FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-16816
SUMMIT TAX EXEMPT L.P. III
(Exact names of registrant as specified in its charter)
Delaware 13-3442249
- --------------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
625 Madison Avenue, New York, New York 10022
- --------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SUMMIT TAX EXEMPT L.P. III
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
ASSETS
March 31, December 31,
1996 1995
----------- -----------
Participating first mortgage bonds, net $47,950,000 $47,950,000
Temporary investments 225,000 250,000
Cash and cash equivalents 408,602 347,908
Interest receivable, net 132,128 132,128
Deferred bond selection fees, net 714,279 729,686
Other assets 0 4,209
----------- -----------
Total assets $49,430,009 $49,413,931
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 93,841 $ 77,880
Due to affiliates 192,778 43,427
----------- -----------
Total liabilities 286,619 121,307
----------- -----------
Contingencies
Partners' capital (deficit):
BUC$holders (3,081,625 BUC$
issued and outstanding) 49,310,678 49,456,927
General partners (167,288) (164,303)
----------- -----------
Total partners' capital 49,143,390 49,292,624
----------- -----------
Total liabilities and partners' capital $49,430,009 $49,413,931
=========== ===========
See accompanying notes to financial statements
-2-
<PAGE>
SUMMIT TAX EXEMPT L.P. III
(a limited partnership)
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
---------------------
1996 1995
-------- --------
Revenues:
Interest income:
Participating first mortgage bonds $699,417 $875,937
Temporary investments 3,314 6,036
-------- --------
Total revenues 702,731 881,973
-------- --------
Expenses:
General and administrative 46,690 47,442
Loan servicing fees 32,691 32,332
Amortization of deferred bond selection fees 15,407 15,408
-------- --------
Total expenses 94,788 95,182
-------- --------
Net income $607,943 $786,791
======== ========
Allocation of Net Income:
BUC$holders $531,709 $707,683
======== ========
General Partners:
Special distribution $ 65,383 $ 64,665
Other 10,851 14,443
-------- --------
$ 76,234 $ 79,108
======== ========
Net income per BUC $ .17 $ .23
======== ========
-3-
See accompanying notes to financial statements
<PAGE>
SUMMIT TAX EXEMPT L.P. III
(a limited partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Total BUC$holders General Partners
------------ ------------ ----------------
<S> <C> <C> <C>
Partners' capital (deficit) -- January 1, 1996 $49,292,624 $49,456,927 $(164,303)
Net income 607,943 531,709 76,234
Distributions (757,177) (677,958) (79,219)
----------- ----------- ---------
Partners' capital (deficit) -- March 31, 1996 $49,143,390 $49,310,678 $ (167,288)
=========== =========== ==========
</TABLE>
See accompanying notes to financial statements
-4-
<PAGE>
SUMMIT TAX EXEMPT L.P. III
(a limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
----------------------
1996 1995
--------- ---------
Cash flows from operating activities:
Interest received $ 702,731 $ 865,472
Amount received which is due to affiliate 39,517 0
Fees and expenses paid (14,760) (47,989)
--------- ---------
Net cash provided by operating activities 727,488 817,483
--------- ---------
Cash flows from investing activities:
Net sale (purchase) of temporary investments 25,000 (159,104)
Cash flows from financing activities:
Distributions paid (691,794) (691,793)
--------- ---------
Net increase (decrease) in cash and cash equivalents 60,694 (33,414)
Cash and cash equivalents at beginning of period 347,908 75,950
--------- ---------
Cash and cash equivalents at end of period $ 408,602 $ 42,536
========= =========
Schedule reconciling net income to net cash flow
provided by operating activities:
Net income $ 607,943 $ 786,791
--------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred bond selection fees 15,407 15,408
Changes in:
Interest receivable 0 (16,501)
Other assets 4,209 5,323
Accounts payable and accrued expenses 15,961 (16,599)
Due to affiliates 83,968 43,061
--------- ---------
Total adjustments 119,545 30,692
--------- ---------
Net cash provided by operating activities $ 727,488 $ 817,483
========= =========
Supplemental schedule of financing activities
Distributions to partners $ 757,177 $ 756,458
Increase in distributions payable (65,383) (64,665)
--------- ---------
Distributions paid to partners $ 691,794 $ 691,793
========= =========
See accompanying notes to financial statements
-5-
<PAGE>
SUMMIT TAX EXEMPT L.P. III
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
NOTE 1 - General
These financial statements have been prepared without audit. In the opinion
of management, the financial statements contain all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the financial
position of Summit Tax Exempt L.P. III (the "Partnership") as of March 31, 1996
and the results of its operations and its cash flows for the three months ended
March 31, 1996 and 1995. However, the operating results for the interim periods
may not be indicative of the results expected for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in the
Partnership's Annual Report on Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 1995.
