UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
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 0-09262
REAL ESTATE ASSOCIATES LIMITED
(Exact name of registrant as specified in its charter)
California | 95-3187912 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
PO Box 91274 |
Los Angeles, California 90009 |
(Address of principal executive offices) |
|
(720) 387-8135 |
(Registrants telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
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 [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer £ | Accelerated filer £ |
Non-accelerated filer £ (Do not check if a smaller reporting company) | Smaller reporting company S |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
State the aggregate market value of the voting and non-voting partnership interests held by non-affiliates computed by reference to the price at which the partnership interests were last sold, or the average bid and asked price of such partnership interests as of the last business day of the registrants most recently completed second fiscal quarter. No market exists for the limited partnership interests of the Registrant, and, therefore, no aggregate market value can be determined.
DOCUMENTS INCORPORATED BY REFERENCE
None
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements in certain circumstances. Certain information included in this Annual Report contains or may contain information that is forward-looking within the meaning of the federal securities laws, including without limitation, statements regarding the Partnerships ability to maintain current or meet projected occupancy, rental rates and property operating results and the effect of redevelopments. Actual results may differ materially from those described in these forward-looking statements and, in addition, will be affected by a variety of risks and factors, some of which are beyond the Partnerships control, including, without limitation: financing risks, including the availability and cost of financing and the risk that the Partnerships cash flows from operations may be insufficient to meet required payments of principal and interest; natural disasters and severe weather such as hurricanes; national and local economic conditions, including the pace of job growth and the level of unemployment; energy costs; the terms of governmental regulations that affect the Partnership, the Partnerships property and the Partnerships investment in limited partnerships and interpretations of those regulations; the competitive environment in which the Partnership operates; real estate risks, including fluctuations in real estate values and the general economic climate in local markets and competition for residents in such markets; insurance risk, including the cost of insurance; litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by the limited partnerships in which the Partnership has invested. Readers should carefully review the Partnerships consolidated financial statements and the notes thereto, as well as the other documents the Partnership files from time to time with the Securities and Exchange Commission.
PART I
Item 1.
Business
Real Estate Associates Limited ("REAL" or the "Partnership") is a limited partnership formed under the laws of the State of California on September 15, 1977. On October 27, 1978, Real Estate Associates Limited offered 16,500 units of Limited Partnership Interests through a public offering managed by E.F. Hutton Inc. The Partnership received $16,500,000 in subscriptions for units of Limited Partnership Interests (at $1,000 per unit) during the period October 27, 1978 to August 31, 1979, pursuant to a registration statement on Form S-11. Since this transaction, the Partnership has not received, nor are limited partners required to make, additional capital contributions.
The Partnership shall be dissolved only upon the expiration of 53 complete calendar years (December 31, 2031) from the date of the formation of the Partnership or the occurrence of other events as specified in the terms of the Partnership Agreement. The principal business of the Partnership is to invest, directly or indirectly, in other limited partnerships which own or lease and operate federal, state and local government-assisted housing projects.
The general partner of Real Estate Associates Limited is National Partnership Investments, LLC ("NAPICO" or the General Partner), a California limited liability company. The General Partner is a subsidiary of Bethesda Holdings II, LLC, a privately held real estate asset management company (Bethesda). Bethesda acquired the General Partner on December 19, 2012, pursuant to an option agreement with Aimco/Bethesda Holdings, Inc., a subsidiary of Apartment Investment and Management Company (Aimco), a publicly traded real estate investment trust. The business of REAL is conducted primarily by NAPICO.
REAL does not hold any limited partnership interests in local limited partnerships (the "Local Partnerships") as of December 31, 2013. In December 1998, the Partnership sold its interest in nine Local Partnerships and its interest in one Local Partnership was redeemed in September 1998. During 2003, the Partnership sold its interest in one Local Partnership. During 2004, the properties in two Local Partnerships were sold. During 2009 the property in one Local Partnership was sold. During 2013, the Partnership sold its remaining interest in the last four Local Partnerships. Each of the Local Partnerships owned a low income housing project which is subsidized and/or has a mortgage note payable to or insured by agencies of the federal or local government.
The Local Partnerships in which REAL has invested were, at least initially, organized by private developers who acquired the sites, or options thereon, and applied for applicable mortgage insurance and subsidies. REAL became the principal limited partner in these Local Partnerships pursuant to arm's-length negotiations with these developers, or others, who act as general partners. As a limited partner, REAL's liability for obligations of the Local Partnership is limited to its investment. The local general partner of the Local Partnership retains responsibility for developing, constructing, maintaining, operating and managing the property owned by the Local Partnership. Under certain circumstances of default, REAL has the right to replace the general partner of the Local Partnerships, but
1
otherwise does not exercise control over the activities and operations, including refinancing or selling decisions of the Local Partnerships.
Effective December 10, 2012, the Partnership designated itself as the operating general partner of Bethel Towers Limited Dividend Housing Association (Bethel Towers), pursuant to the terms of the partnership agreement for Bethel Towers whereby the Partnership is to be named the operating general partner of Bethel Towers upon the death of the existing operating general partner. Accordingly, the 0.99% local operating general partner interest in Bethel Towers was assigned to the Partnership as of December 10, 2012. On December 10, 2013, the Partnership sold Bethel Towers.
Although each of the Local Partnerships in which REAL has invested generally owns a project which must compete in the market place for tenants, interest subsidies and rent supplements from governmental agencies make it possible to offer these dwelling units to eligible "low income" tenants at a cost significantly below the market rate for comparable conventionally financed dwelling units in the area.
The Partnership does not have any employees. Services are performed for the Partnership by the General Partner and agents retained by the General Partner.
A further description of the Partnership's business is included in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Form 10-K.
Item 1A.
Risk Factors
Not applicable.
Item 2.
Properties
During 2013, the projects in which REAL had invested were substantially rented. During 2013, the Partnership sold its remaining interest in the last four Local Partnerships. On December 10, 2013, the Partnership sold Bethel Towers.
Item 3.
Legal Proceedings
The General Partner is involved in various lawsuits arising from transactions in the ordinary course of business. In the opinion of management and the General Partner, the claims will not result in any material liability to the Partnership.
Item 4.
Mine Safety Disclosures
Not applicable.
2
PART II
Item 5.
Market for the Registrant's Common Equity, Related Security Holder Matters and Issuer Purchases of Equity Securities
The limited partnership interests are not traded on a public exchange but were sold through a public offering managed by E.F. Hutton Inc. It is not anticipated that any public market will develop for the purchase and sale of any Partnership interest, therefore an investor may be unable to sell or otherwise dispose of his or her interest in the Partnership. Limited partnership interests may be transferred only if certain requirements are satisfied. At December 31, 2013, there were 799 registered holders of 16,216.45 limited partnership interests in the Partnership. The Partnership has invested in certain government assisted projects under programs which in many instances restrict the cash return available to Project owners. The Partnership was not designed to provide cash distributions to investors in circumstances other than refinancing or disposition of its investment in the Local Partnerships.
There were no distributions made by the Partnership to its limited partners during the years ended December 31, 2013 and 2012.
Item 6.
Selected Financial Data
Not applicable.
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
This item should be read in conjunction with the consolidated financial statements and other items contained elsewhere in this report.
The General Partner monitors developments in the area of legal and regulatory compliance.
Liquidity and Capital Resources
The Partnerships primary source of funds is the receipt of distributions received from Local Partnerships in which the Partnership has invested. The Partnership received operating distributions of approximately $148,000 and $136,000 from three and two Local Partnerships during the years ended December 31, 2013 and 2012, respectively. Subsequent to December 31, 2013, the Partnership received an operating distribution of approximately $62,000 from one Local Partnership. An infrequent source of funds is funds received by the Partnership as its share of any proceeds from the sale of a property owned by a Local Partnership or the Partnerships sale of its interest in a Local Partnership.
The properties in which the Partnership has invested, through the Partnerships investments in the Local Partnerships, receive one or more forms of assistance from the Federal Government. As a result, the Local Partnerships' ability to transfer funds either to the Partnership or among the Local Partnerships in the form of cash distributions, loans or advances is generally restricted by these government assistance programs.
As of December 31, 2013 and 2012, the Partnership had cash and cash equivalents of approximately $1,292,000 and $185,000, respectively. The increase in cash and cash equivalents of approximately $1,107,000 is primarily due to approximately $1,079,000 of cash provided by the sale of Bethel Towers.
The Partnerships assets are thought to be generally sufficient for any of its near-term needs (exclusive of repayment of accrued fees owed to the General Partner and advances and accrued interest owed to the General Partner or affiliates).
