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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number 0-11149
CAPITAL REALTY INVESTORS, LTD.
Organized pursuant to the Laws of the District of Columbia
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Internal Revenue Service - Employer Identification No. 52-1219926
11200 Rockville Pike, Rockville, Maryland 20852
(301) 468-9200
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the 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 o
The total number of shares of the registrant's Common Stock, outstanding on
September 30, 2000, is not applicable.
--------------------------------------------------------------------------------
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
- September 30, 2000 and December 31, 1999.................... 1
Statements of Operations and Accumulated Losses
- for the three and nine months ended
September 30, 2000 and 1999.... ............................ 2
Statements of Cash Flows
- for the nine months ended September 30, 2000 and 1999....... 3
Notes to Financial Statements
- September 30, 2000 and 1999........................... ..... 4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.............. 10
PART II - OTHER INFORMATION
Item 3. Defaults Upon Senior Securities................................... 12
Item 5. Other Information................................................. 13
Item 6. Exhibits and Reports on Form 8-K.................................. 13
Signature ........................................................... 14
Exhibit Index ........................................................... 15
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CAPITAL REALTY INVESTORS, LTD.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Investments in and advances to partnerships ....................................$ 3,913,443 $ 3,265,726
Investment in partnership held for sale ........................................ -- 15,439
Cash and cash equivalents ...................................................... 3,718,390 2,711,200
Restricted cash equivalents .................................................... -- 140,000
Acquisition fees, principally paid to related parties,
net of accumulated amortization of $401,277 and $384,432, respectively ....... 497,115 513,960
Property purchase costs, net of accumulated amortization of
$101,233 and $97,035, respectively ........................................... 122,834 127,032
Other assets ................................................................... 1,202 778
------------ ------------
Total assets .............................................................$ 8,252,984 $ 6,774,135
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Due on investments in partnerships .............................................$ 4,478,800 $ 4,478,800
Accrued interest payable ....................................................... 8,016,620 7,663,972
Distribution payable ........................................................... 247,670 --
Accounts payable and accrued expenses .......................................... 78,927 93,514
------------ ------------
Total liabilities ........................................................ 12,822,017 12,236,286
------------ ------------
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 ...................................... (1,243,772) (996,102)
Offering costs ............................................................. (2,689,521) (2,689,521)
Accumulated losses ......................................................... (25,486,740) (26,627,528)
------------ ------------
Total partners' deficit .................................................. (4,569,033) (5,462,151)
------------ ------------
Total liabilities and partners' deficit ..................................$ 8,252,984 $ 6,774,135
============ ============
</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.
STATEMENTS OF OPERATIONS
AND ACCUMULATED LOSSES
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
SEPTEMBER 30, SEPTEMBER 30,
------------ ------------ ------------ ------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Share of income from partnerships ...................... $ 314,798 $ 439,171 $ 1,067,210 $ 1,464,538
------------ ------------ ------------ ------------
Other revenue and expenses:
Revenue:
Interest and other income .......................... 58,373 45,180 150,508 104,404
------------ ------------ ------------ ------------
Expenses:
Interest ........................................... 117,549 117,549 352,648 352,647
Management fee ..................................... 23,802 23,802 71,406 71,406
General and administrative ......................... 35,383 31,131 106,320 109,252
Professional fees .................................. 17,788 18,366 53,363 52,413
Amortization of deferred costs ..................... 7,014 7,182 21,043 21,545
------------ ------------ ------------ ------------
201,536 198,030 604,780 607,263
------------ ------------ ------------ ------------
Total other revenue and expenses ................. (143,163) (152,850) (454,272) (502,859)
------------ ------------ ------------ ------------
Income before gain on disposition
