1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended MARCH 31, 2001
Commission File Number 0-09262
REAL ESTATE ASSOCIATES LIMITED
(A California Limited Partnership)
I.R.S. Employer Identification No. 95-3187912
9090 WILSHIRE BLVD., SUITE 201,
BEVERLY HILLS, CALIF. 90211
Registrant's Telephone Number,
Including Area Code (310) 278-2191
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve 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 [ ]
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REAL ESTATE ASSOCIATES LIMITED
(a California limited partnership)
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2001
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, March 31, 2001 and December 31, 2000 ......... 1
Statements of Operations,
Three Months Ended March 31, 2001 and 2000 ............ 2
Statement of Partner's Equity (Deficiency),
Three Months Ended March 31, 2001...................... 3
Statements of Cash Flows
Three Months Ended March 31, 2001 and 2000 ............ 4
Notes to Financial Statements ................................ 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................. 11
PART II. OTHER INFORMATION
Item 1.Legal Proceedings............................................. 13
Item 6.Exhibits and Reports on Form 8-K ............................. 13
Signatures .......................................................... 14
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REAL ESTATE ASSOCIATES LIMITED
(a California limited partnership)
BALANCE SHEETS
MARCH 31, 2001 AND DECEMBER 31, 2000
ASSETS
2001 2000
---------- ----------
(Unaudited) (Audited)
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 673,367 $ 661,411
CASH AND CASH EQUIVALENTS (Note 1) -- 2,511
DUE FROM NAPICO (Note 3) 20,756 23,096
---------- ----------
TOTAL ASSETS $ 694,123 $ 687,018
========== ==========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accounts payable $ 48,188 $ 33,663
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
PARTNERS' EQUITY (DEFICIENCY):
General partners (120,610) (120,536)
Limited partners 766,545 773,891
---------- ----------
645,935 653,355
---------- ----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 694,123 $ 687,018
========== ==========
The accompanying notes are an integral part of these financial statements.
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REAL ESTATE ASSOCIATES LIMITED
(a California limited partnership)
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(Unaudited)
2001 2000
-------- --------
INTEREST AND OTHER INCOME $ 128 $ 2,214
-------- --------
OPERATING EXPENSES:
Legal and accounting 11,975 24,918
Management fees - general partner (Note 3) 26,552 26,552
Administrative (Note 3) 6,601 6,482
-------- --------
Total operating expenses 45,128 57,952
-------- --------
LOSS FROM OPERATIONS (45,000) (55,738)
DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED AS
INCOME (Note 2) 8,580 9,481
EQUITY IN INCOME OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS (Note 2) 29,000 21,000
-------- --------
NET LOSS $ (7,420) $(25,257)
======== ========
NET LOSS PER LIMITED PARTNERSHIP
INTEREST (Note 1) $ -- $ (2)
======== ========
The accompanying notes are an integral part of these financial statements.
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REAL ESTATE ASSOCIATES LIMITED
(a California limited partnership)
STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY)
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(Unaudited)
General Limited
Partners Partners Total
--------- --------- ---------
PARTNERSHIP INTERESTS 16,505
EQUITY (DEFICIENCY),
January 1, 2001 $(120,536) $ 773,891 $ 653,355
Net loss for the three months
ended March 31, 2001 (74) (7,346) (7,420)
--------- --------- ---------
EQUITY (DEFICIENCY),
March 31, 2001 $(120,610) $ 766,545 $ 645,935
========= ========= =========
The accompanying notes are an integral part of these
financial statements.