NOTE 2 - Participating First Mortgage Bonds ("FMBs")
FMBs are carried at cost less a valuation allowance where appropriate. The
Partnership periodically evaluates the collectibility of both interest and
principal of its FMBs to determine whether they are impaired. An FMB is
considered to be impaired when, based on current information and events, it is
probable that the Partnership will be unable to collect all amounts due
according to the existing contractual terms. When an FMB is considered to be
impaired, the amount of the valuation allowance is determined by discounting the
expected cash flows at the FMB's original effective interest rate, or, for
practical purposes, at the estimated fair value of the collateral.
The process of determining impairment of the FMBs and the appropriate level
of the valuation allowance is based upon projections of future economic events
such as property occupancy rates, rental rates, operating cost inflation and
market capitalization rates. The cash flows used in this process are based on
good faith estimates and assumptions developed by the Partnership's Management.
Changes in market conditions and circumstances may occur which would cause these
estimates and assumptions to change, which, in turn, could cause additional
impairments. Thus, the Partnership may be required to provide for additional
valuation allowances, which could be material, in subsequent periods. No change
in the valuation allowance was recorded in the three months ended March 31,
1996.
With respect to all FMBs, the difference between the stated interest rates
and the actual rates paid (whether deferred and payable out of future cash flow
or, ultimately, from sale or refinancing proceeds) on FMBs is not accrued for
financial statement purposes. Unrecorded contractual interest income was
approximately $195,000 and $243,000 for the three months ended March 31, 1996
and 1995, respectively.
-6-
<PAGE>
SUMMIT TAX EXEMPT L.P. III
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
NOTE 2 - Participating First Mortgage Bonds (continued)
Descriptions of the FMBs owned by the Partnership at March 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Annualized
Interest Rate
Paid for the Minimum
three months Annual
ended Pay Rate Stated
March 31, at March Interest Maturity
Property Location 1996* 31, 1996* Rate* Call Date Date Face Amount
- -------- -------- ----------- ------------ ------ --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Players's Club (A) Fort Myers, FL 7.00% 7.00% 8.00% Aug. 1999 Aug. 2007 $ 7,200,000
Lakepointe Stone Mountain, GA 6.00 6.00 8.50 Jan. 2000 Oct. 2007 15,100,000
Sunset Village Lancaster, CA 4.28 (B) 8.50 Mar. 2000 Mar. 2008 11,375,000
Sunset Creek Lancaster, CA 3.35 (B) 8.50 Mar. 2000 Mar. 2008 8,275,000
Orchard Mill Atlanta, GA 6.29 (B) 9.00 Apr. 2001 May 2009 10,500,000
-----------
52,450,000
Less: Allowance for impairment (4,500,000)
-----------
Carrying amount $47,950,000
===========
</TABLE>
*The rate paid represents the interest recorded by the Partnership while the
stated rate represents the coupon rate of the FMB and the minimum pay rate
represents the minimum rate required to be paid under the respective forbearance
agreements.
(A) Summit Tax Exempt L.P. II, of which the general partners are either the
same or affiliates of the General Partners of the Partnership, acquired the
other $2,500,000 of the Player's Club FMB.