of investment in partnership ......................... 171,635 286,321 612,938 961,679
Gain on disposition of investment in partnership ....... -- -- 527,850 --
------------ ------------ ------------ ------------
Net income ............................................. 171,635 286,321 1,140,788 961,679
Accumulated losses, beginning of period ................ (25,658,375) (26,594,749) (26,627,528) (27,270,107)
------------ ------------ ------------ ------------
Accumulated losses, end of period ...................... $(25,486,740) $(26,308,428) $(25,486,740) $(26,308,428)
============ ============ ============ ============
Net income allocated to General Partners (3%) .......... $ 5,149 $ 8,590 $ 34,224 $ 28,850
============ ============ ============ ============
Net income allocated to Limited Partners (97%) ......... $ 166,486 $ 277,731 $ 1,106,564 $ 932,829
============ ============ ============ ============
Net income per unit of Limited Partner Interest
based on 24,737 and 24,797 units outstanding
at September 30, 2000 and 1999, respectively ......... $ 6.73 $ 11.20 $ 44.73 $ 37.62
============ ============ ============ ============
</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 CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
SEPTEMBER 30,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................................. $ 1,140,788 $ 961,679
Adjustments to reconcile net income to net cash used in operating activities:
Share of income from partnerships ......................................... (1,067,210) (1,464,538)
Amortization of deferred costs ............................................ 21,043 21,545
Gain on disposition of investment in partnership .......................... (527,850) --
Changes in assets and liabilities:
Increase in accrued interest receivable
on advances to partnerships ........................................... (4,603) (4,602)
(Increase) decrease in other assets ..................................... (424) 1,669
Increase in accrued interest payable .................................... 352,648 352,647
(Decrease) increase in accounts payable and accrued expenses ............ (14,587) 6,615
----------- -----------
Net cash used in operating activities ................................. (100,195) (124,985)
----------- -----------
Cash flows from investing activities:
Receipt of distributions from partnerships .................................. 428,381 585,906
Proceeds from disposition of investment in partnership ...................... 543,289 --
Release of investment held in escrow ........................................ 140,000 --
Advances made to local partnerships ......................................... (4,813) (49,143)
Collection of advances made to local partnerships ........................... 528 --
----------- -----------
Net cash provided by investing activities ............................. 1,107,385 536,763
----------- -----------
Net increase in cash and cash equivalents ..................................... 1,007,190 411,778
Cash and cash equivalents, beginning of period ................................ 2,711,200 2,318,302
----------- -----------
Cash and cash equivalents, end of period ...................................... $ 3,718,390 $ 2,730,080
=========== ===========
</TABLE>
The accompanying notes are an
integral part of these
financial statements.
-3-
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 and 1999
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of C.R.I., Inc. (CRI), the Managing General Partner, the
accompanying unaudited financial statements reflect all adjustments, consisting
of normal recurring accruals, necessary for a fair presentation of the financial
position of Capital Realty Investors, Ltd. (the Partnership) as of September 30,
2000, and the results of its operations for the three and nine months ended
September 30, 2000 and 1999, and its cash flows for the nine months ended
September 30, 2000 and 1999. The results of operations for the interim periods
ended September 30, 2000, are not necessarily indicative of the results to be
expected for the full year.
The accompanying unaudited financial statements have been prepared in
conformity with accounting principles generally accepted in the United States
and with the instructions to Form 10-QSB. Certain information and accounting
policies and footnote disclosures normally included in financial statements
prepared in conformity with accounting principles generally accepted in the
United States have been condensed or omitted pursuant to such instructions.
These condensed financial statements should be read in conjunction with the
financial statements and notes thereto included in the Partnership's annual
report on Form 10-KSB at December 31, 1999.
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
a. DUE ON INVESTMENTS IN PARTNERSHIPS AND ACCRUED INTEREST PAYABLE
---------------------------------------------------------------
The Partnership is the maker of purchase money notes which have matured
and have not been paid with respect to two Local Partnerships, Lake Properties
Limited Partnership (Frenchman's Wharf I) and ARA Associates-Shangri-La Ltd.
