<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, 1996
Commission File Number 2-68983
REAL ESTATE ASSOCIATES LIMITED III
(A California Limited Partnership)
I.R.S. Employer Identification No. 95-3547611
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 III
(A CALIFORNIA LIMITED PARTNERSHIP)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, September 30, 1996 and December 31, 1995 . . . . . . . . . . . . . . 1
Statements of Operations,
Nine and Three Months Ended September 30, 1996 and 1995 . . . . . . . . . . . 2
Statement of Partners' Equity (Deficiency),
Nine Months Ended September 30, 1996 . . . . . . . . . . . . . . . . . . . . 3
Statements of Cash Flows,
Nine Months Ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . 4
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 10
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
<PAGE> 3
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
(Unaudited) (Audited)
------------- -------------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 1,275,487 $ 930,576
CASH AND CASH EQUIVALENTS (Note 1) 9,697,736 9,028,963
SHORT TERM INVESTMENTS (Note 1) 125,000 125,000
OTHER ASSETS 139,700 100,500
------------- -------------
TOTAL ASSETS $ 11,237,923 $ 10,185,039
============= =============
LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY)
LIABILITIES:
Notes payable (Notes 3 and 6) $ 1,510,000 $ 1,510,000
Interest payable (Notes 3 and 6) 336,854 344,762
Accounts payable 10,979 13,391
------------- -------------
1,857,833 1,868,153
------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 5)
PARTNERS' EQUITY (DEFICIENCY):
General partners (105,175) (115,807)
Limited partners 9,485,265 8,432,693
------------- -------------
9,380,090 8,316,886
------------- -------------
TOTAL LIABILITIES AND PARTNERS'
EQUITY (DEFICIENCY) $ 11,237,923 $ 10,185,039
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 4
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
Nine months Three months Nine months Three months
ended ended ended ended
Sept 30, 1996 Sept 30, 1996 Sept 30, 1995 Sept 30, 1995
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INTEREST AND OTHER INCOME $ 233,569 $ 83,512 $ 191,140 $ 67,632
------------ ----------- ------------ ------------
OPERATING EXPENSES:
Legal and accounting 131,985 54,550 109,490 37,577
Management fees - general partner 341,110 113,700 341,100 113,700
Interest (Note 3) 113,250 37,750 113,250 37,750
Administrative (Note 4) 43,271 14,321 68,060 26,135
------------ ----------- ------------ ------------
Total operating expenses 629,616 220,321 631,900 215,162
------------ ----------- ------------ ------------
LOSS FROM OPERATIONS (396,047) (136,809) (440,760) (147,530)
DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED
AS INCOME (Note 2) 1,033,251 - 1,071,422 115,593
EQUITY IN INCOME OF LIMITED
PARTNERSHIPS AND AMORTI-
ZATION OF ACQUISITION
COSTS (Note 2) 426,000 142,000 510,000 170,000
------------ ----------- ------------ ------------
NET INCOME $ 1,063,204 $ 5,191 $ 1,140,662 $ 138,063
============ =========== ============ ============
NET INCOME PER LIMITED
PARTNERSHIP
INTEREST (Note 1) $ 93 $ - $ 100 $ 12
============ =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' EQUITY (DEFICIENCY)
NINE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
----------- ------------- --------------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS
September 30, 1996 11,456
=============
EQUITY (DEFICIENCY),
January 1, 1996 $ (115,807) $ 8,432,693 $ 8,316,886
Net income for the nine months
ended September 30, 1996 10,632 1,052,572 1,063,204
----------- ------------- --------------
EQUITY (DEFICIENCY),
September 30, 1996 $ (105,175) $ 9,485,265 $ 9,380,090
=========== ============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 6
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,063,204 $ 1,140,662
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in income of limited partnerships and
amortization of acquisition costs (426,000) (510,000)
Increase in other assets (39,200) (500)
Decrease in interest and other payables (10,320) (42,710)
------------- -------------
Net cash provided by operating activities 587,684 587,452
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distribution from limited partnership
recognized as a return of investment 81,089 296,833
Decrease in short term investments - 1,021,022
------------- -------------
Net cash provided by investing activities 81,089 1,317,855
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 668,773 1,905,307
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,028,963 7,209,247
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,697,736 $ 9,114,554
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 7
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
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 Real Estate
Associates Limited III (the "Partnership") annual report for the year
ended December 31, 1995. 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, 1996 and the results of operations for
the nine and three months then ended and changes in cash flows for the
nine months then ended.
The general partners have a 1 percent interest in profits and losses
of the Partnership. The limited partners have the remaining 99
percent interest which is allocated in proportion to their respective
individual investments. National Partnership Investments Corp.
(NAPICO) is the corporate general partner of the Partnership.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
METHOD OF ACCOUNTING FOR INVESTMENT IN LIMITED PARTNERSHIPS
The investment in limited partnerships is accounted for on the equity
method. Acquisition and selection fees and other costs related to the
acquisition of the projects have been capitalized to the investment
account.
NET INCOME PER LIMITED PARTNERSHIP INTEREST
Net income per limited partnership interest was computed by dividing
the limited partners' share of net income by the number of limited
partnership interests outstanding during the year. The number of
limited partnership interests was 11,456 for the periods presented.
5
<PAGE> 8
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and bank certificates of
deposit with an original maturity of three months or less.
SHORT TERM INVESTMENTS
Short term investments consist of bank certificates of deposit and
other securities with original maturities ranging from more than three
months to twelve months. The fair value of these securities, which
have been classified as held for sale, approximates their carrying
value.