(B) Pay rate is based on net cash flow generated by operations of the
underlying property.
NOTE 3 - Related Parties
Prudential-Bache Properties, Inc. ("PBP") and the Related General Partner
(collectively, the "General Partners") and their affiliates perform services for
the Partnership which include, but are not limited to: accounting and financial
management; registrar, transfer and assignment functions; asset management;
investor communications; printing and other administrative services. The General
Partners and their affiliates receive reimbursements for costs incurred in
connection with these services, the amount of which is limited by the provisions
of the Agreement of Limited Partnership (the "Partnership Agreement"). The costs
and expenses were:
-7-
<PAGE>
SUMMIT TAX EXEMPT L.P. III
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
NOTE 3 - Related Parties (continued)
Three Months Ended
March 31,
---------------------
1996 1995
------- -------
PBP and affiliates:
General and administrative $15,112 $15,493
------- -------
Related General Partner and affiliates:
Loan servicing fees 32,691 32,332
General and administrative 15,000 2,993
------- -------
47,691 35,325
------- -------
$62,803 $50,818
======= =======
An affiliate of the Related General Partner receives loan servicing fees (see
above) in an amount of .25% per annum of the principal amount outstanding of
mortgage loans serviced by the affiliate.
A division of Prudential Securities Incorporated ("PSI"), an affiliate of
PBP, was responsible for the purchase, sale and safekeeping of the Partnership's
temporary investments in 1995. This account was maintained in accordance with
the Partnership Agreement.
PSI owns 17,700 BUC$ at March 31, 1996.
The Player's Club property (securing a $7,200,000 FMB in this Partnership)
also secures an FMB for $2,500,000 held by Summit Tax Exempt L.P. II, of which
the general partners are either the same or affiliates of the General Partners
of this Partnership. The original owner of the FMB is an affiliate of the
Related General Partner.
NOTE 4 - Contingencies
On or about October 18, 1993, a putative class action, captioned Kinnes et al
v. Prudential Securities Group, Inc. et al. (93 Civ. 654), was filed in the
United States District Court for the District of Arizona, purportedly on behalf
of investors in the Partnership against the Partnership, PBP, PSI and a number
of other defendants. On November 16, 1993, a putative class action captioned
Connelly et al v. Prudential-Bache Securities Inc. et al. (93 Civ. 713) , was
filed in the United States District Court for the District of Arizona ,
purportedly on behalf of investors in the Partnership against the Partnership,
PBP, PSI and a number of other defendants. On January 3, 1992, a putative class
action, captioned Levine v. Prudential-Bache Properties Inc. et al. (92 Civ.
52), was filed in the United States District Court for the Northern District of
Illinois purportedly on behalf of investors in the Partnership against the
General Partners, PSI and a number of other defendants. Subsequently the Related
General Partner exited the Levine litigation by way of settlement.
-8-
<PAGE>
SUMMIT TAX EXEMPT L.P. III
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
By its April 14, 1994 order, the Judicial Panel on Multidistrict Litigation
transferred the Kinnes case, by order dated May 4, 1994, the Connelly case, and
by order dated July 13, 1994, the Levine Case, to a single judge of the United
States District Court for the Southern District of New York and consolidated
them for pretrial proceedings under the caption In re Prudential Securities
Incorporated Limited Partnerships Litigation (MDL Docket No. 1005). On June 8,
1994 plaintiffs in the transferred cases filed a complaint that consolidated the
previously filed complaints and named as defendants, among others, PSI, certain
of its present and former employees and the General Partners. The Partnership
was not named a defendant in the consolidated complaint, but the name of the
Partnership was listed as being among the limited partnerships at issue in the
case.
