FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
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: 0-21494
WNC HOUSING TAX CREDIT FUND III, L.P.
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
California 33-0463432
WNC HOUSING TAX CREDIT FUND III, L.P.
3158 Redhill Avenue, Suite 120, Costa Mesa, CA 92626
(714) 622-5565
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
INDEX
WNC HOUSING TAX CREDIT FUND III, L.P.
(A California Limited Partnership)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED September 30, 1996
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, September 30, 1996 and December 31, 1995.................3
Statement of Operations
For the nine and three months ended September 30, 1996 and 1995........4
Statement of Partners' Equity
For the nine months ended September 30, 1996 and 1995..................5
Statement of Cash Flows
For the nine months ended September 30, 1996 and 1995..................6
Notes to Financial Statements............................................8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................14
Signatures.................................................................15
<PAGE>
FINANCIAL STATEMENTS
WNC HOUSING TAX CREDIT FUND III, L.P.
(A California Limited Partnership)
BALANCE SHEETS
September 30, 1996 and December 31, 1995
1996 1995
---- ----
ASSETS
Cash and cash equivalents $ 439,726 $ 519,652
Investment in limited
partnerships - Note 2 7,671,895 8,840,410
Other assets 21,442 17,004
---------- ---------
$ 8,133,063 $ 9,377,066
========== =========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Payable to limited partnerships - Note 4 $ $ 159,730
Accrued fees and expenses due to
general partner and affiliates - Note 3 676,068 516,327
-------- -------
676,068 676,057
-------- -------
Partners' equity (deficit):
General partner 34,048 46,488
Limited partners (15,000 units
issued and outstanding) 7,422,947 8,654,521
---------- ---------
Total partners' equity 7,456,995 8,701,009
---------- ---------
$ 8,133,063 $ 9,377,066
========== =========
UNAUDITED
See Accompanying Notes to Financial Statements
-3-
<PAGE>
WNC HOUSING TAX CREDIT FUND III, L.P.
(A California Limited Partnership)
STATEMENT OF OPERATIONS
For the Three and Nine Months Ended September 30, 1996 and 1995
1996 1995
---- ----
Three Nine Three Nine
Months Months Months Months
Interest income $ 3,755 $ 11,964 $ 5,099 $ 23,711
Other income 30,000 30,000
------ ------ ------ ------
3,755 11,964 35,099 53,711
------ ------- ------ ------
Operating expenses:
Amortization 11,794 35,382 11,794 5,376
Asset management fees (Note 3 ) 74,869 224,607 74,880 218,158
Legal and accounting - 7,650 - 7,000
Other 4,176 16,339 473 11,392
------ ------- ------ ------
Total operating expenses 90,839 283,978 87,147 271,926
------ ------- ------ -------
Loss from operations (87,084) (272,014) (52,048) (218,215)
Equity in loss from
limited partnerships (324,000) (972,000) (275,240) (881,800)
--------- --------- --------- ---------
Net loss $(411,084) $(1,244,014) $(327,288) $(1,100,015)
========= =========== ========= ===========
Net loss allocated to:
General partner $ (4,111) (12,440) (3,273) (11,000)
------- -------- ------- --------
Limited partners $(406,973) (1,231,574) (324,015) 1,089,015)
========= =========== ========= ===========
Net loss per limited
partner units (15,000 units
issued and outstanding) $ (27) $ (82) $ (22) $ (73)
========== ========== ========== ==========
UNAUDITED
See Accompanying Notes to Financial Statements
-4-
<PAGE>
WNC HOUSING TAX CREDIT FUND III, L.P.
