SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
For the fiscal year ended December 31, 1999......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 of (I.R.S. Employer
incorporation or organization) Identification No.)
9200 Keystone Crossing, Suite 46240
500 Indianapolis, Indiana (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (317) 817-7500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
11,490 Limited Partnership Interests
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 twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
State Issuer's revenue for its most recent fiscal year $23,000.
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within the past 60 days prior to the date of
filing. No market for the Registrant's limited partnership interests exists,
and, therefore, a market value for such interests cannot be determined.
Documents incorporated by reference. None
<PAGE>
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
(A MARYLAND LIMITED PARTNERSHIP)
1999 Form 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
PART I
Page
Item 1. Business 2
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
Item 5. Market for the Registrant's Partnership
Interests and Related Partnership Matters 9
Item 6. Management's Discussion and Analysis or Plan
of Operations 10
Item 7. Financial Statements 15
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 35
PART III
Item 9. Directors and Executive Officers of the Registrant 36
Item 10. Executive Compensation 38
Item 11. Security Ownership of Certain Beneficial
Owners and Management 38
Item 12. Certain Relationships and Related Transactions 38
PART IV
Item 13. Exhibit and Reports on Form 8-K 39
<PAGE>
PART I
Introduction
The matters discussed in this Form 10-KSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-KSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time. The
discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operation. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
Item 1. Business
National Housing Partnership Realty Fund III (A Maryland Limited
Partnership) (the "Partnership" or the "Registrant") was formed under the
Maryland Revised Uniform Limited Partnership Act as of May 10, 1985. On June 14,
1985, the Partnership commenced offering 11,500 limited partnership interests,
at a price of $1,000 per interest, through a public offering registered with the
Securities and Exchange Commission (the "Offering"). The Offering was managed by
Dean Witter Reynolds, Inc. and was terminated on July 18, 1985, with
subscriptions for all 11,500 limited partnership interests. As of December 31,
1999, 11,490 limited partnership interests were outstanding.
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
acquisitions were 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 ("NHP" or the "General Partner"). Together, NCHP and NHP
Partners Two own all of the outstanding partnership interests in NHP. NHP is the
general partner of the Registrant. As a result of these transactions, the AIMCO
Group acquired control of the general partner of the Registrant and, therefore,
may be deemed to have acquired control of the Registrant.
Receipt of HUD Subpoena/Tolling Agreement
In October 1997, NHP received a subpoena from the Inspector General ("IG")
of the United States Department of Housing and Urban Development ("HUD")
requesting documents relating to any agreement whereby NHP or any of its
affiliates provides or has provided compensation to owners (or their affiliates)
of HUD-assisted properties in connection with management of a HUD-assisted
property (the "Transactions"). Documents were produced which may have been
responsive to the HUD subpoena and submitted to the HUD Inspector General in
1998.
On or about February 26, 1998, Counsel for NHP and the U.S. government
entered into a Tolling Agreement with respect to any applicable statues of
limitations related to certain civil claims the government may have against NHP
in connection with the Transactions. The Tolling Agreement expired in August
1998.
In July 1999, NHP received a grand jury subpoena requesting documents
relating to the same subject matter as the HUD IG subpoenas and NHP's operation
of a group purchasing program created by NHP, known as Buyers Access. To date,
neither the HUD IG nor the grand jury has initiated any action against NHP or
Apartment Investment and Management Company ("AIMCO"), the ultimate controlling
entity of NHP or, to NHP's or AIMCO's knowledge, any owner of a HUD property
managed by NHP. AIMCO believes that NHP's operations and programs are in
compliance, in all material respects, with all laws, rules and regulations
relating to HUD-assisted or HUD-insured properties. NHP and AIMCO are
cooperating with investigations and do not believe that the investigations will
result in a material adverse impact on their operations. However, as with any
similar investigation, there can be no assurance that these will not result in
material fines, penalties or other costs.
NHP believes its operations are in compliance, in all material respects
with all laws, rules, and regulations related to HUD-assisted or HUD-insured
properties and has retained counsel in connection with NHP's response to the
subpoena. Although no action has been initiated against the Partnership, NHP or
AIMCO or, to AIMCO's knowledge, any owner of a HUD property managed by NHP or
AIMCO, if any such action is taken in the future, it could ultimately affect
existing arrangements with respect to HUD projects or otherwise have a material
adverse affect on the results of operations of AIMCO.
The Partnership's business is to hold limited partnership interests in
nine limited partnerships ("Local Limited Partnerships") each of which owns and
operates a multi-family rental housing property ("Properties"), which receives
one or more forms of assistance from the Federal Government. In each instance,
NHP is the general partner of the Local Limited Partnership and the Partnership
is the principal limited partner. As a limited partner, the Partnership's
liability for obligations of the Local Limited Partnerships is limited to its
investment and, as a limited partner, the Partnership does not exercise control
over the activities of the Local Limited Partnerships in accordance with the
partnership agreements. See "Item 6. Management's Discussion and Analysis or
Plan of Operations" for information relating to the Registrant's rights and
obligations to make additional contributions or loans to Local Limited
Partnerships.
Brunswick Village Limited Partnership's note payable, plus accrued
interest, became due on February 28, 1999. The Local Limited Partnership did not
have the resources to pay amounts due on the note payable. On August 16, 1999,
the note holder foreclosed on the Partnership's interest in the Brunswick
Village Limited Partnership which secured the Note.
The Partnership's investment objectives are to:
(1) preserve and protect Partnership capital;
(2) provide current tax benefits to Limited Partners to the extent
permitted by law, including, but not limited to, deductions that
Limited Partners may use to offset otherwise taxable income from
other sources;
(3) provide capital appreciation through increase in value of the
Partnership's investments, subject to considerations of capital
preservation and tax planning; and
(4) provide potential cash distributions from sales or refinancings of
the Partnership's investments and, on a limited basis, from
operations.
The Partnership does not have any employees. Services are performed for
the Partnership by the General Partner and agents retained by it.
<PAGE>
The following is a schedule of the Properties owned by the Local Limited
Partnerships in which the Partnership is a limited partner as of December 31,
1999:
SCHEDULE OF PROPERTIES OWNED BY LOCAL LIMITED PARTNERSHIPS
IN WHICH NATIONAL HOUSING PARTNERSHIP REALTY FUND III HAS AN INVESTMENT
<TABLE>
<CAPTION>
Occupancy
Units Authorized Percentage
Financed, Insured for Rental for the Year Ended
Property Name, Location Number of and Subsidized Assistance Under December 31,
and Partnership Name Units Under Section 8(C) 1999 1998
<S> <C> <C> <C> <C>
Edmond Estates 120 (A) 56 97% 100%
Phoenix City, Alabama
(Edmonds Estates Limited
Partnership)
Galion East 60 (B) 60 97% 98%
Galion, Ohio
(Galion Limited Partnership)
Indian Valley I 100 (A) 40 92% 95%
Kent, Ohio
(Indian Valley I Limited
Partnership)
Indian Valley II 90 (A) 36 96% 97%
Kent, Ohio
(Indian Valley II Limited
Partnership)
Indian Valley III 98 (A) 39 94% 96%
Kent, Ohio
(Indian Valley III Limited
Partnership)
Cherry Branch Townhomes 172 (A) 20 98% 95%
Laurel, Maryland
(Kimberly Associates Limited
Partnership)
Meadowood Apartments 283 (A) 164 94% 94%
Associates III
Edgewood, Maryland
(Meadowood Townhouses III
Limited Partnership)
Newton Hill 40 (A) 16 87% 93%
Akron, Ohio
(Newton Hill Limited
Partnership)
Woodmark 150 (A) -- 97% 95%
Woodbridge, Virginia
(Woodmark Limited Partnership)
</TABLE>
(A) The mortgage is insured by the Federal Housing Administration under the
provisions of Section 236 of the National Housing Act.
(B) The mortgage is insured by the Federal Housing Administration under the
provisions of Section 221(d)(3) of the National Housing Act.
(C) Section 8 of Title II of the Housing and Community Development Act of
1974.
Although each Local Limited Partnership in which the Partnership has
invested owns an apartment complex which must compete with other apartment
complexes for tenants, government mortgage interest and rent subsidies make it
possible to rent units to eligible tenants at below market rates. In general,
this insulates the Properties from market competition.
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 431 units, 39 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 adjusting
subsidized rents to market levels, thereby potentially 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. With respect to Housing Assistance
Payments Contracts ("HAP Contracts") expiring before October 1, 1998, Congress
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, 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 operation of the Partnership.
All of the units (431 in total) receiving rent subsidies from Section 8
have their contracts expiring during the year ending December 31, 2000. HUD has
issued new regulations that govern the continuance of project-based subsidies.
Under the new regulations, owners with HAP contracts expiring after September
30, 1998 may elect to (1) renew the contract without restructuring for one year,
(2) opt out of the contract, or (3) enter into the Mark-to Market program, which
includes a potential restructuring of the mortgage and renewal of the contract.
At this time it is not possible to determine which option each of the Local
Limited Partnerships will elect, and accordingly, it is not possible to
determine the ultimate impact on the operations of the Local Limited
Partnerships.
Regulation
General
Multifamily apartment properties are subject to various laws, ordinances
and regulations, including regulations relating to recreational facilities such
as swimming pools, activity centers and other common areas. Changes in laws
increasing the potential liability for environmental conditions existing on
properties or increasing the restrictions on discharges or other conditions, as
well as changes in laws effecting development, construction and safety
requirements, may result in significant unanticipated expenditures, which would
adversely affect the Partnership's cash flow from operating activities. In
addition, future enactment of rent control or rent stabilization laws or other
laws regulating multi-family housing may reduce rental revenue or increase
operating costs in particular markets.
HUD Approval and Enforcement
A significant number of properties owned by the Local Limited Partnerships
are subject to regulations by HUD. Under its regulations, HUD reserves the right
to approve the owner, and the manager of HUD-insured and HUD-assisted
properties, as well as their "principals" (e.g. general partners, stockholders
with 10% or greater interest, officers and directors) in connection with the
acquisition of a property, participation in HUD programs or the award of a
management contract. This approval process is commonly referred to as "2530
Clearance." HUD monitors the performance of properties with HUD-insured mortgage
loans. HUD also monitors compliance with applicable regulations, and takes
performance and compliance into account in approving the acquisition of
management of HUD-assisted properties. In the event of instances of
unsatisfactory performances or regulatory violations, the HUD office with
jurisdiction over the applicable property has the authority to enter a "flag"
into the computerized 2530 Clearance system. If one or more flags have been
entered, a decision whether to grant 2530 Clearance is then subject to review by
HUD's Multifamily Participation Review Committee in Washington, D.C., (the 2530
Committee). As a result of certain mortgage defaults and unsatisfactory ratings
received by NHP Incorporated in years prior to its acquisition by AIMCO in
December, 1997, HUD believes that the 2530 Committee must review any application
for 2530 Clearance filed by AIMCO. On December 18, 1998, AIMCO received approval
of approximately fifty 2530 applications and had no unresolved flags in the 2530
system as of December 31, 1998. As a result of HUD's review of 2530 applications
during 1999, two unresolved flags existed at December 31, 1999. Subsequent to
December 31, 1999, one of these flags was resolved and the other is currently
being addressed.
Laws Benefiting Disabled Persons
Under the Americans with Disabilities Act of 1990, all places of public
accommodations are required to meet certain Federal requirements related to
access and use by disabled persons. These requirements became effective in 1992.
A number of additional Federal, state and local laws may also require
modifications to the Properties, or restrict certain further renovations of the
Properties, with respect to access thereto by disabled persons. For example, the
Fair Housing Amendments Act of 1988 requires apartment properties first occupied
after March 13, 1990 to be accessible to the handicapped. Noncompliance with
these laws could result in the imposition of fines or an award of damages to
private litigants and also could result in an order to correct any non-complying
feature, which could result in substantial capital expenditures. Although the
Partnership believes that its properties are substantially in compliance with
present requirements, it may incur unanticipated expenses to comply with these
laws.
