<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report
March 18, 1996
CAPITAL REALTY INVESTORS TAX EXEMPT FUND III LIMITED PARTNERSHIP
- -------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
- -------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
1-12034 52-1551450
- -------------------------------- ---------------------------------
(Commission File Number) (IRS Employer Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
- -------------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
(301) 468-9200
- -------------------------------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE>
ITEM 5. OTHER EVENTS
------------
As described in the following NEWS RELEASE, Capital Realty Investors
Tax Exempt Fund III Limited Partnership has filed preliminary joint proxy
materials with the Securities and Exchange Commission regarding the previously
announced proposed merger with affiliates of Capital Apartment Properties, Inc.
FOR IMMEDIATE RELEASE
CONTACT: James T. Pastore
Pastore Communications Group
202-546-6451
Susan T. Backman or
Curtis C. Rimmey
CRITEF Partnerships
301-231-0231
CRITEF General Partners File Merger Proxy; Announce Increased CRITEF-II
Consideration
ROCKVILLE, MD, Mar. 18, 1996 -- (AMEX: CRA, CRB, CRL) -- The general
partners of two Capital Realty Investors Tax Exempt Fund limited partnerships
(CRITEF partnerships) said today they have filed preliminary joint proxy
materials with the Securities and Exchange Commission regarding the previously
announced proposed merger of the partnerships with affiliates of Capital
Apartment Properties, Inc. (CAPREIT).
Under the merger terms, the holders of the CRITEF partnerships'
Beneficial Assignee Certificates (BACs) are expected to receive an aggregate
gross amount of approximately $158.8 million in cash for their interests in the
partnerships. This amount is subject to adjustment at closing, but the aggregate
gross merger consideration for the BACs will not be less than $157.3 million or
greater than $160.3 million.
The proxy statement includes the fairness opinions rendered by
Oppenheimer & Co., Inc. to the CRITEF partnerships.
The closing of the merger transactions is subject to, among other
things, clearance of the proxy statement by the Securities and Exchange
Commission and approval by the BAC holders at special meetings of the CRITEF
partnerships.
There are two CRITEF partnerships with three series of securities that
trade on the American Stock Exchange:
- - Capital Realty Investors Tax Exempt Fund Limited Partnership, Series I
(CRITEF-I) (AMEX:CRA);
- - Capital Realty Investors Tax Exempt Fund Limited Partnership, Series II
(CRITEF-II) (AMEX:CRB);
- - Capital Realty Investors Tax Exempt Fund III Limited Partnership
(CRITEF-III) (AMEX:CRL).
<PAGE>
ITEM 5. OTHER EVENTS - Continued
------------
Since the terms were last announced on Feb. 1, 1996, the consideration for
CRITEF-II has been increased approximately eight cents ($.08) per BAC.
The gross redemption prices of the BACs in the merger are as follows:
- - $14.41 per BAC for CRITEF-I's 2,280,000 BACs, subject to adjustment but not
less than $14.27 or greater than $14.55;
- - $14.24 per BAC for CRITEF-II's 3,238,760 BACs, subject to adjustment but not
less than $14.10 or greater than $14.38;
- - $15.18 per BAC for CRITEF-III's 5,258,268 BACs, subject to adjustment but not
less than $15.04 or greater than $15.32.
The per-BAC gross amounts above, as adjusted, will be reduced by any
plaintiffs' counsels' fees and expenses as may be awarded by the court in a
pending class action suit. The parties have agreed to settle the suit subject
to preliminary court approval. After that, the parties will send notice of the
proposed settlement to class members for approval.
The CRITEF partnerships together hold 18 tax-exempt mortgage revenue bonds
used to finance multifamily housing communities in eight states. Formed by CRI
in 1986 and 1987, the partnerships began trading on the American Stock Exchange
on July 1, 1993.
CAPREIT, based in Rockville, Maryland, is a self-managed private real estate
investment trust. CAPREIT owns 30 multifamily complexes containing 7,512 units
located in 10 states. In addition, CAPREIT manages another 40 apartment
communities (including 14 of the CRITEF communities) for third-party owners.
The largest shareholder in CAPREIT is Apollo Real Estate Investment Fund, L.P.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial Statements of Businesses Acquired
None
(b) Pro Forma Financial Information
None
(c) Exhibits
Exhibit No. 99 - Additional Exhibits
Financial statements for certain borrowers (nominee entities of the
Partnership which took title to certain properties) are being provided as
exhibits. Certain of these financial statements include explanatory language in
the independent accountants' report expressing doubt about the borrower's
ability to continue as a going concern. The explanatory language resulted from a
borrower's inability to generate sufficient cash flow to meet its mortgage loan
obligations to the Partnership. As the Partnership is the holder of these
mortgage loans and nominees of the Partnership have taken title to the
properties that secure the loans, the borrower's ability to continue as a going
concern has no impact on the Partnership's ability to continue as a going
concern.
These financial statements are prepared on an income tax basis of
accounting and not pursuant to Regulation S-X. Management has presented these
financial statements for informational purposes only.
a. CRICO of Ethan's II Limited Partnership ( A Missouri Limited
Partnership) Financial Statements As of December 31, 1995 and
1994, Together With Auditors' Report
b. Financial Statements and Independent Auditors' Report Geary
Courtyard Associates December 31, 1995
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS - Continued
---------------------------------
c. Financial Statements and Independent Auditors' Report CRICO of
Ocean Walk Limited Partnership December 31, 1995
d. Financial Statements and Independent Auditors' Report CRICO of
Regency Woods Limited Partnership December 31, 1995
e. Financial Statements and Independent Auditors' Report CRICO of
Valley Creek II Limited Partnership December 31, 1995
f. Financial Statements and Independent Auditors' Report CRICO of
Woodlane Place Limited Partnership December 31, 1995
g. CRICO of Ethan's II Limited Partnership (A Missouri Limited
Partnership) Financial Statements As of December 31, 1994 and
1993, Together With Auditors' Report
h. Financial Statements and Independent Auditors' Report Geary
Courtyard Associates December 31, 1994
i. Financial Statements and Independent Auditors' Report CRICO of
Ocean Walk Limited Partnership December 31, 1994
j. Financial Statements and Independent Auditors' Report CRICO of
Valley Creek II Limited Partnership December 31, 1994
k. Financial Statements and Independent Auditors' Report CRICO of
Woodlane Place Limited Partnership December 31, 1994
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Capital Realty Investors Tax Exempt Fund III
Limited Partnership
(Registrant)
By: CRITEF III Associates Limited Partnership,
General Partner
By: C.R.I., Inc., Managing General Partner
March 22, 1996 By: /s/ Richard J. Palmer
- ------------------ --------------------------------------
Date Richard J. Palmer
Senior Vice President
<PAGE>
EXHIBIT INDEX
Exhibit Page
- ------- ----
(99) Additional Exhibits
a. CRICO of Ethan's II Limited Partnership ( A Missouri
Limited Partnership) Financial Statements As of December
31, 1995 and 1994, Together With Auditors' Report
b. Financial Statements and Independent Auditors' Report
Geary Courtyard Associates December 31, 1995
c. Financial Statements and Independent Auditors' Report
CRICO of Ocean Walk Limited Partnership December 31, 1995
d. Financial Statements and Independent Auditors' Report
CRICO of Regency Woods Limited Partnership December 31,
1995
e. Financial Statements and Independent Auditors' Report
CRICO of Valley Creek II Limited Partnership December 31,
1995
f. Financial Statements and Independent Auditors' Report
CRICO of Woodlane Place Limited Partnership December 31,
1995
g. CRICO of Ethan's II Limited Partnership (A Missouri
Limited Partnership) Financial Statements As of December
31, 1994 and 1993, Together With Auditors' Report
h. Financial Statements and Independent Auditors' Report
Geary Courtyard Associates December 31, 1994
i. Financial Statements and Independent Auditors' Report
CRICO of Ocean Walk Limited Partnership December 31, 1994
j. Financial Statements and Independent Auditors' Report
CRICO of Valley Creek II Limited Partnership December 31,
1994
k. Financial Statements and Independent Auditors' Report
CRICO of Woodlane Place Limited Partnership December 31,
1994
<PAGE>
EXHIBIT 99.a
CRICO OF ETHAN'S II LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994,
TOGETHER WITH AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
CRICO of Ethan's II Limited Partnership:
We have audited the accompanying balance sheets - income tax basis - of CRICO of
Ethan's II Limited Partnership (a Missouri limited partnership, the
"Partnership") as of December 31, 1995 and 1994, and the related income tax
basis statements of operations, changes in partners' deficit and cash flows for
the years then ended. These financial statements and the schedules referred to
below are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and the
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 3 to the financial statements, these financial statements
were prepared on the income tax basis of accounting, which is a comprehensive
basis of accounting other than generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CRICO of Ethan's II Limited
Partnership as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for the years then ended, on the income tax basis of
accounting described in Note 3 to the financial statements.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 2 to the
financial statements, the Partnership was in default at December 31, 1995, with
regard to its mortgage loan agreement, due to its inability to generate
sufficient cash flow to meet the contractual obligations of this agreement.
Additionally, the Partnership does not expect to be able to generate sufficient
cash flow to meet its contractual obligations under the mortgage loan agreement
in 1996. This issue raises substantial doubt about the Partnership's ability to
continue as a going concern. Management's plan in regard to this matter is
described in Note 2 to the financial statements. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
<PAGE>
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The U.S. Department of Housing and Urban
Development Statement of Profit and Loss and Schedule I are presented for
purposes of additional analysis and are not a required part of the basic
financial statements. This information has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated, in all material respects, in relation to the basic
financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Washington, D.C.,
January 31, 1996
<PAGE>
CRICO OF ETHAN'S II LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
BALANCE SHEETS
(INCOME TAX BASIS)
AS OF DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
----------- -----------
FIXED ASSETS:
<S> <C> <C>
Land $ 888,211 $ 888,211
Building and improvements 8,467,154 8,458,077
Furniture, fixtures and equipment 532,325 494,619
----------- -----------
Total 9,887,690 9,840,907
Less- Accumulated depreciation (2,175,219) (1,817,956)
----------- -----------
Net fixed assets 7,712,471 8,022,951
----------- -----------
CURRENT ASSETS:
Cash 70,272 63,426
Prepaid insurance 17,526 14,400
Tenant accounts receivable - 843
Other assets 11,497 11,784
----------- -----------
Total current assets 99,295 90,453
----------- -----------
RESTRICTED CASH:
Tenants' security deposits, separately
held in an interest-bearing account 21,096 20,728
Escrow deposits 272,482 156,229
----------- -----------
Total restricted cash 293,578 176,957
----------- -----------
OTHER ASSETS-
Favorable financing, net of
accumulated amortization of $75,013 55,847 68,988
and $61,872 in 1995 and 1994,
respectively
----------- -----------
Total assets $ 8,161,191 $ 8,359,349
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CRICO OF ETHAN'S II LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
BALANCE SHEETS
(INCOME TAX BASIS)
AS OF DECEMBER 31, 1995 AND 1994
LIABILITIES AND PARTNERS' DEFICIT
<TABLE>
<CAPTION>
1995 1994
----------- -----------
CURRENT LIABILITIES:
<S> <C> <C>
Accrued interest $ 321,263 $ 155,226
Accounts payable 36,369 29,882
Accrued mortgage servicing fee 109,635 43,854
Mortgage loan payable 10,525,000 10,525,000
Construction period
deferred base interest payable 526,077 526,077
----------- -----------
Total current liabilities 11,518,344 11,280,039
TENANTS' SECURITY DEPOSITS 20,128 19,968
----------- -----------
Total liabilities 11,538,472 11,300,007
PARTNERS' DEFICIT (3,377,281) (2,940,658)
----------- -----------
Total liabilities and $ 8,161,191 $ 8,359,349
partners' deficit =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CRICO OF ETHAN'S II LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(INCOME TAX BASIS)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
OPERATING INCOME:
Rental income $1,404,264 $1,347,727
Interest income 13,176 6,829
Other income 68,613 55,131
---------- ----------
Total operating income 1,486,053 1,409,687
---------- ----------
OPERATING EXPENSES:
Real estate taxes 73,428 136,796
Mortgage servicing fees 65,781 65,781
Salaries and related payroll costs 123,942 139,373
Repairs and maintenance 124,920 100,671
Fuel and utilities 76,079 77,018
Marketing 50,423 50,054
Management fee 54,529 52,086
Insurance 25,547 24,872
Professional fees 5,855 7,780
Other 30,831 22,996
---------- ----------
Total operating expense 631,335 677,427
---------- ----------
Income from operations 854,718 732,260
DEPRECIATION 357,263 352,026
AMORTIZATION OF FAVORABLE FINANCING 13,141 13,141
INTEREST ON MORTGAGE LOAN 920,937 920,937
---------- ----------
Net loss $ (436,623) $ (553,844)
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF PROFIT AND LOSS U.S. Department of Housing and Urban Development
- INCOME TAX BASIS Office of Housing
All amounts must be rounded to the nearest dollar; Federal Housing Commissioner
$.50 and over, round up - $.49 and below, round down. OMB Approval No. 2502-0052(Exp. 8/31/89)
For Month/Period For Month/Period Project Number: Project Name:
Beginning Ending
January 1, 1995 December 31, 1995 CRICO of Ethan's II Limited Partership
---------------- ----------------- --------------- --------------------------------------
Part I Description of Account Acct. No.
- --------------------------------------------------------------------------------------------------------------
5000 - REVENUE ACCOUNTS
<S> <C> <C> <C>
Rental Income - 5100
Apartments or Member Carrying Charges (Coops) 5120 1,522,609
------- -----------
Tenant Assistance Payments 5121
------- -----------
Furniture and Equipment 5130 0
------- -----------
Stores and Commercial 5140 0
------- -----------
Garage and Parking Spaces 5170 0
------- -----------
Flexible Subsidy Income 5180 0
------- -----------
Miscellaneous (specify) 5190 0
------- -----------
Total Rent Revenue Potential at 100% Occupancy $1,522,609
------- ----------- ----------
Vacancies - 5200
Apartments 5220 (118,345)
------- -----------
Furniture and Equipment 5230 0
------- -----------
Stores and Commercial 5240 0
------- -----------
Garage and Parking Spaces 5270 0
------- -----------
Miscellaneous (specify) 5290 0
------- -----------
Total Vacancies $ (118,345)
------- ----------- ----------
Net Rental Revenue (Rent Revenue Less Vacancies) $1,404,264
------- ----------- ----------
Elderly and Congregate Services Income - 5300
Total Service Income 5300 $ 0
------- ----------- ----------
Financial Revenue - 5400
Interest Income - Project Operations 5410 687
------- -----------
Income from Investments - Residual Receipts 5430 0
------- -----------
Income from Investments - Reserve for Replacement 5440 7,290
------- -----------
Income from Investments - Miscellaneous (Escrows) 5490 5,199
------- -----------
Total Financial Revenue $ 13,176
------- ----------- ----------
Other Revenue - 5900
Laundry and Vending 5910 3,615
------- -----------
NSF and Late Charges 5920 4,077
------- -----------
Damages and Cleaning Fees 5930 0
------- -----------
Forfeited Tenant Security Deposits 5940 3,098
------- -----------
Other Revenue (specify) Application Fees (see Schedule I) 5990 57,823
------- -----------
Total Other Revenue $ 68,613
------- ----------- ----------
Total Revenue $1,486,053
------- ----------- ----------
<CAPTION>
6000 - PROJECT EXPENSES
<S> <C> <C> <C>
Administrative Expenses - 6200/6300
Advertising 6210 33,299
------- -----------
Other Renting Expense (see Schedule I) 6250 20,620
------- -----------
Office Salaries 6310 36,597
------- -----------
Office Supplies 6311 2,002
------- -----------
Office or Model Apartment Rent 6312 53
------- -----------
Management Fee 6320 54,529
------- -----------
Manager or Superintendent Salaries 6330 22,406
------- -----------
Manager or Superintendent Rent Free Unit 6331 3,750
------- -----------
Legal Expenses (Project) 6340 105
------- -----------
Auditing Expenses (Project) 6350 5,750
------- -----------
Bookkeeping Fees/Accounting Services 6351 0
------- -----------
Telephone and Answering Service 6360 3,920
------- -----------
Bad Debts 6370 6,606
------- -----------
Miscellaneous Administrative Expenses (specify) (see
Schedule I) 6390 5,004
------- -----------
Total Administrative Expenses $ 194,641
------- ----------- ----------
Utilities Expense - 6400
Fuel Oil/Coal 6420 0
------- -----------
Electricity 6450 21,705
------- -----------
Water 6451 36,491
------- -----------
Gas 6452 0
------- -----------
Sewer 6453 17,883
------- -----------
Total Utilities Expense $ 76,079
------- ----------- ----------
Total Expenses (Carry forward to page 2) $ 270,720
------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
Balance from
Acct. No. Page 1 $ 270,720
--------- ------------ ----------
<S> <C> <C> <C>
Operating and Maintenance Expenses - 6500
Janitor and Cleaning Payroll 6510 15,458
--------- ------------
Janitor and Cleaning Supplies 6515 762
--------- ------------
Janitor and Cleaning Contract 6517 11,995
--------- ------------
Exterminating Payroll/Contract 6519 2,405
--------- ------------
Exterminating Supplies 6520 0
--------- ------------
Garbage and Trash Removal 6525 3,196
--------- ------------
Security Payroll/Contract 6530 0
--------- ------------
Grounds Payroll 6535 0
--------- ------------
Grounds Supplies 6536 8,781
--------- ------------
Grounds Contracts 6537 19,281
--------- ------------
Repairs Payroll 6540 32,413
--------- ------------
Repairs Material 6541 15,118
--------- ------------
Repairs Contract 6542 3,983
--------- ------------
Elevator Maintenance/Contract 6545 0
--------- ------------
Heating/Cooling Repairs Maintenance 6546 3,031
--------- ------------
Swimming Pool Maintenance/Contract 6547 1,772
--------- ------------
Snow Removal 6548 5,959
--------- ------------
Decorating Payroll/Contract 6560 12,005
--------- ------------
Decorating Supplies 6561 0
--------- ------------
Vehicle & Maintenance Equipment Operation and Repairs 6570 0
--------- ------------
Miscellaneous Operating & Maintenance Expense (see
Schedule I) 6590 38,722
--------- ------------
Total Operating & Maintenance Expenses $ 174,881
--------- ------------ ----------
Taxes and Insurance - 6700
Real Estate Taxes 6710 73,428
--------- ------------
Payroll Taxes (FICA) 6711 13,318
--------- ------------
Miscellaneous Taxes, Licenses and Permits 6719 160
--------- ------------
Property and Liability Insurance (Hazard) 6720 20,242
--------- ------------
Fidelity Bond Insurance 6721 0
--------- ------------
Workmen's Compensation 6722 516
--------- ------------
Health Insurance & Other Employee Benefits 6723 4,789
--------- ------------
Other Insurance (specify) 6729 0
--------- ------------
Total Taxes and Insurance $ 112,453
--------- ------------ ----------
Financial Expenses - 6800
Interest on Bonds Payable 6810 0
--------- ------------
Interest on Mortgage Payable 6820 920,937
--------- ------------
Interest on Notes Payable (Long-Term) 6830 0
--------- ------------
Interest on Notes Payable (Short-Term) 6840 0
--------- ------------
Mortgage Insurance Premium/Service Charge 6850 65,781
--------- ------------
Miscellaneous Financial Expenses (Trustee fees) 6890 7,500
--------- ------------
Total Financial Expenses $994,218
--------- ------------ ----------
Elderly and Congregate Service Expenses
Total Service Expenses - Schedule Attached 6900 0
--------- ------------
Total Cost of Operations before Depreciation $1,552,272
--------- ------------ ----------
Profit (Loss) before Depreciation $ (66,219)
--------- ------------ ----------
Depreciation (Total) - 6600 (specify) and Amortization 6600 370,404
--------- ------------
Operating Profit or (Loss) $ (436,623)
--------- ------------ ----------
Corporate or Mortgagor Entity Expenses - 7100
Officer Salaries 7110 0
--------- ------------
Legal Expenses (Entity) 7120 0
--------- ------------
Taxes (Federal-State-Entity) 7130-32 0
--------- ------------
Other Expenses (Entity) 7190 0
--------- ------------
Total Corporate Expenses $ 0
--------- ------------ ----------
Net Profit or (Loss) $ (436,623)
--------- ------------ ----------
</TABLE>
Miscellaneous or other Income & Expense Sub-account Groups. If
miscellaneous or other and/or expense sub-accounts (5190, 5290, 5490,
5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by
10% or more, attach a separate schedule describing or explaining the
miscellaneous income or expense.
