<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 June 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 June 30, 1995
- ------------------------- ----------------------------------
(Not applicable) (Not applicable)
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1995
Page
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1995
and December 31, 1994 . . . . . . . . . . 1
Consolidated Statements of Operations - for
the three and six months ended June 30, 1995
and 1994 . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows - for
the six months ended June 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 . . . . . . . . . . . . . . . . 13
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . 15
Signature . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
Investments in partnerships $ 30,021,192 $ 30,085,154
Cash and cash equivalents 2,908,262 2,681,974
Acquisition fees, principally paid
to related parties, net of
accumulated amortization of
$416,192 and $397,948,
respectively 678,447 696,691
Property purchase costs, net of
accumulated amortization of
$372,065 and $355,253,
respectively 636,668 653,480
Other assets 46,111 21,223
------------ ------------
Total assets $ 34,290,680 $ 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
LIABILITIES AND PARTNERS' DEFICIT
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
Due on investments in partnerships,
net of unamortized discount on
purchase money notes of
$14,573,744 and $16,438,856,
respectively $ 21,608,696 $ 19,743,584
Accrued interest payable 44,419,974 42,155,444
Accounts payable and accrued
expenses 99,178 88,752
------------ ------------
Total liabilities 66,127,848 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 (83,974,054) (79,986,144)
------------ ------------
Total partners' deficit (31,837,168) (27,849,258)
------------ ------------
Total liabilities and
partners' deficit $ 34,290,680 $ 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
June 30,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Share of income from partnerships $ 235,460 $ 1,896,903
------------ ------------
Other revenue and expenses:
Revenue:
Interest and other income 41,998 51,388
------------ ------------
Expenses:
Interest 2,265,656 1,978,736
Management fee 75,000 75,000
General and administrative 27,814 50,614
Professional fees 26,077 40,591
Amortization 17,528 17,528
------------ ------------
2,412,075 2,162,469
------------ ------------
Total other revenue and
expenses (2,370,077) (2,111,081)
------------ ------------
Loss before early extinguishment of
debt (2,134,617) (214,178)
Gain on early extinguishment of debt -- 3,052,664
------------ ------------
Net (loss) income (2,134,617) 2,838,486
Accumulated losses, beginning of
period (81,839,437) (78,989,758)
------------ ------------
Accumulated losses, end of period $(83,974,054) $(76,151,272)
============ ============
</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
June 30,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
(Loss) income allocated to General
Partners (1.51%) $ (32,232) $ 42,861
============ ============
(Loss) income allocated to Initial and
Special Limited Partners (1.49%) $ (31,806) $ 42,293
============ ============
(Loss) income allocated to Additional
Limited Partners (97%) $ (2,070,579) $ 2,753,332
============ ============
(Loss) income per unit of Additional
Limited Partnership Interest based
on 60,000 units outstanding $ (34.51) $ 45.89
============ ============
</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 six months ended
June 30,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Share of income from partnerships $ 766,610 $ 2,234,556
------------ ------------
Other revenue and expenses:
Revenue:
Interest and other income 81,508 132,530
------------ ------------
Expenses:
Interest 4,531,112 4,037,539
Management fee 150,000 150,000
General and administrative 68,126 82,915
Professional fees 51,734 69,732
Amortization 35,056 35,056
------------ ------------
4,836,028 4,375,242
------------ ------------
Total other revenue and expenses (4,754,520) (4,242,712)
------------ ------------
Loss before early extinguishment of
debt (3,987,910) (2,008,156)
Gain on early extinguishment of debt -- 3,052,664
------------ ------------
Net (loss) income (3,987,910) 1,044,508
Accumulated losses, beginning of period (79,986,144) (77,195,780)
------------ ------------
Accumulated losses, end of period $(83,974,054) $(76,151,272)
============ ============
</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 six months ended
June 30,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
(Loss) income allocated to General
Partners (1.51%) $ (60,217) $ 15,772
============ ============
(Loss) income allocated to Initial and
Special Limited Partners (1.49%) $ (59,420) $ 15,563
============ ============
(Loss) income allocated to Additional
Limited Partners (97%) $ (3,868,273) $ 1,013,173
============ ============
(Loss) income per unit of Additional
Limited Partnership Interest based
on 60,000 units outstanding $ (64.47) $ 16.89
============ ============
</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 six months ended
June 30,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (3,987,910) $ 1,044,508
Adjustments to reconcile net (loss)
income to net cash used in operating
activities:
Share of income from partnerships (766,610) (2,234,556)
Amortization of deferred costs 35,056 35,056
Amortization of discount of purchase
money notes 1,865,112 1,206,821
Gain on early extinguishment of debt -- (3,052,664)
Payment of interest on notes payable -- (80,064)
Payment of purchase money note
interest (401,469) (291,759)
Changes in assets and liabilities:
(Increase) decrease in other assets (24,888) 212,455
Increase in accrued interest
payable 2,665,999 2,830,720
Increase in accounts
payable and accrued expenses 10,426 6,375
------------ ------------
Net cash used in operating
activities (604,284) (323,108)
------------ ------------
Cash flows from investing activities:
Receipt of distributions from
partnerships 830,572 3,971,594
------------ ------------
</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 six months ended
June 30,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Pay-off of purchase money note -- (3,387,382)
Pay-off of note payable -- (2,100,000)
------------ ------------
Net cash used in financing
activities -- (5,487,382)
------------ ------------
Net increase (decrease) in cash and cash
equivalents 226,288 (1,838,896)
Cash and cash equivalents, beginning of
period 2,681,974 4,873,861
------------ ------------
Cash and cash equivalents, end of period $ 2,908,262 $ 3,034,965
============ ============
</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 June 30, 1995 and December 31, 1994, and its consolidated
results of operations for the three and six months ended June 30, 1995 and 1994
and its consolidated cash flows for the six months ended June 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 June 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
$14,573,744) plus accrued interest of $44,385,998, 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 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 six months ended June 30, 1995 was $2,265,656 and $4,531,112, respectively,
and for the three and six months ended June 30, 1994 was $1,922,156 and
$3,941,584, respectively. Amortization of the imputed interest on purchase
money notes increased interest expense during the three and six months ended
June 30, 1995 by $932,556 and $1,865,112, respectively, and by $595,796 and
$1,206,821 during the three and six months ended June 30, 1994, respectively.
