<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 JUNE 30, 1997
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 JUNE 30, 1997
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, June 30, 1997 and December 31, 1996....................................... 1
Statements of Operations,
Six and Three Months Ended June 30, 1997 and 1996 ................................ 2
Statement of Partners' Equity (Deficiency),
Six Months Ended June 30, 1997 ................................................... 3
Statements of Cash Flows,
Six Months Ended June 30, 1997 and 1996 .......................................... 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................................. 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................................... 10
Item 6. Exhibits and Reports on Form 8-K........................................................ 10
Signatures ........................................................................................ 11
</TABLE>
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REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 1,071,487 $ 1,063,487
CASH AND CASH EQUIVALENTS (Note 1) 10,619,670 9,734,531
OTHER ASSETS 135,000 135,000
------------ ------------
TOTAL ASSETS $ 11,826,157 $ 10,933,018
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY)
LIABILITIES:
Notes payable (Notes 3 and 6) $ 1,510,000 $ 1,510,000
Interest payable (Notes 3 and 6) 358,708 374,603
Accounts payable 22,418 7,450
------------ ------------
1,891,126 1,892,053
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 5)
PARTNERS' EQUITY (DEFICIENCY):
General partners (99,625) (108,566)
Limited partners 10,034,656 9,149,531
------------ ------------
9,935,031 9,040,965
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY) $ 11,826,157 $ 10,933,018
============ ============
</TABLE>
The accompanying notes are integral part of these financial statements.
1
<PAGE> 4
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
SIX AND THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
Six months Three months Six months Three months
ended ended ended ended
June 30, 1997 June 30, 1997 June 30, 1996 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INTEREST AND OTHER INCOME $ 225,819 $ 115,875 $ 150,057 $ 79,920
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Legal and accounting 65,824 34,729 70,120 35,969
Management fees - general partner (Note 4) 227,400 113,710 227,410 113,700
Interest (Note 3) 75,500 37,750 75,500 37,750
Administrative (Note 4) 43,941 24,132 28,950 14,546
----------- ----------- ----------- -----------
Total operating expenses 412,665 210,321 401,980 201,965
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (186,846) (94,446) (251,923) (122,045)
DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED AS
INCOME (Note 2) 952,912 871,871 1,033,251 952,001
EQUITY IN INCOME OF LIMITED
PARTNERSHIPS AND AMORTI-
ZATION OF ACQUISITION
COSTS (Note 2) 128,000 64,000 284,000 142,000
----------- ----------- ----------- -----------
NET INCOME $ 894,066 $ 841,425 $ 1,065,328 $ 971,956
=========== =========== =========== ===========
NET INCOME PER LIMITED PARTNERSHIP INTEREST (Note 1) $ 78 $ 73 $ 93 $ 85
=========== =========== =========== ===========
</TABLE>
The accompanying notes are integral part of these financial statements.
2
<PAGE> 5
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY)
SIX MONTHS ENDED JUNE 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
------------ ------------ ------------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS
June 30, 1997 11,456
===========
EQUITY (DEFICIENCY),
January 1, 1997 $ (108,566) $ 9,149,531 $ 9,040,965
Net income for the six months
ended June 30, 1997 8,941 885,125 894,066
----------- ----------- -----------
EQUITY (DEFICIENCY),
June 30, 1997 $ (99,625) $10,034,656 $ 9,935,031
=========== =========== ===========
</TABLE>
The accompanying notes are integral part of these financial statements.
3
<PAGE> 6
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 894,066 $ 1,065,328
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in income of limited partnerships and
amortization of acquisition costs (128,000) (284,000)
Increase in other assets - (34,500)
Decrease in interest and other payables (927) (36,602)
------------ ------------
Net cash provided by operating activities 765,139 710,226
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distribution from limited partnership
recognized as a return of investment 120,000 41,228
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 885,139 751,454
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,734,531 9,028,963
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,619,670 $ 9,780,417
============ ============
</TABLE>
The accompanying notes are integral part of these financial statements.
4
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REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The information contained in the following notes to the financial
statements is condensed from that which would appear in the annual audited
financial statements; accordingly, the financial statements included herein
should be reviewed in conjunction with the financial statements and related
notes thereto contained in the Real Estate Associates Limited III (the
"Partnership") annual report for the year ended December 31, 1996.
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 June 30, 1997 and the results of operations for the six and three months
then ended and changes in cash flows for the six months then ended.
The general partners have a 1 percent interest in profits and losses of the
Partnership. The limited partners have the remaining 99 percent interest
which is allocated in proportion to their respective individual
investments. National Partnership Investments Corp. (NAPICO) is the
corporate general partner of the Partnership.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
METHOD OF ACCOUNTING FOR INVESTMENT IN LIMITED PARTNERSHIPS
The investment in limited partnerships is accounted for on the equity
method. Acquisition, selection and other costs related to the acquisition
of the projects are capitalized as part of the investment account, and are
being amortized on a straight line basis over the estimated lives of the
underlying assets, which is generally 30 years.