Regulation of Affordable Housing
As of December 31, 1999, the Partnership held an equity interest in 9
properties that benefit from government programs intended to provide housing to
people of low or moderate incomes. These programs, which are usually
administered by HUD or the state housing finance agencies, typically provide
mortgage insurance, favorable financing terms or rental assistance payments to
the property owners. As a condition to the receipt of assistance under these
programs, the properties must comply with various requirements, which typically
limit rents to pre-approved amounts. If permitted rents on a property are
insufficient to cover costs, a sale of the property may become necessary, which
could result in a loss of the Partnership's interest in the property, as well as
any benefits flowing from the property. The Partnership must obtain the approval
of HUD in order to acquire a significant interest in a HUD-assisted or
HUD-insured property. The Partnership can make no assurance that it will always
receive such approval.
Environmental
Various Federal, state and local laws subject property owners or operators
to liability for the costs of removal or remediation of certain hazardous
substances present on a property. Such laws often impart liability without
regard to whether the owner or operator knew of, or was responsible for, the
release of the hazardous substances. The presence of, or failure to properly
remediate, hazardous substances may adversely affect occupancy at contaminated
apartment communities and the Partnership's ability to sell or borrow against
contaminated properties. In addition to the costs associated with investigation
and remediation actions brought by governmental agencies, the presence of
hazardous wastes on a property could result in personal injury or similar claims
by private plaintiffs. Various laws also impose liability for the cost of
removal or remediation of hazardous or toxic substances is potentially liable
under such laws. These laws often impose liability whether or not the person
arranging for the disposal ever owned or operated the disposal facility. In
connection with the ownership or operation of properties, the Partnership could
potentially be liable for environmental liabilities or costs associated with its
properties or properties it may acquire in the future.
Management believes that the Partnership's properties are covered by
adequate fire, flood and property insurance provided by reputable companies and
with commercially reasonable deductibles and limits.
<PAGE>
Ownership Percentages
The following sets forth the Partnership's ownership percentages of the
Local Limited Partnerships and the cost of acquisitions of such ownership. All
interests are limited partner interests. Also included are the total mortgage
encumbrance and notes payable and accrued interest on each property for each of
the Local Limited Partnerships as of December 31, 1999.
NHP Realty Original Notes
Fund III Cost of Payable
Percentage Ownership Mortgage and Accrued
Partnership Ownership Interest Notes Interest (1)
(in thousands) (in thousands)
Edmond Estates, L.P. 94.5% $ 416 $ 928 $ 2,301
Galion, L.P. 94.5% 283 479 1,138
Indian Valley I, II
and III, L.P.s 94.5% 1,456 3,069 5,800
Kimberly Associates,L.P. 94.5% 902 1,767 3,299
Meadowoods Townhouses
III, L.P. 99.0% 2,998 2,716 5,428
Newton Hill, L.P. 94.5% 210 403 774
Woodmark, L.P. 94.5% 836 1,353 3,654
(1) See "Item 6. Management's Discussion and Analysis or Plan of Operations"
for further details.
Item 2. Properties
See Item 1 for the real estate owned by the Partnership through the
ownership of limited partnership interests in Local Limited Partnerships.
Item 3. Legal Proceedings
In 1997, NHP received subpoenas from the HUD Inspector General ("IG")
requesting documents relating to arrangements whereby NHP or any of its
affiliates provided compensation to owners of HUD-assisted or HUD-insured
multi-family projects in exchange for or in connection with property management
of a HUD project.
In July 1999, NHP received a grand jury subpoena requesting documents
relating to the same subject matter as the HUD IG subpoenas and NHP's operation
of a group purchasing program created by NHP, known as Buyers Access. To date,
neither the HUD IG nor the grand jury has initiated any action against NHP or
Apartment Investment and Management Company ("AIMCO"), the ultimate controlling
entity of NHP or, to NHP's or AIMCO's knowledge, any owner of a HUD property
managed by NHP. AIMCO believes that NHP's operations and programs are in
compliance, in all material respects, with all laws, rules and regulations
relating to HUD-assisted or HUD-insured properties. NHP and AIMCO are
cooperating with investigations and does not believe that the investigations
will result in a material adverse impact on its operations. However, as with any
similar investigation, there can be no assurance that these will not result in
material fines, penalties or other costs.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted.
<PAGE>
PART II
Item 5. Market for the Registrant's Partnership Interests and Related
Partnership Matters
(a)Interests in the Partnership were sold through a public offering
managed by Dean Witter Reynolds, Inc. There is no established market
for resale of interests in the Partnership. Accordingly, an investor
may be unable to sell or otherwise dispose of his interest in the
Partnership.
(b)As of December 31, 1999, there were 787 registered holders of 11,490
limited partnership interests (in addition to 1133 Fifteenth Street
Three Associates - See Note 1). In 1999, the number of Limited
Partnership Units decreased by 10 units due to limited partners
abandoning their units. In abandoning his or her Limited Partnership
Unit(s), a Limited Partner relinquishes all rights, title and
interest in the Partnership as of the date of abandonment.
(c)No cash dividends or distributions have been declared from the
inception of the Partnership through December 31, 1999.
Item 6. Management's Discussion and Analysis or Plan of Operations
The matters discussed in this Form 10-KSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-KSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time. The
discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operation. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
This item should be read in conjunction with the financial statements and
other items contained elsewhere in this report.
Year 2000 Compliance
General Description
The Year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. The
Partnership is dependent upon the General Partner and its affiliates for
management and administrative services ("Managing Agent"). Any of the Managing
Agent's computer programs or hardware that had date-sensitive software or
embedded chips might have recognized a date using "00" as the year 1900 rather
than the year 2000. This could have resulted in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
Computer Hardware, Software and Operating Equipment
In 1999, the Managing Agent completed all phases of its Year 2000 program
by completing the replacement and repair of any hardware or software system or
operating equipment that was not yet Year 2000 compliant. The Managing Agent's
hardware and software systems and its operating equipment are now Year 2000
compliant. No material failure or erroneous results have occurred in the
Managing Agent's computer applications related to the failure to reference the
Year 2000 to date.
Third Parties
To date, the Managing Agent is not aware of any significant supplier or
subcontractor (external agent) or financial institution of the Partnership that
has a Year 2000 issue that would have a material impact on the Partnership's
results of operations, liquidity or capital resources. However, the Managing
Agent has no means of ensuring or determining the Year 2000 compliance of
external agents. At this time, the Managing Agent does not believe that a Year
2000 issue of any non-compliant external agent will have a material impact on
the Partnership's financial position or results of operations.
<PAGE>
Costs
The total cost of the Managing Agent's Year 2000 project was approximately
$3.2 million and was funded from operating cash flows.
Risks Associated with the Year 2000
The Managing Agent completed all necessary phases of its Year 2000 program
in 1999, and did not experience system or equipment malfunctions related to a
failure to reference the Year 2000. The Managing Agent or Partnership have not
been materially adversely effected by disruptions in the economy generally
resulting from the Year 2000 issue.
At this time, the Managing Agent does not believe that the Partnership's
businesses, results of operations or financial condition will be materially
adversely effected by the Year 2000 issue.
Contingency Plans Associated with the Year 2000
The Managing Agent has not had to implement contingency plans such as
manual workarounds or selecting new relationships for its banking or elevator
operation activities in order to avoid the Year 2000 issue.
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 the Federal Government. 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.
All of the Local Limited Partnerships in which the Partnership has
invested carry notes payable due the original owner of each Property. All of the
notes reached final maturity during 1999. These notes are secured by both the
Partnership's and the General Partner's interests in the Local Limited
Partnerships. Meadowood Townhouses III, Woodmark, Kimberly Associates, Edmond
Estates, Galion, Indian Valley I, Indian Valley II, Indian Valley III and Newton
Hill Limited Partnerships all have notes which were executed by the respective
Limited Partnerships with the seller as part of the acquisition of the property
by the Limited Partnership. The notes are nonrecourse and are subordinated to
the respective mortgage notes on each property for as long as HUD insures the
mortgage notes. Any payments due from project income are payable from surplus
cash, as defined by the HUD Regulatory Agreement. Neither the Limited
Partnership nor any partner thereof, present or future, assume any personal
liability for the payment of the notes. The notes were due in November 1999 for
Meadowood Townhouse III and in December 1999 for the remaining Limited
Partnerships. Subsequent to December 31, 1999, the note holder foreclosed on the
Partnership's interest on the following Limited Partnerships which secured each
respective note: Woodmark, Galion, Indian Valley I, Indian Valley II, Indian
Valley III and Newton Hill. With the loss of the Partnership's interest to the
note holder, the Partnership will not receive any future benefits from this
Local Limited Partnership and taxable income will be generated and flow to the
Partnership's investors without any distributable cash for the current year. The
specific impact of the tax consequences is dependent upon each specific
partner's individual tax situation. Subsequent to December 31, 1999, the note
holder began foreclosure proceedings on the Partnership's interest in the
following Limited Partnerships, which secured each respective note: Kimberly
Associates and Meadowood Townhouses III. Regarding Edmond Estates Limited
Partnership, interest continues to be accrued under the original terms of the
note agreement. The note is in default and the Limited Partnership interest is
subject to foreclosure. The property is currently being marketed for sale, but
there is no guarantee that the property will sell or, if it is sold, that the
sale transaction will generate sufficient proceeds to pay the accrued interest
and principal of the note. The financial statements do not include any
adjustments which might result from the outcome of this uncertainty.
Brunswick Village Limited Partnership's note payable, plus accrued
interest, became due on February 28, 1999. The Local Limited Partnership did not
have the resources to pay amounts due on the note payable. On August 16, 1999,
the note holder foreclosed on the Partnership's interest in the Brunswick
Village Limited Partnership which secured the Note. No gain or loss was recorded
as a result of this transfer of partnership interest. With the loss of the
Partnership's interest to the note holder, the Partnership will not receive any
future benefits from this Local Limited Partnership and taxable income will be
generated and flow to the Partnership's investors without any distributable cash
for the current year. The specific impact of the tax consequences is dependent
upon each specific partner's individual tax situation.
On May 2, 1996, Meadowood Townhouses I Limited Partnership entered into an
Agreement of Sale with Community Preservation and Development Corporation, to
sell its two properties, Meadowood Apartments I and II pursuant to the terms of
LIHPRHA. The purchase price was based on the properties' Transfer Preservation
Value, as approved by HUD. During 1997 funding was approved for the sale of
Meadowood Apartments I and II, and final settlement occurred on July 15, 1997.
Total LIHPRHA grant money received for the properties was approximately
$3,336,200, comprised of approximately $1,558,000 for Meadowoods Apartments I
and approximately $1,778,000 for Meadowood Apartments II. The holders of the
notes payable were paid a portion of the LIHPRHA grant money in full
satisfaction of amounts due on their notes. Any unpaid balances were forgiven.
During 1998, the Partnership received net proceeds from the sale of
approximately $85,000.
During 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 approximately $5,747,000, which
is above the mortgage note of approximately $1,867,000. In addition, Southport
Financial Services, Inc., assumed the note payable and accrued interest totaling
approximately $3,505,000 due to the note holders. Final settlement occurred on
July 31, 1997. During 1998, the Partnership received net proceeds from the sale
of approximately $14,000. The Partnership's share of the gain from this
transaction has been recorded in the accompanying statement of operations for
the year ended December 31, 1998, as the Partnership's share of profits from
Local Limited Partnerships.
Distributions in excess of investment in Local Limited Partnerships and
distributions 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 investment in Local Limited Partnerships, the carrying
values for all Local Limited Partnerships were reduced to zero during 1994. Cash
distributions received are recorded as revenue as distributions in excess of
investment in Local Limited Partnerships. In prior years, cash distributions
received from investments in Local Limited Partnerships which had not been
reduced to zero, were recorded as distributions in the statement of cash flows
and reduced the Partnership's investment on the statement of financial position.
The receipt of distributions in future years is dependent on the operations of
the underlying Properties of the Local Limited Partnerships.
During 1999, and 1998, the Partnership made no advances to the Local
Limited Partnerships. During 1999, loans of $200 were repaid by one Local
Limited Partnership. There were no repayments made during 1998. As discussed in
Note 3 to the Partnership's financial statements, during 1993, the Partnership
re-evaluated the collectibility of its total outstanding advances and, based on
the Local Limited Partnerships' operations, determined that such advances to
Local Limited Partnerships were not likely to be collected and, therefore, for
accounting purposes, treated the advances balance as additional Investment in
Local Limited Partnerships. The balance was then reduced to zero, with the
corresponding charge to operations. Advances to the Local Limited Partnerships,
together with accrued interest on such advances, remain due and payable to the
Partnership. As of December 31, 1999, the balance of such advances was
approximately $519,000. Interest is calculated at the Chase Manhattan Bank prime
rate plus 2%. Chase Manhattan Bank prime was 8.25% at December 31, 1999.
