<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 SEPTEMBER 30, 1997
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.)
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)
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>
September 30,
1997 December 31,
(Unaudited) 1996
-------- ---------
<S> <C> <C>
ASSETS
------
Cash and cash equivalents $548,909 $ 140,782
Prepaid expenses (Note 3) 21,562 -
Investments in and advances to Local Limited Partnerships (Note 2) - -
-------- ---------
$570,471 $ 140,782
======== =========
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
------------------------------------------
Liabilities:
Administrative and reporting fee payable to General Partner (Note 3) $ - $ 533,737
Accrued expenses 28,500 39,095
-------- ---------
28,500 572,832
-------- ---------
Partners' equity (deficit):
General Partner -- The National Housing Partnership (NHP) (89,830) (99,570)
Original Limited Partner -- 1133 Fifteenth Street Three Associates (94,730) (104,470)
Other Limited Partners -- 11,500 investment units 726,531 (228,010)
-------- ---------
541,971 (432,050)
-------- ---------
$570,471 $ 140,782
======== =========
</TABLE>
See notes to financial statements.
-1-
<PAGE> 3
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ------------------------
1997 1996 1997 1996
---------- --------- ---------- --------
<S> <C> <C> <C> <C>
REVENUES:
Share of income from Local Limited Partnership $ 357,860 $ - $357,860 $ -
Distributions and repayments received in excess
of investment in Local Limited Partnerships 16,310 - 32,008 18,362
Interest income 6,642 1,567 9,342 7,628
---------- --------- -------- --------
380,812 1,567 399,210 25,990
---------- --------- -------- --------
COSTS AND EXPENSES:
Administrative and reporting fees to
General Partner (Note 3) 21,562 21,562 64,686 64,686
Other operating expenses 13,069 13,448 37,629 36,399
---------- --------- -------- --------
34,631 35,010 102,315 101,085
---------- --------- -------- --------
NET PROFIT (LOSS) BEFORE
EXTRAORDINARY ITEM 346,181 (33,443) 296,895 (75,095)
EXTRAORDINARY ITEM - SHARE FROM
LOCAL LIMITED PARTNERSHIP OF
GAIN ON EXTINGUISHMENT OF DEBT 677,126 - 677,126 -
---------- --------- -------- --------
NET PROFIT (LOSS) $1,023,307 $ (33,443) $974,021 $(75,095)
========== ========= ======== ========
NET PROFIT (LOSS) BEFORE EXTRAORDINARY
ITEM ASSIGNABLE TO LIMITED PARTNERS $ 339,257 $ (32,775) $290,957 $(73,593)
EXTRAORDINARY ITEM - GAIN FROM LOCAL
LIMITED PARTNERSHIP ON EXTINGUISHMENT
OF DEBT ASSIGNABLE TO LIMITED PARTNERS 663,584 - 663,584 -
---------- --------- -------- --------
NET PROFIT (LOSS) ASSIGNABLE TO
LIMITED PARTNERS $1,002,841 $ (32,775) $954,541 $(73,593)
========== ========= ======== ========
NET PROFIT (LOSS) BEFORE EXTRAORDINARY
ITEM PER LIMITED PARTNERSHIP INTEREST $ 29 $ (3) $ 25 $ (6)
EXTRAORDINARY ITEM - GAIN FROM LOCAL
LIMITED PARTNERSHIP ON EXTINGUISHMENT
DEBT PER LIMITED PARTNERSHIP INTEREST 58 - 58 -
---------- --------- -------- --------
NET PROFIT (LOSS) PER LIMITED
PARTNERSHIP INTEREST $ 87 $ (3) $ 83 $ (6)
========== ========= ======== ========
</TABLE>
See notes to financial statements.
-2-
<PAGE> 4
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
STATEMENT OF PARTNER'S EQUITY (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
The National 1133
Housing Fifteenth Other
Partnership Street Three Limited
(NHP) Associates Partners Total
-------- --------- --------- --------
<S> <C> <C> <C> <C>
Deficit at January 1, 1997 $(99,570) $(104,470) $(228,010) $(432,050)
Net profit -- nine months ended
September 30, 1997 9,740 9,740 954,541 974,021
-------- --------- --------- --------
Equity (deficit) at September 30, 1997 $(89,830) $ (94,730) $ 726,531 $541,971
======== ========= ========= ========
Percentage interest at September 30, 1997 1% 1% 98% 100%
======== ========= ========= ========
(A) (B) (C)
</TABLE>
(A) General Partner
(B) Original Limited Partner
(C) Consists of 11,500 investment units of 0.008522% held by 921 investors
See notes to financial statements.