3
Results of Operations
Effective December 10, 2012, the Partnership designated itself as the operating general partner of Bethel Towers Limited Dividend Housing Association (Bethel Towers), pursuant to the terms of the partnership agreement for Bethel Towers whereby the Partnership is to be named the operating general partner of Bethel Towers upon the death of the existing operating general partner. Accordingly, the 0.99% local operating general partner interest in Bethel Towers was assigned to the Partnership as of December 10, 2012. As a result of this assignment, the Partnership consolidated this Local Partnership (see Note 2 to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data). Therefore, the 2012 consolidated financial statements reflect the consolidation of Bethel Towers, whereas the 2011 financial statements reflect Bethel Towers as an equity method investment.
At December 31, 2013 and 2012, the Partnership had investments in zero and five Local Partnerships, respectively. The Local Partnerships as of December 31, 2013 and 2012 owned residential low income rental projects consisting of zero and 350 apartment units, respectively. The mortgage loans for these projects were payable to, or insured by various government agencies.
With the exception of its investment in Bethel Towers, the Partnership, as a limited partner, does not have a contractual relationship with the Local Partnerships or exercise control over the activities and operations, including refinancing or selling decisions of the Local Partnerships that would require or allow for consolidation. Accordingly, the Partnership accounts for its investment in the Local Partnerships, except for Bethel Towers, using the equity method. Thus the individual investments are carried at cost plus the Partnerships share of the Local Partnerships profits less the Partnerships share of the Local Partnerships losses, distributions and impairment charges. However, since the Partnership is not legally liable for the obligations of the Local Partnerships, or is not otherwise committed to provide additional support to them, it does not recognize losses once the Partnerships investment in each of the Local Partnerships reaches zero. Distributions from the Local Partnerships are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. Subsequent distributions received are recognized as income in the consolidated statements of operations. For those investments where the Partnership has determined that the carrying value of the Partnerships investments approximates the estimated fair value of those investments, the Partnerships policy is to recognize equity in income of the Local Partnerships only to the extent of distributions received and amortization of acquisition costs from those Local Partnerships. Therefore, the Partnership limits its recognition of equity earnings to the amount the Partnership expects to ultimately realize. During the years ended December 31, 2013 and 2012, the Partnership did not recognize any equity in income of the Local Partnerships. During the years ended December 31, 2013 and 2012, the Partnership received approximately $148,000 and $136,000, respectively, in operating distributions from three and two Local Partnerships that were recognized as income in the statements of operations since the Partnerships investment in the Local Partnerships had been reduced to zero.
At December 31, 2013 and 2012, the investment balance in all of the Local Partnerships had been reduced to zero. The Partnership consolidated its investment in Bethel Towers at December 31, 2012.
In July 2013, the Partnership sold its limited partnership interest in New-Bel-Mo Enterprises L.P. (Belleville Manor) to an affiliate of the Local Operating General Partner. The Partnership received $20,500 in proceeds from the sale. The Partnership's investment balance in this Local Partnership was zero at both December 31, 2013 and 2012.
In July 2013, the Partnership sold its limited partnership interest in Clinton Apartments, Ltd. to an affiliate of the Local Operating General Partner. The Partnership received $37,000 in proceeds from the sale. The Partnership's investment balance in this Local Partnership was zero at both December 31, 2013 and 2012.
In July 2013, the Partnership sold its limited partnership interest in Emporia Limited (Northwood Village) to an affiliate of the Local Operating General Partner. The Partnership received $400,000 in proceeds from the sale. The Partnership's investment balance in this Local Partnership was zero at both December 31, 2013 and 2012.
In August 2013, the Partnership sold its limited partnership interest in Williamson Towers to an affiliate of the Local Operating General Partner. The Partnership received $25,000 in proceeds from the sale. The Partnership's investment balance in this Local Partnership was zero at both December 31, 2013 and 2012.
In December 2013, the Partnership sold Bethel Towers to a third party. The Partnership received approximately $1,079,000 in proceeds from the sale.
The Partnership recognized net income of approximately $592,000 for the year ended December 31, 2013, compared to net income of approximately $1,258,000 for the year ended December 31, 2012. The decrease in net income is due primarily to the recognition of a
4
gain on consolidation associated with taking over the general partner interest of Bethel Towers during December 2012, partially offset by an increase in operational expenses in 2013. Legal and accounting fees were approximately $149,000 and $162,000 for the years ended December 31, 2013 and 2012, respectively.
An annual management fee is payable to the General Partner of the Partnership and is calculated at 0.5 percent of the Partnership's original remaining invested assets of the Local Partnerships and is calculated at the beginning of each year. The management fee is paid to the General Partner for the General Partners management of the Partnerships affairs. The fee is payable beginning with the month following the Partnership's initial investment in a Local Partnership. Management fees were approximately $54,000 for both of the years ended December 31, 2013 and 2012.
The General Partner and its affiliates made no advances to the Partnership during the years ended December 31, 2013 and 2012. Interest on advances is charged at prime plus 2%, or 5.25% at December 31, 2013. Interest expense was approximately $42,000 and $45,000 for the years ended December 31, 2013 and 2012, respectively. There were accrued interest payments of $226,000 made during the year ended December 31, 2013. No payments were made in 2012. At December 31, 2013 and 2012, the Partnership owed approximately $543,000 and $877,000, respectively, in advances and related accrued interest to the General Partner and its affiliates.
At times, advances are made to the Local Partnerships. Advances made by the Partnership to the individual Local Partnerships are considered part of the Partnership's investment in the Local Partnerships. Advances made to Local Partnerships for which the investment has been reduced to zero are charged to expense. During the years ended December 31, 2013 and 2012, the Partnership made no such advances.
The Partnership, as a limited partner in the Local Partnerships in which it has invested, is subject to the risks incident to the construction, management and ownership of improved real estate. The Partnership investments are also subject to adverse general economic conditions and, accordingly, the status of the national economy, including substantial unemployment, concurrent inflation and changing legislation which could increase vacancy levels, rental payment defaults and operating expenses, which in turn could substantially increase the risk of operating losses for the projects.
Off-Balance Sheet Arrangements
With the exception of Bethel Towers, the Partnership owned limited partnership interests in unconsolidated Local Partnerships in which the Partnerships ownership percentage ranges from 95% to 99%. However, based on the provisions of the relevant partnership agreements, the Partnership, as a limited partner, does not have control or a contractual relationship with the Local Partnerships that would require or allow for consolidation under accounting principles generally accepted in the United States (see Note 1 Organization and Summary of Significant Accounting Policies of the consolidated financial statements in Item 8. Financial Statements and Supplementary Data). There are no lines of credit, side agreements or any other derivative financial instruments between the Local Partnerships and the Partnership. Accordingly the Partnerships maximum risk of loss related to these unconsolidated Local Partnerships is limited to the recorded investments in and receivables from the Local Partnerships. See Note 2 Investments in and Advances to Local Partnerships of the consolidated financial statements in Item 8. Financial Statements and Supplementary Data for additional information about the Partnerships investments in unconsolidated Local Partnerships.
Variable Interest Entities
The Partnership consolidates any variable interest entities in which the Partnership holds a variable interest and is the primary beneficiary. Generally, a variable interest entity, or VIE, is an entity with one or more of the following characteristics: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) as a group the holders of the equity investment at risk lack (i) the ability to make decisions about an entitys activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests and substantially all of the entitys activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. The primary beneficiary of a VIE is generally the entity that has (a) the power to direct the activities of the VIE that most significantly impact the VIEs economic performance, and (b) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
In determining whether it is the primary beneficiary of a VIE, the Partnership considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIEs economic performance and which party controls such activities; the amount and characteristics of the Partnerships investment; the obligation or likelihood for the Partnership or other investors to provide financial support; and the similarity with and significance to the business activities of the Partnership and the other investors.
5
Significant judgments related to these determinations include estimates about the current and future fair values and performance of real estate held by these VIEs and general market conditions.
On December 10, 2012, the Partnership became the operating general partner of Bethel Towers, as a result of the assignment of the local operating general partner interest in Bethel Towers to the Partnership. Therefore, effective December 10, 2012, the Partnership began consolidating this Local Partnership and it is no longer considered a VIE (see Note 2 to the consolidated financial statements included in Item 8. Financial Statements and Supplementary Data).
