<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, 1998
Commission File Number 0-09262
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, 1998
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, September 30, 1998 and December 31, 1997 ................... 1
Statements of Operations,
Nine and Three Months Ended September 30, 1998 and 1997 ............. 2
Statement of Partner's Equity (Deficiency),
Nine Months Ended September 30, 1998................................. 3
Statements of Cash Flows
Nine Months Ended September 30, 1998 and 1997 ....................... 4
Notes to Financial Statements .............................................. 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................. 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................ 13
Item 6. Exhibits and Reports on Form 8-K ........................................ 13
Signatures ...................................................................... 14
</TABLE>
<PAGE> 3
REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 1,492,016 $ 1,319,976
CASH AND CASH EQUIVALENTS (Note 1) 276,343 544,863
------------ ------------
TOTAL ASSETS $ 1,768,359 $ 1,864,839
============ ============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accounts payable (Note 3) $ 87,731 $ 89,279
Accrued fees and expenses due
general partner (Notes 3 and 6) 305,507 181,333
------------ ------------
393,238 270,612
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
PARTNERS' EQUITY (DEFICIENCY):
General partners (113,318) (111,127)
Limited partners 1,488,439 1,705,354
------------ ------------
1,375,121 1,594,227
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 1,768,359 $ 1,864,839
============ ============
</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, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Nine months Three months Nine months Three months
ended ended ended ended
Sept. 30, 1998 Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INTEREST AND OTHER INCOME $ 10,701 $ 3,359 $ 17,808 $ 4,263
--------- --------- --------- ---------
OPERATING EXPENSES:
Legal and accounting 144,240 16,604 61,235 27,334
Management fees - general partner (Note 3) 305,505 101,835 305,505 101,835
Administrative (Notes 2 and 3) 201,003 133,612 60,981 17,567
--------- --------- --------- ---------
Total operating expenses 650,748 252,051 427,721 146,736
--------- --------- --------- ---------
LOSS FROM OPERATIONS (640,047) (248,692) (409,913) (142,473)
DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED AS
INCOME (Note 2) 207,041 0 381,892 250,867
EQUITY IN INCOME OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS (Note 2) 213,900 71,300 249,900 83,300
--------- --------- --------- ---------
NET (LOSS) INCOME $(219,106) $(177,392) $ 221,879 $ 191,694
========= ========= ========= =========
NET (LOSS) INCOME PER LIMITED
PARTNERSHIP INTEREST (Note 1) $ (13) $ (11) $ 13 $ 12
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
--------- ----------- -----------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS 16,505
===========
EQUITY (DEFICIENCY),
January 1, 1998 $(111,127) $ 1,705,354 $ 1,594,227
Net loss for the nine months
ended September 30, 1998 (2,191) (216,915) (219,106)
--------- ----------- -----------
EQUITY (DEFICIENCY),
September 30, 1998 $(113,318) $ 1,488,439 $ 1,375,121
========= =========== ===========
</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
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (219,106) $ 221,879
Adjustments to reconcile net income to net cash
used in operating activities:
Equity in income of limited partnerships
and amortization of acquisition costs (213,900) (249,900)
Increase in accrued fees and
expenses due general partner 124,174 (4,495)
Decrease in accounts payable (1,548) 34,315
---------- ----------
Net cash used in operating activities (310,380) 1,799
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from limited partnership
recognized as return of capital 47,593 36,481
Capital contribution to limited partnerships (5,733) (8,710)
---------- ----------
Net cash provided by investing activities 41,860 27,771
---------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (268,520) 29,570
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 544,863 376,976
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 276,343 $ 406,546
========== ==========
</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, 1998
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, 1997 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, 1998, 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. NAPICO is a wholly
owned subsidiary of Casden Investment Corporation, which is wholly
owned by Alan I. Casden.
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.