-3-
<PAGE> 5
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
---------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Distributions from Local Limited Partnerships $1,034,986 $ -
Distributions received in excess of investment in
Local Limited Partnerships 15,698 18,362
Payment of administrative and reporting fees to
General Partner (619,985) -
Interest received 9,342 7,628
Operating expenses paid (48,224) (48,109)
---------- --------
Net cash provided by (used in) operating activities 391,817 (22,119)
CASH FLOWS FROM INVESTING ACTIVITIES:
Repayment of advances to Local Limited Partnerships 16,310 -
---------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 408,127 (22,119)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 140,782 164,374
---------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 548,909 $142,255
========== ========
RECONCILIATION OF NET PROFIT (LOSS) TO NET CASH PROVIDED
BY (USED IN) OPERATING ACTIVITIES:
Net profit (loss) $ 974,021 $(75,095)
---------- --------
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Repayment of advances to Local Limited Partnerships (16,310) -
Distributions from Local Limited Partnerships 1,034,986 -
Share of income from Local Limited Partnership (357,860) -
Share of gain on extinguishment of debt (677,126) -
Increase in prepaid expenses (21,562) -
(Decrease) increase in administrative
and reporting fees payable (533,737) 64,686
Decrease in accrued expenses (10,595) (11,710)
---------- --------
Total adjustments (582,204) 52,976
---------- --------
Net cash provided by (used in) operating activities $ 391,817 $(22,119)
========== ========
</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.
On June 3, 1997, Apartment Investment and Management Company, a
Maryland corporation ("AIMCO" and, together with its subsidiaries and
other controlled entities, the "AIMCO Group"), acquired all of the
issued and outstanding capital stock of NHP Partners, Inc., a
Delaware corporation ("NHP Partners"), and the AIMCO Group acquired
all of the outstanding interests in NHP Partners Two Limited
Partnership, a Delaware limited partnership ("NHP Partners Two"). The
Acquisition was made pursuant to a Real Estate Acquisition Agreement,
dated as of May 22, 1997 (the "Agreement"), by and among AIMCO, AIMCO
Properties, L.P., a Delaware limited partnership (the "Operating
Partnership"), Demeter Holdings Corporation, a Massachusetts
corporation ("Demeter"), Phemus Corporation, a Massachusetts
corporation ("Phemus"), Capricorn Investors, L.P., a Delaware limited
partnership ("Capricorn"), J. Roderick Heller, III and NHP Partners
Two LLC, a Delaware limited liability company ("NHP Partners Two
LLC"). NHP Partners owns all of the outstanding capital stock of the
National Corporation for Housing Partnerships, a District of Columbia
corporation ("NCHP"), which is the general partner of The National
Housing Partnership, a District of Columbia limited partnership (the
"NHP Partnership"). Together, NCHP and NHP Partners Two own all of
the outstanding partnership interests in the NHP Partnership. The NHP
Partnership is the general partner of National Housing Partnership
Realty Fund III (a Maryland Limited Partnership) (the "Registrant").
As a result of these transactions, the AIMCO Group has acquired
control of the general partner of the Registrant and, therefore, may
be deemed to have acquired control of the Registrant.
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, 1996.
-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 until the quarter ended
September 30, 1997, held title to two and one rental housing
properties, respectively (see Note 4). 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 December 31, 1996, investments in
all twelve Local Limited Partnerships had been reduced to zero. As a
result, the Partnership did not recognize $977,447 of losses from
these twelve Local Limited Partnerships during the nine months ended
September 30, 1996. During the nine months ended September 30, 1997,
three properties owned by two Local Limited Partnerships were sold.
As a result the Partnership recognized income of $357,860 from the
gain on sale of Elden Terrace and an extraordinary gain of $677,126
on the extinguishment of debt related to the sale of Meadowoods I and
II. Both the gain on sale and the extraordinary gain were recorded
after recognizing previously unrecognized losses of $568,164 and
$2,347,585, respectively. The Partnership did not recognize $806,272
of losses from the other ten Local Limited Partnerships during the
nine months ended September 30, 1997. As of September 30, 1997 and
December 31, 1996, the Partnership has not recognized a total of
$12,171,874 and $14,281,351, 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
September 30, 1997 and December 31, 1996. 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 occurred between the Partnership and the
Local Limited Partnerships during the nine months ended September 30,
1997 and 1996. Repayments of $16,310 and accrued interest of $5,178
were made by two Local Limited Partnerships to the Partnership during
the nine months ended September 30, 1997. No repayments were made
during the nine months ended September 30, 1996. The combined amount
carried as due to the Partnership by the Local Limited Partnerships
was $522,159 as of September 30, 1997. Future advances made will be
charged to operations; likewise, future repayments will be credited
to operations.
