<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 JUNE 30, 1996
COMMISSION FILE NUMBER 0-14457
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND 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.)
8065 LEESBURG PIKE
SUITE 400
VIENNA, VIRGINIA 22182
(Address of principal executive offices)
(Zip Code)
(703) 394-2400
(Registrant's telephone number, including area code)
1225 EYE STREET, N.W.
WASHINGTON, D.C. 20005
(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>
June 30, December 31,
1996 1996
------------ -----------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 146,136 $ 164,374
Investments in and advances to
Local Limited Partnerships (Note 2) - -
---------- ----------
$ 146,136 $ 164,374
========== ==========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Administrative and reporting fee $ 490,613 $ 447,489
payable to General Partner (Note 3) 22,000 41,710
--------- ----------
Accrued expenses
$ 512,613 $ 489,199
--------- ----------
Partners' deficit:
General Partner -- The National
Housing Partnership (NHP) (98,915) (98,498)
Original Limited Partner --
1133 Fifteenth Street Three
Associates (103,815) $ (103,398)
Other Limited Partners -- 11,500
investment units (163,747) (122,929)
--------- ----------
(366,477) (324,825)
--------- ----------
$ 146,136 $ 164,374
========== ==========
</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 Six Months Ended
June 30, June 30,
--------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Distributions and repayments
received in excess of investment
in and advances to Local Limited
Partnerships $ 18,362 $ - $ 18,362 $ -
Interest income 2,183 875 6,061 2,184
-------- --------- -------- --------
20,545 875 24,423 2,184
-------- -------- -------- --------
COSTS AND EXPENSES:
Administrative and reporting
fees to General Partner (Note 3) 21,562 21,562 43,124 43,124
Other operating expenses 11,251 13,239 22,951 24,634
-------- -------- -------- --------
32,813 34,801 66,075 67,758
-------- -------- -------- --------
NET LOSS $(12,268) $ (33,926) $(41,652) $(65,574)
========= ========= ========= ========
NET LOSS ASSIGNABLE TO
LIMITED PARTNERS $(12,022) $ (33,248) $(40,818) $(64,262)
========= ========== ========= ========
NET LOSS PER LIMITED
PARTNERSHIP INTEREST $ (1) $ (3) $ (4) $ (6)
========= ========== ========= ========
</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, 1996 $(98,498) $(103,398) $(122,929) $(324,825)
Net loss -- six months ended
June 30, 1996 (417) (417) (40,818) ((41,652)
--------- --------- ---------- ---------
Deficit at June 30, 1996 $(98,915) $(103,815) $(163,747) $(366,477)
======== ========= ========== =========
Percentage interest at
June 30, 1996 1% 1% 98% 100%
========= ========== ========== ==========
(A) (B) (C) (D)
</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>
Six Months Ended
June 30,
--------------------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Distributions received in excess of
investment in Local
Limited Partnerships $ 18,362 $ 6,061
Interest received 6,061 2,184
Operating expenses paid (42,661) (40,024)
--------- --------
Net cash used in operating activities (18,238) (37,840)
--------- --------
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 164,374 176,583
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 146,136 $138,743
========= ========
RECONCILIATION OF NET LOSS TO NET CASH used
IN OPERATING ACTIVITIES:
Net loss $ (41,652) $(65,574)
--------- --------
Adjustments to reconcile net loss to net cash
used in operating activities:
Increase in administrative and reporting fees
payable 43,124 43,124
Decrease in other accrued expenses (19,710) (15,390)
--------- --------
Total Adjustments 23,414 27,734
--------- --------
Net cash used in operating activities $ (18,238) $(37,840)
========= ========
</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 for the year ended December 31, 1995.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
-5-
<PAGE> 7
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP) NOTES
TO FINANCIAL STATEMENTS
(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%.
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 June 30, 1996 and December 31, 1995,
investments in all twelve Local Limited Partnerships had been reduced
to zero. As a result, the Partnership did not recognize $631,426 and
$545,803 of losses from these twelve Local Limited Partnerships during
the six months ended June 30, 1996 and 1995, respectively. As of June
30, 1996 and December 31, 1995, the Partnership has not recognized a
total of $13,237,415 and $12,605,989, 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 June 30, 1996
and December 31, 1995. 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.
-6-
<PAGE> 8
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP) NOTES
TO FINANCIAL STATEMENTS
No working capital advances or repayments occurred between the
Partnerships and the Local Limited Partnerships during the six
months ended June 30, 1996 and 1995. The combined amount carried
as due to the Partnership by the Local Limited Partnerships was
$538,469 as of June 30, 1996. Future advances made will be charged to
operations; likewise, future repayments will be credited to operations.