Part II
1. Total principal payments required under the mortgage even if payments under a
Workout Agreement are less or more than those required under the mortgage.
$ 0
2. Replacement Reserve deposits required by the Regulatory Agreement or
Amendment thereto, even if payments may be temporarily suspended or waived.
$ 36,300
3. Replacement or Painting Reserve releases which are included as expense items
on this Profit and loss Statement.
$ 0
4. Project improvement Reserve Releases under the Flexible Subsidy Program that
are included as expense items on this Profit and Loss Statement.
$ 0
The accompanying notes are an integral part of these financial statements.
<PAGE>
CRICO OF ETHAN'S II LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(INCOME TAX BASIS)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
--------- ----------- -----------
<S> <C> <C> <C>
PARTNERS' DEFICIT, December 31, 1993 $(222,091) $(2,164,723) $(2,386,814)
Net loss (60,876) (492,968) (553,844)
--------- ----------- -----------
PARTNERS' DEFICIT, December 31, 1994 (282,967) (2,657,691) (2,940,658)
Net loss (4,366) (432,257) (436,623)
--------- ----------- -----------
PARTNERS' DEFICIT, December 31, 1995 $(287,333) $(3,089,948) $(3,377,281)
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
CRICO OF ETHAN'S II LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(INCOME TAX BASIS)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(436,623) $(553,844)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities-
Depreciation and amortization 370,404 365,167
Increase/decrease in assets and
liabilities:
Prepaid insurance (3,126) (339)
Tenant accounts receivable 843 (843)
Other assets 287 923
Escrow deposits (116,253) 30,029
Accounts payable 6,487 21,582
Accrued mortgage servicing fee 65,781 43,854
Accrued interest 166,037 78,481
Tenants' security deposits (208) (760)
--------- ---------
Cash provided by (used in) 53,629 (15,750)
operating activities --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES-
Purchase of fixed assets (46,783) (2,738)
--------- ---------
NET (DECREASE) INCREASE IN CASH 6,846 (18,488)
CASH, beginning of year 63,426 81,914
--------- ---------
CASH, end of year $ 70,272 $ 63,426
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION-
Cash paid during the year for $ 754,900 $ 842,456
interest ========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
CRICO OF ETHAN'S II LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
1. ORGANIZATION:
CRICO of Ethan's II Limited Partnership (the "Partnership") was formed April 15,
1990, for the purpose of acquiring interests in and/or investing in real and
personal property, including owning and operating an apartment complex in Kansas
City, Missouri. According to the provisions of the First Amended and Restated
Partnership Agreement (the "Agreement"), CRICO of Ethan's II, Inc., is the
general partner and CRICO of Iona, Inc., David A. Sislen, P. Richard Zitelman,
and Sislen Housing Partners are the limited partners. The financing for the
apartment complex was obtained from Capital Realty Investors Tax Exempt Fund
Limited Partnership ("CRITEF III"), a publicly traded limited partnership. The
general partner of CRITEF III is CRITEF III Associates Limited Partnership,
whose managing general partner is CRI, Inc. and the shareholders of CRI, Inc.
The general partner of the Partnership, CRICO of Ethan's I Inc., a Delaware
Corporation, is affiliated with CRI, Inc. and affiliated with all of the above
mentioned entities. According to the Agreement, the Partnership will terminate
on December 31, 2030, if not terminated sooner.
The Partnership owns a 242-unit apartment complex known as Ethan's Glen ("Phase
IIA" or the "Project"). This complex is part of a two-phase project involving
three apartment complexes, collectively known as Ethan's Ridge. The other
complexes, known as Ethan's Ridge ("Phase I") and Ethan's Glen ("Phase IIB"),
are owned by CRICO of Ethan's I Limited Partnership, an affiliated entity.
Construction of the Project commenced in 1988 and was completed on March 31,
1990. Under the terms of the bonds issued to provide permanent financing for
the Project, at least 20 percent of the completed project units must be occupied
by individuals or families qualified as lower income tenants under certain
sections of the Internal Revenue Code. At December 31, 1995 and 1994, the
Project complied with this requirement.
2. GOING CONCERN:
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern, which assumes the realization of
assets and the satisfaction of liabilities in the normal course of business. As
of December 31, 1995, the Partnership was in default with regard to the mortgage
loan agreement due to its inability to generate sufficient cash flow to meet its
contractual obligations under this agreement. Consequently, there is
substantial doubt about the Partnership's ability to continue as a going
concern. The accompanying financial statements do not include any adjustment
that might result should the Partnership be unable to continue as a going
concern. The Partnership's lender, CRITEF III, has
<PAGE>
- 2 -
not availed itself of any of its contractual rights and remedies provided by the
mortgage loan agreement and is effectively treating this obligation as a cash
flow mortgage.
CRITEF III entered into a merger agreement, subject to shareholder approval,
with Watermark III Partners, L.P. as of September 11, 1995, as amended on
January 31, 1996. Capital Apartment Properties Inc., who is the general partner
of Watermark III Partners LP, may therefore pursue one of the following
scenarios with respect to the Partnership:
. the current Partnership structure would be preserved and all of the
partnership interests would be transferred to CAPREIT Residential Properties
("CAPREIT"),
or
. the current Partnership structure would be preserved and CAPREIT would replace
the 1 percent general partner while leaving the 99 percent limited partner in
place,
or
. the current partnership structure would be collapsed and all of the assets and
liabilities of the partnership would be assumed by CAPREIT or one of its
subsidiaries.
3. SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The Partnership's financial statements have been prepared on the accrual basis
of accounting used for Federal income tax purposes, as required by the
Agreement. The principal difference between the income tax basis and generally
accepted accounting principles ("GAAP") is that an intangible asset has been
recognized for income tax purposes representing the value to the Partnership of
its favorable financing and that certain assets were written up to their fair
market values when they were transferred to the Partnership. The intangible
asset is being amortized for income tax purposes on a straight-line basis over
the remaining life of the mortgage loan. Depreciation and amortization are also
computed under tax regulations which may differ from GAAP (see separate note
below).
Management believes that the Federal income tax treatment of the respective
items entering into the determination of taxable loss is supportable based on
its interpretation of the Internal Revenue Code and the related regulations,
public rulings, and court decisions in effect as of the date of this report.
Since the Federal income tax treatment of certain items may be based on
conflicting or imprecise authoritative pronouncements, such treatment may be
successfully challenged by the Internal Revenue Service.
RECLASSIFICATIONS
Certain amounts in the financial statements for 1994 have been reclassified to
conform with 1995 presentation.
<PAGE>
- 3 -
FAVORABLE FINANCING
On April 15, 1990, certain assets, liabilities, and operations were transferred
from the Project's previous owners to the Partnership in full satisfaction of
the related bond indebtedness. Upon transfer, assets and liabilities were
recorded at their respective fair values, and an intangible asset was
recognized, representing the value to the Partnership of the favorable financing
provided by the mortgage loan. According to Federal income tax rules and
regulations, the sale price equates to the face value of the indebtedness
assumed. Under tax guidelines, the intangible asset is being amortized on a
straight-line basis over the remaining life of the mortgage loan.
DEPRECIATION
Depreciation is computed under Federal income tax rules and regulations as
follows.
LIFE
(YEARS) BASIS
--------- ----------------------
Building and improvements 27.5 Straight line
Furniture, fixtures and equipment 7.0 200% declining balance
Repairs and maintenance are charged to expense when incurred, while major
improvements are capitalized in the applicable asset accounts. Additions to
buildings and improvements in 1995 consist of $9,077 of costs capitalized for
replacement of trash enclosures. Additions to furniture, fixtures and equipment
in 1995 consist of $37,706 of costs capitalized for replacement of carpets of
$29,601 and office and clubhouse furniture and exercise equipment of $8,105.
Additions to building and improvements in 1994 consisted of $2,738 of costs
capitalized for replacement of a sprinkler system.
INCOME TAXES
No provision for Federal income taxes is reflected in these financial statements
since the income or loss of the Partnership is included in the individual income
tax returns of the respective partners.
4. PARTNERSHIP AGREEMENT:
The general partner has a 1 percent ownership interest, and the limited partners
together have a 99 percent ownership interest in the Partnership. In accordance
with the original Partnership Agreement, the general partner contributed $1, and
the original limited partner, CRICO of Iona, Inc., contributed $99 to the
Partnership.
<PAGE>
- 4 -
On July 6, 1990, two additional limited partners joined the Partnership with a
contribution of $8,732 each. On November 1, 1991, the two additional limited
partners each increased their contributed capital by $3,715 to $12,447,
respectively, to acquire a total limited partner interest of 24.995 percent
each. Also on that date, a third additional limited partner joined the
Partnership with a contribution of $7,430 and acquired a 49 percent limited
partner interest. The Partnership was expanded to admit these new limited
partners in consideration of their commitment to make additional capital
contributions, as set forth in the first amendment to Agreement.
Notwithstanding the additional capital contribution obligations, the general
partner retains the right to remove these limited partners from the Partnership
at any time after April 15, 1992. As of December 31, 1995, this right has not
been exercised.
Pursuant to the terms of the Agreement, all profits and losses, as defined, are
allocated to the partners, pro rata, in accordance with their percentage
interests after giving effect to certain allocations specified in the Agreement.
Cash flow, as defined, is to be distributed at the discretion of the general
partner (a) for the payments of all debts, liabilities and reasonable and
necessary expenses of operating the Partnership when due, (b) to set up any
reserves deemed necessary for any contingent or unforeseen liabilities or
obligations of the Partnership, and (c) to the partners, pro rata, in accordance
with their Partnership interests. Capital proceeds from the sale, refinancing,
or other disposition of the Partnership's property will be distributed (a) for
the payment of all debts and liabilities of the Partnership then due, (b) to set
up any reserves deemed necessary for any contingent or unforeseen liabilities or
obligations of the Partnership, (c) to the partners in the amounts of their
capital contributions, and (d) to the partners, pro rata, in accordance with
their percentage interests.
5. MANAGEMENT AGREEMENT:
Prior to February 1994, CRICO Management of Minnesota, Inc. ("CRICO of
Minnesota"), a related party to the general partner, was the manager of the
property, with management fees payable monthly at 3.75 percent of gross revenues
with an annual incentive fee of 0.5 percent of gross revenues, as defined by the
agreement.
Effective February 1, 1994, the property management contract was acquired by
CAPREIT Residential Corporation. Management fees are payable to CAPREIT
Residential Corporation at the same rate and terms as under the agreement with
CRICO of Minnesota. As of December 31, 1995 and 1994, management fees paid were
$54,529 and $52,086, respectively. Of the 1994 management fee amount paid,
management fees of $ 8,752 were paid to CRICO of Minnesota. In addition, during
1995 and 1994, no incentive fees were paid.
6. MORTGAGE LOAN PAYABLE:
Permanent financing for the Project was provided through Multifamily Housing
Revenue Bonds issued by the Industrial Development Authority of the city of
Kansas City, Missouri ("Authority"), and purchased by CRITEF III, an affiliate
and the bond owner. The permanent financing for the Project equals $10,525,000
and is due March 31, 2000. Upon maturity, all outstanding principal and
interest, including base interest and construction period deferred based
interest, is due and payable. The bonds are collateralized by the apartment
complex and an assignment of rents.
<PAGE>
- 5 -
The bonds for the Project bear a base annual interest rate of 8.75 percent, a
primary contingent interest rate of 1.75 percent per annum to be paid each
quarter from the net cash flow, as defined, and a supplemental contingent
interest rate of 5.5 percent per annum to be paid each quarter from 60 percent
of net cash flow, as defined, remaining after deduction of primary contingent
interest. If the quarterly net cash flow is insufficient, primary and
supplemental contingent interest are deferred without interest until the earlier
of sale or refinancing of the Project or maturity to the extent excess net
proceeds or fair value, as defined, exists. Because net cash flow for the years
ended December 31, 1995 and 1994, was insufficient, no provision has been
recorded for primary or supplemental contingent interest in the accompanying
financial statements. The unpaid primary contingent interest balances at
December 31, 1995 and 1994, were $1,059,079 and $874,891, respectively. The
unpaid supplemental contingent interest balances at December 31, 1995 and 1994,
were $3,328,531 and $2,748,656, respectively. Pursuant to terms of the
Partnership Agreement, interest is also accrued on base interest payable,
compounded at the base interest rate. The balances as of December 31, 1995 and
1994, were $18,573 and $3,179, respectively. Because this amount is payable out
of available cash flow after the payment of all current and accrued base
interest and all current and accrued servicing fees, it is not recorded on the
books of the Partnership. During the construction period for the Project,
interest accrued at 9.7 percent and was payable at 6.206 percent, while the
balance of the interest was deferred and will be unconditionally due and payable
upon sale, refinancing, or maturity. As of December 31, 1995 and 1994, the
construction period deferred base interest payable was $526,077.
The following schedule presents interest deferred, interest paid and accrued
interest for the years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
CURRENTLY
DEFERRED PAYABLE TOTAL
---------- ------------ ----------
<S> <C> <C> <C>
ACCRUED INTEREST AT DECEMBER 31, 1993 $2,861,486 $ 76,745
---------- ------------
Base interest - 920,937 $ 920,937
Primary contingent interest 184,188 - 184,188
Supplemental contingent interest 578,875 - 578,875
Interest on base interest 3,179 - 3,179
---------- ------------ ----------
Total 1994 interest incurred 766,242 920,937 $1,687,179
==========
Interest paid from operations - (776,803)
Interest paid from reserves - (65,653)
---------- ------------
ACCRUED INTEREST AT DECEMBER 31, 1994 3,627,728 155,226
Base interest - 920,937 $ 920,937
Primary contingent interest 184,188 - 184,188
Supplemental contingent interest 578,875 - 578,875
Interest on base interest 15,392 - 15,392
---------- ------------ ----------
Total 1995 interest incurred 778,455 920,937 $1,699,392
==========
Interest paid from operations (754,900)
Interest paid from reserves -
---------- ------------
ACCRUED INTEREST AT DECEMBER 31, 1995 $4,406,183 $ 321,263
========== ============
</TABLE>
<PAGE>
- 6 -
Interest on the bonds is intended to be exempt from Federal income tax pursuant
to the Internal Revenue Code. In connection with obtaining the bonds, a
regulatory agreement was executed which provides, among other things, that
substantially all of the proceeds of the bonds issued be utilized to finance
multifamily housing in which 20 percent or more of the completed units in the
Project will be occupied on a continuous basis by individuals or families of low
or moderate income, as determined under certain sections of the Internal Revenue
Code. In the event that the underlying bonds do not maintain their tax-exempt
status, whether by a change in law or by noncompliance with the rules and
regulations related thereto, repayment of the bonds may be accelerated.
Effective July 1, 1995, CRIIMI MAE Services Limited Partnership ("CMSLP")
acquired the rights to service the mortgage from CRICO Mortgage Company. Also
on July 1, 1995, all of the unpaid mortgage servicing fees accrued through June
30, 1995 were transferred to CRI, Inc., an affiliate of the Partnership's
general partner. In addition, the owners of CRI, Inc. are the directors and are
officers of the general partner of CMSLP and CRIIMI MAE Management, Inc. (a
wholly owned subsidiary of CRIIMI MAE Inc., a publicly held corporation). At
December 31, 1995, mortgage servicing fees of $76,745 are payable to CRI, Inc.,
and $32,890 are payable to CMSLP.
As discussed in Note 2, the Partnership was in default under the terms of the
mortgage loan agreement at December 31, 1995.
7. ESCROW DEPOSITS:
In 1995 and 1994, escrow deposits consist of the following.
<TABLE>
<CAPTION>
TAX AND
REPLACEMENT INSURANCE
RESERVE ESCROW TOTAL
----------- --------- ---------
<S> <C> <C> <C>
BALANCE, December 31, 1993 $104,388 $ 32,265 $ 136,653
Deposits 36,300 163,200 199,500
Withdrawals:
Insurance - (19,198) (19,198)
Taxes - (136,796) (136,796)
Transfer to interest - (20,000) (20,000)
Other (10,044) - (10,044)
Interest earned 2,472 3,642 6,114
----------- --------- ---------
BALANCE, December 31, 1994 133,116 23,113 156,229
Deposits 36,300 164,400 200,700
Withdrawals:
Insurance - (23,368) (23,368)
Taxes - (73,428) (73,428)
Service charges (140) - (140)
Interest earned 7,290 5,199 12,489
----------- --------- ---------
BALANCE, December 31, 1995 $176,566 $ 95,916 $ 272,482
=========== ========= =========
</TABLE>
<PAGE>
- 7 -
The replacement reserve and tax and insurance escrow accounts were established
to fund future capital improvements and real estate taxes and insurance
premiums, respectively. The Partnership is required to deposit the following
amounts into the replacement reserve: $31,763 in 1992 and $36,300 thereafter
until the balance of the reserve is $318,000. The Partnership is required to
make monthly payments into the tax and insurance escrow, each equaling one-
twelfth of the Project's estimated annual real estate taxes and insurance
premiums. During 1995 and 1994, the Partnership made all required deposits into
these accounts.
8. RELATED-PARTY TRANSACTIONS:
Certain expenditures applicable to the Project, Phase I and Phase IIB are billed
to and paid by the management company or by another affiliate. Amounts are
reimbursable and are maintained in the due to/from affiliate account on the
Project's books. These common charges are allocated to each of the projects on
a pro rata basis based on the number of dwelling units in each apartment
complex. As of December 31, 1995, the amount due from affiliates was $0.
<PAGE>
SCHEDULE I
CRICO OF ETHAN'S II LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
SUPPLEMENTAL SCHEDULE TO HUD STATEMENT OF PROFIT AND LOSS
(INCOME TAX BASIS)
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
<S> <C>
ACCOUNT NO. 5990 - OTHER REVENUE:
Nonrefundable fees $12,040
Application fees 5,274
Pet fees 6,385
Bad debt collections 6,340
Cancellations fees 1,090
Parking income 12,639
Insurance proceeds from 12,617
hail storm damage
Other fees 1,438
---------
Total other revenue $57,823
=========
ACCOUNT NO. 6250 - OTHER RENTING EXPENSE:
Rental concessions $15,603
Resident retention 120
Credit report 3,497
Resident referrals 1,400
---------
Total other renting expense $20,620
=========
ACCOUNT NO. 6390 - MISCELLANEOUS
ADMINISTRATIVE EXPENSE:
Employee relations and computer $ 2,003
expenses
Other 3,001
---------
Total miscellaneous $ 5,004
administrative expense =========
ACCOUNT NO. 6590 - MISCELLANEOUS OPERATING
AND MAINTENANCE EXPENSE:
Exterior painting 10,000
Parking lots and walkway repair 8,262
Grounds and landscaping 6,569
Hail storm damage expense 2,090
Pool maintenance 6,084
Other 5,717
---------
Total miscellaneous $38,722
operating and =========
maintenance expense
</TABLE>
The accompanying notes are an integral part of this schedule.
<PAGE>
EXHIBIT 99.b
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
GEARY COURTYARD ASSOCIATES
DECEMBER 31, 1995
<PAGE>
Geary Courtyard Associates
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS
STATEMENT OF ASSETS, LIABILITIES AND PARTNERS'
DEFICIT - INCOME TAX BASIS 5
STATEMENT OF PROFIT AND LOSS - INCOME TAX BASIS 6
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX BASIS 8
STATEMENT OF CASH FLOWS - INCOME TAX BASIS 9
NOTES TO FINANCIAL STATEMENTS 10
SUPPLEMENTAL INFORMATION
SCHEDULE OF CAPITAL IMPROVEMENTS RECLASSIFIED
TO OPERATING EXPENSES 20
<PAGE>
[LETTERHEAD OF REZNICK FEDDER & SILVERMAN]
INDEPENDENT AUDITORS' REPORT
To the Partners
Geary Courtyard Associates
We have audited the accompanying statement of assets, liabilities and
partners' deficit - income tax basis of Geary Courtyard Associates as of
December 31, 1995, and the related statements of profit and loss - income tax
basis (on HUD Form No. 92410), partners' deficit - income tax basis, and cash
flows -income tax basis for the year then ended. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As described in Note A, these financial statements were prepared on the
basis of accounting the Partnership uses for income tax purposes, which is a
comprehensive basis of accounting other than generally accepted accounting
principles.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets, liabilities and partners' deficit of Geary
Courtyard Associates as of December 31, 1995, and its profit and loss, changes
in partners' deficit, and its cash flows for the year then ended, on the basis
of accounting described in Note A.