-9-
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. INVESTMENTS IN PARTNERSHIPS - Continued
As of June 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.
New Fifth Lakewood Associates Limited Partnership (Walden Apartments) was
notified by HUD that HUD plans to offer its mortgage loan for sale in July 1995.
If the mortgage is sold by HUD, a new mortgagee would service the loan and
Walden Apartments would no longer be subject to HUD regulatory requirements.
Many of the rental properties owned by the Local Partnerships have
mortgages which were 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 July 14,
1995, members of Congress are recommending substantial changes to the LIHPRHA
program ranging from the elimination of the program to the redesigning of the
program. Substantial 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 Department of Housing and Urban Development (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>
The Managing General Partner is continuing to investigate possible
alternatives to reduce the Partnership's long-term debt obligations, as
discussed above. There is no assurance that any offer to the noteholders will
be accepted.
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
June 30,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Revenue:
Rental revenue $ 8,132,593 $ 7,887,096
Other 381,818 360,006
------------ ------------
8,514,411 8,247,102
------------ ------------
Expenses:
Operating 5,322,663 5,328,387
Interest 1,761,705 1,741,769
Depreciation and amortization 1,427,604 1,433,358
------------ ------------
8,511,972 8,503,514
------------ ------------
Net income (loss) $ 2,439 $ (256,412)
============ ============
</TABLE>
-11-
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. INVESTMENTS IN PARTNERSHIPS - Continued
<TABLE>
<CAPTION>
For the six months ended
June 30,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Revenue:
Rental revenue $ 16,111,394 $ 15,533,683
Other 731,700 721,628
------------ ------------
16,843,094 16,255,311
------------ ------------
Expenses:
Operating 10,159,914 9,982,741
Interest 3,523,410 3,483,535
Depreciation and amortization 2,855,205 2,866,710
------------ ------------
16,538,529 16,332,986
------------ ------------
Net income (loss) $ 304,565 $ (77,675)
============ ============
</TABLE>
As of June 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 $11,238,615 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.
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 $24,733 and $45,770 for the three and six months ended June 30,
1995, respectively, and $33,152 and $54,459 for the three and six months ended
June 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 $150,000 for the three and six
months, respectively, ended June 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.
-12-
<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 $2,908,262 and $2,681,974 as of June 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 July 14, 1995, there are no material
commitments for capital expenditures.
As of June 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
$14,573,744) plus accrued interest of $44,385,998, 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 proceeds to
pay off or buy down certain purchase money note obligations.
As of June 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:
<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>
-13-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------------------
The Managing General Partner is continuing to investigate possible
alternatives to reduce the Partnership's long-term debt obligations, as
discussed above. There is no assurance that any offer to the noteholders will
be accepted.
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 six months ended June 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 and six months ended June 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 operating expenses at another property. 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 resulting from lower appraisal and legal fees, as well as a decrease in
general and administrative expenses, primarily due to decreased annual report
printing costs.
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 six months ended June 30, 1995 did not include losses of $234,561
and $469,114 compared to excluded losses of $161,070 and $322,134 for the three
and six months ended June 30, 1994, respectively.
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.
New Fifth Lakewood Associates Limited Partnership (Walden Apartments) was
notified by HUD that HUD plans to offer its mortgage loan for sale in July 1995.
If the mortgage is sold by HUD, a new mortgagee would service the loan and
Walden Apartments would no longer be subject to HUD regulatory requirements.
Many of the rental properties owned by the Local Partnerships have
mortgages which were 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
-14-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------------------
buyers or obtaining supplemental financing for the property. As of July 14,
1995, members of Congress are recommending substantial changes to the LIHPRHA
program ranging from the elimination of the program to the redesigning of the
program. Substantial 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 Department of Housing and Urban Development (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 June 30, 1995.
All other items are not applicable.
-15-
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CAPITAL REALTY INVESTORS-III
LIMITED PARTNERSHIP
(Registrant)
By: C.R.I., Inc.
Managing General Partner
July 18, 1995 /s/ Richard J. Palmer
- ----------------------- ------------------------------
Date Richard J. Palmer
Senior Vice President/Finance
Signing on behalf of the
Registrant and as Principal
Accounting Officer
-16-
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
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BY REFERENCE TO SUCH 10-Q.
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
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0
0
<OTHER-SE> (31,837,168)
<TOTAL-LIABILITY-AND-EQUITY> 34,290,680
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<TOTAL-REVENUES> 848,118
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