<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended September 30, 1995
------------------
Commission file number 0-11149
-------------
CAPITAL REALTY INVESTORS, LTD.
- --------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
District of Columbia 52-1219926
- ----------------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
- ----------------------------------------- --------------------
(Address of principal executive officer) (Zip Code)
(301) 468-9200
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(Registrant's telephone number, including area code)
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 and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at September 30, 1995
- ---------------------------------- ----------------------------------
(Not applicable) (Not applicable)
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
Page
----
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Balance Sheets - September 30, 1995 and
December 31, 1994 . . . . . . . . . . . . . . . 1
Statements of Operations - for the three and nine
months ended September 30, 1995 and 1994 . . . 3
Statements of Cash Flows - for the nine
months ended September 30, 1995 and 1994 . . . 5
Notes to Financial Statements . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . 12
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . 15
Signature . . . . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CAPITAL REALTY INVESTORS, LTD.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
<S> <C> <C>
Investments in and advances to partnerships $ 3,125,420 $ 3,677,783
Cash and cash equivalents 1,854,940 1,522,120
Restricted cash equivalents 189,000 189,000
Acquisition fees, principally paid to
related parties, net of accumulated
amortization of $318,363 and $299,734,
respectively 675,117 693,746
Property purchase costs, net of accumulated
amortization of $82,404 and $77,645,
respectively 171,437 176,196
Other assets 5,810 4,716
------------ ------------
Total assets $ 6,021,724 $ 6,263,561
</TABLE> ============ ============
The accompanying notes are an integral part
of these financial statements.
- 1 -
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CAPITAL REALTY INVESTORS, LTD.
BALANCE SHEETS - Continued
LIABILITIES AND PARTNERS' DEFICIT
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
<S> <C> <C>
Due on investments in partnerships $ 6,422,800 $ 6,422,800
Accrued interest payable 7,683,812 7,185,455
Accounts payable and accrued expenses 82,259 59,842
------------ ------------
Total liabilities 14,188,871 13,668,097
------------ ------------
Commitments and contingencies
Partners' capital (deficit):
Capital paid-in:
General Partners 14,000 14,000
Limited Partners 24,837,000 24,837,000
------------ ------------
24,851,000 24,851,000
Less:
Accumulated distributions to partners (512,029) (512,029)
Offering costs (2,689,521) (2,689,521)
Accumulated losses (29,816,597) (29,053,986)
------------ ------------
Total partners' deficit (8,167,147) (7,404,536)
------------ ------------
Total liabilities and partners' deficit $ 6,021,724 $ 6,263,561
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
- 2 -
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CAPITAL REALTY INVESTORS, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
September 30,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Share of income from partnerships $ 18,569 $ 27,441
------------ ------------
Other revenue and expenses:
Revenue:
Interest income 29,754 20,165
------------ ------------
Expenses:
Interest 166,119 166,119
Management fee 23,802 23,802
General and administrative 17,509 734
Professional fees 15,545 23,759
Amortization 7,796 7,796
------------ ------------
230,771 222,210
------------ ------------
Total other revenue and expenses (201,017) (202,045)
------------ ------------
Net loss (182,448) (174,604)
Accumulated losses, beginning of period (29,634,149) (28,664,475)
------------ ------------
Accumulated losses, end of period $(29,816,597) $(28,839,079)
============ ============
Loss allocated to General Partners (3%) $ (5,473) $ (5,238)
============ ============
Loss allocated to Limited Partners (97%) $ (176,975) $ (169,366)
============ ============
Loss per unit of Limited Partnership
Interest based on 24,837 units
outstanding $ (7.12) $ (6.82)
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
- 3 -
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CAPITAL REALTY INVESTORS, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Share of loss from partnerships $ (137,381) $ (108,161)
------------ ------------
Other revenue and expenses:
Revenue:
Interest income 83,680 52,339
------------ ------------
Expenses:
Interest 498,357 560,689
Management fee 71,406 71,406
General and administrative 68,131 57,091
Professional fees 47,628 67,349
Amortization 23,388 23,389
------------ ------------
708,910 779,924
------------ ------------
Total other revenue and expenses (625,230) (727,585)
------------ ------------
Net loss (762,611) (835,746)
Accumulated losses, beginning of period (29,053,986) (28,003,333)
------------ ------------
Accumulated losses, end of period $(29,816,597) $(28,839,079)
============ ============
Loss allocated to General Partners (3%) $ (22,878) $ (25,072)
============ ============
Loss allocated to Limited Partners (97%) $ (739,733) $ (810,674)
============ ============
Loss per unit of Limited Partnership
Interest based on 24,837 units
outstanding $ (29.78) $ (32.64)
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
- 4 -
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CAPITAL REALTY INVESTORS, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (762,611) $ (835,746)
Adjustments to reconcile net loss to net
cash used in operating activities:
Share of loss from partnerships 137,381 108,161
Amortization of deferred costs 23,388 23,389
Increase in accrued interest receivable on
advances to partnerships (4,602) --
Payment of purchase money note interest -- (42,163)
Payment of interest due on investments
in partnerships -- (96,032)
Changes in assets and liabilities:
(Increase) decrease in other assets (1,094) 5,359
Increase in accrued interest payable 498,357 560,689
Increase (decrease) in accounts payable
and accrued expenses 22,417 (12,810)
------------ ------------
Net cash used in operating
activities (86,764) (289,153)
------------ ------------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
- 5 -
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CAPITAL REALTY INVESTORS, LTD.
STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from investing activities:
Receipt of distributions from partnerships 419,584 433,794
Repayment of advances to partnerships -- 8,135
------------ ------------
Net cash provided by investing
activities 419,584 441,929
------------ ------------
Cash flows from financing activities:
Decrease in amount due on investments
in partnerships -- (185,975)
------------ ------------
Net increase (decrease) in cash and cash
equivalents 332,820 (33,199)
Cash and cash equivalents, beginning of
period 1,522,120 1,673,928
------------ ------------
Cash and cash equivalents, end of period $ 1,854,940 $ 1,640,729
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
- 6 -
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of C.R.I., Inc. (CRI), the Managing General Partner, the
accompanying unaudited financial statements contain all adjustments of a normal
recurring nature necessary to present fairly the financial position of Capital
Realty Investors, Ltd. (the Partnership) as of September 30, 1995 and December
31, 1994, and the results of its operations for the three and nine months ended
September 30, 1995 and 1994 and its cash flows for the nine months ended
September 30, 1995 and 1994.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. While the Managing General Partner believes that the dis-
closures presented are adequate to make the information not misleading, it is
suggested that these condensed financial statements be read in conjunction with
the financial statements and the notes included in the Partnership's Annual
Report filed on Form 10-K for the year ended December 31, 1994.
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
As of September 30, 1995, the Partnership's obligations with respect to its
investments in Local Partnerships in the form of purchase money notes of
$6,422,800 plus accrued interest of $7,683,812, are payable upon the earliest
of: (1) sale or refinancing of the respective Local Partnership's rental
property; (2) payment in full of the respective Local Partnership's permanent
loan; or (3) maturity. The Partnership's purchase money notes mature during
1997 and 1998. The purchase money notes are generally secured by the
Partnership's interest in the respective Local Partnerships. There is no
assurance that the underlying properties will have sufficient appreciation and
equity to enable the Partnership to pay the purchase money notes' principal and
accrued interest when due. If a purchase money note is not paid in accordance
with its terms, the Partnership will either have to renegotiate the terms of
repayment or risk losing its partnership interest in the Local Partnership. The
Managing General Partner is continuing to investigate possible alternatives to
reduce the Partnership's long-term debt obligations. These alternatives
include, among others, retaining the cash available for distribution to meet the
purchase money note requirements, buying out certain purchase money notes at a
discounted price, extending the due dates of certain purchase money notes, or
refinancing the respective properties' underlying debt and using the
Partnership's share of the proceeds to pay off or buy down certain purchase
money note obligations.
Interest expense on the Partnership's purchase money notes for the three
and nine months ended September 30, 1995 was $166,119 and $498,357,
respectively, and for the three and nine months ended September 30, 1994 was
$166,119 and $498,357, respectively. The accrued interest payable on the
purchase money notes of $7,683,812 and $7,185,455 as of September 30, 1995 and
December 31, 1994, respectively, is due on the respective maturity dates of the
purchase money notes or earlier if the Local Partnerships have distributable net
cash flow, as defined in the relevant Local Partnership agreements.
As of both September 30, 1995 and December 31, 1994, the Partnership had
advanced funds totalling $377,593 to Local Partnerships. There were no funds
-7-
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
advanced to the Local Partnerships during the nine months ended September 30,
1995.