At December 31, 2013 and 2012, the Partnership held variable interests in zero and four VIEs, respectively, for which the Partnership is not the primary beneficiary. The Partnership has concluded, based on its qualitative consideration of the partnership agreement, the partnership structure and the role of the general partner in each of the Local Partnerships, that the general partner of each of the Local Partnerships is the primary beneficiary of the respective Local Partnership. In making this determination, the Partnership considered the following factors:
·
the general partners conduct and manage the business of the Local Partnerships;
·
the general partners have the responsibility for and sole discretion over selecting a property management agent for the Local Partnerships underlying real estate properties;
·
the general partners are responsible for approving operating and capital budgets for the properties owned by the Local Partnerships;
·
the general partners are obligated to fund any recourse obligations of the Local Partnerships;
·
the general partners are authorized to borrow funds on behalf of the Local Partnerships; and
·
the Partnership, as a limited partner in each of the Local Partnerships, does not have the ability to direct or otherwise significantly influence the activities of the Local Partnerships that most significantly impact such entities economic performance.
The Partnership was involved with those VIEs as a non-controlling limited partner equity holder. The Partnerships maximum exposure to loss as a result of its involvement with the unconsolidated VIEs is limited to the Partnerships recorded investments in and receivables from these VIEs, which were zero at December 31, 2013 and 2012. The Partnership may be subject to additional losses to the extent of any financial support that the Partnership voluntarily provides in the future.
Critical Accounting Policies and Estimates
A summary of the Partnerships significant accounting policies is included in "Note 1 Organization and Summary of Significant Accounting Policies" which is included in the consolidated financial statements in "Item 8. Financial Statements and Supplementary Data". The General Partner believes that the consistent application of these policies enables the Partnership to provide readers of the consolidated financial statements with useful and reliable information about the Partnerships consolidated operating results and consolidated financial condition. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the Partnership to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Judgments and assessments of uncertainties are required in applying the Partnerships accounting policies in many areas. The Partnership believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity.
Method of Accounting for Investments in Limited Partnerships
With the exception of Bethel Towers, the Partnership, as a limited partner, does not have a contractual relationship with the Local Partnerships or exercise control over the activities and operations, including refinancing or selling decisions, of the Local Partnerships that would require or allow for consolidation. Accordingly, the Partnership accounts for its investments in the Local Partnerships, except for Bethel Towers, using the equity method. The Partnership is allocated profits and losses of the Local Partnerships based upon its respective ownership percentage (between 95% and 99%). Distributions of surplus cash from operations from most of the Local Partnerships are restricted by the Local Partnerships Regulatory Agreements with the United States Department of Housing and Urban Development (HUD). These restrictions limit the distribution to a portion, generally less than 10%, of the initial invested capital. The excess surplus cash is deposited into a residual receipts reserve, of which the ultimate realization by the Partnership is uncertain as HUD frequently retains it upon sale or dissolution of the Local Partnership. The Partnership is allocated profits and losses and receives distributions from refinancings and sales in accordance with the Local Partnerships partnership agreements. These agreements usually limit the Partnerships distributions to an amount substantially less than its ownership percentage in each Local Partnership.
6
The individual investments are carried at cost plus the Partnerships share of each Local Partnerships profits less the Partnerships share of such Local Partnerships losses, distributions and impairment charges. The Partnership is not legally liable for the obligations of the Local Partnerships and is not otherwise committed to provide additional support to them. Therefore, it does not recognize losses once its investment in each of the Local Partnerships reaches zero. Distributions from the Local Partnerships are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. When the investment balance has been reduced to zero, subsequent distributions received are recognized as income in the consolidated statements of operations.
For those investments where the Partnership has determined that the carrying value of its investments approximates the estimated fair value of those investments, the Partnerships policy is to recognize equity in income of the Local Partnerships only to the extent of distributions received and amortization of acquisition costs from those Local Partnerships. Therefore, the Partnership limits its recognition of equity earnings to the amount it expects to ultimately realize.
Impairment of Long-Lived Assets
At December 31, 2012, investment property was stated at fair value as of the date the Partnership began consolidating Bethel Towers, less accumulated depreciation, unless the carrying amount of the asset is not recoverable. If events or circumstances indicate that the carrying amount of the property may not be recoverable, the Partnership will make an assessment of its recoverability by comparing the carrying amount to the Partnerships estimate of the undiscounted future cash flows, excluding interest charges, of the property. If the carrying amount exceeds the estimated aggregate undiscounted future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property.
Real property investment is subject to varying degrees of risk. Several factors may adversely affect the economic performance and value of the Partnerships investment property. These factors include, but are not limited to, general economic climate; competition from other apartment communities and other housing options; local conditions, such as loss of jobs or an increase in the supply of apartments that might adversely affect apartment occupancy or rental rates; changes in governmental regulations and the related cost of compliance; increases in operating costs (including real estate taxes) due to inflation and other factors, which may not be offset by increased rents; changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multi-family housing; and changes in interest rates and the availability of financing. Any adverse changes in these and other factors could cause an impairment of the Partnerships asset.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
7
Item 8.
Financial Statements and Supplementary Data
REAL ESTATE ASSOCIATES LIMITED
LIST OF FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets - December 31, 2013 and 2012
Consolidated Statements of Operations - Years ended December 31, 2013 and 2012
Consolidated Statements of Changes in Partners' Capital (Deficiency) - Years ended December 31, 2013 and 2012
Consolidated Statements of Cash Flows - Years ended December 31, 2013 and 2012
Notes to Consolidated Financial Statements
8
Report of Independent Registered Public Accounting Firm
The Partners
Real Estate Associates Limited
We have audited the accompanying consolidated balance sheet of Real Estate Associates Limited as of December 31, 2013, and the related consolidated statements of operations, changes in partners capital (deficiency) and cash flows for the year ended December 31, 2013. These financial statements are the responsibility of the Partnerships management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Partnerships internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnerships internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Real Estate Associates Limited at December 31, 2013, and the consolidated results of its operations and its cash flows for the year ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.
/s/Carter & Company, CPA, LLC
Destin, Florida
April 15, 2014
9
Report of Independent Registered Public Accounting Firm
The Partners
Real Estate Associates Limited
We have audited the accompanying consolidated balance sheet of Real Estate Associates Limited as of December 31, 2012, and the related consolidated statements of operations, changes in partners capital (deficiency) and cash flows for the year ended December 31, 2012. These financial statements are the responsibility of the Partnerships management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Partnerships internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnerships internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Real Estate Associates Limited at December 31, 2012, and the consolidated results of its operations and its cash flows for the year ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.
