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 JUNE 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: 0-23908
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
CALIFORNIA 33-0531301
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
3158 REDHILL AVENUE, SUITE 120, COSTA MESA, CA 92626
(714) 662-5565
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 CALIFORNIA HOUSING TAX CREDITS III, L.P.
(A California Limited Partnership)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED June 30, 1996
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, June 30, 1996 and
December 31, 1995....................................................3
Statement of Operations
For the six months ended June 30, 1996 and 1995.................4
Statement of Partners' Equity
For the six months ended June 30, 1996 and 1995.................5
Statement of Cash Flows
For the six months ended June 30, 1996 and 1995.................6
Notes to Financial Statements..........................................8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................................12
PART II. OTHER INFORMATION
Item 1 Legal Proceedings..............................................14
Item 6. Exhibits and Reports on Form 8-K...............................14
Signatures ............................................................15
<PAGE>
FINANCIAL STATEMENTS
WNC CALIFORNIA HOUSING TAX CREDTS III, L.P.
(A California Limited Partnership)
BALANCE SHEETS
June 30, 1996 and December 31, 1995
1996 1995
------ ------
ASSETS
Cash and cash equivalents $ 1,789,222 $ 1,916,200
Investment in limited
partnerships - Note 2 12,349,727 13,032,752
Other assets - Note 4 2,151 0
---------- ----------
$ 14,141,100 $ 14,948,952
=========== ==========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Payable to limited partnerships - Note 3 527,178 651,094
Accrued fees and expenses due to
general partner and affiliates - Note 4 181,750 240,188
-------- --------
Total Liabilities 708,928 891,282
-------- --------
Partners' equity (deficit):
General partner (44,808) (38,553)
Limited partners (30,000 units
authorized, 18,000 units issued
and outstanding) 13,476,980 14,096,223
---------- ----------
Total partners' equity 13,432,172 14,057,670
---------- ----------
$ 14,141,100 $ 14,948,952
========== ==========
UNAUDITED
See Accompanying Notes to Financial Statements
-3-
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDTS III, L.P.
(A California Limited Partnership)
STATEMENT OF OPERATIONS
For the Three and Six Months Ended June 30, 1996 and 1995
1996 1995
------------- ------------
Three Six Three Six
Months Months Months Months
Interest income $ 19,398 $ 37,760 $ 25,219 $ 76,851
------- ------- ------- -------
Operating expenses:
Amortization 14,366 28,732 14,366 28,734
Asset management fees 46,608 93,214 44,952 80,197
(Note 4)
Legal and accounting 4,867 6,867 7,000 7,000
Other 7,448 9,445 5,198 8,266
------- ------- ------- -------
Total operating expenses 73,289 138,258 71,516 124,197
------- ------- ------- -------
Loss from operations (53,891) (100,498) (46,297) (47,346)
Equity in loss from
limited partnerships (263,000) (525,000) (135,350) (262,350)
--------- --------- --------- ---------
Net loss $ (316,891) $ (625,498) $ (181,647) $ (309,696)
========= ========= ========= =========
Net loss allocated to:
General partner $ (3,169) $ (6,255) $ (1,816) $ (3,097)
======== ======== ======== ========
Limited partners $ (313,722) $ (619,243) $ (179,831) $ (306,599)
========= ========= ========= =========
Net loss per
weighted limited partner
interest
18,000 outstanding $ (17) $ (34) $ (10) $ (17)
==== ==== ==== ====
UNAUDITED
See Accompanying Notes to Financial Statements
-4-
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDTS III, L.P.
(A California Limited Partnership)
STATEMENT OF PARTNERS' EQUITY
For the Six Months Ended June 30, 1996 and 1995
For the Six Months Ended June 30, 1996
General Limited
Partner Partner Total
Equity (deficit), December 31, 1995 $ (38,553) $ 14,096,223 $ 14,057,670
Net loss for the six months ended
June 30, 1996 (6,255) (619,243) (625,498)
------- --------- ---------
Equity (deficit), June 30, 1996 $ (44,808) $ 13,476,980 $ 13,432,172
======== ========== ==========
For the Six Months Ended June 30, 1995
General Limited
Partner Partner Total
Equity (deficit), December 31, 1994 $ (26,804) $ 15,121,447 $ 15,094,643
Collection of investor notes
receivable 205,000 205,000
Net loss for the six months ended
June 30, 1995 (3,097) (306,599) (309,696)
------- --------- ---------
Equity (deficit), June 30, 1995 $ (29,901) $ 15,019,848 $ 14,989,947
======== ========== ==========
UNAUDITED
See Accompanying Notes to Financial Statements
-5-
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDTS III, L.P.