The local general partner of Lake Properties Limited Partnership
(Frenchman's Wharf I), in conjunction with the Managing General Partner, applied
to the Department of Housing and Urban Development (HUD), holder of the mortgage
on the property, for a three-year extension of the previous workout arrangement,
which expired in December 1990. The local HUD office verbally agreed to an
extension expiring December 31, 1993 and recommended approval of the extension
to the HUD central office in Washington, D.C. In December 1993, the local HUD
office requested that a new workout proposal be submitted, and in January 1994,
the local general partner met with HUD to discuss the long-term capital needs of
the property in connection with a workout proposal. On March 1, 1994, the local
general partner submitted a nine-year workout proposal to HUD. As of October
10, 1995, the local general partner is continuing to work with the local HUD
office to arrange an acceptable workout agreement. There is no assurance that
approval for a workout will be received. If a workout proposal is not accepted
and another alternative is not found, then HUD could foreclose on the property.
Frenchman's Wharf I was notified by HUD that HUD planned to offer its mortgage
loan for sale in the Fall of 1995. If the mortgage was sold by HUD, a new
mortgagee would service the loan and could foreclose on the property. As of
October 10, 1995, Frenchman's Wharf I has not been notified as to the outcome of
the loan sale. The uncertainty about the Local Partnership's continued
ownership of the property does not impact the Partnership's financial condition
because the related purchase money note is nonrecourse and collateralized solely
by the Partnership's interest in the Local Partnership. Therefore, should the
investment in Frenchman's Wharf I not produce sufficient value to satisfy the
related purchase money note, the Partnership's exposure to loss is limited since
the amount of the nonrecourse indebtedness exceeds the carrying amount of the
investment in and advances to the Local Partnership. Thus, even a complete loss
of this investment would not have a material impact on the operations of the
Partnership. Currently, debt-service payments are being made from available
cash flow in accordance with the proposed workout. To cover operating deficits
incurred in prior years for Frenchman's Wharf I, the Partnership advanced funds
totalling $305,398 as of both September 30, 1995 and December 31, 1994. The
last advance was made to Frenchman's Wharf I in March 1987. The Partnership
does not expect to advance any additional funds in connection with Frenchman's
Wharf I's loan workout with HUD. These loans, together with accrued interest of
$183,102 as of both September 30, 1995 and
December 31, 1994, are payable from cash flow of Frenchman's Wharf I after
payment of first-mortgage debt service and after satisfaction by the Partnership
of certain other interest obligations on the purchase money notes due from the
Local Partnership. There is no assurance that the Local Partnership, upon
expiration of any workout, will be able to repay any loans in accordance with
the terms.
On November 23, 1994, the Partnership advanced $72,195 to Shallowford Oaks
Apartments to help repay the Local Partnership's outstanding obligations to HUD.
This loan, along with accrued interest of $5,250 and $648 as of September 30,
1995 and December 31, 1994, respectively, is payable from cash flow of
Shallowford Oaks Apartments after payment of first-mortgage debt service and
after satisfaction by the Partnership of certain other interest obligations on
the related purchase money notes. There is no assurance that the Local
-8-
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
Partnership, upon expiration of any workout, will be able to repay any loans in
accordance with the terms.
The rental property owned by Tanglewood Apartments Associates I
(Tanglewood I) has a mortgage which is federally insured under Section 221(d)(3)
of the National Housing Act, as amended. This property may be eligible for sale
or refinancing, subject to numerous requirements, under the Low Income Housing
Preservation and Resident Homeownership Act of 1990 (LIHPRHA). This program may
provide incentives to owners of qualifying multifamily housing who commit to
permanently maintain their properties as low to moderate income housing.
Incentives available under LIHPRHA include selling the property to qualified
buyers or obtaining supplemental financing for the property. As of October 10,
1995, members of Congress are recommending substantial changes to the LIHPRHA
program ranging from the elimination of the program to the redesigning of the
program. Substantial doubt exists as to whether Tanglewood I, which filed the
notice of intent to participate under the LIHPRHA program on May 23, 1994, will
qualify under a redesigned program, or whether the program will continue at all.
There is no assurance that a sale or supplemental financing of this property
will occur.
