<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended DECEMBER 31, 1999
Commission File Number
0-09262
REAL ESTATE ASSOCIATES LIMITED
A CALIFORNIA LIMITED PARTNERSHIP
I.R.S. Employer Identification No. 95-3187912
9090 WILSHIRE BOULEVARD, SUITE 201, BEVERLY HILLS, CALIFORNIA 90211
Registrant's Telephone Number, Including Area Code (310) 278-2191
Securities Registered Pursuant to Section 12(b) or 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed with the Commission by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding twelve months (or 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
------ ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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PART I.
ITEM 1. BUSINESS:
Real Estate Associates Limited ("REAL" or the "Partnership") is a limited
partnership which was formed under the laws of the State of California on
September 15, 1977. On October 27, 1978, REAL offered 16,500 Limited Partnership
Interests through a public offering managed by E.F. Hutton Inc.
The general partners of Real Estate Associates Limited are Charles H. Boxenbaum,
an individual residing in California, and National Partnership Investments Corp.
("NAPICO"), a California Corporation (the Corporate General Partner). The
business of REAL is conducted primarily by NAPICO.
Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of Casden
Investment Corporation ("CIC"), which is wholly owned by Alan I. Casden. On
December 30, 1998, Casden Properties Operating Partnership, L.P. (the "Operating
Partnership"), a majority owned subsidiary of Casden Properties Inc., a real
estate investment trust organized by Alan I. Casden, purchased a 95.25% economic
interest in NAPICO. The current members of NAPICO's Board of Directors are
Charles H. Boxenbaum, Bruce E. Nelson and Alan I. Casden.
REAL holds limited partnership interests in 9 local limited partnerships as of
December 31, 1999, after selling its interests in 9 local limited partnerships,
in December 1998 to the Operating Partnership and after having its interest in
one local limited partnership redeemed on September 30, 1998. Each of these
limited partnerships owns a single low income housing project which is
subsidized and/or has a mortgage note payable to or insured by agencies of the
federal or local government.
In order to stimulate private investment in low income housing, the federal
government and certain state and local agencies have provided significant
ownership incentives, including among others, interest subsidies, rent
supplements, and mortgage insurance, with the intent of reducing certain market
risks and providing investors with certain tax benefits, plus limited cash
distributions and the possibility of long-term capital gains. There remains,
however, significant risks. The long-term nature of investments in government
assisted housing limits the ability of REAL to vary its portfolio in response to
changing economic, financial and investment conditions; such investments are
also subject to changes in local economic circumstances and housing patterns, as
well as rising operating costs, vacancies, rent collection difficulties, energy
shortages and other factors which have an impact on real estate values. These
Projects also require greater management expertise and may have higher operating
expenses than conventional housing projects.
Under recently adopted law and policy, the United States Department of Housing
and Urban Development ("HUD") has determined not to renew the Housing Assistance
Payment ("HAP") Contracts on a long term basis on the 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 may be the case under
existing HAP Contracts. The payments under the renewed HAP Contracts are not
expected to be in an amount that would provide sufficient cash flow to permit
owners of properties subject to HAP Contracts to meet the debt service
requirements of existing loans insured by the Federal Housing Administration of
HUD ("FHA") unless such mortgage loans are restructured. 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 the Section 8
program. Under MAHRAA, an FHA-insured mortgage loan can be restructured into a
first mortgage loan which will be amortized on a current basis and a low
interest second mortgage loan payable to FHA which will only be payable on
maturity of the first mortgage loan. This restructuring results in a reduction
in annual debt service payable by the owner of the FHA-insured mortgage loan and
is expected to result in an insurance payment from FHA to the holder of the
FHA-insured loan due
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to the reduction in the principal amount. MAHRAA also phases out project-based
subsidies on selected properties serving families not located in rental markets
with limited supply, converting such subsidies to a tenant-based subsidy.
On September 11, 1998, HUD issued interim regulations implementing MAHRAA and
final regulations are expected to be issued in 2000.
When the HAP Contracts are subject to renewal, there can be no assurance that
the local limited partnerships in which the Partnership has an investment will
be permitted to restructure its mortgage indebtedness under MAHRAA. In addition,
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 is uncertain.
The partnerships in which REAL has invested were, at least initially, organized
by private developers who acquired the sites, or options thereon, and applied
for applicable mortgage insurance and subsidies. REAL became the principal
limited partner in these local limited partnerships pursuant to arm's-length
negotiations with these developers, or others, who acted as general partners. As
a limited partner, REAL's liability for obligations of the local limited
partnership is limited to its investment. The local general partner of the local
limited partnership retains responsibility for developing, constructing,
maintaining, operating and managing the project. Under certain circumstances of
default, REAL has the right to replace the general partner of the local limited
partnerships, but otherwise does not have control of sale or refinancing, etc.
Although each of the partnerships in which REAL has invested owns a project
which must compete in the market place for tenants, interest subsidies and rent
supplements from governmental agencies make it possible to offer these dwelling
units to eligible "low income" tenants at a cost significantly below the market
rate for comparable conventionally financed dwelling units in the area.
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During 1999, all of the projects in which REAL had invested were substantially
rented. The following is a schedule of the status as of December 31, 1999, of
the projects owned by local limited partnerships in which REAL is a limited
partner.
SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED PARTNERSHIPS
IN WHICH REAL HAS AN INVESTMENT
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Units Authorized
For Rental
Assistance Under
Section 8 or
Other Rent Percentage of
No. of Supplement Units Total Units
Name and Location Units Program Occupied Occupied
- ----------------- ------ ---------------- -------- -------------
<S> <C> <C> <C> <C>
Belleville Manor 32 32/0 31 97%
Marion, KY
Bethel Towers 146 53/0 139 95%
Detroit, MI
Cherry Hill Place 186 186/0 186 100%
Inkster, MI
Clinton Apts 32 32/0 24 75%
Clinton, KY
Northwood Village 72 72/0 69 96%
Emporia, VA
Ridgeview Estates 32 0/32 28 88%
Lewisburg, W. VA
Wedgewood Village 32 0/32 32 100%
Ripley, W. VA
W. Lafayette Apts 49 49/0 41 84%
W. Lafayette, OH
Williamson Towers 76 76/0 74 97%
Williamson, W. VA
--- ------ ---
657 500/64 624 95%
=== ====== ===
</TABLE>
3
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ITEM 2. PROPERTIES:
The local limited partnerships in which REAL holds interests own various
multi-family rental properties. See Item 1 for information pertaining to these
properties.
ITEM 3. 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 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 Operating Partnership
organized by an affiliate of NAPICO. The plaintiffs seek equitable relief, as
well as compensatory damages and litigation related costs. On August 4, 1999,
one investor holding one unit of limited partnership interest in Housing
Programs Limited (another affiliated partnership in which NAPICO is the managing
general partner) commenced a virtually identical action in the United States
District Court for the Central District of California against the Partnership,
NAPICO and certain other affiliated entities. 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 actions
vigorously.