(A California Limited Partnership)
STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 1996 and 1995
1996 1995
---- ----
Cash flows provided (used) by operating activities:
Net loss $ (625,498) $ (309,696)
Adjustments to reconcile net loss to net
cash used in operating activities:
Equity in loss of limited partnerships 525,000 262,350
Amortization of acquisition costs and fees 28,732 28,734
Increase in cash in escrow (29,936)
Decrease (increase) in other assets (2,151) 19,960
Decrease (increase) in receivable for affiliate (8,564) 310,112
Increase (decrease) in asset management fee (56,784) 80,197
Increase (decrease accrued fees and expense
due to general partner and affiliate 6,910 (2,905)
------ -------
Net cash provided (used) by operating
activities (132,355) 358,816
--------- -------
Cash flows provided (used) by investing activities:
Investment in limited partnerships (1,262,754)
Acquisition costs and fees (5,169)
Distribution from limited partnerships 5,377 5,289
------ ------
Net cash provided (used) by investing
activities 5,377 (1,262,634)
------ -----------
Cash flows provided by financing activities:
Collection of subscriptions and investors
notes receivable 205,000
Offering costs (11,278)
Net cash provided by financing activities 193,722
Net decrease in cash and cash equivalents (126,978) (710,096)
Cash and cash equivalents, beginning of period 1,916,200 2,799,487
--------- ---------
Cash and cash equivalent, end of period $ 1,789,222 $ 2,089,391
========= =========
UNAUDITED
See Accompanying Notes to Financial Statements
-6-
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
(A California Limited Partnership)
STATEMENT OF CASH FLOWS (CONTINUED)
For the Six months Ended June 30, 1996 and 1995
Supplemental disclosure of non-cash investing activity:
During the six months ended June 30, 1996, the Partnership's Payables to
Limited Partnerships (in connection with its investments in limited
partnerships) decreased by $123,916. This decrease was due to various price
adjuster provisions in the respective limited partnership agreements.
- -------------------------------------------------------------------------------
During the six months ended June 30, 1995, the Partnership's Payables to
Limited Partnerships (in connection with its investments in limited
partnerships) decreased by $1,002,792. This decrease was due to various price
adjuster provisions in the respective limited partnership agreements of $142,455
and cash in escrow of $860,377 released for payment to Nueva Sierra Vista.
.
-7-
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
NOTE 1 - GENERAL AND ORGANIZATION
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
In the opinion of the Partnership, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of June 30, 1996
and changes in cash flows for the six months then ended. 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.
Organization
WNC California Housing Tax Credits III, L.P. (the "Partnership") was formed
under the California Revised Limited Partnership Act on October 5, 1992 and
commenced operations on July 20, 1993. 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 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 return on investment (as defined in the
Partnership's Agreement of Limited Partnership) and the General Partner has
received a subordinated disposition fee (as described in Note 5 below), 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.
-8-
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996
NOTE 2 - INVESTMENT IN LIMITED PARTNERSHIPS
At June 30, 1996, the Partnership had acquired limited partnership interests in
eighteen limited partnerships which own and operate eighteen apartment
complexes. All eighteen of these have completed construction as of June 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 June 30, 1996 and December 31, 1995:
1996 1995
------ ------
Investment balance, beginning of period $ 13,032,752 $ 14,368,908
Increase (decrease in Investment in limited
partnerships (123,916) (113,683)
Equity in loss of limited partnership (525,000) (1,155,114)
Distributions (5,377) (9,893)
Amortization of capitalized
acquisition costs (28,732) (57,466)
-------- --------
Investment balance, end of period $ 12,349,727 $ 13,032,752
========== ==========
-9-
<PAGE>
WNC CALIFORNIA HOUSING TAX CREDITS III, L.P.
(A California Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
June 30, 1996
NOTE 2 - INVESTMENT IN LIMITED PARTNERSHIP (CONTINUED)
Selected operating information from the financial statements of the seventeen
twelve limited partnerships with operations and three limited partnerships with
operations for the period ended June 30, 1996 and 1995, respectively, is
presented below:
1996 1995
------ ------
Total revenue $ 1,311,000 $ 1,084,000
--------- ---------
Interest expense 480,000 270,000
Depreciation 607,000 447,000
Operating expenses 754,000 632,000
------- -------
Total expenses 1,841,000 1,349,000
--------- ---------
Net loss $ (530,000) $ (265,000)
========== ==========
Net loss allocable to the
Partnership $ (525,000) $ (262,350)
========== ==========
NOTE 3 - PAYABLE TO LIMITED PARTNERSHIPS
Payable to limited partnerships at June 30, 1996 represents amounts which are
due at various times based on conditions specified in the respective local
limited partnership agreements. These contributions are payable in installments,
generally due upon the local limited partnership achieving certain operating
benchmarks, and are generally expected to be paid within two years of the
Partnership's initial investment.