/s/Ernst & Young LLP
Greenville, South Carolina
April 15, 2013
10
REAL ESTATE ASSOCIATES LIMITED
CONSOLIDATED BALANCE SHEETS
(In thousands)
| December 31, | |
| 2013 | 2012 |
Assets |
|
|
|
|
|
Cash and cash equivalents | $ 1,292 | $ 185 |
Investments in and advances to Local Partnerships | -- | -- |
Receivables and deposits | 35 | 91 |
Restricted escrows | 452 | 412 |
Other assets | -- | 163 |
Investment property: |
|
|
Land | -- | 366 |
Buildings and related personal property | -- | 3,703 |
Total investment property | -- | 4,069 |
Less accumulated depreciation | -- | (7) |
Investment property, net | -- | 4,062 |
Total assets | $ 1,779 | $ 4,913 |
|
|
|
Liabilities and Partners Capital (Deficiency) |
|
|
|
|
|
Liabilities: |
|
|
Accounts payable and accrued expenses | $ 49 | $ 104 |
Accrued fees due to General Partner | 590 | 535 |
Advances and accrued interest due to General Partner |
|
|
or affiliates | 543 | 877 |
Tenant security deposit liability | -- | 63 |
Accrued property taxes | -- | 85 |
Deferred revenue | -- | 23 |
Mortgage notes payable | -- | 3,221 |
Total liabilities | 1,182 | 4,908 |
|
|
|
Contingencies | -- | -- |
|
|
|
Partners' Capital (Deficiency): |
|
|
General partner | (121) | (127) |
Limited partners | 718 | 132 |
Total partners capital (deficiency) | 597 | 5 |
Total liabilities and partners' capital |
|
|
(deficiency) | $ 1,779 | $ 4,913 |
See Accompanying Notes to Consolidated Financial Statements
11
REAL ESTATE ASSOCIATES LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per interest data)
| Years Ended December 31, | |
| 2013 | 2012 |
Revenues: |
|
|
Rental income | $ 1,024 | $ 50 |
Other income | 300 | 17 |
Total revenues | 1,324 | 67 |
Expenses: |
|
|
Operating | 923 | 39 |
Depreciation and amortization | 155 | 12 |
Property taxes | 146 | 5 |
Management fees General Partner | 54 | 54 |
General and administrative | 11 | 7 |
Legal and accounting | 149 | 162 |
Interest expense | 129 | 51 |
Total expenses | 1,567 | 330 |
|
|
|
Loss from partnership operations | (243) | (263) |
Gain on sale of limited partner interests | 483 | -- |
Gain on sale of rental property | 204 | -- |
Distributions in excess of investment in Local |
|
|
Partnerships | 148 | 136 |
Gain on consolidation of Local Partnership | -- | 1,385 |
Net income (loss) | $ 592 | $ 1,258 |
|
|
|
Net income (loss) allocated to general partner (1%) | $ 6 | $ 13 |
Net income (loss) allocated to limited partners (99%) | $ 586 | $ 1,245 |
|
|
|
Net income (loss) per limited partnership interest | $ 36.06 | $ 76.53 |
See Accompanying Notes to Consolidated Financial Statements
12
REAL ESTATE ASSOCIATES LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIENCY)
(In thousands)
| General | Limited |
|
| Partner | Partners | Total |
|
|
|
|
Partners' capital (deficiency), |
|
|
|
December 31, 2011 | $ (140) | $(1,113) | $(1,253) |
|
|
|
|
Net income for the year ended |
|
|
|
December 31, 2012 | 13 | 1,245 | 1,258 |
|
|
|
|
Partners capital (deficiency), |
|
|
|
December 31, 2012 | (127) | 132 | 5 |
|
|
|
|
Net income for the year ended |
|
|
|
December 31, 2013 | 6 | 586 | 592 |
|
|
|
|
Partners capital (deficiency), | $ (121) | $ 718 | $ 597 |
December 31, 2013 |
|
|
|
See Accompanying Notes to Consolidated Financial Statements
13
REAL ESTATE ASSOCIATES LIMITED
CONSOLDIATED STATEMENTS OF CASH FLOWS
(In thousands)
| Years Ended December 31, | |
| 2013 | 2012 |
Cash flows from operating activities: |
|
|
Net income | $ 592 | $ 1,258 |
Adjustments to reconcile net income (loss) to net cash |
|
|
provided by (used in) operating activities: |
|
|
Gain on consolidation of Local Partnership | -- | (1,385) |
Gain on sale of limited partner interests | (483) | -- |
Gain on sale of rental property | (204) | -- |
Distribution in excess of investment | (148) | -- |
Depreciation and amortization | 155 | 12 |
Change in accounts: |
|
|
Receivables and deposits | 56 | (5) |
Restricted escrows | (40) | 51 |
Other assets | 163 | (37) |
Accounts payable and accrued expenses | (55) | 7 |
Accrued fees due to General Partner | 55 | 54 |
Security deposits | (63) | -- |
Accrued interest on advances | (184) | 45 |
Deferred revenue | (23) | (71) |
Accrued property taxes | (85) | 5 |
Net cash provided by (used in) operating |
|
|
activities | (264) | (66) |
|
|
|
Cash flows provided by investing activities: |
|
|
Proceeds from sale of rental property | 4,111 | - |
Distributions in excess of investment | 148 | -- |
Proceeds from sale of Limited Partner Interest | 483 | -- |
Increase in cash from consolidation of Local Partnership | -- | 173 |
| 4,742 | 173 |
Cash flow from financing activities: |
|
|
Decrease in advances from general partner | (150) | -- |
Decrease in mortgage payable | (3,221) | -- |
| (3,371) | -- |
|
|
|
Net increase in cash and cash equivalents | 1,107 | 107 |
Cash and cash equivalents, beginning of year | 185 | 78 |
|
|
|
Cash and cash equivalents, end of year | $ 1,292 | $ 185 |
See Accompanying Notes to Consolidated Financial Statements
14
REAL ESTATE ASSOCIATES LIMITED
CONSOLDIATED STATEMENTS OF CASH FLOWS - continued
(In thousands)
| Years Ended December 31, | |
| 2013 | 2012 |
|
| |
Supplemental disclosure of cash flow information: |
|
|
Cash paid for interest | $ -- | $ 6 |
Non-cash transaction associated with consolidation of |
|
|
Local Partnership: |
|
|
Investment property | -- | 4,069 |
Receivables and deposits | -- | 80 |
Other assets | -- | 131 |
Restricted escrows | -- | 463 |
Accounts payable and accrued expenses | -- | 73 |
Tenant security deposit liability | -- | 63 |
Deferred revenue | -- | 94 |
Accrued property taxes | -- | 80 |
Mortgage notes payable | -- | 3,221 |
See Accompanying Notes to Consolidated Financial Statements
15
REAL ESTATE ASSOCIATES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013
Note 1 - Organization and Summary of Significant Accounting Policies
Organization
Real Estate Associates Limited (REAL or the Partnership) was formed under the California Limited Partnership Act on September 15, 1977. The Partnership was formed to invest either directly or indirectly in other partnerships which own or lease and operate primarily federal, state and local government-assisted housing projects. The general partner is National Partnership Investments, LLC, a California limited liability company (NAPICO or the "General Partner"). The General Partner is a subsidiary of Bethesda Holdings II, LLC, a privately held real estate asset management company (Bethesda). Bethesda acquired the General Partner on December 19, 2012, pursuant to an option agreement with Aimco/Bethesda Holdings, Inc., a subsidiary of Apartment Investment and Management Company (Aimco), a publicly traded real estate investment trust. The Partnership shall be dissolved only upon the expiration of 53 complete calendar years (December 31, 2031) from the date of the formation of the Partnership or the occurrence of other events as specified in the terms of the Partnership agreement. The business of the Partnership is conducted primarily by NAPICO.
The general partner has a one percent interest in profits and losses of the Partnership. The limited partners have the remaining 99 percent interest in proportion to their respective investments. A withdrawal amendment was entered into as of September 12, 2002 and became effective 90 days thereafter by and among NAPICO and Charles Boxenbaum, whereby Boxenbaums 45% general partner interest was converted to that of a limited partner in the Partnership entitled to participate in the profits and losses of the Partnership in an amount equal to 45% of the amounts otherwise allocable to the general partners of the Partnership. The General Partner is the sole remaining general partner of the Partnership.
Upon total or partial liquidation of the Partnership or the disposition or partial disposition of a project or project interest and distribution of the proceeds, the general partner will be entitled to a liquidation fee as stipulated in the Partnership agreement. The limited partners will have a priority return equal to their invested capital attributable to the project(s) or project interest(s) sold and shall receive from the sale of the project(s) or project interest(s) an amount sufficient to pay state and federal income taxes, if any, calculated at the maximum rate then in effect. The general partners' liquidation fee may accrue but shall not be paid until the limited partners have received distributions equal to 100 percent of their capital contributions.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation
As a result of the assignment of the local operating general partner interest in Bethel Towers Limited Dividend Housing Association (Bethel Towers) to the Partnership on December 10, 2012 (as discussed in Note 2), the Partnership began consolidating the assets, liabilities, and operations of Bethel Towers as of December 10, 2012. The consolidated financial statements of the Partnership include its 99.99% general and limited partner interests in Bethel Towers. All significant inter-partnership balances have been eliminated. The apartment property owned by Bethel Towers is located in Detroit, Michigan.
Method of Accounting for Investments in Limited Partnerships
With the exception of Bethel Towers, the investments in local partnerships (the Local Partnerships) were accounted for on the equity method.
16
Abandonment of Limited Partnership Interests
During the years ended December 31, 2013 and 2012, the number of limited partnership interests decreased by 34.55 and 17 interests, respectively, due to limited partners abandoning their interests. In abandoning his or her limited partnership interest(s), a limited partner relinquishes all rights, title, and interest in the Partnership as of the date of abandonment. However, the limited partner is allocated his or her share of net income or loss for that year. At December 31, 2013 and 2012, the Partnership had outstanding 16,216.45 and 16,251 limited partnership interests, respectively.
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 (loss) by the number of limited partnership interests outstanding at the beginning of the year. The number of limited partnership interests used was 16,251 and 16,268 for the years ended December 31, 2013 and 2012, respectively.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and in banks. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Cash balances included approximately $47,000 at December 31, 2012, that were maintained by an affiliated management company on behalf of affiliated entities in a cash concentration account. In 2013 the affiliated management company maintained separate cash accounts with an FDIC insured bank for each of its affiliated entities including REAL.
Impairment of Long-Lived Assets
The Partnership reviews its investments in long-lived assets to determine if there has been any 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. There were no impairment losses recognized during the years ended December 31, 2013 and 2012.
Fair Value of Financial Instruments
Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 825, Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value is defined as the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership is required to classify these fair value measurements into one of three categories, based on the nature of the inputs used in the fair value measurement. Level 1 of the hierarchy includes fair value measurements based on unadjusted quoted prices in active markets for identical assets or liabilities the Partnership can access at the measurement date. Level 2 includes fair value measurements based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 includes fair value measurements based on unobservable inputs. The classification of fair value measurements is subjective and generally accepted accounting principles requires the Partnership to disclose more detailed information regarding those fair value measurements classified within the lower levels of the hierarchy. The Partnership believes that the carrying amount of its financial instruments approximates their fair value due to the short-term maturity of these instruments. See Note 2 regarding fair value determinations for the assets and liabilities of Bethel Towers.
