenues are recorded when earned and consist of the following items: Interest income earned on cash and cash equivalent balances and cash held in escrow balances, income from forfeited security deposits, late charges, laundry and vending income and other rental related items.
Other revenues from operations include the following amounts at both the Partnership and Local Partnership level:
Other revenues from discontinued operation include the following amounts at both the Partnership and Local Partnership level:
f)
Income Taxes
The Partnership is not required to provide for, or pay, any federal income taxes. Net income or loss generated by the Partnership is passed through to the partners and is required to be reported by them. The Partnership may be subject to state and local taxes in jurisdictions in which it operates. For income tax purposes, the Partnership has a fiscal year ending December 31 (See Note 9).
The Partnership’s management has analyzed the Partnership’s tax positions and concluded that no liability for unrecognized tax benefits should be recorded for positions taken on returns filed for open tax years. As of and during the year ended March 31, 2012, the Partnership did not have a liability for any unrecognized tax benefits or related interest and penalties. Such related interest and penalties, if any, would be included in general and administrative expense.
The Partnership relies on, among other things, a 2% safe harbor established by an Internal Revenue Service (“IRS”) regulation to avoid being characterized as a “publicly-traded partnership” that is taxed as a corporation.
In the normal course of business the Partnership or one of its subsidiaries is subject to examination by federal, state and local jurisdictions in which it operates where applicable. At March 31, 2012, the tax years that remain subject to examination by the major tax jurisdictions under the statute of limitations is from the year 2008 forward.
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INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012
g)
Loss Contingencies
The Partnership records loss contingencies as a charge to income when information becomes available which indicates that it is probable that an asset has been impaired or a liability has been incurred as of the date of the financial statements and the amount of loss can be reasonably estimated.
h)
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
i)
Recent Accounting Pronouncements
In December 2011, the FASB issued under Topic 220, Comprehensive Income, ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05”. The amendments in this ASU are being made to allow the Board time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While the Board is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before Update 2011-05. All other requirements in Update 2011-05 are not affected by this Update. For public entities, the amendments are effective for fiscal years and interim periods within those years, beginning after December 15, 2011. However, early adoption is permitted. The adoption of this accounting standard will not have a material effect on the Partnership’s consolidated financial statements.
In December 2011, the FASB issued under Topic 210, Balance Sheet, ASU 2011-11, “Disclosures about Offsetting Assets and Liabilities”. The amendments require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The adoption of this accounting standard will not have a material effect on the Partnership’s consolidated financial statements.
In December 2011, the FASB issued under Topic 360, Property, Plant, and Equipment, ASU 2011-10, “Derecognition of in Substance Real Estate-a Scope Clarification (a consensus of the FASB Emerging Issues Task Force)”. Under the amendments in this Update, when a parent (reporting entity) ceases to have a controlling financial interest (as described in Subtopic 810-10) in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt, the reporting entity should apply the guidance in Subtopic 360-20 to determine whether it should derecognize the in substance real estate. For public entities, the amendments in this Update are effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2012. The adoption of this accounting standard will not have a material effect on the Partnership’s consolidated financial statements.
NOTE 3 - Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial instruments (all of which are held for nontrading purposes) for which it is practicable to estimate that value:
Cash and Cash Equivalents and Cash Held in Escrow
The carrying amount approximates fair value.
Mortgage Notes Payable
The Partnership adopted FASB ASC 820 - “Fair Value Measurements” for financial assets and liabilities. ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.
As permitted, the Partnership chose not to elect the fair value option as prescribed by ASC 825 - “Financial Instruments” - Including an Amendment of ASC 320 - “Investments - Debt and Equity Securities”, for our financial assets and liabilities that had not been previously carried at fair value. Therefore, the Partnership did not elect to fair value any additional items under ASC 825.
The estimated fair value of financial instruments has been determined using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange. The following are financial instruments for which the Partnership’s estimate of fair value differs from the carrying amounts:
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INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012
For the mortgage notes, fair value is calculated using present value cash flow models based on a discount rate. It was determined that the Tender Option Bond market, through which these bonds have been securitized in the past, continued to see a dramatic slowdown with limited liquidity and significantly reduced transaction levels. To assist in valuing these notes, the Partnership held separate discussions with various third party investment banks who are leaders in the municipal bond business. The discussions produced assumptions that were based on market conditions as well as the credit quality of the underlying property partnerships, which held the mortgage notes, to determine what discount rates to utilize.
NOTE 4 - Property and Equipment
The components of property and equipment from operations and their estimated useful lives are as follows:
Depreciation expense for the years ended March 31, 2012 and 2011 amounted to $295,714 and $378,962, respectively.
During the years ended March 31, 2012 and 2011, there was a decrease in accumulated depreciation in the amount of $6,730,264 and $1,786,295, respectively, which related to discontinued assets. In addition, during the years ended March 31, 2012 and 2011, there was a decrease in accumulated depreciation in the amount of $1,632,287 and $26,458, respectively, related to impairments.
The components of property and equipment from discontinued operations and their estimated useful lives are as follows:
Depreciation expense for the discontinued property and equipment for the years ended March 31, 2012 and 2011 amounted to $238,601 and $392,722, respectively.