(A California Limited Partnership)
STATEMENT OF PARTNERS' EQUITY
For The Nine Months Ended September 30, 1996 and 1995
For The Nine Months Ended September 30, 1996
General Limited
Partner Partner Total
Equity (deficit), December 31, 1995 $ 46,488 $ 8,654,521 $ 8,701,009
Net loss for the nine months ended
September 30, 1996 (12,440) (1,231,574) 1,244,014)
-------- ----------- ----------
Equity (deficit), Sepember 30, 1996 $ 34,048 $ 7,422,947 $ 7,456,995
======= ========== =========
For The Nine Months Ended September 30, 1995
General Limited
Partner Partner Total
Equity (deficit), December 31, 1994 $ 62,651 $ 10,254,653 $ 10,317,304
Net loss for the nine months ended
September 30, 1995 (11,000) (1,089,015) (1,100,015)
-------- ----------- -----------
Equity (deficit), September 30, 1995 $ 51,651 $ 9,165,638 $ 9,217,289
====== ========= =========
UNAUDITED
See Accompanying Notes to Financial Statements
-5-
<PAGE>
WNC HOUSING TAX CREDIT FUND III, L.P.
(A California Limited Partnership)
STATEMENT OF CASH FLOWS For The Nine
Months Ended September 30, 1996 and 1995
1996 1995
---- ----
Cash flows used by operating activities:
Net loss $ (1,244,014) $ (736,407)
Adjustments to reconcile net loss to net
cash used in operating activities:
Equity in loss of limited partnerships 972,000 570,240
Amortization 35,382 23,582
Accrued asset management fee 159,608 86,278
Change in other assets (1,805) 220
Accrued expense due to
general partner and affiliates 133 58
---- ----
Net cash used by operating activities (78,696) 56,029)
-------- -------
Cash flows used by investing activities:
Investment in limited partnerships (20,938) (214,871)
Decrease in property deposits (122,000)
Increase in acquisition costs and fees (300)
Distribution from limited partnerships 19,708 12,570
Cash flows used by investing activities: (1,230) (324,601)
------- --------
Cash flows used by financing activities:
Net decrease in cash and cash equivalents (79,926) (380,630)
Cash and cash equivalents, beginning of period 519,652 1,110,349
-------- ---------
Cash and cash equivalent, end of period $ 439,726 $ 729,719
======== =======
UNAUDITED
See Accompanying Notes to Financial Statements
-6-
<PAGE>
WNC HOUSING TAX CREDIT FUND III, L.P.
(A California Limited Partnership)
STATEMENT OF CASH FLOWS (CONTINUED)
For the Nine Months Ended June 30, 1996 and 1995
Supplemental disclosure of noncash financing and investing activity
Nine months ended September 30, 1996
During the nine months ended September 30, 1996, the Partnership's Payables to
Limited Partnerships (in connection with its investments in limited
partnerships) decreased by $141,425 due to various price adjuster provisions in
the respective limited partnership agreements.
- --------------------------------------------------------------------------------
Nine months ended September 30, 1995
During the nine months ended September 30, 1995, the Partnership incurred but
did not pay $809,053 of capital contributions payable (in connection with its
investments in limited partnerships).
UNAUDITED
See Accompanying Notes to Financial Statements
-7-
<PAGE>
WNC HOUSING TAX CREDIT FUND III, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The information contained in the following notes to the financial statements is
condensed from that which would appear in the annual financial statements;
accordingly, the financial statements included herein should be reviewed in
conjunction with the financial statements and related notes thereto contained in
the Partnership's Annual Report for the year ended December 31, 1995. Accounting
measurements at interim dates inherently involve greater reliance on estimates
than at year end. The results of operations for the interim period presented are
not necessarily indicative of the results for the entire year.
In the opinion of the General Partner, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of September 30,
1996 and the results of operations and changes in cash flows for the nine months
then ended.
Organization
WNC Housing Tax Credit Fund III, L.P. (the "Partnership") was formed under the
California Revised Limited Partnership Act on May 10, 1991, and commenced
operations on September 30, 1992. The Partnership was formed to invest primarily
in other limited partnerships which will own and operate multi-family housing
complexes that will qualify for low income housing credits.