On August 9, 1995 PBP, PSI and other Prudential defendants entered into a
Stipulation and Agreement of Partial Compromise and Settlement with legal
counsel representing plaintiffs in the consolidated actions. The court
preliminarily approved the settlement agreement by order dated August 29, 1995
and, following a hearing held November 17, 1995, found that the agreement was
fair, reasonable, adequate and in the best interests of the plaintiff class. The
court gave final approval to the settlement, certified a class of purchasers of
specific limited partnerships, including the Partnership, released all settled
claims by members of the class against the PSI settling defendants and
permanently barred and enjoined class members from instituting, commencing or
prosecuting any settled claim against the released parties. The full amount due
under the settlement agreement has been paid by PSI. The consolidated action
remains pending against the Related General Partner and certain of its
affiliates.
NOTE 5 - Subsequent Event
In May 1996, a distribution of approximately $678,000 and $14,000 was paid to
the BUC$holders and General Partners, respectively, for the quarter ended March
31, 1996.
-9-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
Summit Tax Exempt L.P. III (the "Partnership") has invested in five
tax-exempt participating first mortgage bonds ("FMBs") issued by various state
or local governments or their agencies or authorities. The FMBs are secured by
participating first mortgage loans on the properties.
At the beginning of the year, the Partnership had cash and temporary
investments of $598,000. After the payment of distributions and receipt of the
net cash flow from operations, the Partnership ended the quarter with $634,000
in cash and temporary investments. The first quarter distribution of $678,000
($.22 per BUC) was paid to BUC$holders in May 1996 from cash flow from
operations. Interest payments from FMBs are anticipated to provide sufficient
liquidity to meet the operating expenditures of the Partnership in future years
and to fund distributions. The restructuring of FMBs in 1995 may result in the
General Partners' reducing the distributions to BUC$holders in future periods.
Management is not aware of any trends or events, commitments or
uncertainties, which have not otherwise been disclosed that will or are likely
to impact liquidity in a material way. The Partnership's investments in FMBs are
secured by a Partnership interest in properties which are diversified by
location so that if one area of the country is experiencing downturns in the
economy, the remaining properties may be experiencing upswings.
Results of Operations
FMBs are carried at cost less a valuation allowance where appropriate. The
Partnership periodically evaluates the collectibility of both interest and
principal of its FMBs to determine whether they are impaired. An FMB is
considered to be impaired when, based on current information and events, it is
probable that the Partnership will be unable to collect all amounts due
according to the existing contractual terms. When an FMB is considered to be
impaired, the amount of the valuation allowance is determined by discounting the
expected cash flows at the FMB's original effective interest rate, or, for
practical purposes, at the estimated fair value of the collateral.
The process of determining impairment of the FMBs and the appropriate level
of the valuation allowance is based upon projections of future economic events
such as property occupancy rates, rental rates, operating cost inflation and
market capitalization rates. The cash flows used in this process are based on
good faith estimates and assumptions developed by the Partnership's Management.
Changes in market conditions and circumstances may occur which would cause these
estimates and assumptions to change, which, in turn, could cause additional
impairments. Thus, the Partnership may be required to provide for additional
valuation allowances, which could be material, in subsequent periods. No change
in the valuation allowance was recorded in the three months ended March 31,
1996.
Net income decreased by approximately $179,000 for the three months ended
March 31, 1996 as compared to the corresponding period in 1995 for the reasons
discussed below.
Total interest income from FMBs decreased by approximately $177,000 for the
three months ended March 31, 1996 as compared to the corresponding period in
1995. This variance was primarily due to reduced debt service payments received
for the Sunset Village and Sunset Creek FMBs, which were restructured in 1995.
Interest income from temporary investments decreased by approximately $3,000
for the three months ended March 31, 1996 as compared to the corresponding
period 1995 primarily due to higher interest rates and invested balances in
1995.
Total expenses remained fairly constant for the three months ended March 31,
1996 as compared to the corresponding period in 1995 with less than a 1%
decrease.