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INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012
Impairments
During the years ended March 31, 2012 and 2011, the Partnership performed a fair value analysis on all of its remaining investments due to the current deteriorating market conditions in the real estate industry. Impairment of assets is a two-step process. First, management estimated amounts recoverable trough future operations and sale of the Property on an undiscounted basis. If such estimates were below depreciated cost, Property investments themselves were reduced to estimated fair value (generally using the direct capitalization method). Each Local Partnership must continue to comply with its Tax Credit requirements until the end of the Compliance Period in order to avoid recapture of the Tax Credits. Therefore, a 5-year cash flow projection was used, as this period is indicative of the average holding period left of the remaining investments. A net operating income projection was prepared to calculate a residual value at the end of the 5-year period. Based on this analysis, the Partnership deemed the properties of the below Local Partnerships impaired and wrote them down to their estimated fair value which resulted in $130,661 and $1,877,504 of losses on impairment for the year ended March 31, 2012 and 2011, respectively.
Impairments from operations recorded for the year ended March 31, 2012 were as follows:
Edward Hotel Limited Partnership
$
6,661
Savannah Park Housing Limited Partnership
124,000
$
130,661
Impairments from discontinued operations recorded for the year ended March 31, 2011 were as follows:
Aspen-Olive Associates
$
113,301
Mansion Court Phase II Venture
194,168
$
307,469
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INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012
NOTE 5 - Cash Held in Escrow
Cash held in escrow from operations consists of the following:
Cash held in escrow from discontinued operations consists of the following:
NOTE 6 - Deferred Costs
The components of deferred costs from operations and their periods of amortization are as follows:
Amortization expense from operations for the years ended March 3, 2012 and 2011 amounted to $34,093 and $34,094, respectively.
Amortization expense from discontinued operations for the years ended March 31, 2012 and 2011 amounted to $19,291 and $24,169, respectively.
During the 2011 and 2010 Fiscal Years, there was a decrease in deferred costs and accumulated amortization in the amount of $17,500 and $29,936, respectively, which related to discontinued assets.
NOTE 7 - Mortgage Notes Payable
The mortgage notes from operations, which are collateralized by land and buildings, are payable in aggregate monthly installments of approximately $31,000 including principal and interest at rates varying from 0% to 10% per annum, through the year 2046. The mortgage notes from discontinued operations, which are collateralized by land and buildings, are payable in aggregate monthly installments of approximately $9,000 including principal and interest a 7% per annum, through the year 2018. Each subsidiary partnership’s mortgage note payable is collateralized by the land and buildings of the respective subsidiary partnership, the assignment of each certain subsidiary partnership’s rents and leases, and is without further recourse.
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INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012
Accrued interest from operations payable as of March 31, 2012 and 2011 was approximately $4,602,000 and $9,248,000 respectively. Accrued interest payable from discontinued operations as of March 31, 2012 and 2011 was approximately $3,000 and $0, respectively. Interest accrues on all mortgage loans, which include primary and secondary loans. Certain secondary loans have provisions such that interest is accrued but not payable until a future date. The Partnership anticipates the payment of accrued interest on the secondary loans (which make up the majority of the accrued interest payable amount and which have been accumulating since the Partnership’s investment in the respective Local Partnership) will be made from future refinancings or sales proceeds from the respective Local Partnerships.
The mortgage agreements from operations require monthly deposits to replacement reserves of approximately $10,000 and monthly deposits to escrow accounts for real estate taxes, hazard and mortgage insurance and other. The mortgage agreements from discontinued operations require monthly deposits to replacement reserves of approximately $2,000 and monthly deposits to escrow accounts for real estate taxes, hazard and mortgage insurance and other (see Note 5).
Annual principal payment requirements for mortgage notes from operations payable by the subsidiary partnerships for each of the next five years and thereafter, are as follows:
Annual principal payment requirements from mortgage notes from discontinued operations payable by the subsidiary partnerships for each of the next five years and thereafter, are as follows:
NOTE 8 - Related Party Transactions
An affiliate of the General Partner has a .01% interest as a special limited partner in each of the Local Partnerships.
Pursuant to the Partnership Agreement and the partnership agreements of the Local Partnerships (“Local Partnership Agreements”), the General Partner and its affiliates receive their pro rata shares of profits, losses and Tax Credits.
A) Guarantees
In connection with investments in development-stage Apartment Complexes, the General Partner generally required that the Local General Partners provide completion guarantees and/or undertake to repurchase the Partnership’s interest in the Local Partnership if construction or rehabilitation was not completed substantially on time or on budget (“Development Deficit Guarantees”). The Development Deficit Guarantees generally also required the Local General Partner to provide any funds necessary to cover net operating deficits of the Local Partnership until such time as the Apartment Complex had achieved break-even operations. The General Partner generally required that the Local General Partners undertake an obligation to fund operating deficits of the Local Partnership (up to a stated maximum amount) during a limited period of time (typically three to five years) following the achievement of break-even operations (“Operating Deficit Guarantees”). As of March 31, 2012, the gross amount of the Operating Deficit Guarantees aggregate approximately $5,487,000, of which approximately $3,931,000 have expired. In cases where the General Partner deemed it appropriate, the obligations of a Local General Partner under the Development Deficit, Operating Deficit and/or Rent-Up Guarantees were secured by letters of credit and/or cash escrow deposits.