-3-
<PAGE>
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note B to the
financial statements, the inability to generate sufficient cash flow to cover
debt service payments has resulted in the Partnership's recurring operating
deficits, and the Partnership is in default of its contractual obligations under
the mortgage loan agreement. These conditions raise substantial doubt about the
Partnership's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note B. The financial statements
do not include any adjustments that might result from the outcome of these
uncertainties.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information, has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
/s/ REZNICK FEDDER SILVERMAN
Baltimore, Maryland
January 12, 1996
-4-
<PAGE>
Geary Courtyard Associates
STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT - INCOME TAX BASIS
December 31, 1995
ASSETS
INVESTMENT IN REAL ESTATE
Building $19,276,225
Furniture and equipment 320,968
-----------
19,597,193
Less accumulated depreciation 1,881,723
-----------
17,715,470
Land 3,429,188
-----------
21,144,658
-----------
OTHER ASSETS
Cash 43,511
Tenant accounts receivable 62,610
Prepaid expenses 48,931
Tenant security deposits 25,227
Mortgage escrows 67,475
Replacement reserve 93,346
Loan costs, net of accumulated amortization
of $50,530 93,267
-----------
434,367
-----------
$21,579,025
===========
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES APPLICABLE TO INVESTMENT IN REAL ESTATE
Mortgages payable $18,900,000
Deferred interest payable 818,160
Accrued interest payable - mortgages 5,722,503
Accrued mortgage servicing fee 584,753
-----------
26,025,416
----------
OTHER LIABILITIES
Accounts payable 46,486
Tenant security deposits 37,376
----------
83,862
----------
PARTNERS' DEFICIT (4,530,253)
----------
$21,579,025
==========
-5-
<PAGE>
<TABLE>
<CAPTION>
U.S. DEPARTMENT OF HOUSING
AND URBAN DEVELOPMENT
Statement of Profit and Office of Housing
Loss - Income Tax Basis Federal Housing Commissioner OMB Approval No. 2502-0052 (exp. 8/31/92)
- ------------------------------------------------------------------------------------------------------------------------------------
Public Reporting Burden for this collection of information is estimated to average 1.0 hours per response,
including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data
needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate
or any other aspect of this collection of information, including suggestions for reducing this burden, to the
Reports Management Officer, Office of Information Policies and Systems, U.S. Department of Housing and Urban
Development, Washington, D.C. 20410-3600, and to the Office of Management and Budget Paperwork Reduction Project
(2502-0052), Washington, D.C. 20503. Do not send this completed form to either of these addresses.
- ------------------------------------------------------------------------------------------------------------------------------------
For Month/Period Project Number: Project Name:
Beginning: 1/1/95 Ending: 12/31/95 HUD Project Geary Courtyard Apartments
No.: N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Part I DESCRIPTION OF ACCOUNT ACCOUNT NO. AMOUNT*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Apartments or Member 5120 $ 355,505
Carrying Charges (Coops)
---------------------------------------------------------------------------------------
Tenant Assistance Payments 5121 $
---------------------------------------------------------------------------------------
RENTAL Furniture and Equipment 5130 $
---------------------------------------------------------------------------------------
INCOME Stores and Commercial 5140 $
---------------------------------------------------------------------------------------
5100 Garage and Parking Spaces 5170 $ 64,657
---------------------------------------------------------------------------------------
Flexible Subsidy Income 5180 $
---------------------------------------------------------------------------------------
Miscellaneous (Specify) - 5190 $ 1,551,740
Premium rentals
-----------------------------------------------------------------------------------------------------
TOTAL RENT REVENUE Potential at 100% Occupancy $ 1,971,902
- ----------------------------------------------------------------------------------------------------------------------------------
Apartments 5220 $( 394)
---------------------------------------------------------------------------------------
Furniture and Equipment 5230 $( )
---------------------------------------------------------------------------------------
VACANCIES Stores and Commercial 5240 $( )
5200 ---------------------------------------------------------------------------------------
Garage and Parking Spaces 5270 $( )
---------------------------------------------------------------------------------------
Miscellaneous (Specify) - 5290 $( 152,290)
Premium apartments
-----------------------------------------------------------------------------------------------------
TOTAL VACANCIES $ (152,684)
-----------------------------------------------------------------------------------------------------
NET RENTAL REVENUE Rent Revenue Less Vacancies $ 1,819,218
- ----------------------------------------------------------------------------------------------------------------------------------
ELDERLY AND CONGREGATE SERVICES INCOME-5300
TOTAL SERVICE INCOME 5300 $ $
(SCHEDULE ATTACHED)
- ----------------------------------------------------------------------------------------------------------------------------------
Interest Income-Project Operations 5410 $ 1,202
- --------------------------------------------------------------------------------------------------------------------
FINANCIAL Income from 5430 $
REVENUE Investments-Residual
5400 Receipts
---------------------------------------------------------------------------------------
Income from 5440 $ 2,328
Investments-Reserve for
Replacement
---------------------------------------------------------------------------------------
Income from 5490 $ 5,261
Investments-Escrows
-----------------------------------------------------------------------------------------------------
TOTAL FINANCIAL REVENUE $ 8,791
- ----------------------------------------------------------------------------------------------------------------------------------
Laundry and Vending 5910 $ 18,646
---------------------------------------------------------------------------------------
NSF and Late Charges 5920 $ 1,035
---------------------------------------------------------------------------------------
OTHER Damages and Cleaning Fees 5930 $ 4,611
---------------------------------------------------------------------------------------
REVENUE Forfeited Tenant Security 5940 $ 1,892
Deposits
5900 ---------------------------------------------------------------------------------------
OTHER REVENUE (SPECIFY) 5990 $ 20,166
-----------------------------------------------------------------------------------------------------
TOTAL OTHER REVENUE $ 46,350
-----------------------------------------------------------------------------------------------------
TOTAL REVENUE $ 1,874,359
- ----------------------------------------------------------------------------------------------------------------------------------
Advertising 6210 $ 28,276
---------------------------------------------------------------------------------------
Other Renting Expenses - 6250 $ 60,573
See Note G
---------------------------------------------------------------------------------------
Office Salaries 6310 $ 20,798
---------------------------------------------------------------------------------------
Office Supplies 6311 $ 11,709
---------------------------------------------------------------------------------------
Office or Model Apartment Rent 6312 $
---------------------------------------------------------------------------------------
ADMINISTRATIVE Management Fee 6320 $ 73,481
---------------------------------------------------------------------------------------
EXPENSES Manager or Superintendent Salaries 6330 $ 41,594
----------------------------------------------------------------------------------------
6200/6300 Manager or Superintendent 6331 $ 27,720
Rent Free Unit
---------------------------------------------------------------------------------------
Legal Expenses (Project) 6340 $
---------------------------------------------------------------------------------------
Auditing Expenses (Project) 6350 $ 9,995
---------------------------------------------------------------------------------------
Bookkeeping Fees/Accounting Services 6351 $ 4,560
---------------------------------------------------------------------------------------
Telephone and Answering Services 6360 $ 8,671
---------------------------------------------------------------------------------------
Bad Debts 6370 $ 654
---------------------------------------------------------------------------------------
Miscellaneous 6390 $ 90,815
Administrative Expenses
(Specify)
-----------------------------------------------------------------------------------------------------
TOTAL ADMINISTRATIVE EXPENSES $ 378,846
- -----------------------------------------------------------------------------------------------------------------------------------
Fuel Oil/Coal 6420 $
---------------------------------------------------------------------------------------
UTILITIES Electricity 6450 $ 32,205
---------------------------------------------------------------------------------------
EXPENSE Water 6451 $ 10,668
---------------------------------------------------------------------------------------
6400 Gas 6452 $ 16,365
---------------------------------------------------------------------------------------
Sewer 6453 $ 16,034
-----------------------------------------------------------------------------------------------------
TOTAL UTILITIES EXPENSE $ 75,272
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Janitor and Cleaning Payroll 6510 $ 32,663
---------------------------------------------------------------------------------------
Janitor and Cleaning Supplies 6515 $ 5,174
---------------------------------------------------------------------------------------
Janitor and Cleaning Contract 6517 $
---------------------------------------------------------------------------------------
Exterminating Payroll/Contract 6519 $
---------------------------------------------------------------------------------------
Exterminating Supplies 6520 $ 1,740
---------------------------------------------------------------------------------------
Garbage and Trash Removal 6525 $ 17,216
---------------------------------------------------------------------------------------
Security Payroll/Contract 6530 $ 67,323
---------------------------------------------------------------------------------------
Grounds Payroll 6535 $ 4,430
---------------------------------------------------------------------------------------
Grounds Supplies 6536 $ 4,006
---------------------------------------------------------------------------------------
OPERATING AND Grounds Contract 6537 $
---------------------------------------------------------------------------------------
MAINTENANCE Repairs Payroll 6540 $ 16,001
---------------------------------------------------------------------------------------
EXPENSES Repairs Material 6541 $ 24,219
---------------------------------------------------------------------------------------
6500 Repairs Contract 6542 $
---------------------------------------------------------------------------------------
Elevator Maintenance/Contract 6545 $ 15,599
---------------------------------------------------------------------------------------
Heating/Cooling Repairs and Maintenance 6546 $
---------------------------------------------------------------------------------------
Swimming Pool Maintenance/Contract 6547 $
---------------------------------------------------------------------------------------
Snow Removal 6548 $
---------------------------------------------------------------------------------------
Decorating Payroll/Contract 6560 $ 13,839
---------------------------------------------------------------------------------------
Decorating Supplies 6561 $ 11,476
---------------------------------------------------------------------------------------
Other 6570 $
---------------------------------------------------------------------------------------
Miscellaneous Operating 6590 $ 16,451
and Maintenance Expenses
-----------------------------------------------------------------------------------------------------
TOTAL OPERATING AND MAINTENANCE EXPENSES $ 230,137
- ----------------------------------------------------------------------------------------------------------------------------------
Real Estate Taxes 6710 $ 171,666
---------------------------------------------------------------------------------------
Payroll Taxes (FICA) 6711 $ 26,321
---------------------------------------------------------------------------------------
Miscellaneous Taxes, 6719 $ 5,700
Licenses and Permits
---------------------------------------------------------------------------------------
TAXES AND Property and Liability 6720 $ 56,345
Insurance (Hazard)
---------------------------------------------------------------------------------------
INSURANCE Fidelity Bond Insurance 6721 $
---------------------------------------------------------------------------------------
6700 Workmen's Compensation 6722 $ 4,928
---------------------------------------------------------------------------------------
Health Insurance & Other 6723 $ 29,820
Employee Benefits
---------------------------------------------------------------------------------------
Other Insurance (Specify) 6729 $
-----------------------------------------------------------------------------------------------------
TOTAL TAXES AND INSURANCE $ 294,780
- ----------------------------------------------------------------------------------------------------------------------------------
Interest on Bonds Payable 6810 $
---------------------------------------------------------------------------------------
Interest on Mortgage Payable 6820 $ 1,740,600
---------------------------------------------------------------------------------------
FINANCIAL Interest on Notes Payable (Long-Term) 6830 $
---------------------------------------------------------------------------------------
EXPENSES Interest on Notes Payable (Short-Term) 6840 $
---------------------------------------------------------------------------------------
6800 Mortgage Insurance 6850 $ 109,643
Premium/Service Charge
---------------------------------------------------------------------------------------
Miscellaneous Financial Expenses 6890 $ 27,900
-----------------------------------------------------------------------------------------------------
TOTAL FINANCIAL EXPENSES $ 1,878,143
- ----------------------------------------------------------------------------------------------------------------------------------
ELDERLY & Total Service 6900 $
Expenses-Schedule Attached
-----------------------------------------------------------------------------------------------------
CONGREGATE Total Cost of Operations Before Depreciation $ 2,857,178
-----------------------------------------------------------------------------------------------------
SERVICE PROFIT (LOSS) BEFORE DEPRECIATION $ (982,819)
-----------------------------------------------------------------------------------------------------
EXPENSES Depreciation (Total)-6600 (Specify) 6600 $ 757,383
-----------------------------------------------------------------------------------------------------
6900 OPERATING PROFIT OR (LOSS) $(1,740,202)
- ----------------------------------------------------------------------------------------------------------------------------------
Officer Salaries 7110 $
---------------------------------------------------------------------------------------
CORPORATE OR Legal Expenses (Entity) 7120 $
---------------------------------------------------------------------------------------
MORTGAGOR Taxes (Federal-State-Entity) 7130-32 $
---------------------------------------------------------------------------------------
ENTITY Other Expenses (Entity) 7190 $
---------------------------------------------------------------------------------------
EXPENSES Amortization 7190 $ 20,055
---------------------------------------------------------------------------------------
7100 TOTAL CORPORATE EXPENSES $ 20,055
-----------------------------------------------------------------------------------------------------
NET PROFIT OR (LOSS) $(1,760,257)
- ----------------------------------------------------------------------------------------------------------------------------------
Warning: HUD will prosecute false claims and statements. Conviction may result in criminal and/or civil penalties (18 U.S.C. 1001,
1010, 1012; 31 U.S.C. 3729, 3802) Miscellaneous or other Income and Expenses Sub-account Groups. If miscellaneous or other Income
and/or expense sub-accounts (5190, 5290, 5490, 5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or more,
attach a separate schedule describing or explaining the miscellaneous income or expense.
- ----------------------------------------------------------------------------------------------------------------------------------
PART II
- ----------------------------------------------------------------------------------------------------------------------------------
1. Total principal payments required under the mortgage, even if payments under a Workout Agreement $ N/A
are less or more than those required under the mortgage.
- ----------------------------------------------------------------------------------------------------------------------------------
2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto, even if $ 28,704
payments may be temporarily suspended or waived.
- ----------------------------------------------------------------------------------------------------------------------------------
3. Replacement or Painting Reserve releases which are included as expense items on the Profit and $ NONE
Loss statement.
- ----------------------------------------------------------------------------------------------------------------------------------
4. Project Improvement Reserve Releases under the Flexible Subsidy Program that are included as
expense items on this Profit and Loss statement. N/A
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 2 of 2 Form HUD-92410
See notes to financial statements
-7-
<PAGE>
Geary Courtyard Associates
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX BASIS
Year ended December 31, 1995
Partners' deficit, beginning $(2,769,996)
Net loss (1,760,257)
----------
Partners' deficit, ending $(4,530,253)
==========
-8-
<PAGE>
Geary Courtyard Associates
STATEMENT OF CASH FLOWS - INCOME TAX BASIS
Year ended December 31, 1995
<TABLE>
<CAPTION>
Cash flows from operating activities
<S> <C>
Net loss $(1,760,257)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation 757,383
Amortization 20,055
Changes in assets and liabilities
Increase in tenant accounts receivable (26,717)
Increase in prepaid expenses (8,896)
Decrease in net tenants' security deposits 6,665
Decrease in mortgage escrows (7,679)
Decrease in accounts payable (31,762)
Increase in accrued mortgage servicing fee 109,643
Increase in accrued interest payable 978,600
-----------
Net cash provided by operating activities 37,035
-----------
Cash flows from investing activities
Payments made for fixed asset additions (2,902)
Increase in replacement reserve (31,032)
-----------
Net cash used in investing activities (33,934)
-----------
Cash flows from financing activities
Principal payments under capital lease (24,400)
-----------
Net cash used in financing activities (24,400)
-----------
NET DECREASE IN CASH (21,299)
Cash, beginning 64,810
-----------
Cash, ending $ 43,511
===========
Supplemental disclosure of cash flow information
Cash paid for interest $ 762,000
===========
</TABLE>
-9-
<PAGE>
Geary Courtyard Associates
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The Partnership was formed as a limited partnership under the laws of the State
of California on December 23, 1985, for the purpose of constructing, owning and
operating a 164-unit rental housing project. The high-rise project, located at
639 Geary Street, San Francisco, California, operates under the name of Geary
Courtyard Apartments and consists of studio and one bedroom apartments which are
leased as both premium apartments and market rate units, of which 20% have been
set aside for persons with low or moderate incomes within the meaning of Section
103(b)(4)(A) of the Internal Revenue Code. All leases between the Partnership
and tenants of the property are operating leases.
Financing has been provided by Capital Realty Investors Tax Exempt Fund III
Limited Partnership from the proceeds of tax exempt Multifamily Housing Revenue
Bonds. The Partnership is regulated as to the operation of the project under a
regulatory agreement with the City and County of San Francisco.
On June 30, 1993, the 1% general partner interest and the 99% limited partner
interest were transferred to CRICO of Geary Courtyard, Inc. and CRICO Holdings,
Inc., affiliates of CRITEF III, in satisfaction of certain defaults under the
loan and guarantee agreements executed by the Partnership and the former general
partner. This transfer resulted in a technical termina tion of the Partnership
for federal income tax reporting purposes, as well as a step-up in the basis of
the investment in real estate to its fair market value, as of the date of the
transfer.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
-10-
<PAGE>
Geary Courtyard Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Income Tax Basis of Accounting
------------------------------
The Partnership maintains its accounts and the financial state ments have been
prepared on the accounting basis used for income tax purposes. Accordingly, the
building is depreciated using the Modified Accelerated Cost Recovery System, as
permitted by the Internal Revenue Code, rather than its estimated economic life
as required by generally accepted accounting principles. Also, rents received
in advance are recognized as income rather than deferred.
Investment in Real Estate
-------------------------
Investment in real estate is carried at cost, which is not in excess of net
realizable value. Depreciation is provided for in amounts sufficient to relate
the cost of depreciable assets to operations over their estimated service lives
using accelerated methods.
Loan Costs
----------
Loan costs are being amortized on a straight-line method over the remaining
terms of the mortgages.
Tenant Security Deposits
------------------------
Tenant security deposits are held in a separate interest bearing bank account in
the name of the Partnership.
Rental Income
-------------
Rental income is recognized as rentals are received.
Income Taxes
------------
No provision or benefit for income taxes has been included in these financial
statements since taxable income or loss passes through to, and is reportable by,
the partners individually.
-11-
<PAGE>
Geary Courtyard Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE B - REALIZATION OF ASSETS
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern, which assumes the realization of
assets and the satisfaction of liabilities in the normal course of business. As
of December 31, 1995, the Partnership was in default with regard to the mortgage
loan agreement due to its inability to generate sufficient cash flow to meet its
contractual obligations under this agreement. The Partnership's lender, (CRITEF
III), has not availed itself of any of its contractual rights and remedies
provided by the mortgage loan agreement and is effectively treating this
obligation as a cash flow mortgage.
CRITEF III entered into a Merger Agreement subject to shareholder approval, with
Watermark III Partners, L.P., as of September 11, 1995, as amended on January
31, 1996. Capital Apartment Properties, Inc. (CAPREIT), who is the general
partner of Watermark III Partners L.P., may therefore pursue one of the
following scenarios.
. The current Partnership structure would be preserved and all of the
Partnership interests would be transferred to CAPREIT; or
. The current Partnership structure would be preserved and CAPREIT would replace
the 1 percent general partner while leaving the 99 percent limited partner in
place; or
. The current Partnership structure would be collapsed and all of the assets and
liabilities of the Partnership would be assumed by CAPREIT or one of its
subsidiaries.
Consequently, there is substantial doubt about the Partnership's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustment that might result should the Partnership be unable to
continue as a going concern.
NOTE C - CAPITAL LEASES
The Partnership leased furniture under capital leases between the Partnership
and R&B Rehabilitation Services, Inc., an affiliate of the management agent.
These assets are included in furniture and equipment. The leases were paid in
full as of December 31, 1995.
-12-
<PAGE>
Geary Courtyard Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE D - RELATED PARTY TRANSACTIONS
The general partner of the Partnership, CRICO of Geary Courtyard, Inc., a
Maryland corporation, is a related party to the managing general partner of the
general partner of the holder of the mortgage for the project.