(Shallowford Oaks). The purchase money notes accrue interest and require payment
in full of all unpaid accrued interest and principal upon the occurrence of
certain events, such as the sale or refinancing of the underlying apartment
complex or the maturity of the respective purchase money note. The purchase
money notes, which are nonrecourse to the Partnership, are secured by the
Partnership's interest in the respective Local Partnerships. The total amounts
due on the purchase money notes consist of outstanding principal and accrued
interest of approximately $4.479 million and $8.017 million, respectively, as of
September 30, 2000, and $4.479 million and $7.664 million, respectively, as of
December 31, 1999. The Managing General Partner is hopeful that an extension of
the purchase money notes' maturity dates can be negotiated with some but not all
of the noteholders. It is possible, however, that the noteholders could refuse
to negotiate or, even if extensions are obtained, that the underlying
properties' values will be insufficient to pay off the purchase money notes at
the time of sale or refinancing.
The Partnership's inability to pay the purchase money note principal
and accrued interest balances when due, and the resulting uncertainty regarding
the Partnership's continued ownership interest in the related Local
Partnerships, does not adversely impact the Partnership's financial condition
because the purchase money notes are nonrecourse and secured solely by the
Partnership's interest in the related Local Partnerships. Therefore, should the
investment in Frenchman's Wharf I and/or Shallowford Oaks not produce sufficient
value to satisfy the related purchase money notes, the Partnership's exposure to
loss is limited because the amount of the nonrecourse indebtedness of each of
the maturing purchase money notes exceeds the carrying amount of the investment
in, and advances to, each of the related Local Partnerships. Thus, even
-4-
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
a complete loss of the Partnership's interest in one or both of these Local
Partnerships would not have a material adverse impact on the financial condition
of the Partnership. However, since these notes remain unpaid, the noteholders
have the right to foreclose on the Partnership's interest in the related Local
Partnerships. The noteholders with respect to Frenchman's Wharf I have already
filed foreclosure lawsuits. In the event of a foreclosure, the excess of the
nonrecourse indebtedness over the carrying amount of the Partnership's
investment in the related Local Partnership would be deemed cancellation of
indebtedness income, which would be taxable to Limited Partners at a federal tax
rate of up to 39.6%. Additionally, in the event of a foreclosure, the
Partnership would lose its investment in the Local Partnership and, likewise,
its share of any future cash flow distributed by the Local Partnership from
rental operations, mortgage debt refinancings, or the sale of the real estate.
The Partnership did not receive any distributions from Frenchman's Wharf I or
Shallowford Oaks during the nine month periods ended September 30, 2000 and
1999, and its aggregate share of income from these two Local Partnerships was $0
for the three month periods ended September 30, 2000 and 1999, respectively, and
$0 for the nine month periods ended September 30, 2000 and 1999, respectively.
See further discussion of these purchase money notes, below.
Interest expense on the Partnership's purchase money notes for the
three and nine month periods ended September 30, 2000 was $117,549 and $352,648,
respectively, and $117,549 and $352,647 for the three and nine months ended
September 30, 1999, respectively. The accrued interest payable on the purchase
money notes of $8,016,620 and $7,663,972 as of September 30, 2000 and December
31, 1999, respectively, is currently due because all the notes have matured.
FRENCHMAN'S WHARF I
The Partnership defaulted on its purchase money notes related to
Frenchman's Wharf I on June 1, 1998 when the notes matured and were not paid.
The default amount included principal and accrued interest of $3,778,800 and
$6,086,253, respectively. As of November 3, 2000, principal and accrued interest
of $3,778,800 and $7,103,449, respectively, were due. The purchase money notes
were initially due to mature on June 1, 1988, but were extended to mature on
June 1, 1998. The Partnership requested another extension of the maturity date
of the purchase money notes until May 2000, to be coterminous with the
expiration of the Local Partnership's provisional workout agreement (PWA) with
HUD related to its mortgage loan. The purchase money noteholders initiated two
separate foreclosure proceedings in two states. One group of plaintiffs has
indicated it would be willing to stay its action until the end of the
forbearance period with the Local Partnership's lender, so long as the plaintiff
in the other lawsuit does the same, but to date there has been no agreement with
that noteholder. The Partnership has retained local counsel and intends to move
to dismiss the later filed suit and consolidate it with the pending suit in the
state where the property is located. However, there is no assurance that the
Partnership will be able to retain its interest in Frenchman's Wharf I.