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. None of these suits were
related to REAL.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
In August 1998, a consent solicitation statement was 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, by the Operating
Partnership, together with certain amendments to the Partnership Agreement and
other disclosures of various conflicts of interest in connection with the
proposed transaction. Prior to the sale of the partnership interests in 1998,
the consents of the limited partners to the sale and amendments to the
Partnership Agreement were obtained.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND RELATED SECURITY
HOLDER MATTERS:
The Limited Partnership Interests are not traded on a public exchange but were
sold through a public offering managed by E.F. Hutton Inc. It is not anticipated
that any public market will develop for the purchase and sale of any partnership
interest. Limited Partnership Interests may be transferred only if certain
requirements are satisfied. At December 31, 1999, there were 1,111 registered
holders of units in REAL. Distributions have not been made from the inception of
the Partnership to December 31, 1998. The Partnership has invested in certain
government assisted projects under programs which in many instances restrict the
cash return available to project owners. The Partnership was not designed to
provide cash distributions to investors in circumstances other than refinancing
or disposition of its investments in limited partnerships. In March 1999, the
Partnership made distributions of $3,861,000 to the limited partners and $39,000
to the general partners, primarily using proceeds from the sale of the
partnership interests.
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ITEM 6. SELECTED FINANCIAL DATA:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Loss from Operations $ (269,214) $ (788,370) $ (622,278) $ (490,373) $ (490,021)
Gain on sale of limited
partnership interests -- 3,798,734 -- -- --
Distributions from Limited
Partnerships Recognized
as Income 9,481 997,836 587,078 465,403 1,373,243
Equity in Income (Loss) of
Limited Partnerships
and Amortization of
Acquisition Costs 41,704 (747,873) (204,940) 177,874 384,476
----------- ----------- ----------- ----------- -----------
Net Income (Loss) $ (218,029) $ 3,260,327 $ (240,140) $ 152,904 $ 1,267,698
=========== =========== =========== =========== ===========
Net Income (Loss) per limited
Partnership Interest $ (13) $ 196 $ (14) $ 9 $ 77
=========== =========== =========== =========== ===========
Total assets $ 782,893 $ 4,970,809 $ 1,864,839 $ 2,863,973 $ 2,715,836
=========== =========== =========== =========== ===========
Investments in Limited
Partnerships $ 579,027 $ 530,241 $ 1,319,976 $ 2,486,997 $ 2,191,335
=========== =========== =========== =========== ===========
Accrued Fees and Expenses
Due General Partner $ -- $ -- $ 181,333 $ 1,021,677 $ 1,014,337
=========== =========== =========== =========== ===========
</TABLE>
5
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
LIQUIDITY
The Partnership's primary sources of funds include interest income on money
market accounts and certificates of deposit and distributions from local
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 the Partnership's
limited partners in any material amount. The Partnership made a cash
distribution to investors in March 1999, primarily using proceeds from the
disposition of its investments in certain limited partnerships.
CAPITAL RESOURCES
REAL received $16,500,000 in subscriptions for units of Limited Partnership
Interests (at $1,000 per unit) during the period October 27, 1978 through August
31, 1979 pursuant to a registration statement on Form S-11.
RESULTS OF OPERATIONS
The Partnership was formed to provide various benefits to its partners as
discussed in Item 1. It is anticipated that the local limited partnerships in
which REAL has invested could produce tax losses for as long as 20 years after
formation. Tax benefits will decline over time as the advantages of accelerated
depreciation are greatest in the earlier years, as deductions for interest
expense decrease as mortgage principal is amortized and as the Tax Reform Act of
1986 limits the deductions available.
At December 31, 1999, the Partnership had investments in 9 limited partnerships,
all of which own housing projects that were substantially all rented. The
Partnership sold its interests in 8 local partnerships in December 1998 and had
its interest in one local partnership redeemed in September 30, 1998. The
Partnership, as a limited partner, is entitled to 50% to 99% of the profits and
losses of the local limited partnerships. 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. 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.
Limited partners are not liable for losses beyond their contributed capital. At
December 31, 1999 and 1998, the Partnership has a positive investment balance in
only one local limited partnership.
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.
The total income from the local limited partnerships that was allocated to the
Partnership was $239,000, $540,000 and $226,000 for the years ended December 31,
1999, 1998 and 1997, respectively. However, because losses incurred after the
investment account is reduced to a zero balance are not recognized and
subsequent income is not recognized until the investment account becomes
positive again, the Partnership recognized equity in income (loss) of limited
partnerships, substantially all from the partnerships with a positive investment
balance, of $41,704, $149,808 and $(204,940) for the years ended December 31,
1999, 1998 and 1997, respectively. The loss in 1997 is the result of one local
partnership incurring debt retirement and financing costs of $477,000 in
connection with the refinancing of its mortgage payable. This local partnership,
using funds released from restricted escrow accounts, made a cash distribution
of $965,000 to the Partnership in 1997, which reduced the investment balance in
that partnership. It allowed the Partnership to pay the accrued fees and
expenses due general partner, which were $1,021,677 at December 31, 1996. In
addition, the loss recorded by the Partnership for the year ended December 31,
1998 includes impairment losses
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of $897,681 recognized on certain of the investments in local limited
partnerships. The cumulative amount of the unrecognized equity in losses of
certain limited partnerships was approximately $3,492,053 and $3,907,365 as of
December 31, 1999 and 1998, respectively.
Distributions from the local limited partnerships in which the Partnership did
not have a positive investment balance were $9,481, $997,836 and $587,078 for
the years ended December 31, 1999, 1998 and 1997, respectively. Distributions
were higher in 1998 than in 1997 because the Partnership's interest in one local
limited partnership was redeemed on September 30, 1998 for a payment of
$589,915. These amounts were recognized as income on the accompanying statements
of operations, in accordance with the equity method of accounting. Distributions
decreased in 1999 as a result of the sale of certain partnership interests in
1998.
As of December 31, 1999, 1998 and 1997, the Partnership has cash and cash
equivalents of $203,866, $540,568 and $544,863, respectively. Substantially all
of these amounts are on deposit with two high credit quality financial
institutions, earning interest. This resulted in the Partnership earning
$16,080, $13,917 and $22,277 in interest income for the years ended December 31,
1999, 1998 and 1997, respectively. The amount of interest income varies with
market rates available on deposits and with the amount of funds available for
investment. Cash equivalents can be converted to cash to meet obligations of the
Partnership as they arise. The Partnership intends to continue investing
available funds in this manner.
A recurring partnership expense is the annual management fee. The fee is payable
to the Corporate General Partner of the Partnership and is calculated at .5
percent of the Partnership's original remaining invested assets. The management
fee is paid to the Corporate General Partner for its continuing management of
partnership affairs. The fee is payable beginning with the month following the
Partnership's initial investment in a local limited partnership. Because of the
decrease in invested assets at the end of 1998 as a result of the sale of
partnership interests, management fees decreased from $407,340 for 1998 and 1997
to $106,232 for 1999.