Mortgages Payable
-----------------
The first and second mortgages payable to CRITEF III in the combined amount of
$18,900,000 have been funded partially through the sale of City and County of
San Francisco Multifamily Housing Revenue Bonds ($18,000,000) and partially
through a working capital loan from CRITEF III ($900,000). The mortgages are
secured by first and second deeds of trust against the rental property and an
assignment of rents.
While the underlying City and County of San Francisco tax exempt Multifamily
Housing Revenue Bonds mature on December 1, 2008 (a twenty-year term), the
project's mortgage loans securing the bonds have terms not to exceed ten years.
Principal is not amortized during the term of the loans and is due in a lump-sum
payment on maturity of the mortgage (November 1, 1999) or at such earlier time
as CRITEF III may require under terms of the Indenture of Trust. The mortgages
may not be prepaid during the first seven years of the loan and may be
renegotiated between the seventh and tenth years.
As of December 31, 1995, the Partnership was in default with regard to its
mortgage due to its inability to generate suffi cient cash flow to meet its
contractual obligations under this agreement. CRITEF has not exercised its
contractual rights and remedies provided under the mortgage.
Interest is determined by the sum of three component rates, a base interest
rate, a primary contingent interest rate and a supplemental contingent interest
rate described as follows:
Base Interest accrues at a rate of 9.085% for the mortgage backed bond loan
-------------
and 11.7% for the working capital loan and is to be paid monthly from project
operations. At December 31, 1995, unpaid base interest amounted to $5,722,503.
At December 31, 1995, compounding interest calculated on the outstanding base
interest of $1,405,179 has not been recorded.
-13-
<PAGE>
Geary Courtyard Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE D - RELATED PARTY TRANSACTIONS (Continued)
In addition, for the first twenty months a construction period deferred base
interest was payable only as a priority distribu tion from the proceeds
available upon sale or refinancing and accrued at the rate of 2.285% for the
first year (construction period) and 1.81% for the next eight months (rent-up
period). The accrued construction period deferred base interest was $818,160 at
December 31, 1995.
Primary Contingent Interest is payable quarterly and only as a priority
- ---------------------------
distribution from first available net cash flow. The primary contingent
interest is to be paid currently each quarter if net cash flow is available on a
noncumulative basis. The total primary contingent interest cannot exceed a
maximum rate of 1.5% for the period from September 1, 1991 to December 31, 1993;
2.206% for the period from January 1, 1994 until December 31, 1997, and 1.5%
thereafter on both the bond and working capital mortgage loans. During the year
ended December 31, 1995, there was no net cash flow available to pay primary
contingent interest.
Supplemental Contingent Interest is payable quarterly only from the available
- --------------------------------
net cash flow remaining after payment of primary contingent interest. The
supplemental contingent interest is to be paid currently each quarter if net
cash flow after payment of primary contingent interest is available on a
noncumulative basis. The total supplemental contingent interest cannot exceed a
maximum rate of 5.415% on the bond mortgage and 6.3% on the working capital
mortgage. However, for the period from January 1, 1994 through December 31,
1997, the interest rate shall be 4.709% for the bond mortgage and 5.594% for the
working capital mortgage. Supplemental contingent interest is payable from 55%
of net cash flow as defined in the agreement. During the year ended December
31, 1995, there was no net cash flow available to pay supplemental contingent
interest.
-14-
<PAGE>
Geary Courtyard Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE D - RELATED PARTY TRANSACTIONS (Continued)
Shortfalls in Contingent Interest are to be paid as a priority distribution upon
sale or refinancing of the project as follows:
1. All primary contingent interest calculated and unpaid shall be paid from
net sales or refinance proceeds, if available, after the payment of all
outstanding principal on the mort-gages and any base interest, deferred
base interest and various fees related to the bonds that are unpaid at
the time of sale or refinancing.
2. All supplemental contingent interest calculated and unpaid shall be paid
from net sales or refinance proceeds remaining after the payment of the
shortfall, if any, in primary contingent interest.
At December 31, 1995, primary and supplemental contingent interest of $7,012,800
has not been recorded.
A summary of interest incurred on the mortgages for the year ended December 31,
1995 is as follows:
<TABLE>
<CAPTION>
Currently
Deferred Payable Total
---------- ----------- ----------
<S> <C> <C> <C>
Base interest $ - $1,740,600 $1,740,600
Primary contingent interest 416,934 - 416,934
Supplemental contingent interest 897,966 - 897,966
---------- ---------- ----------
Total interest incurred 1,314,900 1,740,600 $3,055,500
==========
Accrued interest payable,
beginning 5,697,900 5,562,063
Interest paid - (762,000)
---------- ----------
Accrued interest payable,
ending $7,012,800 $6,540,663
========== ==========
</TABLE>
-15-
<PAGE>
Geary Courtyard Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE D - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Administration and Servicing Fee is payable monthly to the servicer at
- -----------------------------------------
an amount equal to .625% per annum of the outstanding principal amount of the
bonds and working capital loan. The servicer, through June 30, 1995, was CRICO
Mortgage Company, Inc., an affiliated entity of the general partner. Effective
July 1, 1995, CRIIMI Mae Services, Limited Partnership (CMSLP) acquired the
rights to service the mortgage from CRICO Mortgage Company, Inc. On July 1,
1995, all of the unpaid mortgage servicing fees accrued through June 30, 1995,
were transferred to CRI, Inc., an affiliate of the Partnership's general
partner. The owners of CRI, Inc., are the shareholders of the Partnership's
general partner. In addition, the owners of CRI, Inc., are the directors and
are officers of the general partner of CMSLP and CRIIMI Mae Management, Inc. (a
wholly-owned subsidiary of CRIIMI Mae, Inc., a publicly held corporation). As
of December 31, 1995, $584,753 of mortgage servicing fees have been accrued of
which $59,064 is payable to CMSLP and $525,689 is payable to CRI, Inc.
Mortgage Escrows and Replacement Reserve Activity
-------------------------------------------------
For the year ending December 31, 1995, cash and investments held by the bond
trustee consist of the following:
<TABLE>
<CAPTION>
Mortgage Replacement
Escrows Reserve
---------- -----------
<S> <C> <C>
Balance at December 31, 1994 $ 59,796 $62,314
Deposits 261,600 28,704
Interest 5,261 2,328
Withdrawals
City fees (16,875) -
Trustee fees (5,400) -
Real estate taxes (171,666) -
Insurance (65,241) -
--------- -------
Balance at December 31, 1995 $ 67,475 $93,346
========= =======
</TABLE>
Mortgage Escrows
----------------
The Partnership is required to make monthly deposits for both real estate taxes
and insurance premiums to the mortgage escrow account maintained by CMSLP.
During the year ended December 31, 1995, the Partnership made all required
deposits to this escrow account.
-16-
<PAGE>
Geary Courtyard Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE D - RELATED PARTY TRANSACTIONS (Continued)
Replacement Reserve
-------------------
In accordance with the terms of the regulatory agreement, the Partnership was
required to make monthly deposits to the replacement reserve which was held by
CMSLP. The Fund is to be used for the replacement of project assets. The
required deposit into the replacement reserve account for the year ending
December 31, 1995 is $28,704.
NOTE E - CITY AND TRUSTEE FEES
The City fee is payable quarterly to the City and County of San Francisco in the
amount of .125% of the outstanding principal amount of the bonds. During the
year ended December 31, 1995, $22,500 was charged to operations and $16,875 was
paid.
Trustee Fees are payable annually to the Bankers Trust Company of California
National Association of California in the amount of .03% of the outstanding
principal amount of the bonds. During the year ended December 31, 1995, the
entire $5,400 annual fee was paid and charged to operations.
NOTE F - MANAGEMENT FEES
The property is managed by R&B Realty Group, an unaffiliated entity, pursuant to
a management agreement, which has an initial term of one year with annual
automatic renewal terms until notice is given of cancellation. The current
management agreement provides for a management fee of 4% of monthly rental
collections. Such fees charged to operations during the year ended December 31,
1995 were $73,481.
NOTE G - OTHER REVENUE (ACCOUNT NO. 5990)
Other revenue consists of the following:
Application and cleaning fees $14,774
Miscellaneous other revenue 5,392
------
$20,166
======
-17-
<PAGE>
Geary Courtyard Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE H - OTHER RENTING EXPENSES (ACCOUNT NO. 6250)
Other renting expenses consist of the following:
Corporate sales $58,392
Concessions 2,181
------
$60,573
======
NOTE I - MISCELLANEOUS ADMINISTRATIVE EXPENSES (ACCOUNT NO. 6390)
Miscellaneous administrative expenses consist of the following:
Leasing salaries $45,356
Recreation director 23,600
Credit information 19,244
Armored car 2,028
Other 587
-------
$90,815
======
NOTE J - FIXED ASSET ADDITIONS
During 1995, the Partnership incurred $2,902 for fixed asset additions related
to the purchase of additional exercise and office equipment.
-18-
<PAGE>
SUPPLEMENTAL INFORMATION
<PAGE>
Geary Courtyard Associates
SCHEDULE OF CAPITAL IMPROVEMENTS
RECLASSIFIED TO OPERATING EXPENSES
Year ended December 31, 1995
<TABLE>
<CAPTION>
Account
Description Account Name Number Amount
- ------------- ------------------------- ------- -------
<S> <C> <C> <C>
Carpeting Decorating supplies 6561 $8,443
Elevator Elevator maintenance/con-
tract 6545 4,141
Drapery Repairs material 6541 4,238
------
$16,822
======
</TABLE>
-20-
<PAGE>
EXHIBIT 99.c
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
CRICO OF OCEAN WALK LIMITED PARTNERSHIP
DECEMBER 31, 1995
<PAGE>
CRICO of Ocean Walk Limited Partnership
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES -
INCOME TAX BASIS 5
STATEMENT OF PROFIT AND LOSS -
INCOME TAX BASIS 6
STATEMENT OF PARTNERS' DEFICIT -
INCOME TAX BASIS 8
STATEMENT OF CASH FLOWS - INCOME TAX BASIS 9
NOTES TO FINANCIAL STATEMENTS 10
<PAGE>
[LETTERHEAD OF REZNICK FEDDER & SILVERMAN ]
INDEPENDENT AUDITORS' REPORT
To the Partners
CRICO of Ocean Walk Limited Partnership
We have audited the accompanying statement of assets and liabilities -
income tax basis of CRICO of Ocean Walk Limited Partnership as of December 31,
1995, and the related statements of profit and loss - income tax basis,
partners' deficit - income tax basis and cash flows - income tax basis for the
year then ended. These financial statements are the responsibility of the
partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As described in note A, these financial statements were prepared on the
basis of accounting the partnership uses for income tax purposes, which is a
comprehensive basis of accounting other than generally accepted accounting
principles.
- 3 -
<PAGE>
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities of CRICO of Ocean Walk
Limited Partnership as of December 31, 1995, and its profit and loss, changes in
partners' deficit and cash flows for the year then ended, on the basis of
accounting described in note A.
The accompanying financial statements have been prepared assuming that the
partnership will continue as a going concern. As discussed in note B to the
financial statements, the partnership is in default of its mortgage loan
agreement. In addition, the partnership has entered into a merger agreement
which could significantly impact the partnership. These uncertainties raise
substantial doubt about the partnership's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
note B. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
/s/ REZNICK FEDDER & SILVERMAN
Bethesda, Maryland
January 29, 1996
- 4 -
<PAGE>
CRICO of Ocean Walk Limited Partnership
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX BASIS
December 31, 1995
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
INVESTMENT IN REAL ESTATE
Building $16,181,360
Personal property 259,791
-----------
16,441,151
Less accumulated depreciation 1,725,192
-----------
14,715,959
Land 4,378,943
-----------
19,094,902
Tenants' security deposits, separately
held in an interest-bearing account 124,094
Cash and investments held by the
bond servicer 235,575
-----------
19,454,571
OTHER ASSETS
Cash $170,312
Accounts receivable - tenants 21
Prepaid insurance 100,038
Subscriptions receivable 100
Utility deposits 8,300 278,771
-------- -----------
$19,733,342
===========
</TABLE>
LIABILITIES
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES APPLICABLE TO REAL ESTATE
Mortgage payable $19,826,000
Accrued interest payable 1,466,416
-----------
21,292,416
Tenants' security deposits
liability 121,783
Accrued mortgage servicing fee 423,367
-----------
21,837,566
OTHER LIABILITIES
Accounts payable 37,548
Accrued expenses 38,647
-----------
Total liabilities 21,913,761
PARTNERS' DEFICIT (2,180,419)
----------
$19,733,342
==========
</TABLE>
See notes to financial statements
- 5 -
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF PROFIT AND LOSS U.S. Department of Housing and Urban Development
- INCOME TAX BASIS Office of Housing
Federal Housing Commissioner
OMB Approval No. 2502-0052(Exp. 8/31/92)
Public Reporting Burden for this collection of information is estimated to average 1.0 hours per response, including the time for
reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the
collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information,
including suggestions for reducing this burden, to the Reports Management Officer, Office of Information Policies and Systems, U.S.
Department of Housing and Urban Development, Washington, D.C. 20410-3600, and to the Office of Management and Budget Paperwork
Reduction Project (2502-0052), Washington, D.C. 20503. Do not send this completed form to either of these addresses.
For Month/Period For Month/Period Project Number: Project Name:
Beginning Ending
1/1/95 12/31/95 CRICO of Ocean Walk Limited Partership
---------------- ----------------- --------------- --------------------------------------
Part I Description of Account Account No. Amount
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental Income - 5100
Apartments or Member Carrying Charges (Coops) 5120 $ 2,976,020
------- -----------
Tenant Assistance Payments 5121
------- -----------
Furniture and Equipment 5130 $ 5,190
------- -----------
Stores and Commercial 5140
------- -----------
Garage and Parking Spaces 5170 $ 44,353
------- -----------
Flexible Subsidy Income 5180
------- -----------
Miscellaneous (Specify)(Prepaid rent) 5190 $ 17,180
------- -----------
Total Rent Revenue Potential at 100% Occupancy $3,042,743
------- ----------- ----------
Vacancies - 5200
Apartments 5220 $ (170,319)
------- -----------
Furniture and Equipment 5230
------- -----------
Stores and Commercial 5240
------- -----------
Garage and Parking Spaces 5270
------- -----------
Miscellaneous (Specify) 5290
------- -----------
Total Vacancies $ (170,319)
------- ----------- ----------
Net Rental Revenue (Rent Revenue Less Vacancies) $2,872,424
------- ----------- ----------
Elderly and Congregate Services Income - 5300
Total Service Income (Schedule Attached) 5300
------- ----------- ----------
Financial Revenue - 5400
Interest Income - Project Operations 5410 $ 3,475
------- -----------
Income from Investments - Residual Receipts 5430
------- -----------
Income from Investments - Reserve for Replacement 5440 $ 6,198
------- -----------
Income from Investments - Escrows 5490 $ 10,437
------- -----------
Total Financial Revenue $ 20,110
------- ----------- ----------
Other Revenue - 5900
Laundry and Vending 5910 $ 38,301
------- -----------
NSF and Late Charges 5920 $ 9,455
------- -----------
Damages and Cleaning Fees 5930
------- -----------
Forfeited Tenant Security Deposits 5940 $ 31,402
------- -----------
Other Revenue (Specify) (See Note D) 5990 $ 163,789
------- -----------
Total Other Revenue $ 242,947
------- ----------- ----------
Total Revenue $3,135,481
------- ----------- ----------
Administrative Expenses - 6200/6300
Advertising 6210 $ 11,274
------- -----------
Other Renting Expenses (See Note D) 6250 $ 10,743
------- -----------
Office Salaries 6310 $ 43,257
------- -----------
Office Supplies 6311 $ 7,785
------- -----------
Office or Model Apartment Rent 6312
------- -----------
Management Fee 6320 $ 93,410
------- -----------
Manager or Superintendent Salaries 6330 $ 37,218
------- -----------
Manager or Superintendent Rent Free Unit 6331 $ 23,485
------- -----------
Legal Expenses (Project) 6340
------- -----------
Auditing Expenses (Project) 6350 $ 5,750
------- -----------
Bookkeeping Fees/Accounting Services 6351 $ 2,605
------- -----------
Telephone and Answering Services 6360 $ 7,937
------- -----------
Bad Debts 6370 $ 16,648
------- -----------
Miscellaneous Administrative Expenses (See Note D) 6390 $ 5,615
------- -----------
Total Administrative Expenses $ 264,727
------- ----------- ----------
Utilities Expense - 6400
Fuel Oil/Coal 6420
------- -----------
Electricity 6450 $ 80,694
------- -----------
Water 6451 $ 63,089
------- -----------
Gas 6452
------- -----------
Sewer 6453 $ 88,114
------- -----------
Total Utilities Expense $ 231,897
------- ----------- ----------
</TABLE>
Page 1 of 2
* All amounts must be rounded to the nearest dollar, $.50 and over, round up -
$.49 and below round down.
Form HUD-92410 (7/91)
- 6 -
<PAGE>
<TABLE>
<S> <C> <C> <C>
Operating and Maintenance Expenses - 6500
Janitor and Cleaning Payroll 6510 $ 21,922
--------- ------------
Janitor and Cleaning Supplies 6515 $ 4,796
--------- ------------
Janitor and Cleaning Contract 6517 $ 32,113
--------- ------------
Exterminating Payroll/Contract 6519 $ 11,888
--------- ------------
Exterminating Supplies 6520
--------- ------------
Garbage and Trash Removal 6525 $ 87,773
--------- ------------
Security Payroll/Contract 6530 $ 39,000
--------- ------------
Grounds Payroll 6535
--------- ------------
Grounds Supplies 6536 $ 7,333
--------- ------------
Grounds Contract 6537 $ 18,140
--------- ------------
Repairs Payroll 6540 $ 70,405
--------- ------------
Repairs Material 6541 $ 15,200
--------- ------------
Repairs Contract 6542 $ 64,327
--------- ------------
Elevator Maintenance/Contract 6545 $ 10,808
--------- ------------
Heating/Cooling Repairs and Maintenance 6546 $ 10,834
--------- ------------
Swimming Pool Maintenance/Contract 6547 $ 12,025
--------- ------------
Snow Removal 6548
--------- ------------
Decorating Payroll/Contract 6560
--------- ------------
Decorating Supplies 6561 $ 56,736
--------- ------------
Other - City Code Requirements 6570 $ 4,600
--------- ------------
Miscellaneous Operating and Maintenance Expenses
6590
--------- ------------
Total Operating and Maintenance Expenses $ 467,900
--------- ------------ ----------
Taxes and Insurance - 6700
Real Estate Taxes 6710 $ 214,620
--------- ------------
Payroll Taxes (FICA) 6711 $ 22,019
--------- ------------
Miscellaneous Taxes, Licenses and Permits 6719
--------- ------------
Property and Liability Insurance (Hazard) 6720 $ 110,139
--------- ------------
Fidelity Bond Insurance 6721
--------- ------------
Workmen's Compensation 6722 $ 9,204
--------- ------------
Health Insurance & Other Employee Benefits 6723 $ 9,957
--------- ------------
Other Insurance (Specify) 6729
--------- ------------
Total Taxes and Insurance $ 365,939
--------- ------------ ----------
Financial Expenses - 6800
Interest on Bonds Payable 6810 $ 1,774,427
--------- ------------
Interest on Mortgage Payable 6820
--------- ------------
Interest on Notes Payable (Long-Term) 6830
--------- ------------
Interest on Notes Payable (Short-Term) 6840
--------- ------------
Mortgage Insurance Premium/Service Charge 6850 $ 123,912
--------- ------------
Miscellaneous Financial Expenses Issuer Fee 6890 $ 30,239
--------- ------------
Total Financial Expenses $1,928,578
--------- ------------ ----------
Elderly and Congregate Service Expenses - 6900
Total Service Expenses - Schedule Attached 6900
--------- ------------
Total Cost of Operations Before Depreciation $3,259,041
--------- ------------ ----------
Profit (Loss) Before Depreciation $ (123,560)
--------- ------------ ----------
Depreciation (Total) - 6600 (Specify) 6600 $ 640,870
--------- ------------
Operating Profit or (Loss) $ (764,430)
--------- ------------ ----------
Corporate or Mortgagor Entity Expenses - 7100
Officer Salaries 7110
--------- ------------
Legal Expenses (Entity) 7120
--------- ------------
Taxes (Federal-State-Entity) 7130-32
--------- ------------
Other Expenses (Entity) 7190
--------- ------------
Amortization
--------- ------------
Total Corporate Expenses 7190
--------- ------------ ----------
Net Profit or (Loss) $ (764,430)
--------- ------------ ----------
</TABLE>
Warning: HUD will prosecute false claims and statements. Conviction may result
in criminal and/or civil penalties (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729,
3802. Miscellaneous or other Income and Expenses Sub-account Groups. If
miscellaneous or other income and/or expense sub-accounts (5190, 5290, 5490,
5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or
more, attach a separate schedule describing or explaining the miscellaneous
income or expense.
