<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 0-11962
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CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
--------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Maryland 52-1311532
- ----------------------------------------- -------------------
(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
--------------------------------------------------------------------------
(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-III LIMITED PARTNERSHIP
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
Page
----
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1995
and December 31, 1994 . . . . . . . . . . . . . 1
Consolidated Statements of Operations - for
the three and nine months ended September 30, 1995
and 1994 . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows - for
the nine months ended September 30, 1995
and 1994 . . . . . . . . . . . . . . . . . . . . 7
Notes to Consolidated Financial Statements . . . . 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . 15
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 19
Signature . . . . . . . . . . . . . . . . . . . . . . . . 20
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
<S> <C> <C>
Investments in partnerships $ 30,576,262 $ 30,085,154
Cash and cash equivalents 2,993,918 2,681,974
Acquisition fees, principally paid
to related parties, net of
accumulated amortization of
$425,314 and $397,948,
respectively 669,325 696,691
Property purchase costs, net of
accumulated amortization of
$380,471 and $355,253,
respectively 628,262 653,480
Other assets 54,627 21,223
------------ ------------
Total assets $ 34,922,394 $ 34,138,522
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-1-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS - Continued
LIABILITIES AND PARTNERS' DEFICIT
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
<S> <C> <C>
Due on investments in partnerships,
net of unamortized discount on
purchase money notes of
$13,641,188 and $16,438,856,
respectively $ 22,541,252 $ 19,743,584
Accrued interest payable 45,738,007 42,155,444
Accounts payable and accrued
expenses 130,900 88,752
------------ ------------
Total liabilities 68,410,159 61,987,780
------------ ------------
Commitments and contingencies
Partners' capital (deficit):
Capital paid-in:
General Partners 2,000 2,000
Limited Partners 60,001,500 60,001,500
------------ ------------
60,003,500 60,003,500
Less:
Accumulated distributions to
partners (1,709,681) (1,709,681)
Offering costs (6,156,933) (6,156,933)
Accumulated losses (85,624,651) (79,986,144)
------------ ------------
Total partners' deficit (33,487,765) (27,849,258)
------------ ------------
Total liabilities and
partners' deficit $ 34,922,394 $ 34,138,522
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
September 30,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Share of income from partnerships $ 711,770 $ 783,867
------------ ------------
Other revenue and expenses:
Revenue:
Interest and other income 42,886 33,139
------------ ------------
Expenses:
Interest 2,265,855 1,809,462
Management fee 75,000 75,000
Professional fees 24,470 38,138
General and administrative 22,400 15,167
Amortization 17,528 17,528
------------ ------------
2,405,253 1,955,295
------------ ------------
Total other revenue and expenses (2,362,367) (1,922,156)
------------ ------------
Loss before early extinguishment of debt (1,650,597) (1,138,289)
Gain on early extinguishment of debt -- --
------------ ------------
Net loss (1,650,597) (1,138,289)
Accumulated losses, beginning of period (83,974,054) (76,151,272)
------------ ------------
Accumulated losses, end of period $(85,624,651) $(77,289,561)
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-3-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS - Continued
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
September 30,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Loss allocated to General
Partners (1.51%) $ (24,924) $ (17,188)
============ ============
Loss allocated to Initial and
Special Limited Partners (1.49%) $ (24,594) $ (16,961)
============ ============
Loss allocated to Additional
Limited Partners (97%) $ (1,601,079) $ (1,104,140)
============ ============
Loss per unit of Additional
Limited Partnership Interest based
on 60,000 units outstanding $ (26.69) $ (18.40)
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-4-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Share of income from partnerships $ 1,478,380 $ 3,018,423
------------ ------------
Other revenue and expenses:
Revenue:
Interest and other income 124,394 165,669
------------ ------------
Expenses:
Interest 6,796,967 5,847,001
Management fee 225,000 225,000
Professional fees 76,204 107,870
General and administrative 90,526 98,082
Amortization 52,584 52,584
------------ ------------
7,241,281 6,330,537
------------ ------------
Total other revenue and expenses (7,116,887) (6,164,868)
------------ ------------
Loss before early extinguishment of debt (5,638,507) (3,146,445)
Gain on early extinguishment of debt -- 3,052,664
------------ ------------
Net loss (5,638,507) (93,781)
Accumulated losses, beginning of period (79,986,144) (77,195,780)
------------ ------------
