-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LPraghAgOD9EbcCzl5Bg8Z2FE1Ky5iPpkYs4txm3cJT/GG3sMbGVh8WPuKk6J3Nq Q84ma//Te0r3iUSYsEKZfQ== 0000950148-99-001847.txt : 19990817 0000950148-99-001847.hdr.sgml : 19990817 ACCESSION NUMBER: 0000950148-99-001847 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REAL ESTATE ASSOCIATES LTD/CA CENTRAL INDEX KEY: 0000225789 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 953187912 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-09262 FILM NUMBER: 99690169 BUSINESS ADDRESS: STREET 1: 9090 WILSHIRE BLVD STE 201 CITY: BEVERLY HILLS STATE: CA ZIP: 90211 BUSINESS PHONE: 3102782191 MAIL ADDRESS: STREET 1: 9090 WILSHIRE BLVD STREET 2: STE 201 CITY: BEVERLY HILLS STATE: CA ZIP: 90211 FORMER COMPANY: FORMER CONFORMED NAME: REAL ESTATE ASSOCIATES LTD DATE OF NAME CHANGE: 19900828 10-Q 1 FORM 10-Q (6-30-99) 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 JUNE 30, 1999 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 [ ] 2 REAL ESTATE ASSOCIATES LIMITED (a California limited partnership) INDEX TO FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999 PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets, June 30, 1999 and December 31, 1998 .......................1 Statements of Operations, Six and Three Months Ended June 30, 1999 and 1998 ...................2 Statement of Partner's Equity (Deficiency), Six Months Ended June 30, 1999.......................................3 Statements of Cash Flows Six Months Ended June 30, 1999 and 1998 .............................4 Notes to Financial Statements .............................................5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ................................12 PART II. OTHER INFORMATION Item 1. Legal Proceedings...................................................15 Item 6. Exhibits and Reports on Form 8-K ...................................15 Signatures ..............................................................16
3 REAL ESTATE ASSOCIATES LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEETS JUNE 30, 1999 AND DECEMBER 31, 1998 ASSETS
1999 (Unaudited) 1998 ----------- ----------- INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 530,323 $ 530,241 CASH AND CASH EQUIVALENTS (Note 1) 319,618 540,568 CASH DUE FROM ESCROW (Note 2) -- 3,900,000 ----------- ----------- TOTAL ASSETS $ 849,941 $ 4,970,809 =========== =========== LIABILITIES AND PARTNERS' EQUITY LIABILITIES: Accounts payable (Note 3) $ 41,320 $ 116,255 Accrued fee and expenses due the general partner (Notes 3) 8,851 ----------- ----------- 50,171 116,255 COMMITMENTS AND CONTINGENCIES (Notes 3 and 4) PARTNERS' EQUITY (DEFICIENCY): General partners (119,072) (78,524) Limited partners 918,842 4,933,078 ----------- ----------- 799,770 4,854,554 ----------- ----------- TOTAL LIABILITIES AND PARTNERS' EQUITY $ 849,941 $ 5,087,064 =========== ===========
The accompanying notes are an integral part of these financial statements. 1 4 REAL ESTATE ASSOCIATES LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS SIX AND THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (Unaudited)
Six months Three months Six months Three months ended ended ended ended June 30, 1999 June 30, 1999 June 30, 1998 June 30, 1998 ------------- ------------- ------------- ------------- INTEREST AND OTHER INCOME $ 9,665 $ 3,791 $ 7,342 $ 3,514 ------------- ------------- ------------- ------------- OPERATING EXPENSES: Legal and accounting 56,388 28,900 52,035 28,745 Management fees - general partner (Note 3) 53,116 26,558 203,670 101,835 Administrative (Notes 2 and 3) 82,426 14,313 142,992 81,311 ------------- ------------- ------------- ------------- Total operating expenses 191,930 69,771 398,697 211,891 ------------- ------------- ------------- ------------- LOSS FROM OPERATIONS (182,265) (65,980) (391,355) (208,377) DISTRIBUTIONS FROM LIMITED PARTNERSHIPS RECOGNIZED AS INCOME (Note 2) 9,481 -- 207,041 159,625 EQUITY IN INCOME OF LIMITED PARTNERSHIPS AND AMORTIZATION OF ACQUISITION COSTS (Note 2) 18,000 (1,000) 142,600 71,300 ------------- ------------- ------------- ------------- NET (LOSS) INCOME $ (154,784) $ (66,980) $ (41,714) $ 22,548 ============= ============= ============= ============= NET (LOSS) INCOME PER LIMITED PARTNERSHIP INTEREST (Note 1) $ (9) $ (4) $ (3) $ 1 ============= ============= ============= =============
The accompanying notes are an integral part of these financial statements. 2 5 REAL ESTATE ASSOCIATES LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY) FOR THE SIX MONTHS ENDED JUNE 30, 1999 (Unaudited)
General Limited Partners Partners Total ----------- ----------- ----------- PARTNERSHIP INTERESTS 16,505 =========== EQUITY (DEFICIENCY), January 1, 1999 $ (78,524) $ 4,933,078 $ 4,854,554 Distributions for the six months ended June 30, 1999 (39,000) (3,861,000) (3,900,000) Net loss for the six months ended June 30, 1999 (1,548) (153,236) (154,784) ----------- ----------- ----------- EQUITY (DEFICIENCY), June 30, 1999 $ (119,072) $ 918,842 $ 799,770 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 3 6 REAL ESTATE ASSOCIATES LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (Unaudited)
1999 1998 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $ (154,784) $ 45,265 Adjustments to reconcile net income to net cash used in operating activities: Equity in income of limited partnerships and amortization of acquisition costs (18,000) (166,600) Increase in accrued fees and expenses due general partner 8,851 118,671 Decrease in accounts payable (74,935) (4,358) ----------- ----------- Net cash used in operating activities (238,868) (7,022) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Distributions from limited partnership recognized as return of capital 37,918 10,481 Advances to limited partnerships (20,000) -- Proceed from the sale of limited partnership interests 3,900,000 -- ----------- ----------- Net cash provided by investing activities 3,917,918 10,481 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to partners (3,900,000) -- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 3,679,050 3,459 CASH AND CASH EQUIVALENTS, beginning of period 540,568 376,976 ----------- ----------- CASH AND CASH EQUIVALENTS, end of period $ 4,219,618 $ 380,435 =========== ===========