Segment Reporting
ASC 280-10, "Segment Reporting", established standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. ASC 280-10 also established standards for related disclosures about products and services, geographic areas, and major customers. As defined in ASC 280-10, the Partnership has only one reportable segment.
Variable Interest Entities
The Partnership consolidates any variable interest entities in which the Partnership holds a variable interest and is the primary beneficiary. Generally, a variable interest entity, or VIE, is an entity with one or more of the following characteristics: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated
17
financial support; (b) as a group the holders of the equity investment at risk lack (i) the ability to make decisions about an entitys activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests and substantially all of the entitys activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. The primary beneficiary of a VIE is generally the entity that has (a) the power to direct the activities of the VIE that most significantly impact the VIEs economic performance, and (b) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
In determining whether it is the primary beneficiary of a VIE, the Partnership considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIEs economic performance and which party controls such activities; the amount and characteristics of the Partnerships investment; the obligation or likelihood for the Partnership or other investors to provide financial support; and the similarity with and significance to the business activities of the Partnership and the other investors. Significant judgments related to these determinations include estimates about the current and future fair values and performance of real estate held by these VIEs and general market conditions.
On December 10, 2012, the Partnership became the operating general partner of Bethel Towers, as a result of the assignment of the local operating general partner interest in Bethel Towers to the Partnership. Therefore, effective December 10, 2012, the Partnership began consolidating this Local Partnership and it is no longer considered a VIE (see Note 2).
At December 31, 2013 and 2012, the Partnership held variable interests in zero and four VIEs, respectively, for which the Partnership is not the primary beneficiary. The Partnership has concluded, based on its qualitative consideration of the partnership agreement, the partnership structure and the role of the general partner in each of the Local Partnerships, that the general partner of each of the Local Partnerships is the primary beneficiary of the respective Local Partnership. In making this determination, the Partnership considered the following factors:
·
the general partners conduct and manage the business of the Local Partnerships;
·
the general partners have the responsibility for and sole discretion over selecting a property management agent for the Local Partnerships underlying real estate properties;
·
the general partners are responsible for approving operating and capital budgets for the properties owned by the Local Partnerships;
·
the general partners are obligated to fund any recourse obligations of the Local Partnerships;
·
the general partners are authorized to borrow funds on behalf of the Local Partnerships; and
·
the Partnership, as a limited partner in each of the Local Partnerships, does not have the ability to direct or otherwise significantly influence the activities of the Local Partnerships that most significantly impact such entities economic performance.
The Partnership was involved with those VIEs as a non-controlling limited partner equity holder. The Partnerships maximum exposure to loss as a result of its involvement with the unconsolidated VIEs is limited to the Partnerships recorded investments in and receivables from these VIEs, which were zero at December 31, 2013 and 2012. The Partnership may be subject to additional losses to the extent of any financial support that the Partnership voluntarily provides in the future.
Tenant Security Deposits
At December 31, 2012, Bethel Towers required security deposits from lessees for the duration of the lease. Deposits are refunded when the tenant vacates, provided the tenant has not damaged the space and is current on rental payments.
Investment Property
At December 31, 2012, investment property consisted of one apartment complex and is stated at fair value as of the date the Partnership began consolidating Bethel Towers. Bethel Towers capitalizes costs incurred in connection with capital additions activities, including construction projects, other tangible property improvements and replacements of existing property components. Bethel Towers capitalizes interest during periods in which construction projects are in progress. Capitalized costs are depreciated over the estimated useful life of the asset. Bethel charges to expense as incurred costs that do not relate to capital additions activities, including ordinary repairs, maintenance and resident turnover costs.
18
Depreciation
Depreciation was provided by the straight-line method over the estimated life of the apartment property and related personal property.
Leases
Bethel Towers generally leased apartment units for twelve-month terms or less. Rental income attributable to leases is recognized as rents become due. Bethel Towers evaluated all accounts receivable from residents and established an allowance, after the application of security deposits, for all receivables due from former tenants.
Restricted Escrows
Bethel Towers had established escrows for real estate taxes, insurance, capital improvements and certain operating expenses for its investment property. The balance in the escrow accounts at December 31, 2012 was approximately $412,000.
Intangible Assets
Intangible assets, associated with the consolidation of Bethel Towers, consisted of in-place leases and was included in other assets at December 31, 2012. The intangible assets related to in-place leases were comprised of:
1) The value of the above-market and below-market leases in-place. An asset or liability is recognized based on the difference between (a) the contractual amounts to be paid pursuant to the in-place leases and (b) the Partnerships estimate of fair market lease rates for the corresponding in-place leases, measured over the period, including estimated lease renewals for below-market leases, that the leases are expected to remain in effect.
2) The estimated unamortized portion of avoided leasing commissions and other costs that would be incurred to originate the in-place leases.
3) The value associated with vacant units during the absorption period (estimates of lost rental revenue during the expected lease-up periods based on current market demand and stabilized occupancy levels). The values of the above-market and below-market leases are amortized to rental revenue over the expected remaining terms of the associated leases, which include reasonably assured renewal periods. Other intangible assets related to in-place leases are amortized to depreciation and amortization expense over the expected remaining terms of the associated leases.
Note 2 Investment in and Advances to Local Partnerships
As of December 31, 2013 and 2012, the Partnership held limited partnership interests in zero and five Local Partnerships, respectively. The Local Partnerships as of December 31, 2013 and 2012, owned residential low income rental projects consisting of zero and 350 apartment units, respectively. The mortgage loans for these projects were payable to or insured by various government agencies.
Effective December 10, 2012, the Partnership designated itself as the operating general partner of Bethel Towers pursuant to the terms of the partnership agreement for Bethel Towers whereby the Partnership was to be named the operating general partner of Bethel Towers upon the death of the existing operating general partner. Accordingly, the 0.99% local operating general partner interest in Bethel Towers was assigned to the Partnership as of December 10, 2012. As a result of this assignment, the Partnership now consolidates this Local Partnership (as discussed in Note 1). All assets and liabilities of Bethel Towers were consolidated, effective December 10, 2012, at fair value. The Partnership recorded an intangible asset for the value of the in-place lease assets of approximately $131,000 determined by using internal valuation techniques that consider the terms of the in-place leases and current market data for comparable leases. This intangible asset will be amortized over a period of six months. The investment property was recorded at fair value determined by using internal valuation techniques that considered comparable market transactions, discounted cash flow techniques, replacement costs and other available information. The investment property will be depreciated over 30 years. The mortgage notes payable were recorded at fair value determined by discounting future cash flows using a discount rate commensurate with that currently believed to be available to the Partnership for similar term mortgage notes payable. Due to the short term nature of the balances, the Partnership assumed the fair value of all other current assets and liabilities approximated their carrying value and no adjustments were recorded. The consolidation resulted in a gain of $1,385,000 as a result of the fair value of the assets of
19
Bethel Towers exceeding the fair value of Bethel Towers liabilities. The fair value measurements of the investment property, mortgage notes payable and intangible assets have been classified by the Partnership within Level 2 of the fair value hierarchy as described in Note 1.
In July 2013, the Partnership sold its limited partnership interest in New-Bel-Mo Enterprises L.P. (Belleville Manor) to an affiliate of the Local Operating General Partner. The Partnership received $20,500 in proceeds from the sale. The Partnership's investment balance in this Local Partnership was zero at both December 31, 2013 and 2012.
In July 2013, the Partnership sold its limited partnership interest in Clinton Apartments, Ltd. to an affiliate of the Local Operating General Partner. The Partnership received $37,000 in proceeds from the sale. The Partnership's investment balance in this Local Partnership was zero at both December 31, 2013 and 2012.
In July 2013, the Partnership sold its limited partnership interest in Emporia Limited (Northwood Village) to an affiliate of the Local Operating General Partner. The Partnership received $400,000 in proceeds from the sale. The Partnership's investment balance in this Local Partnership was zero at both December 31, 2013 and 2012.
In August 2013, the Partnership sold its limited partnership interest in Williamson Towers to an affiliate of the Local Operating General Partner. The Partnership received $25,000 in proceeds from the sale. The Partnership's investment balance in this Local Partnership was zero at both December 31, 2013 and 2012.
In December 2013, the Partnership sold Bethel Towers. The Partnership received approximately $1,079,000 in proceeds from the sale.
