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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, 1997
Commission File Number 2-60561
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, 1997
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, March 31, 1997 and December 31, 1996.......... 1
Statements of Operations,
Three Months Ended March 31, 1997 and 1996.............. 2
Statement of Partner's Equity (Deficiency),
Three Months Ended March 31, 1997....................... 3
Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996.............. 4
Notes to Financial Statements................................. 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................... 10
Item 6. Exhibits and Reports on Form 8-K.................... 10
Signatures......................................................... 11
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REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
ASSETS
1997 1996
(Unaudited) (Audited)
----------- -----------
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 2,560,816 $ 2,486,997
CASH AND CASH EQUIVALENTS (Note 1) 340,013 376,976
----------- -----------
TOTAL ASSETS $ 2,900,829 $ 2,863,973
=========== ===========
LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY)
LIABILITIES:
Accounts payable $ 5,415 $ 7,929
Accrued fees and expenses due
general partner (Notes 3 and 6) 1,038,512 1,021,677
----------- -----------
1,043,927 1,029,606
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
PARTNERS' EQUITY (DEFICIENCY):
General partners (108,501) (108,726)
Limited partners 1,965,403 1,943,093
----------- -----------
1,856,902 1,834,367
----------- -----------
TOTAL LIABILITIES AND PARTNERS'
EQUITY (DEFICIENCY) $ 2,900,829 $ 2,863,973
=========== ===========
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
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
1997 1996
--------- ---------
INTEREST AND OTHER INCOME $ 9,741 $ 3,909
--------- ---------
OPERATING EXPENSES:
Legal and accounting 16,817 31,550
Management fees - general partner (Note 3) 101,835 101,835
Administrative (Note 3) 13,060 11,648
--------- ---------
Total operating expenses 131,712 145,033
--------- ---------
LOSS FROM OPERATIONS (121,971) (141,124)
DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED AS
INCOME (Note 2) 61,206 66,452
EQUITY IN INCOME OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS (Note 2) 83,300 111,000
--------- ---------
NET INCOME $ 22,535 $ 36,328
========= =========
NET INCOME PER LIMITED
PARTNERSHIP INTEREST (Note 1) $ 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)
STATEMENT OF PARTNERS' EQUITY (DEFICIENCY)
THREE MONTHS ENDED MARCH 31, 1997
(Unaudited)
General Limited
Partners Partners Total
--------- ---------- ----------
PARTNERSHIP INTERESTS
March 31, 1997 16,505
==========
EQUITY (DEFICIENCY),
January 1, 1997 $(108,726) $1,943,093 $1,834,367
Net income for the three months
ended March 31, 1997 225 22,310 22,535
--------- ---------- ----------
EQUITY (DEFICIENCY),
March 31, 1997 $(108,501) $1,965,403 $1,856,902
========= ========== ==========
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
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 22,535 $ 36,328
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in income of limited partnerships
and amortization of acquisition costs (83,300) (111,000)
Increase in accrued fees and
expenses due general partner 16,835 101,835
Increase in accounts payable (2,514) 374
--------- ---------
Net cash provided by (used in) operating activities (46,444) 27,537
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from limited partnership
recognized as return of capital 9,481 9,481
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (36,963) 37,018
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 376,976 250,570
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 340,013 $ 287,588
========= =========
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, 1997
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, 1996 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, 1997, 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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
NET INCOME PER LIMITED PARTNERSHIP INTEREST
Net income per limited partnership interest was computed by dividing
the limited partners' share of net income by the number of limited
partnership interests outstanding during the year. The number of
limited partnership interests was 16,505 for the periods presented.
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REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and bank certificates of
deposit with an original maturity of six months or less. The
Partnership has its cash and cash equivalents on deposit primarily with
one high credit quality financial institution. 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 adopted Statement of Financial Accounting Standards No.