The accompanying notes are an integral part of these financial statements. 4 7 REAL ESTATE ASSOCIATES LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999 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, 1998 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 June 30, 1999, and the results of operations and changes in cash flows for the six and 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. 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. 5 8 REAL ESTATE ASSOCIATES LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1999 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): 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 (LOSS) PER LIMITED PARTNERSHIP INTEREST Net income (loss) 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. 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. 6 9 REAL ESTATE ASSOCIATES LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1999 NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS The Partnership holds limited partnership interests in 9 limited partnerships as of June 30, 1999, after selling its interests in 8 limited partnerships and having its interest in one limited partnership redeemed in 1998. The limited partnerships as of June 30, 1999 own residential low income rental projects consisting of 657 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. 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 six months ended June 30, 1999: Balance, beginning of period $ 530,241 Amortization acquisition costs (2,000) Cash distribution recognized as return of capital (37,918) Equity in income of limited partnerships 40,000 --------- Balance, end of period $ 530,323 =========
7 10 REAL ESTATE ASSOCIATES LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1999 NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED): The following are unaudited combined estimated statements of operations for the six and three months ended June 30, 1999 and 1998 for the limited partnerships in which the Partnership has investments:
Six months Three months Six months Three months ended ended ended ended June 30, 1999 June 30, 1999 June 30, 1998 June 30,1998 ------------- ------------- ------------- ------------- REVENUES Rental and other $ 3,262,000 $ 1,631,000 $ 8,468,000 $ 4,234,000 ------------- ------------- ------------- ------------- EXPENSES Depreciation 740,000 370,000 1,326,000 663,000 Interest 538,000 269,000 2,266,000 1,133,000 Operating 1,662,000 831,000 4,726,000 2,363,000 ------------- ------------- ------------- ------------- 2,940,000 1,470,000 8,318,000 4,159,000 ------------- ------------- ------------- ------------- NET INCOME $ 322,000 $ 161,000 $ 150,000 $ 75,000 ============= ============= ============= =============
NAPICO, or one of its affiliates, is the general partner and property management agent for certain of the limited partnerships included above. Under recently 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 are not expected to 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 8 11 REAL ESTATE ASSOCIATES LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1999 NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED): 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. MAHRAA provides that properties begin the restructuring process in federal fiscal year 1999 (beginning October 1, 1998). On September 11, 1998, HUD issued interim regulations implementing MAHRAA and final regulations are expected to be issued in 1999. With respect to the local limited partnerships' expiring HAP Contracts, it is expected that the HAP payments will be reduced or terminated pursuant to the terms of MAHRAA. 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. As a result of the foregoing, the Partnership in 1997 undertook an extensive review of disposition, refinancing or re-engineering alternatives for the properties in which the limited partnerships have invested and are subject to HUD mortgage and rental subsidy programs. The Partnership has incurred expenses in connection with this review by various third party professionals, including accounting, legal, valuation, structural and engineering costs, which amounted to $372,803 through December 31, 1998, including $111,706 for the six months ended June 30, 1998. On December 30, 1998, the Partnership sold its limited partnership interests in 8 local limited partnerships to subsidiaries of Casden Properties Inc. The sale resulted in cash proceeds to the Partnership of $3,900,000 and a net gain of $3,798,734, after deducting selling costs. The cash proceeds were held in escrow at December 31, 1998 and were 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. 9 12 REAL ESTATE ASSOCIATES LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1999 NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED): Casden Properties Inc. purchased such limited partner interests for cash, which it raised in connection with a private placement of its equity securities. The purchase was subject to, among other things, (i) the purchase of the general partner interests in the local limited partnerships by Casden Properties Inc.; (ii) the approval of HUD and certain state housing finance agencies; and (iii) the consent of the limited partners to the sale of the local limited partnership interests held for investment by the Partnership. In August 1998, a consent solicitation statement was sent to the limited partners setting forth the terms and conditions of the purchase of the limited partners' interests held for investment by the Partnership, together with certain amendments to the Partnership Agreement and other disclosures of various conflicts of interest in connection with the proposed transaction. Prior