Many other rental properties owned by the Local Partnerships are dependent
on the receipt of housing assistance payments guaranteed by contract under the
HUD Section 8 program. The level of funding for the Section 8 program, and HUD-
insured multifamily housing in general, is dependent upon the continuation of
appropriations approved by Congress for subsidy payments. In the event that the
rental subsidy programs are reduced or phased out, there is no assurance that
the rental properties will be able to maintain the occupancy levels necessary to
pay debt service and operating costs or that the rents necessary to pay debt
service and operating costs will be competitive with rents for comparable units
in the rental properties' market areas. While the Managing General Partner has
no reason to believe that HUD will not honor its obligations under the
contracts, some uncertainty exists in light of the recent Congressional scrutiny
of appropriations for HUD programs.
The following are combined statements of operations for the Local
Partnerships in which the Partnership has invested. The statements are compiled
from information supplied by the management agents of the projects and are
unaudited.
-9-
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
--------------------------- ---------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Rental
revenue $ 4,542,876 $ 4,448,421 $ 13,548,901 $ 13,130,310
Other 235,753 206,652 665,407 578,361
------------ ------------ ------------ ------------
4,778,629 4,655,073 14,214,308 13,708,671
------------ ------------ ------------ ------------
Expenses:
Operating 2,390,644 2,225,654 7,247,977 6,898,774
Interest 1,755,530 1,771,804 5,266,600 5,315,423
Depreciation
and amorti-
zation 852,675 828,117 2,558,037 2,484,355
------------ ------------ ------------ ------------
4,998,849 4,825,575 15,072,614 14,698,552
------------ ------------ ------------ ------------
Net loss $ (220,220) $ (170,502) $ (858,306) $ (989,881)
============ ============ ============ ============
</TABLE>
As of September 30, 1995 and December 31, 1994, the Partnership's share of
cumulative losses to date for eleven of the eighteen Local Partnerships exceeds
the amount of the Partnership's investments in and advances to those Local
Partnerships by $7,730,782 and $7,029,690, respectively. As the Partnership has
no further obligation to advance funds or provide financing to these Local
Partnerships, the excess losses have not been reflected in the accompanying
financial statements.
3. RELATED-PARTY TRANSACTIONS
In accordance with the terms of the Partnership Agreement, the Partnership
is obligated to reimburse the Managing General Partner for its direct expenses
in managing the Partnership and to pay an annual incentive management fee (the
Management Fee), after all other expenses of the Partnership are paid. The
Partnership paid $11,687 and $45,318 for the three and nine months ended
September 30, 1995 and $15,091 and $53,228 for the three and nine months ended
September 30, 1994, respectively, as direct reimbursement of expenses incurred
on behalf of the Partnership. Additionally, the Partnership paid the Managing
General Partner a Management Fee of $23,802 and $71,406 for the three and nine
months, respectively, ended September 30, 1995 and 1994.
From August 1990 through January 1994, CRICO Management Corporation
(CRICO), an affiliate of the Managing General Partner, provided consulting,
-10-
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. RELATED-PARTY TRANSACTIONS - Continued
accounting and other services to Frederick Heights Apartments. Fees paid or
accrued to CRICO for these services amounted to $4,733 for the month ended
January 31, 1994. On February 1, 1994, CRICO contributed its property
management and/or consulting contracts and personnel to CAPREIT Residential
Corporation (CAPREIT). CAPREIT was formed by CRI but is not currently owned or
controlled by CRI and/or its affiliates. On April 12, 1995, HUD approved
CAPREIT as the new management agent.
-11-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Financial Condition/Liquidity
-----------------------------
Capital Realty Investors, Ltd.'s (the Partnership) liquidity, with
unrestricted cash resources of $1,854,940 and $1,522,120 as of
September 30, 1995 and December 31, 1994, respectively, along with anticipated
future cash distributions from the Local Partnerships, is expected to meet its
current and anticipated operating cash needs. As of September 30, 1995 and
December 31, 1994, $189,000 of cash resources are restricted for the purpose of
collateralizing a letter of credit until the mortgage loan outstanding on a
certain Local Partnership is repaid. As of October 10, 1995, there are no
material commitments for capital expenditures.