During 1999 and 1998, the General Partner advanced approximately $4,000
and $28,000 to six and seven of the Local Limited Partnerships, respectively, to
fund partnership entity expenses, including expenses incurred relating to
potential sales or refinancing under the LIHPRHA program. During 1999 and 1998,
loans of approximately $7,000 and $200, and accrued interest of approximately $0
and $9,000, respectively, were repaid by three Local Limited Partnerships. The
balance owed to the General Partner by the Local Limited Partnerships at
December 31, 1999, was approximately $623,000. Interest is charged at a rate
equal to the Chase Manhattan Bank prime interest rate plus 2%. Chase Manhattan
Bank prime was 8.25% at December 31, 1999.
Net cash used in operations for the year ended December 31, 1999 was
approximately $55,000 as compared to net cash provided by operations of
approximately $56,000 in 1998. The decrease in cash provided by operations from
1998 to 1999 was primarily the result of a decrease in distributions received
from the Local Limited Partnerships resulting from the sales of Elden Terrace
Apartments and Meadowood Apartments I and II during 1997.
Cash and cash equivalents amounted to approximately $540,000 at December
31, 1999. The ability of the Partnership to meet its on-going cash requirements,
in excess of cash on hand at December 31, 1999, is dependent on distributions
received from the Local Limited Partnerships and proceeds from sales or
refinancings of the underlying Properties. In addition, the Partnership's
liquidity will be detrimentally affected to the extent that all or some of the
Local Limited Partnerships are unable to extend the maturity date of their notes
payable to the original owner of the Property and such Properties are foreclosed
upon.
<PAGE>
Results of Operations
The Partnership has invested as a limited partner in Local Limited
Partnerships which operate nine rental housing properties. Due to the use of the
equity method of accounting as discussed in Note 1 to the Partnership's
financial statements, to the extent the Partnership still has a carrying basis
in a respective Local Limited Partnership, results of operations would be
impacted by the Partnership's share of the losses of the Local Limited
Partnerships. As of December 31, 1999, the Partnership had no carrying basis in
any of the Local Limited Partnerships and reflected no share of losses for Local
Limited Partnerships in 1999. During 1998, the Partnership recorded
approximately $12,000 of its share of profits resulting from the sale of the
rental property owned by one Local Limited Partnership.
The Partnership's net loss was approximately $86,000 for the year ended December
31, 1999 as compared to a net loss of approximately $130,000 for the year ended
December 31, 1998. Similarly, net loss per unit of limited partnership interest
decreased to $7 in 1999 from a net loss per unit of $11 in 1998 for the 11,490
units outstanding at December 31, 1999 and 11,500 units outstanding at December
31, 1998. This decrease was primarily due to a decrease in administrative and
reporting fees and other operating expenses, offset by a decrease in the
Partnership's share of profits from Local Limited Partnerships. As indicated
above, the Partnership's net investment in the Local Limited Partnerships was
reduced to zero in a prior year (see Note 3 to the Partnership's financial
statements). As a result, the Partnership did not recognize approximately
$1,086,000 of its allocated share of losses from the Local Limited Partnerships
for the year ended December 31, 1999. The Partnership's share of profit or
losses from the Local Limited Partnerships, if not limited to its investment
account balance, would have increased approximately $1,099,000 from 1998 to
1999. This decrease in loss was primarily the result of an impairment loss being
recognized by Newton Hill Limited Partnership in the amount of approximately
$520,000 in 1999, compared to impairment losses of approximately $1,230,000 for
1998. Additionally, operating and administrative expenses decreased during 1999.
Item 7. Financial Statements
The financial statements of the Partnership are included on pages 12
through 30 of this report.
<PAGE>
Independent Auditors' Report
To The Partners of
National Housing Partnership Realty Fund III
Indianapolis, Indiana
We have audited the accompanying statement of financial position of National
Housing Partnership Realty Fund III (the Partnership) as of December 31, 1999,
and the related statements of operations, partners' (deficit) equity, and cash
flows for each of the two years in the period ended December 31, 1999. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Brunswick Village
Limited Partnership for the year ended December 31, 1998 and which had no
investment balance at December 31, 1999 and the financial statements of Woodmark
Limited Partnership for the year ended December 31, 1999. Those statements were
audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to data included for Brunswick Village Limited
Partnership (for 1998) and Woodmark Limited Partnership (for 1999), is based
solely on the reports of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the reports of other auditors
provide a reasonable basis for our opinion.
In our opinion, based upon our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of National Housing Partnership Realty Fund III at
December 31, 1999, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States.
As discussed in Note 6 to the financial statements, the due dates of certain of
the Local Limited Partnership's notes payable have expired, and therefore, the
notes are in default. Subsequent to December 31, 1999, note holders for certain
Local Limited Partnerships foreclosed on the Partnership interests and the note
holders for certain other Local Limited Partnerships began foreclosure
proceedings (Note 2). These conditions raise substantial doubt about their
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
/s/Ernst & Young LLP
Indianapolis, Indiana
March 6, 2000
<PAGE>
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
STATEMENT OF FINANCIAL POSITION
December 31, 1999
(in thousands, except unit data)
ASSETS
Cash and cash equivalents (Note 1) $ 540
Investments in and advances to Local Limited Partnerships (Note 2) --
$ 540
LIABILITIES AND PARTNERS' (DEFICIT) EQUITY
Liabilities:
Administrative and reporting fee payable to
General Partner (Note 3) 141
Accrued expenses 30
171
Partners' (deficit) equity:
General Partner -- The National Housing Partnership (NHP) (92)
Original Limited Partner -- 1133 Fifteenth Street Associates (96)
Other Limited Partners -- 11,490 investment units 557
369
$ 540
See notes to financial statements.
<PAGE>
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Years Ended December 31,
1999 1998
REVENUES:
Share of profits from Local Limited
Partnerships (Note 2) $ -- $ 12
Interest income 23 21
23 33
COSTS AND EXPENSES:
Administrative and reporting fees to
General Partner (Note 3) 53 86
Other operating expenses 56 77
109 163
NET LOSS $ (86) $ (130)
ALLOCATION OF NET LOSS:
General Partner - NHP $ (1) $ (1)
Original Limited Partner - 1133
Fifteenth Street Three Associates (1) (1)
Other Limited Partners - 11,490
investment units (84) (128)
$ (86) $ (130)
NET LOSS PER OTHER
LIMITED PARTNERSHIP INTEREST $ (7) $ (11)
See notes to financial statements.
<PAGE>
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
(in thousands, except unit data)
The 1133
National Fifteenth
Housing Street Other
Partnership Three Limited
(NHP) Associates Partners Total
Equity (deficit) at
January 1, 1998 $(90) $(94) $769 $585
Net loss (1) (1) (128) (130)
Equity (deficit) at
December 31, 1998 (91) (95) 641 455
Net loss (1) (1) (84) (86)
Equity (deficit) at
December 31, 1999 $(92) $(96) $557 $369
Percentage interest at
December 31, 1998, and 1999 1% 1% 98%
(A) (B) (C)
(A) General Partner
(B) Original Limited Partner
(C) Consists of 11,490 investment units at December 31, 1999 and 11,500
investment units at December 31, 1998. During 1999, 10 investment units
were abandoned (Note 7).
See notes to financial statements.
<PAGE>
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(in thousands, except unit data)
Years Ended December 31,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Distributions from Local Limited Partnerships $ -- $ 99
Payment of administrative and reporting fees to
General Partner 2 --
Interest received 23 21
Operating expenses paid (80) (64)
Net cash (used in) provided by operating activities (55) 56
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (55) 56
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 595 539
CASH AND CASH EQUIVALENTS, END OF YEAR $ 540 $ 595
RECONCILIATION OF NET LOSS TO NET CASH
(USED IN) PROVIDED BY OPERATING ACTIVITIES:
Net loss $ (86) $(130)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Distributions from Local Limited Partnerships -- 99
Share of profits from Local Limited Partnerships -- (12)
Increase in administrative and reporting
fees payable to the General Partner 55 86
(Decrease) increase in payables (24) 13
Total adjustments 31 186
Net cash (used in) provided by operating activities $ (55) $ 56
See notes to financial statements.
<PAGE>
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF PARTNERSHIP ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
National Housing Partnership Realty Fund III (the "Partnership" or the
"Registrant") is a limited partnership organized 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 Local Limited Partnerships, each of which either
owns and operates an existing rental housing project or has acquired limited
partnership interests in partnerships which own and operate one or two existing
rental housing projects. All such rental housing projects are 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"). On June 30,
1985, inception of operations, the Partnership began raising capital and
acquiring interests in Local Limited Partnerships.
The General Partner was authorized to raise capital for the Partnership by
offering and selling to additional limited partners not more than 11,500
interests at a price of $1,000 per interest. During 1985, the sale of interests
was terminated after the sale of all 11,500 interests.
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
acquisitions were 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 ("NHP" or the "General Partner"). Together, NCHP and NHP
Partners Two own all of the outstanding partnership interests in NHP. NHP is the
general partner of 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.
The Original Limited Partner of the Partnership is 1133 Fifteenth Street
Three Associates, whose limited partners were key employees of NCHP at the time
the Partnership was formed and whose general partner is NHP.
During 1985, the Partnership acquired limited partnership interests
ranging from 94.5% to 99% in twelve limited partnerships (Local Limited
Partnerships), which were organized in 1984 to directly or indirectly own and
operate existing rental housing projects. At December 31, 1999, the Partnership
retained an ownership interest in nine of the original Local Limited
Partnerships. Subsequent to December 31, 1999, the note holders of deferred
acquisition notes foreclosed on the Partnership's interest in six Local Limited
Partnerships and began foreclosure proceedings on the Partnership's interest in
two Local Limited Partnerships.
Significant Accounting Policies
The financial statements of the Partnership are prepared on the accrual
basis of accounting. Direct costs of acquisition, including acquisition fees and
reimbursable acquisition expenses paid to the General Partner, have been
capitalized as investments in the Local Limited Partnerships. Other fees and
expenditures of the Partnership are recognized as expenses in the period the
related services are performed.
<PAGE>
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.
Investments in Local Limited Partnerships are accounted for using the
equity method and thus are carried at cost plus the Partnership's share of the
Local Limited Partnerships' profits less the Partnership's share of the Local
Limited Partnerships' losses and distributions (see Note 3). An investment
account is maintained for each of the Local Limited Partnership investments and
losses are not recognized once an investment account has decreased to zero. Cash
distributions are limited by the Regulatory Agreements between the Local Limited
Partnerships and HUD to the extent of surplus cash as defined by HUD.
Distributions received from Local Limited Partnerships in which the
Partnership's investment account has decreased to zero are recorded as revenue
in the year they are received. Advances to Local Limited Partnerships are
included with Investments in Local Limited Partnerships to the extent that the
advances are not temporary advances of working capital.
For purposes of the statements of cash flows, the Partnership considers
all highly liquid debt instruments purchased with initial maturities of three
months or less to be cash equivalents.
Fair Value of Financial Instruments
FASB Statement No. 107, "Disclosures About Fair Value of Financial
Instruments," requires disclosure of fair value information about significant
financial instruments, when it is practicable to estimate that value and
excessive costs would not be incurred. To estimate the fair value of the
balances due to the General Partner and accrued interest thereon, excessive
costs would be incurred and, therefore, no estimate has been made. The
Partnership believes that the carrying value of other assets and liabilities
reported on the statement of financial position that require such disclosure
approximates fair value.
Segment Reporting
Statement of Financial Accounting Standards No. 131, Disclosure about
Segments of an Enterprise and Related Information established standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports. It
also establishes standards for related disclosures about products and services,
geographic areas, and major customers. The Partnership has only one reportable
segment.
2. INVESTMENTS IN AND ADVANCES TO LOCAL LIMITED PARTNERSHIPS
At December 31, 1999, the Partnership owns a 94.5% limited partnership
interest (98% with respect to allocation of losses) in eight Local Limited
Partnerships: Elden Limited Partnership, Edmond Estates Limited Partnership,
Galion Limited Partnership, Indian Valley I Limited Partnership, Indian Valley
II Limited Partnership, Indian Valley III Limited Partnership, Kimberly
Associates Limited Partnership, Newton Hill Limited Partnership and Woodmark
Limited Partnership. The Partnership also owns a 99% limited partnership
interest in Meadowood Townhouses III Limited Partnership. This Local Limited
Partnership owns a 99% limited partnership interest in an operating limited
partnership which holds title to one rental housing property. The Partnership's
effective interest in this operating limited partnership is 98.01%.