Under recently adopted law and policy, the United States Department of Housing
and Urban Development ("HUD") has determined not to renew the Housing Assistance
Payment ("HAP") Contracts on a long term basis on the 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 may be the case under
existing HAP Contracts. The payments under the renewed HAP Contracts are not
expected to be in an amount that would provide sufficient cash flow to permit
owners of properties subject to HAP Contracts to meet the debt service
requirements of existing loans insured by the Federal Housing Administration of
HUD ("FHA") unless such mortgage loans are restructured. 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 the Section 8
program. Under MAHRAA, an FHA-insured mortgage loan can be restructured into a
first mortgage loan which will be amortized on a current basis and a low
interest second mortgage loan payable to FHA which will only be payable on
maturity of the first mortgage loan. This restructuring results in a reduction
in annual debt service payable by the owner of the FHA-insured mortgage loan and
is expected to result in an insurance payment from FHA to the holder of the
FHA-insured loan due to the reduction in the principal amount. MAHRAA also
phases out project-based subsidies on selected properties serving families not
located in rental markets with limited supply, converting such subsidies to a
tenant-based subsidy.
On September 11, 1998, HUD issued interim regulations implementing MAHRAA and
final regulations are expected to be issued in 2000.
When the HAP Contracts are subject to renewal, there can be no assurance that
the local limited partnerships in which the Partnership has an investment will
be permitted to restructure its mortgage indebtedness under MAHRAA. In addition,
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 is uncertain.
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As a result of the foregoing, the Partnership, in 1997, undertook an extensive
review of disposition, refinancing or re-engineering alternatives for the
properties in which the limited partnerships have invested and are subject to
HUD mortgage and rental subsidy programs. The Partnership has incurred expenses
in connection with this review by various third party professionals, including
accounting, legal, valuation, structural and engineering costs, which amounted
to $70,788, $253,214 and $119,589 for the years ended December 31, 1999, 1998
and 1997, respectively, and are included in administrative expenses.
On December 30, 1998, the Partnership sold its limited partnership interests in
8 local limited partnerships to the Operating Partnership. The sale resulted in
cash proceeds to the Partnership of $3,900,000 and a net gain of $3,798,734,
after deducting selling costs. The cash proceeds were held in escrow at December
31, 1998 and were collected subsequent to year-end. In March 1999, the
Partnership made cash distributions of $3,861,000 to the limited partners and
$39,000 to the general partners, primarily using proceeds from the sale of the
partnership interests.
The Operating Partnership purchased such limited partner interests for cash,
which it raised in connection with a private placement of its equity securities.
The purchase was subject to, among other things, (i) the purchase of the general
partner interests in the local limited partnerships by the REIT; (ii) the
approval of HUD and certain state housing finance agencies; and (iii) the
consent of the limited partners to the sale of the local limited partnership
interests held for investment by the Partnership.
In August 1998, a consent solicitation statement was 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. Prior to the
sale of the partnership interests, the consents of the limited partners to the
sale and amendments to the Partnership Agreement were obtained.
Operating expenses, other than management fees, consist of legal and accounting
fees for services rendered to the Partnership and administrative expenses, legal
and accounting fees were generally consistent and were $66,438, $74,602 and
$54,950 for the years ended December 31, 1999, 1998 and 1997, respectively.
Administrative expenses were $112,624, $320,345 and $182,265 for the years ended
December 31, 1999, 1998 and 1997, respectively. Included in administrative
expenses are reimbursements to NAPICO for certain expenses, which totaled
$3,300, $24,276 and $24,279 for the years ended December 31, 1999, 1998 and
1997, respectively. In addition, included in administrative expenses in 1999,
1998 and 1997 is $70,788, $253,214 and $119,589, respectively, in expenses,
related to the aforementioned third-party review of the properties owned by the
local partnerships. Accounts payable at December 31, 1998 includes $55,543 of
such costs.
Revenues and expenses of the local limited partnerships decreased during the
year ended December 31, 1999 as compared to prior years, as a result of the sale
of 8 partnership interests on December 30, 1998.
Total revenue for the local partnerships has decreased from $16,857,000 and
$16,935,000 for the years ended December 31, 1998 and 1997, respectively, to
$4,174,000 for the year ended December 31, 1999.
Total expenses for the local partnerships decreased from $16,190,000 and
$16,637,000 for the years ended December 31, 1998 and 1997, respectively, to
$3,951,000 for the year ended December 31, 1999.
The total net income for the local partnerships for 1999, 1998 and 1997
aggregated $213,000, $667,000 and $298,000, respectively. The income allocated
to the Partnership was $227,000, $540,000 and $226,000 for 1999, 1998 and 1997,
respectively.
The Partnership, as a Limited Partner in the local limited partnerships in which
it has invested, is subject to the risks incident to the construction,
management, and ownership of improved real estate. The Partnership investments
are also subject to adverse general economic conditions, and accordingly, the
status of the national economy including substantial unemployment, concurrent
inflation and changing legislation could increase
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vacancy levels, rental payment defaults, and operating expenses, which in turn,
could substantially increase the risk of operating losses for the projects.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
The Financial Statements and Supplementary Data are listed under Item 14.
ITEM 9. CHANGES WITH AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE:
Not applicable.