As of September 30, 1995, the Partnership's obligations with respect to its
investments in Local Partnerships in the form of purchase money notes of
$6,422,800 plus accrued interest of $7,683,812, are payable upon the earliest
of: (1) sale or refinancing of the respective Local Partnership's rental
property; (2) payment in full of the respective Local Partnership's permanent
loan; or (3) maturity. The Partnership's purchase money notes mature during
1997 and 1998. The purchase money notes are generally secured by the
Partnership's interest in the respective Local Partnerships. There is no
assurance that the underlying properties will have sufficient appreciation and
equity to enable the Partnership to pay the purchase money notes' principal and
accrued interest when due. If a purchase money note is not paid in accordance
with its terms, the Partnership will either have to renegotiate the terms of
repayment or risk losing its partnership interest in the Local Partnership. The
Managing General Partner is continuing to investigate possible alternatives to
reduce the Partnership's long-term debt obligations. These alternatives
include, among others, retaining the cash available for distribution to meet the
purchase money note requirements, buying out certain purchase money notes at a
discounted price, extending the due dates of certain purchase money notes, or
refinancing the respective properties' underlying debt and using the
Partnership's share of the proceeds to pay off or buy down certain purchase
money note obligations.
The Partnership closely monitors its cash flow and liquidity position in an
effort to ensure that sufficient cash is available for operating requirements.
For the nine months ended September 30, 1995, the receipt of distributions from
Local Partnerships was adequate to support operating cash requirements.
Results of Operations
---------------------
The Partnership's net loss for the three months ended September 30, 1995
increased from the comparable period in 1994 principally due to an increase in
general and administrative expenses in 1995 due to the recognition in the third
quarter of 1994 of decreased annual report printing costs. Contributing to the
increase in net loss was a decrease in income from Local Partnerships in 1995,
which was primarily due to increases in operating expenses at three properties
and a decrease in rental income at another property during the third quarter of
1995. Partially offsetting the increase in net loss was an increase in interest
income resulting from higher yields on investments and higher cash balances as
compared to the corresponding period in 1994. Also partially offsetting the
increase in net loss was a decrease in professional fees resulting from a
reduction in legal expenses incurred in 1995.
-12-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
The Partnership's net loss for the nine months ended September 30, 1995
decreased from the comparable period in 1994 principally due to a decrease in
interest expense resulting from the accrual in 1994 of interest due on the
outstanding capital contributions to New Sharon Woods Associates, which were
paid in full in 1994. Also contributing to the decrease in the Partnership's
net loss was an increase in interest income and a decrease in professional fees,
as discussed above. Partially offsetting the decrease in net loss was an
increase in loss from Local Partnerships in 1995 and an increase in general and
administrative expenses, as discussed above.
For financial reporting purposes, the Partnership, as a limited partner in
the Local Partnerships, does not record losses from the Local Partnerships in
excess of its investment to the extent that the Partnership has no further
obligation to advance funds or provide financing to the Local Partnerships. As
a result, the Partnership's recognized losses for the three and nine months
ended September 30, 1995 did not include losses of $233,694 and $701,092,
respectively, compared to excluded losses of $199,275 and $850,913 for the three
and nine months ended September 30, 1994.
The local general partner of Lake Properties Limited Partnership
(Frenchman's Wharf I), in conjunction with the Managing General Partner, applied
to the Department of Housing and Urban Development (HUD), holder of the mortgage
on the property, for a three-year extension of the previous workout arrangement,
which expired in December 1990. The local HUD office verbally agreed to an
extension expiring December 31, 1993 and recommended approval of the extension
to the HUD central office in Washington, D.C. In December 1993, the local HUD
office requested that a new workout proposal be submitted, and in January 1994,
the local general partner met with HUD to discuss the long-term capital needs of
the property in connection with a workout proposal. On March 1, 1994, the local
general partner submitted a nine-year workout proposal to HUD. As of October
10, 1995, the local general partner is continuing to work with the local HUD
office to arrange an acceptable workout agreement. There is no assurance that
approval for a workout will be received. If a workout proposal is not accepted
and another alternative is not found, then HUD could foreclose on the property.