Part II
1. Total principal payments required under the mortgage, even if payments under
a Workout Agreement are less or more than those required under the mortgage.
$ N/A
2. Replacement Reserve deposits required by the Regulatory Agreement or
Amendments thereto, even if payments may be temporarily suspended or waived.
$ N/A
3. Replacement or Painting Reserve releases which are included as expense items
on the Profit and loss Statement.
$ N/A
4. Project improvement Reserve Releases under the Flexible Subsidy Program that
are included as expense items on this Profit and Loss Statement.
$ N/A
Page 2 of 2
See notes to financial statements
- 7 -
<PAGE>
CRICO of Ocean Walk Limited Partnership
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX BASIS
Year ended December 31, 1995
Partners' deficit, beginning $(1,415,989)
Net loss (764,430)
------------
Partners' deficit, end $(2,180,419)
============
See notes to financial statements
- 8 -
<PAGE>
CRICO of Ocean Walk Limited Partnership
STATEMENT OF CASH FLOWS - INCOME TAX BASIS
Year ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities
Net loss $ (764,430)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation 640,870
Tenants' security deposits - net (2,284)
Decrease in accounts receivable - tenants 29,411
Increase in prepaid insurance (23,245)
Increase in accrued interest 125,503
Decrease in accounts payable - operations (16,053)
Decrease in accrued expenses (3,105)
Increase in accrued mortgage servicing fee 124,010
Decrease in cash and investments held
by the bond servicer 369
----------
Net cash provided by operating activities 111,046
----------
Cash flows from investing activities
Increase in cash and investments held by the
bond servicer (4,448)
Increase in investment in real estate (103,351)
----------
Net cash used in investing activities (107,799)
----------
NET INCREASE IN CASH 3,247
Cash, beginning 167,065
----------
Cash, end $ 170,312
==========
Supplemental disclosure of cash flow information
Cash paid during the year for interest $1,648,924
==========
Detail of increase in investment in real estate
paid
Roof silver coating $ 20,150
Carpet 74,106
Garage lights 9,095
----------
$ 103,351
===========
</TABLE>
See notes to financial statements
- 9 -
<PAGE>
CRICO of Ocean Walk Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The partnership was formed as a limited partnership under the laws of the State
of Florida in March, 1993, for the purpose of constructing, owning and operating
a rental housing project. The project consists of 296 units located in Key West,
Florida and operates under the name of Ocean Walk Apartments. Operations began
March 16, 1993
Income Tax Basis of Accounting
------------------------------
The partnership maintains its accounts and the financial statements have been
prepared on the accounting basis used for income tax purposes. Rents received in
advance are recognized when collected.
Investment in Real Estate and Depreciation
------------------------------------------
Investment in real estate is carried at cost.
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives by use of
the straight-line and declining-balance methods.
Income Taxes
------------
No provision or benefit for income taxes has been included in these financial
statements since taxable income or loss passes through to, and is reportable by,
the partners individually.
Provision for Doubtful Accounts
-------------------------------
The partnership considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts become
uncollectible, they will be charged to operations when that determination is
made.
- 10 -
<PAGE>
CRICO of Ocean Walk Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Rental Income
-------------
Rental income is recognized as rentals become due. Rents received in advance are
recognized when collected. All leases between the partnership and tenants of the
property are operating leases.
NOTE B - GOING CONCERN
The accompanying financial statements have been prepared assuming the
partnership will continue as a going concern, which assumes the realization of
assets and the satisfaction of liabilities in the normal course of business. As
of December 31, 1995, the partnership was in default with regard to the mortgage
loan agreement due to its inability to generate sufficient cash flow to meet its
contractual obligations under this agreement. The partnership's lender, Capital
Realty Investors Tax Exempt Fund III Limited Partnership ("CRITEF"), has not
availed itself of any of its contractual rights and remedies provided by the
mortgage loan agreement and is effectively treating this obligation as a cash
flow mortgage.
CRITEF entered into a merger agreement, subject to shareholder approval, with
Watermark III Partners, L.P. as of September 11, 1995, as amended on January 31,
1996. Capital Apartment Properties, Inc. ("CAPREIT"), who is the general
partner of Watermark III Partners, L.P., may therefore pursue one of the
following scenarios:
. The current partnership structure would be preserved and all of the
partnership interests would be transferred to CAPREIT.
or
. The current partnership structure would be preserved and CAPREIT would
replace the 1 percent general partner while leaving the 99 percent limited
partner in place.
or
. The current partnership structure would be collapsed and all of the assets
and liabilities of the partnership would be assumed by CAPREIT or one of
its subsidiaries.
Consequently, there is substantial doubt about the partnership's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustment that might result should the partnership be unable to
continue as a going concern.
- 11 -
<PAGE>
CRICO of Ocean Walk Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS
The general partner of the partnership, CRICO of Ocean Walk, Inc., a Maryland
corporation, is a related party to the managing general partner of the general
partner of the holder of the mortgage loan for the project.
Cash and Investments Held by Bond Servicer
------------------------------------------
Mortgage Escrow
---------------
The partnership is required to deposit on a monthly basis an amount equal to
one-twelfth of the aggregate annual amount of all real estate taxes and
insurance premiums to the mortgage escrow account maintained by CRICO Mortgage
Company, Inc. (the servicer). The servicer is a related party to the general
partner of the partnership. Effective July 1, 1995, CRIIMI Mae Services Limited
Partnership ("CMSLP") acquired the rights to service the mortgage from CRICO
Mortgage Company. On July 1, 1995, all of the unpaid mortgage servicing fees
accrued through June 30, 1995 were transferred to CRI, Inc., an affiliate of the
partnership's general partner. The owners of CRI, Inc. are the shareholders of
the partnership's general partner. In addition, the owners of CRI, Inc. are the
directors and are officers of the general partner of CMSLP and CRIIMI Mae
Management, Inc. (a wholly-owned subsidiary of CRIIMI Mae Inc., a publicly held
corporation).
Reserve for Replacements
------------------------
The partnership is required to make monthly deposits to the reserve for
replacement account maintained by the servicer. The fund is to be used for the
replacement of project assets. The required annual deposits into the reserve for
replacement account is $53,700 for 1995 and each year thereafter until such time
as the balance in the reserve equals or exceeds $300,000. Thereafter, no monthly
deposits are required unless the balance falls below $300,000.
At December 31, 1995, cash and investments held by the bond servicer consist of
the following:
<TABLE>
<CAPTION>
Mortgage Reserve for
escrows replacement Total
---------- ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1994 $ 79,551 $151,945 $ 231,496
Deposits 337,200 53,700 390,900
Interest income 10,437 6,198 16,635
Withdrawals:
Taxes (214,620) - (214,620)
Insurance (133,386) - (133,386)
Withdrawals - (55,443) (55,443)
Service charge - (7) (7)
--------- -------- ---------
Balance at December 31, 1995 $ 79,182 $156,393 $ 235,575
========= ======== =========
</TABLE>
- 12 -
<PAGE>
CRICO of Ocean Walk Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable
- ----------------
Financing has been provided to the partnership through the issuance of tax-
exempt bonds by the Florida Housing Finance Agency in the total amount of
$19,826,000, which are evidenced by a mortgage loan agreement with Capital
Realty Investors Tax Exempt Fund III, Limited Partnership (CRITEF), the
bondowner, a related party. The maturity date of the mortgage is April 1, 2000.
Upon maturity all outstanding principal and interest, including all deferred
interest, is due and payable.
The mortgage note provides for base interest payable at the rate of 8.95% per
annum through the maturity date. Primary contingent interest is payable each
quarter, at the rate of 1.5% per annum, out of that quarter's net cash flow. In
addition, supplemental contingent interest is payable each quarter, at the rate
of 5.55% per annum, out of 55% of that quarter's net cash flow remaining after
deduction of primary contingent interest. Unpaid construction period deferred
interest, primary contingent interest and supplemental contingent interest is
deferred until the earlier of the sale or refinancing of the project or
maturity. The deferred interest has not been recorded on the books of the
partnership.
As of December 31, 1995, the partnership was in default with regard to the
mortgage loan agreement due to its inability to generate sufficient cash flow to
meet its contractual obligations under this agreement. CRITEF has not exercised
its contractual rights and remedies provided under the mortgage.
Under agreement with CRITEF, the partnership has paid base interest from
available cash flows. Any unpaid base interest shall be deferred until cash
flow on subsequent interest payment dates is sufficient for payment or until the
earlier of the sale or refinancing of the project or maturity. As of December
31, 1995, accrued base interest was $1,466,416. Interest accrues on the unpaid
base interest at a compounded rate of 8.95%.
During the year ended December 31, 1995, the partnership recorded the base
interest and did not record interest accrued on the unpaid base interest of
$142,718, primary contingent interest of $297,390 and supplemental contingent
interest of $1,100,343. At December 31, 1995, interest accrued on the unpaid
base interest primary and supplemental contingent interest and construction
period base interest of $10,216,162 has not been recorded. Total interest
incurred on the mortgage for the year ended December 31, 1995 is as follows:
- 13 -
<PAGE>
CRICO of Ocean Walk Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
<TABLE>
<CAPTION>
Mortgage Payable (Continued)
- ----------------------------
Currently
Deferred payable Total
------------ ------------ ----------
<S> <C> <C> <C>
Base interest $ - $ 1,774,427 $1,774,427
Interest on interest 142,718 - 142,718
Primary contingent interest 297,390 - 297,390
Supplemental contingent
interest 1,100,343 - 1,100,343
----------- ----------- ----------
Total interest incurred 1,540,451 1,774,427 $3,314,878
==========
Accrued interest, beginning 8,675,711 1,340,913
Interest paid - (1,648,924)
-----------
Accrued interest, ending $10,216,162 $ 1,466,416
=========== ===========
</TABLE>
Interest earned on the bonds is exempt from Federal income pursuant to the
Internal Revenue Code. In accordance with the bond regulatory agreement, the
bond proceeds are to finance multifamily housing in which at least 20% of the
units in the project are to occupied by individuals of low or moderate income,
as defined in the Internal Revenue Code. In the event that the underlying bonds
do not maintain their tax-exempt status, whether by change in law or by
noncompliance with the regulatory agreement, repayment of the bonds may be
accelerated.
The liability of the partnership under the mortgage is limited to the underlying
value of the real estate collateral, plus other amounts deposited with the
lender. As further security on the obligation, the partnership has assigned
existing and future rents and leases to the mortgagee.
The partnership is required to pay the servicer a mortgage servicing fee equal
to 0.625% of the outstanding principal balance of the loan. The fee is payable
monthly on each base interest payment date. Any unpaid fees shall be deferred
until cash flow on subsequent interest payment dates is sufficient for payment
or until the earlier of the sale or refinancing of the project or maturity. As
of December 31, 1995, the amount payable to CRI, Inc. and CRIIMI Mae Services
Limited Partnership is $361,411 and $61,956, respectively. During 1995, $123,912
was charged to operations.
- 14 -
<PAGE>
CRICO of Ocean Walk Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE D - SCHEDULES TO SUPPORT HUD STATEMENT OF PROFIT AND LOSS
(FORM 92410)
<TABLE>
<CAPTION>
Other revenue (Account No. 5990) consists of the following:
<S> <C>
Utility reimbursements $101,553
Corporate unit income 18,067
Other receipts 22,409
Application fees 5,575
Bad debt collections 3,515
Pet fee income 12,490
Storage locker income 180
--------
$163,789
========
Miscellaneous administrative (Account No. 6390) consists of the
following:
Employee relations $ 4,614
Furniture rental 1,001
--------
$ 5,615
========
Other renting expenses (Account No. 6250) consists of the
following:
Resident retention $ 1,992
Rent concessions 3,781
Resident referrals 1,700
Credit reports 3,270
--------
$ 10,743
========
</TABLE>
NOTE E - CONCENTRATION OF CREDIT RISK
As of December 31, 1995, the partnership had cash in one bank that exceeded the
federally insured limit of $100,000. The federally uninsured amount of cash at
December 31, 1995 is $79,128.
- 15 -
<PAGE>
CRICO of Ocean Walk Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE F - MANAGEMENT AGREEMENT
The property is managed by CAPREIT Residential Corporation pursuant to a
management agreement renewable annually. Management fees are equal to 3% of
rental income collected. For the year ended December 31, 1995, $93,410 has been
charged to operations.
- 16 -
<PAGE>
EXHIBIT 99.d
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
CRICO OF REGENCY WOODS
LIMITED PARTNERSHIP
DECEMBER 31, 1995
<PAGE>
CRICO of Regency Woods Limited Partnership
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES - INCOME
TAX BASIS 5
STATEMENT OF PROFIT AND LOSS - INCOME
TAX BASIS 6
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX
BASIS 8
STATEMENT OF CASH FLOWS - INCOME TAX BASIS 9
NOTES TO FINANCIAL STATEMENTS 10
SUPPLEMENTAL INFORMATION
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL INFORMATION 19
PRO FORMA STATEMENT OF REVENUE AND EXPENSES 20
SCHEDULES TO SUPPORT PRO FORMA STATEMENT OF
REVENUE AND EXPENSES (UNAUDITED) 22
<PAGE>
[LETTERHEAD OF REZNICK FEDDER & SILVERMAN APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
To the Partners
CRICO of Regency Woods
Limited Partnership
We have audited the accompanying statement of assets and liabilities -
income tax basis of CRICO of Regency Woods Limited Partnership as of December
31, 1995, and the related statements of profit and loss - income tax basis,
partners' deficit - income tax basis and cash flows - income tax basis for the
period March 1, 1995 (inception) through December 31, 1995. These financial
statements are the responsibility of the partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As described in note A, these financial statements were prepared on the
basis of accounting the partnership uses for income tax purposes, which is a
comprehensive basis of accounting other than generally accepted accounting
principles.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities of CRICO of Regency Woods
Limited Partnership as of December 31, 1995, and its profit and loss, changes in
partners' deficit and cash flows for the period March 1, 1995 (inception)
through December 31, 1995, on the basis of accounting described in note A.
-3-
<PAGE>
The accompanying financial statements have been prepared assuming that the
partnership will continue as a going concern. As discussed in note B to the
financial statements, the partnership is in default of its mortgage loan
agreement. In addition, the partnership has entered into a merger agreement
which could significantly impact the partnership. These uncertainties raise
substantial doubt about the partnership's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
note B. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
/s/ Reznick Fedder & Silverman
Bethesda, Maryland
January 29, 1996
-4-
<PAGE>
CRICO of Regency Woods Limited Partnership
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX BASIS
December 31, 1995
ASSETS
<TABLE>
<CAPTION>
INVESTMENT IN REAL ESTATE
<S> <C> <C>
Building $6,938,948
Personal property 109,485
----------
7,048,433
Less accumulated depreciation 224,401
----------
6,824,032
Land 602,392
----------
7,426,424
Tenants' security deposits, separately
held in an interest bearing account 46,527
Cash and investments held
by bond services 115,876
Deposit 250
----------
7,589,077
OTHER ASSETS
Cash $15,237
Accounts receivable -
tenants 4,944
Prepaid insurance 13,563 33,744
------- ----------
$7,622,821
==========
</TABLE>
LIABILITIES
<TABLE>
<CAPTION>
LIABILITIES APPLICABLE TO REAL
<S> <C>
ESTATE
Mortgages payable $7,559,604
Accrued interest payable 270,051
----------
7,829,655
Tenants' security deposit
liability 42,969
Accrued mortgage servicing
fee 35,433
Accrued real estate tax
payable 105,628
----------
8,013,685
OTHER LIABILITY
Accounts payable 21,937
----------
Total liabilities 8,035,622
PARTNERS' DEFICIT (412,801)
----------
$7,622,821
==========
</TABLE>
See notes to financial statements
-5-
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF PROFIT AND LOSS U.S. Department of Housing and Urban Development
- INCOME TAX BASIS Office of Housing
Federal Housing Commissioner
OMB Approval No. 2502-0052(Exp. 8/31/92
- -----------------------------------------------------------------------------------------------------------------------------------
Public Reporting Burden for this collection of information is to average 1.0 hours per response, including the time for reviewing
instructions, searching existing data sources, gathering, and maintaining the data needed, and completing and reviewing the
collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information,
including suggestions for reducing this burden, to the Reports Management Officer, Office of Information Policies and Systems,
U.S. Department of Housing and Urban Development. Washington, D.C. 20410-3600, and to the Office of Management and Budget Paperwork
Reduction Project (2502-0052), Washington, D.C. 20503. Do not send this completed form to either of these addresses.
- -----------------------------------------------------------------------------------------------------------------------------------
For Month/Period Project Number: Project Name:
Beginning: 3/1/95 Ending: 12/31/95 CRICO of Regency Woods Limited Parternship
---------------- ----------------- --------------- --------------------------------------
Part I Description of Account Account No. Amount
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental Income - 5100
Apartments or Member Carrying Charges (Coops) 5120 $ 1,037,584
------- -----------
Tenant Assistance Payments 5121 $
------- -----------
Furniture and Equipment 5130 $ 1,536
------- -----------
Stores and Commercial 5140
------- -----------
Garage and Parking Spaces 5170 $ 25,022
------- -----------
Flexible Subsidy Income 5180
------- -----------
Miscellaneous (Specify) Storage 5190 $ 360
------- -----------
Total Rent Revenue Potential at 100% Occupancy $1,064,502
------- ----------- ----------
Vacancies - 5200
Apartments 5220 $( 45,059)
------- -----------
Furniture and Equipment 5230
------- -----------
Stores and Commercial 5240
------- -----------
Garage and Parking Spaces 5270
------- -----------
Miscellaneous (Specify) 5290
------- -----------
Total Vacancies $ (45,059)
------- ----------- ----------
Net Rental Revenue Rent Revenue Less Vacancies $1,019,443
------- ----------- ----------
Elderly and Congregate Services Income - 5300
Total Service Income (Schedule Attached) 5300
------- ----------- ----------
Financial Revenue - 5400
Interest Income - Project Operations 5410
------- ____________
Income from Investments - Residual Receipts 5430
------- -----------
Income from Investments - Reserve for Replacement 5440 $ 1,389
------- -----------
Income from Investments - Escrows 5490 $ 1,633
------- -----------
Total Financial Revenue $ 3,022
------- ----------- ----------
Other Revenue - 5900
Laundry and Vending 5910 7,782
------- -----------
NSF and Late Charges 5920 1,111
------- -----------
Damages and Cleaning Fees 5930
------- -----------
Forfeited Tenant Security Deposits 5940 2,200
------- -----------
Other Revenue (Specify) (See Note D) 5990 19,300
------- -----------
Total Other Revenue $ 30,393
------- ----------- ----------
Total Revenue $1,052,858
------- ----------- ----------
Administrative Expenses - 6200/6300
Advertising 6210 $ 1,510
------- -----------
Other Renting Expense (See Note E) 6250 $ 20,530
------- -----------
Office Salaries 6310 $ 10,656
------- -----------
Office Supplies 6311 $ 6,155
------- -----------
Office or Model Apartment Rent 6312 $ 460
------- -----------
Management Fee 6320 $ 40,509
------- -----------
Manager or Superintendent Salaries 6330 $ 28,264
------- -----------
Manager or Superintendent Rent Free Unit 6331 $ 10,073
------- -----------
Legal Expenses (Project) 6340 $ 164
------- -----------
Auditing Expenses (Project) 6350 $ 2,500
------- -----------
Bookkeeping Fees/Accounting Services 6351
------- -----------
Telephone and Answering Services 6360 $ 9,074
------- -----------
Bad Debts 6370 $ 8,011
------- -----------
Miscellaneous Administrative Expenses (See Note F) 6390 $ 7,778
------- -----------
Total Administrative Expenses $ 145,684
------- ----------- ----------
Utilities Expense - 6400
Fuel Oil/Coal 6420
------- -----------
Electricity 6450 $ 16,741
------- -----------
Water 6451 $ 23,116
------- -----------
Gas 6452 $ 11,282
------- -----------
Sewer 6453 $ 24,769
------- -----------
Total Utilities Expense $ 75,908
------- ----------- ----------
</TABLE>
* All amounts must be rounded to the nearest dollar, $.50 and over, round up -
$.49 and below, round down.