121, Account for the Improvement of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of as of January 1, 1996 without a
significant effect on its financial statements. 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
The Partnership has limited partnership interests in 18 limited
partnerships. The limited partnerships own residential rental projects
consisting of 1,969 apartment units. The mortgage loans of these
projects are 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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REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
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 investment in limited partnerships as
of March 31, 1997:
Balance, beginning of period $2,486,997
Amortization acquisition costs (700)
Cash distribution recognized as return of capital (9,481)
Equity in income of limited partnerships 84,000
----------
Balance, end of period $2,560,816
==========
The limited partnership which owns Chidester Place Apartments, has
executed, with NAPICO's consent, an Agreement for Purchase and Sale of
the Chidester Place apartment complex. The pending sale is predicated
on a $4,600,000 purchase offer from a Tennessee Limited Partnership
sponsored by Brencor Capital Funding ("Brencor").
Brencor has obtained preliminary approval from the Ypsilanti Downtown
Development Authority to finance the acquisition of the property with a
new tax-exempt bond issue which will qualify the prospective buyer to
receive an allocation of Low Income Housing Tax Credits. If the sale is
completed, it is anticipated that the Partnership will receive sale
proceeds more than sufficient to return the Partnership's original
capital investment and to offset the projected tax liability associated
with the Partnership's disposition of the property. The Partnership has
a zero carrying value for this investment.
The following are unaudited combined estimated statements of operations
for the three months ended March 31, 1997 and 1996 for the limited
partnerships in which the Partnership has investments:
1997 1996
---------- ----------
REVENUES
Rental and other $4,238,000 $4,142,000
---------- ----------
EXPENSES
Depreciation 652,000 670,000
Interest 1,234,000 1,194,000
Operating 2,210,000 2,198,000
---------- ----------
4,096,000 4,062,000
---------- ----------
NET INCOME $ 142,000 $ 80,000
========== ==========
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REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
NOTE 3 - ACCRUED FEES AND EXPENSES DUE TO GENERAL PARTNER (CONTINUED)
The Partnership reimburses NAPICO for certain expenses. The
reimbursement paid to NAPICO was approximately $5,400 and $5,154, for
the three months ended March 31, 1997 and 1996, respectively, and is
included in administrative expenses.
As of March 31, 1997, the fees and expenses due NAPICO exceeded the
Partnership's cash. The general partner, during the forthcoming year,
will not demand payment of amounts due in excess of such cash or such
that the Partnership would not have sufficient operating cash.
NOTE 4 - CONTINGENCIES
The corporate general partner of the Partnership is involved in various
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, when it is practicable to
estimate that value. The operations generated by the investee limited
partnerships, which account for the Partnership's primary source of
revenues, are subject to various government rules, regulations and
restrictions which make it impracticable to estimate the fair value of
accrued fees and expenses due general partner. The carrying amount of
other assets and liabilities reported on the balance sheets that
require such disclosure approximtes fair value due to their short-term
maturity.
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REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP
MARCH 31, 1997
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 limited partnership which owns Chidester Place Apartments, has
executed, with NAPICO's consent, an Agreement for Purchase and Sale of
the Chidester Place apartment complex. The pending sale is predicated
on a $4,600,000 purchase offer from a Tennessee Limited Partnership
sponsored by Brencor Capital Funding ("Brencor").
Brencor has obtained preliminary approval from the Ypsilanti Downtown
Development Authority to finance the acquisition of the property with a
new tax-exempt bond issue which will qualify the prospective buyer to
receive an allocation of Low Income Housing Tax Credits. If the sale is
completed, it is anticipated that the Partnership will receive sale
proceeds more than sufficient to return the Partnership's original
capital investment and to offset the projected tax liability associated
with the Partnership's disposition of the property. The Partnership has
a zero carrying value for this investment.
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. Operating expenses are consistent with the
prior year.
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 one investee limited partnership. 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.
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REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1997
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 7 of regulation
S-K.
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REAL ESTATE ASSOCIATES LIMITED
(A CALIFORNIA LIMITED PARTNERSHIP)
MARCH 31, 1997
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:______________________________________
By: National Partnership Investments Corp.
General Partner
Date:_____________________________________
By:______________________________________
Bruce Nelson
President
Date:____________________________________
By:______________________________________
Shawn Horwitz
Executive Vice President and
Chief Financial Officer
Date:____________________________________
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