<PAGE>
FORM 10-QSB
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
--------------
Commission file number 0-11149
--------------
CAPITAL REALTY INVESTORS, LTD.
- --------------------------------------------------------------------------
(Exact name of small business issuer as specified in its 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 offices) (Zip Code)
(301) 468-9200
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(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months, and (2) has
been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Not applicable Not applicable
- -------------------------- ---------------------------------------
(Class) (Outstanding at March 31, 2000)
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 2000
Page
----
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - March 31, 2000 and
December 31, 1999 . . . . . . . . . . . . . . . . . . 1
Statements of Operations and Accumulated Losses
- for the three months ended March 31, 2000
and 1999 . . . . . . . . . . . . . . . . . . . . . . 2
Statements of Cash Flows - for the three
months ended March 31, 2000 and 1999 . . . . . . . . 3
Notes to Financial Statements - March 31, 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 . . . . . . . . . . . . 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>
March 31, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Investments in and advances to partnerships $ 3,383,219 $ 3,265,726
Investment in partnership held for sale -- 15,439
Cash and cash equivalents 2,793,507 2,711,200
Restricted cash equivalents 140,000 140,000
Distribution receivable for property sold 460,800 --
Acquisition fees, principally paid to related parties, net of
accumulated amortization of $390,047 and $384,432, respectively 508,345 513,960
Property purchase costs, net of accumulated amortization of
$98,435 and $97,035, respectively 125,632 127,032
Other assets 823 778
------------ ------------
Total assets $ 7,412,326 $ 6,774,135
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Due on investments in partnerships $ 4,478,800 $ 4,478,800
Accrued interest payable 7,781,522 7,663,972
Accounts payable and accrued expenses 52,609 93,514
------------ ------------
Total liabilities 12,312,931 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 (996,102) (996,102)
Offering costs (2,689,521) (2,689,521)
Accumulated losses (26,065,982) (26,627,528)
------------ ------------
Total partners' deficit (4,900,605) (5,462,151)
------------ ------------
Total liabilities and partners' deficit $ 7,412,326 $ 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
March 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Share of income from partnerships $ 277,129 $ 264,313
------------ ------------
Other revenue and expenses:
Revenue:
Interest and other income 39,052 28,915
------------ ------------
Expenses:
Interest 117,550 117,549
Management fee 23,802 23,802
General and administrative 33,841 32,859
Professional fees 17,788 17,024
Amortization of deferred costs 7,015 7,182
------------ ------------
199,996 198,416
------------ ------------
Total other revenue and expenses (160,944) (169,501)
------------ ------------
Income before gain on disposition of investment in partnership 116,185 94,812
------------ ------------
Gain on disposition of investment in partnership 445,361 --
------------ ------------
Net income 561,546 94,812
Accumulated losses, beginning of period (26,627,528) (27,270,107)
------------ ------------
Accumulated losses, end of period $(26,065,982) $(27,175,295)
============ ============
Net income allocated to General Partners (3%) $ 16,846 $ 2,844
============ ============
Net income allocated to Limited Partners (97%) $ 544,700 $ 91,968
============ ============
Net income per unit of Limited Partnership Interest
based on 24,737 and 24,797 units outstanding $ 22.02 $ 3.71
============ ============
</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 three months ended
March 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 561,546 $ 94,812
Adjustments to reconcile net income to net cash
used in operating activities:
Share of income from partnerships (277,129) (264,313)
Amortization of deferred costs 7,015 7,182
Gain on disposition of investment in partnership (445,361) --
Changes in assets and liabilities:
Increase in accrued interest receivable
on advances to partnerships (1,534) (1,534)
Increase in other assets (45) (3,620)
Increase in accrued interest payable 117,550 117,549
Decrease in accounts payable and accrued expenses (40,905) (37,084)
------------ ------------
Net cash used in operating activities (78,863) (87,008)
------------ ------------
Cash flows from investing activities:
Receipt of distributions from partnerships 161,320 84,722
Advances made to local partnerships (150) (16,390)
------------ ------------
Net cash provided by investing activities 161,170 68,332
------------ ------------
Net increase (decrease) in cash and cash equivalents 82,307 (18,676)
Cash and cash equivalents, beginning of period 2,711,200 2,318,302
------------ ------------
Cash and cash equivalents, end of period $ 2,793,507 $ 2,299,626
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
- 3 -
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 March 31,
2000, and the results of its operations and its cash flows for the three months
ended March 31, 2000 and 1999. The results of operations for the interim period
ended March 31, 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
----------------------------------
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 generally 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 $7.782 million,
respectively, as of March 31, 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.
