<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 MARCH 31, 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 MARCH 31, 1997
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Balance Sheets, March 31, 1997 and December 31, 1996......................................1
Statements of Operations,
Three Months Ended March 31, 1997 and 1996 .......................................2
Statement of Partners' Equity (Deficiency),
Three Months Ended March 31, 1997 ................................................3
Statements of Cash Flows,
Three Months Ended March 31, 1997 and 1996 .......................................4
Notes to Financial Statements.............................................................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..............................................9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................................................10
Item 6. Exhibits and Reports on Form 8-K.......................................................10
Signatures........................................................................................11
</TABLE>
<PAGE> 3
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 1,127,487 $ 1,063,487
CASH AND CASH EQUIVALENTS (Note 1) 9,759,769 9,734,531
OTHER ASSETS 135,000 135,000
------------ ------------
TOTAL ASSETS $ 11,022,256 $ 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) 412,353 374,603
Accounts payable 6,297 7,450
------------ ------------
1,928,650 1,892,053
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 5)
PARTNERS' EQUITY (DEFICIENCY):
General partners (108,040) (108,566)
Limited partners 9,201,646 9,149,531
------------ ------------
9,093,606 9,040,965
------------ ------------
TOTAL LIABILITIES AND PARTNERS'
EQUITY (DEFICIENCY) $ 11,022,256 $ 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
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
INTEREST AND OTHER INCOME $ 109,944 $ 70,137
--------- ---------
OPERATING EXPENSES:
Legal and accounting 31,095 41,467
Management fees - general partner (Note 4) 113,700 113,710
Interest (Note 3) 37,750 37,750
Administrative (Note 4) 19,799 14,404
--------- ---------
Total operating expenses 202,344 207,331
--------- ---------
LOSS FROM OPERATIONS (92,400) (137,194)
DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED AS
INCOME (Note 2) 81,041 81,250
EQUITY IN INCOME OF LIMITED
PARTNERSHIPS AND AMORTI-
ZATION OF ACQUISITION
COSTS (Note 2) 64,000 142,000
--------- ---------
NET INCOME $ 52,641 $ 86,056
========= =========
NET INCOME PER LIMITED PARTNERSHIP
INTEREST (Note 1) $ 5 $ 8
========= =========
</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)
THREE MONTHS ENDED MARCH 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
---------- ---------- ----------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS
March 31, 1997 11,456
==========
EQUITY (DEFICIENCY),
January 1, 1997 $ (108,566) $9,149,531 $9,040,965
Net income for the three months
ended March 31, 1997 526 52,115 52,641
---------- ---------- ----------
EQUITY (DEFICIENCY),
March 31, 1997 $ (108,040) $9,201,646 $9,093,606
========== ========== ==========
</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
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 52,641 $ 86,056
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Equity in income of limited partnerships and
amortization of acquisition costs (64,000) (142,000)
Increase in other assets -- (34,500)
Increase in interest and other payables 36,597 53,150
----------- -----------
Net cash provided by (used in) operating activities 25,238 (37,294)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 25,238 (37,294)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 9,734,531 9,028,963
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 9,759,769 $ 8,991,669
=========== ===========
</TABLE>
The accompanying notes are integral part of these financial statements.
4
<PAGE> 7
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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
March 31, 1997 and the results of operations and changes
in cash flows for the three 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)
MARCH 31, 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 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.
6
<PAGE> 9
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
NOTE 2 - INVESTMENTS IN AND ADVANCES TO 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 as of March 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Balance, beginning of period $1,063,487
Amortization of acquisitions costs (1,000)
Equity in income of limited partnerships 65,000
----------
Balance, end of period $1,127,487
==========
</TABLE>
The following are unaudited combined estimated statements
of operations for the three months ended March 31, 1997
and 1996 for the limited partnerships in which the
Partnership has investments:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
REVENUES
<S> <C> <C>
Rental and other $ 5,597,000 $ 5,521,000
----------- -----------
EXPENSES
Depreciation 939,000 876,000
Interest 1,757,000 1,729,000
Operating 3,109,000 2,910,000
----------- -----------
5,805,000 5,515,000
----------- -----------
NET INCOME $ (208,000) $ 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.
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)
MARCH 31, 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 three months ended March 31, 1997 and
1996 was approximately $113,700.
The Partnership reimburses NAPICO for certain expenses.
The reimbursement paid to NAPICO was approximately $7,836
and $7,482 for the three months ended March 31, 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
<PAGE> 11
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 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 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
<PAGE> 12
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 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
<PAGE> 13
REAL ESTATE ASSOCIATES LIMITED III
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 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:
--------------------------------
Shawn Horwitz
Executive Vice President and
Chief Financial 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> MAR-31-1997
<CASH> 9,759,769
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,894,769
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,022,256
<CURRENT-LIABILITIES> 6,297
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 9,093,606
<TOTAL-LIABILITY-AND-EQUITY> 11,022,256
<SALES> 0
<TOTAL-REVENUES> 254,985
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 164,594
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,750
<INCOME-PRETAX> 52,641
<INCOME-TAX> 0
<INCOME-CONTINUING> 52,641
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,641
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
