August 13, 1998
Securities and Exchange Commission
Filer Support, Edgar
Operation Center, Stop 0-7
6432 General Green Way
Alexandria, VA 22312
Re: Boston Financial Qualified Housing Tax Credits L.P. III
Report on Form 10-Q for Quarter Ended June 30, 1998
File No. 01-18462
Gentlemen:
Pursuant to the requirements of Section 15(d) of the Securities Exchange Act of
1934, filed herewith is one copy of subject report.
Very truly yours,
/s/Dianne Groark
Dianne Groark
Assistant Controller
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
-------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------- -----------------------
For Quarter Ended June 30, 1998 Commission file number 01-18462
------------- -----------
Boston Financial Qualified Housing Tax Credits L.P. III
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3032106
- -------------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
101 Arch Street, Boston, Massachusetts 02110-1106
----------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 439-3911
---------------
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>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
(A Limited Partnership)
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page No.
Item 1. Combined Financial Statements
Combined Balance Sheets - June 30, 1998 (Unaudited)
and March 31, 1998 1
Combined Statements of Operations (Unaudited) - For the Three
Months Ended June 30, 1998 and 1997 2
Combined Statement of Changes in Partners' Equity (Deficiency)
(Unaudited) - For the Three Months Ended June 30, 1998 3
Combined Statements of Cash Flows (Unaudited) - For the
Three Months Ended June 30, 1998 and 1997 4
Notes to the Combined Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II - OTHER INFORMATION
Items 1-6 13
SIGNATURE 14
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
(A Limited Partnership)
COMBINED BALANCE SHEETS - June 30, 1998 and March 31, 1998
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
(Unaudited)
Assets
<S> <C> <C>
Cash and cash equivalents $ 489,655 $ 311,867
Marketable securities, at fair value 225,512 275,387
Investments in Local Limited Partnerships, net
of reserve for valuation of $1,635,000 (Note 1) 18,985,202 20,136,185
Accounts receivable, net of allowance for bad debt of
$50,129 and $77,010, respectively 99,930 90,467
Interest receivable 6,903 13,298
Prepaid expenses 14,769 25,247
Tenant security deposits 79,562 68,292
Replacement reserves 209,490 194,671
Rental property at cost, net of accumulated
depreciation 15,330,305 15,451,119
Deferred acquisition fees escrow 225,000 225,000
Deferred expenses, net of $110,913 and $104,360
of accumulated amortization, respectively 202,574 209,127
Other assets 144,360 131,127
Total Assets $ 36,013,262 $ 37,131,787
Liabilities and Partners' Equity
Accounts payable to affiliates $ 1,687,773 $ 1,702,519
Accounts payable and accrued expenses 574,606 484,817
Interest payable 329,824 312,091
Note payable - affiliate 514,968 514,968
Security deposits payable 78,762 70,630
Due to affiliate 323,046 323,046
Deferred acquisition fees payable 225,000 225,000
General partner advances 200,000 200,000
Mortgage notes payable 8,614,713 8,641,832
Total Liabilities 12,548,692 12,474,903
Minority interests in Local Limited Partnerships 905,393 907,515
General, Initial and Investor Limited Partners' Equity 22,558,378 23,748,605
Net unrealized gains on marketable securities 799 764
Total Partners' Equity 22,559,177 23,749,369
Total Liabilities and Partners' Equity $ 36,013,262 $ 37,131,787
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
<PAGE>
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Revenue:
Rental $ 579,906 $ 607,046
Investment 8,606 9,729
Other 67,885 118,465
Total Revenue 656,397 735,240
Expenses:
Asset management fees, related party 95,938 109,095
General and administrative includes
reimbursements to affiliates of $32,550 and
$58,855 in 1998 and 1997, respectively 113,072 122,829
Bad debt (recovery) (26,881) 11,836
Property management fees 50,154 42,225
Rental operations, exclusive of depreciation 345,155 459,904
Interest 212,791 247,776
Depreciation 166,192 191,112