<PAGE>
In July 1997, Meadowood Townhouses I Limited Partnership received final
approval for the sale of its two properties. During 1998, the Partnership
received additional net proceeds from the sale of approximately $85,000. In July
1997, Elden Limited Partnership received final approval for the sale of its
property. During 1998, the Partnership received additional net proceeds from the
sale of approximately $14,000. The Partnership's share of the gain from this
transaction has been recorded in the accompanying statement of operations for
the year ended December 31, 1998, as the Partnership's share of profits from
Local Limited Partnerships.
Since the Partnership does not exercise control over the activities of the
Local Limited Partnerships in accordance with the partnership agreements, the
Partnership's investments are accounted for using the equity method. Thus, the
investments are carried at cost plus the Partnership's share of the Local
Limited Partnerships' profits less the Partnership's share of the Local Limited
Partnerships' losses and distributions. However, since the Partnership is
neither legally liable for the obligations of the Local Limited Partnerships,
nor otherwise committed to provide additional support to them, it does not
recognize losses once its investment, reduced for its share of losses and cash
distributions, reaches zero in each of the individual Local Limited
Partnerships. As a result, the Partnership did not recognize approximately
$1,086,000 and $2,033,000 of its allocated share of losses from nine and ten
Local Limited Partnerships during 1999 and 1998, respectively. During 1999 and
1998, the Partnership's share of profits in two and one Local Limited
Partnership was approximately $13,000 and $4,000, respectively, which were
offset against prior year losses not taken. As of December 31, 1999 and 1998,
the Partnership had not recognized approximately $16,659,000 and $15,783,000,
respectively, of its allocated share of cumulative losses from the nine Local
Limited Partnerships in which its investment is zero.
During 1999 and 1998, the General Partner advanced approximately $4,000
and $28,000 to six and seven of the Local Limited Partnerships to fund
partnership entity expenses, including expenses incurred relating to potential
sales or refinancing under the LIHPRHA program. During 1999 and 1998, loans of
approximately $7,000 and $200, and accrued interest of $0 and approximately
$9,000, respectively, were repaid by three Local Limited Partnerships. The
balance owed to the General Partner by the Local Limited Partnerships at
December 31, 1999, was approximately $623,000. Interest is charged at a rate
equal to the Chase Manhattan Bank prime interest rate plus 2%. Chase Manhattan
Bank prime was 8.25% at December 31, 1999.
During 1999 and 1998, the Partnership made no advances to the Local
Limited Partnerships. During 1999, loans of $200 were repaid by one Local
Limited Partnership. There were no repayments made during 1999 and 1998. During
1993, the Partnership re-evaluated the collectibility of the total outstanding
advances made to the Local Limited Partnerships and determined, based on the
Local Limited Partnerships' operations, that such advances are not likely to be
collected. The Partnership treated the advances balance as additional
"Investment in Limited Partnerships" for accounting purposes. The balance was
then reduced to zero, with corresponding charges to operations or the investment
balance for the individual Local Limited Partnerships. The charge to operations
in 1994 reduced the Partnership's investment in Local Limited Partnerships to
zero. These advances plus accrued interest remain due and payable to the
Partnership. As of December 31, 1999, the balance of such advances was
approximately $519,000. Interest is calculated at the Chase Manhattan Bank prime
rate plus 2%. Chase Manhattan Bank prime was 8.25% at December 31, 1999. Payment
of principal and interest is contingent upon the Local Limited Partnerships
having available surplus cash, as defined by HUD regulations, from operations,
or from refinancing or sale of the Local Limited Partnership properties. Any
future repayment of advances or interest will be reflected as Partnership income
when received.
Summaries of the combined financial position of the aforementioned Local
Limited Partnerships as of December 31, 1999, and the combined results of
operations for the years ended December 31, 1999 and 1998 are as follows:
<PAGE>
CONDENSED COMBINED FINANCIAL POSITION
OF THE LOCAL LIMITED PARTNERSHIPS
(in thousands)
December 31,
1999
Assets:
Land $ 1,880
Buildings and improvements, net of accumulated
depreciation of $10,667 and impairment losses of $7,248 15,117
Other assets 3,204
$20,201
Liabilities and partners' deficit:
Liabilities:
Mortgage notes payable $10,715
Notes payable 9,365
Accrued interest on notes payable 13,029
Other liabilities 4,587
37,696
Partners' deficit:
National Housing Partnership Realty Fund III (16,329)
Other partners (1,166)
(17,495)
$20,201
CONSENSED COMBINED RESULTS OF OPERATIONS
OF THE LOCAL LIMITED PARTNERSHIPS
Years Ended December 31,
1999 1998
Revenue $ 6,242 $ 6,437
Expenses:
Operating expenses 4,563 4,945
Financial expenses - primarily interest 118 141
Interest on notes payable 1,194 1,233
Depreciation and amortization 955 944
Impairment loss on rental property 520 1,230
Total expenses 7,350 8,493
Net loss $(1,108) $(2,056)
<PAGE>
The combined financial statements of the Local Limited Partnerships are
prepared on the accrual basis of accounting. The twelve Local Limited
Partnerships were formed during 1984 for the purpose of directly or indirectly
operating thirteen rental housing projects. During 1997, three of the rental
housing projects owned by two Local Limited Partnerships were sold. During 1998,
nine of the projects received a substantial amount of rental assistance from
HUD. During 1999, nine of the projects received a substantial amount of rental
assistance from HUD and the partnership interest of one of the projects was
transferred, with no gain or loss recorded as a result.
For the past several years, various proposals have been advanced by the
United States Department of Housing and Urban Development ("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
431 units, 39 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 adjusting
subsidized rents to market levels, thereby potentially 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. With respect to Housing Assistance
Payments Contracts ("HAP Contracts") expiring before October 1, 1998, Congress
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, 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 operation of the Partnership.
All of the units (431 in total) receiving rent subsidies from Section 8
have their contracts expiring during the year ending December 31, 2000. HUD has
issued new regulations that govern the continuance of project-based subsidies.
Under the new regulations, owners with HAP contracts expiring after September
30, 1998 may elect to (1) renew the contract without restructuring for one year,
(2) opt out of the contract, or (3) enter into the Mark-to Market program, which
includes a potential restructuring of the mortgage and renewal of the contract.
At this time it is not possible to determine which option each of the Local
Limited Partnerships will elect, and accordingly, it is not possible to
determine the ultimate impact on the operations of the Local Limited
Partnerships.
Depreciation of the buildings and improvements for nine of the Local
Limited Partnerships is computed on a straight-line method, assuming a 50-year
life from the date of initial occupancy at the time of construction or after
substantial rehabilitation of the building, whereas depreciation for one of the
Local Limited Partnerships is computed using the straight-line method, assuming
a 30-year life and a 30% salvage value. Depreciation of equipment is calculated
using accelerated methods over estimated useful lives of 5 to 27 years.
The mortgage notes payable are insured by the Federal Housing
Administration (FHA) and are collateralized by first deeds of trust on the
rental properties. The notes bear interest at rates ranging from 3% to 8.5% per
annum. For the rental housing projects insured under Section 236, the FHA makes
subsidy payments directly to the mortgage lender reducing the monthly principal
and interest payments of the project owner to an effective interest rate of 1%
over the forty-year term of the notes. The liability of the Local Limited
Partnerships under the mortgage notes is limited to the underlying value of the
real estate collateral plus other amounts deposited with the lenders.
Notes payable were executed by the Local Limited Partnerships with the
former owners as part of the acquisition of the properties by the Local Limited
Partnerships. These notes bear simple interest at rates of 9% or 10% per annum.
The notes are nonrecourse notes secured by a security interest in all
partnership interests in the respective Local Limited Partnership and are
subordinated to the respective mortgage note for as long as the mortgage note is
insured by HUD. Any payments due from project income are payable from the
respective Local Limited Partnership's surplus cash, as defined by the
respective HUD Regulatory Agreement. The notes may be prepaid in whole or in
part at any time without penalty. Neither the respective Local Limited
Partnership nor any partner thereof, present or future, assumes any personal
liability for the payment of these notes.
These notes matured as follows:
Local Partnership Due Date Note Amount Accrued Interest
(in thousands)
Meadowood Townhouses III
Limited Partnership November 1, 1999 $2,157 $ 3,270
Woodmark Limited
Partnership December 13, 1999 1,553 2,101
Kimberly Associates
Limited Partnership December 13, 1999 1,402 1,897
Edmond Estates
Limited Partnership December 17, 1999 978 1,323
Galion Limited
Partnership December 20, 1999 482 656
Indian Valley I
Limited Partnership December 20, 1999 964 1,305
Indian Valley II
Limited Partnership December 20, 1999 625 847
Indian Valley III
Limited Partnership December 20, 1999 875 1,185
Newton Hill
Limited Partnership December 20, 1999 329 445
Total Due $9,365 $13,029
Meadowood Townhouses III, Woodmark, Kimberly Associates, Edmond Estates,
Galion, Indian Valley I, Indian Valley II, Indian Valley III and Newton Hill
Limited Partnerships all have notes which were executed by the respective
Limited Partnerships with the seller as part of the acquisition of the property
by the Limited Partnership. The notes are nonrecourse and are subordinated to
the respective mortgage notes on each property for as long as HUD insures the
mortgage notes. Any payments due from project income are payable from surplus
cash, as defined by the HUD Regulatory Agreement. Neither the Limited
Partnership nor any partner thereof, present or future, assume any personal
liability for the payment of the notes. The notes were due in November 1999 for
Meadowood Townhouse III and in December 1999 for the remaining Limited
Partnerships. Subsequent to December 31, 1999, the note holder foreclosed on the
Partnership's interest in the following Limited Partnerships which secured each
respective note: Woodmark, Galion, Indian Valley I, Indian Valley II, Indian
Valley III and Newton Hill. With the loss of the Partnership's interest to the
note holder, the Partnership will not receive any future benefits from this
Local Limited Partnership and taxable income will be generated and flow to the
Partnership's investors without any distributable cash for the current year. The
specific impact of the tax consequences is dependent upon each specific
partner's individual tax situation. Subsequent to December 31, 1999, the note
holder began foreclosure proceedings on the Partnership's interest in the
following Limited Partnerships, which secured each respective note: Kimberly
Associates and Meadowood Townhouses III. Regarding Edmond Estates Limited
Partnership, interest continues to be accrued under the original terms of the
note agreement. The note is in default and the Limited Partnership interest is
subject to foreclosure. The property is currently being marketed for sale, but
there is no guarantee that the property will sell or, if it is sold, that the
sale transaction will generate sufficient proceeds to pay the accrued interest
and principal of the note. The financial statements do not include any
adjustments which might result from the outcome of this uncertainty.
Brunswick Village Limited Partnership's note payable, plus accrued
interest, became due on February 28, 1999. The Local Limited Partnership did not
have the resources to pay amounts due on the note payable. On August 16, 1999,
the note holder foreclosed on the Partnership's interest on the Brunswick
Village Limited Partnership which secured the Note. No gain or loss was recorded
as a result of this transfer of partnership interest. With the loss of the
Partnership's interest to the note holder, the Partnership will not receive any
future benefits from this Local Limited Partnership and taxable income will be
generated and flow to the Partnership's investors without any distributable cash
for the current year. The specific impact of the tax consequences is dependent
upon each specific partner's individual tax situation.
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of"
requires the Local Limited Partnerships to record impairment losses when events
and circumstances indicate that the investment in the Local Limited Partnership
might be impaired and the estimated undiscounted cash flows to be generated by
the Local Limited Partnership are less than the carrying amount of the
investment in the Local Limited Partnership. When an asset is determined to be
impaired, it is written down to its estimated fair value. In 1999, Newton Hill
Limited Partnership recorded an impairment loss and reduced the carrying value
of fixed assets by $520,000. During 1998, Indian Valley I Limited Partnership
recognized an impairment loss and reduced the carrying value of fixed assets by
$1,230,000.