-6-
<PAGE> 8
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
The following are combined statements of operations for the three and
nine months ended September 30, 1997 and 1996, 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.
-7-
<PAGE> 9
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF OPERATIONS
---------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Rental income $1,650,247 $2,129,727 $5,969,307 $6,370,214
Other income 142,582 108,627 325,904 275,705
Gain on disposal of rental properties 939,814 - 939,814 -
---------- ---------- ---------- ----------
Total income 2,732,643 2,238,354 7,235,025 6,645,919
---------- ---------- ---------- ----------
Operating expenses 1,267,697 1,549,288 4,261,324 4,464,866
Interest, taxes and insurance 587,916 693,742 2,080,509 2,172,399
Depreciation 270,746 346,573 961,202 1,003,562
---------- ---------- ---------- ----------
Total expenses 2,126,359 2,589,603 7,303,035 7,640,827
---------- ---------- ---------- ----------
Net profit (loss) before extraordinary item 606,284 (351,249) (68,010) (994,908)
Extraordinary Item - Gain on
extinguishment of debt 3,281,574 - 3,281,574 -
---------- ---------- ---------- ----------
Net profit (loss) $3,887,858 $ (351,249) $3,213,564 $ (994,908)
========== ========== ========== ==========
National Housing Partnership Realty
Fund III share of profits (losses) $3,806,468 $ (346,021) $3,144,464 $ (977,447)
========== ========== ========== ==========
</TABLE>
(3) TRANSACTIONS WITH THE GENERAL PARTNER
During the nine month periods ended September 30, 1997 and 1996, the
Partnership accrued administrative and reporting fees payable to the
General Partner in the amount of $64,686 for services provided to the
Partnership. The Partnership paid the General Partner $619,985 for
these fees and accrued but unpaid fees from prior years during the
nine months ended September 30, 1997. The Partnership has not made
any payments to the General Partner for these fees during the nine
months ended September 30, 1996. The amount of fees due the General
Partner by the Partnership was $533,737 December 31, 1996, while at
September 30, 1997 the Partnership has prepaid the General Partner
$21,562 representing the fees for the three months ending December
31, 1997.
Accrued administrative and reporting fees payable to the General
Partner are 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.
(4) DISPOSAL OF RENTAL PROPERTIES
-8-
<PAGE> 10
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
On May 2, 1996, Meadowood Townhouses I Local Limited Partnership
entered into an Agreement of Sale with Community Preservation and
Development Corporation, to sell its two properties, Meadowood
Townhouses I and II pursuant to the terms of Low Income Housing
Preservation and Resident Homeownership Act of 1990 ("LIHPRHA"). The
purchase price was based on the properties' Transfer Preservation
Value, as approved by the United States Department of Housing and
Urban Development ("HUD"). During the six months ended June 30, 1997,
funding was approved for the sale of Meadowood Townhouses I and II,
and final settlement occurred on July 15, 1997. Total LIHPRHA grant
money received for the properties was $3,336,388, comprised of
$1,558,253 for Meadowoods Townhouses I and $1,778,135 for Meadowood
Townhouses II. The holders of the deferred acquisition notes were
repaid from a portion of the LIHPRHA grant money at an agreed upon
discounted amount. The mortgage notes were assumed by the purchaser.
During the quarter ended September 30, 1997 the Partnership received
net proceeds from the sale of $677,126. The Partnership's share of
the gain from this transaction has been recorded in the accompanying
statements of operations for the three and nine months ended
September 30, 1997 as an extraordinary item-gain on extinguishment of
debt.
In addition, during the six months ended June 30, 1997, Elden Limited
Partnership entered into an Agreement of Sale with Southport
Financial Services, Inc., to sell its property, Elden Terrace
Apartments. The purchase price for the sale was $2,241,667, which is
$375,000 above the mortgage note of $1,866,667. Southport Financial
Services, Inc. also assumed the deferred acquisition note and accrued
interest totaling $3,505,225 due to the note holders. Final
settlement occurred on July 31, 1997. During the quarter ended
September 30, 1997 the Partnership received net proceeds from the
sale of $357,860. The Partnership's share of the gain from this
transaction has been recorded in the accompanying statements of
operations for the three and nine months ended September 30, 1997 as
the Partnership's share of income from Local Limited Partnership.