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REAL ESTATE ASSOCIATES LIMITED
(A California limited partnership)
FINANCIAL STATEMENTS,
FINANCIAL STATEMENT SCHEDULES
AND INDEPENDENT PUBLIC ACCOUNTANTS' REPORT
DECEMBER 31, 1999
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Real Estate Associates Limited
(A California limited partnership)
We have audited the accompanying balance sheets of Real Estate Associates
Limited (a California limited partnership) as of December 31, 1999 and 1998, and
the related statements of operations, partners' equity (deficiency) and cash
flows for each of the three years in the period ended December 31, 1999. Our
audits also included the financial statement schedules listed in the index in
item 14. These financial statements and financial statement schedules are the
responsibility of the management of the Partnership. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits. We did not audit the financial statements of
certain limited partnerships, the investments in which are reflected in the
accompanying financial statements using the equity method of accounting. The
equity in loss of these limited partnerships represents 2 percent and 5 percent
of the total net income (loss) of the Partnership for the years ended December
31, 1998 and 1997, respectively, and these limited partnerships represent a
substantial portion of the investee information in Note 2 and the financial
statement schedules. The financial statements of these limited partnerships were
audited by other auditors. Their reports have been furnished to us and our
opinion, insofar as it relates to the amounts included for these limited
partnerships, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. 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 our audits and the reports of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Real Estate Associates Limited as of December 31, 1999
and 1998, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles. Also, in our opinion, based on our audits and
the reports of other auditors, such financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Los Angeles, California
March 31, 2000
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REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 579,027 $ 530,241
CASH AND CASH EQUIVALENTS (Note 1) 203,866 540,568
CASH DUE FROM ESCROW (Note 2) -- 3,900,000
----------- -----------
TOTAL ASSETS $ 782,893 $ 4,970,809
=========== ===========
LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY)
LIABILITIES:
Accounts payable $ 46,368 $ 116,255
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
PARTNERS' EQUITY (DEFICIENCY):
General partners (119,704) (78,524)
Limited partners 856,229 4,933,078
----------- -----------
736,525 4,854,554
----------- -----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 782,893 $ 4,970,809
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST AND OTHER INCOME $ 16,080 $ 13,917 $ 22,277
----------- ----------- -----------
OPERATING EXPENSES:
Legal and accounting 66,438 74,602 54,950
Management fees - general partner (Note 3) 106,232 407,340 407,340
Administrative (Note 3) 112,624 320,345 182,265
----------- ----------- -----------
TOTAL OPERATING EXPENSES 285,294 802,287 644,555
----------- ----------- -----------
LOSS FROM OPERATIONS (269,214) (788,370) (622,278)
GAIN ON SALE OF LIMITED PARTNERSHIP
INTERESTS (Note 2) -- 3,798,734 --
DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED AS
INCOME (Note 2) 9,481 997,836 587,078
EQUITY IN INCOME (LOSS) OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS (Note 2) 41,704 (747,873) (204,940)
----------- ----------- -----------
NET (LOSS) INCOME $ (218,029) $ 3,260,327 $ (240,140)
=========== =========== ===========
NET (LOSS) INCOME PER LIMITED
PARTNERSHIP INTEREST (Note 1) $ (13) $ 196 $ (14)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 15
REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
----------- ----------- -----------
<S> <C> <C> <C>
EQUITY (DEFICIENCY),
January 1, 1997 $ (108,726) $ 1,943,093 $ 1,834,367
Net loss for 1997 (2,401) (237,739) (240,140)
----------- ----------- -----------
EQUITY (DEFICIENCY),
December 31, 1997 (111,127) 1,705,354 1,594,227
Net income for 1998 32,603 3,227,724 3,260,327
----------- ----------- -----------
EQUITY (DEFICIENCY),
December 31, 1998 (78,524) 4,933,078 4,854,554
Distributions (39,000) (3,861,000) (3,900,000)
Net loss for 1999 (2,180) (215,849) (218,029)
----------- ----------- -----------
EQUITY (DEFICIENCY),
December 31, 1999 $ (119,704) $ 856,229 $ 736,525
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 16
REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net (loss) income $ (218,029) $ 3,260,327 $ (240,140)
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Equity in loss (income) of limited partnerships
and amortization of acquisition costs (41,704) 747,873 204,940
Gain on sale of partnership interests -- (3,798,734)
Decrease in accrued fees
and expenses due general partner -- (181,333) (840,344)
(Decrease) increase in accounts payable (69,887) 26,976 81,350
----------- ----------- -----------
Net cash (used in) provided by
operating activities (329,620) 55,109 (794,194)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Costs related to sale of partnership interests -- (101,266)
Distributions from limited partnership
recognized as return of capital 37,918 47,594 974,165
Capital contribution to limited partnerships (45,000) (5,732) (12,084)
Proceed from the sale of limited partnership interests 3,900,000 -- --
----------- ----------- -----------
Net cash provided by (used in) investing activities 3,892,918 (59,404) 962,081
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (3,900,000)
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH EQUIVALENTS (336,702) (4,295) 167,887
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 540,568 544,863 376,976
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 203,866 $ 540,568 $ 544,863
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 17
REAL ESTATE ASSOCIATES LIMITED
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Real Estate Associates Limited (the "Partnership") was formed under
the California Limited Partnership Act on September 15, 1977. The
Partnership was formed to invest in other limited partnerships which
own and operate primarily federal, state and local
government-assisted housing projects. The general partners are
National Partnership Investments Corp. (NAPICO), the Corporate
General Partner, and Charles H. Boxenbaum, Chief Executive Officer of
NAPICO.
Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of
Casden Investment Corporation ("CIC"), which is wholly owned by Alan
I. Casden. On December 30, 1998, Casden Properties Operating
Partnership, L.P. (the "Operating Partnership"), a majority owned
subsidiary of Casden Properties Inc., a real estate investment trust
organized by Alan I. Casden, purchased a 95.25% economic interest in
NAPICO.
The Partnership issued 16,505 units of limited partnership interests
through a public offering. The general partners have a 1 percent
interest in the 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.
The Partnership shall be dissolved only upon the expiration of 53
complete calendar years (December 31, 2031) from the date of the
formation of the Partnership or the occurrence of various other
events as specified in the terms of the Partnership agreement.
Upon total or partial liquidation of the Partnership or the
disposition or partial disposition of a project or project interest
and distribution of the proceeds, the general partners will be
entitled to a liquidation fee as stipulated in the Partnership
agreement. The limited partners will have a priority return equal to
their invested capital attributable to the project(s) or project
interest(s) sold and shall have received an amount from the sale of
the project(s) or project interest(s) sufficient to pay state and
federal income taxes, if any, calculated at the maximum rate then in
effect. The general partners' liquidation fee may accrue but shall
not be paid until the limited partners have received distributions
equal to 100 percent of their capital contributions.
On December 30, 1998, the Partnership sold its interests in 8 local
limited partnerships for $3,900,000 to the Operating Partnership. In
addition, on September 30, 1998, the Partnership's interest in one
local limited partnership was redeemed for $589,915.
16
<PAGE> 18
REAL ESTATE ASSOCIATES LIMITED
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 Investments in Limited Partnerships
The investments in limited partnerships are accounted for on the
equity method. Acquisition, selection and other costs related to the
acquisition of the projects are 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 (Loss) Per Limited Partnership Interest
Net (loss) income per limited partnership interest was computed by
dividing the limited partners' share of net (loss) income by the
number of limited partnership interests outstanding during the year.
The number of limited partnership interests was 16,505 for all years
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.
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. During 1998, the partnership recognized an
impairment loss of approximately $898,000, related to certain
investments in local limited partnerships, which has been included in
equity in loss of limited partnerships.
17
<PAGE> 19
REAL ESTATE ASSOCIATES LIMITED
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. INVESTMENTS IN LIMITED PARTNERSHIPS
The Partnership holds limited partnership interests in 9 limited
partnerships as of December 31, 1999 and 1998, after selling its
interests in 8 limited partnerships in 1998 and having its interest
in one limited partnership redeemed. The limited partnerships own
residential low income rental projects consisting of 657 apartment
units. The mortgage loans of these projects are payable to or insured
by various governmental agencies.
The Partnership, as a limited partner, is entitled to between 50
percent and 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.
The cumulative amount of the unrecognized equity in losses of certain
limited partnerships was in the aggregate approximately $3,492,053
and $3,907,365 as of December 31, 1999 and 1998, respectively.
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
and reconciliation to the limited partnership accounts:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Investment balance, beginning of year $ 530,241 $ 1,319,976
Capital contribution 45,000 5,732
Equity in loss of limited partnerships 44,490 (745,087)
Amortization of capitalized acquisition costs and fees (2,786) (2,786)
Cash distributions recognized as return of capital (37,918) (47,594)
----------- -----------
Investment balance, end of year $ 579,027 $ 530,241
=========== ===========
</TABLE>
The difference between the investment per the accompanying balance
sheets at December 31, 1999 and 1998, and the deficiency per the
limited partnerships' combined financial statements is due primarily
to cumulative unrecognized equity in losses of certain limited
partnerships, costs capitalized to the investment account, cumulative
distributions recognized as income and recognition of impairment
losses.