In 1996, HUD sold the mortgage loan to the same lender as Shallowford
Oaks (see discussion concerning Shallowford Oaks, below). The local managing
general partner has obtained a forbearance agreement from the lender until
January 31, 2001, with two 30-day extension periods available. The forbearance
agreement allows for the discounted payoff of the mortgage loan. The Partnership
recently received an offer to purchase the property, which is currently being
analyzed. Unless the sale can be consummated within the forbearance period, it
-5-
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
appears likely that the first mortgage lender will obtain the Frenchman's Wharf
real estate through deed-in-lieu of foreclosure in early 2001.
In the event of a foreclosure, the Partnership would lose its share of
any future cash flow distributed by the Local Partnership from rental
operations, mortgage debt refinancings, or the sale of the real estate. Should
the Partnership lose its ownership interest in Frenchman's Wharf I through
foreclosure of the purchase money note, there would be no adverse impact on the
Partnership's financial condition, as discussed above. However, should the Local
Partnership lose its real estate through foreclosure by its mortgage lender, it
is anticipated that there will be a severe adverse tax impact on the partners in
the Partnership. The total federal tax gain from cancellation of mortgage
indebtedness and purchase money indebtedness for the year 2001 related to
Frenchman's Wharf I is estimated to be approximately $17 million.
SHALLOWFORD OAKS
The Partnership defaulted on its purchase money note relating to
Shallowford Oaks on January 1, 1997 when the note matured and was not paid. The
default amount included principal and accrued interest of $700,000 and $761,389,
respectively. As of November 3, 2000, principal and accrued interest of $700,000
and $956,208, respectively, were due. The Managing General Partner has proposed
to extend the maturity date of the note until November 2001, coterminous with
the expiration of the Local Partnership's PWA related to its mortgage loan which
matures in November 2001. As of November 3, 2000, the Managing General Partner
is awaiting a response from the noteholders. There is no assurance that any
agreement will be reached with the noteholders.
In addition, Shallowford Oaks' mortgage lender filed notice on November
3, 1997 accelerating the maturity of the Local Partnership's mortgage loan and
demanding payment in full due to a purported nonmonetary default of the PWA with
the lender's predecessor, HUD. Subsequently, the local managing general partner
filed an action to enjoin the attempted foreclosure. The court entered an order
for equitable relief in Shallowford's favor on November 12, 1998. The lender
filed a motion for a new trial and a motion to alter or amend judgment in
December 1998. The court denied the lender's motions by order dated March 24,
1999. Subsequently, the lender filed an appeal to the order for equitable
relief, and oral arguments were held on October 13, 1999. In February 2000, the
Partnership received written notification of the court's ruling in its favor. In
connection with the mortgage lender's attempt to foreclose on Shallowford Oaks,
the Partnership filed a countersuit against the mortgage lender. On October 6,
2000, the court of jurisdiction heard the mortgage lender's motion for dismissal
of the countersuit. As of November 3, 2000, there has been no ruling on the
motion. For the nine months ended September 30, 2000 and 1999, the Partnership
advanced Shallowford Oaks $4,285 (net) and $49,143, respectively, for legal
costs.
Due to the uncertainties regarding the outcome of an extension of the
maturity date of the purchase money note, there is no assurance that the
Partnership will be able to retain its interest in Shallowford Oaks. In the
event of a foreclosure, the Partnership would also lose its share of any future
cash flow distributed by the Local Partnership from rental operations, mortgage
debt refinancings, or the sale of the real estate. The uncertainty regarding the
continued ownership of
-6-
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
the Partnership's interest in Shallowford Oaks does not adversely impact the
Partnership's financial condition, as discussed above.
b. ADVANCES TO LOCAL PARTNERSHIPS
As of September 30, 2000 and December 31, 1999, the Partnership had
advanced funds, including accrued interest, totaling $764,444 and $755,556 to
Local Partnerships. For financial reporting purposes, these loans have been or
will be reduced to zero by the Partnership as a result of losses from the
related Local Partnerships.
c. PROPERTY MATTERS
FRENCHMAN'S WHARF I
The report of the auditors on the financial statements of Frenchman's
Wharf I for the year ended December 31, 1999 indicated that substantial doubt
exists about the ability of the Local Partnership to continue as a going concern
due to the Local Partnership's default on its mortgage loan and the expiration
of its Section 8 Rental Housing Assistance Payments (HAP) contract with HUD on
November 30, 2000. The uncertainty about the Local Partnership's continued
ownership of the property does not adversely impact the Partnership's financial
condition, as discussed above.