Additionally, regardless of whether an impairment loss of an individual
property has been recorded or not, the carrying value of each of the rental
properties may still exceed their fair market value as of December 31, 1999.
Should a Local Limited Partnership be forced to dispose of any of its
properties, it could incur a loss.
3. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES OF THE GENERAL
PARTNER
The Partnership accrued Administrative and Reporting Fees payable to the
General Partner of approximately $53,000 in 1999 and $86,000 and 1998. The
Partnership paid the General Partner approximately $2,000 for these fees during
1999. No payments were made to the General Partner for those fees in 1998. As of
December 31, 1999, the Partnership owed approximately $141,000 to the General
Partner for accrued administrative and reporting fees.
An affiliate of the General Partner, NHP Management Company ("NHPMC"),
formerly a wholly owned subsidiary of NHP Incorporated ("NHPI"), is the project
management agent for the projects operated by four of the Local Limited
Partnerships. NHPMC and other affiliates of NCHP earned approximately $320,000
and $296,000 from the Local Limited Partnerships for management fees and other
services provided to the Local Limited Partnerships during 1999 and 1998,
respectively. At December 31, 1999, there were no amounts considered due NHP
Management Company and unpaid by the Local Limited Partnerships.
Personnel working at the project sites, which are managed by NHPMC, became
employees of NHPMC (as a successor employer) as of December 8, 1997 and,
therefore, the projects reimbursed NHPI and NHPMC for the actual salaries and
related benefits. Total reimbursements earned for salaries and benefits for the
years ended December 31, 1999 and 1998, were approximately $517,000 and
$544,000, respectively.
<PAGE>
4. INCOME TAXES
The Partnership is not taxed on its income. The partners are taxed in
their individual capacities based upon their distributive share of the
Partnership's taxable income and are allowed the benefits to be derived from
off-setting their distributive share of the tax losses against taxable income
from other sources, subject to passive loss rule limitations. The taxable income
or loss differs from amounts included in the statements of operations because of
different methods used in determining the losses of the Local Limited
Partnerships. The tax loss is allocated to the partner groups in accordance with
Section 704(b) of the Internal Revenue Code and therefore is not necessarily
proportionate to the percentage interest owned.
A reconciliation follows (in thousands):
Years Ended December 31,
1999 1998
Net loss per financial statements $ (86) $ (130)
Other 47 36
Partnership's share of limited local
partnership's profit (loss) 2,137 (421)
Profit (loss) per tax return $2,098 $ (515)
The following is a reconciliation between the Partnership's reported amounts and
the federal tax basis of net assets/(deficit) (in thousands):
December 31, 1999
Net assets as reported $ 369
Add (deduct):
Investment in Partnerships (19,688)
Other 83
Net deficit - federal tax basis $(19,236)
5. ALLOCATION OF RESULTS OF OPERATIONS, CASH DISTRIBUTIONS AND GAINS AND
LOSSES FROM SALES OR REFINANCING
Net income or loss from operations is allocated 98% to the Limited
Partners, 1% to the General Partner and 1% to the Original Limited Partner. Cash
distributions from operations, after payment of certain obligations including
reimbursement on a cumulative basis of direct expenses incurred by the General
Partner or its affiliates in managing the properties and payment of annual
cumulative administrative and reporting fees, is distributed 98% to the Limited
Partners, 1% to the General Partner and 1% to the Original Limited Partner.
Cash received from the sale or refinancing of any underlying property of
the Local Limited Partnerships, after payment of the applicable mortgage debt
and the payment of all expenses related to the transaction, is to be distributed
in the following manner:
<PAGE>
First, to the General Partner for any unrepaid loans to the Partnership and
any unpaid fees (other than disposition and refinancing fees);
Second, to the establishment of any reserves which the General Partner
deems reasonably necessary for contingent, unmatured or unforeseen
liabilities or obligations of the Partnership.
Third, to the Limited Partners until the Limited Partners have received a
return of their capital contributions, after deduction for prior cash
distributions from sales or refinancing, but without deduction for prior
cash distribution from operations;
Fourth, to the Limited Partners, until each Limited Partner has received an
amount equal to a cumulative noncompounded 12% annual return on its capital
contribution, after deduction of (a) an amount equal to 50% of the tax
losses allocated to the Limited Partner and (b) prior cash distributions
from operations and prior cash distributions from sales or refinancing;
Fifth, to the General Partner until the General Partner has received a
return of its capital contributions, after deduction for prior cash
distributions from sales or refinancing, but without deduction for prior
cash distributions from operations;
Sixth, to the General Partner for disposition and refinancing fees,
including prior disposition and refinancing fees which have been accrued
but are unpaid;
Seventh, to the partners with positive capital accounts to bring such
accounts to zero; and
Finally, 85% of the remaining sales proceeds to the Limited Partners and
15% to the General Partner.
Gain for Federal income tax purposes realized in the event of dissolution
of the Partnership or upon sale of interests in a Local Limited Partnership or
underlying property will be allocated in the following manner:
First, to the Limited Partners in an amount up to the negative balances of
the capital accounts of Limited Partners in the same proportion as each
Limited Partner's negative capital account bears to such aggregate negative
capital accounts;
Second, to the General Partner in an amount up to the General Partner's
negative capital account, if any;
Third, to the Limited Partners, up to the aggregate amount of capital
contributions of the Limited Partners, after deduction for prior cash
distributions from sales or refinancing, but without deduction for prior
cash distributions from operations, in the same proportion that each
Limited Partner's capital contribution bears to the aggregate of all
Limited Partners' capital contributions;
Fourth, to the Limited Partners, until each Limited Partner has been
allocated in such an amount equal to a cumulative noncompounded 12% annual
return on its capital contribution, after deduction of (a) an amount equal
to 50% of the tax losses allocated to the Limited Partner and (b) prior
cash distributions from operations and prior cash distributions from sales
or refinancing;
Fifth, to the General Partner up to the aggregate amount of capital
contributions made by the General Partner, after deduction for prior cash
distributions from sales or refinancing, but without deduction for prior
cash distributions from operations; and
Finally, 85% of the remaining gain to the Limited Partners and 15% to the
General Partner.
Losses for Federal income tax purposes realized in the event of
dissolution of the Partnership or upon sale of interests in a Local Limited
Partnership or underlying property will be allocated 85% to the Limited Partners
and 15% to the General Partner.
6. GOING CONCERN
Certain of the Local Partnership's notes payable were due during 1999 (see
Note 2). Subsequent to December 31, 1999, note holders for certain Local Limited
Partnerships foreclosed on the Partnership interests and the note holders for
certain other Local Limited Partnerships began foreclosure proceedings (Note 2).
The financial statements do not include any adjustments which might result from
the outcome of these uncertainties.
7. ABANDONMENT OF LIMITED PARTNERSHIP UNITS
In 1999, the number of Limited Partnership Units decreased by 10 units due
to limited partners abandoning their units. In abandoning his or her Limited
Partnership Unit(s), a limited partner relinquishes all right, title, and
interest in the partnership as of the date of abandonments. However, the limited
partner is allocated his or her share of net income or loss for that year. The
income or loss per Limited Partnership Unit in the accompanying consolidated
statements of operations is calculated based on the number of units outstanding
at the beginning of the year. There were no such abandonments in 1998.
8. LEGAL PROCEEDINGS
In 1997, NHP received subpoenas from the HUD Inspector General ("IG")
requesting documents relating to arrangements whereby NHP or any of its
affiliates provided compensation to owners of HUD-assisted or HUD-insured
multi-family projects in exchange for or in connection with property management
of a HUD project. In July 1999, NHP received a grand jury subpoena requesting
documents relating to the same subject matter as the HUD IG subpoenas and NHP's
operation of a group purchasing program created by NHP, known as Buyers Access.
To date, neither the HUD IG nor the grand jury has initiated any action against
NHP or Apartment Investment and Management Company ("AIMCO"), the ultimate
controlling entity of NHP or, to NHP's or AIMCO's knowledge, any owner of a HUD
property managed by NHP. AIMCO believes that NHP's operations and programs are
in compliance, in all material respects, with all laws, rules and regulations
relating to HUD-assisted or HUD-insured properties. NHP and AIMCO are
cooperating with investigations and does not believe that the investigations
will result in a material adverse impact on its operations. However, as with any
similar investigation, there can be no assurance that these will not result in
material fines, penalties or other costs.
<PAGE>
9. REAL ESTATE AND ACCUMULATED DEPRECIATION OF LOCAL LIMITED PARTNERSHIPS IN
WHICH NHP REALTY FUND III HAS INVESTED
Initial Cost Cost
To Partnership Capitalized
(in thousands) (Removed)
Net Subsequent
to Acquisition
(in thousands)
Buildings
and Related
Personal Carrying Cost
Description Land Property Improvements Adjustments
Edmond Estates
Limited Partnership $ 150 $ 2,470 $ 350 $(1,400)
Galion Limited
Partnership 60 1,309 212 (844)
Indian Valley I Limited
Partnership 120 2,765 293 (1,984)
Indian Valley II Limited
Partnership 108 2,278 306 --
Indian Valley III
Limited Partnership 118 2,782 337 --
Kimberly Associates
Limited Partnership 294 4,260 2,211 --
Meadowood Townhouses
III Limited Partnership 566 6,286 1,374 (2,500)
Newton Hill Limited
Partnership 60 1,016 165 (821)
Woodmark Limited
Partnership 322 3,883 1,118 --
Totals $1,798 $27,049 $6,366 $(7,549)
<PAGE>
<TABLE>
<CAPTION>
Gross Amount At Which
Carried
At December 31, 1999
(in thousands)
Buildings
And
Related
Personal Accumulated Date of Date Depreciable
Description Land Property Total Depreciation Construction Acquired Life-Years
Edmond Estates
<S> <C> <C> <C> <C> <C> <C> <C>
Limited Partnership $ 164 $ 1,406 $ 1,570 $ 752 1972 6/85 5-50 yrs
Galion Limited
Partnership 60 677 737 116 1972 6/85 5-50 yrs
Indian Valley I Limited
Partnership 120 1,073 1,193 379 1972 7/85 5-50 yrs
Indian Valley II Limited
Partnership 108 2,584 2,692 969 1972 6/85 5-50 yrs
Indian Valley III
Limited Partnership 118 3,120 3,238 1,171 1972 6/85 5-50 yrs
Kimberly Associates
Limited Partnership 307 6,458 6,765 2,679 1971 6/85 5-50 yrs
Meadowood Townhouses III
Limited Partnership 621 5,105 5,726 2,436 1972 6/85 5-50 yrs
Newton Hill Limited
Partnership 60 360 420 152 1972 7/85 5-50 yrs
Woodmark Limited
Partnership 322 5,001 5,323 2,013 1971 6/85 5-50 yrs
Total $1,880 $25,784 $27,664 $10,667
</TABLE>
<PAGE>
(1) Schedule of Encumbrances
Notes
Payable and
Mortgage Accrued
Partnership Name Notes Interest Total
Edmond Estates Limited Partnership $ 928 $2,301 $3,229
Galion Limited Partnership 479 1,138 1,617
Indian Valley I Limited Partnership 974 2,268 3,242
Indian Valley II Limited Partnership 998 1,472 2,470
Indian Valley III Limited 1,097 2,060 3,157
Partnership
Kimberly Associates Limited 1,767 3,299 5,066
Partnership
Meadowood Townhouses III Limited 2,716 5,428 8,144
Partnership
Newton Hill Limited Partnership 403 774 1,177
Woodmark Limited Partnership 1,353 3,654 5,007
TOTAL $10,715 $22,394 $33,109
(2) The aggregate cost of land for Federal income tax purposes is
approximately $1,232,000, and the aggregate costs of buildings and
improvements for Federal income tax purposes is approximately $25,624,000.
The total of the above-mentioned items is approximately $26,856,000.
<PAGE>
(3) Reconciliation of real estate
Years Ended December 31,
1999 1998
Balance at beginning of period $ 30,561 $ 30,936
Improvements during the period 899 797
Transfer of interest of rental properties (2,975) --
Increase (decrease) due to prior years
impairment losses on rental property -- 812
Impairment loss on rental property (821) (1,984)
Balance at end of period $ 27,664 $ 30,561
Reconciliation of accumulated depreciation
Years Ended December 31,
1999 1998
Balance at beginning of period $ 11,731 $ 10,733
Depreciation expense for the period 950 940
Transfer of interest of rental properties (1,713) --
Decrease due to prior year impairment
losses on rental property -- 812
Impairment loss on rental property (301) (754)
Balance at end of period $ 10,667 $ 11,731
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 9. Directors and Executive Officers of the Registrant
(a), (b) and (c). The Partnership has no directors, executive officers
or significant employees of its own.
