<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
COMMISSION FILE NUMBER 0-14457
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
(Exact name of registrant as specified in its charter)
MARYLAND 52-1394972
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1225 EYE STREET, N.W.
WASHINGTON, D.C. 20005
(Address of principal executive offices)
(Zip Code)
(202) 347-6247
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 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
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
--------- -----------
<S> <C> <C>
ASSETS
------
Cash and cash equivalents $ 159,561 $ 176,583
Investments in and advances to
Local Limited Partnerships
(Note 2) - -
-------- --------
$ 159,561 $ 176,583
======== ========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
<S> <C> <C>
Liabilities:
Administrative and reporting fee
payable to General Partner
(Note 3) $ 382,803 $ 361,241
Accrued expenses 30,361 37,350
Due to General Partner (Note 3) 1,518 1,518
Accrued interest on due to
General Partner (Note 3) 505 452
-------- --------
415,187 400,561
-------- --------
Partners' deficit:
General Partner -- The National
Housing Partnership (NHP) (97,807) (97,490)
Original Limited Partner --
1133 Fifteenth Street Three
Associates (102,707) (102,390)
Other Limited Partners -- 11,500
investment units (55,112) (24,098)
-------- --------
(255,626) (223,978)
-------- --------
$ 159,561 $ 176,583
======== ========
</TABLE>
See notes to financial statements.
-1-
<PAGE> 3
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------
1995 1994
---- ----
<S> <C> <C>
REVENUES:
Interest income $ 1,309 $ 1,018
------- -------
COSTS AND EXPENSES:
Loss on investment in Local
Limited Partnerships (Note 2) - 7,608
Share of losses from Local
Limited Partnerships (Note 2) - 9,773
Administrative and reporting
fees to General Partner (Note 3) 21,562 21,562
Other operating expenses 11,395 9,386
------- -------
32,957 48,329
------- -------
NET LOSS $(31,648) $(47,311)
======= =======
NET LOSS ASSIGNABLE
TO LIMITED PARTNERS $(31,014) $(46,365)
======= =======
NET LOSS PER LIMITED
PARTNERSHIP INTEREST $ (3) $ (4)
======= =======
</TABLE>
See notes to financial statements.
-2-
<PAGE> 4
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
STATEMENT OF PARTNER'S DEFICIT
<TABLE>
<CAPTION>
The 1133
National Fifteenth
Housing Street Other
Partnership Three Limited
(NHP) Associates Partners Total
----------- ---------- -------- -----
<S> <C> <C> <C> <C>
Deficit at January 1, 1995 $(97,490) $(102,390) $(24,098) $(223,978)
Net loss -- three months ended
March 31, 1995 (317) (317) (31,014) (31,648)
------- -------- ------- --------
Deficit at March 31, 1995 $(97,807) $(102,707) $(55,112) $(255,626)
======= ======== ======= ========
Percentage interest at
March 31, 1995 1% 1% 98% 100%
======== ======== ======= ========
(A) (B) (C)
</TABLE>
(A) General Partner
(B) Original Limited Partner
(C) Consists of 11,500 investments units of 0.008522% held by 919
investors
See notes to financial statements.
-3-
<PAGE> 5
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 1,309 $ 1,018
Operating expenses paid (18,331) (31,350)
------- -------
Net cash used in operating activities (17,022) (30,332)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to Local Limited Partnerships - (463)
------- -------
NET DECREASE IN CASH AND CASH (17,022) (30,795)
EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF 176,583 195,029
PERIOD ------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $159,561 $164,234
======= =======
RECONCILIATION OF NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
Net loss $(31,648) $(47,311)
------- -------
Adjustments to reconcile net loss to net cash used
in operating activities:
Loss in investment in Local Limited Partnerships - 7,608
Share of losses from Local Limited Partnerships - 9,773
Increase in administrative and reporting fees payable 21,562 21,562
Decrease in other accrued expenses (6,936) (21,964)
------- -------
Total Adjustments 14,626 16,979
------- -------
Net cash used in operating activities $(17,022) $(30,332)
======= =======
</TABLE>
See notes to financial statements.
-4-
<PAGE> 6
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(1) ACCOUNTING POLICIES
ORGANIZATION
National Housing Partnership Realty Fund III (the "Partnership") is a
limited partnership organized under the laws of the State of Maryland
under the Maryland Revised Uniform Limited Partnership Act on May 10,
1985. The Partnership was formed for the purpose of raising capital
by offering and selling limited partnership interests and then
investing in limited partnerships ("Local Limited Partnerships"), each
of which owns and operates an existing rental housing project which is
financed and/or operated with one or more forms of rental assistance
or financial assistance from the U.S. Department of Housing and Urban
Development ("HUD").