-9-
<PAGE> 11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements in certain circumstances. Certain information
included in this Report and other Partnership filings (collectively "SEC
Filings") under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (as well as information communicated orally or
in writing between the dates of such SEC Filings) contains or may contain
information that is forward looking, including statements regarding the effect
of government regulations. Actual results may differ materially from those
described in the forward-looking statements and will be affected by a variety of
factors including national and local economic conditions, the general level of
interest rates, terms of governmental regulations that affect the Partnership
and interpretations of those regulations, the competitive environment in which
the properties owned by the Local Limited Partnerships operate, the availability
of working capital and dispositions of properties owned by the 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.
For the past several years, various proposals have been advanced by HUD,
Congress and others proposing the restructuring of HUD's rental assistance
programs under Section 8 of the United States Housing Act of 1937 ("Section 8"),
under which 603 units, 35 percent of the total units owned by the properties in
which the Partnership has invested, receive rental subsidies. On October 27,
1997, the President signed into law the Multifamily Assisted Housing Reform and
Affordability Act of 1997 (the "1997 Housing Act"). Under the 1997 Housing Act,
certain properties assisted under Section 8, with rents above market levels and
financed with HUD-insured mortgage loans, will be restructured by reducing
subsidized rents to market levels, thereby reducing rent subsidies, and lowering
required debt service costs as needed to ensure financial viability at the
reduced rents and rent subsidies. The 1997 Housing Act retains project-based
subsidies for most properties (properties in rental markets with limited supply,
properties serving the elderly, and certain other properties). The 1997 Housing
Act phases out project-based subsidies on selected properties servicing families
not located in rental markets with limited supply, converting such subsidies to
a tenant-based subsidy. Under a tenant-based system, rent vouchers would be
issued to qualified tenants who then could elect to reside at properties of
their choice, provided such tenants have the financial ability to pay the
difference between the selected properties' monthly rent and the value of the
vouchers, which would be established based on HUD's regulated fair market rent
for the relevant geographical areas. The 1997 Housing Act provides that
properties will begin the restructuring process in Federal fiscal year 1999
(beginning October 1, 1998), and that HUD will issue final regulations
implementing 1997 Housing Act on or before October 27, 1998. With respect to
Housing Assistance Payments Contracts ("HAP Contracts") expiring before October
1, 1998, Congress has elected to renew them for one-year terms, generally at
existing rents, so long as the properties remain in compliance with the HAP
Contracts. While the Partnership does not expect the provisions of the 1997
Housing Act to result in a significant number of tenants relocating from
properties owned by the Local Limited Partnerships, there can be no assurance
that the provisions will not significantly affect the operations of the
properties of the Local Limited Partnerships. Furthermore,
-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
there can be no assurance that other changes in Federal housing subsidy policy
will not occur. Any such changes could have an adverse effect on the operations
of the Partnership.
Net cash provided by operations for the nine months ended September 30, 1997 was
$391,817 as compared to net cash used in operations of $22,119 for the nine
months ended September 30, 1996. The change in cash provided by/used in
operations resulted primarily from an increase in distributions from Local
Limited Partnerships of $1,034,986 resulting from the sales of three properties,
partially offset by an increase in the payment of administrative and reporting
fees to the General Partner of $619,985 during the nine months ended September
30, 1997, compared to the nine months ended September 30, 1996.
No working capital advances occurred between the Partnership and the Local
Limited Partnerships during the nine months ended September 30, 1997 and 1996.
Repayments of $16,310 and accrued interest of $5,178 were made by two Local
Limited Partnerships to the Partnership during the nine months ended September
30, 1997. No repayments were made during the nine months ended September 30,
1996. The combined amount carried as due to the Partnership by the Local Limited
Partnerships was $522,159 as of September 30, 1997. 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 December 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.
During the nine months ended September 30, 1997 and 1996, cash distributions of
$15,698 and $18,362, respectively, were received from two Local Limited
Partnerships. In addition, during the nine months ended September 30, 1997 the
Partnership received $1,034,986 in distributions from two Local Limited
Partnerships resulting from proceeds from the disposal of their rental
properties. The receipt of distributions in the future is dependent upon the
operations of the underlying properties of the Local Limited Partnerships to
generate sufficient cash for distribution in accordance with applicable HUD
regulations.