The general partner is WNC Tax Credit Partners, L.P. (the "General Partner"), a
California limited partnership. WNC & Associates, Inc. and Wilfred N. Cooper,
Sr. are the general partners of the General Partner. The Cooper Revocable Trust
owns 67% of the outstanding stock of WNC & Associates, Inc. John B. Lester, Jr.
is the original limited partner of the Partnership and owns, through the Lester
Family Trust, 29% of the outstanding stock of WNC & Associates, Inc.
The General Partner has a 1% interest in operating profits and losses, taxable
income and loss and in cash available for distribution from the Partnership. The
limited partners will be allocated the remaining 99% of these items in
proportion to their respective investments. After the limited partners have
received sale or refinancing proceeds equal to their capital contributions and
their preferred return (as defined in the Partnership's Agreement of Limited
Partnership) and the general partner has received a subordinated disposition fee
any additional sale or refinancing proceeds will be distributed 90% to the
limited partners (in proportion to their respective investments) and 10% to the
General Partner.
The Partnership considers all bank certificates of deposit with an original
maturity of three months or less to be cash equivalents.
-8-
<PAGE>
WNC HOUSING TAX CREDIT FUND III, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - INVESTMENT IN LIMITED PARTNERSHIPS
At September 30, 1996, the Partnership had acquired limited partnership
interests in forty-eight limited partnerships which own and operate fifty
apartment complexes. All of these have completed construction as of September
30, 1996.
The Partnership, as a limited partner, is a 99% owner and is entitled to 99% of
the operating profits and losses of the limited partnerships.
Following is a summary of the components of the Partnership's investment in
limited partnerships as of September 30, 1996 and December 31, 1995 :
1996 1995
---- ----
Investment balance,
beginning of period $ 8,840,410 $ 9,933,747
Investment in limited partnerships (141,425) 280,275
Increase in acquisition fees and costs 300
Equity in loss of limited
partnership (972,000) (1,312,450)
Distributions (19,708) (14,286)
Amortization of capitalized
acquisition costs (35,382) (47,176)
-------- --------
Investment balance,
end of period $ 7,671,895 $ 8,840,410
========= =========
Selected operating information from the combined financial statements of the
limited partnerships for the nine months ended September 30, 1996 and 1995 are
as follows:
1996 1995
---- ----
Total revenue $ 4,409,000 $ 3,996,400
--------- ---------
Interest expense 1,394,000 1,181,700
Depreciation 1,466,000 1,420,300
Operating expenses 2,531,000 2,285,200
--------- ---------
Total expenses 5,391,000 4,887,200
--------- ---------
Net loss $($982,000) $ (890,800)
========= =========
Net loss allocable to
the Partnership $($972,000) $($881,800)
========= =========
-9-
<PAGE>
WNC HOUSING TAX CREDIT FUND III, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - RELATED PARTY TRANSACTIONS
Under the terms of its Agreement of Limited Partnership, the Partnership is
obligated to the General Partner or its affiliates for an annual management fee
equal to .5% of the invested assets (defined as the Partnership's capital
contributions plus its allocable percentage of the permanent financing) of the
limited partnerships. Fees of $149,738 and $143,278 were incurred for the nine
months ended September 30, 1996 and 1995, respectively.
Accrued fees and advances due to affiliates of General Partner consist of the
following at September 30, 1996 and December 31, 1995:
1996 1995
----- -----
Advances made for expenses 2,675 $ 2,541
Asset management fee $ 673,393 513,786
------- -------
$ 676,068 $ 516,327
NOTE 4 - CAPITAL CONTRIBUTIONS PAYABLE
Capital contributions payable represent amounts which are due at various times
based on conditions specified in the respective limited partnership agreements.
These contributions are payable in installments, are generally due upon the
limited partnership achieving certain operating benchmarks and are generally
expected to be paid within two years of the Partnership's initial investment.
NOTE 5 - INCOME TAXES
No provision for income taxes has been made as the liability for income taxes is
an obligation of the partners of the Partnership.