-10-
<PAGE>
Property Information
The following table lists the FMBs the Partnership owns together
with occupancy rates of the underlying properties as of April 12, 1996:
<TABLE>
<CAPTION>
Annualized
Interest
Rate Paid Minimum
for the three Annual
Stated months ended Pay Rate at
Interest March 31, March 31,
Property Face Amount Occupancy Rate* 1996* 1996*
- -------- ----------- --------- -------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Player's Club, Fort Myers, FL (A) $ 7,200,000 89.4% 8.00% 7.00% 7.00%
Lakepointe, Stone Mountain, GA 15,100,000 99.2 8.50 6.00 6.00
Sunset Village, Lancaster, CA 11,375,000 84.2 8.50 4.28 (B)
Sunset Creek, Lancaster, CA 8,275,000 87.9 8.50 3.35 (B)
Orchard Mill, Atlanta, CA 10,500,000 98.7 9.00 6.29 (B)
-----------
$52,450,000
===========
</TABLE>
*The rate paid represents the interest recorded by the Partnership while the
stated rate represents the coupon rate of the FMB and the minimum pay rate
represents the minimum rate required to be paid under the respective forbearance
agreements.
(A) Summit Tax Exempt L.P. II, of which the general partners are either the
same or affiliates of the General Partners of the Partnership, acquired the
other $2,500,000 of the Player's Club FMB.
(B) Pay rate is based on net cash flow generated by operations of the underlying
property.
General
The determination as to whether it is the best interest of the Partnership to
enter into forbearance agreements on the FMBs or, alternatively, to pursue its
remedies under the loan documents, including foreclosure, is based upon several
factors including, but not limited to, property performance, owner cooperation
and projected legal costs.
From time to time, certain property owners have elected to supplement the
cash flow generated by the properties to meet the required FMB interest
payments. There can be no assurance that in the future any property owner will
elect to supplement property cash flow to satisfy bond interest requirements, if
necessary. The owner of the Sunset Village and Sunset Creek properties
supplemented the cash flow generated by the respective properties to meet their
interest payments during the first four months of 1995. No property owner made
supplementary payments during the three months ended March 31, 1996.
-11-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Incorporated by reference to Note 4 to the
financial statements filed herewith in Item 1 of Part 1 of the
Registrant's Quarterly Report.
Item 2. Changes in Securities -- None
Item 3. Defaults Upon Senior Securities -- None
Item 4. Submission of Matters to a Vote of Security Holders -- None
Item 5. Other Information -- None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
4(a)Partnership Agreement, incorporated by reference to Exhibit A
to the Prospectus of Registrant, dated February 25, 1987,
filed pursuant to Rule 424(b) under the Securities Act of
1933, File No. 33-13184.
4(b)Certificate of Limited Partnership is incorporated by
reference to Exhibit 4 to the Registration Statement on Form
S-11, File No. 33-13184.
27 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K -- No reports on Form 8-K were filed
during the quarter.
-12-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SUMMIT TAX EXEMPT L.P. III
By: Related Tax Exempt Associates III, Inc.
A Delaware corporation, General Partner
Date: May 14, 1996 By: /s/Alan P. Hirmes
-----------------
Alan P. Hirmes
Vice President
Date: May 14, 1996 By: /s/Lawrence J. Lipton
---------------------
Lawrence J. Lipton
Treasurer
(Principal Financial and Accounting Officer)
By: Prudential-Bache Properties, Inc.
A Delaware corporation, General Partner
Date: May 14, 1996 By: /s/Eugene D. Burak
------------------
Eugene D. Burak
Vice President
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the financial
statements for Summit Tax Exempt L.P. III and is qualified in its entirety by
reference to such financial statements
</LEGEND>
<CIK> 0000812220
<NAME> Summit Tax Exempt L.P. III
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 408,602
<SECURITIES> 48,175,000
<RECEIVABLES> 846,407
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 49,430,009
<CURRENT-LIABILITIES> 286,619
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 49,143,390
<TOTAL-LIABILITY-AND-EQUITY> 49,430,009
<SALES> 0
<TOTAL-REVENUES> 702,731
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 94,788
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 607,943
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 607,943
<EPS-PRIMARY> .17
<EPS-DILUTED> 0
</TABLE>