Cash and cash equivalents of $548,909 on hand at September 30, 1997, 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.
National Corporation for Housing Partnerships was a significant participant in
the drafting and passage of 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. The appropriation for the Department
of Housing and Urban Development (which administers LIHPRHA) for the 1997 fiscal
year was insufficient to meet program demand. As part of this appropriation,
Congress directed HUD to suspend processing of any property which had not
received approval of a sale or refinancing under LIHPRHA as of the date of
enactment of the appropriation, which occurred on September 26, 1996. Brunswick
Village and Meadowood I, II and III all received approval to be sold under the
program within the requisite time frame. During the six months ended June 30,
1997, funds were allocated for the sale of Meadowoods I and II and on July 15,
1997, final settlement occurred, as further discussed below. However, funds were
not allocated for the sale of Brunswick Village and Meadowoods III, which was
required so that these transactions could close. Congress did not allocate any
funds for LIHPRHA as part of the 1998 fiscal year Federal budget and the General
Partner does not expect LIHPRHA to receive any funding from Congress in the
future. The
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<PAGE> 13
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General Partner is currently investigating other sale or refinancing
opportunities for these properties, but there can be no assurance that these
efforts will be successful. If unsuccessful, this could have a substantially
negative impact on the Partnership's future available capital resources.
All of the Local Limited Partnerships in which the Partnership has invested
carry deferred acquisition notes due the original owner of each Property. The
deferred acquisition notes related to Meadowood Townhouses I and III reached
final maturity in April 1996 and April 1997, respectively. All other notes will
reach final maturity during 1999. These notes are secured by both the
Partnership's and the General Partner's interests in the Local Limited
Partnerships. In the event of a default on the notes, the note holders would be
able to assume the General Partner's and the Partnership's interests in the
Local Limited Partnerships. There can be no assurance that the General Partner
will be successful in extending or restructuring the deferred acquisition notes
as they mature.
On May 2, 1996, Meadowood Townhouses I Local Limited Partnership entered into an
Agreement of Sale with Community Preservation and Development Corporation, to
sell its two properties, Meadowood Townhouses I and II pursuant to the terms of
Low Income Housing Preservation and Resident Homeownership Act of 1990
("LIHPRHA"). The purchase price was based on the properties' Transfer
Preservation Value, as approved by HUD. During the six months ended June 30,
1997, funding was approved for the sale of Meadowood Townhouses I and II, and
final settlement occurred on July 15, 1997. Total LIHPRHA grant money received
for the properties was $3,336,388, comprised of $1,558,253 for Meadowoods
Townhouses I and $1,778,135 for Meadowood Townhouses II. The holders of the
deferred acquisition notes were repaid from a portion of the LIHPRHA grant money
at an agreed upon discounted amount. The mortgage notes were assumed by the
purchaser. During the quarter ended September 30, 1997 the Partnership received
net proceeds from the sale of $677,126. The Partnership's share of the gain from
this transaction has been recorded in the accompanying statements of operations
for the three and nine months ended September 30, 1997 as an extraordinary item
- - gain on extinguishment of debt. The sale may generate taxable income to the
Partnership's investors possibly without any distributable cash. The specific
impact of the tax consequences is dependent upon each specific partner's
individual tax situation.
In connection with the proposed sale of Meadowoods Townhouses III, a
Forbearance Agreement had been executed which extended the maturity date of the
deferred acquisition notes made by the Local Limited Partner. Under the terms
of this agreement, the initial period of forbearance expired on April 30, 1997
and a further extension of forbearance would have been granted until December
31, 1997 if funding for such closing had been approved by HUD. Funding for the
sale of Meadowood Townhouses III was not approved by April 30, 1997, and an
extension of forbearance until January 2, 1998, was granted to permit the Local
Limited Partnership to submit an alternative plan to the note holders, and to
negotiate and close such plan. In consideration for the initial period of
extension of forbearance, the Local Limited Partnership shall pay solely from
their share of the net sale proceeds received at closing, an extension fee
equal to 1% of the aggregate amount of principal due on the notes. The Local
Limited Partnership shall have no liability for the extension fee if closing of
the sales does not occur.