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INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012
B) Other Related Party Expenses
The General Partner and its affiliates perform services for the Partnership. The costs incurred to the General Partner from operations and other related parties from operations for the years ended March 31, 2012 and 2011 were as follows:
Expenses incurred to related parties from discontinued operation for the years ended March 31, 2012 and 2011 were as follows:
(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 are to be deferred without interest and will be payable out of sales or refinancing proceeds only to the extent of available funds after payments on all Partnership liabilities have been made other than to those owed to the General Partner and its affiliates, and after the Limited Partners have received a 10% return on their capital contributions. Partnership management fees owed to the General Partner amounting to approximately $2,957,000 and $3,520,000 were accrued and unpaid as of March 31, 2012 and 2011, respectively, and are included in the line item Due to general partner and affiliates in the consolidated balance sheets. Current year partnership management fees may be paid out of operating reserves or refinancing and sales proceeds. As such the General Partner cannot demand payment of the deferred fees except as noted above. During the year ended March 31, 2012, management deemed the unpaid partnership management fees that were related to the properties sold and the transfer of the deed-in-lieu of foreclosure of one property during the year ended March 31, 2012, uncollectible and as a result, wrote them off in the amount of approximately $757,000, resulting in a non-cash General Partner contribution of the same amount.
(b)
The Partnership reimburses the General Partner and its affiliates for actual Partnership operating expenses incurred by the General Partner and its affiliates on the Partnership’s behalf. The amount of reimbursement from the Partnership is limited by the provisions of the Partnership Agreement. Another affiliate of the General Partner performs asset monitoring for the Partnership. These services include site visits and evaluations of the subsidiary partnerships’ performance. Expense reimbursements and asset monitoring fees owed to the General Partners and its affiliates amounting to approximately $849,000 and $860,000 were accrued and unpaid as of March 31, 2012 and 2011, respectively. The General Partner does not intend to demand payment of the deferred payables beyond the Partnership’s ability to pay them. The Partnership anticipates that these will be paid from working capital reserves or future sales proceeds.
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INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012
(c)
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. Local administrative fee owed to Independence SLP III L.P. amounting to $360,000 and $561,000 were accrued and unpaid as of March 31, 2012 and 2011, respectively. These fees have been deferred in certain cases and the Partnership anticipates that they will be paid from working capital reserves or future sales proceeds.
As of March 31, 2012 and March 31, 2011, the Partnership owed the General Partner and its affiliates approximately $86,000 for expenditures paid on its behalf and voluntary operating advances made by the General Partner and its affiliates to fund operations of the Partnership. Payment of these operating advances have been deferred and may be paid out of operating reserves or refinancing and sales proceeds. The General Partner does not intend to demand payment of the deferred advances beyond the Partnership’s ability pay them.
As of March 31, 2012 and 2011, the amounts payable totaling approximately $259,000 and $408,000, respectively, represent loans made to the subsidiary partnerships by the affiliates of the General Partner.
C) Due to Local General Partners and Affiliates
Due to local general partners and affiliates from operating liabilities consists of the following:
Due to local general partners and affiliates from discontinued liabilities consists of the followings:
D) Advances from Partnership to Local Partnerships
As of March 31, 2012, the Partnership has advanced certain Local Partnership operating loans (non-interest bearing) amounting to approximately $8,000 primarily in conjunction with the Local Partnership’s contribution agreements. Such advances are eliminated in consolidation and are included in the line item Due to local general partners and affiliates. The following table summarizes these advances:
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INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012
NOTE 9 - Taxable Net Loss
Our adoption of FASB interpretation (“FIN”) No. 48 did not have a material impact on the consolidated financial statements and does not impact our financial position at March 31, 2012.
A reconciliation of the financial statement net loss to the taxable net loss for the Partnership and its consolidated subsidiaries is as follows:
No provision for income taxes related to the operations of the Partnership has been included in the accompanying financial statements because, as a partnership, it is not subject to federal or material state income taxes and the tax effect of its activities accrues to the BACs holders. Net income for financial statement purposes may differ significantly from taxable income reportable to BACs holders as a result of differences between the tax bases and financial reporting bases of assets and liabilities and the taxable income allocation requirements under its Partnership Agreement. In the event of an examination of the Partnership’s tax return, the tax liability of the partners could be changed if an adjustment in the Partnership’s income is ultimately sustained by the taxing authorities. At March 31, 2012, the tax basis net assets exceeded the financial statement net assets by approximately $14,097,167 due to depreciation differences, impairments of property and equipment and related party accruals.
NOTE 10 - Sale of Properties
The Partnership is in the process of disposing of all of its investments. It is anticipated that this process will continue to take a number of years. During the year ended March 31, 2012, the Partnership sold its limited partnership interests in five Local Partnerships and transferred the deed to the property and related assets and liabilities in lieu of foreclosure of one Local Partnership. As of March 31, 2012, the Partnership has sold its limited partnership interests in nine Local Partnerships and transferred the deed to the property and related assets and liabilities in lieu of foreclosure of one Local Partnership. In addition, as of March 31, 2012, one Local Partnership has entered into an agreement to sell its property and the related assets and liabilities. Subsequently, the Partnership sold its limited partnership interests in two other Local Partnerships (see Note 12). There can be no assurance as to when the Partnership will dispose of its remaining investments or the amount of proceeds which may be received. However, based on the historical operating results of the Local Partnerships and the current economic conditions, including changes in tax laws, it is unlikely that the proceeds from such sales received by the Partnership will be sufficient to return to the limited partners their original investment.