Page 1 of 2 Form HUD-92410 (7/91)
-6-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Operating and Maintenance Expenses - 6500
Janitor and Cleaning Payroll 6510 $ 6,320
--------- ------------
Janitor and Cleaning Supplies 6515 $ 1,241
--------- ------------
Janitor and Cleaning Contract 6517 $ 16,397
--------- ------------
Exterminating Payroll/Contract 6519 $ 1,792
--------- ------------
Exterminating Supplies 6520
--------- ------------
Garbage and Trash Removal 6525 $ 10,563
--------- ------------
Security Payroll/Contract 6530
--------- ------------
Grounds Payroll 6535
--------- ------------
Grounds Supplies 6536 $ 4,596
--------- ------------
Grounds Contract 6537 $ 10,056
--------- ------------
Repairs Payroll 6540 $ 38,870
--------- ------------
Repairs Material 6541 $ 38,734
--------- ------------
Repairs Contract 6542 $ 14,506
--------- ------------
Elevator Maintenance/Contract 6545
--------- ------------
Heating/Cooling Repairs and Maintenance 6546 $ 11,766
--------- ------------
Swimming Pool Maintenance/Contract 6547 $ 3,760
--------- ------------
Snow Removal 6548 $ 2,837
--------- ------------
Decorating Payroll/Contract 6560
--------- ------------
Decorating Supplies 6561 $ 18,467
--------- ------------
Other - Uniforms 6570 $ 1,511
--------- ------------
Miscellaneous Operating and Maintenance Expense 6590 $ 913
--------- ------------
Total Operating and Maintenance Expenses $ 182,329
--------- ------------ ----------
Taxes and Insurance - 6700
Real Estate Taxes - Including tax appeal fee - $11,053 6710 $ 185,572
--------- ------------
Payroll Taxes (FICA) 6711 $ 15,977
--------- ------------
Miscellaneous Taxes, Licenses and Permits 6719
--------- ------------
Property and Liability Insurance (Hazard) 6720 $ 13,810
--------- ------------
Fidelity Bond Insurance 6721
--------- ------------
Workmen's Compensation 6722 $ 2,243
--------- ------------
Health Insurance & Other Employee Benefits 6723 $ 2,587
--------- ------------
Other Insurance (Specify) 6729
--------- ------------
Total Taxes and Insurance $ 220,189
--------- ------------ ----------
Financial Expenses - 6800
Interest on Bonds Payable 6810
--------- ------------
Interest on Mortgage Payable 6820 $ 577,878
--------- ------------
Interest on Notes Payable (Long-Term) 6830
--------- ------------
Interest on Notes Payable (Short-Term) 6840
--------- ------------
Mortgage Insurance Premium/Service Charge 6850 $ 39,370
--------- ------------
Miscellaneous Financial Expenses 6890
--------- ------------
Total Financial Expenses $617,248
--------- ------------ ----------
Elderly and Congregate Service Expenses - 6900
Total Service Expenses - Schedule Attached 6900
--------- ------------ ----------
Total Cost of Operations Before Depreciation $1,241,368
--------- ------------ ----------
Profit (Loss) Before Depreciation $ (188,500)
--------- ------------ ----------
Depreciation (Total) - 6600 (Specify) 6600 $ 224,401
--------- ------------ ----------
Operating Profit or (Loss) $(412,901)
--------- ------------ ----------
Corporate or Mortgagor Entity Expenses - 7100
Officer Salaries 7110
--------- ------------
Legal Expenses (Entity) 7120
--------- ------------
Taxes (Federal-State-Entity) 7130-32
--------- ------------
Other Expenses (Entity) 7190
--------- ------------
Amortization 7190
--------- ------------
Total Corporate Expenses
--------- ------------ ----------
Net Profit or (Loss) $ (412,901)
--------- ------------ ----------
</TABLE>
Warning: HUD will prosecute false claims and statements. Conviction may result
in criminal and/or civil penalties (18 U.S.C. 1001, 1010, 1012;31 U.S.C. 3729,
3802) Miscellaneous or other Income and Expenses Sub-account Groups. If
miscellaneous or other Income and/or expense sub-accounts (5190, 5290, 5490,
5990, 6390, 6500, 6729, 6890 and 7120) exceed the Account Groupings by 10% or
more, attach a separate schedule describing or explaining the miscellaneous
income or expense.
- --------------------------------------------------------------------------------
Part II
1. Total principal payments required under the mortgage, even if payments under
a Workout Agreement are less or more than those required under the mortgage.
$ N/A
2. Replacement Reserve deposits required by the Regulatory Agreement or
Amendments thereto, even if payments may be temporarily suspended or waived.
$ N/A
3. Replacement or Painting Reserve releases which are included as expense items
on the Profit and Loss Statement.
$ N/A
4. Project Improvement Reserve Releases under the Flexible Subsidy Program that
are included as expense items on this Profit and Loss Statement.
$ N/A
Page 2 of 2 Form HUD - 92410
See notes to financial statements
-7-
<PAGE>
CRICO of Regency Woods Limited Partnership
STATEMENT OF PARTNERS' DEFICIT -
INCOME TAX BASIS
For the period March 1, 1995 (inception)
through December 31, 1995
Capital contribution $ 100
Net loss (412,901)
---------
Partners' deficit, end $(412,801)
=========
See notes to financial statements
-8-
<PAGE>
CRICO of Regency Woods Limited Partnership
STATEMENT OF CASH FLOWS - INCOME TAX BASIS
For the period March 1, 1995 (inception)
through December 31, 1995
<TABLE>
<CAPTION>
Cash flows from operating activities
<S> <C>
Net loss $(412,901)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 224,401
Tenants' security deposits - net (4,158)
Decrease in cash and investments held by
bond services 46,479
Increase in accounts receivable - tenants (2,369)
Decrease in accrued real estate tax payable (41,314)
Increase in prepaid expenses (4,274)
Increase in accrued interest payable 148,563
Increase in accrued mortgage servicing fee 31,496
Increase in accounts payable 10,866
---------
Net cash used in operating activities (3,211)
---------
Cash flows from investing activities
Acquisition of net assets 25,000
Increase in investment in real estate (25,607)
Decrease in cash and investments held by
bond services 18,955
---------
Net cash provided by investing activities 18,348
---------
Cash flows from financing activities
Capital contributions received 100
---------
Net cash provided by financing activities 100
---------
NET INCREASE IN CASH 15,237
Cash, beginning -
---------
Cash, end $ 15,237
=========
Supplemental disclosure of cash flow information
Cash paid during the period March 1, 1995 (inception)
through December 31, 1995 for interest $ 429,315
=========
Detail of increase in investment in real estate paid
Carpet $ 25,607
=========
</TABLE>
(continued)
-9-
<PAGE>
CRICO of Regency Woods Limited Partnership
STATEMENT OF CASH FLOWS - INCOME TAX BASIS -
CONTINUED
For the period March 1, 1995 (inception)
through December 31, 1995
Significant noncash investing and financing activity
On March 1, 1995, the partnership acquired a 200 unit rental housing project and
assumed the related liabilities. The following is a summary of the cash and
noncash activity of the transaction.
Acquisition of
Account receivable - tenants $ 2,575
Tenants' security deposits 39,411
Prepaid insurance 9,289
Deposit 250
Land and building 7,624,449
Cash and investments held by bond
services 181,310
----------
7,857,284
----------
Assumption of
Mortgages payable 7,559,604
Accrued interest payable 121,488
Accrued real estate tax payable 146,942
Accounts payable 10,302
Accrued mortgage servicing fee 3,937
Tenants' security deposit liability 40,011
----------
7,882,284
----------
Net cash $ 25,000
==========
-10-
<PAGE>
CRICO of Regency Woods Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The partnership was formed as a limited partnership under the laws of the State
of Iowa on January 27, 1995 for the purpose of acquiring, owning and operating a
rental housing project. The project consists of 200 units located in West Des
Moines, Iowa and operates under the name of Regency Woods Apartments.
Income Tax Basis of Accounting
- ------------------------------
The partnership maintains its accounts and the financial statements have been
prepared on the accounting basis used for income tax purposes. Rents received in
advance are recognized as income when received, as opposed to when earned as
required by generally accepted accounting principles.
Investment in Real Estate and Depreciation
- ------------------------------------------
Investment in real estate is recorded at cost. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations over
their estimated service lives by use of the straight-line and declining-balance
methods.
Income Taxes
- ------------
No provision or benefit for income taxes has been included in these financial
statements since taxable income or loss passes through to, and is reportable by,
the partners individually.
Provision for Doubtful Accounts
-------------------------------
The partnership considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts become
uncollectible, they will be charged to operations when that determination is
made.
-11-
<PAGE>
CRICO of Regency Woods Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Rental Income
- -------------
Rental income is recognized as rentals become due. Rents received in advance are
recognized as income when received. All leases between the partnership and the
tenants of the property are operating leases.
NOTE B - GOING CONCERN
The accompanying financial statements have been prepared assuming the
partnership will continue as a going concern, which assumes the realization of
assets and the satisfaction of liabilities in the normal course of business. As
of December 31, 1995, the partnership was in default with regard to the mortgage
loan agreement due to its inability to generate sufficient cash flow to meet its
contractual obligations under this agreement. The partnership's lender, Capital
Realty Investors Tax Exempt Fund III Limited Partnership ("CRITEF"), has not
availed itself of any of its contractual rights and remedies provided by the
mortgage loan agreement and is effectively treating this obligation as a cash
flow mortgage.
CRITEF entered into a merger agreement, subject to shareholder approval, with
Watermark III Partners, L.P. as of September 11, 1995, as amended on January 31,
1996. Capital Apartment Properties, Inc. ("CAPREIT"), who is the general
partner of Watermark III Partners, L.P., may therefore pursue one of the
following scenarios:
. The current partnership structure would be preserved and all of the
partnership interests would be transferred to CAPREIT.
or
. The current partnership structure would be preserved and CAPREIT would
replace the 1 percent general partner while leaving the 99 percent limited
partner in place.
or
-12-
<PAGE>
CRICO of Regency Woods Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE B - GOING CONCERN (Continued)
. The current partnership structure would be collapsed and all of the assets
and liabilities of the partnership would be assumed by CAPREIT or one of its
subsidiaries.
Consequently, there is substantial doubt about the partnership's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustment that might result should the partnership be unable to
continue as a going concern.
NOTE C - RELATED PARTY TRANSACTIONS
The general partner of the partnership, CRICO of Regency Woods, Inc., a Maryland
corporation, is a related party to the managing general partner of the general
partner of the holder of the mortgage loan for the project.
Cash and Investments Held by Bond Servicer
- ------------------------------------------
Mortgage Escrow
- ---------------
The partnership is required to deposit on a monthly basis an amount equal to
one-twelfth of the aggregate annual amount of all real estate taxes, and
insurance premiums to the mortgage escrow account maintained by CRICO Mortgage,
Inc. (the servicer). The servicer is a related party to the general partner of
the partnership. Effective July 1, 1995, CRIIMI Mae Services Limited Partnership
("CMSLP") acquired the rights to service the mortgage from CRICO Mortgage
Company. On July 1, 1995, all of the unpaid mortgage servicing fees accrued
through June 30, 1995 were transferred to CRI, Inc., an affiliate of the
partnership's general partner. The owners of CRI, Inc. are the shareholders of
the partnership's general partner. In addition, the owners of CRI, Inc. are the
directors and are officers of the general partner of CMSLP and CRIIMI Mae
Management, Inc. (a wholly-owned subsidiary of CRIIMI Mae Inc., a publicly held
corporation).
Reserve for Replacements
- ------------------------
The partnership is required to make monthly deposits to the reserve for
replacement account maintained by the services. The fund is to be used for the
replacement of project assets. The required annual deposit into the reserve for
replacement account is $35,000 per year. The servicer waived the deposit
requirement for 1995.
-13-
<PAGE>
CRICO of Regency Woods Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
Cash and Investments Held by Bond Servicer (Continued)
- ------------------------------------------
At December 31, 1995, cash and investments held by the bond services consisted
of the following:
<TABLE>
<CAPTION>
Mortgage Reserve Letter
escrow for of
deposits replacements credit Total
---------- ------------- --------- ----------
<S> <C> <C> <C> <C>
Balance upon
acquisition $ 105,273 $58,203 $ 17,834 $ 181,310
Deposits 196,900 - - 196,900
Interest income 1,633 1,389 - 3,022
Withdrawals:
Taxes (215,833) - - (215,833)
Tax appeal fee (11,053) - - (11,053)
Insurance (18,084) - - (18,084)
Other withdrawals (42) (2,510) (17,834) (20,386)
--------- ------- ---------
Balance at December
31, 1995 $ 58,794 $57,082 $ - $ 115,876
========= ======= ======== =========
</TABLE>
Mortgage Payable
- ----------------
The first and second mortgages are payable to Capital Realty Investors III Tax
Exempt Fund (CRITEF III), a related party, in the combined amount of $7,559,604
which have been funded partially through the issuance of tax-exempt bonds by the
State of Iowa ($5,900,000) and partially through a working capital loan from
CRITEF III ($1,659,604). The mortgages are secured by first and second deeds of
trust against the rental property and an assignment of rents. The maturity date
of both mortgages is February 1, 2000. Upon maturity all outstanding principal
and interest, including all deferred interest, is due and payable.
The first and second mortgage notes provide for base interest payable at the
rate of 8.8% and 10.05%, respectively, per annum through the maturity date.
Primary contingent interest is payable each quarter, at the rate of 2.25% per
annum, out of that quarter's net cash flow. In addition, supplemental
contingent interest is payable each quarter, at the rate of 4.95% per annum, out
of 55% of that quarter's net cash flow remaining after deduction of primary
contingent interest. Unpaid primary contingent interest and supplemental
contingent interest is deferred until the earlier of the sale or refinancing of
the project or maturity. The deferred interest has not been recorded on the
books of the partnership. As of
-14-
<PAGE>
CRICO of Regency Woods Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
- ----------------
December 31, 1995, the partnership was in default with regard to the mortgage
loan agreement due to its inability to generate sufficient cash flow to meet its
contractual obligations under this agreement. CRITEF has not exercised its
contractual rights and remedies provided under the mortgage.
Under agreement with CRITEF, the partnership has paid base interest from
available cash flows. Any unpaid base interest is deferred until cash flow on
subsequent interest payment dates is sufficient for payment or until the earlier
of the sale or refinancing of the project or maturity. As of December 31, 1995,
accrued base interest was $89,885 on the first mortgage and $180,166 on the
second mortgage for a total of $270,051. Interest accrues on the unpaid base
interest at a compounded rate of 8.8% on the first mortgage only.
During the period March 1, 1995 through December 31, 1995, the partnership
recorded the base interest and did not record interest accrued on the unpaid
base interest of $3,847, primary contingent interest of $110,625 and
supplemental contingent interest of $243,375. At December 31, 1995, interest
accrued on the unpaid base interest of $3,847, and primary and supplemental
contingent interest of $1,238,321 has not been recorded. Total interest
incurred on the mortgage for the period March 1, 1995 through December 31, 1995
is as follows:
<TABLE>
<CAPTION>
Currently
Deferred payable Total
---------- ---------- --------
<S> <C> <C> <C>
Base interest $ - $ 577,878 $577,878
Interest on interest 3,847 - 3,847
Primary contingent
interest 110,625 - 110,625
Supplemental contingent
interest 243,375 - 243,375
---------- --------- --------
Total interest incurred 357,847 577,878 $935,725
========
Accrued interest, beginning 884,321 121,488
Interest paid - (429,315)
----------
Accrued interest, ended $1,242,168 $ 270,051
========== =========
</TABLE>
-15-
<PAGE>
CRICO of Regency Woods Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
- ----------------
Interest earned on the bonds is exempt from Federal income tax pursuant to the
Internal Revenue Code. In accordance with the bond regulatory agreement, the
bond proceeds are to finance multifamily housing in which at least 20% of the
units in the project are to be occupied by individuals of low or moderate
income, as defined in the Internal Revenue Code. In the event that the
underlying bonds do not maintain their tax-exempt status, whether by change in
law or by noncompliance with the regulatory agreement, repayment of the bonds
may be accelerated.
The liability of the partnership under the mortgage is limited to the underlying
value of the real estate collateral, plus other amounts deposited with the
lender. As further security on the obligation, the partnership has assigned
existing and future rents and leases to the mortgagee.
The partnership is required to pay the services a mortgage servicing fee equal
to 0.625% of the outstanding principal balance of the loan. The fee is paid
monthly on each base interest payment date. Any unpaid fees are deferred until
cash flow on subsequent interest payment dates is sufficient for payment or
until the earlier of the sale or refinancing of the project or maturity. As of
December 31, 1995, the amount payable to CRI, Inc. and CRIIMI Mae Services
Limited Partnership is $11,811 and $23,622, respectively. During the period
March 1, 1995 through December 31, 1995, $39,370 was charged to operations.
NOTE D - MISCELLANEOUS OTHER REVENUE (ACCOUNT NO. 5990)
Miscellaneous other revenue consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Insurance proceeds $3,182
Application fees 2,625
Bad debt recovery 335
Pet fee 7,831
Miscellaneous 5,327
-------
$19,300
=======
</TABLE>
-16-
<PAGE>
CRICO of Regency Woods Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE E - OTHER RENTING EXPENSES (ACCOUNT NO. 6250)
Other renting expenses consists of the following:
Rental concessions $16,415
Resident retention 3,239
Credit report check 876
-------
$20,530
=======
NOTE F - MISCELLANEOUS ADMINISTRATIVE EXPENSES (ACCOUNT NO. 6390)
Miscellaneous administrative expenses consists of the following:
Employee relations $3,183
Computer charges 3,297
Miscellaneous administration 1,298
------
$7,778
======
NOTE G - MANAGEMENT AGREEMENT
The property is managed by Jerry A. Gaddis Residential Corporation pursuant to a
management agreement renewable annually. Management fees are equal to 4.0% of
rental income collected. Effective March 1, 1995, the property management
responsibilities were assigned from Jerry A. Gaddis to CAPREIT Residential
Corporation. Management fees are payable to CAPREIT Residential Corporation at
the same rate and same terms as under the agreement with Jerry A. Gaddis. For
the period March 1, 1995 through December 31, 1995, $40,509 has been charged to
operations.