In the absence of a LIHPRHA sale, the Partnership's continued ownership in
Meadowood Townhouses III Local Limited Partnerships is dependent on their
successful efforts to negotiate further amendments of the terms of the note and
the related sale and forbearance agreements. The General Partner is currently
investigating alternative sales or refinancing opportunities or a further
modification of the Forbearance Agreement. Upon expiration of the forbearance
period with extensions, if an additional extension, sale or refinancing is not
negotiated with the note holders, the Partnership shall cause title to the
Partnership's interest in the Local Limited Partnership to be conveyed to the
note holders. If title to the Local Limited Partnership interest is conveyed to
the note holder, the Partnership will not receive any future benefits from the
underlying Properties, and taxable income will be generated and flow to the
Partnership's
-12-
<PAGE> 14
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
investors without any distributable cash. The specific impact of the tax
consequences is dependent upon each specific partner's individual tax situation.
During the six months ended June 30, 1997, Elden Limited Partnership entered
into an Agreement of Sale with Southport Financial Services, Inc., to sell its
property, Elden Terrace Apartments. The purchase price for the sale was
$2,241,667, which is $375,000 above the mortgage note of $1,866,667. In
addition, Southport Financial Services, Inc., assumed the deferred acquisition
note and accrued interest totaling $3,505,225 from the note holders. Final
settlement occurred on July 31, 1997. During the quarter ended September 30,
1997 the Partnership received net proceeds from the sale of $357,860. The
Partnership's share of the gain from this transaction has been recorded in the
accompanying statements of operations for the three and nine months ended
September 30, 1997 as the Partnership's share of income from Local Limited
Partnership. The sale may generate taxable income to the Partnership's investors
possibly without any distributable cash. The specific impact of the tax
consequences is dependent upon each specific partner's individual tax situation.
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 non-cash 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.
During the nine months ended September 30, 1997, three properties owned by two
Local Limited Partnerships were sold. As a result the Partnership recognized
income of $357,860 from the gain on sale of Elden Terrace and an extraordinary
gain of $677,126 on the extinguishment of debt related to the sale of Meadowoods
I and II. Both the gain on sale and the extraordinary gain were recorded after
recognizing previously unrecognized losses of $568,164 and $2,347,585,
respectively. The Partnership did not recognize $806,272 of losses from the
other ten Local Limited Partnerships during the nine months ended September 30,
1997. As of September 30, 1997 and December 31, 1996, the Partnership has not
recognized a total of $12,171,874 and $14,281,351, respectively, of its
allocated share of cumulative losses from the Local Limited Partnerships in
which its investment is zero.
The Partnership's had a net profit of $974,021 for the nine months ended
September 30, 1997 compared to a net loss of $75,095 for the nine months ended
September 30, 1996. Net profit per unit of limited partnership interest was $83
for for the nine months ended September 30, 1997 compared to a net loss per unit
of $6 for the nine months ended September 30, 1997 for the 11,500 units
outstanding throughout both periods. The change in net profit/loss was primarily
due to the Partnership recognizing its share of income from Local Limited
Partnerships of $357,860 resulting from the sale of Elden Terrace and a gain on
extinguishment of debt of $677,126 resulting from the sale of Meadowoods I and
II during the nine months ended September 30, 1997. The Partnership did not
recognize $806,272 of its allocated share of losses from the other ten Local
Limited Partnerships for the nine months ended September 30, 1997, as the
Partnership's net carrying basis in these Partnerships had been previously
reduced to zero. The Partnership's share of losses before extraordinary item
from the Local Limited Partnerships, if not limited to its investment account
balance, would have decreased $873,153 between periods, primarily due to the
gain on sale of Elden Terrace during 1997.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
-13-
<PAGE> 15
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(a) Exhibits
Exhibit No.
27 Financial Data Schedule
-14-
<PAGE> 16
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
November 14, 1997 By: /s/
----------------------------------------------
Jeffrey J. Ochs
As Vice President and Chief Accounting Officer
-15-
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 548,909
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 570,471
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 570,471
<CURRENT-LIABILITIES> 28,500
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 541,971
<TOTAL-LIABILITY-AND-EQUITY> 570,471
<SALES> 0
<TOTAL-REVENUES> 399,210
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 102,315
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 296,895
<INCOME-TAX> 0
<INCOME-CONTINUING> 296,895
<DISCONTINUED> 0
<EXTRAORDINARY> 677,126
<CHANGES> 0
<NET-INCOME> 974,021
<EPS-PRIMARY> 83
<EPS-DILUTED> 83
</TABLE>