5
<PAGE> 8
REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
NET INCOME (LOSS) PER LIMITED PARTNERSHIP INTEREST
Net income (loss) 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.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and bank certificates of
deposit with an original maturity of three months or less. The
Partnership has its cash and cash equivalents on deposit primarily with
two high credit quality financial institutions. 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 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 holds limited partnership interests in 18 limited
partnerships. The limited partnerships own residential low income
rental projects consisting of 1,969 apartment units. The mortgage loans
of these projects are insured by the United States Department of
Housing and Urban Development ("HUD") or state 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
REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
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, 1998:
<TABLE>
<S> <C>
Balance, beginning of period $1,319,976
Capital contribution 5,733
Amortization of acquisition costs (2,100)
Cash distribution recognized as a return of capital (47,593)
Equity in income of limited partnerships 216,000
----------
Balance, end of period $1,492,016
==========
</TABLE>
The following are unaudited combined estimated statements of operations
for the nine and three months ended September 30, 1998 and 1997 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, 1998 Sept. 30, 1998 Sept. 30, 1997 Sept. 30,1997
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Rental and other $ 12,702,000 $ 4,234,000 $ 12,714,000 $4,238,000
------------ ------------ ------------ ----------
EXPENSES
Depreciation 1,989,000 663,000 1,959,000 653,000
Interest 3,399,000 1,133,000 3,702,000 1,234,000
Operating 7,089,000 2,363,000 6,627,000 2,209,000
------------ ------------ ------------ ----------
12,477,000 4,159,000 12,288,000 4,096,000
------------ ------------ ------------ ----------
NET INCOME $ 225,000 $ 75,000 $ 426,000 $ 142,000
============ ============ ============ ==========
</TABLE>
NAPICO, or one of its affiliates, is the general partner and property
management agent for certain of the limited partnerships included
above.
7
<PAGE> 10
REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED):
Under recently adopted law and policy, HUD has determined not to renew
housing assistance payments contracts ("HAP Contracts") on their
existing terms. In connection with renewals of the HAP Contracts under
such new law and policy, the amount of rental assistance payments under
renewed HAP Contracts will be based on market rentals instead of above
market rentals, which was generally the case under existing HAP
Contracts. As a result, existing HAP Contracts that are renewed in the
future on projects insured by the Federal Housing Administration of HUD
("FHA") will not provide sufficient cash flow to permit owners of
properties to meet the debt service requirements of these existing
FHA-insured mortgages. In order to address the reduction in payments
under HAP Contracts as a result of this new policy, the Multi-family
Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA"), which
was adopted in October 1997, provides for the restructuring of mortgage
loans insured by the FHA with respect to properties subject to HAP
Contracts that have been renewed under the new policy. The restructured
loans will be held by the current lender or another lender. Under
MAHRAA, an FHA-insured mortgage loan can be restructured to reduce the
annual debt service on such loan. There can be no assurance that the
Partnership will be permitted to restructure its mortgage indebtedness
pursuant to the new HUD rules implementing MAHRAA or that the
Partnership would choose to restructure such mortgage indebtedness if
it were eligible to participate in the MAHRAA program. It should be
noted that there are uncertainties as to the economic impact on the
Partnership of the combination of the reduced payments under the HAP
Contracts and the restructuring of the existing FHA-insured mortgage
loans under MAHRAA. Accordingly, the General Partners are unable to
predict with certainty their impact on the Partnership's future cash
flow.
As a result of the foregoing, the Partnership is undergoing an
extensive review of the properties in which the limited partnerships
have invested that are subject to HUD mortgages and which may be sold
to the REIT as set forth below. The Partnership has incurred expenses
in connection with this review by various third party professionals,
including accounting, legal, valuation, structural review and
engineering costs, which amounted to approximately $351,000 through
September 30, 1998 including approximately $231,000 and $24,000 for the
nine months ended September 30, 1998, and 1997, respectively, which are
included in general and administrative expenses.
A real estate investment trust ("REIT") organized by affiliates of
NAPICO has advised the Partnership that it intends to make a proposal
to purchase from the Partnership certain of the limited partnership
interests held for investment by the Partnership.
