<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended SEPTEMBER 30, 1997
Commission File Number 2-60561
REAL ESTATE ASSOCIATES LIMITED
(A California Limited Partnership)
I.R.S. Employer Identification No. 95-3187912
9090 WILSHIRE BLVD., SUITE 201,
BEVERLY HILLS, CALIF. 90211
Registrant's Telephone Number,
Including Area Code (310) 278-2191
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No[ ]
<PAGE> 2
REAL ESTATE ASSOCIATES LIMITED
(a California limited partnership)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Balance Sheets, September 30, 1997 and December 31, 1996 .........1
Statements of Operations,
Nine and Three Months Ended September 30, 1997 and 1996 .....2
Statement of Partner's Equity (Deficiency),
Nine Months Ended September 30, 1997.........................3
Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1996 ...............4
Notes to Financial Statements ....................................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................................10
Item 6. Exhibits and Reports on Form 8-K ...........................10
Signatures................................................................11
</TABLE>
<PAGE> 3
REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 2,709,126 $ 2,486,997
CASH AND CASH EQUIVALENTS (Note 1) 406,546 376,976
----------- -----------
TOTAL ASSETS $ 3,115,672 $ 2,863,973
=========== ===========
LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY)
LIABILITIES:
Accounts payable $ 42,244 $ 7,929
Accrued fees and expenses due
general partner (Note 3) 1,017,182 1,021,677
----------- -----------
1,059,426 1,029,606
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
PARTNERS' EQUITY (DEFICIENCY):
General partners (106,507) (108,726)
Limited partners 2,162,753 1,943,093
----------- -----------
2,056,246 1,834,367
----------- -----------
TOTAL LIABILITIES AND PARTNERS'
EQUITY (DEFICIENCY) $ 3,115,672 $ 2,863,973
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 4
REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
Nine months Three months Nine months Three months
ended ended ended ended
Sept. 30, 1997 Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1996
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
INTEREST AND OTHER INCOME $ 17,808 $ 4,263 $ 12,308 $ 4,614
--------- --------- --------- ---------
OPERATING EXPENSES:
Legal and accounting 61,235 27,334 60,688 18,240
Management fees - general partner (Note 3) 305,505 101,835 305,505 101,835
Administrative (Note 3) 60,981 17,567 32,834 9,489
--------- --------- --------- ---------
Total operating expenses 427,721 146,736 (386,719) (124,950)
--------- --------- --------- ---------
LOSS FROM OPERATIONS (409,913) (142,473) (386,719) (120,645)
DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED AS
INCOME (Note 2) 381,892 250,867 465,403 66,881
EQUITY IN INCOME OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS (Note 2) 249,900 83,300 333,000 111,000
--------- --------- --------- ---------
NET INCOME $ 221,879 $ 191,694 $ 411,684 $ 52,931
========= ========= ========= =========
NET INCOME PER LIMITED
PARTNERSHIP INTEREST (Note 1) $ 13 $ 12 $ 25 $ 3
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' EQUITY (DEFICIENCY)
NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
----------- ----------- ----------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS
September 30, 1997 16,505
==========
EQUITY (DEFICIENCY),
January 1, 1997 $ (108,726) $1,943,093 $1,834,367
Net income for the nine months
ended September 30, 1997 2,219 219,660 221,879
---------- ---------- ----------
EQUITY (DEFICIENCY),
September 30, 1997 $ (106,507) $2,162,753 $2,056,246
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 221,879 $ 411,684
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in income of limited partnerships
and amortization of acquisition costs (249,900) (333,000)
Decrease in accrued fees and
expenses due general partner (4,495) (69,495)
Increase (Decrease) in accounts payable 34,315 (2,083)
--------- ---------
Net cash provided by operating activities 1,799 7,106
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital contributions/recoveries (8,710) --
Distributions from limited partnership
recognized as return of capital 36,481 36,481
--------- ---------
Net cash provided by investing activities 27,771 36,481
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 29,570 43,587
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 376,976 250,570
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 406,546 $ 294,157
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 7
REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
The information contained in the following notes to the financial
statements is condensed from that which would appear in the annual
audited financial statements; accordingly, the financial statements
included herein should be reviewed in conjunction with the financial
statements and related notes thereto contained in the annual report for
the year ended December 31, 1996 prepared by Real Estate Associates
Limited (the "Partnership.") Accounting measurements at interim dates
inherently involve greater reliance on estimates than at year end. The
results of operations for the interim period presented are not
necessarily indicative of the results for the entire year.
In the opinion of the Partnership, the accompanying unaudited financial
statements contain all adjustments (consisting primarily of normal
recurring accruals) necessary to present fairly the financial position as
of September 30, 1997, and the results of operations for the nine and
three months then ended and changes in cash flows for the nine months
then ended.