Accumulated losses, end of period $(85,624,651) $(77,289,561)
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-5-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS - Continued
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Loss allocated to General
Partners (1.51%) $ (85,141) $ (1,416)
============ ============
Loss allocated to Initial and
Special Limited Partners (1.49%) $ (84,014) $ (1,397)
============ ============
Loss allocated to Additional
Limited Partners (97%) $ (5,469,352) $ (90,968)
============ ============
Loss per unit of Additional
Limited Partnership Interest based
on 60,000 units outstanding $ (91.16) $ (1.52)
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-6-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
CONSOLIDATED 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 $ (5,638,507) $ (93,781)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Share of income from partnerships (1,478,380) (3,018,423)
Amortization of deferred costs 52,584 52,584
Amortization of discount on purchase
money notes 2,797,668 1,720,239
Gain on early extinguishment of debt -- (3,052,664)
Payment of interest on notes payable -- (80,063)
Payment of purchase money note
interest (416,736) (433,293)
Changes in assets and liabilities:
(Increase) decrease in other assets (33,404) 213,713
Increase in accrued interest
payable 3,999,299 4,126,764
Increase in accounts
payable and accrued expenses 42,148 1,257
------------ ------------
Net cash used in operating
activities (675,328) (563,667)
------------ ------------
Cash flows from investing activities:
Receipt of distributions from
partnerships 987,272 4,277,424
------------ ------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-7-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Pay-off of purchase money note -- (3,387,382)
Payment of purchase money note
principal -- (300,000)
Pay-off of note payable -- (2,100,000)
------------ ------------
Net cash used in financing
activities -- (5,787,382)
------------ ------------
Net increase (decrease) in cash and cash
equivalents 311,944 (2,073,625)
Cash and cash equivalents, beginning of
period 2,681,974 4,873,861
------------ ------------
Cash and cash equivalents, end of period $ 2,993,918 $ 2,800,236
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-8-
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of C.R.I., Inc. (CRI), the Managing General Partner, the
accompanying unaudited consolidated financial statements contain all adjustments
of a normal recurring nature necessary to present fairly the consolidated
financial position of Capital Realty Investors-III Limited Partnership (the
Partnership) as of September 30, 1995 and December 31, 1994, and its
consolidated results of operations for the three and nine months ended September
30, 1995 and 1994 and its consolidated 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 consolidated financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. While the Managing General Partner believes that
the disclosures presented are adequate to make the information not misleading,
it is suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and the notes included in
the Partnership's Annual Report filed on Form 10-K for the year ended
December 31, 1994.
Certain amounts in the 1994 financial statements have been reclassified.
2. INVESTMENTS IN 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
$36,062,896 (exclusive of unamortized discount on purchase money notes of
$13,641,188) plus accrued interest of $45,704,031, 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. Purchase money notes in an aggregate principal amount of
$12,061,070 mature in 1996, as discussed below. The remaining purchase money
notes mature from 1997 to 2015. The purchase money notes are generally secured
by the Partnership's interest in the respective Local Partnership. 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 $2,265,855 and $6,796,967,
respectively, and for the three and nine months ended September 30, 1994 was
$1,787,567 and $5,729,151, respectively. Amortization of the imputed interest
on purchase money notes increased interest expense during the three and nine
months ended September 30, 1995 by $932,556 and $2,797,668, respectively, and by
-9-
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. INVESTMENTS IN PARTNERSHIPS - Continued
$513,418 and $1,720,239 during the three and nine months ended September 30,
1994, respectively.
As of September 30, 1995 and December 31, 1994, the Partnership's
obligations with respect to its investment in Local Partnerships included
$119,544 due to local general partners, plus accrued interest on these
obligations of $33,976.
The local general partners of Kapetan Associates Limited Partnership
(Congress Plaza) had been negotiating a sale for Congress Plaza. Because
certain contingencies were not satisfied, the offer to purchase the property has
expired and negotiations have ended.
In September 1995, the Department of Housing and Urban Development (HUD)
sold the mortgage of New Fifth Lakewood Associates Limited Partnership (Walden
Apartments) to a new mortgagee. The new mortgagee will now service the loan and
Walden Apartments will no longer be subject to HUD regulatory requirements.