NET INCOME PER LIMITED PARTNERSHIP INTEREST
Net income per limited partnership interest was computed by dividing the
limited partners' share of net income by the number of limited partnership
interests outstanding during the year. The number of limited partnership
interests was 11,456 for the periods presented.
5
<PAGE> 8
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and bank certificates of deposit
with an original maturity of three months or less. The Partnership has its
cash and cash equivalents on deposit primarily with one high credit quality
institution. Such cash and cash equivalents are in excess of the FDIC
insurance limit.
INCOME TAXES
No provision has been made for income taxes in the accompanying financial
statements since such taxes, if any, are the liability of the individual
partners.
IMPAIRMENT OF LONG-LIVED ASSETS
The Partnership adopted Statement of Financial Accounting Standards No.
121, Account for the Improvement of Long-Lived Assets and for Long-Lived
Assets To Be Disposed Of as of January 1, 1996 without a significant effect
on its financial statements. The Partnership reviews long-lived assets to
determine if there has been any permanent impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may
not be recoverable. If the sum of the expected future cash flows is less
than the carrying amount of the assets, the Partnership recognizes an
impairment loss.
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
The Partnership 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.
6
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REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
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.
The following is a summary of the investment in limited partnerships for
the six months ended June 30, 1997:
<TABLE>
<S> <C>
Balance, beginning of period $1,063,487
Amortization of acquisitions costs (2,000)
Distribution recognized as a return of capital (120,000)
Equity in income of limited partnerships 130,000
----------
Balance, end of period $1,071,487
==========
</TABLE>
The following are unaudited combined estimated statements of operations for
the six months ended June 30, 1997 and 1996 for the limited partnerships in
which the Partnership has investments:
<TABLE>
<CAPTION>
Six months Three months Six months Three months
ended ended ended ended
June 30, 1997 June 30, 1997 June 30, 1996 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Rental and other $11,194,000 $ 5,597,000 $ 11,042,000 $ 5,521,000
----------- ------------ ------------ ------------
EXPENSES
Depreciation 1,878,000 939,000 1,752,000 876,000
Interest 3,514,000 1,757,000 3,458,000 1,729,000
Operating 6,218,000 3,109,000 5,820,000 2,910,000
----------- ------------ ------------ ------------
11,610,000 5,805,000 11,030,000 5,515,000
----------- ------------ ------------ ------------
NET INCOME $ (416,000) $ (208,000) $ 12,000 $ 6,000
=========== ============ ============ ============
</TABLE>
NAPICO, or one of its affiliates, is the general partner and property
management agent for certain of the limited partnerships included above.
The Partnership is undergoing an extensive review of disposition,
refinancing or re-engineering alternatives for the properties in its
Portfolio that are subject to governmental mortgage and rental subsidy
programs. The Partnership has begun to incur expenses in connection with
this review by various third party professionals. Amounts incurred to date
are not material to the operating results of the Partnership.
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.
7
<PAGE> 10
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
NOTE 3 - NOTES PAYABLES (CONTINUED)
These notes are payable by the Partnership through REA, and have principal
maturity dates in June 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.
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 six months ended June 30,
1997 and 1996 was approximately $227,000.
The Partnership reimburses NAPICO for certain expenses. The reimbursement
paid to NAPICO was approximately $16,000 and $15,000 for the six months
ended June 30, 1997 and 1996, respectively, and is included in
administrative expenses.
NOTE 5 - CONTINGENCIES
The corporate general partner of the Partnership is involved in various
lawsuits arising from transactions in the ordinary course of business. In
the opinion of management and the corporate general partner, the claims
will not result in any material liability to the Partnership.
NOTE 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
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REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary sources of funds include interest income earned
from investing available cash and distributions from limited partnerships
in which the Partnership has invested.
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 is undergoing an extensive review of disposition,
refinancing or re-engineering alternatives for the properties in its
Portfolio that are subject to governmental mortgage and rental subsidy
programs. The Partnership has begun to incur expenses in connection with
this review by various third party professionals. Amounts incurred to date
are not material to the operating results of the Partnership.
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. Funds temporarily not
required for such investments in projects are invested in certificate of
deposit and money market funds which provide substantial amounts of
interest as reflected in the statement of operations. These investments are
converted to cash to meet obligations as they arise. The Partnership
intends to continue investing available funds in this manner.
9
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REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1997
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The corporate general partner is involved in various lawsuits. None of
these are related to 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
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REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
JUNE 30, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REAL ESTATE ASSOCIATES LIMITED III
(a California limited partnership)
By: National Partnership Investments Corp.
General Partner
Date:
-----------------------------------------
By:
-----------------------------------------
Bruce Nelson
President
Date:
-----------------------------------------
By:
-----------------------------------------
Charles H. Boxenbaum
Chief Executive Officer
Date:
-----------------------------------------
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 IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 10,619,670
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,754,670
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,826,157
<CURRENT-LIABILITIES> 22,418
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 9,935,031
<TOTAL-LIABILITY-AND-EQUITY> 11,826,157
<SALES> 0
<TOTAL-REVENUES> 1,306,731
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 337,165
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 75,500
<INCOME-PRETAX> 894,066
<INCOME-TAX> 0
<INCOME-CONTINUING> 894,066
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 894,066
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