-10-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Liquidity and Capital Resources
The Partnership raised funds from investors through its public offering of units
of limited partnership interest ("Units") and intends to apply such funds,
including the installment payments of the limited partners' promissory notes as
received, to the acquisition of investments in partnerships, acquisition fees,
the establishment of reserves, the payment of operating expenses and the payment
of expenses of this offering.
As of September 30, 1996, the Partnership has received subscriptions for 15,000
units consisting of cash of $15,000,000. The Partnership's primary source of
capital has been the proceeds from its offering.
Overall, as reflected in its Statement of Cash Flows, the Partnership had a net
decrease in cash and cash equivalents of approximately $79,900 and $380,000 for
the nine months ended September 30, 1996 and 1995, respectively. This decrease
in cash was attributable to the Partnership's investing activities, primarily
the payments for the Partnership's investments in limited partnerships. The net
proceeds from the offering (i.e., cash capital contributions less offering
costs) are sufficient to fund the Partnership's remaining investing obligations
(capital contributions due limited partnerships). No cash was provided by
financing activities during the six months ended September 30, 1996 and 1995.
All funds due from investors had been received as of September 30, 1996. Cash
used by the Partnership's operating activities was minimal compared to the
Partnership's other activities and consisted primarily of payments for operating
fees and expenses. Cash provided from operations consisted primarily of interest
received on cash deposits. The major components of all these activities are
discussed in greater detail below.
As of September 30, 1996 and December 31, 1995, the Partnership had made capital
contributions to local limited partnerships in the amount of approximately
$10,908,000 and $10,876,000.
The Partnership's investments will not be readily marketable and may be affected
by adverse general economic conditions which, in turn, could substantially
increase the risk of operating losses for the apartment complexes, the local
limited partnerships and the Partnership. These problems may result from a
number of factors, many of which cannot be controlled by the General Partner.
Nevertheless, the General Partner anticipates that capital raised from the sale
of the Units will be sufficient to fund the Partnership's future investment
commitments and proposed operations.
-11-
<PAGE>
Upon termination of the offering of limited partnership interests, The
Partnership established working capital reserves of 3% of capital contributions,
an amount which is anticipated to be sufficient to satisfy general working
capital and administrative expense requirements of the Partnership excluding
payment of the asset management fee as well as expenses attendant to the
preparation of tax returns and reports to the limited partners and other
investor servicing obligations of the Partnership. Liquidity would, however, be
adversely affected by unanticipated or greater than anticipated operating costs.
The Partnership's liquidity could also be affected by defaults or delays in
payment of the promissory notes, from which a portion of the working capital
reserves is expected to be funded. To the extent that working capital reserves
are insufficient to satisfy the cash requirements of the Partnership, it is
anticipated that additional funds would be sought through bank loans or other
institutional financing. The General Partner may also apply any cash
distributions received from the local limited partnerships for such purposes or
to replenish or increase working capital reserves.
As part of its application for government assistance, each local limited
partnership must establish to the satisfaction of the agency providing the
government assistance that the local limited partnership will have sufficient
funds to complete construction or rehabilitation of its apartment complex. None
of the local limited partnerships has any material capital commitments other
than the completion of its apartment complex.
It is not expected that any of the local limited partnerships in which the
Partnership will invest will generate cash from operations sufficient to provide
distributions to the limited partners in any significant amount. Such cash from
operations, if any, would first be used to meet operating expenses of the
Partnership, including the payment of the asset management fee to the General
Partner.