Many of the rental properties owned by the Local Partnerships have
mortgages which are federally insured under Section 236 or Section 221(d)(3) of
the National Housing Act, as amended. These properties 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 were recommending substantial changes to the LIHPRHA
program ranging from the elimination of the program to the redesigning of the
program. Substantial uncertainty exists as to whether any properties which have
already filed the notice of intent to participate under LIHPRHA will qualify
under a redesigned program or as to whether the program will continue at all.
Many of the 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.
Purchase money notes, plus accrued interest, relating to the following
properties mature in 1996:
-10-
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. INVESTMENTS IN PARTNERSHIPS - Continued
<TABLE>
<CAPTION>
Property Principal Amount Maturity Date
-------- ---------------- -------------
<S> <C> <C>
Briar Crest I $ 525,050 January 1, 1996
Briar Crest II 415,920 January 1, 1996
Briar Hills 458,100 January 1, 1996
Indian Hills 327,000 January 1, 1996
Park Heights Tower 2,135,000 January 1, 1996
Village Squire I & II 3,660,000 March 1, 1996
Village Squire III 2,440,000 March 1, 1996
Cedar Valley 2,100,000 May 1, 1996
</TABLE>
As noted above, the purchase money notes relating to Village Squire I & II
and Village Squire III mature on March 1, 1996. The local general partner of
these properties and the Managing General Partner are working together to
refinance the existing first mortgages, which is expected to provide sufficient
proceeds to the Partnership to pay off the related purchase money notes at a
slight discount. There is no assurance that the necessary financing for the
first mortgages can be obtained or that the offer to the purchase money
noteholders to accept a discounted payoff will be accepted. Therefore, there is
no assurance that the Partnership will be able to retain its interest in the
Local Partnerships. The uncertainty about the continued ownership of the
Partnership's interest in the related Local Partnerships does not impact the
Partnership's financial condition because the related purchase money notes are
nonrecourse and collateralized solely by the Partnership's interest in the Local
Partnerships. Therefore, should the investment in Village Squire I & II and/or
Village Squire III not produce sufficient value to satisfy the related purchase
money notes, 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 Partnerships. Thus, even a complete loss of these
investments would not have a material impact on the operations of the
Partnership. However, should the Partnership be unable to retain its interest
in these Local Partnerships, the investments in Local Partnerships would be
reduced by the Partnership's basis in these Local Partnerships, which at
September 30, 1995, was approximately 15% of the total investment in Local
Partnerships.
The Managing General Partner is continuing to investigate possible
alternatives to reduce the Partnership's other long-term debt obligations
maturing in 1996, as discussed above. There is no assurance that any offer to
the noteholders will be accepted. Therefore, there is no assurance that the
Partnership will be able to retain its interest in the Local Partnerships. The
uncertainty about the continued ownership of the Partnership's interest in the
related Local Partnerships does not impact the Partnership's financial condition
because the related purchase money notes are nonrecourse and collateralized
solely by the Partnership's interest in the Local Partnerships. Should the
investment in any of the above listed Local Partnership's, excluding Indian
Hills, not produce sufficient value to satisfy the related purchase money notes,
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 Partnerships. Thus, even a complete loss of these
-11-
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. INVESTMENTS IN PARTNERSHIPS - Continued
investments would not have a material impact on the operations of the
Partnership. However, should the Partnership be unable to retain its interest
in all of these Local Partnerships, the investments in Local Partnerships would
be reduced by the Partnership's basis in these Local Partnerships, which at
September 30, 1995, was approximately 14% of the total investment in Local
Partnerships. In the case of Indian Hills, the carrying amount of the
investment exceeds the amount of nonrecourse indebtedness, however, the
Partnership's exposure to loss is limited to this excess, which at September 30,
1995 was approximately $900,000.
The following are combined statements of operations for the Local
Partnerships in which the Partnership has invested. These statements are
compiled from information supplied by the management agents of the projects and
are unaudited.