WINTHROP BEACH
On March 23, 2000, Winthrop Beach Associates (Winthrop Beach) sold its
property. The sale resulted in a financial statement gain of $527,850, and an
estimated federal tax gain of $1.5 million.
d. SUMMARIZED FINANCIAL INFORMATION
Combined statements of operations for the 16 and 17 Local Partnerships
in which the Partnership was invested as of September 30, 2000 and 1999,
respectively, follow. The combined statements have been compiled from
information supplied by the management agents of the projects and are unaudited.
The combined statements of operations for the three and nine months ended
September 30, 2000 include information for Winthrop Beach through the date of
sale.
-7-
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 and 1999
(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,
--------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Rental ......................... $ 4,631,699 $ 4,695,551 $13,967,207 $13,960,372
Other .......................... 350,293 271,582 802,157 750,331
----------- ----------- ----------- -----------
Total revenue ................ 4,981,992 4,967,133 14,769,364 14,710,703
----------- ----------- ----------- -----------
Expenses:
Operating ...................... 2,221,193 2,337,973 6,725,692 6,969,036
Interest ....................... 1,573,349 1,600,436 4,727,701 4,801,313
Depreciation and amortization .. 833,473 837,306 2,515,879 2,511,934
----------- ----------- ----------- -----------
Total expenses ............... 4,628,015 4,775,715 13,969,272 14,282,283
----------- ----------- ----------- -----------
Net income (loss) ................ $ 353,977 $ 191,418 $ 800,092 $ 428,420
=========== =========== =========== ===========
</TABLE>
As of September 30, 2000 and 1999, the Partnership's share of
cumulative losses to date for eight and eleven, respectively, of the 16 and 17
Local Partnerships, respectively, exceeded the amount of the Partnership's
investments in and advances to those Local Partnerships by $8,476,833 and
$9,451,348, 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. AFFORDABLE HOUSING LEGISLATION
Frenchman's Wharf I and Shallowford Oaks have Section 8 HAP contracts
covering 10% and 20%, respectively, of their apartment units, which contracts
expire during 2000. A Section 8 HAP contract provides rental subsidies to a
property owner for units occupied by low income tenants. If either contract is
not extended, there would likely be a temporary increase in vacancy during the 6
to 12 months after expiration, and a concomitant reduction in rental revenue. As
residents in the low-income units move out, the units would be made available to
market-rate residents.
Most of the Local Partnerships in which the Partnership is invested
have mortgage loans financed by various state housing agencies, and two Local
Partnerships have mortgage loans financed by the Rural Economic Community
Development (RECD) agency. Further, these Local Partnerships have Section 8 HAP
contracts in place for all or substantially all of their apartment units which
are generally regulated by the Department of Housing and Urban Development (HUD)
(the state housing agencies, RECD and HUD, collectively, the Agencies). These
Section 8 HAP contracts begin to expire, or have been extended to expire, in
November 2000. Currently, the Managing General Partner believes that the
Agencies will strive to preserve the units as low income, or affordable,
housing. Therefore, it appears unlikely that the Agencies will allow a
prepayment of the respective mortgage loans or a conversion of the units to
market rate housing, primarily because the Agencies have the right under the
mortgage and/or regulatory agreement to disallow the mortgage prepayment. The
Managing General Partner continues to monitor the
-8-
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 and 1999
(Unaudited)
3. AFFORDABLE HOUSING LEGISLATION - Continued
actions of these financing Agencies to assess how these Agencies will deal with
expiring Section 8 HAP contracts and what impact these Agencies' strategies will
have on the operations of the Local Partnerships and, consequently, the impact
on the Partnership's investments in the Local Partnerships. As of September 30,
2000, the Partnership's investment in Local Partnerships with Section 8 HAP
contracts expiring in the year 2000 was $0.