-17-
<PAGE>
SUPPLEMENTAL INFORMATION
-18-
<PAGE>
[LETTERHEAD REZNICK FEDDER & SILVERMAN]
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL INFORMATION
To the Partners
CRICO of Regency Woods Limited Partnership
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information, except for that portion marked
"unaudited," on which we express no opinion, has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ Resnick Fedder & Silverman
Bethesda, Maryland
January 29, 1996
-19-
<PAGE>
CRICO of Regency Woods Limited Partnership
PRO FORMA STATEMENT OF REVENUE AND EXPENSES
Year ended December 31, 1995
<TABLE>
<CAPTION>
CRICO of
Regency Regency
Woods Woods
Limited Limited
Partnership Partnership
1/1/95 - 3/1/95 - Pro forma
2/28/95 12/31/95 Total
--------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Rental income - 5100
Apartments $ 166,593 $1,037,584 $1,204,177
Garage and parking spaces - 25,022 25,022
Furniture and equipment - 1,536 1,536
Storage - 360 360
--------- ---------- ----------
166,593 1,064,502 1,231,095
Vacancies - 5200
Apartments - (45,059) (45,059)
--------- ---------- ----------
Net rental revenue 166,593 1,019,443 1,186,036
--------- ---------- ----------
Financial revenue - 5400
Income from investments 1,386 3,022 4,408
--------- ---------- ----------
Other revenue - 5900
Laundry and vending 1,544 7,782 9,326
NSF and late charges - 1,111 1,111
Forfeited security deposits - 2,200 2,200
Other revenue - 19,300 19,300
--------- ---------- ----------
Total other revenue 1,544 30,393 31,937
--------- ---------- ----------
Total revenue 169,523 1,052,858 1,222,381
--------- ---------- ----------
Administrative expenses - 6200/6300
Advertising 880 1,510 2,390
Other renting expenses - 20,530 20,530
Office salaries 4,531 10,656 15,187
Office supplies 2,548 6,155 8,703
Office or model
apartment rent - 460 460
Management fee - 40,509 40,509
Manager salary - 28,264 28,264
Management - rent free unit - 10,073 10,073
Legal expenses 5,794 164 5,958
Audit fees 3,250 2,500 5,750
Bad debts/recovery 4,801 8,011 12,812
Telephone and answering
services 1,145 9,074 10,219
Miscellaneous administrative 7,199 7,778 14,977
--------- ---------- ----------
Total administrative expenses 30,148 145,684 175,832
--------- ---------- ----------
Utilities expense - 6400
Electricity 8,622 16,741 25,363
Water 7,598 23,116 30,714
Gas 3,739 11,282 15,021
Sewer - 24,769 24,769
--------- ---------- ----------
Total utilities expense 19,959 75,908 95,867
--------- ---------- ----------
</TABLE>
-20-
<PAGE>
CRICO of Regency Woods Limited Partnership
PRO FORMA STATEMENT OF REVENUE AND EXPENSES - CONTINUED
Year ended December 31, 1995
<TABLE>
<CAPTION>
CRICO of
Regency Regency
Woods Woods
Limited Limited
Partnership Partnership
1/1/95 - 3/1/95 - Pro forma
2/28/95 12/31/95 Total
--------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Operating and maintenance
expenses - 6500
Janitor and cleaning salaries 4,383 6,320 10,703
Janitor and cleaning supplies 2,104 1,241 3,345
Janitor and cleaning contract - 16,397 16,397
Exterminating contract 343 1,792 2,135
Garbage and trash removal 1,697 10,563 12,260
Heating/cooling repairs - 11,766 11,766
Grounds supply - 4,596 4,596
Grounds contract 42 10,056 10,098
Repairs payroll 4,126 38,870 42,996
Repairs material 5,112 38,734 43,846
Repairs contract - 14,506 14,506
Swimming pool maintenance - 3,760 3,760
Snow removal 1,146 2,837 3,983
Decorating payroll/contract - 18,467 18,467
Other - uniforms - 1,511 1,511
Miscellaneous operating
and maintenance - 913 913
--------- ---------- ----------
Total operating and
maintenance expenses 18,953 182,329 201,282
--------- ---------- ----------
Taxes and insurance - 6700
Real estate tax expense 36,736 185,572 222,308
Payroll taxes 960 15,977 16,937
Property and liability
insurance 2,654 13,810 16,464
Workmen's compensation - 2,243 2,243
Health insurance and other benefits - 2,587 2,587
--------- ---------- ----------
Total taxes and insurance 40,350 220,189 260,539
--------- ---------- ----------
Financial expenses - 6800
Interest on mortgage payable 115,575 577,878 693,453
Mortgage servicing fee - 39,370 39,370
Miscellaneous financial
expenses 7,874 - 7,874
--------- ---------- ----------
Total financial expenses 123,449 617,248 740,697
--------- ---------- ----------
Total cost of operations
before depreciation 232,859 1,241,358 1,474,217
Loss before depreciation (63,336) (188,500) (251,836)
Depreciation and amortization 40,758 224,401 265,159
--------- ---------- ----------
OPERATING LOSS $(104,094) $ (412,901) $ (516,995)
========= ========== ==========
</TABLE>
-21-
<PAGE>
CRICO of Regency Woods Limited Partnership
SCHEDULES TO SUPPORT PRO FORMA
STATEMENT OF REVENUE AND EXPENSES
(UNAUDITED)
Year ended December 31, 1995
<TABLE>
<CAPTION>
1/1/95 - 3/1/95 -
2/28/95 12/31/95
--------- ---------
Other revenue consists of the following:
<S> <C> <C>
Application fees $ - $ 2,625
Recovery of bad debts - 335
Pet fee - 7,831
Insurance proceeds - 3,182
Miscellaneous - 5,327
--------- ---------
$ - $ 19,300
========= =========
Other renting expenses consists of
the following:
Rent concessions $ - $ 16,415
Resident retention - 3,239
Credit reports - 876
--------- ---------
$ - $ 20,530
========= =========
Miscellaneous administrative expenses
consists of the following:
Inspection fee $ 2,100 $ -
Employee relations - 3,183
Computer charges - 3,297
Miscellaneous 5,099 1,298
--------- ---------
$ 7,199 $ 7,778
========= =========
</TABLE>
-22-
<PAGE>
EXHIBIT 99.e
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
CRICO OF VALLEY CREEK II
LIMITED PARTNERSHIP
DECEMBER 31, 1995
<PAGE>
CRICO of Valley Creek II Limited Partnership
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES -
INCOME TAX BASIS 5
STATEMENT OF PROFIT AND LOSS -
INCOME TAX BASIS 6
STATEMENT OF PARTNERS' DEFICIT -
INCOME TAX BASIS 8
STATEMENT OF CASH FLOWS - INCOME TAX BASIS 9
NOTES TO FINANCIAL STATEMENTS 10
<PAGE>
[ LETTERHEAD OF REZNICK FEDDER & SILVERMAN ]
INDEPENDENT AUDITORS' REPORT
To the Partners
CRICO of Valley Creek II
Limited Partnership
We have audited the accompanying statement of assets and liabilities -
income tax basis of CRICO of Valley Creek II Limited Partnership as of December
31, 1995, and the related statements of profit and loss - income tax basis,
partners' deficit - income tax basis and cash flows - income tax basis for the
year then ended. These financial statements are the responsibility of the
partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As described in note A, these financial statements were prepared on the
basis of accounting the partnership uses for income tax purposes, which is a
comprehensive basis of accounting other than generally accepted accounting
principles.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities of CRICO of Valley Creek II
Limited Partnership as of December 31, 1995, and its profit and loss, changes in
partners' deficit and cash flows for the year then ended, on the basis of
accounting described in note A.
- 3 -
<PAGE>
The accompanying financial statements have been prepared assuming that the
partnership will continue as a going concern. As discussed in note B to the
financial statements, the partnership is in default of its mortgage loan
agreement. In addition, the partnership has entered into a merger agreement
which could significantly impact the partnership. These uncertainties raise
substantial doubt about the partnership's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
note B. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
/s/ REZNICK FEDDER & SILVERMAN
Bethesda, Maryland
January 29, 1996
- 4 -
<PAGE>
CRICO of Valley Creek II Limited Partnership
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX BASIS
December 31, 1995
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
INVESTMENT IN REAL ESTATE
Building $8,594,998
Personal property 1,121,319
----------
9,716,317
Less accumulated depreciation 1,545,760
----------
8,170,557
Land 124,335
----------
8,294,892
Tenants' security deposits, separately held
in an interest-bearing account 40,326
Cash and investments held by bond 179,392
----------
servicer
8,514,610
OTHER ASSETS
Cash $59,050
Accounts receivable 914
Prepaid insurance 15,339 75,303
------- ----------
</TABLE>
$8,589,913
=========
LIABILITIES
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES APPLICABLE TO REAL ESTATE
Mortgage payable $10,100,000
Accrued interest payable 707,343
-----------
10,807,343
Tenants' security deposit
liability 35,308
Accrued mortgage servicing fee 152,552
-----------
10,995,203
OTHER LIABILITY
Accounts payable 19,101
-----------
Total liabilities 11,014,304
PARTNERS' DEFICIT (2,424,391)
-----------
$ 8,589,913
==========
</TABLE>
See notes to financial statements
- 5 -
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF PROFIT AND LOSS U.S. Department of Housing and Urban Development
- INCOME TAX BASIS Office of Housing
Federal Housing Commissioner
OMB Approval No. 2502-0052(Exp. 8/31/92)
Public Reporting Burden for this collection of information is estimated to average 1.0 hours per response, including the time for
reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the
collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information,
including suggestions for reducing this burden, to the Reports Management Officer, Office of Information Policies and Systems, U.S.
Department of Housing and Urban Development, Washington, D.C. 20410-3600, and to the Office of Management and Budget Paperwork
Reduction Project (2502-0052), Washington, D.C. 20503. Do not send this completed form to either of these addresses.
For Month/Period For Month/Period Project Number: Project Name:
Beginning: Ending: HUD Project No.:
1/1/95 12/31/95 CRICO of Valley Creek II
Limited Partership
---------------- ----------------- --------------- --------------------------------------
Part I Description of Account Account No. Amount
- --------------------------------------------------------------------------------------------------------------
5000 - REVENUE ACCOUNTS
<S> <C> <C> <C>
Rental Income - 5100
Apartments or Member Carrying Charges (Coops) 5120 $ 1,404,918
------- -----------
Tenant Assistance Payments 5121
------- -----------
Furniture and Equipment 5130 $ 3,345
------- -----------
Stores and Commercial 5140
------- -----------
Garage and Parking Spaces 5170 $ 528
------- -----------
Flexible Subsidy Income 5180
------- -----------
Miscellaneous (Specify) Storage 5190 $ 3,723
------- -----------
Total Rent Revenue Potential at 100% Occupancy $1,412,514
------- ----------- ----------
Vacancies - 5200
Apartments 5220 $ (43,910)
------- -----------
Furniture and Equipment 5230
------- -----------
Stores and Commercial 5240
------- -----------
Garage and Parking Spaces 5270
------- -----------
Miscellaneous (Specify) 5290
------- -----------
Total Vacancies $ (43,910)
------- ----------- ----------
Net Rental Revenue Rent Revenue Less Vacancies $1,368,604
------- ----------- ----------
Elderly and Congregate Services Income - 5300
Total Service Income (Schedule Attached) 5300
------- ----------- ----------
Financial Revenue - 5400
Interest Income - Project Operations 5410 $ 1,589
------- -----------
Income from Investments - Residual Receipts 5430
------- -----------
Income from Investments - Reserve for Replacement 5440 $ 3,158
------- -----------
Income from Investments - Miscellaneous Escrows 5490 $ 5,281
------- -----------
Total Financial Revenue $ 10,028
------- ----------- ----------
Other Revenue - 5900
Laundry and Vending 5910 $ 22,042
------- -----------
NSF and Late Charges 5920 $ 2,145
------- -----------
Damages and Cleaning Fees 5930
------- -----------
Forfeited Tenant Security Deposits 5940 $ 8,689
------- -----------
Other Revenue (Specify) (See Note D) 5990 $ 20,609
------- -----------
Total Other Revenue $ 53,485
------- ----------- ----------
Total Revenue $1,432,117
------- ----------- ----------
Administrative Expenses - 6200/6300
Advertising 6210 $ 25,727
------- -----------
Other Renting Expenses (See Note D) 6250 $ 5,927
------- -----------
Office Salaries 6310 $ 24,556
------- -----------
Office Supplies 6311 $ 9,602
------- -----------
Office or Model Apartment Rent 6312 $ 3,643
------- -----------
Management Fee Incentive Management Fee $6,752 6320 $ 59,658
------- -----------
Manager or Superintendent Salaries 6330 $ 13,037
------- -----------
Manager or Superintendent Rent Free Unit 6331 $ 6,505
------- -----------
Legal Expenses (Project) 6340 $ 62
------- -----------
Auditing Expenses (Project) 6350 $ 5,750
------- -----------
Bookkeeping Fees/Accounting Services 6351
------- -----------
Telephone and Answering Services 6360 $ 5,337
------- -----------
Bad Debts 6370 $ 1,369
------- -----------
Miscellaneous Administrative Expenses (See Note D) 6390 $ 10,026
------- -----------
Total Administrative Expenses $ 171,199
------- ----------- ----------
Utilities Expense - 6400
Fuel Oil/Coal 6420
------- -----------
Electricity 6450 $ 18,425
------- -----------
Water 6451 $ 5,540
------- -----------
Gas 6452 $ 36,894
------- -----------
Sewer 6453 $ 13,592
------- -----------
Total Utilities Expense $ 74,451
------- ----------- ----------
</TABLE>
* All amounts must be rounded to the nearest dollar, $.50 and over, round up -
$.49 and below, round down
Page 1 of 2 Form HUD-92410 (7/91)
<PAGE>
<TABLE>
<S> <C> <C> <C>
Operating and Maintenance Expenses - 6500
Janitor and Cleaning Payroll 6510 $ 37,978
--------- ------------
Janitor and Cleaning Supplies 6515 $ 1,390
--------- ------------
Janitor and Cleaning Contract 6517 $ 3,139
--------- ------------
Exterminating Payroll/Contract 6519 $ 714
--------- ------------
Exterminating Supplies 6520
--------- ------------
Garbage and Trash Removal 6525 $ 11,672
--------- ------------
Security Payroll/Contract 6530 $ 1,782
--------- ------------
Grounds Payroll 6535
--------- ------------
Grounds Supplies 6536
--------- ------------
Grounds Contracts 6537 $ 10,142
--------- ------------
Repairs Payroll 6540 $ 16,979
--------- ------------
Repairs Material 6541 $ 11,616
--------- ------------
Repairs Contract 6542 $ 3,798
--------- ------------
Elevator Maintenance/Contract 6545 $ 4,604
--------- ------------
Heating/Cooling Repairs Maintenance 6546 $ 969
--------- ------------
Swimming Pool Maintenance/Contract 6547 $ 750
--------- ------------
Snow Removal 6548 $ 2,408
--------- ------------
Decorating Payroll/Contract 6560
--------- ------------
Decorating Supplies 6561 $ 11,679
--------- ------------
Other 6570 $ 564
--------- ------------
Miscellaneous Operating & Maintenance Expenses 6590 $ 475
--------- ------------ ----------
Total Operating & Maintenance Expenses $ 120,659
--------- ------------ ----------
Taxes and Insurance - 6700
Real Estate Taxes (See Note D) 6710 $ 245,706
--------- ------------
Payroll Taxes (FICA) 6711 $ 12,616
--------- ------------
Miscellaneous Taxes, Licenses and Permits 6719 $ 2,000
--------- ------------
Property and Liability Insurance (Hazard) 6720 $ 15,777
--------- ------------
Fidelity Bond Insurance 6721
--------- ------------
Workmen's Compensation 6722 $ 2,984
--------- ------------
Health Insurance & Other Employee Benefits 6723 $ 5,910
--------- ------------
Other Insurance (Specify) 6729
--------- ------------ ----------
Total Taxes and Insurance $ 284,993
--------- ------------ ----------
Financial Expenses - 6800
Interest on Bonds Payable 6810 $ 919,100
--------- ------------
Interest on Mortgage Payable 6820
--------- ------------
Interest on Notes Payable (Long-Term) 6830
--------- ------------
Interest on Notes Payable (Short-Term) 6840
--------- ------------
Mortgage Insurance Premium/Service Charge 6850 $ 63,125
--------- ------------
Financial Expenses -- Security Deposit Interest 6890 $ 1,492
--------- ------------
Total Financial Expenses $ 983,717
--------- ------------ ----------
Elderly and Congregate Service Expenses -- 6900
Total Service Expenses - Schedule Attached 6900
--------- ------------ -----------
Total Cost of Operations Before Depreciation $1,635,019
--------- ------------ ----------
Profit (Loss) Before Depreciation $ (202,902)
--------- ------------ ----------
Depreciation (Total) - 6600 (Specify) 6600 507,893
--------- ------------ ----------
Operating Profit or (Loss) $ (710,795)
--------- ------------ ----------
Corporate or Mortgagor Entity Expenses - 7100
Officer Salaries 7110
--------- ------------
Legal Expenses (Entity) 7120
--------- ------------
Taxes (Federal-State-Entity) 7130-32
--------- ------------
Other Expenses (Entity) 7190
Amortization 7190
--------- ------------
Total Corporate Expenses
--------- ------------ ----------
Net Profit or (Loss) $ (710,795)
--------- ------------ ----------
</TABLE>
Warning: HUD will prosecute false claims and statements. Conviction may result
in criminal and/or civil penalties (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729,
3802
Miscellaneous or other Income & Expense Sub-account Groups. If miscellaneous or
other and/or expense sub-accounts (5190, 5290, 5490, 5990, 6390, 6590, 6729,
6890, and 7190) exceed the Account Groupings by 10% or more, attach a separate
schedule describing or explaining the miscellaneous income or expense.
Part II
1. Total principal payments required under the mortgage even if payments under a
Workout Agreement are less or more than those required under the mortgage.
$ N/A
2. Replacement Reserve deposits required by the Regulatory Agreement or
Amendment thereto, even if payments may be temporarily suspended or waived.
$ N/A
3. Replacement or Painting Reserve releases which are included as expense items
on this Profit and Loss statement.
$ N/A
4. Project Improvement Reserve Releases under the Flexible Subsidy Program that
are included as expense items on this Profit and Loss statement.
$ N/A
Page 2 of 2 Form HUD-92410
See notes to financial statements
- 7 -
<PAGE>
CRICO of Valley Creek II Limited Partnership
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX BASIS
Year ended December 31, 1995
Partners' deficit, beginning $(1,713,596)
Net loss (710,795)
----------
Partners' deficit, end $(2,424,391)
==========
See notes to financial statements
- 8 -
<PAGE>
CRICO of Valley Creek II Limited Partnership
STATEMENT OF CASH FLOWS - INCOME TAX BASIS
Year ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities
Net loss $(710,795)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation 507,893
Tenants' security deposits - net (4,496)
Increase in accounts receivable - tenants (445)
Decrease in cash and investments held by bond
servicer 6,098
Increase in prepaid insurance (4,675)
Increase in accrued interest 196,737
Decrease in accounts payable - operations (5,645)
Increase in accrued mortgage servicing fee 63,125
---------
Net cash provided by operating activities 47,797
---------
Cash flows from investing activities
Increase in cash and investments held by bond
servicer (18,180)
Acquisition of personal property (23,134)
---------
Net cash used in investing activities (41,314)
---------
Cash flows from financing activities
Payments of special assessments payable (20,005)
---------
Net cash used in financing activities (20,005)
---------
NET DECREASE IN CASH (13,522)
Cash, beginning 72,572
---------
Cash, end $ 59,050
========
Supplemental disclosure of cash flow information
Cash paid during the year for interest
which includes base interest of $722,363 $723,855
========
Detail of acquisition of personal property paid
Security monitoring cameras $11,301
Carpets 11,833
------
$23,134
======
</TABLE>
See notes to financial statements
- 9 -
<PAGE>
CRICO of Valley Creek II Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The partnership was formed as a limited partnership under the laws of the State
of Minnesota on December 26, 1990, for the purpose of constructing, owning and
operating a rental housing project. The project consists of 177 units located
in the City of Woodbury, Minnesota and operates under the name of Valley Creek
II Apartments.
Income Tax Basis of Accounting
- ------------------------------
The partnership maintains its accounts and the financial statements have been
prepared on the accounting basis used for income tax purposes. Rents received
in advance are recognized when received.
Rental Property
---------------
Rental property is carried at cost. Depreciation is provided for in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives by using the straight-line and declining-balance
methods.
Income Taxes
------------
No provision or benefit for income taxes has been included in these financial
statements since taxable income or loss passes through to, and is reportable by,
the partners individually.
Provision for Doubtful Accounts
-------------------------------
The partnership considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts become
uncollectible, they will be charged to operations when that determination is
made.
Rental Income
- -------------
Rental income is recognized as rentals become due. Rents received in advance are
recognized when received. All leases between the partnership and tenants of the
property are operating leases.
- 10 -
<PAGE>
CRICO of Valley Creek II Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE B - GOING CONCERN
The accompanying financial statements have been prepared assuming the
partnership will continue as a going concern, which assumes the realization of
assets and the satisfaction of liabilities in the normal course of business. As
of December 31, 1995, the partnership was in default with regard to the mortgage
loan agreement due to its inability to generate sufficient cash flow to meet its
contractual obligations under this agreement. The partnership's lender, Capital
Realty Investors Tax Exempt Fund III Limited Partnership ("CRITEF"), has not
availed itself of any of its contractual rights and remedies provided by the
mortgage loan agreement and is effectively treating this obligation as a cash
flow mortgage.
CRITEF entered into a merger agreement, subject to shareholder approval, with
Watermark III Partners, L.P. as of September 11, 1995, as amended on January 31,
1996. Capital Apartment Properties, Inc. ("CAPREIT"), who is the general
partner of Watermark III Partners, L.P., may therefore pursue one of the
following scenarios:
. The current partnership structure would be preserved and all of the
partnership interests would be transferred to CAPREIT.
or
. The current partnership structure would be preserved and CAPREIT would
replace the 1 percent general partner while leaving the 99 percent limited
partner in place.
or
. The current partnership structure would be collapsed and all of the assets
and liabilities of the partnership would be assumed by CAPREIT or one of
its subsidiaries.