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 these 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
interests 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
-4-
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
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, 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. 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 three month periods ended
March 31, 2000 and 1999, and its aggregate share of loss from these two Local
Partnerships was $0 and $0 for the three month periods ended March 31, 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
month periods ended March 31, 2000 and 1999 was $117,550 and $117,549,
respectively. The accrued interest payable on the purchase money notes of
$7,781,522 and $7,663,972 as of March 31, 2000 and December 31, 1999,
respectively, is due on the respective maturity dates of the purchase money
notes or earlier, in some instances, if (and to the extent of a portion thereof)
the related Local Partnership has distributable net cash flow, as defined in the
relevant Local Partnership agreement.
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 May 5, 2000, principal and accrued interest of
$3,778,800 and $6,894,872, 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. 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 had several conversations with
the lender regarding the upcoming maturity of the PWA. There is no assurance
these discussions will achieve a resolution of this issue, and it is possible
the lender will initiate a foreclosure action. As of May 5, 2000, the local
managing general partner is still awaiting a response from the purchase money
noteholders and the lender.
Due to the uncertainties regarding the outcome of an extension of the
maturity date of the purchase money notes, and the possibility of a foreclosure
-5-
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
proceeding on the Local Partnership's mortgage loan, there is no assurance that
the Partnership will be able to retain its interest in Frenchman's Wharf I. 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 the Partnership's interest in Frenchman's
Wharf I does not adversely impact the Partnership's financial condition, as
discussed above.
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 May 5, 2000, principal and accrued interest of $700,000 and
$930,971, 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 provisional workout agreement related to
its mortgage loan. As of May 5, 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
provisional workout agreement. 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.
For the three months ended March 31, 2000 and 1999, the Partnership advanced
Shallowford Oaks $150 and $16,390, 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 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 March 31, 2000 and December 31, 1999, the Partnership had advanced
funds, including accrued interest, totaling $757,240 and $755,556 to Local
Partnerships. For financial reporting purposes, these loans have been or will
-6-
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
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 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 February 23, 2000, Winthrop Beach Associates (Winthrop Beach) sold its
property. The sale resulted in a financial statement gain of $445,361, an
estimated federal tax gain of approximately $1,357,000, and net cash proceeds of
$460,800 to the Partnership, which were received in April 2000. Additional
proceeds may be received in the second quarter, and, if received, the proceeds
will be recorded as additional gain on disposition of investment in partnership.
d. Summarized financial information
--------------------------------
Combined statements of operations for the 16 and 17 Local Partnerships, in
which the Partnership has invested as of March 31, 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 statement of
operations for the three months ended March 31, 2000 and 1999 do not include
information for Winthrop Beach, which was sold on February 23, 2000.