to the sale of the partnership interests, the consents of the limited partners to the sale and amendments to the Partnership Agreement were obtained. NOTE 3 - ACCRUED 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 1/2 and 1 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 $53,116 and $203,670 for the six months ended March 31, 1999 and 1998, respectively. The Partnership reimburses NAPICO for certain expenses. The reimbursement paid to NAPICO was approximately $3,300 and $12,138 for the six months ended June 30, 1999 and 1998, 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 10 13 REAL ESTATE ASSOCIATES LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1999 NOTE 4 - CONTINGENCIES (CONTINUED) 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 Casden Properties Inc., which was organized by an affiliate of NAPICO. The plaintiffs seek equitable relief, as well as compensatory damages and litigation related costs. 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 action 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. The Partnership has assessed the potential impact of the Year 2000 computer systems issue on its operations. The Partnership believes that no significant actions are required to be taken by the Partnership to address the issue and that the impact of the Year 2000 computer systems issue will not materially affect the Partnership's future operating results or financial condition. 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 assets and liabilities reported on the balance sheets that require such disclosure approximates fair value due to their short-term maturity. 11 14 REAL ESTATE ASSOCIATES LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) JUNE 30, 1999 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 distributions to investors in June 30, 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. 12 15 REAL ESTATE ASSOCIATES LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) JUNE 30, 1999 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (CONTINUED) Under recently 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 are not expected to 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. MAHRAA provides that properties begin the restructuring process in federal fiscal year 1999 (beginning October 1, 1998). On September 11, 1998, HUD issued interim regulations implementing MAHRAA and final regulations are expected to be issued in 1999. With respect to the local limited partnerships' expiring HAP Contracts, it is expected that the HAP payments will be reduced or terminated pursuant to the terms of MAHRAA. 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. 13 16 REAL ESTATE ASSOCIATES LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) JUNE 30, 1999 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (CONTINUED) As a result of the foregoing, the Partnership in 1997 undertook an extensive review of disposition, refinancing or re-engineering alternatives for the properties in which the limited partnerships have invested and are subject to HUD mortgage and rental subsidy programs. The Partnership has incurred expenses in connection with this review by various third party professionals, including accounting, legal, valuation, structural and engineering costs, which amounted to $372,803 through December 31, 1998, including $111,706 for the six months ended June 30, 1998. On December 30, 1998, the Partnership sold its limited partnership interests in 8 local limited partnerships to subsidiaries of Casden Properties Inc. The sale resulted in cash proceeds to the Partnership of $3,900,000 and a net gain of $3,798,734, after deducting selling costs. The cash proceeds were held in escrow at December 31, 1998 and were 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. Casden Properties Inc. purchased such limited partner interests for cash, which it raised in connection with a private placement of its equity securities. The purchase was subject to, among other things, (i) the purchase of the general partner interests in the local limited partnerships by Casden Properties Inc.; (ii) the approval of HUD and certain state housing finance agencies; and (iii) the consent of the limited partners to the sale of the local limited partnership interests held for investment by the Partnership. In August 1998, a consent solicitation statement was sent to the limited partners setting forth the terms and conditions of the purchase of the limited partners' interests held for investment by the Partnership, together with certain amendments to the Partnership Agreement and other disclosures of various conflicts of interest in connection with the proposed transaction. Prior to the sale of the partnership interests, the consents of the limited partners to the sale and amendments to the Partnership Agreement were obtained. 14 17 REAL ESTATE ASSOCIATES LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) JUNE 30, 1999 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 Casden Properties Inc., which was organized by an affiliate of NAPICO. The plaintiffs seek equitable relief, as well as compensatory damages and litigation related costs. 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 action 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 7 of regulation S-K. 15 18 REAL ESTATE ASSOCIATES LIMITED (A CALIFORNIA LIMITED PARTNERSHIP) JUNE 30, 1999 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: August 13, 1999 ----------------------------------- /s/ CHARLES H. BOXENBAUM ---------------------------------------- Charles H. Boxenbaum Chief Executive Officer Date: August 13, 1999 ----------------------------------- 16 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE PARTNERSHIP'S STATEMENTS OF EARNINGS AND BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 319,618 0 0 0 0 319,618 0 0 849,941 41,320 0 0 0 0 799,770 849,941 0 37,146 0 0 191,930 0 0 (154,784) 0 (154,784) 0 0 0 (154,784) 0 0
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