18
<PAGE> 20
REAL ESTATE ASSOCIATES LIMITED
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
Selected financial information from the combined financial statements
of the limited partnerships, at December 31, 1999 and 1998 and for
each of the three years in the period ended December 31, 1999 is as
follows:
Balance Sheets
<TABLE>
<CAPTION>
1999 1998
-------- --------
(in thousands)
<S> <C> <C>
Land and buildings, net $ 7,470 $ 7,901
======== ========
Total assets $ 11,642 $ 11,835
======== ========
Mortgages payable $ 15,105 $ 15,525
======== ========
Total liabilities $ 16,095 $ 16,408
======== ========
Deficiency of Real Estate Associates Limited $ (3,388) $ (3,567)
======== ========
Deficiency of other partners $ (1,065) $ (1,006)
======== ========
</TABLE>
Statements of Operations
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Total revenues $ 4,174 $16,857 $16,935
======= ======= =======
Interest expense $ 887 $ 4,550 $ 4,533
======= ======= =======
Depreciation and amortization $ 758 $ 2,691 $ 2,653
======= ======= =======
Total expenses $ 3,951 $16,190 $16,637
======= ======= =======
Net income $ 223 $ 667 $ 298
======= ======= =======
Net income allocable to the Partnership $ 227 $ 540 $ 226
======= ======= =======
</TABLE>
19
<PAGE> 21
REAL ESTATE ASSOCIATES LIMITED
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
Prior to the sale of certain partnership interests on December 30,
1998, an affiliate of NAPICO was the general partner in five of the
limited partnerships included above, and another affiliate receives
property management fees of approximately 5 to 6 percent of the
revenue from three of these partnerships. Subsequent to the sale of
certain partnership interests, an affiliate of NAPICO is the general
partner in one of the limited partnerships, and its property is
managed by another affiliate. The affiliate received property
management fees of $6,975, $184,843 and $210,908 in 1999, 1998 and
1997, respectively. The following sets forth significant data for
this partnership, in which an affiliate of NAPICO is currently the
general partner, reflected in the accompanying financial statements
using the equity method of accounting:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Total assets $ 879 $ 404
======= =======
Total liabilities $ 2,722 $ 1,064
======= =======
Deficiency of Real Estate Associates Limited $(1,776) $ (757)
======= =======
Equity (deficiency) of other partners $ (67) $ 97
======= =======
Total revenue $ 415 $ 4,215 $ 4,215
======= ======= =======
Net loss $ (81) $ (548) $ (346)
======= ======= =======
</TABLE>
Under recently adopted law and policy, the United States Department
of Housing and Urban Development ("HUD") has determined not to renew
the Housing Assistance Payment ("HAP") Contracts on a long term basis
on the 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 maybe the case
under existing HAP Contracts. The payments under the renewed HAP
Contracts are not expected to be in an amount that would provide
sufficient cash flow to permit owners of properties subject to HAP
Contracts to meet the debt service requirements of existing loans
insured by the Federal Housing Administration of HUD ("FHA") unless
such
20
<PAGE> 22
REAL ESTATE ASSOCIATES LIMITED
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
mortgage loans are restructured. 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 the Section 8 program. Under MAHRAA, an
FHA-insured mortgage loan can be restructured into a first mortgage
loan which will be amortized on a current basis and a low interest
second mortgage loan payable to FHA which will only be payable on
maturity of the first mortgage loan. This restructuring results in a
reduction in annual debt service payable by the owner of the
FHA-insured mortgage loan and is expected to result in an insurance
payment from FHA to the holder of the FHA-insured loan due to the
reduction in the principal amount. MAHRAA also phases out
project-based subsidies on selected properties serving families not
located in rental markets with limited supply, converting such
subsidies to a tenant-based subsidy.
On September 11, 1998, HUD issued interim regulations implementing
MAHRAA and final regulations are expected to be issued in 2000.
When the HAP Contracts are subject to renewal, there can be no
assurance that the local limited partnerships in which the
Partnership has an investment will be permitted to restructure its
mortgage indebtedness under MAHRAA. In addition, 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 is uncertain.
As a result of the foregoing, the Partnership, in 1997, undertook an
extensive review of disposition, refinancing or re-engineering
alternatives for the properties in which the limited partnerships
have invested and are subject to HUD mortgage and rental subsidy
programs. The Partnership has incurred expenses in connection with
this review by various third party professionals, including
accounting, legal, valuation, structural and engineering costs, which
amounted to $70,788, $253,214 and $119,589 for the years ended
December 31, 1999, 1998 and 1997, respectively, and are included in
administrative expenses. Accounts payable at December 31, 1998
includes $55,543 of such costs.
21
<PAGE> 23
REAL ESTATE ASSOCIATES LIMITED
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
On December 30, 1998, the Partnership sold its limited partnership
interests in 8 local limited partnerships to the Operating
Partnership. The sale resulted in cash proceeds to the Partnership of
$3,900,000 and a net gain of $3,798,734, after deducting selling
costs. The cash proceeds were held in escrow at December 31, 1998 and
were collected in 1999. In March 1999, the Partnership made cash
distributions of $3,861,000 to the limited partners and $39,000 to
the general partners, primarily using proceeds from the sale of the
partnership interests.
The Operating Partnership purchased such limited partner interests
for cash, which it raised in connection with a private placement of
its equity securities. The purchase was subject to, among other
things, (i) the purchase of the general partner interests in the
local limited partnerships by the Operating Partnership; (ii) the
approval of HUD and certain state housing finance agencies; and (iii)
the consent of the limited partners to the sale of the local limited
partnership interests held for investment by the Partnership.
In August 1998, a consent solicitation statement was 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. Prior to the sale of the
partnership interests, the consents of the limited partners to the
sale and amendments to the Partnership Agreement were obtained.
3. FEES AND EXPENSES DUE 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 .5 percent of the original invested assets of
the remaining 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 Partnership reimburses NAPICO for certain expenses. The
reimbursement to NAPICO was $3,300, $24,276 and $24,279 in 1999, 1998
and 1997, respectively, and is included in administrative expenses.
22
<PAGE> 24
REAL ESTATE ASSOCIATES LIMITED
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
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 Operating
Partnership organized by an affiliate of NAPICO. The plaintiffs seek
equitable relief, as well as compensatory damages and litigation
related costs. On August 4, 1999, one investor holding one unit of
limited partnership interest in Housing Programs Limited (another
affiliated partnership in which NAPICO is the managing general
partner) commenced a virtually identical action in the United States
District Court for the Central District of California against the
Partnership, NAPICO and certain other affiliated entities. 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 actions vigorously.
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.
5. 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. The major differences in tax and financial
reporting result from the use of different bases and depreciation
methods for the properties held by the limited partnerships.
Differences in tax and financial reporting also arise as losses are
not recognized for financial reporting purposes when the investment
balance has been reduced to zero.