Amortization 44,303 46,298
Total Expenses 1,000,724 1,231,075
Loss before equity in losses of
Local Limited Partnerships (344,327) (495,835)
Equity in losses of Local Limited Partnerships (848,022) (751,196)
Minority interest in losses of
Local Limited Partnerships 2,122 2,884
Net Loss $ (1,190,227) $ (1,244,147)
Net Loss allocated:
To General Partners $ (11,902) $ (12,441)
To Limited Partners (1,178,325) (1,231,706)
$ (1,190,227) $ (1,244,147)
Net Loss per Limited Partnership Unit
(100,000 Units) $ (11.78) $ (12.32)
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
<PAGE>
COMBINED STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIENCY)
(Unaudited)
For the Three Months Ended June 30, 1998
<TABLE>
<CAPTION>
Initial Investor Net
General Limited Limited Unrealized
Partners Partners Partners Gains Total
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1998 $ (638,359) $ 5,000 $ 24,381,964 $ 764 $ 23,749,369
Net change in net unrealized
gains on marketable
securities available for sale - - - 35 35
Net Loss (11,902) - (1,178,325) - (1,190,227)
Balance at June 30, 1998 $ (650,261) $ 5,000 $ 23,203,639 $ 799 $ 22,559,177
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
<PAGE>
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net cash used for operating activities $ (80,525) $ (143,987)
Cash flows from investing activities:
Advances to affiliates (41,269) (57,497)
Purchases of marketable securities - (124,573)
Proceeds from sales and maturities of
marketable securities 50,000 51,439
Cash distributions received from Local
Limited Partnerships 268,748 179,290
Deposits to replacement reserves (14,819) (4,636)
Additions to rental property (45,378) -
Net cash provided by investing activities 217,282 44,023
Cash flows from financing activities:
Repayment of mortgage notes payable (27,119) (32,610)
Advances from affiliate 68,150 116,526
Advances on notes payable, affiliate - 58,854
Net cash provided by financing activities 41,031 142,770
Net increase in cash and cash equivalents 177,788 42,806
Cash and cash equivalents, beginning 311,867 379,614
Cash and cash equivalents, ending $ 489,655 $ 422,420
Supplemental Disclosure:
Cash paid for interest $ 195,058 $ 196,648
The accompanying notes are an integral part of these combined financial statements.
</TABLE>
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(Unaudited)
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the
information and note disclosures required by generally accepted
accounting principles. These statements should be read in conjunction with the
financial statements and notes thereto included with the Partnership's 10-K
for the year ended March 31, 1998. In the opinion of management, these
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the Partnership's financial
position and results of operations. The results of operations for the period
may not be indicative of the results to be expected for the year.
The Managing General Partner has elected to report results of the Local Limited
Partnerships on a 90 day lag basis, because the Local Limited Partnerships
report their results on a calendar year basis. Accordingly, the financial
information about the Local Limited Partnerships that is included in the
accompanying financial statements is as of March 31, 1998 and 1997.
1. Investments in Local Limited Partnerships
The Partnership uses the equity method to account for its limited partner
interests in fifty Local Limited Partnerships (excluding the Combined Entities)
which own and operate multi-family housing complexes, most of which are
government-assisted. The Partnership, as Investor Limited Partner pursuant to
the various Local Limited Partnership Agreements which contain certain operating
and distribution restrictions, has generally acquired a 99% interest in the
profits, losses, tax credits and cash flows from operations of each of the Local
Limited Partnerships, except for Granite, Colony Apartments and Harbour View,
where the Partnership's ownership interest is 97%, 49% and 48.96%, respectively.
Upon dissolution, proceeds will be distributed according to each respective
partnership agreement.