The REIT proposes to purchase such limited partnership interests for
cash, which it plans to raise in connection with a private placement of
its equity securities. The purchase is subject to, among other things,
(i) consummation of such private placement by the REIT; (ii) the
purchase of the general partnership interests in the local limited
partnerships by the REIT; (iii) the approval of HUD and certain state
housing finance agencies; (iv) the consent of the limited partners to
the sale of the local limited partnership interests held for investment
by REAL; and (v) the consummation of a minimum number of purchase
transactions with other NAPICO affiliated partnerships.
8
<PAGE> 11
REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED):
A consent solicitation statement has been sent to the limited partners
setting forth the terms and conditions of the purchase of the limited
partners' interests held for investment by the Partnership, together
with certain amendments to the Partnership Agreement and other
disclosures of various conflicts of interest in connection with the
proposed transaction. As of November 2, 1998, the consents of the
limited partners to the sale of the partnership interests and
amendments to the Partnership Agreement have been obtained. In
addition, the REIT has completed buy-out negotiations with a majority
of the general partners of the local limited partnerships and has
obtained the approval of HUD.
NOTE 3 - ACCRUED FEES AND EXPENSES DUE TO GENERAL PARTNER
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 of 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 period in both years presented was
$305,505.
The Partnership reimburses NAPICO for certain expenses. The
reimbursement paid to NAPICO was approximately $18,200 and $17,800 for
the nine months ended September 30, 1998 and 1997, respectively, and is
included in administrative expenses.
As of September 30, 1998, 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
On August 27, 1998, two investors holding an aggregate of eight units
of limited partnership interests in Real Estate Associates Limited III
(an affiliated partnership in which NAPICO is the managing general
partner) and two investors holding an aggregate of five units of
limited partnership interest in Real Estate Associates Limited VI
(another affiliated partnership in which NAPICO is the managing general
partner) commenced an action in the United States District Court for
the Central District of California against the Partnership, NAPICO and
certain other affiliated entities. The complaint alleges that the
defendants breached their fiduciary duty to the limited partners of
certain NAPICO managed partnerships and made materially false and
misleading statements in the consent solicitation statements sent to
the limited partners of such partnerships relating to approval of the
transfer of partnership interests in limited partnerships, owning
certain of the properties, to the REIT (Note 2). The plaintiffs seek
preliminary and permanent injunctive relief and other equitable relief,
as well as compensatory and punitive damages. The managing general
partner of such NAPICO managed partnerships and the other defendants
believe that the plaintiffs' claims are without merit and intend to
contest the action vigorously.
9
<PAGE> 12
REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
NOTE 4 - CONTINGENCIES (CONTINUED)
The corporate general partner of the Partnership is a plaintiff in
various lawsuits and has also been named a defendant in other 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.
The Partnership has assessed the potential impact of the Year 2000
computer systems issue on its operations. The Partnership believes that
no significant actions are required to be taken by the Partnership to
address the issue and that the impact of the Year 2000 computer systems
issue will not materially affect the Partnership's future operating
results or financial condition.
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.
10
<PAGE> 13
REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1998
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.
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.
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.
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.
Under recently adopted law and policy, HUD has determined not to renew
housing assistance payments contracts ("HAP Contracts") on their
existing terms. In connection with renewals of the HAP Contracts under
such new law and policy, the amount of rental assistance payments under
renewed HAP Contracts will be based on market rentals instead of above
market rentals, which was generally the case under existing HAP
Contracts. As a result, existing HAP Contracts that are renewed in the
future on projects insured by the Federal Housing Administration of HUD
("FHA") will not provide sufficient cash flow to permit owners of
properties to meet the debt service requirements of these existing
FHA-insured mortgages. In order to address the reduction in payments
under HAP Contracts as a result of this new policy, the Multi-family
Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA"), which
was adopted in October 1997, provides for the restructuring of mortgage
loans insured by the FHA with respect to properties subject
11
<PAGE> 14
REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
to HAP Contracts that have been renewed under the new policy. The
restructured loans will be held by the current lender or another
lender. Under MAHRAA, an FHA-insured mortgage loan can be restructured
to reduce the annual debt service on such loan. There can be no
assurance that the Partnership will be permitted to restructure its
mortgage indebtedness pursuant to the new HUD rules implementing MAHRAA
or that the Partnership would choose to restructure such mortgage
indebtedness if it were eligible to participate in the MAHRAA program.