The following are combined statements of operations for the three
months and six months ended June 30, 1996 and 1995, respectively, of
the Local Limited Partnerships in which the 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 Six Months Ended
June 30, June 30,
--------------------------------- -----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Rental income $2,106,679 $ 2,153,390 $4,240,487 $4,293,651
Other income 78,498 82,417 167,078 157,005
---------- ----------- ---------- ----------
Total income 2,185,177 2,235,807 4,407,565 4,450,656
---------- ----------- ---------- ----------
Operating expenses 1,484,895 1,505,263 2,915,578 2,927,647
Interest, taxes and
insurance 743,446 715,512 1,478,657 1,459,991
Depreciation 328,492 311,503 656,989 619,229
---------- ----------- ---------- ----------
Total expenses 2,556,833 2,532,278 5,051,224 5,006,867
---------- ----------- ---------- ----------
Net loss $ (371,656) $ (296,471) $ (643,659) $ (556,211)
========== =========== ========== ==========
National Housing
Partnership Realty
Fund III share of
losses $ (364,466) $ (290,957) $ (631,426) $ (545,803)
========== =========== ========== ==========
</TABLE>
-7-
<PAGE> 9
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP) NOTES
TO FINANCIAL STATEMENTS
(3) TRANSACTIONS WITH THE GENERAL PARTNER
During the six month periods ended June 30, 1996 and 1995, the
Partnership accrued administrative and reporting fees payable to the
General Partner in the amount of $43,124 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 $490,613
and $447,489 at June 30, 1996 and December 31, 1995, respectively.
The 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 six months ended June 30, 1996 was $18,238
as compared to $37,840 for the six months ended June 30, 1995. The decrease in
cash used in operations resulted primarily from an increase in distributions
received in excess of investment in Local Limited Partnerships and an increase
in interest income during the six months ended June 30, 1996 compared to the
six months ended June 30, 1995.
No working capital advances or repayments occurred between the Partnership and
the Local Limited Partnerships during the six months ended June 30, 1996 and
1995. The combined amount carried as due to the Partnership by the Local
Limited Partnerships was $538,469 as of June 30, 1996. 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 availble 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 June 30, 1996,
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 Limted Partnerships.
During the six months ended June 30, 1996, cash distributions of $18,362 were
received from two Local Limited Partnerships. There were no cash distributions
during the six months ended June 30, 1996. The rceipt 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 $146,136 at June 30, 199. The ability of
the Partnership to meet its on-going cash requirements, in excss of cash on
hand at June 30, 1996, is dependent upon the future receipt of distributions
from the Local Limited Partnerships and proceeds from sales or
-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
refinancings of the underlying properties of the Local Limited Partnerships.
Cash on hand at June 30, 1996, 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. However, there can
be no assurance that future distributions will be adequate to fund the
operations beyond the current year.
The Partnership currently owes the General Partner $490,613 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.
National Corporation for Housing Partnerships was a significant participant in
the drafting and passage of the Low Income Housing Preservation and Resident
Homeownership Act of 1990 ("LIHPRHA"). LIHPRHA creates a procedure under which
owners of properties assisted under the HUD Section 236 or 221(d)(3) program
may be eligible to receive financial incentives in return for agreeing to
extend their property's use as low income housing. When the appropriation for
the Department of Housing and Urban Development (which administers LIHPRHA) for
the 1996 fiscal year was approved, funding for the program was limited. The
appropriation for LIHPRHA for fiscal year 1996 was recently exhausted. None of
the Local Limited Partnerships received incentives under the program. At this
point, it is not clear whether LIHPRHA will receive funding from Congress in
future fiscal years. Even if the program receives funding, it is not certain
that any of the Local Limited Partnerships will receive incentives under
LIHPRHA. Despite this uncertainty, the Partnerships have positioned Meadowood
I, II and III to be sold under LIHPRHA. Specifically, the Partnerships have
entered into a Purchase and Sale Agreement with a qualified non-profit
purchaser to sell Meadowood I, II and III, and has jointly, with the
prospective purchaser, submitted Plans of Action to HUD to approve the sales of
these properties under LIHPRHA. HUD has approved these plans. The ability to
close these transactions is dependent on, among other things, adequate funding
of the LIHPRHA program by Congress. However, there can be no assurance that the
General Partner will be successful in its efforts to sell the properties.
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 assume ownership of
both the General Partner'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 sale or refinancing
-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
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 former owners of Meadowood I, II and III hold deferred acquisition notes on
the three properties. The deferred acquisition notes related to Meadowood I and
II matured April 15, 1996, and are now in default, while the notes related to
Meadowood III will mature on April 15, 1997. However, the General Partner has
negotiated a forbearance agreement with the noteholders which permits the
Meadowood Local Limited Partnerships to participate in LIHPRHA as described
above. If LIHPRHA funding is not approved for fiscal year 1997, the forbearance
agreement provides that the noteholders will not foreclose on the notes until
January 1998.
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 $41,652 for the six months ended June
30, 1996 from a net loss of $65,574 for the six months ended June 30, 1995. Net
loss per unit of limited partnership interest decreased from $6 to $4 for the
11,500 units outstanding throughout both periods. The decrease in net loss was
primarily due to an increase in distributions and repayments received in excess
of investment in and advances to Local Limited Partnerships, and an increase in
interest income. The Partnership did not recognize $631,426 of its allocated
share of losses from the twelve Local Limited Partnerships for the six months
ended June 30, 1996, 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 increased $85,623 between periods, primarily due to a
decrease in rental income and an increase 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
August 5, 1996 By: /s/
- -------------- -------------------------------------
Jeffrey J. Ochs
As Vice President and Chief
Accounting Officer
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 146,136
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 146,136
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 146,136
<CURRENT-LIABILITIES> 512,613
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (366,477)
<TOTAL-LIABILITY-AND-EQUITY> 146,136
<SALES> 0
<TOTAL-REVENUES> 24,423
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 66,075
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (41,652)
<INCOME-TAX> 0
<INCOME-CONTINUING> (41,652)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (41,652)
<EPS-PRIMARY> (4)
<EPS-DILUTED> (4)
</TABLE>