Frenchman's Wharf I was notified by HUD that HUD planned to offer its mortgage
loan for sale in the Fall of 1995. If the mortgage was sold by HUD, a new
mortgagee would service the loan and could foreclose on the property. As of
October 10, 1995, Frenchman's Wharf I has not been notified as to the outcome of
the loan sale. The uncertainty about the Local Partnership's continued
ownership of the property does not impact the Partnership's financial condition
because the related purchase money note is nonrecourse and collateralized solely
by the Partnership's interest in the Local Partnership. Therefore, should the
investment in Frenchman's Wharf I not produce sufficient value to satisfy the
related purchase money note, the Partnership's exposure to loss is limited since
the amount of the nonrecourse indebtedness exceeds the carrying amount of the
investment in and advances to the Local Partnership. Thus, even a complete loss
of this investment would not have a material impact on the operations of the
Partnership. Currently, debt-service payments are being made from available
cash flow in accordance with the proposed workout. To cover operating deficits
incurred in prior years for Frenchman's Wharf I, the Partnership advanced funds
totalling $305,398 as of both September 30, 1995 and December 31, 1994. The
last advance was made to Frenchman's Wharf I in March 1987. The Partnership
does not expect to advance any additional funds in connection with Frenchman's
-13-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
Wharf I's loan workout with HUD. These loans, together with accrued interest of
$183,102 as of both September 30, 1995 and
December 31, 1994, are payable from cash flow of Frenchman's Wharf I after
payment of first-mortgage debt service and after satisfaction by the Partnership
of certain other interest obligations on the purchase money notes due from the
Local Partnership. There is no assurance that the Local Partnership, upon
expiration of any workout, will be able to repay any loans in accordance with
the terms.
On November 23, 1994, the Partnership advanced $72,195 to Shallowford Oaks
Apartments to help repay the Local Partnership's outstanding obligations to HUD.
This loan, along with accrued interest of $5,250 and $648 as of September 30,
1995 and December 31, 1994, respectively, is payable from cash flow of
Shallowford Oaks Apartments after payment of first-mortgage debt service and
after satisfaction by the Partnership of certain other interest obligations on
the related purchase money notes. There is no assurance that the Local
Partnership, upon expiration of any workout, will be able to repay any loans in
accordance with the terms.
The rental property owned by Tanglewood Apartments Associates I
(Tanglewood I) has a mortgage which is federally insured under Section 221(d)(3)
of the National Housing Act, as amended. This property may be eligible for sale
or refinancing, subject to numerous requirements, under the Low Income Housing
Preservation and Resident Homeownership Act of 1990 (LIHPRHA). This program may
provide incentives to owners of qualifying multifamily housing who commit to
permanently maintain their properties as low to moderate income housing.
Incentives available under LIHPRHA include selling the property to qualified
buyers or obtaining supplemental financing for the property. As of October 10,
1995, members of Congress are recommending substantial changes to the LIHPRHA
program ranging from the elimination of the program to the redesigning of the
program. Substantial doubt exists as to whether Tanglewood I, which filed the
notice of intent to participate under the LIHPRHA program on May 23, 1994, will
qualify under a redesigned program, or whether the program will continue at all.
There is no assurance that a sale or supplemental financing of this property
will occur.
Many other rental properties owned by the Local Partnerships are dependent
on the receipt of housing assistance payments guaranteed by contract under the
HUD Section 8 program. The level of funding for the Section 8 program, and HUD-
insured multifamily housing in general, is dependent upon the continuation of
appropriations approved by Congress for subsidy payments. In the event that the
rental subsidy programs are reduced or phased out, there is no assurance that
the rental properties will be able to maintain the occupancy levels necessary to
pay debt service and operating costs or that the rents necessary to pay debt
service and operating costs will be competitive with rents for comparable units
in the rental properties' market areas. While the Managing General Partner has
no reason to believe that HUD will not honor its obligations under the
contracts, some uncertainty exists in light of the recent Congressional scrutiny
of appropriations for HUD programs.
No other significant changes in the Partnership's operations have taken
place during this period.
-14-
<PAGE>
PART II. OTHER INFORMATION
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
No reports on Form 8-K were filed with the Commission during the quarter
ended September 30, 1995.
All other items are not applicable.
-15-
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CAPITAL REALTY INVESTORS, LTD.
(Registrant)
By: C.R.I., Inc.
Managing General Partner
October 12, 1995 By: /s/ Richard J. Palmer
- --------------------------- -----------------------------
Date Richard J. Palmer
Senior Vice President/Finance
Signing on behalf of the
Registrant and as Principal
Accounting Officer
-16-
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE THIRD QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH 10-Q.
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,854,940
<SECURITIES> 0
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<INVENTORY> 0
<CURRENT-ASSETS> 0
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0
0
<OTHER-SE> (8,167,147)
<TOTAL-LIABILITY-AND-EQUITY> 6,021,724
<SALES> 0
<TOTAL-REVENUES> (53,701)
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<INCOME-PRETAX> (762,611)
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