<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 March 31, 1995
--------------
Commission file number 0-11962
-------
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. Yes X 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 March 31, 1995
- ------------------------- ----------------------------------
(Not applicable) (Not applicable)
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
Page
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1995
and December 31, 1994 . . . . . . . . . . 1
Consolidated Statements of Operations - for
the three months ended March 31, 1995
and 1994 . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Cash Flows - for
the three months ended March 31, 1995
and 1994 . . . . . . . . . . . . . . . . . 3
Notes to Consolidated Financial Statements . 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . 8
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . 10
Signature . . . . . . . . . . . . . . . . . . . . . 11
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
Investments in partnerships $ 30,272,882 $ 30,085,154
Cash and cash equivalents 2,626,733 2,681,974
Acquisition fees, principally paid
to related parties, net of
accumulated amortization of
$407,070 and $397,948,
respectively 687,569 696,691
Property purchase costs, net of
accumulated amortization of
$363,659 and $355,253,
respectively 645,074 653,480
Other assets 35,091 21,223
------------ ------------
Total assets $ 34,267,349 $ 34,138,522
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Due on investments in partnerships,
net of unamortized discount on
purchase money notes of
$15,506,300 and $16,438,856,
respectively 20,676,140 19,743,584
Accrued interest payable 43,214,028 42,155,444
Accounts payable and accrued
expenses 79,732 88,752
------------ ------------
Total liabilities 63,969,900 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 (81,839,437) (79,986,144)
------------ ------------
The accompanying notes are an integral part
of these consolidated financial statements.
-1-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
Total partners' deficit (29,702,551) (27,849,258)
------------ ------------
Total liabilities and
partners' deficit $ 34,267,349 $ 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
---------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Share of income from partnerships $ 531,150 $ 337,653
------------ ------------
Other revenue and expenses:
Revenue:
Interest and other income 39,510 81,142
------------ ------------
Expenses:
Interest 2,265,456 2,058,803
Management fee 75,000 75,000
General and administrative 40,312 32,301
Professional fees 25,657 29,141
Amortization 17,528 17,528
------------ ------------
2,423,953 2,212,773
------------ ------------
Total other revenue and
expenses (2,384,443) (2,131,631)
------------ ------------
Net loss (1,853,293) (1,793,978)
Accumulated losses, beginning of
period (79,986,144) (77,195,780)
------------ ------------
Accumulated losses, end of period $(81,839,437) $(78,989,758)
============ ============
Loss allocated to General
Partners (1.51%) $ (27,985) $ (27,089)
============ ============
Loss allocated to Initial and
Special Limited
Partners (1.49%) $ (27,614) $ (26,730)
============ ============
Loss allocated to Additional
Limited Partners (97%) $ (1,797,694) $ (1,740,159)
============ ============
Loss per unit of Additional Limited
Partnership Interest based on
60,000 units outstanding $ (29.96) $ (29.00)
============ ============
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
The accompanying notes are an integral part
of these consolidated financial statements.
-3-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
---------------------
<TABLE>
<CAPTION>
For the three months ended
March 31,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating
activities:
Net loss $ (1,853,293) $ (1,793,978)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Share of income from
partnerships (531,150) (337,653)
Amortization of deferred
costs 17,528 17,528
Amortization of discount of
purchase money notes 932,556 611,025
Payment of purchase money note
interest (274,316) (54,275)
Changes in assets and
liabilities:
(Increase) decrease in other
assets (13,868) 209,716
Increase in accrued interest
payable 1,332,900 1,447,779
Decrease in accounts payable
and accrued expenses (9,020) (29,041)
------------ ------------
Net cash (used in) provided
by operating activities (398,663) 71,101
------------ ------------
Cash flows from investing
activities:
Receipt of distributions from
partnerships 343,422 138,855
------------ ------------
Net (decrease) increase in cash
and cash equivalents (55,241) 209,956
Cash and cash equivalents,
beginning of period 2,681,974 4,873,861
------------ ------------
Cash and cash equivalents,
end of period $ 2,626,733 $ 5,083,817
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-4-
<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 March 31, 1995 and December 31, 1994, and its consolidated
results of operations for the three months ended March 31, 1995 and 1994 and its
consolidated cash flows for the three months ended March 31, 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 to
conform to 1995 presentation.