On February 3, 2012, the Partnership sold its limited partnership interest in Brannon Group, L.C. (“Keys”) to an unaffiliated third party purchaser for a sales price of $4,000. The Partnership received $4,000 from the sale. The sale resulted in a gain of approximately $6,882,000, resulting from the write-off of the basis in the Local Partnership of approximately $6,878,000 at the date of the sale and the $4,000 received from the sale, which was recorded during the quarter ended March 31, 2012. In addition, the sale resulted in a non-cash contribution to the Local Partnership from the General Partner of approximately $288,000 as a result of the write-off of fees and loans owed by the Local Partnership to an affiliate of the General Partner.
On December 31, 2011, the Partnership sold its limited partnership interests in Mansion Court Phase II Venture (“Mansion Court”) and Aspen-Olive Associates (“Aspen-Olive”), to an affiliate of the Local General Partner for a sales price of $10. The Partnership did not receive any cash after the repayment of other liabilities. The sale resulted in a gain of approximately $3,700,000, resulting from the write-off of the basis in the Local Partnerships of the same amount at the date of the sale, which was recorded during the quarter ended December 31, 2011. An adjustment to the gain of approximately $29,000 was recorded during the quarter ended March 31, 2012, resulting in an overall gain $3,729,000. In addition, the sale resulted in a non-cash contribution to the Local Partnerships from the General Partner of approximately $50,000 as a result of the write-off of fees owed by the Local Partnerships to an affiliate of the General Partner.
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INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012
On October 11, 2011, Park Housing Limited Partnership (“Park Terrace”) transferred the deed to the property and the related assets and liabilities to an unaffiliated third party in lieu of foreclosure. The transfer of assets of approximately $244,000 and liabilities of $1,784,000 resulted in a gain of approximately $1,540,000, which was recognized during the quarter ended March 31, 2012. As of the transfer date, Park Terrace had property and equipment, at cost, of approximately $1,201,000, accumulated depreciation of approximately $1,140,000 and mortgage debt of approximately $784,000. In addition, the sale resulted in a non-cash contribution to the Local Partnership from the General Partner of approximately $20,000 as a result of the write-off of fees owed by the Local Partnership to an affiliate of the General Partner.
On August 23, 2011, the Partnership sold its limited partnership interest in BK-9-A Partners, L.P. (“Lafayette Avenue”) to an affiliate of the Local General Partner for a sales price of $30,000. The Partnership did not receive any cash after the repayment of other liabilities. The sale resulted in a gain of approximately $874,000, resulting from the write-off of the basis in the Local Partnership of the same amount at the date of the sale, which was recorded during the quarter ended September 30, 2011. Adjustments to the gain of approximately $8,000 and $23,000 were recorded during the quarters ended December 31, 2011 and March 31, 2012, respectively, resulting in an overall gain of approximately $905,000.
On August 23, 2011, the Partnership sold its limited partnership interest in BK-10K Partners, L.P. (“Knickerbocker Apartments”) to an affiliate of the Local General Partner for a sales price of $250,000. The Partnership received approximately $236,000 after the repayment of other liabilities of approximately $14,000. The sale resulted in a loss of approximately $433,000, resulting from the write-off of the basis in the Local Partnership of approximately $669,000 at the date of the sale and the $236,000 cash received from the sale, which was recorded during the quarter ended September 30, 2011. Adjustments to the loss of approximately of $6,000 and $(11,000) were recorded during the quarters ended December 31, 2011 and March 31, 2012, respectively, resulting in an overall loss of approximately $427,000.
On December 31, 2010, the Partnership sold its limited partnership interest in Jefferis Square Housing Partnership L.P. (“Jefferis”) to an affiliate of the Local General Partner for a sales price of $25,000. The Partnership received approximately $2,000 after the repayment of other liabilities of approximately $23,000. The sale resulted in a gain of approximately $4,832,000, resulting from the write-off of the deficit basis in the Local Partnership of approximately $4,830,000 at the date of the sale and the $2,000 cash received from the sale, which was recorded during the quarter ended December 31, 2010. An adjustment to the gain of approximately $196,000 was recorded during the quarter ended March 31, 2011, resulting in an overall gain of $5,028,000. In addition, the sale resulted in a non-cash contribution to the Local Partnership from the General Partner of approximately $12,500 as a result of the write-off of fees owed by the Local Partnership to an affiliate of the General Partner.
On March 31, 2010, the Partnership sold its limited partnership interest in Livingston Manor Urban Renewal Associates, L.P. (“Livingston Manor”) to an affiliate of the Local General Partner for a sales price of $20,000. The Partnership received approximately $7,000 after the repayment of other liabilities of approximately $13,000. The sale resulted in a loss of approximately $1,870,000, resulting from the write-off of the basis in the Local Partnership of approximately $1,877,000 at the date of the sale and the $7,000 cash received from the sale which was recorded during the year ended March 31, 2010. An adjustment to the loss of approximately $42,000 was recorded during the quarter ended June 30, 2010, resulting in an overall loss of approximately $1,912,000. In addition, the sale resulted in a non-cash contribution to the Local Partnership from the Local General Partner of approximately $324,000 as a result of the write-off of fees owed by the Local Partnership to the Local General Partner.
NOTE 11 - Asset Held for Sale
On August 29, 2011, New Zion Apartments (“New Zion”) entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an unaffiliated third party purchaser for a sales price of $2,450,000. As of March 31, 2012, New Zion had property and equipment, at cost, of approximately $2,814,000, accumulated depreciation of approximately $1,511,000 and mortgage debt of approximately $562,000. The Partnership owns a 42.39% limited partnership interest in New Zion. The sale is expected to be consummated during the fourth quarter of 2012. There can be no assurance of when and if the sale will be consummated by this time.