The following is a summary of Investments in Local Limited Partnerships at June
30, 1998, excluding the Combined Entities:
<TABLE>
<CAPTION>
<S> <C>
Capital contributions to Local Limited Partnerships and purchase
price paid to withdrawing partners of Local Limited Partnerships $ 59,851,809
Cumulative equity in losses of Local Limited Partnerships (net of
cumulative unrecognized losses of $27,099,307) (41,687,359)
Cumulative cash distributions received from Local Limited Partnerships (2,525,459)
Investments in Local Limited Partnerships before adjustment 15,638,991
Excess of investment cost over the underlying net assets acquired:
Acquisition fees and expenses 6,430,577
Accumulated amortization of acquisition fees and expenses (1,449,366)
Investments in Local Limited Partnerships 20,620,202
Reserve for valuation of investments in Local Limited Partnerships (1,635,000)
$ 18,985,202
</TABLE>
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS (continued)
(Unaudited)
1. Investments in Local Limited Partnerships (continued)
The Partnership's share of the net losses of the Local Limited Partnerships,
excluding the Combined Entities, for the three months ended June 30, 1998 is
$2,024,632. For the three months ended June 30, 1998, the Partnership has not
recognized $1,180,147 of equity in losses relating to certain Local Limited
Partnerships in which cumulative equity in losses and distributions exceeded
its total investments in these Local Limited Partnerships.
2. Effect of Recently Issued Accounting Standard
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income. The Partnership
has adopted the new standard effective April 1, 1998. The adoption of this
standard had no effect on the Partnership's net income or partner's equity.
Comprehensive loss was $1,190,192 and $1,242,205 for the quarters ended
June 30, 1998 and 1997, respectively. Comprehensive loss includes the change
in net unrealized gains and losses on marketable securities available for sale
of $35 and $1,942 for the quarters ended June 30, 1998 and 1997, respectively.
3. Liquidation of Interests in Local Limited Partnerships
As previously reported, the Managing General Partner transferred all of the
assets of twelve of the Texas Partnerships, subject to their liabilities, to
unaffiliated entities. Crown Point, Godley Arms, Glenbrook Apartments,
Quail Run Apartments and Sherwood Arms Housing were transferred prior to
March 31, 1997. Lone Oak Apartments, Hallet West Apartments and Lakeway Colony
were transferred on August 6, 1997, September 23, 1997 and October 30, 1997,
respectively. Crestwood Place, Eagle Nest Apartments, One Main Place and
Pilot Point Apartments were transferred on October 28, 1997. If negotiations
continue as expected, transfer of the remaining property will occur during
1998. This property, with a carrying value of $762,081, incurred a loss of
$38,945 during the three months ended March 31, 1998. Until the property is
transferred, operating deficits will continue to be funded from Partnership
Reserves. For tax purposes, these events will result in both Section 1231 gain
and cancellation of indebtedness income. In addition, the transfer of ownership
will result in a nominal amount of recapture of tax credits because the Texas
Partnerships represent only 2% of the Partnership's tax credits.
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS (continued)
(Unaudited)
4. Supplemental Combining Schedules
<TABLE>
<CAPTION>
Balance Sheets
Boston Financial
Qualified Housing Combined
Tax Credits Entities Combined
L.P. III (A) (B) Eliminations (A)
Assets
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 399,924 $ 89,731 $ - $ 489,655
Marketable securities, at fair value 225,512 - - 225,512
Investments in Local Limited
Partnerships, net 22,118,625 - (3,133,423) 18,985,202
Accounts receivable, net 805,934 99,930 (805,934) 99,930
Interest receivable 6,903 - - 6,903
Notes receivable 1,406,251 - (1,406,251) -
Prepaid expenses 6,486 8,283 - 14,769
Tenant security deposits - 79,562 - 79,562
Replacement reserves - 209,490 - 209,490
Rental property at cost, net of
accumulated depreciation - 15,330,305 - 15,330,305
Deferred acquisition fees escrow 225,000 - - 225,000
Deferred expenses, net - 202,574 - 202,574
Other assets - 144,360 - 144,360
Total Assets $ 25,194,635 $ 16,164,235 $ (5,345,608) $ 36,013,262
Liabilities and Partners' Equity
Accounts payable to affiliates $ 1,671,469 $ 822,238 $ (805,934) $ 1,687,773
Accounts payable and accrued
expenses 224,021 350,585 - 574,606
Interest payable - 329,824 - 329,824
Notes payable, affiliate 514,968 - - 514,968
Security deposits payable - 78,762 - 78,762
Due to affiliate - 323,046 - 323,046
Deferred acquisition fees payable 225,000 - - 225,000
General partner advances - 200,000 - 200,000
Mortgage notes payable - 10,020,964 (1,406,251) 8,614,713
Total Liabilities 2,635,458 12,125,419 (2,212,185) 12,548,692
Minority interest in Local
Limited Partnerships - - 905,393 905,393
General, Initial and Investor Limited
Partners' Equity 22,558,378 4,038,816 (4,038,816) 22,558,378
Net unrealized losses on marketable
securities 799 - - 799
Total Partners' Equity 22,559,177 4,038,816 (4,038,816) 22,559,177
Total Liabilities and
Partners' Equity $ 25,194,635 $ 16,164,235 $ (5,345,608) $ 36,013,262
(A) As of June 30, 1998.
