August 14, 2000
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC. 20549
Re: Boston Financial Qualified Housing Tax Credits L.P. III
Report on Form 10-QSB for Quarter Ended June 30, 2000
File Number 01-18462
Dear Sir/Madam:
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/Stephen Guilmette
Stephen Guilmette
Assistant Controller
QH3-Q1.DOC
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(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, 2000
------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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. Financial Statements
Balance Sheet - June 30, 2000 (Unaudited) 1
Statements of Operations (Unaudited) - For the Three
Months Ended June 30, 2000 and 1999 2
Statement of Changes in Partners' Equity (Deficiency)
(Unaudited) - For the Three Months Ended June 30, 2000 3
Statements of Cash Flows (Unaudited) - For the
Three Months Ended June 30, 2000 and 1999 4
Notes to the Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - OTHER INFORMATION
Items 1-6 10
SIGNATURE 11
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
(A Limited Partnership)
BALANCE SHEET
June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Assets
<S> <C>
Cash and cash equivalents $ 177,384
Marketable securities, at fair value 620,430
Investments in Local Limited Partnerships, net (Note 1) 12,868,583
Interest receivable 10,286
Note receivable 1,328,773
-------------
Total Assets $ 15,005,456
=============
Liabilities and Partners' Equity
Accounts payable to affiliates $ 2,535,968
Accounts payable and accrued expenses 302,681
Note payable, affiliate 514,968
Total Liabilities 3,353,617
General, Initial and Investor Limited Partners' Equity 11,651,773
Net unrealized gains on marketable securities 66
Total Partners' Equity 11,651,839
-------------
Total Liabilities and Partners' Equity $ 15,005,456
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
(A Limited Partnership)
STATEMENTS OF OPERATIONS
For the Three Months Ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
1999
2000 (Restated)
Revenue:
<S> <C> <C>
Investment $ 10,768 $ 11,005
Recovery of bad debt 10,955 80,639
Other 37,112 24,686
------------- ------------
Total Revenue 58,835 116,330
------------- ------------
Expenses:
Asset management fees, related party 90,545 91,815
General and administrative (includes
reimbursements to affiliates of $74,325 and
$36,662 in 2000 and 1999, respectively) 117,742 103,442
Interest 1,500 1,500
Amortization 23,651 32,979
------------- ------------
Total Expenses 233,438 229,736
------------- ------------
Loss before equity in losses of Local Limited
Partnerships and loss on liquidation of interest in
Local Limited Partnership (174,603) (113,406)
Equity in losses of Local Limited Partnerships (Note 1) (405,138) (702,995)
Loss on liquidation of interest in Local Limited
Partnership (Note 2) - (193,883)
------------- ------------
Net Loss $ (579,741) $ (1,010,284)
============= ============
Net Loss allocated:
To General Partners $ (5,797) $ (10,103)
To Limited Partners (573,944) (1,000,181)
------------- ------------
$ (579,741) $ (1,010,284)
============= ============
Net Loss per Limited Partnership Unit
(100,000 Units) $ (5.74) $ (10.00)
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
(A Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIENCY)
For the Three Months Ended June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Net
Initial Investor Unrealized
General Limited Limited Gains
Partners Partners Partners (Losses) Total
<S> <C> <C> <C> <C> <C>
Balance at March 31, 2000 $ (753,529) $ 5,000 $ 12,980,043 $ (999) $ 12,230,515
----------- --------- ------------- ----------- -------------
Comprehensive Income (Loss):
Change in net unrealized losses
on marketable securities
available for sale - - - 1,065 1,065
Net Loss (5,797) - (573,944) - (579,741)
----------- --------- ------------- ----------- -------------
Comprehensive Income (Loss) (5,797) - (573,944) 1,065 (578,676)
----------- --------- ------------- ----------- -------------
Balance at June 30, 2000 $ (759,326) $ 5,000 $ 12,406,099 $ 66 $ 11,651,839
=========== ========= ============= =========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Three Months Ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
1999
2000 (Restated)
<S> <C> <C>
Net cash used for operating activities $ (25,922) $ (88,793)
Net cash provided by investing activities 30,513 171,250
------------ ------------
Net increase in cash and cash equivalents 4,591 82,457
Cash and cash equivalents, beginning 172,793 338,993
------------ ------------
Cash and cash equivalents, ending $ 177,384 $ 421,450
============ ============
Supplemental Disclosure:
Cash paid for interest $ 1,500 $ 1,500
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-QSB 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 Form 10-KSB for the
year ended March 31, 2000. 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 of the Local Limited Partnerships that is included in the
accompanying financial statements is as of March 31, 2000 and 1999.