NOTE 12 - Commitments and Contingencies
a) Going Concern Consideration
At March 31, 2012, the Partnership’s liabilities exceeded assets by $17,518,033 for the 2011 Fiscal Year recognized net income of $11,327,889, including gain on sale of properties of $12,628,877 and loss on impairment of properties of $130,661. These factors raise substantial doubt about the Partnership’s ability to continue as a going concern. As discussed in Note 8, partnership management fees of approximately $2,957,000 will be payable out of sales or refinancing proceeds only to the extent of available funds after payments on all other Partnership liabilities have been made and after the Limited Partners have received a 10% return on their capital contributions. As such, the General Partner cannot demand payment of these deferred fees beyond the Partnership’s ability to pay them. In addition, where the Partnership has unpaid partnership management fees related to sold properties, such management fees are written off and recorded as capital contributions. During the year ended March 31, 2012, the Partnership wrote off approximately $757,000 of such management fees.
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INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012
All of the mortgage payable balance of $20,526,136 and the accrued interest payable balance of $4,605,529 is of a nonrecourse nature and secured by the respective properties. The Partnership is currently in the process of developing a plan to dispose all of its investments. Historically, the mortgage notes and accrued interest thereon have been assumed by the buyer in instances of sales of the Partnership’s interest or have been paid off from sales proceeds in instances of sales of the property. In most instances when the Partnership’s interest was sold and liabilities were assumed, the Partnership recognized a gain from the sale. The Partnership owns the limited partner interest in all its investments, and as such has no financial responsibility to fund operating losses incurred by the Local Partnerships. The maximum loss the Partnership would incur is its net investment in the respective Local Partnerships. Dispositions of any investment in a Local Partnership should not impact the future results of operations, liquidity, or financial condition of The Partnership.
The Partnership has working capital reserves of approximately $842,000 at March 31, 2012. Such amount is considered sufficient to cover the Partnership’s day to day operating expenses, excluding fees to the General Partner, for at least the next year. The Partnership’s operating expenses, excluding the Local Partnerships’ expenses and related party expenses amounted to approximately $175,000 for the year ended March 31, 2012.
Management believes the above mitigating factors enable the Partnership to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
b) Subsidiary Partnerships - Going Concerns and Uncertainties
Mansion Court Phase II Venture (“Mansion Court”)
On December 31, 2011, the Partnership sold its limited partnership interest in Mansion Court. The financial statements for Mansion Court were prepared in conformity with accounting principles generally accepted in the United States of America, which contemplated continuation of Mansion Court as a going concern. In prior years and in 2011, Mansion Court sustained operating losses and did not generate sufficient cash flow from operations to meet its obligations. The Local General Partner provided funding in the past years; however, there was no obligation to do so. Mansion Court also experienced a high number of vacancies due to deteriorating conditions in the area.
During the year ended March 31, 2011, in accordance with ASC 360, Property, Plant and Equipment, the Partnership deemed the building of Mansion Court impaired and wrote it down to its fair value of zero, which resulted in a loss on impairment of approximately $194,000. Fair value was obtained from an assessment made by management after indications that the carrying value of the assets were not recoverable, evidenced by a history of net operating losses over the past few years.
Brannon Group, L.C. (“Keys”)
On February 3, 2012, the Partnership sold its limited partnership interest in Keys. The financial statements for Keys were prepared in conformity with accounting principles generally accepted in the United States of America, which contemplated continuation of Keys as a going concern. Keys had obligations that matured on January 1, 2012 in the amount of $1,199,501. However, on January 17, 2012, Keys closed on the refinancing of its mortgages.
c) Leases
Savannah Park Housing Limited Partnership is leasing the land on which its apartment complex is located for a term of 50 years, which commenced in August 1996, with monthly rent payments of $1,449. Additional rent of $322 per month, up to $100,000, will be paid reimburse the District of Columbia Department of Housing and Community Development for site improvement costs. Estimated future minimum payments due under the terms of the lease are as follows:
As of December 31, 2011, the lease agreement was current. For the years ended December 31, 2011 and 2010, $21,252 and $21,252, respectively, have been paid under the terms of the lease and $0 and $0, respectively, remained payable.
d) Uninsured Cash and Cash Equivalents
The Partnership maintains its cash and cash equivalents in various banks. The accounts at each bank are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”). The Partnership did not have any uninsured cash and cash equivalents at March 31, 2012.
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INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012
e) Property Management Fees
Property management fees incurred by Local Partnerships amounted to $411,762 and $423,182 for the years ended March 31, 2012 and 2011, respectively. Of these fees, $239,980 and $265,387 were incurred to affiliates of the subsidiary partnerships’ general partners, which include $94,449 and $133,127 of fees relating to discontinued operations.
f) Cash Distributions
Cash distributions from the Local Partnerships to the Partnership are restricted by the provisions of the respective Local Partnership Agreements and/or HUD based on operating results and a percentage of the owner’s equity contribution. Such cash distributions are typically made from surplus cash flow.
g) Other
The Partnership and BACs holders began to recognize Tax Credits with respect to a property when the credit period for such Property (generally ten years from the date of investment or, if later, the date the property was leased to qualified tenants) commenced. Because of the time required for the acquisition, completion and rent-up of Properties, the amount of Tax Credits per BAC gradually increased over the first three years of the Partnership. Tax Credits not recognized in the first three years were recognized in the 11th through 13th years. As of December 31, 2009, all the Local Partnerships have completed their Credit Periods.