(B) As of March 31, 1998.
</TABLE>
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS (continued)
(Unaudited)
4. Supplemental Combining Schedules (continued)
Statements of Operations
<TABLE>
<CAPTION>
Boston Financial
Qualified Housing Combined
Tax Credits Entities Combined
L.P. III (A) (B) Eliminations (A)
Revenue:
<S> <C> <C> <C> <C>
Rental $ - $ 579,906 $ - $ 579,906
Investment 6,881 1,725 - 8,606
Other 29,386 38,499 - 67,885
Total Revenue 36,267 620,130 - 656,397
Expenses:
Asset management fees, related party 95,938 - - 95,938
General and administrative 113,072 - - 113,072
Bad debt recovery (26,881) - - (26,881)
Property management fees - 50,154 - 50,154
Rental operations, exclusive
of depreciation - 345,155 - 345,155
Interest 1,500 211,291 - 212,791
Depreciation - 166,192 - 166,192
Amortization 37,750 6,553 - 44,303
Total Expenses 221,379 779,345 - 1,000,724
Loss before equity in losses of Local
Limited Partnerships (185,112) (159,215) - (344,327)
Equity in losses of Local Limited
Partnerships (1,005,115) - 157,093 (848,022)
Minority interest in losses of Local
Limited Partnerships - - 2,122 2,122
Net Loss $ (1,190,227) $ (159,215) $ 159,215 $ (1,190,227)
(A) For the three months ended June 30, 1998.
(B) For the three months ended March 31, 1998.
</TABLE>
<PAGE>
NOTES TO THE COMBINED FINANCIAL STATEMENTS (continued)
(Unaudited)
4. Supplemental Combining Schedules (continued)
<TABLE>
<CAPTION>
Statements of Cash Flows
Boston Financial
Qualified Housing Combined
Tax Credits Entities Combined
L.P. III (A) (B) Eliminations (A)
Net cash used for
<S> <C> <C> <C> <C>
operating activities $ (90,124) $ 9,599 $ - $ (80,525)
Cash flows from investing activities:
Advances to affiliates (41,269) - - (41,269)
Proceeds from sales and maturities
of marketable securities 50,000 - - 50,000
Cash distributions received from
Local Limited Partnerships 268,748 - - 268,748
Deposits to replacement reserves - (14,819) - (14,819)
Additions to rental property - (45,378) - (45,378)
Net cash provided by (used for)
investing activities 277,479 (60,197) - 217,282
Cash flows from financing
activities:
Repayment of mortgage notes
payable - (27,119) - (27,119)
Advances from affiliate - 68,150 - 68,150
Net cash provided by
financing activities - 41,031 - 41,031
Net increase (decrease) in cash
and cash equivalents 187,355 (9,567) - 177,788
Cash and cash equivalents,
beginning 212,569 99,298 - 311,867
Cash and cash equivalents,
ending $ 399,924 $ 89,731 $ - $ 489,655
(A) For the three months ended June 30, 1998.
(B) For the three months ended March 31, 1998.
</TABLE>
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
At June 30, 1998, the Partnership, including the Combined Entities, had cash
and cash equivalents of $489,655 as compared to $311,867 at March 31, 1998. The
increase is primarily attributable to cash distributions received from Local
Limited Partnerships and proceeds from sales and maturities of marketable
securities. The increase is partially offset by cash used for operations,
improvements to rental property and repayment of mortgage notes payable.