1. Investments in Local Limited Partnerships
The Partnership uses the equity method to account for its limited partnership
interests in fifty-two Local Limited Partnerships 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 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, Harbour View, Willow Lake and Breckenridge,
where the Partnership's ownership interest is 97%, 49%, 48.96%, 98% and 98%,
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, 2000:
<TABLE>
<CAPTION>
Capital contributions and advances paid to Local Limited Partnerships and
purchase price paid to withdrawing partners
<S> <C>
of Local Limited Partnerships $ 68,111,077
Cumulative equity in losses of Local Limited Partnerships
(excluding cumulative unrecognized losses of $53,434,646) (52,320,236)
Cumulative cash distributions received from
Local Limited Partnerships (3,108,436)
------------
Investments in Local Limited Partnerships before adjustment 12,682,405
Excess of investment cost over the underlying net assets acquired:
Acquisition fees and expenses 6,220,170
Accumulated amortization of acquisition fees and expenses (1,654,821)
-------------
Investments in Local Limited Partnerships 17,247,754
Reserve for valuation of investments in
Local Limited Partnerships (4,379,171)
-------------
$ 12,868,583
=============
</TABLE>
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. III
(A Limited Partnership)
NOTES TO THE FINANCIAL STATEMENTS (continued)
(Unaudited)
1. Investments in Local Limited Partnerships (continued)
The Partnership's share of the net losses of the Local Limited Partnerships for
the three months ended June 30, 2000 is $1,762,008. For the three months ended
June 30, 2000, the Partnership has not recognized $1,385,852 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. The Partnership recognized $28,982 of previously unrecognized
losses in the three months ended June 30, 2000.
2. Liquidation of Interests in Local Limited Partnerships
For financial reporting purposes, loss on liquidation of interest in Local
Limited Partnership of $193,883 was recognized in the period ended June 30, 1999
as a result of the redemption of Boulevard Commons II.
<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
Certain matters discussed herein constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. The
Partnership intends such forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements and is including this statement
for purposes of complying with these safe harbor provisions. Although the
Partnership believes the forward-looking statements are based on reasonable
assumptions, the Partnership can give no assurance that their expectations will
be attained. Actual results and timing of certain events could differ materially
from those projected in or contemplated by the forward-looking statements due to
a number of factors, including, without limitation, general economic and real
estate conditions and interest rates.
Liquidity and Capital Resources
The Partnership had an increase in cash and cash equivalents of $4,591 for the
three months ended June 30, 2000. This increase is attributable to proceeds from
sales of marketable securities, cash distributions received from Local Limited
Partnerships and repayment of notes receivable from affiliate. These increases
are partially offset by purchases of marketable securities and cash used for
operations.
The Managing General Partner initially designated 3% of the 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
March 31, 1993, the Managing General Partner decided to increase the Reserve
level to 3.75%. Funds approximating $196,000 have been withdrawn from the
Reserves to pay legal and other costs. Additionally, professional fees relating
to various property issues totaling approximately $1,802,000 have been paid from
Reserves. To date, Reserve funds in the amount of approximately $434,000 have
also been used to make additional capital contributions to three Local Limited
Partnerships, and the Partnership has paid approximately $915,000 (net of
paydowns) to purchase the mortgage of a Local Limited Partnership. To date, the
Partnership has used approximately $2,243,000 of operating funds to replenish
Reserves. At June 30, 2000, approximately $646,000 of cash, cash equivalents and
marketable securities have 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. The
Partnership has advanced approximately $2,000,000 to 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, 2000, 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 the three months ended June 30, 2000.
<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 (continued)
Results of Operations
For the three months ended June 30, 2000, Partnership operations resulted in a
net loss of $579,741 as compared to a net loss of $1,010,284 for the same period
in 1999. The decrease in net loss is primarily attributable to a decrease in
equity in losses. This decrease in equity in losses is primarily attributable to
a decrease in property operating expenses, interest and depreciation expenses
due to the transfer of one of the Local Limited Partnerships in 1999.
Property Discussions
Boulevard Commons II and IIA, located in Chicago, Illinois, which both have the
same Local General Partner have been experiencing operating deficits. Expenses
have increased due to increasing maintenance, capital needs, security issues and
high turnover at the property. The Managing General Partner has been in
negotiations with the Local General Partner to develop a plan that will
ultimately transfer ownership of the property to the Local General Partner. The
plan includes provisions to minimize the risk of recapture.
Effective January 1, 1999, the Partnership redeemed its interest in Boulevard
Commons II. The redemption of the Partnership's interest avoided a possible
recapture event. However, the redemption will cause investors to have minimal
taxable gain or loss for the 1999 tax year, depending upon the tax basis of the
property.
Effective January 2, 1999, the Managing General Partner consummated the transfer
of 49.5% of the Partnership's capital and profits in Boulevard Commons IIA to
the Local General Partner. The Managing General Partner has the right to
transfer the Partnership's remaining interest in the property to the Local
General Partner any time after one year has elapsed. The Partnership will retain
its full share of tax credits until such time as the remaining interest is put
to the Local General Partner. In addition, the Local General Partner has the
right to call the remaining interest after the tax credit period has expired.