NOTE 4 - 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 $93,214 and $80,197 were incurred for the six
months ended June 30, 1996 and 1995.
NOTE 5 - INCOME TAXES
The Partnership will not make a provision for income taxes since all items of
taxable income and loss will be allocated to the partners for inclusion in their
respective income tax returns.
-10-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
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 June 30, 1996, the Partnership has received subscriptions for 17,990 Units
consisting of cash of $17,990,000. The offering terminated on July 22, 1995 at
which time subscriptions for 18,000 units were accepted.
Liquidity and Capital Resources
The Partnership's primary source of capital is 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 $127,000 for the six
months ended June 30, 1996. This decrease in cash was consisted of cash used by
the Partnership's operating activities and cash provided by the Partnership's
financing activities. Financing activities provided $5,000 which consisted of
distributions from limited partnerships. Operating activities used cash of
$132,000 which consisted substantially of the payment of asset management fee of
$150,000. The major components of all these activities are discussed in greater
detail below.
As of June 30, 1996 the Partnership had received $17,990,000 in cash from the
sale of Units. Approximately $12,930,000 has been committed to the purchase
price of eighteen limited partnership interests. As of June 30, 1996, the
Partnership had made capital contributions to its limited partnerships in the
amount of approximately $12,308,000.
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.
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.
The Partnership has established working capital reserves of at least 3% of
capital contributions, an amount which is anticipated to be sufficient to
satisfy general working capital and administrative expense requirements of the
Partnership including 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.
-11-
<PAGE>
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 requirements 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.
The Partnership's capital needs and resources are expected to undergo major
changes during the first several years of its term as a result of the completion
of its offering of Units and its acquisition of investments. Thereafter, the
Partnership's capital needs and resources are expected to be relatively stable
over the holding periods of the investments.
Results of Operations
As of June 30, 1996 the Partnership has identified and acquired eighteen limited
partnership interests. Each of the eighteen apartment complexes owned by such
limited partnerships received or is expected to receive government assistance
and each of them has received a reservation for federal low income housing
credits. All eighteen of these have completed construction of its apartment
complex as of June 30, 1996 and had operations for the period.
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 losses of
approximately $625,000 and $310,000 for the six months ended June 30, 1996 and
1995, respectively. The component items of revenue and expense are discussed
below.
Revenue - Partnership revenues consisted of interest earned on investor
promissory note and on cash deposits held in financial institutions (i) as
reserves, or (ii) pending investment in local limited partnerships and increase
in investment in local 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 local 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 local limited
partnerships plus the Partnership's share of the debts related to the apartment
complexes owned by such local limited partnerships).
-12-
<PAGE>
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 local
limited partnership interests.
Office expenses and legal and accounting consists of the Partnership's
administrative expenses, such as accounting and legal fees, bank charges and
investor reporting expenses.
The amount of the asset management fee is increased over the amounts reported to
date. This is due to the completion of construction on two additional apartment
complexes and the commencement of asset management fees on those buildings.
Equity in losses from limited partnerships - As indicated above, two of the
eighteen Apartment Complexes acquired as of June 30, 1996 and 1995 completed
construction or rehabilitation during the six months ended June 30, 1995.
Accordingly, the amount of equity in losses from limited partnerships for the
six months ended June 30, 1996 reflected on the Partnership's Statements of
Operations has increased over the amounts reported in previous periods.
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 first quarter ended March 31, 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 CALIFORNIA HOUSING TAX CREDITS III, L.P.
By: WNC California Tax Credit Partners III General Partner
By: WNC & Associates, Inc. General Partner
By:/s/ John B. Lester, Jr.
- ----------------------
John B. Lester, Jr. President
Date: August 12, 1996
By:/s/ Theodore M. Paul
- -------------------
Theodore M. Paul Vice President - Finance
Date: August 12, 1996
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US CURRENCY
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,789,222
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,789,222
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,141,100
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 13,432,172
<TOTAL-LIABILITY-AND-EQUITY> 14,141,100
<SALES> 0
<TOTAL-REVENUES> 37,760
<CGS> 0
<TOTAL-COSTS> 138,258
<OTHER-EXPENSES> 525,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (625,498)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (625,498)
<EPS-PRIMARY> (34)
<EPS-DILUTED> 0
</TABLE>