With the exception of its investment in Bethel Towers, the Partnership, as a limited partner, does not have a contractual relationship with the Local Partnerships or exercise control over the activities and operations, including refinancing or selling decisions, of the Local Partnerships that would require or allow for consolidation. Accordingly, the Partnership accounts for its investments in the Local Partnerships using the equity method. The Partnership is allocated profits and losses of the Local Partnerships based upon its respective ownership percentage (between 95% and 99%). Distributions of surplus cash from operations from most of the Local Partnerships are restricted by the Local Partnerships Regulatory Agreements with the United States Department of Housing and Urban Development (HUD). These restrictions limit the distribution to a portion, generally less than 10%, of the initial invested capital. The excess surplus cash is deposited into a residual receipts reserve, of which the ultimate realization by the Partnership is uncertain as HUD frequently retains it upon sale or dissolution of the Local Partnership. The Partnership is allocated profits and losses and receives distributions from refinancings and sales in accordance with the Local Partnerships partnership agreements. These agreements usually limit the Partnerships distributions to an amount substantially less than its ownership percentage in the Local Partnership.
The individual investments are carried at cost plus the Partnerships share of the Local Partnerships profits less the Partnerships share of the Local Partnerships losses, distributions and impairment charges. The Partnership is not legally liable for the obligations of the Local Partnerships and is not otherwise committed to provide additional support to them. Therefore, it does not recognize losses once its investment in each of the Local Partnerships reaches zero. Distributions from the Local Partnerships are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. When the investment balance has been reduced to zero, subsequent distributions received are recognized as income in the accompanying consolidated statements of operations. The Partnership received operating distributions of approximately $148,000 and $136,000 from four Local Partnerships for the years ended December 31, 2013 and 2012, respectively.
For those investments where the Partnership has determined that the carrying value of its investments approximates the estimated fair value of those investments, the Partnerships policy is to recognize equity in income of the Local Partnerships only to the extent of distributions received and amortization of acquisition costs from those Local Partnerships. Therefore, the Partnership limits its recognition of equity earnings to the amount it expects to ultimately realize.
Prior to January 1, 2011, the investment balance in four of the Local Partnerships had been reduced to zero. The Partnerships investment balance in Bethel Towers was zero prior to its consolidation effective December 10, 2012.
At times, advances are made to the Local Partnerships. Advances made by the Partnership to the individual Local Partnerships are considered part of the Partnership's investment in the Local Partnerships. Advances made to Local Partnerships for which the investment has been reduced to zero are charged to expense. During the years ended December 31, 2013 and 2012 the Partnership made no such advances.
20
Note 3 Transactions with Affiliated Parties
Under the terms of the Restated Certificate and Agreement of Limited Partners, the Partnership is obligated to NAPICO for an annual management fee equal to 0.5 percent of the Partnerships original invested assets of the limited partnerships and is calculated at the beginning of each year. Invested assets are 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 Local Partnerships. The management fee incurred was approximately $54,000 for both years ended December 31, 2013 and 2012. At December 31, 2013 and 2012, the Partnership owed NAPICO approximately $538,000 and $484,000, respectively, for management fees and this amount is included in accrued fees due to General Partner.
The General Partner was entitled to receive a liquidation fee of approximately $51,000 related to the sale of the limited partnership interest in Cherry Hill Apartments, which was sold in September 2003. This fee was accrued and is included in accrued fees due to General Partner. The fee will not be paid until the limited partners have received a return of their original invested capital.
The General Partner and its affiliates made no advances to the Partnership during the years ended December 31, 2013 and 2012. Interest on advances is charged at prime plus 2%, or 5.25% at December 31, 2013. Interest expense was approximately $42,000 and $45,000 for the years ended December 31, 2013 and 2012, respectively. There were accrued interest payments of $226,000 made during the year ended December 31, 2013. No payments were made in 2012. At December 31, 2013 and 2012, the Partnership owed approximately $543,000 and $877,000, respectively, in advances and related accrued interest to the General Partner and its affiliates.
Note 4 - Income Taxes
The Partnership is not taxed on its income. The partners are taxed in their individual capacities based upon their distributive share of the Partnership's taxable income or loss and are allowed the benefits to be derived from off-setting their distributive share of the tax losses against taxable income from other sources subject to passive loss limitations. The taxable income or loss differs from amounts included in the consolidated statements of operations because different methods are used in determining the losses of the Local Partnerships as discussed below. The taxable income or loss is allocated to the partner groups in accordance with Section 704(b) of the Internal Revenue Code and therefore is not necessarily proportionate to the interest percentage owned.
A reconciliation between the Partnerships reported net income (loss) and the taxable income per the tax return is as follows (in thousands): | ||
| ||
| Years Ended December 31, | |
| 2013 | 2012 |
|
|
|
Net income (loss) per financial statements | $ 592 | $ 1,258 |
Add (deduct): |
|
|
Other | 54 | 56 |
Investment in and advances to Local Partnerships | 3,950 | (1,110) |
Federal taxable income per tax return | $ 4,596 | $ 204 |
Federal taxable income per limited partnership interest | 282.82 | $ 12.43 |
| ||
The following is a reconciliation between the Partnerships reported amounts and the federal tax basis of net assets and liabilities (in thousands): | ||
| ||
| December 31, | |
| 2013 | 2012 |
Net assets (liabilities) as reported | $ 597 | $ 5 |
Add (deduct): |
|
|
Investment in Local Partnerships | -- | (3,948) |
Deferred offering costs | 2,568 | 2,568 |
Other | 624 | 531 |
21
Net liabilities Federal tax basis | $3,789 | $ (844) |
Note 5 Mortgage Notes Payable
Property | Principal Balance At December 31, 2012 | Monthly Payment Including Interest (1) | Stated Interest Rate | Maturity Date | Principal Balance Due At Maturity |
| (in thousands) | (in thousands) |
|
| (in thousands) |
|
|
|
|
|
|
Bethel Towers 1st mortgage | $ 984 | $ 30 | 8.625% | 3/1/2016 | $ -- |
Bethel Towers Home Rehabilitation mortgage | 2,160 | -- | 0.00% | 3/1/2016 | 2,160 |
Mortgage premium, net | 77 | -- |
|
| -- |
| $3,221 | $ 30 |
|
| $2,160 |
|
|
|
|
|
|
(1) Monthly payment of principal and interest has not been reduced by the monthly government interest subsidy of approximately $20,000. |
The mortgage notes payable were secured by pledge of the Partnerships consolidated property.
On December 10, 2013, the mortgage was repaid as part of the sale (Note 2).
Note 6 Contingencies
The General Partner is involved in various lawsuits arising from transactions in the ordinary course of business. In the opinion of management and the General Partner, the claims will not result in any material liability to the Partnership.
22
Note 7 Pro Forma Financial Statements (unaudited)
The following pro forma condensed consolidated statements of operations for the years ended December 31, 2012, have been prepared as if the Bethel Towers transaction (see Note 2) had occurred on January 1, 2012. The pro forma information is not necessarily indicative of what the Partnerships results of operations would have been assuming the consolidation nor does it purport to project the Partnerships results of operations for any future period.
| ||
Pro Forma Condensed Consolidated Statement of Operations | ||
(In thousands, except per Interest data) (Unaudited) | ||
|
| 2012 |
|
|
|
Rental and other income |
| $ 1,466 |
Expenses |
| (1,310) |
Net income |
| $ 156 |
|
|
|
Net income per limited partnership interest |
| $ 9.47 |
Note 8 - Subsequent Event
The Partnerships management evaluated subsequent events through the time this Annual Report on Form 10-K was filed.
During January 2014, the Partnership received approximately $451,000 of remaining escrow funds from the sale of Bethel Towers.
23
Item 9.
Changes In and Disagreements With Accountants On Accounting and Financial Disclosure
Effective June 7, 2013, the Registrant dismissed its prior independent registered public accounting firm, Ernst & Young LLP and retained as its new independent registered public accounting firm, Carter & Company, CPA, LLC. The reports of Ernst & Young LLP on the financial statements of the Registrant as of and for the years ended December 31, 2012 and 2011 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. The decision to change independent accountants was approved by the board of directors of the Managing General Partner of the Partnership. During the two fiscal years ended 2012 and through June 7, 2013, there were no disagreements with Ernst & Young LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which disagreements if not resolved to the satisfaction of Ernst & Young LLP, would have caused it to make reference to the subject matter of the disagreements in connection with its reports on the Partnership's financial statements for the fiscal years ended December 31, 2012 and 2011.
Effective June 7, 2013, the Registrant engaged Carter & Company, CPA, LLC as its independent registered public accounting firm. During the Partnership's two fiscal years ended December 31, 2012 and the subsequent interim period through June 7, 2013, the Registrant did not consult with Carter & Company, CPA, LLC with respect to the application of accounting principles to a specialized transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Partnership's financial statements, or any other matters or reportable events as set forth in Items 304(a)(2) of Regulation S-K.