2. INVESTMENTS IN PARTNERSHIPS
As of March 31, 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
$15,506,300) plus accrued interest of $43,180,052, are payable upon the earlier
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. 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
months ended March 31, 1995 and 1994 was $2,265,456 and $2,019,428,
respectively. Amortization of the imputed interest on purchase money notes
increased interest expense during the three months ended March 31, 1995 and 1994
by $932,556 and $611,025, respectively.
-5-
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. INVESTMENTS IN PARTNERSHIPS - Continued
As of March 31, 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) are currently negotiating a sale for Congress Plaza. On May
13, 1994, a contract for the sale of Congress Plaza was signed. However, as of
April 24, 1995, certain contingencies have not been satisfied. The anticipated
sales proceeds to the Partnership generated by the Congress Plaza transaction
are expected to be sufficient to retire the purchase money note obligation of
the Partnership with respect to such property. The sale is anticipated to be
concluded in 1995; however, there is no assurance that the sale will be
completed as expected.
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 April 24,
1995, members of Congress are recommending substantial changes to the LIHPRHA
program ranging from the elimination of the program to redesigning the program.
Substantial doubt 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 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.
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.
-6-
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. INVESTMENTS IN PARTNERSHIPS - Continued
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Revenue:
Rental revenue $ 7,978,801 $ 7,646,587
Other 349,882 361,622
------------ ------------
8,328,683 8,008,209
------------ ------------
Expenses:
Operating 4,837,251 4,654,354
Interest 1,761,705 1,741,766
Depreciation and amortization 1,427,601 1,433,352
------------ ------------
8,026,557 7,829,472
------------ ------------
Net income $ 302,126 $ 178,737
============ ============
</TABLE>
As of March 31, 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 $11,004,054 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 $21,037 and $21,307 for the three months ended March 31, 1995
and 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 for each of the three-month periods ended
March 31, 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
-7-
<PAGE>
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. RELATED PARTY TRANSACTIONS - Continued
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.
-8-
<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 $2,626,733 and $2,681,974 as of March 31, 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 April 24, 1995, there are no material
commitments for capital expenditures.
As of March 31, 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
$15,506,300) plus accrued interest of $43,180,052, are payable upon the earlier
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. 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 March 31, 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 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, 1995, the receipt of
distributions from Local Partnerships was supplemented by existing cash and cash
equivalents to support operating cash requirements.
-9-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------------------
Results of Operations
---------------------
The Partnership's net loss for the three months ended March 31, 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 the Partnership's net loss was 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 an increase in share of income from
Local Partnerships principally due to increases in occupancy at three
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. As a result, the Partnership's recognized income for
the three months ended March 31, 1995 did not include losses of $234,553
compared to excluded losses of $161,064 for the three months ended March 31,
1994.
The local general partners of Kapetan Associates Limited Partnership
(Congress Plaza) are currently negotiating a sale for Congress Plaza. On May
13, 1994, a contract for the sale of Congress Plaza was signed. However, as of
April 24, 1995, certain contingencies have not been satisfied. The anticipated
sales proceeds to the Partnership generated by the Congress Plaza transaction
are expected to be sufficient to retire the purchase money note obligation of
the Partnership with respect to such property. The sale is anticipated to be
concluded in 1995; however, there is no assurance that the sale will be
completed as expected.
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 April 24,
1995, members of Congress are recommending substantial changes to the LIHPRHA
program ranging from the elimination of the program to redesigning the program.
Substantial doubt 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 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
-10-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------------------
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 March 31, 1995.
All other items are not applicable.
-11-
<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
May 1, 1995 /s/ Richard J. Palmer
- ----------------------- ------------------------------
Date Richard J. Palmer
Senior Vice President/Finance
Signing on behalf of the
Registrant and as Principal
Accounting Officer
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FIRST QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 2,626,733
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 34,267,349
<CURRENT-LIABILITIES> 0
<BONDS> 63,890,168
<COMMON> 0
0
0
<OTHER-SE> (29,702,551)
<TOTAL-LIABILITY-AND-EQUITY> 34,267,349
<SALES> 0
<TOTAL-REVENUES> 570,660
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 158,497
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,265,456
<INCOME-PRETAX> (1,853,293)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,853,293)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,853,293)
<EPS-PRIMARY> (29.96)
<EPS-DILUTED> (29.96)
</TABLE>