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 $ 8,177,523 $ 7,962,045 $ 24,288,917 $ 23,495,728
Other 368,877 421,699 1,100,577 1,143,327
------------ ------------ ------------ ------------
8,546,400 8,383,744 25,389,494 24,639,055
------------ ------------ ------------ ------------
Expenses:
Operating 4,873,648 4,576,318 15,033,562 14,559,059
Interest 1,761,699 1,741,761 5,285,109 5,225,296
Depreciation
and amorti-
zation 1,427,593 1,433,344 4,282,798 4,300,054
------------ ------------ ------------ ------------
8,062,940 7,751,423 24,601,469 24,084,409
------------ ------------ ------------ ------------
Net income $ 483,460 $ 632,321 $ 788,025 $ 554,646
============ ============ ============ ============
</TABLE>
As of September 30, 1995 and December 31, 1994, the Partnership's share of
cumulative losses to date for ten and eight, respectively, of the thirty-five
Local Partnerships exceeds the amount of the Partnership's investments in these
Local Partnerships by $11,473,166 and $10,769,501, 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 consolidated financial statements.
-12-
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 $12,752 and $58,522 for the three and nine months ended
September 30, 1995, respectively, and $23,902 and $78,361 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 $75,000 and $225,000 for
the three and nine months, respectively, ended September 30, 1995 and 1994.
From April 1990 through January 1994, CRICO Management Corporation (CRICO),
an affiliate of the Managing General Partner, provided consulting, accounting
and other services to Walden Apartments. Fees paid or accrued to CRICO for
these services amounted to $12,278 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.
-13-
<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-III Limited Partnership's (the Partnership)
liquidity, with cash resources of $2,993,918 and $2,681,974 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 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
$36,062,896 (exclusive of unamortized discount on purchase money notes of
$13,641,188) plus accrued interest of $45,704,031, 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. Purchase money notes in an aggregate principal amount of
$12,061,070 mature in 1996, as discussed below. The remaining purchase money
notes mature from 1997 to 2015. The purchase money notes are generally secured
by the Partnership's interest in the respective Local Partnership. 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.
As of September 30, 1995 and December 31, 1994, the Partnership's
obligations with respect to its investment in Local Partnerships included
$119,544 due to local general partners, plus accrued interest on these
obligations of $33,976.
Purchase money notes, plus accrued interest, relating to the following
properties mature in 1996:
-14-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
<TABLE>
<CAPTION>
Property Principal Amount Maturity Date
-------- ---------------- -------------
<S> <C> <C>
Briar Crest I $ 525,050 January 1, 1996
Briar Crest II 415,920 January 1, 1996
Briar Hills 458,100 January 1, 1996
Indian Hills 327,000 January 1, 1996
Park Heights Tower 2,135,000 January 1, 1996
Village Squire I & II 3,660,000 March 1, 1996
Village Squire III 2,440,000 March 1, 1996
Cedar Valley 2,100,000 May 1, 1996
</TABLE>
As noted above, the purchase money notes relating to Village Squire I & II
and Village Squire III mature on March 1, 1996. The local general partner of
these properties and the Managing General Partner are working together to
refinance the existing first mortgages, which is expected to provide sufficient
proceeds to the Partnership to pay off the related purchase money notes at a
slight discount. There is no assurance that the necessary financing for the
first mortgages can be obtained or that the offer to the purchase money
noteholders to accept a discounted payoff will be accepted. Therefore, there is
no assurance that the Partnership will be able to retain its interest in the
Local Partnerships. The uncertainty about the continued ownership of the
Partnership's interest in the related Local Partnerships does not impact the
Partnership's financial condition because the related purchase money notes are
nonrecourse and collateralized solely by the Partnership's interest in the Local
Partnerships. Therefore, should the investment in Village Squire I & II and/or
Village Squire III not produce sufficient value to satisfy the related purchase
money notes, 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 Partnerships. Thus, even a complete loss of these
investments would not have a material impact on the operations of the
Partnership. However, should the Partnership be unable to retain its interest
in these Local Partnerships, the investments in Local Partnerships would be
reduced by the Partnership's basis in these Local Partnerships, which at
September 30, 1995, was approximately 15% of the total investment in Local
Partnerships.