Item 9A.
Controls and Procedures
(a)
Disclosure Controls and Procedures
The Partnerships management, with the participation of the Senior Managing Director and Director of Reporting of Bethesda, who are the equivalent of the Partnerships principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnerships disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based on such evaluation, the Senior Managing Director and Director of Reporting of Bethesda, who are the equivalent of the Partnerships principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period, the Partnerships disclosure controls and procedures are effective.
Managements Report on Internal Control Over Financial Reporting
The Partnerships management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, the Senior Managing Director and Director of Reporting, who are the equivalent of the Partnerships principal executive officer and principal financial officer, respectively, and effected by the Partnerships management and other personnel, including third-party public accountants engaged by Bethesda to provide such services, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
·
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets;
·
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of the Partnerships management; and
·
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
24
The Partnerships management assessed the effectiveness of the Partnerships internal control over financial reporting as of December 31, 2013. In making this assessment, the Partnerships management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.
Based on the Partnerships managements assessment, the Partnerships management concluded that, as of December 31, 2013, the Partnerships internal control over financial reporting is effective.
This annual report does not include an attestation report of the Partnerships registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the Partnerships registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Partnership to provide only managements report in this annual report.
(b)
Changes in Internal Control Over Financial Reporting
There has been no change in the Partnerships internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2013 that has materially affected, or is reasonably likely to materially affect, the Partnerships internal control over financial reporting.
Item 9B.
Other Information
None.
25
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Real Estate Associates Limited (the Partnership or the Registrant) has no directors or officers. The general partner responsible for conducting the business of the Partnership is National Partnership Investments, LLC, a California limited liability company (NAPICO or the General Partner).
The names and ages of, as well as the positions and offices held by, the present officers of NAPICO are set forth below. The General Partner manages and controls substantially all of the Partnerships affairs and has general responsibility and ultimate authority in all matters affecting its business. There are no family relationships between or among any officers.
Name | Age | Position |
|
|
|
Brian Flaherty | 45 | Senior Managing Director |
Joseph Dryden | 52 | VP of Finance/CFO |
Brian Flaherty is the Senior Managing Director of the General Partner and Bethesda Holdings II, LLC and has served as the equivalent of the chief executive officer of the Partnership since December 19, 2012. In February 2012, Mr. Flaherty was appointed to Senior Managing Director with McGrath Investment Management, LLC with responsibilities for asset management and transactions. Previously, Mr. Flaherty served in various positions at Aimco, which he joined in 2002, most recently serving as Senior Vice President with responsibilities for asset management and transactions, from January 2009 to February 2012, and in various acquisition, asset management, and disposition functions within Aimco covering both conventional and affordable portfolios from 2002 through 2012. Prior to joining Aimco, Mr. Flaherty was Vice President of Acquisitions for NAPICO, responsible for originating, structuring, and underwriting equity investments in multi-family Low Income Housing Tax Credit Projects.
Mr. Joseph Dryden is the Director of Reporting of the general partner of the Partnership and of Bethesda Holdings, II, LLC, and the Chief Financial Officer of the Partnership since October 3, 2013. Since August 2013, Mr. Dryden has worked with McGrath Investment Management, LLC, most recently as CFO. Mr. Dryden joins the Partnership from Republic-Financial, a multinational finance and private equity firm he joined in March 2010, where he served as Republics Corporate Controller. As the Corporate Controller, Mr. Dryden was responsible for the development and management of highly complex multi-level consolidated audited financial statements. Prior to Republic, Mr. Dryden was the CFO for Decision Display, a Denver based audio visual company specializing in high tech command centers and control rooms he joined in 2005. In this role Mr. Dryden was responsible for all accounting and finance functions including all financial reporting, detailed cash management and forecasting and also managed the companys banking relationships. Additionally, from 2007 to 2010 Mr. Dryden was the President of Dryden Consulting, an accounting and management consulting firm specializing in GAAP and SEC reporting, internal and external audit assistance and Sarbanes-Oxley compliance. Dryden Consultings client list included 1st Data, AIMCO, Crocs, Woodward Governor, McData, and several other large publicly traded companies. Mr. Drydens expertise in GAAP financial reporting, SEC reporting, cash management and process improvement will enable him to create immediate value for the company. Mr. Dryden received a Bachelor of Arts Degree in Accounting from Clarke University in 1984.
The Registrant is not aware of the involvement in any legal proceedings with respect to the executive officers listed in this Item 10.
The General Partner does not have a separate audit committee. As such, the officers of the General Partner fulfill the functions of an audit committee. The General Partner has determined that Joseph Dryden meets the requirement of an "audit committee financial expert".
The Partnership has adopted a code of ethics that is attached hereto as Exhibit 14.
26
Item 11.
Executive Compensation
None of the officers of the General Partner received any remuneration from the Partnership during the year ended December 31, 2013.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
(a)
Security Ownership of Certain Beneficial Owners
The general partner owns all of the outstanding general partnership interests of the Partnership. Except as noted below, no person or entity is known to own beneficially in excess of 5% of the outstanding limited partnership interests.
Entity |
| Number of Interests |
| Percentage |
Aimco Properties, LP |
| 4,728 |
| 29.16% |
(b)
None of the officers of the General Partner own directly or beneficially any limited partnership interests in the Partnership.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Under the terms of the Restated Certificate and Agreement of Limited Partners, the Partnership is obligated to NAPICO for an annual management fee equal to 0.5 percent of the original invested assets of the Local Partnerships and is calculated at the beginning of each year. Invested assets are 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 Local Partnerships. The management fee incurred was approximately $54,000 for both years ended December 31, 2013 and 2012. At December 31, 2013 and 2012, the Partnership owed NAPICO approximately $538,000 and $484,000, respectively for management fees, which is included in accrued fees due to General Partner.
The General Partner was entitled to receive a liquidation fee of approximately $51,000 related to the sale of the limited partnership interest in Cherry Hill Apartments, which was sold in September 2003. This fee was accrued and is included in accrued fees due to General Partner. The fee will not be paid until the limited partners have received a return of the original invested capital.
The General Partner and its affiliates made no advances to the Partnership during the years ended December 31, 2013 and 2012. Interest on advances is charged at prime plus 2%, or 5.25% at December 31, 2013. Interest expense was approximately $29,000 and $45,000 for years ended December 31, 2013 and 2012, respectively. There were accrued interest payments of $226,000 made during the year ended December 31, 2013. There were no accrued interest payments made in 2012. At December 31, 2013 and 2012, the Partnership owed approximately $543,000 and $877,000, respectively, in advances and related accrued interest to the General Partner and its affiliates.
The General Partner has no directors.
Item 14.
Principal Accounting Fees and Services
Ernst & Young LLP was previously the independent registered public accounting firm for the Partnership. On June 7, 2013, that firm was dismissed and Carter & Company CPA, LLC was engaged as independent auditors for the year ended December 31, 2013. The managing General Partner has reappointed Carter & Company, CPA, LLC as independent auditors to audit the financial statements of the Partnership for 2014. The aggregate fees billed for services rendered for 2013 and 2012 are described below:
Audit Fees. Fees for audit services totaled approximately $22,000 and $30,000 for 2013 and 2012, respectively. Fees for audit services also include fees for the reviews of the Partnerships Quarterly Reports on Form 10-Q.
Tax Fees. Fees for tax services totaled approximately $10,000 and $11,000 for 2013 and 2012, respectively.
27
PART IV
Item 15.
Exhibits, Financial Statement Schedules
(a)
The following financial statements of the Registrant are included in Item 8:
Consolidated Balance Sheets December 31, 2013 and 2012.
Consolidated Statements of Operations - Years ended December 31, 2013 and 2012.
Consolidated Statements of Changes in Partners' Capital (Deficiency) - Years ended December 31, 2013 and 2012.
Consolidated Statements of Cash Flows - Years ended December 31, 2013 and 2012.
Notes to Consolidated Financial Statements.
Schedules are omitted for the reason that they are inapplicable or equivalent information has been included elsewhere herein.
(b)
Exhibits:
See Exhibit Index.
The agreements included as exhibits to this Form 10-K contain representations and warranties by each of the parties to each applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
·
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
·
have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
·
may apply standards of materiality in a way that is different from what may be viewed as material to an investor; and
·
were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.
Accordingly, such representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. The Partnership acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this Form 10-K not misleading. Additional information about the Partnership may be found elsewhere in this Form 10-K and the Partnerships other public filings, which are available without charge through the SECs website at http://www.sec.gov.