(a), (b), (c), (e) and (f). The names, ages, business experience and
involvement in legal proceedings of the directors and executive officers
of National Corporation for Housing Partnerships (NCHP), the sole general
partner of The National Housing Partnership, the sole general partner of
the Partnership, and certain of its affiliates, are as follows:
Directors of NCHP
Two individuals comprise the Board of Directors of NCHP. One director was
appointed by the President of the United States, by and with the advice and
consent of the Senate.
Thomas W. Toomey (age 39) was elected Executive Vice President Finance and
Administration and a Director of NCHP in 1997. Mr. Toomey has served as Senior
Vice President--Finance and Administration of AIMCO from January 1996 to March
1997, when he was promoted to Executive Vice President--Finance and
Administration until December 1999, when he was appointed Chief Operating
Officer. From 1990 until 1995, Mr. Toomey served in a similar capacity with
Lincoln Property Company ("LPC") as Vice President/Senior Controller and
Director of Administrative Services of Lincoln Property Services where he was
responsible for LPC's computer systems, accounting, tax, treasury services and
benefits administration. From 1984 to 1990, he was an audit manager with Arthur
Andersen & Co. where he served real estate and banking clients. Mr. Toomey
received a B.S. in Business Administration/Finance from Oregon State University.
Patrick J. Foye (age 42) has been Executive Vice President of NCHP since
October 1, 1998 and was appointed President in September 1999. Mr. Foye has
served as Executive Vice President of AIMCO since May 1998. Prior to joining
AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher &
Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels,
Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy
Chairman of the Long Island Power Authority and serves as a member of the New
York State Privatization Council. He received a B.A. from Fordham College and a
J.D. from Fordham University Law School.
Executive Officers
The current executive officers of NCHP and a description of their
principal occupations in recent years are listed below.
Thomas W. Toomey (age 39). See "Directors of NCHP."
Patrick J. Foye (age 42). See "Directors of NCHP."
Steven D. Ira (age 48) has served as Executive Vice President of NCHP
since 1997 and of AIMCO since 1994. From 1987 until July 1994, he served as
President of Property Asset Management ("PAM"). Prior to merging his firm with
PAM in 1987, Mr. Ira acquired extensive experience in property management.
Between 1977 and 1981 he supervised the property management of over 3,000
apartment and mobile home units in Colorado, Michigan, Pennsylvania and Florida,
and in 1981 he joined with others to form the property management firm of
McDermott, Stein and Ira. Mr. Ira served for several years on the National
Apartment Manager Accreditation Board and is a former president of the National
Apartment Association and the Colorado Apartment Association. Mr. Ira is the
sixth individual elected to the Hall of Fame of the National Apartment
Association in its 54-year history. He holds a Certified Apartment Property
Supervisor (CAPS) and a Certified Apartment Manager designation from the
National Apartment Association, a Certified Property Manager (CPM) designation
from the National Institute of Real Estate Management (IREM) and he is a member
of the Boards of Directors of the National Multi-Housing Council, the National
Apartment Association and the Apartment Association of Metro Denver. Mr. Ira
received a B.S. from Metropolitan State College in 1975.
Joel F. Bonder (age 57) was appointed Executive Vice President, General
Counsel and Secretary of NCHP and AIMCO effective December 1997. Prior to
jointing the Company, Mr. Bonder served as Senior Vice President and General
Counsel of NHP from April 1994 until December 1997. Mr. Bonder served as
Vice President and Deputy General Counsel of NHP from June 1991 to March 1994
and as Associate General Counsel of NHP Incorporated from 1986 to 1991. From
1983 to 1985, Mr. Bonder practiced with the Washing, D.C. law firm of Lane &
Edson, P.C. and from 1979 to 1983 practiced with the Chicago law firm of Ross
and Hardines. Mr. Bonder received a B.A. from the University of Rochester
and a J.D. from Washington University School of Law.
Paul J. McAuliffe (age 43) has been Executive Vice President of NCHP
and AIMCO since February 1999 and was appointed Chief Financial Officer in
October 1999. Prior to joining the Company, Mr. McAuliffe was Senior
Managing Director of Secured Capital Corp and prior to that time had been a
Managing Director of Smith Barney, Inc. from 1993 to 1996, where he was
senior member of the underwriting team that lead AIMCO's initial public
offering in 1994. Mr. McAuliffe was also a Managing Director and head of the
real estate group at CS First Boston from 1990 to 1993 and he was a Principal
in the real estate group at Morgan Stanley & Co., Inc. where he worked from
1983 to 1990. Mr. McAuliffe received a B.A. from Columbia College and an
M.B.A. from University of Virginia, Darden School.
Martha L. Long (age 40) has been Senior Vice President and Controller of
NCHP and AIMCO since October 1998, as a result of the acquisition of Insignia
Financial Group, Inc. From June 1994 until January 1997, she was the Controller
for Insignia, and was promoted to Senior Vice President - Finance and Controller
in January 1997, retaining that title until October 1998. From 1988 to June
1994, Ms. Long was Senior Vice President and Controller for The First Savings
Bank, FSB in Greenville, South Carolina.
(d) There is no family relationship between any of the foregoing
directors and executive officers.
Item 10. Executive Compensation
National Housing Partnership Realty Fund III has no officers or directors.
No direct form of compensation or remuneration was paid by the Partnership to
any officer or director of the General Partner. However, reimbursements and
other payments have been made to the Partnership's General Partner and its
affiliates, as described in "Item 12. Certain Relationships and Related
Transactions."
Item 11. Security Ownership of Certain Beneficial Owners and Management
1133 Fifteenth Street Three ("1133") Associates, a Maryland Limited
Partnership, whose general partner is NHP and whose limited partners were key
employees of NCHP at the time the Partnership was formed, owns a 1% interest in
the Partnership.
NHP is also the sole general partner of NHP Investment Partners I. NHP
Investment Partners I holds 4.5% limited partnership interest (1% with respect
to allocation of losses) in nine of the Local Limited Partnerships. NHP
Investment Partners I held a 1% general partnership interest and a 98% limited
partnership interest in these Local Limited Partnerships prior to admittance of
the Partnership. A former employee of NCHP (a New Jersey resident) holds a 0.01%
limited partnership interest in one Local Limited Partnership to meet that
state's legal requirements.
<PAGE>
The following table sets forth certain information regarding limited
partnership units of the Registrant owned by each person or entity is known by
the Registrant to own beneficially or exercise voting or dispositive control
over more than 5% of the Registrant's limited partnership units as of December
31, 1999.
Name of
Beneficial Owner Number of Units % of Class
AIMCO and affiliates 1,639.5 14.27%
(affiliates of the General
Partner)
The business address of AIMCO is 2000 South Colorado Boulevard, Denver, CO
80231
Item 12. Certain Relationships and Related Transactions
The Partnership accrued Administrative and Reporting Fees payable to the
General Partner of approximately $53,000 in 1999 and $86,000 in 1998. The
Partnership paid the General Partner approximately $2,000 for these fees during
1999. No payments were made to the General Partner for those fees in 1998. As of
December 31, 1999, the Partnership owed approximately $141,000 to the General
Partner for accrued administrative and reporting fees.
An affiliate of the General Partner, NHP Management Company ("NHPMC"),
formerly a wholly owned subsidiary of NHP Incorporated ("NHPI"), is the project
management agent for the projects operated by four of the Local Limited
Partnerships. NHPMC and other affiliates of NCHP earned approximately $320,000
and $296,000 from the Local Limited Partnerships for management fees and other
services provided to the Local Limited Partnerships during 1999 and 1998,
respectively. At December 31, 1999, there were no amounts considered due NHP
Management Company and unpaid by the Local Limited Partnerships.
Personnel working at the project sites, which are managed by NHPMC, became
employees of NHPMC (as a successor employer) as of December 8, 1997 and,
therefore, the projects reimbursed NHPI and NHPMC for the actual salaries and
related benefits. Total reimbursements earned for salaries and benefits for the
years ended December 31, 1999 and 1998, were approximately $517,000 and
$544,000, respectively.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Exhibits
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
Exhibit 99.1, Audited Combined Financial Statements of the Local
Limited Partnerships in which the Partnership has invested are
included as an exhibit to this report:
(b) Reports on Form 8-K filed during the fourth quarter of 1999:
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
National Housing Partnership Realty Fund IV
By: The National Housing Partnership, its sole general partner
By: National Corporation for Housing Partnerships, its sole general
partner
March xx, 2000 /s/Patrick J. Foye
Date Patrick J. Foye
President
March xx, 2000 /s/Martha L. Long
Date Martha L. Long
Senior Vice President and
Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
March xx, 2000 /s/Patrick J. Foye
Date Patrick J. Foye
President
March xx, 2000 /s/Martha L. Long
Date Martha L. Long
Senior Vice President and
Controller
<PAGE>
EXHIBIT 99.1
NATIONAL HOUSING PARTNERS REALTY FUND III
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
<PAGE>
Independent Auditors' Report
To The Partners of
National Housing Partnership Realty Fund III
Indianapolis, Indiana
We have audited the accompanying combined statement of financial position of the
Local Limited Partnerships in which National Housing Partnership Realty Fund III
(the Partnership) holds a limited partnership interest as of December 31, 1999,
and the related combined statements of operations, partners' deficit, and cash
flows for each of the two years in the period ended December 31, 1999. These
combined financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. We did not audit the financial statements of
Woodmark Limited Partnership for the year ended December 31, 1999. This
investee's statement of financial position represent total assets which reflect
22% of combined total assets as of December 31, 1999 and net income in the
amount of $4,386 for the year then ended. We did not audit the financial
statements of Brunswick Village Limited Partnership for the year ended December
31, 1998. This investee had a net loss in the amount of $29,371 for the year
then ended. The financial statements of these investees were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar as it
relates to the amounts included for these investees, is based solely on the
reports of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the reports of other auditors
provide a reasonable basis for our opinion.
In our opinion, based upon our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the combined financial position of the Local Limited Partnerships in which
National Housing Partnership Realty Fund III holds a limited partnership
interest as of December 31, 1999, and the combined results of their operations
and their cash flows for each of the two years in the period ended December 31,
1999 in conformity with accounting principles generally accepted in the United
States.
As discussed in Notes 6 and 10 to the financial statements, the due dates of
certain of the Local Partnership's notes payable have expired, and therefore,
the notes are in default. Subsequent to December 31, 1999, note holders for
certain Local Limited Partnerships foreclosed on the Partnership interests and
the note holders for certain other Local Limited Partnerships began foreclosure
proceedings (Note 6). These conditions raise substantial doubt about their
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
Ernst & Young LLP
Indianapolis, Indiana
March 6, 2000
<PAGE>
Report of Independent Auditors
To the Partners
Woodmark Limited Partnership
We have audited the accompanying balance sheet of Woodmark Limited Partnership,
a limited partnership--Project Number 000-44062-LDP, as of December 31, 1999,
and the related statements of profit and loss, partners' equity deficit and cash
flows for the year then ended. These financial statements are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards,
and Government Auditing Standards, issued by the Comptroller General of the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Woodmark Limited Partnership at
December 31, 1999, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
In accordance with Government Auditing Standards, we have also issued a report
entitled "Independent Auditors' Report on Compliance and on Internal Control
Over Financial Reporting Based on an Audit of the Financial Statements in
Accordance with Government Auditing Standards" dated February 10, 2000 on our
consideration of the Partnership's internal control over financial reporting and
our tests of its compliance with certain provisions of laws, regulations and
contracts.
As discussed in Note 3 to the financial statements, certain of the Partnership's
notes payable was due; therefore, the note is in default. This condition raises
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Our audit was conducted for the purpose of forming an opinion on the financial
statements taken as a whole. The supporting data listed on the contents page is
presented for purposes of additional analysis and is not a required part of the
financial statements of the Partnership. Such data has been subjected to the
auditing procedures applied in our audit of the financial statements and, in our
opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.
Geimer, Ehrlich & Associates, P.A.