The General Partner raised capital for the Partnership by offering and
selling to additional limited partners 11,500 investment units at a
price of $1,000 per unit. The Partnership acquired limited
partnership interests ranging from 94.5% to 99% in twelve Local
Limited Partnerships, which were organized to directly or indirectly
own and operate existing rental housing projects.
BASIS OF PRESENTATION
The accompanying unaudited interim financial statements reflect all
adjustments which are, in the opinion of management, necessary to a
fair statement of the financial condition and results of operations
for the interim periods presented. All such adjustments are of a
normal and recurring nature.
While the General Partner believes that the disclosures presented are
adequate to make the information not misleading, it is suggested that
these financial statements be read in conjunction with the financial
statements and notes included in NHP Realty Fund III's Annual Report
filed in Form 10-K, as amended, for the year ended December 31, 1994.
(2) INVESTMENTS IN AND ADVANCES TO LOCAL LIMITED PARTNERSHIPS
The Partnership owns a 99% limited partnership interest in Brunswick
Village Limited Partnership and 94.5% limited partnership interests
(98% with respect to allocation of losses) in nine other Local Limited
Partnerships. The Partnership also acquired a 99% limited partnership
interest in Meadowood Townhouses I Limited Partnership and Meadowood
Townhouses III Limited Partnership. These two Local Limited
Partnerships each own a 99% limited partnership interest in an
operating limited partnership which holds title to one and two rental
housing properties, respectively. The Partnership's effective
interest in these operating limited partnerships is 98.01%.
-5-
<PAGE> 7
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
Because the Partnership, as a limited partner, does not exercise
control over the activities of the Local Limited Partnerships in
accordance with the partnership agreements, these investments in Local
Limited Partnerships are accounted for using the equity method. Thus,
the investments (and the advances made to the Local Limited
Partnerships as discussed below) are carried at cost less the
Partnership's share of the Local Limited Partnerships' losses and
distributions. However, because the Partnership is not legally liable
for the obligations of the Local Limited Partnerships, and is not
otherwise committed to provide additional support to them, it does not
recognize losses once its investments, reduced for its share of losses
and cash distributions, reach zero in each of the individual Local
Limited Partnerships. As of March 31, 1995 and December 31, 1994,
investments in all twelve Local Limited Partnerships had been reduced
to zero. As a result, the Partnership did not recognize $254,846 and
$436,459 of losses from these twelve and eleven Local Limited
Partnerships during the three months ended March 31, 1995 and 1994,
respectively. As of March 31, 1995 and December 31, 1994, the
Partnership has not recognized a total of $12,475,699 and $12,220,853,
respectively, of its allocated share of cumulative losses from the
Local Limited Partnerships in which its investment is zero.
Advances made by the Partnership to the individual Local Limited
Partnerships are considered part of the Partnership's investment in
Local Limited Partnerships. When advances are made, they are charged
to operations as a loss on investment in the Local Limited Partnership
using previously unrecognized cumulative losses. As discussed above,
due to the cumulative losses incurred by the Local Limited
Partnerships, the aggregate balance of investments in and advances to
Local Limited Partnerships has been reduced to zero at March 31, 1995
and December 31, 1994. To the extent these advances are repaid by the
Local Limited Partnerships in the future, the repayments will be
credited as distribution and repayments received in excess of
investment in Local Limited Partnerships. These advances are carried
as a payable to the Partnership by the Local Limited Partnerships.
During the three months ended March 31, 1994, the Partnership advanced
$463 of working capital to one of the Local Limited Partnerships,
while no advances were made during the three months ended March 31,
1995. These advances were charged to operations as loss on investment
in Local Limited Partnerships. No repayments of advances were made to
the Partnership during the three months ended March 31, 1995 and 1994.
The combined amount carried as due to the Partnership by the Local
Limited Partnerships was $538,469 as of March 31, 1995.
The following are combined statements of operations for the three
months ended March 31, 1995 and 1994, respectively, of the Local
Limited Partnerships in which the
-6-
<PAGE> 8
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
Partnership has invested. The statements are compiled from financial
statements of the Local Limited Partnerships, prepared on the accrual
basis of accounting, as supplied by the management agents of the
projects, and are unaudited.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------
1995 1994
---- ----
<S> <C> <C>
Rental income $2,140,261 $1,989,636
Other income 74,588 57,674
--------- ---------
Total income 2,214,849 2,047,310
--------- ---------
Operating expenses 1,422,384 1,479,953
Interest, taxes and insurance 744,479 727,987
Depreciation 307,726 293,971
--------- ---------
Total expenses 2,474,589 2,501,911
--------- ---------
Net loss $ (259,740) $ (454,601)
========= =========
National Housing Partnership
Realty Fund III share of losses $ (254,846) $ (446,232)
========= =========
</TABLE>
(3) TRANSACTIONS WITH THE GENERAL PARTNER
During the three month periods ended March 31, 1995 and 1994, the
Partnership accrued administrative and reporting fees payable to the
General Partner in the amount of $21,562 for services provided to the
Partnership. The Partnership has not made any payments to the General
Partner for these fees during each of the respective periods. The
amount of fees due the General Partner by the Partnership was $382,803
and $361,241 at March 31, 1995 and December 31, 1994, respectively.