-7-
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000 and 1999
(Unaudited)
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
--------------------------
2000 1999
------------ ------------
<S> <C> <C>
Revenue:
Rental $ 4,643,979 $ 4,552,952
Other 263,341 243,457
------------ ------------
Total revenue 4,907,320 4,796,409
------------ ------------
Expenses:
Operating 2,285,227 2,360,930
Interest 1,573,352 1,591,786
Depreciation and amortization 833,480 821,923
------------ ------------
Total expenses 4,692,059 4,774,639
------------ ------------
Net income $ 215,261 $ 21,770
============ ============
</TABLE>
As of March 31, 2000 and 1999, the Partnership's share of cumulative losses
to date for seven and nine, 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 $9,112,307 and $8,949,552, 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 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 will likely be a temporary increase in vacancy during the 6 to 12 months
after expiration. As residents in the low-income units move out, the units will
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)
-8-
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000 and 1999
(Unaudited)
3. AFFORDABLE HOUSING LEGISLATION - Continued
(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 March 31, 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 managing the Partnership. For the three months ended March 31, 2000 and
1999, the Partnership paid $26,557 and $28,921, respectively, 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 (the Management Fee), after all other expenses of the Partnership are paid.
For each of the three month periods ended March 31, 2000 and 1999, the Part-
nership paid the Managing General Partner a Management Fee of $23,802.
The Managing General Partner and/or its affiliates may receive a fee of not
more than 2% 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 months ended March 31, 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, terms of governmental
regulations that affect 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: the resolution of
purchase money notes which have matured, 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.
Frenchman's Wharf I and Shallowford Oaks have Section 8 HAP contracts
covering 10% and 20%, respectively, of their apartment units which 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 will likely be a temporary increase in vacancy during the 6 to 12 months
after expiration. As residents in the low-income units move out, the units will
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 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 March 31, 2000, the Partnership's
investment in Local Partnerships with Section 8 HAP contracts expiring in the
year 2000 was $0.
-10-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
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.
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 $2,793,507
and $2,711,200 as of March 31, 2000 and December 31, 1999, respectively, 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 March 31, 2000 and December 31, 1999, $140,000 of cash equivalents
were restricted for the collateralization of a letter of credit which secured a
surety bond related to the stay of foreclosure action on Shallowford Oaks. See
the notes to the financial statements for further discussion concerning
Shallowford Oaks. As of May 5, 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, 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 generally 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 $7.782 million,
respectively, as of March 31, 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.
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 these purchase money note principal and
accrued interest balances when due, and the resulting uncertainty regarding the
-11-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
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, 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. 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 three months ended March 31,
2000 and 1999, and its aggregate share of loss for these two Local Partnerships
was $0 and $0 for the three months ended March 31, 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 three months ended March 31, 2000 and 1999, the receipt of distributions
from Local Partnerships and existing cash resources were adequate to support
operating cash requirements. Cash and cash equivalents increased during the
three months ended March 31, 2000, 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 months ended March 31, 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 by the Local Partnership, as discussed in the notes to the
financial statements. Contributing to the increase in net income was an
increase in share of income from partnerships due to a decrease in operating
expenses at two of the properties.
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
months ended March 31, 2000 did not include losses of $146,885, compared to
excluded losses of $250,908 for the three months ended March 31, 1999.
-12-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
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.
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 March 31, 2000.
All other items are not applicable.
-13-
<PAGE>
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
May 5, 2000 by: /s/ Michael J. Tuszka
- ----------------- -------------------------------------------
DATE Michael J. Tuszka
Vice President
and Chief Accounting Officer
(Principal Financial Officer
and Principal Accounting Officer)
-14-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Method of Filing
- ------- -----------------------------
27 Financial Data Schedule Filed herewith electronically
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FIRST QUARTER 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,793,507
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,412,326
<CURRENT-LIABILITIES> 0
<BONDS> 12,260,322
0
0
<COMMON> 0
<OTHER-SE> (4,900,605)
<TOTAL-LIABILITY-AND-EQUITY> 7,412,326
<SALES> 0
<TOTAL-REVENUES> 761,542
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 82,446
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 117,550
<INCOME-PRETAX> 561,546
<INCOME-TAX> 0
<INCOME-CONTINUING> 561,546
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 561,546
<EPS-BASIC> 22.02
<EPS-DILUTED> 22.02
</TABLE>