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REAL ESTATE ASSOCIATES LIMITED
(a California limited partnership)
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(Unaudited)
2001 2000
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (7,420) $ (25,257)
Adjustments to reconcile net loss to net cash
used in operating activities:
Equity in income of limited partnerships
and amortization of acquisition costs (29,000) (21,000)
Increase (decrease) in accounts payable 14,525 (4,827)
Decrease in due from Napico 2,340 --
-------- ---------
Net cash used in operating activities (19,555) (51,084)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from limited partnerships
recognized as return of capital 40,044 --
Capital contribution to limited partnerships (23,000) --
-------- ---------
Net cash provided by investing activities 17,044 --
-------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,511) (51,084)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,511 203,866
-------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ -- $ 152,782
======== =========
The accompanying notes are an integral part of these financial statements.
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REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2001
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 audited financial
statements; accordingly, the financial statements included herein should be
reviewed in conjunction with the financial statements and related notes thereto
contained in the annual report for the year ended December 31, 2000 prepared by
Real Estate Associates Limited (the "Partnership.") 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 Partnership, the accompanying unaudited financial
statements contain all adjustments (consisting primarily of normal recurring
accruals) necessary to present fairly the financial position as of March 31,
2001, and the results of operations and changes in cash flows for the three
months then ended.
The general partners have a 1 percent interest in profits and losses of the
Partnership. The limited partners have the remaining 99 percent interest which
is allocated in proportion to their respective individual investments. National
Partnership Investments Corp. (NAPICO) is the corporate general partner of the
Partnership. Casden Properties Inc. owns a 95.25% economic interest in NAPICO,
with the balance owned by Casden Investment Corporation ("CIC"). CIC, which is
wholly owned by Alan I. Casden, owns 95% of the voting common stock of NAPICO.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
METHOD OF ACCOUNTING FOR INVESTMENT IN LIMITED PARTNERSHIPS
The investment in limited partnerships is accounted for on the equity method.
Acquisition, selection fees and other costs related to the acquisition of the
projects have been capitalized to the investment account and are being amortized
on a straight line basis over the estimated lives of the underlying assets,
which is generally 30 years.
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REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
NET LOSS PER LIMITED PARTNERSHIP INTEREST
Net income per limited partnership interest was computed by dividing the limited
partners' share of net loss by the number of limited partnership interests
outstanding during the period. The number of limited partnership interests was
16,505 for the periods presented.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and bank certificates of deposit with
an original maturity of three months or less. The Partnership has its cash and
cash equivalents on deposit primarily with two high credit quality financial
institutions. Such cash and cash equivalents are in excess of the FDIC insurance
limit.
INCOME TAXES
No provision has been made for income taxes in the accompanying financial
statements since such taxes, if any, are the liability of the individual
partners.
IMPAIRMENT OF LONG-LIVED ASSETS
The Partnership reviews long-lived assets to determine if there has been any
permanent impairment whenever events or changes in circumstances indicate that
the carrying amount of the asset may not be recoverable. If the sum of the
expected future cash flows is less than the carrying amount of the assets, the
Partnership recognizes an impairment loss.
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS
As of March 31, 2001, the Partnership holds limited partnership interests in 9
limited partnerships. The limited partnerships as of March 31, 2001 own
residential low income rental projects consisting of 649 apartment units. The
mortgage loans of these projects are payable to or insured by various
governmental agencies.
The Partnership, as a limited partner, is entitled from 50 percent to 99 percent
of the profits and losses in the limited partnerships.
Equity in losses of limited partnerships are recognized in the financial
statements until the limited partnership investment account is reduced to a zero
balance. Losses incurred after the limited partnership investment account is
reduced to zero are not recognized.
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NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED):
Distributions from the limited partnerships are accounted for as a return of
capital until the investment balance is reduced to zero. Subsequent
distributions received are recognized as income.