The Managing General Partner is continuing to investigate possible
alternatives to reduce the Partnership's other long-term debt obligations
maturing in 1996, as discussed above. There is no assurance that any offer to
the noteholders will be accepted. Therefore, there is no assurance that the
Partnership will be able to retain its interest in the Local Partnerships. The
uncertainty about the continued ownership of the Partnership's interest in the
related Local Partnerships does not impact the Partnership's financial condition
because the related purchase money notes are nonrecourse and collateralized
solely by the Partnership's interest in the Local Partnerships. Should the
investment in any of the above listed Local Partnership's, excluding Indian
Hills, not produce sufficient value to satisfy the related purchase money notes,
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 Partnerships. Thus, even a complete loss of these
investments would not have a material impact on the operations of the
-15-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
Partnership. However, should the Partnership be unable to retain its interest
in all of these Local Partnerships, the investments in Local Partnerships would
be reduced by the Partnership's basis in these Local Partnerships, which at
September 30, 1995, was approximately 14% of the total investment in Local
Partnerships. In the case of Indian Hills, the carrying amount of the
investment exceeds the amount of nonrecourse indebtedness, however, the
Partnership's exposure to loss is limited to this excess, which at September 30,
1995 was approximately $900,000.
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 primarily due to an increase in
purchase money note interest expense as a result of the amortization of imputed
interest. Contributing to the increase in net loss was a decrease in income
from Local Partnerships primarily resulting from increased operating expenses at
two properties and increased interest expense at another property, which were
partially offset by an increase in rental revenues at three properties and a
decrease in interest expense at one property. Also contributing to the increase
in net loss was an increase in general and administrative expenses, resulting
from the recognition of decreased annual report printing costs in the third
quarter of 1994. Partially offsetting the increase in net loss was a decrease
in professional fees resulting from lower appraisal and legal fees.
The Partnership's net loss for the nine months ended September 30, 1995
increased from the comparable periods in 1994 primarily due to the extraordinary
gain on early extinguishment of the Arboretum Village purchase money note in
1994. Contributing to the increase in net loss was a decrease in income from
the Local Partnerships, resulting principally from the receipt of a distribution
in 1994 in excess of the Partnership's basis due to the refinancing of the
Arboretum Village first mortgage. This decrease in income from the Local
Partnerships was partially offset by an increase in rental revenues at three
properties and a decrease in interest expense at one property, as discussed
above. Also contributing to the increase in the Partnership's net loss was an
increase in purchase money note interest expense as a result of the amortization
of imputed interest, and a decrease in interest and other income related to the
receipt in 1994 of the outstanding receivable and accrued interest from Arbor
Club. Partially offsetting the increase in net loss was a decrease in
professional fees, 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. As a result, the Partnership's recognized income for
the three and nine months ended September 30, 1995 did not include losses of
$234,551 and $703,665 compared to excluded losses of $161,065 and $483,199 for
the three and nine months ended September 30, 1994, respectively.
The local general partners of Kapetan Associates Limited Partnership
(Congress Plaza) had been negotiating a sale for Congress Plaza. Because
-16-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
certain contingencies were not satisfied, the offer to purchase the property has
expired and negotiations have ended.
In September 1995, the Department of Housing and Urban Development (HUD)
sold the mortgage of New Fifth Lakewood Associates Limited Partnership (Walden
Apartments) to a new mortgagee. The new mortgagee will now service the loan and
Walden Apartments will no longer be subject to HUD regulatory requirements.
Many of the rental properties owned by the Local Partnerships have
mortgages which are federally insured under Section 236 or Section 221(d)(3) of
the National Housing Act, as amended. These properties 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 were recommending substantial changes to the LIHPRHA
program ranging from the elimination of the program to the redesigning of the
program. Substantial uncertainty exists as to whether any properties which have
already filed the notice of intent to participate under LIHPRHA will qualify
under a redesigned program or as to whether the program will continue at all.
Many of the 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.
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.
-17-
<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-III
LIMITED PARTNERSHIP
(Registrant)
By: C.R.I., Inc.
Managing General Partner
October 17, 1995 /s/ Richard J. Palmer
- ----------------------- ------------------------------
Date Richard J. Palmer
Senior Vice President/Finance
Signing on behalf of the
Registrant and as Principal
Accounting Officer
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 2,993,918
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 34,922,394
<CURRENT-LIABILITIES> 0
<BONDS> 68,279,259
<COMMON> 0
0
0
<OTHER-SE> (33,487,765)
<TOTAL-LIABILITY-AND-EQUITY> 34,922,394
<SALES> 0
<TOTAL-REVENUES> 1,602,774
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 444,314
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,796,967
<INCOME-PRETAX> (5,638,507)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,638,507)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,638,507)
<EPS-PRIMARY> (91.16)
<EPS-DILUTED> (91.16)
</TABLE>