The Managing General Partner initially designated 3% of Gross Proceeds
as Reserves. The Reserves were established to be used for working capital of
the Partnership and contingencies related to the ownership of Local Limited
Partnership interests. The Managing General Partner may increase or decrease
such Reserves from time to time, as it deems appropriate. During the year
ended June 30, 1993, the Managing General Partner decided to increase the
Reserve level to 3.75%. Funds approximating $195,000 have been withdrawn
from the Reserves to pay legal and other costs. Additionally, professional
fees relating to various property issues totaling approximately $1,653,000
have been paid from Reserves. This amount includes approximately $1,311,000
for the Texas Partnerships. To date, Reserve funds in the amount of
approximately $349,000 have also been used to make additional capital
contributions to two Local Limited Partnerships, and the Partnership has paid
approximately $1,181,000 (net of paydowns) to purchase the mortgage of a Local
Limited Partnership. To date, the Partnership has used approximately
$1,501,000 of operating funds to replenish Reserves. At June 30, 1998,
approximately $559,000 of cash, cash equivalents and marketable securities has
been designated as Reserves. Reserves may be used to fund Partnership operating
deficits, if the Managing General Partner deems funding appropriate. If
Reserves are not adequate to cover the Partnership's operations, the
Partnership will seek other financing sources including, but not limited to,
the deferral of Asset Management Fees paid to an affiliate of the Managing
General Partner or working with Local Limited Partnerships to increase cash
distributions.
In the event a Local Limited Partnership encounters operating difficulties
requiring additional funds, the Partnership might deem it in its best interests
to provide such funds, voluntarily, in order to protect its investment. To
date, in addition to the $1,311,000 noted above, the Partnership has also
advanced approximately $646,000 to the Texas Partnerships and $695,000 to two
other Local Limited Partnerships to fund operating deficits.
Since the Partnership invests as a limited partner, the Partnership has no
contractual duty to provide additional funds to Local Limited Partnerships
beyond its specified investment. Thus, at June 30, 1998, the Partnership had
no contractual or other obligation to any Local Limited Partnership which had
not been paid or provided for.
Cash Distributions
No cash distributions were made during three months ended June 30, 1998.
Results of Operations
For the three months ended June 30, 1998, Partnership operations resulted in a
net loss of $1,190,227 as compared to a net loss of $1,244,147 for the same
period in 1997. The decrease in net loss is primarily attributable to
decreases in rental operations, interest and depreciation expenses, partially
offset by decreases in rental and other revenue due to the transfer of six of
the Combined Entities. One additional Combined Entity is expected to be
transfered in fiscal 1999. These decreases in net loss are partially offset by
an increase in equity in losses of Local Limited Partnerships due to increases
in property operating expenses. Operating expenses are not expected to
continue to increase.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Property Discussions
Prior to the transfer of the Texas Partnerships, Limited Partnership interests
had been acquired in sixty-nine Local Limited Partnerships which own and operate
rental properties in twenty-four states. Forty-two of the properties,
totaling 3,935 units, were rehabilitated, and twenty-seven properties,
consisting of 1,614 units, were newly constructed. All of the properties
have completed construction or rehabilitation and initial lease-up. Many
of the remaining fifty-five Local Limited Partnerships in which the Partnership
has invested have stable operations and are operating satisfactorily.
Several properties are experiencing operating difficulties and generating cash
flow deficits due to a variety of reasons. In most cases, the Local General
Partners of these properties are funding the deficits through project expense
loans and subordinated loans or payments from escrows. In instances where the
Local General Partners obligations to fund deficits have expired or otherwise,
the Managing General Partner is working with the Local General Partner to
increase operating income, reduce expenses or refinance the debt at lower
interest rates.
Boulevard Commons IIA, located in Chicago, Illinois, has been experiencing
operating deficits. Expenses have been increasing due to increasing
maintenance and capital needs, security issues and high turnover at the
property. The Local General Partner is requesting that the Managing General
Partner assist in funding capital improvements. The Managing General Partner is
reviewing this request and has requested that the Local General Partner provide
a workout plan detailing where and how these funds will be used. In
addition, the Managing General Partner is working with the Local General
Partner to restructure the current debt. Negotiations between the Managing
General Partner and Local General Partner are ongoing.