During the three months ended March 31, 1995 and 1994, no operating
deficit funding or repayment activity occurred between the General
Partner and the Partnership. The amount owed to the General Partner
by the Partnership was $1,518 at March 31, 1995 and December 31, 1994.
Interest is charged on borrowings at the Chase Manhattan Bank
-7-
<PAGE> 9
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
rate of prime plus 2%. Accrued interest on this loan as of March 31,
1995 and December 31, 1994 totalled $505 and $452, respectively.
The advances and accrued administrative and reporting fees payable to
the General Partner will be paid as cash flow permits or from proceeds
generated from the sale or refinancing of one or more of the
underlying properties of the Local Limited Partnerships.
-8-
<PAGE> 10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
LIQUIDITY AND CAPITAL RESOURCES
The properties in which the Partnership has invested, through its investments
in the Local Limited Partnerships, receive one or more forms of assistance from
Federal, state or local governments or agencies. As a result, the Local
Limited Partnerships' ability to transfer funds either to the Partnership or
among themselves in the form of cash distributions, loans or advances is
generally restricted by these government-assistance programs. These
restrictions, however, are not expected to impact the Partnership's ability to
meet its cash obligations.
Net cash used in operations for the three months ended March 31, 1995 was
$17,022 as compared to $30,332 for the three months ended March 31, 1994. The
decrease in cash used in operations resulted from a decrease in operating
expenses paid during the three months ended March 31, 1995 compared to the
three months ended March 31, 1994.
During the three months ended March 31, 1995, the Partnership made no working
capital advances, compared to $463 advanced to one of the Local Limited
Partnerships during the three months ended March 31, 1994. At March 31, 1995,
the combined amount carried by the Local Limited Partnerships as due to the
Partnership, amounted to $538,469. Future advances made will be charged to
operations; likewise, future repayments will be credited to operations.
Distributions received from Local Limited Partnerships represent the
Partnership's proportionate share of the excess cash available for distribution
from the Local Limited Partnerships. As a result of the use of the equity
method of accounting for the Partnership's investments, as of March 31, 1995,
investments in all twelve Local Limited Partnerships had been reduced to zero.
For these investments, cash distributions received are recorded in income as
distributions received in excess of investment in Local Limited Partnerships.
There were no cash distributions during the three months ended March 31, 1995
and 1994. The receipt of distributions in future quarters is dependent upon
the operations of the underlying properties of the Local Limited Partnerships.
Cash and cash equivalents amounted to $159,561 at March 31, 1995. The ability
of the Partnership to meet its on-going cash requirements, in excess of cash on
hand at March 31, 1995, is dependent upon the future receipt of distributions
from the Local Limited Partnerships and proceeds from sales or refinancings of
the underlying properties of the Local Limited Partnerships. Cash on hand at
March 31, 1995, plus any distributions from the underlying operations of the
combined Local Limited Partnerships is expected to adequately fund the
operations of the Partnership in the current year.
-9-
<PAGE> 11
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Partnership currently owes the General Partner $382,803 for administrative
and reporting services performed. The payment of the unpaid administrative and
reporting fees will most likely result from the sale or refinancing of the
underlying properties of the Local Limited Partnerships, rather than through
recurring operations.
Some of the Properties in which the Partnership has invested may be eligible to
participate in the Low Income Housing Preservation and Resident Homeownership
Act of 1990 (LIHPRHA). LIHPRHA creates a procedure under which properties
assisted under the HUD Section 236 or 221(d)(3) programs may be eligible to
receive financial incentives in return for agreeing to extend their property's
use as low income housing.
NHP has investigated the potential for Brunswick Village, Kimberly Associates,
Indian Valley I, II, III and Meadowood I, II and III to participate in LIHPRHA.