23
<PAGE> 25
REAL ESTATE ASSOCIATES LIMITED
(a California limited partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
6. 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. The carrying
amount of assets and liabilities reported on the balance sheets that
require such disclosure approximates fair value due to their
short-term maturity.
7. FOURTH QUARTER ADJUSTMENT
The Partnership's policy is to record its equity in the income (loss)
of limited partnerships on a quarterly basis, using estimated
financial information furnished by the various local operating
general partners. The equity in income (loss) of limited partnerships
reflected in the accompanying annual financial statements is based
primarily upon audited financial statements of the investee limited
partnerships. The decrease of approximately $15,000, between the
estimated nine-month equity in income and the actual 1999 year end
equity in income has been recorded in the fourth quarter.
24
<PAGE> 26
SCHEDULE
REAL ESTATE ASSOCIATES LIMITED
INVESTMENTS IN LIMITED PARTNERSHIPS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Year Ended December 31, 1999
-------------------------------------------------------------------------
Cash Equity
Balance Capital Distri- In Balance
January 1, Contri- butions Income December 31,
Limited Partnerships 1999 butions Received (Loss) 1999
- -------------------- ---------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Belleville Manor Apts. $ $ $ $ $
Benroe, Ltd. (Wedgewood)
Bethel Towers, Ltd.
Cherry Hill, Ltd. 530,241 (37,918) 86,704 579,027
Dividend Housing Assn.
Clinton Apts., Ltd.
Emporia, Ltd. (Northwood)
Roebern, Ltd. (Ridgeview)
West Lafayette, Ltd. 45,000 (45,000)
Williamson Towers, Ltd.
-------- -------- -------- -------- --------
$530,241 $ 45,000 $(37,918) $ 41,704 $579,027
======== ======== ======== ======== ========
</TABLE>
25
<PAGE> 27
SCHEDULE
(Continued)
REAL ESTATE ASSOCIATES LIMITED
INVESTMENTS IN LIMITED PARTNERSHIPS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Year Ended December 31, 1998
----------------------------------------------------------------------------------
Cash Equity
Balance Capital Distri- In Balance
January 1, Contri- butions Income December 31,
Limited Partnerships 1998 butions Received (Loss) 1998
- -------------------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Bedford House * $ $ $ $ $
Belleville Manor Apts.
Benroe, Ltd. (Wedgewood) 2,752 (2,752) --
Bethel Towers, Ltd.
Cherry Hill, Ltd. 985,631 (38,113) (417,277) 530,241
Dividend Housing Assn.
Chidester Place, Ltd. *
Dividend Housing Assn.
Clinton Apts., Ltd.
East Central Towers Associates *
Emporia, Ltd. (Northwood) 334,345 (9,481) (324,864) --
Gadsden Towers, Ltd. *
LaLoma Assoc., Ltd.*
Parkview Associates *
Pennsylvania Assoc. (Norristown) *
Riverside Towers Associates **
Roebern, Ltd. (Ridgeview) 2,980 (2,980) --
Van Nuys Associates *
West Lafayette, Ltd.
Williamson Towers, Ltd.
---------- ---------- ---------- ---------- ----------
$1,319,976 $ 5,732 $ (47,594) $ (747,873) $ 530,241
========== ========== ========== ========== ==========
</TABLE>
* Sold to the Operating Partnership in 1998
** The interest was redeemed by the local limited partnership in 1998.
26
<PAGE> 28
SCHEDULE
(CONTINUED)
REAL ESTATE ASSOCIATES LIMITED
INVESTMENTS IN LIMITED PARTNERSHIPS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Year Ended December 31, 1997
----------------------------------------------------------------------------------
Cash Equity
Balance Capital Distri- In Balance
January 1, Contri- butions Income December 31,
Limited Partnerships 1997 butions Received (Loss) 1997
- -------------------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Bedford House $ $ $ $ $
Belleville Manor Apts.
Benroe, Ltd. (Wedgewood)
Bethel Towers, Ltd.
Cherry Hill, Ltd. 2,222,749 (964,684) (272,434) 985,631
Dividend Housing Assn.
Chidester Place, Ltd.
Dividend Housing Assn.
Clinton Apts., Ltd.
East Central Towers Associates
Emporia, Ltd. (Northwood) 264,248 (9,481) 79,578 334,345
Gadsden Towers, Ltd.
LaLoma Assoc., Ltd.
Parkview Assoc.
Pennsylvania Assoc. (Norristown)
Riverside Towers Assoc.
Roebern, Ltd. (Ridgeview) 12,084 (12,084) --
Van Nuys Assoc.
West Lafayette, Ltd.
Williamson Towers, Ltd.
---------- ---------- ---------- ---------- ----------
$2,486,997 $ 12,084 $ (974,165) $ (204,940) $1,319,976
========== ========== ========== ========== ==========
</TABLE>
27
<PAGE> 29
SCHEDULE
(CONTINUED)
REAL ESTATE ASSOCIATES LIMITED
INVESTMENT IN, EQUITY IN EARNINGS OF, AND DIVIDENDS RECEIVED
FROM AFFILIATES AND OTHER PERSONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTES: 1. Equity in income (losses) of the limited partnerships
represents the Partnership's allocable share of the net
results of operations from the limited partnerships for
the year. Equity in losses of the limited partnerships
will be recognized until the investment balance is reduced
to zero or a negative balance equal to further commitments
by the Partnership.
2. Cash distributions from the limited partnerships are
treated as a return of the investment and reduce the
investment balance until such time as the investment is
reduced to zero or a negative balance equal to further
commitments by the Partnership. Distributions subsequently
received are recognized as income.
28
<PAGE> 30
SCHEDULE III
REAL ESTATE ASSOCIATES LIMITED
REAL ESTATE AND ACCUMULATED DEPRECIATION
OF PROPERTY HELD BY LOCAL LIMITED PARTNERSHIPS
IN WHICH REAL HAS INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
BUILDINGS
FURNISHINGS &
EQUIPMENT-
INITIAL COST TO
PARTNERSHIP AND
AMOUNT CARRIED
NUMBER OUTSTANDING AT CLOSE OF ACCUMULATED CONSTRUCTION
PARTNERSHIP/LOCATION OF UNITS MORTGAGE LOAN LAND YEAR TOTAL DEPRECIATION PERIOD
- ------------------------------ -------- ------------- -------- --------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Belleville Manor, Ltd. 32 $ 546,069 -- $ 777,440 $ 777,440 $ 487,069 1978-1979
Benton, KY
Bethel Towers, Ltd. 146 3,191,245 67,400 3,955,212 4,022,612 2,971,806 (A)
Detroit, MI
Cherry Hill, Ltd. 186 5,199,164 448,460 7,965,085 8,413,545 4,955,505 1978-1980
Dividend Housing Assn.