Columbia Townhomes, located in Des Moines, Iowa has been experiencing
operating deficits. As of June 30, 1998, occupancy was 100%. Currently, the
Local General Partner has approached the lender about the possibility of
refinancing the mortgage. In addition, the Local General Partner, Managing
General Partner and Management Agent are working together to review the
marketing, security and long-term strategy for this property. The Managing
General Partner is closely monitoring this property.
As previously reported, Harbour View, located in Staten Island, New York, had
defaulted on its HUD-insured loan. Subsequently, the lender assigned the loan
to HUD. In December 1996, the mortgage was sold at auction to an
unaffiliated institutional buyer. The Managing General Partner and Local
General Partner continue to participate in workout discussions with the new
lender. The Partnership's ability to retain its interest in the property
will depend on the ability of the Local General Partner or Partnership
affiliates to negotiate a satisfactory workout agreement with the new lender.
The Partnership's carrying value of this investment for financial
reporting purposes is zero. Occupancy for this property as of June 30, 1998 was
98%.
A refinancing application was submitted for Kyle Hotel, located in Temple,
Texas, in December 1997. The potential lender needs to approve several
issues before the application will be approved. The Managing General
Partner is monitoring progress.
As previously reported, operations had been improving at Pleasant Plaza,
located in Malden, Massachusetts, as a result of the 1995 SHARP subsidy
restructuring. The SHARP mortgage subsidy has been an important part of the
property's annual income. However, effective October 1, 1997, the
Massachusetts Housing Finance Agency (MHFA), which provided the SHARP
subsidies, withdrew future SHARP mortgage subsidies from its portfolio of
77 SHARP subsidized properties. The Managing General Partner joined a group of
interested parties and is working with MHFA to find a solution to the problems
that will result from the withdrawn subsidies. Given the dependence on the
mortgage subsidy, it is possible that the property will default on its
mortgage obligation. It is possible that Partnership Reserves will be used
to support the property until these issues can be resolved. The Local General
Partner is in negotiations with the MHFA to fund debt service deficits
that had been covered by the SHARP mortgage subsidies and avoid a default on
its mortgage. The Local General Partner believes it will cover the SHARP
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Property Discussions (continued)
subsidy gap by increasing rents and some cost containments. In the
meantime, the Local General Partner has negotiated a 1998 budget with the
MHFA. However, further negotiations to resolve these issues with the MHFA are
expected in the near future. As previously reported, the Local General
Partner sought bankruptcy protection. His reorganization plan was approved in
September 1997. The plan will not materially affect property operations
or the Local General Partner's interest in the Local Limited Partnership.
Another property affected by the withdrawal of the SHARP subsidies is South
Holyoke, located in Holyoke, Massachusetts. As previously reported, this
property continues to experience occupancy problems resulting from
increased market competition and local economic conditions. The management
agent, which is currently funding the deficits, is trying to address these
problems through a combination of increased advertising, community outreach
and tighter expense monitoring.
Waterfront and Shoreline, both located in Buffalo, New York, continue to have
operating deficits as a result of a soft rental market, deferred maintenance
and security issues. As previously reported, the Managing General
Partner and Local General Partner have successfully negotiated a Drug
Elimination Grant (NOFA) for Shoreline. Waterfront was turned down for the
NOFA grant. However, they will reapply next year. The grant should be funded
during 1998 and will be used to support drug prevention, educational
programs and increased security on the property. For both Waterfront and
Shoreline, the Management Agent has applied for consideration for a Project
Improvement Program (PIP) and applied for a Safe Neighborhood Grant. At
this point, deficits continue to be funded by the Management Agent. As
noted previously, the viability of the properties depends upon funding
deficits until receipt of the grants. Both properties currently carry cash
flow mortgages with New York State. The Managing General Partner is closely
monitoring operations.