It should be noted that there are uncertainties as to the economic
impact on the Partnership of the combination of the reduced payments
under the HAP Contracts and the restructuring of the existing
FHA-insured mortgage loans under MAHRAA. Accordingly, the General
Partners are unable to predict with certainty their impact on the
Partnership's future cash flow.
As a result of the foregoing, the Partnership is undergoing an
extensive review of the properties in which the limited partnerships
have invested that are subject to HUD mortgages and which may be sold
to the REIT as set forth below. The Partnership has incurred expenses
in connection with this review by various third party professionals,
including accounting, legal, valuation, structural review and
engineering costs, which amounted to approximately $351,000 through
September 30, 1998 including approximately $231,000 and $24,000 for the
nine months ended September 30, 1998, and 1997, respectively, which are
included in general and administrative expenses.
A real estate investment trust ("REIT") organized by affiliates of
NAPICO has advised the Partnership that it intends to make a proposal
to purchase from the Partnership certain of the limited partnership
interests held for investment by the Partnership.
The REIT proposes to purchase such limited partnership interests for
cash, which it plans to raise in connection with a private placement of
its equity securities. The purchase is subject to, among other things,
(i) consummation of such private placement by the REIT; (ii) the
purchase of the general partnership interests in the local limited
partnerships by the REIT; (iii) the approval of HUD and certain state
housing finance agencies; (iv) the consent of the limited partners to
the sale of the local limited partnership interests held for investment
by REAL; and (v) the consummation of a minimum number of purchase
transactions with other NAPICO affiliated partnerships.
A consent solicitation statement has been sent to the limited partners
setting forth the terms and conditions of the purchase of the limited
partners' interests held for investment by the Partnership, together
with certain amendments to the Partnership Agreement and other
disclosures of various conflicts of interest in connection with the
proposed transaction. As of November 2, 1998, the consents of the
limited partners to the sale of the partnership interests and
amendments to the Partnership Agreement have been obtained. In
addition, the REIT has completed buy-out negotiations with a majority
of the general partners of the local limited partnerships and has
obtained approval from HUD.
12
<PAGE> 15
REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1998
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 27, 1998, two investors holding an aggregate of eight units
of limited partnership interests in Real Estate Associates Limited III
(an affiliated partnership in which NAPICO is the managing general
partner) and two investors holding an aggregate of five units of
limited partnership interest in Real Estate Associates Limited VI
(another affiliated partnership in which NAPICO is the managing general
partner) commenced an action in the United States District Court for
the Central District of California against the Partnership, NAPICO and
certain other affiliated entities. The complaint alleges that the
defendants breached their fiduciary duty to the limited partners of
such NAPICO managed partnerships and made materially false and
misleading statements in the consent solicitation statements sent to
the limited partners of such partnerships relating to approval of the
transfer of partnership interests in limited partnerships, owning
certain of the Properties, to the REIT (Note 2). The plaintiffs seek
preliminary and permanent injunctive relief and other equitable relief,
as well as compensatory and punitive damages. The managing general
partner of such NAPICO Funds and the other defendants believe that the
plaintiffs' claims are without merit and intend to contest the action
vigorously.
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.
13
<PAGE> 16
REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1998
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
/s/ PAUL PATIERNO
---------------------------------------
Paul Patierno
Chief Financial Officer
Date:
---------------------------------------
/s/ CHARLES H. BOXENBAUM
---------------------------------------
Charles H. Boxenbaum
Chief Executive Officer
Date:
---------------------------------------
14
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 276,343
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 276,343
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,768,359
<CURRENT-LIABILITIES> 87,731
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,375,121
<TOTAL-LIABILITY-AND-EQUITY> 1,768,359
<SALES> 0
<TOTAL-REVENUES> 431,642
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 650,748
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (219,106)
<INCOME-TAX> 0
<INCOME-CONTINUING> (219,106)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (219,106)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