The general partners have a 1 percent interest in profits and losses of
the Partnership. The limited partners have the remaining 99 percent
interest which is allocated in proportion to their respective individual
investments. National Partnership Investments Corp. (NAPICO) is the
corporate general partner of the Partnership.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
METHOD OF ACCOUNTING FOR INVESTMENT IN LIMITED PARTNERSHIPS
The investment in limited partnerships is accounted for on the equity
method. Acquisition, selection fees and other costs related to the
acquisition of the projects have been capitalized to the investment
account and are being amortized on a straight line basis over the
estimated lives of the underlying assets, which is generally 30 years.
NET INCOME PER LIMITED PARTNERSHIP INTEREST
Net income per limited partnership interest was computed by dividing the
limited partners' share of net income by the number of limited
partnership interests outstanding during the year. The number of limited
partnership interests was 16,505 for the periods presented.
5
<PAGE> 8
REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and bank certificates of
deposit with an original maturity of six months or less. The Partnership
has its cash and cash equivalents on deposit primarily with one high
credit quality financial institution. Such cash and cash equivalents are
in excess of the FDIC insurance limit.
INCOME TAXES
No provision has been made for income taxes in the accompanying financial
statements since such taxes, if any, are the liability of the individual
partners.
IMPAIRMENT OF LONG-LIVED ASSETS
The Partnership adopted Statement of Financial Accounting Standards No.
121, Account for the Improvement of Long-Lived Assets and for Long-Lived
Assets To Be Disposed Of as of January 1, 1996 without a significant
effect on its financial statements. The Partnership reviews long-lived
assets to determine if there has been any permanent impairment whenever
events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. If the sum of the expected future cash
flows is less than the carrying amount of the assets, the Partnership
recognizes an impairment loss.
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
The Partnership has limited partnership interests in 18 limited
partnerships. The limited partnerships own residential rental projects
consisting of 1,969 apartment units. The mortgage loans of these projects
are insured by various governmental agencies.
The Partnership, as a limited partner, is entitled from 50 percent to 99
percent of the profits and losses in the limited partnerships.
Equity in losses of limited partnerships are recognized in the financial
statements until the limited partnership investment account is reduced to
a zero balance. Losses incurred after the limited partnership investment
account is reduced to zero are not recognized.
6
<PAGE> 9
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED):
Distributions from the limited partnerships are accounted for as a return
of capital until the investment balance is reduced to zero. Subsequent
distributions received are recognized as income.
The following is a summary of the investments in limited partnerships for
the nine months ended September 30, 1997:
<TABLE>
<CAPTION>
<S> <C>
Balance, beginning of period $ 2,486,997
Capital contribution/recoveries 8,710
Amortization acquisition costs (2,100)
Cash distribution recognized as return of capital (36,481)
Equity in income of limited partnerships 252,000
-----------
Balance, end of period $ 2,709,126
===========
</TABLE>
The limited partnership which owns Chidester Place Apartments, has
executed, with NAPICO's consent, an Agreement for Purchase and Sale of
the Chidester Place apartment complex. The pending sale is predicated on
a $4,370,000 purchase offer from a Tennessee Limited Partnership
sponsored by Brencor Capital Funding ("Brencor").
Brencor has obtained preliminary approval from the Ypsilanti Downtown
Development Authority to finance the acquisition of the property with a
new tax-exempt bond issue which will qualify the prospective buyer to
receive an allocation of Low Income Housing Tax Credits. If the sale is
completed, it is anticipated that the Partnership will receive sale
proceeds more than sufficient to return the Partnership's original
capital investment and to offset the projected tax liability associated
with the Partnership's disposition of the property. The Partnership has a
zero carrying value for this investment.
The following are unaudited combined estimated statements of operations
for the nine months ended September 30, 1997 and 1996 for the limited
partnerships in which the Partnership has investments:
<TABLE>
<CAPTION>
Nine months Three months Nine months Three months
ended ended ended ended
Sept. 30, 1997 Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES
Rental and other $12,714,000 $ 4,238,000 $12,414,000 $ 4,138,000
----------- ----------- ----------- -----------
EXPENSES
Depreciation 1,959,000 653,000 2,007,000 669,000
Interest 3,702,000 1,234,000 3,582,000 1,194,000
Operating 6,627,000 2,209,000 6,609,000 2,203,000
----------- ----------- ----------- -----------
12,288,000 4,096,000 12,198,000 4,066,000
----------- ----------- ----------- -----------
NET INCOME $ 426,000 $ 142,000 $ 216,000 $ 72,000
=========== =========== =========== ===========
</TABLE>
7
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REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED):
NAPICO, or one of its affiliates, is the general partner and property
management agent for certain of the limited partnerships included above.
The Partnership is undergoing an extensive review of disposition,
refinancing or re-engineering alternatives for the properties in which it
has invested that are subject to governmental mortgage and rental subsidy
programs. The Partnership has began to incur expenses in connection with
this review by various third party professionals, which amounted to
$24,149 for the nine months ended September 30, 1997.
NOTE 3 - ACCRUED FEES AND EXPENSES DUE TO GENERAL PARTNER (CONTINUED)
Under the terms of the Restated Certificate and Agreement of Limited
Partnership, the Partnership is obligated to NAPICO for an annual
management fee equal to 1/2 and 1 percent of the original invested assets
of the limited partnerships. Invested assets is defined as the costs of
acquiring project interests, including the proportionate amount of the
mortgage loans related to the Partnership's interest in the capital
accounts of the respective partnerships. The management fee incurred for
the nine-month periods presented was $305,505.