The Partnership is subject to the risks incident to potential losses arising from the management and ownership of improved real estate. The Partnership can also be affected by poor economic conditions generally; however, no more than 30% of the Properties are located in any single state. There are also substantial risks associated with owning interests in properties, as does the Partnership, which receive government assistance, for example the possibility that Congress may not appropriate funds to enable the Department of Housing and Urban Development (“HUD”) to make rental assistance payments. HUD also restricts annual cash distributions to partners based on operating results and a percentage of the owner’s equity contribution. The Partnership cannot sell or substantially liquidate its investments in subsidiary partnerships during the period that the subsidy agreements are in existence without HUD’s approval. Furthermore, there may not be market demand for apartments at full market rents when the rental assistance contracts expire.
h)
Subsequent Events
We evaluated all subsequent events from the date of the balance sheet through June 15, 2012, which represents the issuance date of these financial statements. There were no events or transactions occurring during this subsequent event reporting period, other than Jameson and Universal discussed below, which require recognition or disclosure in the financial statements.
West Mill Creek Associates III L.P.
On May 1, 2012, the Partnership sold its limited partnership interest in West Mill Creek Associates III L.P. (“Jameson”) to an affiliate of the Local General Partner for a sales price of $24,990. The sale will result in a gain of approximately $4,723,000, resulting from the write-off of the deficit basis in the Local Partnership of approximately $4,698,000 and $24,990 cash received from the sale, which will be recognized on the Partnership’s Form 10-Q for the quarter ending June 30, 2012.
Universal Court Associates.
On June 11, 2012, the Partnership sold its limited partnership interest in Universal Court Associates (“Universal”) to an affiliate of the Local General Partner for a sales price of $1. The sale will result in a gain of approximately $2,137,000, resulting from the write-off of the deficit basis in the Local Partnership of approximately $2,137,000, which will be recognized on the Partnership’s Form 10-Q for the quarter ending June 30, 2012.
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INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012
NOTE 13 - Discontinued Operations
The following table summarizes the financial position of the Local Partnership that is classified as discontinued operations because the respective Local Partnership was classified as asset held for sale or was sold. As of March 31, 2012, New Zion, which was classified as assets held for sale, was classified as discontinued operations on the consolidated balance sheet. As of March 31, 2011, there were no assets classified as discontinued operations on the consolidated balance sheet.
Consolidated Balance Sheets:
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INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012
The following table summarizes the results of operations of the Local Partnerships that are classified as discontinued operations. For the year ended March 31, 2012, Lafayette Avenue, Knickerbocker Apartments, Mansion Court, Aspen-Olive and Keys, which were sold during the year ended March 31, 2012, and New Zion, which was classified as asset held for sale, were classified as discontinued operations in the consolidated statements of operations. For the year ended March 31, 2011, Jefferis Square, which was sold during the year ended March 31, 2011 and Lafayette Avenue, Knickerbocker Apartments, Mansion Court, Aspen-Olive, Keys and New Zion, in order to present comparable results to the year ended 2012, were classified as discontinued operations in the consolidated statements of operations.
Consolidated Statements of Discontinued Operations:
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Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A.
Item 9A. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures. The Chief Executive Officer and Chief Financial Officer of Related Independence Associates III, L.P., the general partner of the Partnership, have evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”) as of the end of the period covered by this report. Based on such evaluation, such officers have concluded that, as of the end of such period, the Partnership’s disclosure controls and procedures are effective.
(b) Management’s Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). In evaluating the Partnership’s internal control over financial reporting, management has adopted the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring organizations of the Treadway Commission (the “COSO Framework”). Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer of the General Partner, the Partnership conducted an evaluation of the effectiveness of its internal control over financial reporting as of March 31, 2012. The Partnership’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Partnership; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Partnership are being made only in accordance with authorizations of management and directors of the Partnership; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Partnership’s assets that could have a material effect on the financial statements. However, because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Based on management’s evaluation under the COSO Framework, it has concluded that the Partnership’s internal control over financial reporting, was, as of the end of the period covered by this report, (1) effective at the Partnership level, in that they provide reasonable assurance that information required to be disclosed by the Partnership in the reports it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (2) ineffective at the subsidiary level due to certain deficiencies. Management will attempt to cause the Local General Partner’s to remedy such deficiencies; however, the General Partner does not have control over the internal controls at the subsidiary level. Management believes they have sufficient controls at the Partnership level to mitigate these deficiencies, and such deficiencies do not have a material impact on the consolidated financial statements.
(c) Changes in Internal Controls over Financial Reporting. Except as noted in (b) above, during the year ended March 31, 2012, there were no changes in the Partnership’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.
Item 9B.
Item 9B. Other Information.
Not applicable.
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PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance.
The Partnership has no directors or executive officers. The general partner of the Partnership is Related Independence Associates III L.P., a Delaware limited partnership (the “General Partner”). The general partner of the General Partner is Related Independence Associates III Inc., a Delaware corporation (“RIAI III”). The Partnership’s affairs are managed and controlled by the General Partner. The Partnership has not adopted a separate code of ethics because the Partnership has no directors or executive officers. However, Centerline Holding Company (“Centerline”), the ultimate parent of the General Partner, has adopted a code of ethics (see http://www.centerline.com).
Certain information concerning the directors and executive officers of RIAI III is set forth below.