Willow Lake, located in Kansas, is experiencing operating difficulties due to
soft rental market conditions. As previously reported, the Managing General
Partner negotiated a three year extension to the original workout agreement.
The three year extension will expire May 31, 2001. In addition, the
Managing General Partner is working with the Local General Partner to negotiate
permanent debt service relief, increase rents and monitor property expenses.
As previously reported, negotiations between the Managing General Partner,
the Lender and prospective buyer for the remaining Texas Partnership,
Willowick, are continuing and a transfer is expected in 1998. In the meantime,
operating deficits continue to be funded from Partnership Reserves. For tax
purposes, these events will result in both Section 1231 gain and cancellation
of indebtedness income. In addition, the transfer of ownership will result
in a nominal amount of recapture of tax credits because the Texas Partnerships
represent only 2% of the Partnership's tax credits.
In accordance with Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
which is effective for fiscal years beginning after December 15, 1995,
the Partnership has implemented policies and practices for assessing
impairment of its real estate assets and investments in local limited
partnerships. Each asset is analyzed by real estate experts to determine if
an impairment indicator exists. If so, the carrying value is compared to the
future cash flows expected to be derived from the asset. If the total
undiscounted cash flows are less than the carrying value, a provision to
write down the asset to fair value will be charged against income.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
(A Limited Partnership)
PART II OTHER INFORMATION
Items 1-5 Not applicable
Item 6 Exhibits and reports on Form 8-K
(a)Exhibits - None
(b)Reports on Form 8-K - No reports on Form 8-K were filed
during the quarter ended June 30, 1998.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
(A Limited Partnership)
SIGNATURE
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.
DATED: August 13, 1998 BOSTON FINANCIAL QUALIFIED HOUSING TAX
CREDITS L.P. III
By: Arch Street III, Inc.,
its Managing General Partner
/s/Randolph G. Hawthorne
Randolph G. Hawthorne
Managing Director, Vice President and
Chief Operating Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1998
<CASH> 489,655
<SECURITIES> 225,512
<RECEIVABLES> 106,833<F1>
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 000
<PP&E> 15,330,305
<DEPRECIATION> 000
<TOTAL-ASSETS> 36,013,262<F2>
<CURRENT-LIABILITIES> 000
<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> 22,559,177
<TOTAL-LIABILITY-AND-EQUITY> 36,013,262<F3>
<SALES> 000
<TOTAL-REVENUES> 656,397<F4>
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 787,933<F5>
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 212,791
<INCOME-PRETAX> 000
<INCOME-TAX> 000
<INCOME-CONTINUING> 000
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> (1,190,227)<F6>
<EPS-PRIMARY> (11.78)
<EPS-DILUTED> 000
<FN>
<F1>Included in receivables: Accounts receivable of $99,930 and Interest
receivable of $6,903. <F2>Included in total assets: Prepaid expenses of $14,769,
Tenant security deposits of $79,562, Other assets of $144,360, Investments in
Local Limited Partnerships of $18,985,202, Replacement reserves of $209,490,
Deferred acquisition fees escrow of $225,000 and Deferred expenses, net of
$202,574. <F3>Included in Total Liabilities and Equity: Accounts payable to
affiliates of $1,687,773 Accounts payable and accrued expenses of $574,606,
Interest payable of $329,824, Notes payable, affiliate of $514,968, Security
deposits payable of $78,762, Due to affiliate of $323,046, Deferred acquisition
fees payable of $225,000, General partner advances of $200,000, Mortgage notes
payable of $8,614,713 and Minority interest in Local Limited Partnerships
of $905,393.
<F4>Total revenue includes: Rental of $579,906, Investment of $8,606 and Other
of $67,885. <F5>Included in Other Expenses: Asset management fees of $95,938,
General and Administrative of $113,072, Bad debt of ($26,881), Property
management fees of $50,154, Rental operations, exclusive of depreciation of
$345,155, Depreciation of $166,192 and Amortization of $44,303.
<F6>Net loss reflects: Equity in losses of Local Limited Partnerships of
$848,022 and minority interest in losses of Local Limited Partnerships of
$2,122.
</FN>
</TABLE>