The following is a summary of the investments in limited partnerships for the
three months ended March 31, 2001:
Balance, beginning of period $ 661,411
Capital contribution to limited partnerships 23,000
Amortization acquisition costs (1,000)
Distributions from limited partnerships recognized as return of capital (40,044)
Equity in income of limited partnerships 30,000
---------
Balance, end of period $ 673,367
=========
The following are unaudited combined estimated statements of operations for the
three months ended March 31, 2001 and 2000 for the limited partnerships in which
the Partnership has investments:
Three months Three months
ended ended
March 31, 2001 March 31, 2000
-------------- --------------
REVENUES
Rental and other $1,015,000 $1,044,000
---------- ----------
EXPENSES
Depreciation 196,000 190,000
Interest 212,000 222,000
Operating 591,000 576,000
---------- ----------
999,000 988,000
---------- ----------
NET INCOME $ 16,000 $ 56,000
========== ==========
NAPICO, or one of its affiliates, is the general partner and property management
agent for certain of the limited partnerships included above.
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REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2001
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED):
Under recent adopted law and policy, the United States Department of Housing and
Urban Development ("HUD") has determined not to renew the Housing Assistance
Payment ("HAP") Contracts on a long term basis on the existing terms. In
connection with renewals of the HAP Contracts under such new law and policy, the
amount of rental assistance payments under renewed HAP Contracts will be based
on market rentals instead of above market rentals, which was generally the case
under existing HAP Contracts. The payments under the renewed HAP Contracts may
not be in an amount that would provide sufficient cash flow to permit owners of
properties subject to HAP Contracts to meet the debt service requirements of
existing loans insured by the Federal Housing Administration of HUD ("FHA")
unless such mortgage loans are restructured. In order to address the reduction
in payments under HAP Contracts as a result of this new policy, the Multi-family
Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA"), which was
adopted in October 1997, provides for the restructuring of mortgage loans
insured by the FHA with respect to properties subject to the Section 8 program.
Under MAHRAA, an FHA-insured mortgage loan can be restructured into a first
mortgage loan which will be amortized on a current basis and a low interest
second mortgage loan payable to FHA which will only be payable on maturity of
the first mortgage loan. This restructuring results in a reduction in annual
debt service payable by the owner of the FHA-insured mortgage loan and is
expected to result in an insurance payment from FHA to the holder of the
FHA-insured loan due to the reduction in the principal amount. MAHRAA also
phases out project-based subsidies on selected properties serving families not
located in rental markets with limited supply, converting such subsidies to a
tenant-based subsidy.
When the HAP Contracts are subject to renewal, there can be no assurance that
the local limited partnerships in which the Partnership has an investment will
be permitted to restructure its mortgage indebtedness under MAHRAA. In addition,
the economic impact on the Partnership of the combination of the reduced
payments under the HAP Contracts and the restructuring of the existing
FHA-insured mortgage loans under MAHRAA is uncertain.
On December 30, 1998, after obtaining the consents of the limited partners, the
Partnership sold its limited partnership interests in 8 local limited
partnerships to affiliates of Casden Properties Inc. The sale resulted in cash
proceeds to the Partnership of $3,900,000, which was collected in 1999. In March
1999, the Partnership made cash distributions of $3,861,000 to the limited
partners and $39,000 to the general partners, primarily using proceeds from the
sale of the partnership interests.
NOTE 3 - MANAGEMENT FEES AND EXPENSES DUE TO GENERAL PARTNER
Under the terms of the Restated Certificate and Agreement of Limited
Partnership, the Partnership is obligated to NAPICO for an annual management fee
equal to .5 percent of the original invested assets of the limited partnerships.
Invested assets is defined as the costs of acquiring project interests,
including the proportionate amount of the mortgage loans related to the
Partnership's interest in the capital accounts of the respective partnerships.
The management fee incurred was $26,552 and $26,552 for the three months ended
March 31, 2001 and 2000, respectively.
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REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2001
NOTE 3 - MANAGEMENT FEES AND EXPENSES DUE TO GENERAL PARTNER (CONTINUED)
The Partnership reimburses NAPICO for certain expenses. The reimbursement paid
to NAPICO was approximately $2,300 and $2,000 for the three months ended March
31, 2001 and 2000, respectively, and is included in administrative expenses.