The Partnership reimburses NAPICO for certain expenses. The reimbursement
paid to NAPICO was approximately $17,800 and $17,600, for the nine months
ended September 30, 1997 and 1996, respectively, and is included in
administrative expenses.
As of September 30, 1997, the fees and expenses due NAPICO exceeded the
Partnership's cash. The general partner, during the forthcoming year,
will not demand payment of amounts due in excess of such cash or such
that the Partnership would not have sufficient operating cash.
NOTE 4 - CONTINGENCIES
The corporate general partner of the Partnership is involved in various
lawsuits arising from transactions in the ordinary course of business. In
the opinion of management and the corporate general partner, the claims
will not result in any material liability to the Partnership.
NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about
Fair Value of Financial Instruments," requires disclosure of fair value
information about financial instruments, when it is practicable to
estimate that value. The operations generated by the investee limited
partnerships, which account for the Partnership's primary source of
revenues, are subject to various government rules, regulations and
restrictions which make it impracticable to estimate the fair value of
accrued fees and expenses due general partner. The carrying amount of
other assets and liabilities reported on the balance sheets that require
such disclosure approximates fair value due to their short-term maturity.
8
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REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP
SEPTEMBER 30, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary sources of funds include interest income earned
from investing available cash and distributions from limited partnerships in
which the Partnership has invested. It is not expected that any of the local
limited partnerships in which the Partnership has invested will generate
cash flow sufficient to provide for distributions to limited partners in any
material amount.
The limited partnership which owns Chidester Place Apartments, has executed,
with NAPICO's consent, an Agreement for Purchase and Sale of the Chidester
Place apartment complex. The pending sale is predicated on a $4,370,000
purchase offer from a Tennessee Limited Partnership sponsored by Brencor
Capital Funding ("Brencor").
Brencor has obtained preliminary approval from the Ypsilanti Downtown
Development Authority to finance the acquisition of the property with a new
tax-exempt bond issue which will qualify the prospective buyer to receive an
allocation of Low Income Housing Tax Credits. If the sale is completed, it
is anticipated that the Partnership will receive sale proceeds more than
sufficient to return the Partnership's original capital investment and to
offset the projected tax liability associated with the Partnership's
disposition of the property. The Partnership has a zero carrying value for
this investment.
RESULTS OF OPERATIONS
Partnership revenues consist primarily of interest income earned on
certificates of deposit and other temporary investment of funds not required
for investment in local partnerships.
Operating expenses consist primarily of recurring general and administrative
expenses and professional fees for services rendered to the Partnership. In
addition, an annual Partnership management fee in an amount equal to .5
percent of investment assets is payable to the corporate general partner.
Operating expenses are consistent with the prior year.
The Partnership is undergoing an extensive review of disposition,
refinancing or re-engineering alternatives for the properties in which it
has invested that are subject to governmental mortgage and rental subsidy
programs. The Partnership has began to incur expenses in connection with
this review by various third party professionals, which amounted to $24,149
for the nine months ended September 30, 1997.
The Partnership accounts for its investments in the local limited
partnerships on the equity method, thereby adjusting its investment balance
by its proportionate share of the income or loss of the local limited
partnerships. The equity in income of limited partnerships is received from
two investee limited partnerships. All other investee limited partnerships
have reduced their investment balances to zero and as a result thereof, the
Partnership does not recognize equity in losses from those investments in
accordance with the equity accounting method.
Distributions received from limited partnerships are recognized as return of
capital until the investment balance has been reduced to zero or to a
negative amount equal to future capital contributions required. Subsequent
distributions received are recognized as income.
9
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REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP
SEPTEMBER 30, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Except for certificates of deposit and money market funds, the Partnership's
investments are entirely interests in other limited partnerships owning
government assisted projects. Available cash is invested in these funds
earning interest income as reflected in the statements of operations. These
investments can be converted to cash to meet obligations as they arise.
10
<PAGE> 13
REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1997
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The corporate general partner is involved in various lawsuits. None of these are
related to the Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are required per the provision of Item 7 of regulation
S-K.
11
<PAGE> 14
REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REAL ESTATE ASSOCIATES LIMITED (a California
limited partnership)
By: National Partnership Investments Corp.
General Partner
----------------------------------------
Bruce Nelson
President
Date:
----------------------------------------
----------------------------------------
Charles H. Boxenbaum
Chief Executive Officer
Date:
----------------------------------------
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PARTNERSHIP'S STATEMENTS OF EARNINGS AND BALANCE SHEETS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 406,546
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 406,546
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,115,672
<CURRENT-LIABILITIES> 42,244
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,056,246
<TOTAL-LIABILITY-AND-EQUITY> 3,115,672
<SALES> 0
<TOTAL-REVENUES> 649,600
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 427,721
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 221,879
<INCOME-TAX> 0
<INCOME-CONTINUING> 221,879
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 221,879
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