4. 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 connection with managing the Partnership. The Partnership
paid $22,771 and $78,375 for the three and nine month periods ended September
30, 2000, respectively, and $18,326 and $73,786 for the three and nine month
periods ended September 30, 1999, respectively, to the Managing General Partner
as direct reimbursement of expenses incurred on behalf of the Partnership. Such
expenses are included in the accompanying statements of operations as general
and administrative expenses.
In accordance with the terms of the Partnership Agreement, the
Partnership is obligated to pay the Managing General Partner an annual incentive
management fee (Management Fee), after all other expenses of the Partnership are
paid. The Partnership paid the Managing General Partner a Management Fee of
$23,802 and $71,406 for each of the three and nine month periods ended September
30, 2000 and 1999, respectively.
The Managing General Partner and/or its affiliates may receive a fee of
not more than two percent of the sales price of an investment in a Local
Partnership or the property it owns, payable under certain conditions upon the
sale of an investment in a Local Partnership or the property it owns. The
payment of the fee is subject to certain restrictions, including the achievement
of a certain level of sales proceeds and making certain minimum distributions to
limited partners. No such fees were earned by the Managing General Partner or
its affiliates for the three and nine month periods ended September 30, 2000 or
1999.
-9-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Capital Realty Investors, Ltd.'s (the Partnership) Management's
Discussion and Analysis of Financial Condition and Results of Operations section
contains information that may be considered forward looking, including
statements regarding the effect of governmental regulations. Actual results may
differ materially from those described in the forward looking statements and
will be affected by a variety of factors including national and local economic
conditions, the general level of interest rates, governmental regulations
affecting the Partnership and interpretations of those regulations, the
competitive environment in which the Partnership operates, and the availability
of working capital.
GENERAL
C.R.I., Inc. (the Managing General Partner) continues to evaluate the
Partnership's underlying apartment complexes to develop strategies that make
sense for all parties involved. Issues that are at the forefront of the Managing
General Partner's strategic planning include: matured purchase money notes,
expiring Section 8 Housing Assistance Payment (HAP) contracts, properties with
state housing financing or Rural Economic Community Development (RECD) agency
financing, the cessation of losses to the Partnership due to the complete
depletion of low- income housing accelerated depreciation deductions on the
Local Partnerships' properties, and declining mortgage interest deductions as
the mortgage loans move closer to maturity.
Lake Properties Limited Partnership (Frenchman's Wharf I) and ARA
Associates-Shangri- La Ltd. (Shallowford Oaks) have Section 8 HAP contracts
covering 10% and 20%, respectively, of their apartment units, which contracts
expire during 2000. A Section 8 HAP contract provides rental subsidies to a
property owner for units occupied by low income tenants. If either contract is
not extended, there would likely be a temporary increase in vacancy during the 6
to 12 months after expiration and a concomitant reduction in rental revenue. As
residents in the low-income units move out, the units would be made available to
market-rate residents.
Most of the Local Partnerships in which the Partnership is invested
have mortgage loans financed by various state housing agencies, and two Local
Partnerships have mortgage loans financed by the RECD agency. Further, these
Local Partnerships have Section 8 HAP contracts in place for all or
substantially all of their apartment units which are generally regulated by the
Department of Housing and Urban Development (HUD) (the state housing agencies,
RECD and HUD, collectively, the Agencies). These Section 8 HAP contracts begin
to expire, or have been extended to expire, in November 2000. Currently, the
Managing General Partner believes that the Agencies will strive to preserve the
units as low income, or affordable, housing. Therefore, it appears unlikely that
the Agencies will allow a prepayment of the respective mortgage loans or a
conversion of the units to market rate housing, primarily because the Agencies
have the right under the mortgage and/or regulatory agreement to disallow the
mortgage prepayment. The Managing General Partner continues to monitor the
actions of these financing Agencies to assess how these Agencies will deal with
expiring Section 8 HAP contracts and what impact these Agencies' strategies will
have on the operations of the Local Partnerships and, consequently, the impact
on the Partnership's investments in the Local Partnerships. As of September 30,
2000, the Partnership's investment in Local Partnerships with Section 8 HAP
contracts expiring in the year 2000 was $0.