Under its partnership agreement the Partnership does not have the ability to
assess its partners for additional capital contributions to provide capital if
needed by the Partnership or local limited partnerships. Accordingly, if
circumstances arise that cause the local limited partnerships to require capital
in addition to that contributed by the Partnership and any equity of the local
general partners, the only sources from which such capital needs will be able to
be satisfied (other than the limited reserves available at the Partnership
level) will be (i) third-party debt financing (which may not be available, if,
as expected, the apartment complexes owned by the local limited partnerships are
already substantially leveraged), (ii) additional equity contributions or
advances of the local general partners, (iii) other equity sources (which could
adversely affect the Partnership's interest in tax credits, cash flow and/or
proceeds of sale or refinancing of the apartment complexes and result in adverse
tax consequences to the limited partners), or (iv) the sale or disposition of
the apartment complexes (which could have the same adverse effects as discussed
in (iii) above). There can be no assurance that funds from any of such sources
would be readily available in sufficient amounts to fund the capital requirement
of the local limited partnerships in question. If such funds are not available,
the local limited partnerships would risk foreclosure on their apartment
complexes if they were unable to re-negotiate the terms of their first mortgages
and any other debt secured by the apartment complexes to the extent the capital
requirements of the local limited partnerships relate to such debt.
-12-
<PAGE>
Results of Operations
As of September 30, 1996 the Partnership had acquired 48 limited partnership
interests. Each of the 50 apartment complexes owned by such limited partnerships
receives government assistance and each of them has received a reservation for
federal low income housing credits.
Consistent with the partnership's investment objectives, each limited
partnership is generating or is expected to generate federal low income housing
credits for a period of approximately ten years, commencing with completion of
construction or rehabilitation of its apartment complex(es), and (as discussed
below) is generating or is expected to generate losses until sale of the
apartment complex(es).
As reflected on its Statements of Operations, the Partnership has a loss of
approximately $1,244,000 and $1,100,000 the nine months ended September 30, 1996
and 1995, respectively. The components items of revenue and expense are
discussed below.
Revenue - Partnership revenues consisted entirely of interest earned on investor
promissory note and on cash deposits held in financial institutions (i) as
reserves, or (ii) pending investment in limited partnerships. Interest revenue
in future years will be a function of prevailing interest rates and the amount
of cash balances. It is anticipated that the Partnership will maintain cash
reserves in an amount not materially in excess of the minimum amount required by
its partnership agreement, which is 3% of capital contributions.
Expenses - The most significant component of operating expenses is, and is
expected to be, the asset management fee (called "Partnership management fee" in
the Statements of Operations). The asset management fee is equal to 0.5% of
invested assets in limited partnerships; accordingly, the amount to be incurred
in the future is a function of the level of such invested assets (i.e., the sum
of the Partnership's capital contributions to the limited partnerships plus the
Partnership's share of the debts related to the apartment complexes owned by
such limited partnerships). Amortization expense consists of the amortization
over a period of 30 years of the 9% selection fee and other expenses
attributable to the acquisition of limited partnership interests.
Office expenses consists of the Partnership's administrative expenses, such as
accounting and legal fees, bank charges and investor reporting expenses.
Equity in losses from limited partnerships - The Partnership's equity in losses
from limited partnerships is equal to 99% of the aggregate net loss of the
limited partnerships. After rent-up, the limited partnerships are expected to
generate losses during each year of operations; this is so because, although
rental income is expected to exceed cash operating expenses, depreciation and
amortization deductions claimed by the limited partnerships are expected to
exceed net rental income.
-13
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
None.
Item 6. Exhibits and Reports on Form 8-K
1. None..
No reports on Form 8-K were filed during the quarter ended September
30, 1996.
-14-
<PAGE>
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.
WNC HOUSING TAX CREDIT FUND III, L.P.
By WNC Tax Credit Partners, L.P., General Partner:
By: WNC & ASSOCIATES, INC. General Partner
By: /s/ John B. Lester, Jr.
John B. Lester, Jr. President
Date: November 12, 1996
By: /s/ Theodore M. Paul
Theodore M. Paul Vice President-Finance
Date: November 12, 1996
-15-
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<NAME> WNC HOUSING TAX CREDIT FUND III, L.P.
<MULTIPLIER> 1
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 439,726
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0
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