Name
Position
Robert A. Pace
Chief Financial Officer
Robert L. Levy
President and Chief Executive Officer
ROBERT A. PACE, 39, is the Chief Financial Officer of RIAI III and a Director of Centerline Capital Group (“Centerline”). Mr. Pace oversees the accounting operations of the General Partner, and is also responsible for overseeing the accounting operations of Centerline’s Affordable Housing Group. Mr. Pace joined Centerline’s predecessor in January of 2003 as an Assistant Controller. Prior to joining Centerline’s predecessor, Mr. Pace worked for KPMG in the financial services real estate group as an audit manager. He received a Bachelor of Science Degree from Wagner College in 1994 and is a Certified Public Accountant.
ROBERT L. LEVY, 46, is the President and Chief Executive Officer of RIAI III and is also a managing trustee and President and Chief Operating Officer of Centerline. Mr. Levy was appointed as Chief Financial Officer of Centerline in November 2006 and stepped down from that position in May 2012. He was also appointed as President and Chief Operating Officer in April 2010. He directs the day-to-day operations of Centerline and is also responsible for overseeing all of Centerline’s business and operations. Mr. Levy joined Centerline in November of 2001 as the Director of Capital Markets. From 1998 through 2001, he was a Vice President in the Real Estate Equity Research and Investment Banking Departments at Robertson Stephens, an investment banking firm in San Francisco. Prior to 1998, Mr. Levy was employed by Prudential Securities in the Real Estate Equity Research Group and at the Prudential Realty Group, the real estate investment arm of the Prudential Insurance Company. He received his Master’s in Business Administration from the Leonard N. Stern School of Business at New York University and his Bachelor of Arts from Northwestern University.
Item 11.
Item 11. Executive Compensation.
The Partnership has no officers or directors. The Partnership does not pay or accrue any fees, salaries or other forms of compensation to directors or officers of the General Partner for their services. However, under the terms of the Partnership Agreement, the Partnership has entered into certain arrangements with the General Partner and its affiliates, which provide for compensation to be paid to the General Partner and its affiliates. Such arrangements include (but are not limited to) agreements to pay annual partnership management fees, nonrecurring acquisition fees, a nonaccountable acquisition expense allowance, an accountable expense reimbursement and subordinated disposition fees to the General Partner and/or its affiliates. In addition, the General Partner is entitled to a subordinated interest in cash from sales or refinancings and a 1% interest in net income, net loss, distributions of adjusted cash from operations and cash from sales or refinancings. Certain directors and officers of the General Partner receive compensation from the General Partner and its affiliates for services performed for various affiliated entities which may include services performed for the Partnership. The maximum annual partnership management fee paid to the General Partner is 0.5% of invested assets. See Note 8 in Item 8 above, which is incorporated herein by reference.
Tabular information concerning salaries, bonuses and other types of compensation payable to executive officers has not been included in this annual report. As noted above, the Partnership has no executive officers. The levels of compensation payable to the General Partner and/or its affiliates is limited by the terms of the Partnership Agreement and may not be increased therefrom on a discretionary basis.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Title of Class
Name and Address of
Beneficial Ownership
Amount and Nature of
Beneficial Ownership
Percentage
of Class
General Partnership Interest in the Partnership
Related Independence Associates III L.P.
100 Church Street
New York, NY 10007
$1,000 capital contribution - directly owned
100%
Independence SLP III L.P., a limited partnership whose general partner is the general partner of the General Partner of the Partnership and which acts as the special limited partner of each Local Partnership, holds a .01% limited partnership interest in each Local Partnership. See Note 8 to the Financial Statements in Item 8 above, which information is incorporated herein by reference thereto. The following table sets forth the number of BACs beneficially owned, as of May 28, 2012, by (i) each BACs holder known to the Partnership to be a beneficial owner of more than 5% of the BACs, (ii) each executive officer of the general partner of the General Partner and (iii) the executive officers of the general partner of the General Partner as a group. Unless otherwise noted, all BACs are owned directly with sole voting and dispositive powers.
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Except as set forth below, no person is known by the Partnership to be the beneficial owner of more than five percent of the Limited Partnership Interests in the Partnership and/or BACs, and neither the General Partner nor any officer of the General Partner beneficially owns any Limited Partnership Interests in the Partnership or BACs.
(1)
The address for each of the persons in the table is 100 Church Street, New York, New York 10007.
(2)
As set forth in Schedule 13D filed by Lehigh Tax Credit Partners III L.L.C. (“Lehigh III”) and Lehigh Tax Credit Partners, Inc. on January 25, 1999 with the Securities and Exchange Commission (the “Commission”).
(3)
Each own only an economic interest.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The Partnership has and will continue to have certain relationships with the General Partner and its affiliates, as discussed in Item 11 and also Note 8 in Item 8 above, which are incorporated herein by reference thereto. However, there have been no direct financial transactions between the Partnership and the officers of the General Partner.
Item 14.
Item 14. Principal Accountant Fees and Services.
Audit Fees
The aggregate fees billed by Trien Rosenberg Rosenberg Weinberg Ciullo and Fazzari LLP and its affiliates for professional services rendered for the audit of the Partnership’s annual financial statements for the years ended March 31, 2012 and 2011 and for the reviews of the financial statements included in the Partnership’s quarterly reports on Form 10-Q for those years were $60,500 and $57,000, respectively.
Audit Related Fees
None.
Tax Fees
None.
All Other Fees
None.
The Partnership is not required to have, and does not have, a standalone audit committee.
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PART IV
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Item 15.