Southfield, MI
Clinton Apts. Ltd. 32 320,803 49,868 521,887 571,755 458,992 1977-1980
Calvert City, KY
Emporia, Ltd. (Northwood) 72 1,235,515 39,500 2,450,579 2,490,079 1,895,438 1978-1980
Greensville, Co., VA
Roebern, Ltd. (Ridgeview) 32 627,272 26,000 1,009,213 1,035,213 869,262 1978-1979
Columbus, OH
Benroe, Ltd., (Wedgewood) 32 616,061 45,000 1,093,731 1,138,731 896,276 1978-1979
Columbus, OH
West Lafayette, Ltd. 49 951,362 35,000 1,255,470 1,290,470 1,004,061 1979-1981
West Lafayette, OH
Williamson Towers, Ltd. 76 2,417,397 -- 3,290,827 3,290,827 2,021,971 1979-1981
Minroe Co., WV
--- ----------- -------- ----------- ----------- -----------
Total 657 $15,104,888 $711,228 $22,319,444 $23,030,672 $15,560,380
=== =========== ======== =========== =========== ===========
</TABLE>
29
<PAGE> 31
SCHEDULE III
(Continued)
REAL ESTATE ASSOCIATES LIMITED
REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY
HELD BY LOCAL LIMITED PARTNERSHIPS
IN WHICH REAL HAS INVESTMENTS
DECEMBER 31, 1999
NOTES: 1. Each local limited partnership has developed, owns and
operates the housing project. Substantially all project
costs, including construction period interest expense,
were capitalized by the limited partnerships.
2. Depreciation is provided for by various methods over the
estimated useful lives of the Projects. The estimated
composite useful lives of the buildings are from 25 to 40
years.
3. Investments in property and equipment:
<TABLE>
<CAPTION>
Buildings,
Furnishings
And
Land Equipment Total
------------ ------------ ------------
<S> <C> <C> <C>
Balance at January 1, 1997 $ 2,583,434 $ 83,527,570 $ 86,111,004
Net additions during 1997 -- 905,364 905,364
------------ ------------ ------------
Balance at December 31, 1997 2,583,434 84,432,934 87,016,368
Sales of properties during 1998 (2,300,367) (62,317,616) (64,617,983)
Net additions during 1998 428,161 65,283 493,444
------------ ------------ ------------
Balance at December 31, 1998 711,228 22,180,601 22,891,829
Net additions during 1999 -- 138,843 138,843
------------ ------------ ------------
Balance at December 31, 1999 $ 711,228 $ 22,319,444 $ 23,030,672
============ ============ ============
</TABLE>
30
<PAGE> 32
SCHEDULE III
(CONTINUED)
REAL ESTATE ASSOCIATES LIMITED
REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY
HELD BY LOCAL LIMITED PARTNERSHIPS
IN WHICH REAL HAS INVESTMENTS
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Buildings,
Furnishings
And
Equipment
------------
<S> <C>
Accumulated Depreciation:
Balance at January 1, 1997 $ 51,114,600
Net additions during 1997 2,563,992
------------
Balance at December 31, 1997 53,678,592
Sales of properties during 1998 (41,029,759)
Net additions during 1998 2,342,189
------------
Balance at December 31, 1998 14,991,022
Net additions during 1999 569,358
------------
Balance at December 31, 1999 $ 15,560,380
============
</TABLE>
31
<PAGE> 33
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
REAL ESTATE ASSOCIATES LIMITED (the "Partnership") has no directors or executive
officers of its own.
Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of Casden
Investment Corporation ("CIC"), which is wholly owned by Alan I. Casden. On
December 30, 1998, Casden Properties Operating Partnership, L.P., (the
"Operating Partnership") a majority owned subsidiary of Casden Properties Inc.,
a real estate investment trust organized by Alan I. Casden, purchased a 95.25%
economic interest in NAPICO. The following biographical information is presented
for the directors and executive officers of NAPICO with principal responsibility
for the Partnership's affairs.
CHARLES H. BOXENBAUM, 70, Chairman of the Board of Directors and Chief Executive
Officer of NAPICO.
Mr. Boxenbaum has been associated with NAPICO since its inception. He has been
active in the real estate industry since 1960, and prior to joining NAPICO was a
real estate broker with the Beverly Hills firm of Carl Rhodes Company.
Mr. Boxenbaum has been a guest lecturer at national and state realty
conventions, certified properties exchanger's seminars, Los Angeles Town Hall,
National Association of Home Builders, International Council of Shopping
Centers, Society of Conventional Appraisers, California Real Estate Association,
National Institute of Real Estate Brokers, Appraisal Institute, various mortgage
banking seminars, and the North American Property Forum held in London, England.
In 1963, he was the winner of the Snyder Award, the highest annual award offered
by the National Association of Real Estate Boards for Best Exchange. He is one
of the founders and a past director of the First Los Angeles Bank, organized in
November 1974. Mr. Boxenbaum was a member of the Board of Directors of the
National Housing Council. Mr. Boxenbaum received his Bachelor of Arts degree
from the University of Chicago.
BRUCE E. NELSON, 48, President and a director of NAPICO.
Mr. Nelson joined NAPICO in 1980 and became President in February 1989. He is
responsible for the operations of all NAPICO sponsored limited partnerships.
Prior to that he was primarily responsible for the securities aspects of the
publicly offered real estate investment programs. Mr. Nelson is also involved in
the identification, analysis, and negotiation of real estate investments.
From February 1979 to October 1980, Mr. Nelson held the position of Associate
General Counsel at Western Consulting Group, Inc., private residential and
commercial real estate syndicators. Prior to that time, Mr. Nelson was engaged
in the private practice of law in Los Angeles. Mr. Nelson received his Bachelor
of Arts degree from the University of Wisconsin and is a graduate of the
University of Colorado School of Law. He is a member of the State Bar of
California and is a licensed real estate broker in California and Texas.
ALAN I. CASDEN, 54, Chairman of Casden Properties Inc., a director and member of
the audit committee of NAPICO, and chairman of the Executive Committee of
NAPICO.
Mr. Casden has been involved in approximately $3 billion of real estate
financings and sales and has been responsible for the development and
construction of more than 12,000 apartment units and 5,000 single-family homes
and condominiums.
Mr. Casden is a member of the American Institute of Certified Public Accountants
and of the California Society of Certified Public Accountants. Mr. Casden is a
member of the advisory board of the National Multi-Family Housing Conference,
the Multi-Family Housing Council, and the President's Council of the California
Building Industry Association. He also serves on the advisory board to the
School of Accounting of the
32
<PAGE> 34
University of Southern California. He holds a Bachelor of Science degree and a
Masters in Business Administration degree from the University of Southern
California.
PAUL PATIERNO, 43, Chief Financial Officer.
Mr. Patierno joined NAPICO in 1998 and is responsible for its financial affairs,
as well as the limited partnerships sponsored by it. From 1995 until joining
NAPICO in September 1998, Mr. Patierno was a senior manager in the affordable
housing group of Altschuler, Melvoin and Glasser LLP, a national public
accounting firm. From 1990 to 1995, he practiced public accounting with a firm
specializing in real estate syndication. Mr. Patierno received his bachelor of
science degree in accounting from California State University at Northridge, and
is a member of the American Institute of Certified Public Accountants and the
California Society of Certified Public Accountants.
PATRICIA W. TOY, 70, Senior Vice President - Communications and Assistant
Secretary.