NOTE 4 - CONTINGENCIES
On August 27, 1998, two investors holding an aggregate of eight units of limited
partnership interests in Real Estate Associates Limited III (an affiliated
partnership in which NAPICO is the managing general partner) and two investors
holding an aggregate of five units of limited partnership interest in Real
Estate Associates Limited VI (another affiliated partnership in which NAPICO is
the managing general partner) commenced an action in the United States District
Court for the Central District of California against the Partnership, NAPICO and
certain other affiliated entities. The complaint alleges that the defendants
breached their fiduciary duty to the limited partners of certain NAPICO managed
partnerships and made materially false and misleading statements in the consent
solicitation statements sent to the limited partners of such partnerships
relating to approval of the transfer of partnership interests in limited
partnerships, owning certain of the properties, to affiliates of Casden
Properties Inc., organized by an affiliate of NAPICO. The plaintiffs seek
equitable relief, as well as compensatory damages and litigation related costs.
On August 4, 1999, one investor holding one unit of limited partnership interest
in Housing Programs Limited (another affiliated partnership in which NAPICO is
the managing general partner) commenced a virtually identical action in the
United States District Court for the Central District of California against the
Partnership, NAPICO and certain other affiliated entities. The second action has
been subsumed in the first action, which has been certified as a class action.
The managing general partner of such NAPICO managed partnerships and the other
defendants believe that the plaintiffs' claims are without merit and intend to
contest the actions vigorously.
The corporate general partner of the Partnership is a plaintiff in various
lawsuits and has also been named a defendant in other lawsuits arising from
transactions in the ordinary course of business. In the opinion of management
and the corporate general partner, the claims will not result in any material
liability to the Partnership.
NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments. The carrying amount of other assets and liabilities
reported on the balance sheets that require such disclosure approximates fair
value due to their short-term maturity.
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REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 2001
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary sources of funds include interest income earned from
investing available cash and distributions from limited partnerships in which
the Partnership has invested. It is not expected that any of the local limited
partnerships in which the Partnership has invested will generate cash flow
sufficient to provide for distributions to limited partners in any material
amount. The Partnership made a distribution to investors on March 12, 1999,
previously using proceeds from the disposition of its investments in certain
limited partnerships.
RESULTS OF OPERATIONS
Partnership revenues consist primarily of interest income earned on certificates
of deposit and other temporary investment of funds not required for investment
in local partnerships.
Operating expenses consist primarily of recurring general and administrative
expenses and professional fees for services rendered to the Partnership. In
addition, an annual Partnership management fee in an amount equal to .5 percent
of investment assets is payable to the corporate general partner.
The Partnership accounts for its investments in the local limited partnerships
on the equity method, thereby adjusting its investment balance by its
proportionate share of the income or loss of the local limited partnerships. The
equity in income of limited partnerships is received from two investee limited
partnerships. All other investee limited partnerships have reduced their
investment balances to zero and as a result thereof, the Partnership does not
recognize equity in losses from those investments in accordance with the equity
accounting method.
Distributions received from limited partnerships are recognized as return of
capital until the investment balance has been reduced to zero or to a negative
amount equal to future capital contributions required. Subsequent distributions
received are recognized as income.
Except for certificates of deposit and money market funds, the Partnership's
investments are entirely interests in other limited partnerships owning
government assisted projects. Available cash is invested in these funds earning
interest income as reflected in the statements of operations. These investments
can be converted to cash to meet obligations as they arise.