Based on the appraisal data obtained, Brunswick Village and Meadowood I, II and
III should defer participation in LIHPRHA in anticipation of the improvement of
the local rental market where those Properties are located, as this improvement
will have a positive impact on the Properties' value under LIHPRHA. Indian
Valley I, II, and III are good candidates to participate now. Congress and the
Administration are currently considering various proposals to significantly
reduce or eliminate funding for the LIHPRHA program, and to restructure various
federal housing programs under the jurisdiction of the Department of Housing
and Urban Development. NHP is actively working to affect the policy decisions
being made and to limit any detrimental effect on its portfolio. Depending on
the final outcome of this process, however, operations at the Properties and/or
the ability to sell or refinance under LIHPRHA could be affected.
All the Local Limited Partnerships in which the Partnership has invested carry
deferred acquisition notes due to the original owners of the Properties. In
the event of a default on these notes, the noteholders would reassume both
NHP's and the Partnerships' interests in the Local Limited Partnerships. All
of the notes have final maturity dates between 1996 and 1999. Due to the
weakness in the rental markets where some of the Properties are located, the
General Partner currently believes the amounts due on the acquisition notes may
likely exceed the value to be obtained through the Properties' participation in
LIHPRHA or other refinancing opportunities. In the event that the Partnership
loses its interest in these Local Limited Partnerships, the partners in the
Partnership may incur adverse tax consequences. The impact of the adverse tax
consequences is dependent on each partner's individual tax situation.
The noteholders of Cherry Branch Townhomes, which appears to be a potentially
good candidate under LIHPRHA, have indicated that they do not desire to accept
a discounted payoff of their note. This situation may prevent Cherry Branch
Townhomes from participating in LIHPRHA.
-10-
<PAGE> 12
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In their audit report dated March 18, 1995, the Partnership's auditors added an
additional "emphasis" paragraph to their report on the Partnership's 1994 and
1993 financial statements included in the Form 10-K. The comments made in the
"emphasis" paragraph generally repeat disclosures made by the Partnership in
the footnotes to the 1994 financial statements, primarily note 3. In the
"emphasis" paragraph, the auditors stated "Two of the Local Limited
Partnerships...have generated losses from operations and negative cash flows in
recent years," and "These events raise substantial doubt about the ability of
these Local Limited Partnerships to continue as going concerns." Should the
Partnership lose its interest in a Local Limited Partnership, partners in the
Partnership may incur adverse tax consequences. The impact of the tax
consequences is dependent upon each partner's individual tax situation.
NHP's intentions are to continue to manage the properties prudently so that
they can maximize their cash flow. Management believes that the properties are
capable of generating cash sufficient to sustain future operations and meet
their debt obligations.
RESULTS OF OPERATIONS
The Partnership has invested as a limited partner in twelve Local Limited
Partnerships which operate thirteen rental housing properties. In prior years,
results of operations of NHP Realty Fund III were significantly impacted by the
Partnership's share of the losses of the Local Limited Partnerships. These
losses included depreciation and accrued deferred acquisition note interest
expense which are noncash in nature. Because the investments in and advances
to Local Limited Partnerships have been reduced to zero, the Partnership's
share of the operations of the Local Limited Partnerships is no longer being
recorded.
The Partnership's net loss decreased to $31,648 for the three months ended
March 31, 1995 from a net loss of $47,311 for the three months ended March 31,
1994. Net loss per unit of limited partnership interest decreased from $4 to
$3 for the 11,500 units outstanding throughout both periods. The decrease in
net loss was primarily due to a decrease in the Partnership's share of losses
from and loss on investment in Local Limited Partnerships. The Partnership did
not recognize $254,846 of its allocated share of losses from the twelve Local
Limited Partnerships for the three months ended March 31, 1995, as the
Partnership's net carrying basis in these Partnerships had been reduced to
zero. The Partnership's share of losses from the Local Limited Partnerships,
if not limited to its investment account balance, would have decreased $191,386
between periods, primarily due to an increase in rental income and a decrease
in operating expenses.
-11-
<PAGE> 13
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.
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
--------------------------------------------
(Registrant)
By: The National Housing Partnership,
its sole General Partner
By: National Corporation for Housing
Partnerships, its sole General Partner
May 15, 1995 By: /s/ John M. Novack
- - - - - - - ------------ -------------------------------------------------
John M. Novack
As Senior Vice President, Finance and Accounting,
and Chief Accounting Officer
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 159,561
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 159,561
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 159,561
<CURRENT-LIABILITIES> 415,187
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> (255,626)
<TOTAL-LIABILITY-AND-EQUITY> 159,561
<SALES> 0
<TOTAL-REVENUES> 1,309
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 32,957
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (31,014)
<INCOME-TAX> 0
<INCOME-CONTINUING> (31,014)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31,014)
<EPS-PRIMARY> (3)
<EPS-DILUTED> (3)
</TABLE>