Bethesda, Maryland
February 10, 2000
<PAGE>
Independent Auditors' Report
The Partners
Brunswick Village Limited Partnership
Indianapolis, IN
We have audited the accompanying balance sheet of BRUNSWICK VILLAGE
LIMITED PARTNERSHIP, HUD Project No. 031-55075-LDP, as of December 31, 1998, and
the related states of profit and loss (on HUD Form No. 92410), of partners'
deficiency and of cash flows for the year then ended. These financial statements
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards and Government Auditing Standards, issued by the Comptroller General
of the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BRUNSWICK VILLAGE LIMITED
PARTNERSHIP as of December 31, 1998, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 3 to the
financial statements, notes payable mature in February, 1999, with a required
payment of principal and accrued interest. It is at least reasonably possible
that the Partnership will not be able to pay these debts when the notes mature.
This condition raises substantial doubt about the Partnership's ability to
continue as a going concern. Management's plans regarding these matters are also
described in Note 3. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
In accordance with Government Auditing Standards and the Consolidated
Audit Guide for Audits of HUD Programs issued by the U.S. Department of Housing
and Urban Development, we have issued a report dated January 22, 1999, on our
consideration of BRUNSWICK VILLAGE LIMITED PARTNERSHIP's internal control and
reports dated January 22, 1999, on its compliance with specific requirements
applicable to major HUD programs, and specific requirements applicable to Fair
Housing and Non-Discrimination.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplementary
information shown on pages 16 to 18 is presented for purposes of additional
analysis and is not a required part of the basic financial statements of the
Partnership. Such information has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion, is
fairly stated, in all material respects, in relation to the basic financial
statements taken as a whole.
Goldenberg Rosenthal Friedlander
Jenkintown, PA
January 22, 1999
<PAGE>
EXHIBIT 99.1
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENT OF FINANCIAL POSITION
December 31, 1999
(in thousands)
ASSETS
Cash and cash equivalents $ 599
Accounts receivable (Note 2) 283
Tenants' security deposits held in trust funds 308
Prepaid taxes and insurance and other assets 102
Deferred finance costs 62
Mortgage escrow deposits (Note 5) 1,850
Rental property, net (Notes 4, 5, and 11) 16,997
$ 20,201
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable and accrued expenses:
Accounts payable (Note 9) $ 534
Accrued real estate taxes 135
Notes Payable (Note 6) 9,365
Accrued interest on notes payable (Note 6) 13,029
23,063
Tenants' security deposits payable 304
Deferred income 81
Due to partners (Note 7) 1,642
Accrued interest on partner loans 1,891
Mortgage notes payable (Note 5) 10,715
Partners' deficit (17,495)
$ 20,201
<PAGE>
EXHIBIT 99.1
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Year Ended December 31,
1999 1998
REVENUES:
Rental income (Note 3) $ 5,956 $ 6,041
Interest income 68 110
Other income 218 286
6,242 6,437
EXPENSES:
Administrative expenses 880 888
Operating and maintenance expenses 1,979 2,232
Management and other services from
related party (Note 9) 320 296
Salaries and related benefits to
related party (Note 9) 517 544
Depreciation and amortization 955 945
Taxes and insurance 784 903
Financial expenses - primarily interest (Note 5) 118 141
Interest on notes payable (Notes 6 and 7) 1,194 1,233
Other entity expenses 11 6
Impairment loss on rental property (Note 11) 520 1,230
Annual partnership administrative
fees to General Partner (Note 7) 72 75
7,350 8,493
NET LOSS $(1,108) $(2,056)
<PAGE>
EXHIBIT 99.1
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF PARTNERS' DEFICIT
(in thousands)
National
Housing The
Partnership National NHP Other
Realty Fund Housing Investment Limited
III Partnership Partners I Partner Total
Deficit at
January 1, 1998 $(14,025) $ (1,085) $ (401) $ -- (15,511)
Reclassification (370) 342 28 -- --
Distributions (99) (2) (1) -- (102)
Net loss (2,018) (19) (19) -- (2,056)
Deficit at
December 31, 1998 (16,512) (764) (393) -- (17,669)
Net loss (1,086) (11) (11) -- (1,108)
Transfer of interest
(Note 6) 1,269 13 -- -- 1,282
Deficit at
December 31, 1999 $(16,329) $ (762) $ (404) $ -- $(17,495)
Percentage interest
at December 31, 1999
and 1998 (A) (B) (C) (D)
(A) Holds a 94.5% limited partnership interest (98% with respect to allocation
of losses) in eight local limited partnerships, 99% limited partnership
interest in one local limited partnership and 99% limited partnership
interest, until August 16, 1999, in Brunswick Village Limited Partnership.
(B) Holds a 1% general partnership interest in nine local limited partnerships
and until August 16, 1999, a .99% general partnership interest (1% with
respect to allocation of losses) in Brunswick Village Limited Partnership.
(C) Holds a 4.5% limited partnership interest (1% with respect to allocation
of losses) in eight local limited partnerships.
(D) A former employee of NCHP holds a .01% limited partnership interest (0%
with respect to allocation of losses) in Brunswick Village Limited
Partnership.
See notes to combined financial statements.
<PAGE>
EXHIBIT 99.1
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Receipts:
Rental receipts $ 5,996 $ 6,034
Interest receipts 126 111
Other receipts 194 261
Tenant security deposits 6 --
Entity receipts 1 8
Total receipts 6,323 6,414
Disbursements:
Administrative (508) (566)
Management fees (564) (526)
Utilities (883) (834)
Salaries and wages (919) (831)
Operating and maintenance (710) (1,184)
Real estate taxes (397) (376)
Property insurance (154) (260)
Miscellaneous taxes and insurance (230) (257)
Tenant security deposits 2 (13)
Other operating disbursements (58) (19)
Interest on notes payable (38) (89)
Interest on mortgage (65) --
Mortgage insurance premium (55) (38)
Miscellaneous financial (5) (3)
Transfer of operating cash to new owner (47) --
Entity disbursements:
Interest on notes payable (11) (9)
Miscellaneous disbursements (45) (31)
Total disbursements (4,687) (5,036)
Net cash provided by operating activities 1,636 1,378
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in mortgage escrow accounts 4 (170)
Net purchase of fixed assets (899) (801)
Other investing (43) (69)
Net cash used in investing activities (938) (1,040)
See notes to combined financial statements.
<PAGE>
EXHIBIT 99.1
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(Continued)
Years Ended December 31,
1999 1998
CASH FLOWS FROM FINANCING ACTIVITIES:
Mortgage principal payments $ (495) $ (498)
Principal payments on loans or notes payable (7) (8)
Proceeds from loans or notes payable 14 29
Distributions -- (102)
Net cash used in financing activities (488) (579)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 210 (241)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 389 630
CASH AND CASH EQUIVALENTS, END OF YEAR $ 599 $ 389
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net loss $(1,108) $(2,056)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 955 945
Impairment loss on rental property 520 1,230
Changes in operating assets and liabilities:
Net tenant receivables (8) (19)
Accounts receivable - other (25) (51)
Accrued receivable 2 --
Prepaid expenses 1 16
Cash restricted for tenant security deposits (11) 1
Accounts payable trade 100 (25)
Accounts payable - HUD excess rents (12) --
Accrued liabilities 10 51
Accrued interest - partner loans (2) --
Accrued interest - notes payable 1,141 1,233
Accrued interest - mortgages (2) --
Tenant security deposits held in trust fund 19 (14)
Miscellaneous other liabilities 2 --
Prepaid revenue 61 8
Entity liability accounts 40 59
Transfer of operating cash to new owner (47) --
Total adjustments 2,744 3,434
NET CASH PROVIDED BY OPERATING
ACTIVITIES $ 1,636 $ 1,378
See notes to combined financial statements.
<PAGE>
EXHIBIT 99.1
NATIONAL HOUSING PARTNERSHIP REALTY FUND III
LOCAL LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF PARTNERSHIP ORGANIZATION, BASIS OF COMBINATION, AND
SIGNIFICANT ACCOUNTING POLICIES
Organization
National Housing Partnership Realty Fund III (the "Partnership" or the
"Registrant") is a limited partnership organized 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 Local Limited Partnerships, each of which either
owns and operates an existing rental housing project or has acquired limited
partnership interests in partnerships which own and operate one or two existing
rental housing projects. All such rental housing projects are 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). A substantial
portion of each Local Limited Partnership revenue is received from the housing
assistance agreements discussed in Note 3 below. On June 30, 1985, inception of
operations, the Partnership began raising capital and acquiring interests in
Local Limited Partnerships.
During 1985, the Partnership invested in twelve Local Limited Partnerships
which directly or indirectly own and operate thirteen rental housing projects.
The Partnership currently owns 94.5% limited partnership interests (98% with
respect to allocation of losses) in eight Local Limited Partnerships. In
addition, the Partnership owns a 99% interest in one Local Limited Partnership,
which owns a 99% limited partnership interest in an operating limited
partnership. The operating Partnership holds title to one rental housing
property. The Partnership's effective interest in this operating limited
partnership is 98.01%.
Eight of the rental housing projects were originally organized under
Section 236 of the National Housing Act. The remaining rental housing project
was organized under Section 221(d)(3) of the National Housing Act. As a limited
partner, in accordance with the partnership agreements, the Partnership does not
exercise control over the activities of the Local Limited Partnerships.
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
acquisitions were 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 ("NHP" or the "General Partner"). Together, NCHP and NHP
Partners Two own all of the outstanding partnership interests in NHP. NHP is the
general partner of the Registrant. As a result of these transactions, the AIMCO
Group acquired control of the general partner of the Registrant and, therefore,
may be deemed to have acquired control of the Registrant.
NHP is also the sole general partner of NHP Investment Partners I. NHP
Investment Partners I holds 4.5% limited partnership interest (1% with respect
to losses) in eight of the Local Limited Partnerships. NHP Investment Partners I
held a 1% general partnership interest and a 98% limited partnership interest in
these Local Limited Partnerships prior to admittance of the Partnership. A
former employee of NCHP (a New Jersey resident) holds a 0.01% limited
partnership interest in one Local Limited Partnership to meet that state's legal
requirements.
Basis of Combination
The combined financial statements include the accounts of the following
ten Local Limited Partnerships in which the Partnership holds a limited
partnership interest:
(a)Brunswick Village Limited Partnership;
Edmond Estates Limited Partnership;
Galion Limited Partnership;
Indian Valley I Limited Partnership;
Indian Valley II Limited Partnership;
Indian Valley III Limited Partnership;
Kimberly Associates Limited Partnership;
(b)Meadowood Townhouses III Limited Partnership;
Newton Hill Limited Partnership; and
Woodmark Limited Partnership.
(a)Partnership interest transferred in 1999.
(b)Owns a 99% limited partnership interest in one operating limited
partnership.
Significant Accounting Policies
The financial statements of the Local Limited Partnerships are prepared on
the accrual basis of accounting. For nine of the Local Limited Partnerships,
depreciation of the buildings and improvements is computed using the
straight-line method, assuming a 50-year life from the date of initial
occupancy, whereas, for one of the Local Limited Partnerships, depreciation of
the buildings and improvements is computed using the straight-line method,
assuming a 30-year life and a 30% salvage value. Depreciation of equipment is
calculated using accelerated methods over estimated useful lives of 5 to 27
years. Cash distributions are limited by the Regulatory Agreements between the
rental projects and HUD to the extent of surplus cash as defined by HUD.
Undistributed amounts are cumulative and may be distributed in subsequent years
if future operations provide surplus cash in excess of current requirements.
Deferred finance costs are amortized over the appropriate loan period on a
straight-line basis.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
For purposes of the statements of cash flows, the Local Limited
Partnerships consider all highly liquid instruments purchased with initial
maturities of three months or less to be cash equivalents.
Certain reclassifications of prior years' amounts have been made to
conform with the current year's presentation.
<PAGE>
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
December 31,
1999
Net tenant accounts receivable $ 73
Housing assistance receivable 109
Accrued interest receivable 4
Reserve releases receivable 95
Other 2
Net accounts receivable $283
3. HOUSING ASSISTANCE AGREEMENTS
During 1999, the Federal Housing Administration (FHA) contracted with
eleven rental projects under Section 8 of Title II of the Housing and Community
Development Act of 1974, to make housing assistance payments to the Local
Limited Partnerships on behalf of qualified tenants. The terms of the agreements
are five years with one or two five-year renewal options. The agreements expire
at various dates through 2000. The Local Limited Partnerships received a total
of approximately $1,296,000 and $1,479,000 in the form of housing assistance
payments during 1999 and 1998, respectively, which is included in "Rental
income" on the combined statements of operations.