28
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) 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, LLC |
| General Partner |
|
|
| By: /s/Brian Flaherty |
| Brian Flaherty |
| Senior Managing Director |
|
|
| By: /s/Joseph Dryden |
| Joseph Dryden |
| VP of Finance/CFO |
|
|
| Date: April 15, 2014 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
|
|
|
/s/Brian Flaherty | Chief Executive Officer | Date: April 15, 2014 |
Brian Flaherty |
|
|
|
|
|
/s/Joseph Dryden | Chief Financial Officer | Date: April 15, 2014 |
Joseph Dryden |
|
|
29
REAL ESTATE ASSOCIATES LIMITED
EXHIBIT INDEX
Exhibit
Description of Exhibit
3
Articles of incorporation and bylaws: The Registrant is not incorporated. The Partnership Agreement was filed with Form S-11 registration #260561, incorporated by reference.
3.1
Amendments to Third Restated Certificate and Agreement of Limited Partnership, incorporated by reference to the Registrants Current Report on Form 8-K dated January 23, 2004.
3.2
Third Restated Certificate and Agreement of Limited Partnership, incorporated by reference to the Registrants Current Report on Form 8-K dated January 23, 2004.
10.1
First Amendment to Agreement and Certificate of Limited Partnership of Bethel Towers Limited Dividend Housing Association, dated December 10, 2012. Incorporated by reference to the Registrants Current Report on Form 8-K dated December 10, 2012.
14
Code of Ethics of Real Estate Associates Limited. Incorporated by reference to the Partnership's Annual Report on Form 10-K dated April 15, 2013.
31.1
Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of the equivalent of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
XBRL (Extensible Business Reporting Language). The following materials from Real Estate Associates Limiteds Annual Report on Form 10-K for the fiscal year ended December 31, 2013, formatted in XBRL: (i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) consolidated statements of changes in partners capital (deficiency), (iv) consolidated statements of cash flows, and (v) notes to consolidated financial statements (1).
(1)
As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
Exhibit 31.1
CERTIFICATION
I, Brian Flaherty, certify that:
1.
I have reviewed this annual report on Form 10-K of Real Estate Associates Limited;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: April 15, 2014
/s/Brian Flaherty
Brian Flaherty
Senior Managing Director of National Partnership Investments, LLC, equivalent of the chief executive officer of the Partnership
Exhibit 31.2
CERTIFICATION
I, Joseph Dryden, certify that:
1.
I have reviewed this annual report on Form 10-K of Real Estate Associates Limited;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: April 15, 2014
/s/Joseph Dryden
Joseph Dryden
Director of Reporting of National Partnership Investments, LLC, equivalent of the chief financial officer of the Partnership
Exhibit 32.1
Certification of CEO and CFO
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K of Real Estate Associates Limited (the "Partnership"), for the fiscal year ended December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Brian Flaherty, as the equivalent of the chief executive officer of the Partnership, and Joseph Dryden, as the equivalent of the chief financial officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.
| /s/Brian Flaherty |
| Name: Brian Flaherty |
| Date: April 15, 2014 |
|
|
| /s/Joseph Dryden |
| Name: Joseph Dryden |
| Date: April 15, 2014 |
This certification is furnished with this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
Note 4 - Income Taxes: Reconciliation between the Partnership's reported amounts and the Federal tax basis of net assets (Details) (USD $)
In Thousands, unless otherwise specified |
Dec. 31, 2013
|
Dec. 31, 2012
|
---|---|---|
Details | ||
Net assets (liabilities) as reported | $ 597 | $ 5 |
Investment in Local Partnerships | (3,948) | |
Deferred offering costs | 2,568 | 2,568 |
Assets Reconciliation, Other | 624 | 531 |
Net liabilities - Federal tax basis | $ 3,789 | $ (844) |
!,G!AG^;RQ\)(<$X5`@
M'#,0CD\@'.<@')]!."Y`.+Z`<(@I"@B*406*4@6*4P6*5`6*506*5@6*5P6*
M6`6*626*626*626*626*626*626*626*626*626*626*616*616*616*616*
M616*616*616*616*616*616*66 ':@4&$=5,=8="T`-
MHYD;!1/?>^%!7"AR0)6="R4.GRN8D^>]OUEMO6?(8])QPC&'44;4,S!I*,LM
MP`._QC3D;F@:IT"'?;=I5$'3_7!A#UA1#!SVC/X3;@'$(4S03W"(*E`?)*UK
M:BG4'-\F+2@E,A1CVT:(;RB!G^`;5:"@8$JL>MA05Z$F?6C<4(QQ&R'&82S;
M^.W5V) &PO=V]R
M:W-H965T \E,U`7,>@G;WO/)6'EC:;8X)[$"XW2G8:>M^)>L]7;K>;B,=
M]"-AM[+UMU->^.V/(CG^E>0,O`UQ$A$XDNK?_CM3Y:<+Q6$.X`=B8VMCY_/K(S!HV!F0@-A*>8I`,!/)TM$:H!'H@_Y
M^Y8 'YJ$\LQS;7EAYG!8F9EB74W*(
MXS%-^)-(KCDO:DQ2\BRN@;\ZIY>JS98G4]+E;+^=BI$&>\S6/<;\^*DS=U\&*7/TZ04E3C6 \36PSLI1S\5&[5#SA^_$716SJ>$5>MX+FN;$+<4
MM+9O!/3RBITOKXKW,]D9$;VARC%A""%4D#9JO\<,@W+IW`';E.?-;'%N(+<)
M@P_2`^B2(<=(UO"+V*H"TW>6^@N@=?785?FQQT#?6^K7`F]CY##N$686>OD>
M#0<[:\-<^7TQ5N5:65-C#``@GW@&S1//KE'B(/J2-FPF,S28S26^1 K/Z^&&YU^;)5@".($-C
M,UHYUZ:,65&!XC;2+33XI=!&<8=+4S+;&N!YMTG5+!F-9DQQV=#`D)I+.'11
M2`%W6FP5-"Z0&*BY0_^VDJT]LBEQ"9WBYFG;7@FM6J38R%JZEXZ4$B72A[+1
MAF]JS/LYGG!QY.X69_1*"J.M+ER$="P8/<_YFETS9%HMZ`\OM'V)6PU9]EM`U9Q.%[+1@J$$6CM6J^[;0"FWJ74[T:HO5.C]HX%BXGT
OO8;GD`-@&E[SE'X0!&13ADKS<8EP@RA)
M^Q5DV0^PSOC0>>",SX-EO_6PNTJ#D^^OB`M&*JRX'+\OK
L_KZIC
M]\G^WM-[S[YIZF??+)\]GXU6U]5T60!&\6*ZK)O^'XV75XUO#.NQNG7SZO1=K&_NUGL[>SNIU_^;C7ERYWA
M+V^!Y^MTL:_2#SP.[ZK+NEDN2C![75Y7Z5-?O7MQ=%*\.#T[.GM1')V>OCE^
MQ5^GQ\.0^Y1"@1SY]L&`(S,M
M?X*6GW;#/B_T0]LIYE+#R%Q8\2LR3]VM+M'4$,.:.ET5+NV6_&AF@`\PI4>N
M0_N.64F9>'X^";4N=G>V?F^-A@O]J$,F,KYO'A2*H.(@+\MW[9RD67'H.ET(
M4W?XW]W+XF\!].,F5*9M8C(YI95!8\3;A7AO%ES2&N8U)4.GJVN.*)H?CF_F
M/6(>:F7>J7BK<1M*Y%_W7]X(GV?&-'R1,N;S`/%=*-J\I9$K7;#*YWIH/L^N
M/U"NAALO_!4BU#X#EAGZGV=#G^IH_I1].V,CZ_>E]_Y^Z`\8O!S&3H^OJ
M.8@Q8Q+SRV\<&3_B08(V-O_2R((<,8+O[GWIS4YT3=67IZ/&ZOKWTWUQ,B*E
MX=*T6ZV(26DZC_`U51TRD%L[K5]IAE=A(CD!!1H?-ENPKI@R^LBW7A7[1_W5
MC3-I59/%%.[CAZ?,[X]7/)#:LG\)=.FFGXU2:8\N:^4H!!+M0C=M#94^G0J?
MN/,@!3ZM\O!U5*7XM&2R6"<2!=(.SB"QLD.VF#2I*QIT]9)6RW;K"^X
MT\WYGC"VENPL_CZGL?/FS&7GY.)%&CNUL&-K.[;2U.#9DRD*0Y/L(&,<8[Z4
M%3]F\=%]0.?#:8,25-,,&G*H&AAQZ8/(#DMQS-TJV_````__\#`%!+`P04
M``8`"````"$`2^*.L'X"``"*!@``&0```'AL+W=O