Breckenridge Creste, located in Duluth, Georgia, is experiencing operating
deficits as a result of higher vacancies during the summer of 1998. However
occupancy for the last two quarters have increased to the mid 90% range. The
Managing General Partner is working with property management to review
completion of needed capital improvements and to review the revised marketing
strategy. In addition, the Managing General Partner is working closely with the
Local General Partner to develop a plan that will ultimately transfer ownership
of the property.
The plan includes provisions to minimize the risk of recapture.
Columbia Townhouses, located in Burlington, Iowa, has been experiencing
operating deficits due to consistent increases in vacancy. As of December 31,
1999, occupancy was 100%. The Local General Partner, the Managing General
Partner and management agent have been working together to review the marketing,
security and long-term strategy for this property. In addition, the Local
General Partner is in negotiations with the lender about the possibility of
refinancing the mortgage. Effective September 1999, the City of Burlington
acquired, through eminent domain, one of the buildings comprising Columbia
Townhomes. The city acquired the building for the purpose of allowing access to
a contemplated Walgreens development. For tax purposes, the taking of one
building by eminent domain will result in both Section 1231 Gain and
cancellation of indebtedness income. In addition, there will be tax credit
recapture of approximately $1.40 per unit for the 1999 tax year. The Managing
General Partner continues to work with the Local General Partner in monitoring
this property and the outcome of the refinancing.
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 and Partnership affiliates to negotiate a
satisfactory workout agreement
<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 (continued)
Property Discussions (continued)
with the new lender. However, if the negotiations are not successful, it is
possible that the Partnership will not be able to retain its interest in the
property through 2000. A foreclosure would result in recapture of credits for
investors, the allocation of taxable income to the Partnership and loss of
future benefits associated with this property. Occupancy for this property as of
December 31, 1999 was 91%.
As previously reported, 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 still monitoring the progress of the application approval
process.
Pleasant Plaza, located in Malden, Massachusetts, as well as South Holyoke,
located in Holyoke, Massachusetts, receive a subsidy under the State Housing
Assistance Rental Program (SHARP), which is an important part of their annual
income. As originally conceived, the SHARP subsidy was scheduled to decline over
time to match increases in net operating income. However, increases in net
operating income failed to keep pace with the decline in the SHARP subsidy. Many
of the SHARP properties (including Pleasant Plaza and South Holyoke) structured
workouts that included additional subsidies in the form of Operating Deficit
Loans (ODL's). Effective October 1, 1997, the Massachusetts Housing Finance
Agency (MHFA), which provided the SHARP subsidies, withdrew funding of the
Operating Deficit Loans. Properties unable to make full debt service payments
were declared in default by MHFA. The Managing General Partner joined a group of
SHARP property owners called the responsible SHARP Owners, Inc. (RSO) and is
negotiating with MHFA and the Local General Partners of Pleasant Plaza and South
Holyoke to find a solution to the problems that will result from the withdrawn
subsidies. Given existing operating deficits and the dependence on these
subsidies by Pleasant Plaza and South Holyoke House, it is likely that both
properties will default on their mortgage obligations in the near future. On
September 16, 1998, the Partnership joined with the RSO and about 20 other SHARP
property owners and filed suit against the MHFA (Mass. Sup. Court Civil Action
#98-4720). Among other things, the suit seeks to enforce the MHFA's previous
financial commitments to the SHARP properties. The lawsuit is complex and in its
early stages, so no predications can be made at this time as to the ultimate
outcome. In the meantime, the Managing General Partner intends to continue to
participate in the RSO's efforts to negotiate a resolution of this matter with
MHFA.
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. Shoreline was approved for the 1998 New Approach Anti-Drug
Grant. The Grant was issued in February 1999 and will be used to support drug
prevention, educational programs and increased security on the property. The
Management Agent has applied for consideration for a Project Improvement Program
(PIP) and applied for a Safe Neighborhood Grant for both Waterfront and
Shoreline. At this point, deficits continue to be funded by the Management
Agent. 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 working closely with the Local
General Partner to develop a plan that will address these concerns.
Willow Lake, located in Kansas, is experiencing operating difficulties due to
soft rental market conditions. As previously reported, the Managing General
Partner negotiated a nine year extension to the original workout agreement. The
nine-year extension will expire on 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.
The Partnership has implemented policies and practices for assessing potential
impairment of its investments in Local Limited Partnerships. The investments are
analyzed by real estate experts to determine if impairment indicators exist. If
so, the carrying value is compared to the undiscounted future cash flows
expected to be derived from the asset. If there is a significant impairment in
carrying value, a provision to write down the asset to fair value will be
recorded in the Partnership's financial statements.
<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, 2000.
<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 14, 2000 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>