For the past several years, various proposals have been advanced by the
United States Department of Housing and Urban Development ("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
431 units, 39 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 adjusting
subsidized rents to market levels, thereby potentially 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. With respect to Housing Assistance
Payments Contracts ("HAP Contracts") expiring before October 1, 1998, Congress
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, 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 operation of the Partnership.
<PAGE>
All of the units (431 in total) receiving rent subsidies from Section 8
have their contracts expiring during the year ending December 31, 2000. HUD has
issued new regulations that govern the continuance of project-based subsidies.
Under the new regulations, owners with HAP contracts expiring after September
30, 1998 may elect to (1) renew the contract without restructuring for one year,
(2) opt out of the contract, or (3) enter into the Mark-to Market program, which
includes a potential restructuring of the mortgage and renewal of the contract.
At this time it is not possible to determine which option each of the Local
Limited Partnerships will elect, and accordingly, it is not possible to
determine the ultimate impact on the operations of the Local Limited
Partnerships.
4. RENTAL PROPERTY
Rental property consists of the following:
December 31,
1999
Land $ 1,880
Building and improvements 23,185
Furniture and equipment 2,599
27,664
Less accumulated depreciation 10,667
Net rental property $16,997
5. MORTGAGE NOTES PAYABLE
The mortgage notes payable are insured by FHA and collateralized by first
deeds of trust on the rental properties. The notes bear interest at rates
ranging from 3% to 8.5% per annum. FHA, under an interest reduction contract
with Section 236 properties, makes subsidy payments directly to the mortgage
lender reducing the monthly principal and interest payments of the project owner
to an effective interest rate of 1% over the 40-year terms of the notes. The
liability of the Local Limited Partnerships under the mortgage notes is limited
to the underlying value of the real estate collateral, plus other amounts
deposited with the lenders.
Under agreements with the mortgage lenders and FHA, the Local Limited
Partnerships are required to make monthly escrow deposits for taxes, insurance
and a reserve for the replacement of project assets, and are subject to
restrictions as to operating policies, rental charges, operating expenditures
and distributions to partners.
Approximate maturities of mortgage notes payable for the next five years
are as follows (in thousands):
2000 $ 532
2001 573
2002 617
2003 665
2004 717
Thereafter 7,611
$10,715
<PAGE>
6. NOTES PAYABLE
Notes payable were executed by the Local Limited Partnerships with the
former owners as part of the acquisition of the properties by the Local Limited
Partnerships. These notes bear simple interest at rates of 9% or 10% per annum.
The notes are nonrecourse notes secured by a security interest in all
partnership interests in the respective Local Limited Partnership and are
subordinated to the respective mortgage note for as long as the mortgage note is
insured by HUD. Any payments due from project income are payable from the
respective Local Limited Partnership's surplus cash, as defined by the
respective HUD Regulatory Agreement. The notes may be prepaid in whole or in
part at any time without penalty. Neither the respective Local Limited
Partnership nor any partner thereof, present or future, assumes any personal
liability for the payment of these notes.
These notes matured as follows:
Local Partnership Due Date Note Amount Accrued Interest
(in thousands)
Meadowood Townhouses III
Limited Partnership November 1, 1999 $2,157 $ 3,270
Woodmark Limited
Partnership December 13, 1999 1,553 2,101
Kimberly Associates
Limited Partnership December 13, 1999 1,402 1,897
Edmond Estates
Limited Partnership December 17, 1999 978 1,323
Galion Limited
Partnership December 20, 1999 482 656
Indian Valley I
Limited Partnership December 20, 1999 964 1,305
Indian Valley II
Limited Partnership December 20, 1999 625 847
Indian Valley III
Limited Partnership December 20, 1999 875 1,185
Newton Hill
Limited Partnership December 20, 1999 329 445
Total Due $9,365 $13,029
Meadowood Townhouses III, Woodmark, Kimberly Associates, Edmond Estates,
Galion, Indian Valley I, Indian Valley II, Indian Valley III and Newton Hill
Limited Partnerships all have notes which were executed by the respective
Limited Partnerships with the seller as part of the acquisition of the property
by the Limited Partnership. The notes are nonrecourse and are subordinated to
the respective mortgage notes on each property for as long as HUD insures the
mortgage notes. Any payments due from project income are payable from surplus
cash, as defined by the HUD Regulatory Agreement. Neither the Limited
Partnership nor any partner thereof, present or future, assume any personal
liability for the payment of the notes. The notes were due in November 1999 for
Meadowood Townhouse III and in December 1999 for the remaining Limited
Partnerships. Subsequent to December 31, 1999, the note holder foreclosed on the
Partnership's interest in the following Limited Partnerships which secured each
respective note: Woodmark, Galion, Indian Valley I, Indian Valley II, Indian
Valley III and Newton Hill. With the loss of the Partnership's interest to the
note holder, the Partnership will not receive any future benefits from this
Local Limited Partnership and taxable income will be generated and flow to the
Partnership's investors without any distributable cash for the current year. The
specific impact of the tax consequences is dependent upon each specific
partner's individual tax situation. Subsequent to December 31, 1999, the note
holder began foreclosure proceedings on the Partnership's interest in the
following Limited Partnerships, which secured each respective note: Kimberly
Associates and Meadowood Townhouses III. Regarding Edmond Estates Limited
Partnership, interest continues to be accrued under the original terms of the
note agreement. The note is in default and the Limited Partnership interest is
subject to foreclosure. The property is currently being marketed for sale, but
there is no guarantee that the property will sell or, if it is sold, that the
sale transaction will generate sufficient proceeds to pay the accrued interest
and principal of the note. The financial statements do not include any
adjustments which might result from the outcome of this uncertainty.
Brunswick Village Limited Partnership's note payable, plus accrued
interest, became due on February 28, 1999. The Local Limited Partnership did not
have the resources to pay amounts due on the note payable. On August 16, 1999,
the note holder foreclosed on the Partnership's interest on the Brunswick
Village Limited Partnership which secured the Note. No gain or loss was recorded
as a result of this transfer of partnership interest. With the loss of the
Partnership's interest to the note holder, the Partnership will not receive any
future benefits from this Local Limited Partnership and taxable income will be
generated and flow to the Partnership's investors without any distributable cash
for the current year. The specific impact of the tax consequences is dependent
upon each specific partner's individual tax situation.
7. PAYABLES DUE PARTNERS
The Local Limited Partnerships accrued annual partnership administration
fees payable to the General Partner, of approximately $72,000 and $75,000 during
1999 and 1998, respectively. Payments of these fees are made to NHP without
interest from surplus cash available for distribution to partners pursuant to
HUD regulations. During 1999 and 1998, the Local Limited Partnerships paid
approximately $15,000 and $31,000 for such fees, respectively. The balances owed
to the General Partner for these fees were approximately $500,000 at December
31, 1999.
During 1999 and 1998, the General Partner advanced approximately $4,000
and $28,000 to six and seven of the Local Limited Partnerships, respectively, to
fund partnership entity expenses, including expenses incurred relating to
potential sales or refinancing under the LIHPRHA program. During 1999 and 1998,
loans of approximately $7,000 and $200, and accrued interest of $0 and
approximately $9,000, respectively, were repaid by three Local Limited
Partnerships. The balance owed to the General Partner by the Local Limited
Partnerships at December 31, 1999, was approximately $623,000. Interest is
charged at a rate equal to the Chase Manhattan Bank prime interest rate plus 2%.
Chase Manhattan Bank prime was 8.25% at December 31, 1999.
During 1999 and 1998, the Partnership made no advances to the Local
Limited Partnerships. During 1999 loans of $200 were repaid by one Local Limited
Partnership. There were no repayments made during 1998. The balance owed to the
Partnership by the Local Limited Partnerships at December 31, 1999 and 1998, was
approximately $519,000. Interest is charged at a rate equal to the Chase
Manhattan Bank prime interest rate plus 2%. Chase Manhattan Bank prime was 8.25%
at December 31, 1999.
During 1999 and 1998, respectively, interest on advances from the
Partnership and the General Partner of approximately $281,000 and $277,000 was
recorded, and approximately $3,000 of interest relating to 1998 was repaid.
All advances and accumulated interest will be paid in conformity with HUD
and/or other regulatory requirements and applicable partnership agreements.
<PAGE>
8. FEDERAL AND STATE INCOME TAXES
The Local Limited Partnerships are not taxed on their income. The partners
are taxed in their individual capacities upon their distributive share of the
Local Limited Partnerships' taxable income and are allowed the benefits to be
derived from offsetting their distributive share of the tax losses against
taxable income from other sources subject to passive loss rule limitations. The
taxable income or loss differs from amounts included in the statement of
operations primarily because of different methods used in determining
depreciation expense for tax purposes. The tax loss is allocated to partner
groups in accordance with Section 704(b) of the Internal Revenue Code and
therefore is not necessarily proportionate to the interest percentage owned.
9. RELATED PARTY TRANSACTIONS
An affiliate of the General Partner, NHP Management Company ("NHPMC"),
formerly a wholly owned subsidiary of NHP Incorporated ("NHPI"), is the project
management agent for the projects operated by four of the Local Limited
Partnerships. NHPMC and other affiliates of NCHP earned approximately $320,000
and $296,000 from the Local Limited Partnerships for management fees and other
services provided to the Local Limited Partnerships during 1999 and 1998,
respectively. At December 31, 1999, there were no amounts considered due NHPMC
and unpaid by the Local Limited Partnerships.
Personnel working at the project sites, which are managed by NHPMC became
employees of NHPMC (as a successor employer) as of December 8, 1997 and,
therefore, the projects reimbursed NHPI and NHPMC for the actual salaries and
related benefits. Total reimbursements earned for salaries and benefits for the
years ended December 31, 1999 and 1998, were approximately $517,000 and
$544,000, respectively.
10. GOING CONCERN
Certain of the Local Partnership's notes payable are past due or are due in 1999
(see Note 6). Subsequent to December 31, 1999, note holders for certain Local
Limited Partnerships foreclosed on the Partnership interests and the note
holders for certain other Local Limited Partnerships began foreclosure
proceedings (Note 6). The financial statements do not include any adjustments
which might result from the outcome of these uncertainties.
11. IMPAIRMENT LOSS ON RENTAL PROPERTY
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of"
requires the Local Limited Partnerships to record impairment losses when events
and circumstances indicate that the investment in the Local Limited Partnership
might be impaired and the estimated undiscounted cash flows to be generated by
the Local Limited Partnership are less than the carrying amount of the
investment in the Local Limited Partnership. When an asset is determined to be
impaired, it is written down to its estimated fair value. In 1999, Newton Hill
Limited Partnership recorded an impairment loss and reduced the carrying value
of fixed assets by $520,000. During 1998, Indian Village I Limited Partnership
recorded an impairment loss and reduced the carrying value of fixed assets by
$1,230,000.
Additionally, regardless of whether an impairment loss of an individual
property has been recorded or not, the carrying value of each of the rental
properties may still exceed their fair market value as of December 31, 1999.
Should a Local Limited Partnership be forced to dispose of any of its
properties, it could incur a loss.
<PAGE>
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, "Disclosures About Fair Value of Financial
Instruments," requires disclosure of fair value information about financial
instruments, when it is practicable to estimate that value. For the notes
payable and related accrued interest, a reasonable estimate of fair value could
not be made without incurring excessive costs. The carrying amount of other
assets and liabilities reported on the statement of financial position that
require such disclosure approximates fair value.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from NATIONAL
HOUSING PARTNERSHIP REALTY FUND III 1999 Fourth Quarter 10-KSB and is qualified
in its entirety by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000769028
<NAME> NATIONAL HOUSING PARTNERSHIP REALTY FUND III
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 540
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 540
<CURRENT-LIABILITIES> 171 <F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 369
<TOTAL-LIABILITY-AND-EQUITY> 540
<SALES> 0
<TOTAL-REVENUES> 23
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 109
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (86)
<EPS-BASIC> 7.00 <F2>
<EPS-DILUTED> 0
<FN>
<F1> Registrant has an unclassified balance sheet. <F2> Multiplier is 1.
</FN>
</TABLE>