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
NOTE 2 - INVESTMENTS IN AND ADVANCES TO LIMITED PARTNERSHIPS
The Partnership holds limited partnership interests in 26 limited
partnerships. In addition, the Partnership holds a general partner
interest in REA. NAPICO is also a general partner in REA. REA, in
turn, holds limited partner interests in six additional limited
partnerships. In total, therefore, the Partnership holds interest,
either directly or indirectly including through REA, 32 partnerships
which own residential rental projects consisting of 3,062 apartment
units. The mortgage loans of these projects are insured by various
governmental agencies.
The Partnership, as a limited partner, is entitled to between 75
percent and 99 percent of the profits and losses of the limited
partnerships it has invested in directly. The Partnership is also
entitled to 99.9 percent of the profits and losses of REA. REA holds
a 99 percent interest in each of the limited partnerships in which it
has invested.
Equity in losses of limited partnerships is 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.
Distributions from limited partnerships are recognized as a reduction
of capital until the investment balance has been reduced to zero.
Subsequent distributions received are recognized as income.
6
<PAGE> 9
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
NOTE 2 - INVESTMENTS IN AND ADVANCES TO LIMITED PARTNERSHIPS (CONTINUED)
The following is a summary of the investment in limited partnerships
as of September 30, 1996:
<TABLE>
<S> <C>
Balance, beginning of period $ 930,576
Amortization of acquisitions costs (6,000)
Cash distribution recognized as return of investment (81,089)
Equity in income of limited partnerships 432,000
----------
Balance, end of period $1,275,487
==========
</TABLE>
The following are unaudited combined estimated statements of
operations for the nine and three months ended September 30, 1996 and
1995 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, 1996 Sept. 30, 1996 Sept. 30, 1995 Sept. 30, 1995
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
REVENUES
Rental and other $16,563,000 $5,521,000 $16,155,000 $5,385,000
----------- ---------- ----------- ----------
EXPENSES
Depreciation 2,628,000 876,000 2,775,000 925,000
Interest 5,187,000 1,729,000 5,307,000 1,769,000
Operating 8,730,000 2,910,000 8,802,000 2,934,000
----------- ---------- ----------- ----------
16,545,000 5,515,000 16,884,000 5,628,000
----------- ---------- ----------- ----------
NET INCOME (LOSS) $ 18,000 $ 6,000 $ (729,000) $ (243,000)
=========== ========== =========== ==========
</TABLE>
NAPICO, or one of its affiliates, is the general partner and property
management agent for certain of the limited partnerships included
above.
NOTE 3 - NOTES PAYABLES
Certain of the Partnership's investments involved purchases of
partnership interests from partners who subsequently withdrew from the
operating partnerships. The Partnership is obligated on non-recourse
notes payable of $1,510,000, bearing interest at 10 percent, to the
sellers of the partnership interests. These notes are payable by the
Partnership through REA, and have principal maturity dates in
September 2020 and March 2024 or upon the sale or refinancing of the
underlying partnership properties. These notes and the related
interest are collaterized by REA's investment in the respective
limited partnerships and are payable only out of cash distributions
from the investee partnerships, as defined in the notes. Unpaid
interest is due at maturity of the notes.
7
<PAGE> 10
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
NOTE 4 - MANAGEMENT FEE 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 approximately equal to .4 percent of the invested
assets. Invested assets are defined as the costs of acquiring project
interests, including the porportionate amount of the mortgage loans
related to the Partnership's interests in the capital accounts of the
respective partnership. The management fee incurred for the nine
months ended September 30, 1996 and 1995 was $341,110.
The Partnership reimburses NAPICO for certain expenses. The
reimbursement paid to NAPICO was approximately $24,000 and $22,000
for the nine months ended September 30, 1996 and 1995, respectively,
and is included in administrative expenses.
NOTE 5 - CONTINGENCIES
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.
NOTE 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, when it is practicable
to estimate that value. The notes payable are collateralized by the
Partnership's investments in the investee limited partnerships and are
payable only out of cash distributions from the investee partnerships.
The operations generated by the investee limited partnerships are
subject to various government rules, regulations and restrictions
which make it impracticable to estimate the fair value of the notes
payable and related accrued interest. The carrying amount of other
assets and liabilities reported on the balance sheets that require
such disclosure approximates fair value due to their short-term
maturity.
8
<PAGE> 11
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1996
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 .4 percent of investment assets is payable to the
corporate general partner. Operating expenses did not vary
significantly for the periods presented.
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. Losses incurred after the limited partnership
investment account is reduced to zero are not recognized 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.
Overall distributions from limited partnerships continue to be
favorable. This primarily due, to improved operating results at
several of the properties.
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 as reflected in the
statements of operations. These investments are converted to cash to
meet obligations as they arise.
9
<PAGE> 12
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1996
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The corporate general partner is a plaintiff or defendant in several
lawsuits. None of these are related to REAL III.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are required per the provision of Item 7 of
regulation S-K.
10
<PAGE> 13
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1996
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 III
(a California limited partnership)
By: National Partnership Investments Corp.
General Partner
Date:
-----------------------------------
By:
-----------------------------------
Bruce Nelson
President
Date:
-----------------------------------
By:
-----------------------------------
Shawn Horwitz
Executive Vice President and
Chief Financial Officer
11
<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
ENTIRELY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 9,697,736
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,962,436
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,237,923
<CURRENT-LIABILITIES> 10,979
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 9,380,090
<TOTAL-LIABILITY-AND-EQUITY> 11,237,923
<SALES> 0
<TOTAL-REVENUES> 1,692,820
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 516,366
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 113,250
<INCOME-PRETAX> 1,063,204
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,063,204
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,063,204
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