Under recent adopted law and policy, the United States Department of Housing and
Urban Development ("HUD") has determined not to renew the Housing Assistance
Payment ("HAP") Contracts on a long term basis on the existing terms. In
connection with renewals of the HAP Contracts under such new law and policy, the
amount of rental assistance payments under renewed HAP Contracts will be based
on market rentals instead of above market rentals, which was generally the case
under existing HAP Contracts. The payments under the renewed HAP Contracts may
not be in an amount that would provide sufficient cash flow to permit owners of
properties subject to HAP Contracts to meet the debt service requirements of
existing loans insured by the Federal Housing Administration of HUD ("FHA")
unless such mortgage
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REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 2001
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
loans are restructured. In order to address the reduction in payments under HAP
Contracts as a result of this new policy, the Multi-family Assisted Housing
Reform and Affordability Act of 1997 ("MAHRAA"), which was adopted in October
1997, provides for the restructuring of mortgage loans insured by the FHA with
respect to properties subject to the Section 8 program. Under MAHRAA, an
FHA-insured mortgage loan can be restructured into a first mortgage loan which
will be amortized on a current basis and a low interest second mortgage loan
payable to FHA which will only be payable on maturity of the first mortgage
loan. This restructuring results in a reduction in annual debt service payable
by the owner of the FHA-insured mortgage loan and is expected to result in an
insurance payment from FHA to the holder of the FHA-insured loan due to the
reduction in the principal amount. MAHRAA also phases out project-based
subsidies on selected properties serving families not located in rental markets
with limited supply, converting such subsidies to a tenant-based subsidy.
When the HAP Contracts are subject to renewal, there can be no assurance that
the local limited partnerships in which the Partnership has an investment will
be permitted to restructure its mortgage indebtedness under MAHRAA. In addition,
the economic impact on the Partnership of the combination of the reduced
payments under the HAP Contracts and the restructuring of the existing
FHA-insured mortgage loans under MAHRAA is uncertain.
On December 30, 1998, after obtaining the consents of the limited partners, the
Partnership sold its limited partnership interests in 8 local limited
partnerships to affiliates of Casden Properties Inc. The sale resulted in cash
proceeds to the Partnership of $3,900,000, which was collected in 1999. In March
1999, the Partnership made cash distributions of $3,861,000 to the limited
partners and $39,000 to the general partners, primarily using proceeds from the
sale of the partnership interests.
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REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 2001
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 27, 1998, two investors holding an aggregate of eight units of limited
partnership interests in Real Estate Associates Limited III (an affiliated
partnership in which NAPICO is the managing general partner) and two investors
holding an aggregate of five units of limited partnership interest in Real
Estate Associates Limited VI (another affiliated partnership in which NAPICO is
the managing general partner) commenced an action in the United States District
Court for the Central District of California against the Partnership, NAPICO and
certain other affiliated entities. The complaint alleges that the defendants
breached their fiduciary duty to the limited partners of certain NAPICO managed
partnerships and made materially false and misleading statements in the consent
solicitation statements sent to the limited partners of such partnerships
relating to approval of the transfer of partnership interests in limited
partnerships, owning certain of the properties, to affiliates of Casden
Properties Inc., organized by an affiliate of NAPICO. The plaintiffs seek
equitable relief, as well as compensatory damages and litigation related costs.
On August 4, 1999, one investor holding one unit of limited partnership interest
in Housing Programs Limited (another affiliated partnership in which NAPICO is
the managing general partner) commenced a virtually identical action in the
United States District Court for the Central District of California against the
Partnership, NAPICO and certain other affiliated entities. The second action has
been subsumed in the first action, which has been certified as a class action.
The managing general partner of such NAPICO managed partnerships and the other
defendants believe that the plaintiffs' claims are without merit and intend to
contest the actions vigorously.
The corporate general partner is involved in various lawsuits. None of these are
related to the Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are required per the provision of Item 6 of regulation
S-K and no reports on Form 8-K were filed during the quarter ended
March 31, 2001.
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REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 2001
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REAL ESTATE ASSOCIATES LIMITED
(a California limited partnership)
By: National Partnership Investments Corp.
General Partner
/s/ BRUCE NELSON
---------------------------------------
Bruce Nelson
President
Date: May 15, 2001
/s/ BRIAN H. SHUMAN
---------------------------------------
Brian H. Shuman
Chief Financial Officer
Date: May 15, 2001
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