<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, 1996
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,
1996 1995
----------------- -----------------
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $ 166,552 $ 164,374
Investments in and advances to
Local Limited Partnerships (Note 2) - -
-------- --------
$ 166,552 $ 164,374
======== ========
<CAPTION>
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
<S> <C> <C>
Liabilities:
Administrative and reporting fee
payable to General Partner (Note 3) $ 469,051 $ 447,489
Accrued expenses 51,710 41,710
-------- --------
520,761 489,199
-------- --------
Partners' deficit:
General Partner -- The National
Housing Partnership (NHP) (98,792) (98,498)
Original Limited Partner --
1133 Fifteenth Street Three
Associates (103,692) (103,398)
Other Limited Partners -- 11,500
investment units (151,725) (122,929)
-------- --------
(354,209) (324,825)
-------- --------
$ 166,552 $ 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
March 31,
-----------------------------
1996 1995
---- ----
<S> <C> <C>
REVENUES:
Interest income $ 3,878 $ 1,309
------- -------
COSTS AND EXPENSES:
Administrative and reporting fees to General Partner
(Note 3) 21,562 21,562
Other operating expenses 11,700 11,395
------- -------
33,262 32,957
------- -------
NET LOSS $(29,384) $(31,648)
======= =======
NET LOSS ASSIGNABLE TO
LIMITED PARTNERS $(28,796) $(31,014)
======= =======
NET LOSS PER LIMITED
PARTNERSHIP INTEREST $ (3) $ (3)
======= =======
</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 -- three months ended
March 31, 1996 (294) (294) (28,796) (29,384)
------- -------- --------- ---------
Deficit at March 31, 1996 $(98,792) $(103,692) $(151,725) $(354,209)
======= ======== ======== ========
Percentage interest at
March 31, 1996 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,
-----------------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 3,878 $ 1,309
Operating expenses paid (1,700) (18,331)
-------- --------
Net cash provided by (used in) operating activities 2,178 (17,022)
-------- --------
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 164,374 176,583
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $166,552 $159,561
======== ========
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED
BY (USED IN) OPERATING ACTIVITIES:
Net loss $(29,384) $(31,648)
-------- --------
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Increase in administrative and reporting fees payable 21,562 21,562
Increase (decrease) in other accrued expenses 10,000 (6,936)
-------- --------
Total Adjustments 31,562 14,626
-------- --------
Net cash provided by (used in) operating activities $ 2,178 $(17,022)
======== ========
</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.
(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, 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 $266,960 and
$254,846 of losses from these twelve Local Limited Partnerships during
the three months ended March 31, 1996 and 1995, respectively. As of
March 31, 1996 and December 31, 1995, the Partnership has not
recognized a total of $12,872,949 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 March 31, 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.
No working capital advances or repayments occurred between the
Partnership and the Local Limited Partnerships during the three months
ended March 31, 1996 and 1995. The combined amount carried as due to
the Partnership by the Local Limited Partnerships was $538,469 as of
March 31, 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 ended March 31, 1996 and 1995, respectively, of the Local
Limited
-6-
<PAGE> 8
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
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
March 31,
---------------------------------
1996 1995
---- ----
<S> <C> <C>
Rental income $2,133,808 $2,140,261
Other income 88,580 74,588
---------- ----------
Total income 2,222,388 2,214,849
---------- ----------
Operating expenses 1,430,683 1,422,384
Interest, taxes and insurance 735,211 744,479
Depreciation 328,497 307,726
---------- ----------
Total expenses 2,494,391 2,474,589
---------- ----------
Net loss $ (272,003) $ (259,740)
========== ==========
National Housing Partnership Realty
Fund III share of losses $ (266,960) $ (254,846)
========== ==========
</TABLE>
(3) TRANSACTIONS WITH THE GENERAL PARTNER
During the three month periods ended March 31, 1996 and 1995, 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 $469,051
and $447,489 at March 31, 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.