Sales of properties with state Agency or RECD financing will be
extremely difficult. Since the Agencies are unlikely to allow mortgage
prepayment and/or sale for a conversion to market rate housing, prospective
buyers are generally limited to non-profit organizations. Generally, purchase
offers received from non-profit organizations tend to be much lower per
apartment unit than those from profit-motivated companies.
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PART I. FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Continued
The Managing General Partner is considering marketing, on a
state-by-state basis, one or more of the properties in which the Partnership is
invested with properties in other portfolios sponsored by the Managing General
Partner. This may enhance the opportunity to sell these properties. Each
property is different, so it is impossible to predict if any of the
Partnership's properties might be included in such a combination sale.
The Managing General Partner is working diligently on behalf of the
Partnership to produce the best results possible under these difficult
circumstances. While the Managing General Partner cannot predict the outcome for
any particular property at this time, the Managing General Partner will continue
to work with the Local Partnerships to develop strategies that make sense for
all parties involved.
FINANCIAL CONDITION/LIQUIDITY
The Partnership's liquidity, with unrestricted cash resources of
$3,718,390 as of September 30, 2000, along with anticipated future cash
distributions from the Local Partnerships, is expected to be adequate to meet
its current and anticipated operating cash needs. As of November 3, 2000, there
were no material commitments for capital expenditures.
The Partnership is the maker of purchase money notes which have matured
and have not been paid with respect to two Local Partnerships, Frenchman's Wharf
I and Shallowford Oaks. The purchase money notes accrue interest and require
payment in full of all unpaid accrued interest and principal upon the occurrence
of certain events, such as the sale or refinancing of the underlying apartment
complex or the maturity of the respective purchase money note. The purchase
money notes, which are nonrecourse to the Partnership, are secured by the
Partnership's interest in the respective Local Partnerships. The total amounts
due on the purchase money notes consist of outstanding principal and accrued
interest of approximately $4.479 million and $8.017 million, respectively, as of
September 30, 2000, and $4.479 million and $7.664 million, respectively, as of
December 31, 1999. The Managing General Partner is hopeful that an extension of
the purchase money notes' maturity dates can be negotiated with some but not all
of the noteholders. It is possible, however, that the noteholders could refuse
to negotiate or, even if extensions are obtained, that the underlying
properties' values will be insufficient to pay off the purchase money notes at
the time of sale or refinancing.
The Partnership's inability to pay the purchase money note principal
and accrued interest balances when due, and the resulting uncertainty regarding
the Partnership's continued ownership interest in the related Local
Partnerships, does not adversely impact the Partnership's financial condition
because the purchase money notes are nonrecourse and secured solely by the
Partnership's interest in the related Local Partnerships. Therefore, should the
investment in Frenchman's Wharf I and/or Shallowford Oaks not produce sufficient
value to satisfy the related purchase money notes, the Partnership's exposure to
loss is limited because the amount of the nonrecourse indebtedness of each of
the maturing purchase money notes exceeds the carrying amount of the investment
in, and advances to, each of the related Local Partnerships. Thus, even a
complete loss of the Partnership's interest in one or both of these Local
Partnerships would not have a material adverse impact on the financial condition
of the Partnership. However, since these notes remain unpaid, the noteholders
have the right to foreclose on the Partnership's interest in the related Local
Partnerships. The noteholders with respect to Frenchman's Wharf I have already
filed foreclosure lawsuits. In the event of a foreclosure, the excess of the
nonrecourse indebtedness over the carrying amount of the Partnership's
investment in the related Local Partnership would be deemed cancellation of
indebtedness income, which would be taxable to Limited Partners at a federal tax
rate of up to 39.6%. Additionally, in the event of a foreclosure, the
Partnership would lose its investment in the Local Partnership and, likewise,
its share of any future cash flow distributed by the Local Partnership from
rental operations, mortgage debt
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refinancings, or the sale of the real estate. The Partnership did not receive
any distributions from Frenchman's Wharf I or Shallowford Oaks during the nine
month periods ended September 30, 2000 and 1999, and its aggregate share of
income from these two Local Partnerships was $0 for the three month periods
ended September 30, 2000 and 1999, respectively, and $0 for the nine month
periods ended September 30, 2000 and 1999, respectively. See the notes to the
financial statements for additional information concerning these purchase money
notes.