Item 15.
Exhibits and Financial Statement Schedules (continued).
Subsidiaries of the Registrant (Exhibit 21)
Jurisdiction
of Organization
Edward Hotel Limited Partnership
CA
Overtown Development Group, Ltd.
FL
Sumpter Commons Associates, L.P.
NY
Lewis Street Limited Partnership
NY
Savannah Park Housing Limited Partnership
DC
Primm Place Partners, L.P.
MI
West Mill Creek Associates, III L.P.
PA
Universal Court Associates
PA
New Zion Apartments
LA
Dreitzer House
NY
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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)
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature
Title
Date
/s/ Robert A. Pace
Robert A. Pace
Chief Financial Officer and Principal Accounting Officer of Related Independence Associates III Inc.
June 18, 2012
/s/ Robert L. Levy
Robert L. Levy
President (Chief Executive Officer) of Related Independence Associates III Inc.
June 18, 2012
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of
Independence Tax Credit Plus L.P. III and Subsidiaries
(A Delaware Limited Partnership)
In connection with our audit of the consolidated financial statements of Independence Tax Credit Plus L.P. III and Subsidiaries (A Delaware Limited Partnership) included in the Form 10-K as presented in our opinion dated June 18, 2012 on page 14, and based on the reports of other auditors, we have also audited supporting Schedule I for the 2011 Fiscal Year and Schedule III as of March 31, 2012. In our opinion, and based on the reports of the other auditors, these consolidated schedules present fairly, when read in conjunction with the related consolidated financial statements, the financial data required to be set forth therein.
As discussed in Note 12(b), the consolidated financial statements include the financial statements of two subsidiary partnerships with significant uncertainties. The financial statements of these subsidiary partnerships were prepared assuming that they will continue as going concerns. These two subsidiary partnerships’ net income aggregated $8,450,604 (2011 Fiscal Year) and their assets aggregated $0 at March 31, 2012. Management’s plan in regard to this matter is also described in Note 12(b). The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ RAICH ENDE MALTER & CO. LLP
RAICH ENDE MALTER & CO. LLP
New York, New York
June 18, 2012
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of
Independence Tax Credit Plus L.P. III and Subsidiaries
(A Delaware Limited Partnership)
In connection with our audit of the consolidated financial statements of Independence Tax Credit Plus L.P. III and Subsidiaries (A Delaware Limited Partnership) included in the Form 10-K as presented in our opinion dated June 27 on page 14, and based on the reports of other auditors, we have also audited supporting Schedule I for the 2010 Fiscal Year. In our opinion, and based on the reports of the other auditors, these consolidated schedules present fairly, when read in conjunction with the related consolidated financial statements, the financial data required to be set forth therein.
As discussed in Note 12(b), the consolidated financial statements include the financial statements of two subsidiary partnerships with significant uncertainties. The financial statements of these subsidiary partnerships were prepared assuming that they will continue as going concerns. These two subsidiary partnerships’ net losses aggregated $413,927 (2010 Fiscal Year) and their assets aggregated $1,715,468 at March 31, 2011. Management’s plan in regard to this matter is also described in Note 12(b). The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/TRIEN ROSENBERG
WEINBERG CIULLO & FAZZARI LLP
New York, New York
June 27, 2011
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INDEPENDENCE TAX CREDIT PLUS L.P. III
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Not Including Consolidated Subsidiary Partnerships)
CONDENSED BALANCE SHEETS
ASSETS
Investments in Subsidiary Partnerships are recorded in accordance with the equity method of accounting, wherein the investments are not reduced below zero. Accordingly, partners’ capital on the consolidated balance sheet will differ from partners’ capital shown above.
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INDEPENDENCE TAX CREDIT PLUS L.P. III
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Not Including Consolidated Subsidiary Partnerships)
CONDENSED STATEMENTS OF OPERATIONS
*
Includes suspended prior year losses in excess of investment in accordance with the equity method of accounting amounting to $(13,169,211) and $(5,059,894) for 2012 and 2011, respectively.
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INDEPENDENCE TAX CREDIT PLUS L.P. III
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CONDENSED STATEMENTS OF CASH FLOWS
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INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
Partnership Property Pledged as Collateral
MARCH 31, 2012
(a)
Depreciation is computed using primarily the straight-line method over the estimated useful lives determined by the Partnership date of acquisition.
(b)
Personal property is depreciated primarily by the straight-line method over the estimated useful lives of 5 - 12 years.
(c)
The Partnership’s limited partnership interest was sold during the fiscal year ended March 31, 2009.
(d)
The Partnership’s limited partnership interest was sold during the fiscal year ended March 31, 2010.
(e)
The Partnership’s limited partnership interest was sold during the fiscal year ended March 31, 2011.
(f)
The Partnership’s limited partnership interest was sold during the fiscal year ended March 31, 2012.
(g)
The Partnership transferred the deed to the property and related assets and liabilities in lieu of foreclosure during the fiscal year ended March 31, 2012.
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INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
Partnership Property Pledged as Collateral
MARCH 31, 2012
(continued)
At the time the local partnerships were acquired by Independence Tax Credit Plus III Limited Partnership, the entire purchase price paid by Independence Tax Credit Plus III Limited Partnership was pushed down to the local partnerships as property and equipment with an offsetting credit to capital. Since the projects were in the construction phase at the time of acquisition, the capital accounts were insignificant at the time of purchase. Therefore, there are no material differences between the original cost basis for tax and GAAP.
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