-7-
<PAGE> 9
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 provided by operations for the three months ended March 31, 1996 was
$2,178 as compared to net cash used in operations of $17,022 for the three
months ended March 31, 1995. The increase in cash provided by operations
resulted from a decrease in operating expenses paid during the three months
ended March 31, 1996, compared to the three months ended March 31, 1995.
No working capital advances or repayments occurred between the Partnership and
the Local Limited Partnerships during the three months ended March 31, 1996 and
1995. The combined amount carried as due to the Partnership by the Local
Limited Partnerships was $538,469 as of March 31, 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 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, 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 Limited Partnerships.
There were no cash distributions during the three months ended March 31, 1996
and 1995. 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 $166,552 at March 31, 1996. The ability
of the Partnership to meet its on-going cash requirements, in excess of cash on
hand at March 31, 1996, 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, 1996, plus any distributions from the underlying operations of the
combined Local
-8-
<PAGE> 10
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 $469,051 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.
NCHP 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. Virtually all of the Local Limited Partnership properties may be
eligible for these incentives; however, not all may benefit from the particular
incentives provided for under LIHPRHA. The appropriation for the Department of
Housing and Urban Development (which administers LIHPRHA) for the 1996 fiscal
year was recently approved and funding for LIHPRHA is limited. Management
expects that funding for LIHPRHA is unlikely to be renewed in future fiscal
years. Anticipating these developments, Notices of Intent to participate in the
LIHPRHA program have been filed for Brunswick Village, Edmond Estates, Indian
Valley I, II and III, Cherry Branch Townhomes, Meadowood I, II and III and
Newton Hill. However, with the exception of Brunswick Village and Meadowood I,
II and III, all of the properties are in the early stages of LIHPRHA processing
and are not expected to receive incentives under the program. Of the properties
which are in advanced stages of processing (Brunswick Village and Meadow I, II
and III), NHP is working to see if these can receive incentives under LIHPRHA,
but there can be no assurances that these efforts will be successful. The
ability of the Partnership to sell or refinance any of the Local Limited
Partnership Properties under LIHPRHA could be adversely affected by the
aforementioned events (lack of program funding and likely termination of the
LIHPRHA program after fiscal year 1996).
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
-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
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 Meadowood Townhouses I Limited Partnership has granted an option to the
former project owners which enables them to reacquire the properties. The
option became effective on the maturity date of certain nonrecourse deferred
acquisition notes, April 15, 1996, owed by NHP and Meadowood Townhouses I
Limited Partnership and expires 90 days thereafter. The option price for the
project is the greater of (i) the fair market value of the project at the date
of the option, or (ii) the unpaid principal balance and accrued interest on the
notes. During 1991, the maturity date of the notes was extended to April 15,
1996. The option may be terminated if the notes, including all accrued
interest, are paid in full within 15 days of the exercise of the option. The
deferred acquisition notes are now in default, and NHP is negotiating with the
holders of the note and the purchase option on behalf of the Partnership and
Meadowood Townhouses I Limited Partnerships so to revise the Agreement to
extend the due date or terms of the note and the option agreement. There can be
no assurance that these negotiations will be successful.
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.
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 $29,384 for the three months ended
March 31, 1996 from a net loss of $31,648 for the three months ended March 31,
1995. Net loss per unit of limited partnership interest was $3 for the 11,500
units outstanding throughout both periods. The decrease in net loss was
primarily due to an increase in interest income. The Partnership did not
recognize $266,960 of its allocated share of losses from the twelve Local
Limited Partnerships for the three months ended March 31, 1996, as the
Partnership's net carrying basis in these Partnerships had been
-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
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 $12,114 between periods, primarily due to 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
May 13, 1996 By: /s/
- ------------ --------------------------------------------
Jeffrey J. Ochs
As 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 166,552
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 166,552
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 166,552
<CURRENT-LIABILITIES> 520,761
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (354,209)
<TOTAL-LIABILITY-AND-EQUITY> 166,552
<SALES> 0
<TOTAL-REVENUES> 3,878
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 33,262
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (29,384)
<INCOME-TAX> 0
<INCOME-CONTINUING> (29,384)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,384)
<EPS-PRIMARY> (3)
<EPS-DILUTED> (3)
</TABLE>