Mrs. Toy joined NAPICO in 1977, following her receipt of an MBA from the
Graduate School of Management, UCLA. From 1952 to 1956, Mrs. Toy served as a
U.S. Naval Officer in communications and personnel assignments. She holds a
Bachelor of Arts Degree from the University of Nebraska.
MARK L. WALTHER, 39, Executive Vice President, General Counsel and Assistant
Secretary.
Mr. Walther joined NAPICO in 1987 and is responsible for the legal affairs of
the NAPICO sponsored limited partnerships. Prior to joining NAPICO, Mr. Walther
worked in the San Francisco law firm of Browne and Kahn which specialized in
construction litigation. Mr. Walther received his Bachelor of Arts Degree in
Political Science from the University of California, Santa Barbara and is a
graduate of the University of California, Davis, School of Law. He is a member
of the State Bar of Hawaii.
NAPICO and several of its officers, directors and affiliates, including Charles
H. Boxenbaum, Bruce E. Nelson and Alan I. Casden, consented to the entry, on
June 25, 1997, of an administrative cease and desist order by the U.S.
Securities and Exchange Commission (the "Commission"), without admitting or
denying any of the findings made by the Commission. The Commission found that
NAPICO and others had violated certain federal securities laws in connection
with transactions unrelated to the Partnership. The Commission's order did not
impose any cost, burden or penalty on any partnership managed by NAPICO and does
not impact NAPICO's ability to serve as the Partnership's Managing General
Partner.
33
<PAGE> 35
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS:
Real Estate Associates Limited has no officers, employees, or directors.
However, under the terms of the Restated Certificate and Agreement of Limited
Partnership, the Partnership is obligated to pay the Corporate General Partner
an annual management fee. The annual management fee is approximately equal to .5
percent of the invested assets, including the Partnership's allocable share of
the mortgages related to real estate properties held by local limited
partnerships. The fee is earned beginning in the month the Partnership makes its
initial contribution to the limited partnership. In addition, the Partnership
reimburses the Corporate General Partner for certain expenses.
An affiliate of the Corporate General Partner is responsible for the on-site
property management for one property owned by a limited partnership in which the
Partnership has invested.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
(a) Security Ownership of Certain Beneficial Owners
The general partners own all of the outstanding general partnership
interests of REAL; no person is known to own beneficially in excess
of 5 percent of the outstanding limited partnership interests.
(b) None of the officers or directors of the Corporate General Partner
own directly or beneficially any limited partnership interests in
REAL.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
The Partnership has no officers, directors or employees of its own. All of its
affairs are managed by the Corporate General Partner, National Partnership
Investments Corp. The Partnership is obligated to NAPICO for an annual
management fee equal to .5 percent of the original remaining 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 was $106,232 for the year ended December 31,
1999 and $407,340 for each of the two years in the period ended December 31,
1998.
The Partnership reimburses NAPICO for certain expenses. The reimbursement to
NAPICO was $3,300, $24,276 and $24,279 in 1999, 1998 and 1997, respectively, and
is included in operating expenses.
Prior to the sale of certain partnership interests on December 30, 1998, an
affiliate of NAPICO was the general partner in five of the limited partnerships
in which the Partnership had an investment, and another affiliate received
property management fees of approximately 5 to 6 percent of the revenue from
three of these partnerships. Subsequent to the sale of certain partnership
interests, an affiliate of NAPICO is the general partner in one of the limited
partnerships, and its property is managed by another affiliate. The affiliate
received property management fees of $6,975, $184,844 and $210,908 in 1999, 1998
and 1997, respectively.
On December 30, 1998, the Partnership sold its limited partnership interests in
8 local limited partnerships to the Operating Partnership. The sale resulted in
cash proceeds to the Partnership of $3,900,000 and a net gain of $3,798,734,
after deducting the selling costs. The cash proceeds were held in escrow at
December 31, 1998 and were collected subsequent to year-end. In March 1999, the
Partnership made a cash distribution of $3,861,000 to the limited partners and
$39,000 to the general partners, primarily using proceeds from the sale of the
partnership interests.
34
<PAGE> 36
The Operating Partnership purchased such limited partner interests for cash,
which it raised in connection with a private placement of its equity securities.
The purchase was subject to, among other things, (i) the purchase of the general
partner interests in the local limited partnerships by the REIT; (ii) the
approval of HUD and certain state housing finance agencies; and (iii) the
consent of the limited partners to the sale of the local limited partnership
interests held for investment by the Partnership.
In August 1998, a consent solicitation statement was 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. Prior to the
sale of the partnership interests, the consents of the limited partners to the
sale and amendments to the Partnership Agreement were obtained.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:
FINANCIAL STATEMENTS
Report of Independent Public Accountants.
Balance Sheets as of December 31, 1999 and 1998.
Statements of Operations for the years ended December 31, 1999, 1998 and 1997.
Statements of Partners' Equity (Deficiency) for the years ended December 31,
1999, 1998 and 1997.
Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997.
Notes to Financial Statements.
FINANCIAL STATEMENT SCHEDULES
APPLICABLE TO REAL ESTATE ASSOCIATES LIMITED AND THE LIMITED PARTNERSHIPS IN
WHICH REAL ESTATE ASSOCIATES LIMITED HAS INVESTMENTS:
Schedule - Investments in Limited Partnerships, December 31, 1999, 1998 and
1997.
Schedule III - Real estate and accumulated depreciation, December 31, 1999, 1998
and 1997.
The remaining schedules are omitted because the required information is included
in the financial statements and notes thereto as they are not applicable or not
required.
EXHIBITS
(3) Articles of incorporation and bylaws: The registrant is not
incorporated. The Partnership Agreement was filed with Form S-11
Registration # 260561 incorporated herein by reference.
(10) Material contracts: The registrant is not party to any material
contracts, other than the Restated Certificate and Agreement of
Limited Partnership dated September 15, 1979 previously filed and
which is hereby incorporated by reference.
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the year ended December 31, 1999.
35
<PAGE> 37
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 in the City of Los Angeles,
State of California.
REAL ESTATE ASSOCIATES LIMITED
By: NATIONAL PARTNERSHIP INVESTMENTS CORP.
General Partner
/s/ CHARLES H. BOXENBAUM
- ---------------------------------------------
Charles H. Boxenbaum
Chairman of the Board of Directors
and Chief Executive Officer
/s/ BRUCE E. NELSON
- ---------------------------------------------
Bruce E. Nelson
Director and President
/s/ ALAN I. CASDEN
- ---------------------------------------------
Alan I. Casden
Director
/s/ PAUL PATIERNO
- ---------------------------------------------
Paul Patierno
Chief Financial Officer
36
<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 STATEMENS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 203,866
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 203,866
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 782,893
<CURRENT-LIABILITIES> 46,368
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 736,525
<TOTAL-LIABILITY-AND-EQUITY> 782,893
<SALES> 0
<TOTAL-REVENUES> 67,265
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 285,294
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (218,029)
<INCOME-TAX> 0
<INCOME-CONTINUING> (218,029)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (218,029)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