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 month periods ended September 30, 2000 and 1999, the
receipt of distributions from Local Partnerships was adequate to support
operating cash requirements. Cash and cash equivalents increased during the nine
months ended September 30, 2000 due to proceeds received from the sale of the
Winthrop Beach Associates property (Winthrop Beach), as discussed in the notes
to the financial statements, and as the receipt of distributions from
partnerships was in excess of net cash used in operating activities.
RESULTS OF OPERATIONS
The Partnership's net income for the three month period ended September
30, 2000 decreased from the corresponding period in 1999 due to a decrease in
share of income from partnerships as the result of lower distributions received
from two properties, and of the exclusion from share of income in 2000 of the
operating results at two properties which had accumulated unallowable losses.
Offsetting the decrease in net income was an increase in interest income due to
higher cash and cash equivalent balances and higher interest rates in 2000.
The Partnership's net income for the nine month period ended September
30, 2000 increased from the corresponding period in 1999 primarily due to gain
on disposition of investment in partnership related to the sale of the Winthrop
Beach property in March 2000. Contributing to the increase in net income was an
increase in interest income as discussed above. Offsetting the increase in the
Partnership's net income was a decrease in share of income from partnerships,
also 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 share of income from partnerships for the three and
nine month periods ended September 30, 2000, did not include losses of $133,803
and $401,410, respectively, compared to excluded losses of $250,900 and $752,704
for the three and nine month periods ended September 30, 1999, respectively.
No other significant changes in the Partnership's operations have taken
place during this period.
PART II. OTHER INFORMATION
Item 3. Defaults upon Senior Securities
See Note 2.a. of the notes to financial statements contained in Part I,
Item 1, hereof, for information concerning the Partnership's defaults on certain
purchase money notes.
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PART II. OTHER INFORMATION
Item 5. Other Information
a. On October 2, 2000, Equity Resource Lexington Fund (Lexington)
initiated an unregistered tender offer to purchase approximately 1,200
of the outstanding units of additional limited partnership interest
(Units) in the Partnership at a price of $20 per Unit; the offer
expired November 2, 2000. Lexington is unaffiliated with the Managing
General Partner. The price offered was determined solely at the
discretion of Lexington and does not necessarily represent the fair
value of each Unit. There is no established market for the purchase
and sale of Units in the Partnership, although various informal
secondary market services exist. Due to the limited markets, however,
investors may be unable to sell or otherwise dispose of their Units in
the Partnership.
b. On October 17, 2000, the Partnership made a cash distribution of
$247,670 ($10.00 per Unit) to Additional Limited Partners, to holders
of record as of September 30, 2000. The distribution was a result of
cash resources accumulated from operations and distributions from
Local Partnerships, and from the sale of Winthrop Beach in March 2000.
Item 6. Exhibits and Reports on Form 8-K
a. None
b. No reports on Form 8-K were filed with the Commission during the
quarter ended September 30, 2000.
All other items are not applicable.
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SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
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
NOVEMBER 3, 2000 by: /S/ MICHAEL J. TUSZKA
---------------- -----------------------------------
DATE Michael J. Tuszka
Vice President
and Chief Accounting Officer
(Principal Financial Officer
and Principal Accounting Officer)
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EXHIBIT INDEX
EXHIBIT METHOD OF FILING
------ --------------------------------
27 Financial Data Schedule Filed herewith electronically
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