Consequently, there is substantial doubt about the partnership's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustment that might result should the partnership be unable to
continue as a going concern.
- 11 -
<PAGE>
CRICO of Valley Creek II Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS
The general partner of the partnership, CRICO of Valley Creek II, Inc., a
Delaware corporation, is a related party to the managing general partner of the
general partner of the holder of the mortgage loan for the project. On January
1, 1992, CRICO of Iona, Inc. assigned its limited partner interest in the
partnership to CRICO Minnesota Holdings, Inc., an affiliated entity.
Cash and Investments Held by Bond Servicer
- ------------------------------------------
1. Mortgage Escrow
---------------
The partnership is required to deposit on a monthly basis an amount equal to
one-twelfth of the aggregate annual amount of all real estate taxes, special
assessments and insurance premiums to the mortgage escrow account maintained by
CRICO Mortgage Company, Inc. (the servicer). The servicer is a related party to
the general partner of the partnership. Effective July 1, 1995, CRIIMI Mae
Services Limited Partnership ("CMSLP") acquired the rights to service the
mortgage from CRICO Mortgage Company. On July 1, 1995, all of the unpaid
mortgage servicing fees accrued through June 30, 1995 were transferred to CRI,
Inc., an affiliate of the partnership's general partner. The owners of CRI, Inc.
are the shareholders of the partnership's general partner. In addition, the
owners of CRI, Inc. are the directors and are officers of the general partner of
CMSLP and CRIIMI Mae Management, Inc. (a wholly-owned subsidiary of CRIIMI Mae
Inc., a publicly held corporation).
2. Reserve for Replacements
------------------------
The partnership is required to make monthly deposits to the reserve for
replacement account maintained by the servicer. The fund is to be used for the
replacement of project assets. The required annual deposit into the reserve for
replacement account is $26,550 for 1995 and each year thereafter until such time
as the balance in the reserve equaled or exceeded $265,500. Thereafter, no
monthly deposits are required unless the balance falls below $265,500.
At December 31, 1995, cash and investments held by the bond servicer consist of
the following:
Reserve
Mortgage for
escrow replacements Total
-------- ------------ --------
Balance, beginning $ 78,484 $88,826 $167,310
Deposits 274,800 26,556 301,356
Interest income 5,281 3,158 8,439
- 12 -
<PAGE>
CRICO of Valley Creek II Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
2. Reserve for Replacements (Continued)
------------------------
Reserve
Mortgage for
escrow replacements Total
---------- ------------- ----------
Withdrawals:
Service charges (16) (238) (254)
Taxes (251,377) - (251,377)
Insurance (20,452) - (20,452)
Tax appeal fee (14,334) - (14,334)
Other withdrawals - (11,296) (11,296)
--------- -------- ---------
$ 72,386 $107,006 $ 179,392
========= ======== =========
Mortgage Payable
----------------
Financing has been provided to the partnership through the issuance of tax-
exempt bonds by the City of Woodbury, Minnesota, in the total amount of
$10,100,000, which are evidenced by a mortgage loan agreement with Capital
Realty Investors Tax Exempt Fund III, Limited Partnership (CRITEF), the
bondowner, a related party. The maturity date of the mortgage is July 1, 2000.
Upon maturity all outstanding principal and interest, including all deferred
interest, is due and payable.
The mortgage note provides for base interest payable at the rate of 9.10% per
annum through the maturity date. Primary contingent interest is payable each
quarter, at the rate of 1.5% per annum, out of that quarter's net cash flow. In
addition, supplemental contingent interest is payable each quarter, at the rate
of 5.4% per annum, out of 60% of that quarter's net cash flow remaining after
deduction of primary contingent interest. Unpaid construction period deferred
interest, primary contingent interest and supplemental contingent interest is
deferred until the earlier of the sale or refinancing of the project or
maturity. The deferred interest has not been recorded on the books of the
partnership.
As of December 31, 1995, the partnership was in default with regard to the
mortgage loan agreement due to its inability to generate sufficient cash flow to
meet its contractual obligations under this agreement. CRITEF has not exercised
its contractual rights and remedies provided under the mortgage.
Under agreement with CRITEF, the partnership has paid base interest from
available cash flows. Any unpaid base interest shall be deferred until cash
flow on subsequent interest payment dates is sufficient for payment or until the
earlier of the sale or refinancing of the project or maturity. As of December
31, 1995, accrued base interest was $707,343. Interest accrues on the unpaid
base interest at a compounded rate of 9.1%.
- 13 -
<PAGE>
CRICO of Valley Creek II Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
During the year ended December 31, 1995, the partnership recorded the base
interest and did not record interest accrued on the unpaid base interest of
$55,961, primary contingent interest of $151,500, and supplemental contingent
interest of $545,400. At December 31, 1995, interest accrued on the unpaid base
interest of $89,244, primary and supplemental contingent interest of $3,832,950,
construction period deferred base interest at $339,184 has not been recorded.
Total interest incurred on the mortgage for the year ended December 31, 1995 is
as follows:
Currently
Deferred payable Total
---------- ---------- ----------
Base interest $ - $ 919,100 $ 919,100
Interest on interest 55,961 - 55,961
Primary contingent interest 151,500 - 151,500
Supplemental contingent
interest 545,400 - 545,400
---------- --------- ----------
Total interest incurred 752,861 919,100 $1,671,961
==========
Accrued interest, beginning 3,508,517 510,606
Interest paid - (722,363)
---------- ----------
Accrued interest, ending $4,261,378 $ 707,343
========== =========
Interest earned on the bonds is exempt from Federal income tax pursuant to the
Internal Revenue Code. In accordance with the bond regulatory agreement, the
bond proceeds are to finance multifamily housing in which at least 20% of the
units in the project are to be occupied by individuals of low or moderate
income, as defined in the Internal Revenue Code. In the event that the
underlying bonds do not maintain their tax-exempt status, whether by change in
law or by noncompliance with the regulatory agreement, repayment of the bonds
may be accelerated.
- 14 -
<PAGE>
CRICO of Valley Creek II Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
The liability of the partnership under the mortgage is limited to the underlying
value of the real estate collateral, plus other amounts deposited with the
lender. As further security on the obligation, the partnership has assigned
existing and future rents and leases to the mortgagee.
The partnership is required to pay the servicer a mortgage servicing fee equal
to 0.625% of the outstanding principal balance of the loan. The fee is paid
monthly on each base interest payment date. Any unpaid fees shall be deferred
until cash flow on subsequent interest payment dates is sufficient for payment
or until the earlier of the sale or refinancing of the project or maturity. As
of December 31, 1995, the amount payable to CRIIMI Mae Services Limited
Partnership and CRI, Inc. is $31,562 and $120,990, respectively. During 1995,
$63,125 was charged to operations.
Management Agreement
--------------------
CRICO Management of Minnesota, Inc., a related party to the general partner of
the partnership, managed the property through January 31, 1994. Effective
February 1, 1994, the property management responsibilities were assigned from
CRICO Management of Minnesota, Inc. to CAPREIT Residential Corporation, an
unrelated entity. Management fees are payable to CAPREIT Residential Corporation
at the same rate and same terms as under the agreement with CRICO Management of
Minnesota, Inc.
Management fees are equal to 3.75% of Gross Revenues received, as defined. The
management agent is eligible to receive an incentive bonus of .5% of Gross
Revenues if conditions, as outlined in the agreement, are met. For the year
ended December 31, 1995, management fees totalling $52,906 were charged to
operations. Incentive management fees of $563 and $6,189 were paid to CRICO
Management of Minnesota, Inc. and CAPREIT Residential Corporation, respectively.
At December 31, 1995, $4,307 is included in accounts payable for management
fees.
- 15 -
<PAGE>
CRICO of Valley Creek II Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
Other Receivables
-----------------
CRICO of Valley Creek I Limited Partnership is an affiliate of the partnership
and owns a complex known as Valley Creek Apartments, Phase I. Both the Project
and Valley Creek Apartments, Phase I, are managed by the same management
company. Certain expenses applicable to both are billed to the management
company and paid for collectively. These common charges are primarily allocated
on a pro rata basis based on the number of dwelling units. An account has been
established on the books of each partnership to record amounts payable to or
receivable from the related entity. At December 31, 1995, $363 was due from
Phase I.
NOTE D - SCHEDULES TO SUPPORT HUD STATEMENT OF PROFIT AND LOSS
Other revenue include the following:
<TABLE>
<CAPTION>
<S> <C>
Corporate unit income $9,984
Application fees 3,840
Bad debt collections 1,336
Other 5,449
------
$20,609
======
</TABLE>
Miscellaneous administrative expenses include the following:
<TABLE>
<CAPTION>
<S> <C>
Employee relations $ 2,407
Corporate unit expense 6,886
Miscellaneous administrative 733
-------
$10,026
=======
Other renting expenses include the following:
Resident retention $ 5,514
Rental concessions 413
-------
$5,927
=====
</TABLE>
- 16 -
<PAGE>
CRICO of Valley Creek II Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE D - SCHEDULES TO SUPPORT HUD STATEMENT OF PROFIT AND LOSS
(Continued)
Real estate taxes include the following:
<TABLE>
<CAPTION>
<S> <C>
Real estate tax $240,802
Tax appeal fee 14,334
Interchange improvement 5,841
Special assessment adjustment (15,271)
--------
$245,706
=======
</TABLE>
- 17 -
<PAGE>
EXHIBIT 99.f
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
CRICO OF WOODLANE PLACE
LIMITED PARTNERSHIP
DECEMBER 31, 1995
<PAGE>
CRICO of Woodlane Place Limited Partnership
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES - INCOME
TAX BASIS 5
STATEMENT OF PROFIT AND LOSS - INCOME
TAX BASIS 6
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX
BASIS 8
STATEMENT OF CASH FLOWS - INCOME TAX BASIS 9
NOTES TO FINANCIAL STATEMENTS 10
<PAGE>
[ LETTERHEAD OF REZNICK FEDDER & SILVERMAN ]
INDEPENDENT AUDITORS' REPORT
To the Partners
CRICO of Woodlane Place Limited Partnership
We have audited the accompanying statement of assets and liabilities -
income tax basis of CRICO of Woodlane Place Limited Partnership as of December
31, 1995, and the related statements of profit and loss - income tax basis,
partners' deficit - income tax basis and cash flows - income tax basis for the
year then ended. These financial statements are the responsibility of the
partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As described in note A, these financial statements were prepared on the
basis of accounting the partnership uses for income tax purposes, which is a
comprehensive basis of accounting other than generally accepted accounting
principles.
- 3 -
<PAGE>
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities of CRICO of Woodlane Place
Limited Partnership as of December 31, 1995, and its profit and loss, changes in
partners' deficit and cash flows for the year then ended, on the basis of
accounting described in note A.
The accompanying financial statements have been prepared assuming that the
partnership will continue as a going concern. As discussed in note B to the
financial statements, the partnership is in default of its mortgage loan
agreement. In addition, the partnership has entered into a merger agreement
which could significantly impact the partnership. These uncertainties raise
substantial doubt about the partnership's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
note B. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
/s/ REZNICK FEDDER & SILVERMAN
Bethesda, Maryland
January 29, 1996
- 4 -
<PAGE>
CRICO of Woodlane Place Limited Partnership
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX BASIS
December 31, 1995
<TABLE>
<CAPTION>
ASSETS
INVESTMENT IN REAL ESTATE
<S> <C> <C>
Building $11,834,001
Personal property 968,023
-----------
12,802,024
Less accumulated depreciation 2,342,889
-----------
10,459,135
Land 796,599
-----------
11,255,734
Tenants' security deposits, separately
held in an interest ,bearing account 105,226
Cash and investments held
by bond servicer 259,777
Favorable financing, less
accumulated amortization
of $607,223 581,664
-----------
12,202,401
OTHER ASSETS
Cash $109,936
Accounts receivable -
tenants 10,361
Accounts receivable - other 2,453
Prepaid insurance 20,266 143,016
-------- -----------
$12,345,417
==========
</TABLE>
LIABILITIES
<TABLE>
<CAPTION>
LIABILITIES APPLICABLE TO REAL
ESTATE
<S> <C>
Mortgage payable $14,000,000
Accrued interest payable 2,662,408
-----------
16,662,408
Tenants' security deposit
liability 100,630
Accrued mortgage servicing
fee 361,293
-----------
17,124,331
OTHER LIABILITY
Accounts payable 33,592
----------
Total liabilities 17,157,923
PARTNERS' DEFICIT (4,812,506)
-----------
$12,345,417
==========
</TABLE>
See notes to financial statements
- 5 -
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF PROFIT AND LOSS U.S. Department of Housing and Urban Development
- INCOME TAX BASIS Office of Housing
Federal Housing Commissioner
OMB Approval No. 2602-0052 (exp. 8/31/92)
Public Reporting Burden for this collection of information is estimated to average 1.0 hour per response, including the time for
reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the
collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information,
including suggestions for reducing this burden, to the Reports Management Officer, Office of Information Policies and Systems, U.S.
Department of Housing and Urban Development, Washington, D.C. 20410-3600, and to the Office of Management and Budget Paperwork
Reduction Project (2502-0052), Washington, D.C. 20503. Do not send this completed form to either of these addresses.
Project Name:
For Month/Period For Month/Period CRICO of Woodlane Place
Beginning: 1/1/94 Ending: 12/31/95 Project Number: Limited Partership
----------------- ----------------- --------------- --------------------------------------
Part I Description of Account Account No. Amount*
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental Income - 5100
Apartments or Member Carrying Charges (Coops) 5120 $ 2,102,772
------- -----------
Tenant Assistance Payments 5121 $
------- -----------
Furniture and Equipment 5130 $
------- -----------
Stores and Commercial 5140 $
------- -----------
Garage and Parking Spaces 5170 $
------- -----------
Flexible Subsidy Income 5180 $
------- -----------
Miscellaneous (Specify) 5190 $
------- -----------
Total Rent Revenue Potential at 100% Occupancy $2,102,772
------- ----------- ----------
Vacancies - 5200
Apartments 5220 $( 29,808)
------- -----------
Furniture and Equipment 5230 $( )
------- -----------
Stores and Commercial 5240 $( )
------- -----------
Garage and Parking Spaces 5270 $( )
------- -----------
Miscellaneous (Specify) 5290 $( )
------- -----------
Total Vacancies $ $ (29,808)
------- ----------- ----------
Net Rental Revenue Rent Revenue Less Vacancies $ $2,072,964
------- ----------- ----------
Elderly and Congregate Services Income - 5300
Total Service Income (Schedule Attached) 5300 $
------- ----------- ----------
Financial Revenue - 5400
Interest Income - Project Operations 5410 $ 4,374
------- -----------
Income from Investments - Residual Receipts 5430 $
------- -----------
Income from Investments - Reserve for Replacement 5440 $ 8,421
------- -----------
Income from Investments - Miscellaneous 5490 $ 7,857
------- -----------
Total Financial Revenue $ $ 20,652
------- ----------- ----------
Other Revenue - 5900
Laundry and Vending 5910 $
------- -----------
NSF and Late Charges 5920 $ 5,926
------- -----------
Damages and Cleaning Fees 5930 $ 15,428
------- -----------
Forfeited Tenant Security Deposits 5940 $ 31,308
------- -----------
Other Revenue (Specify) (See Note E) 5990 $ 34,708
------- -----------
Total Other Revenue $ $ 87,368
------- ----------- ----------
Total Revenue $ $2,180,984
------- ----------- ----------
Administrative Expenses - 6200/6300
Advertising 6210 $ 54,362
------- -----------
Other Renting Expenses (See Note F) 6250 $ 21,704
------- -----------
Office Salaries 6310 $ 32,352
------- -----------
Office Supplies 6311 $ 13,339
------- -----------
Office or Model Apartment Rent 6312 $
------- -----------
Management Fee 6320 $ 80,229
------- -----------
Manager or Superintendent Salaries 6330 $ 29,877
------- -----------
Manager or Superintendent Rent Free Unit 6331 $
------- -----------
Legal Expenses (Project) 6340 $ 209
------- -----------
Auditing Expenses (Project) 6350 $ 6,183
------- -----------
Computer Fees 6351 $
------- -----------
Telephone and Answering Service 6360 $ 7,436
------- -----------
Bad Debts 6370 $ 10,011
------- -----------
Miscellaneous Administrative Expenses (See Note G) 6390 $ 4,663
------- -----------
Total Administrative Expenses $ $ 260,365
------- ----------- ----------
Utilities Expense - 6400
Fuel Oil/Coal 6420 $
------- -----------
Electricity 6450 $ 6,372
------- -----------
Water 6451 $ 11,319
------- -----------
Gas 6452 $ 2,180
------- -----------
Sewer 6453 $ 30,680
------- -----------
Total Utilities Expense $ $ 50,551
------- ----------- ----------
</TABLE>
*All amounts must be rounded to the nearest dollar; $.50 and over, round up -
$.49 and below round down.
Page 1 of 2 Form HUD-92410 (7/91)
ref Handbook 4370
<PAGE>
<TABLE>
<S> <C> <C> <C>
Operating and Maintenance Expenses - 6500
Janitor and Cleaning Payroll 6510 $ 14,746
--------- ------------
Janitor and Cleaning Supplies 6515 $ 265
--------- ------------
Janitor and Cleaning Contract 6517 $ 27,546
--------- ------------
Exterminating Payroll/Contract 6519 $ 943
--------- ------------
Exterminating Supplies 6520
--------- ------------
Garbage and Trash Removal 6525 $ 15,800
--------- ------------
Security Payroll/Contract 6530
--------- ------------
Grounds Payroll 6535
--------- ------------
Grounds Supplies 6536
--------- ------------
Grounds Contract 6537 $ 27,224
--------- ------------
Repairs Payroll 6540 $ 29,966
--------- ------------
Repairs Material 6541 $ 18,757
--------- ------------
Repairs Contract 6542 $ 32,826
--------- ------------
Elevator Maintenance/Contract 6545
--------- ------------
Heating/Cooling Repairs Maintenance 6546 $ 24,961
--------- ------------
Swimming Pool Maintenance/Contract 6547 $ 3,840
--------- ------------
Snow Removal 6548 $ 13,382
--------- ------------
Decorating Payroll/Contract 6560
--------- ------------
Decorating Supplies 6561 $ 32,818
--------- ------------
Other - Frost Heaving Damages 6570 $
--------- ------------
Miscellaneous Operating and Maintenance Expense 6590 $ 1,510
--------- ------------
Total Operating and Maintenance Expenses $ 244,584
--------- ------------ ----------
Taxes and Insurance - 6700
Real Estate Taxes (See Note H) 6710 $ 393,042
--------- ------------
Payroll Taxes (FICA) 6711 $ 14,506
--------- ------------
Misc. Taxes, Licenses & Permits 6719 $ 2,000
--------- ------------
Property and Liability Insurance (Hazard) 6720 $ 20,955
--------- ------------
Fidelity Bond Insurance 6721
--------- ------------
Workmen's Compensation 6722 $ 7,497
--------- ------------
Health Insurance & Other Employee Benefits 6723 $ 3,150
--------- ------------
Other Insurance (Specify) 6729
--------- ------------
Total Taxes and Insurance $ 441,150
--------- ------------ ----------
Financial Expenses - 6800
Interest on Bonds Payable 6810 $ 1,407,000
--------- ------------
Interest on Mortgage Payable 6820
--------- ------------
Interest on Notes Payable Special Assessment 6830
--------- ------------
Interest on Notes Payable (Short-Term) 6840
--------- ------------
Mortgage Servicing 6850 $ 90,440
--------- ------------
Misc. Financial Expenses Security Deposit Interest 6890 $ 5,367
--------- ------------
Total Financial Expenses $1,502,807
--------- ------------ ----------
Elderly & Congregate Service Expenses - 6900
Total Service Expenses - Schedule Attached 6900
--------- ------------ ----------
Total Cost of Operations Before Depreciation $2,499,457
--------- ------------ ----------
Profit (Loss) Before Depreciation $ (318,473)
--------- ------------ ----------
Depreciation (Total) - 6600 (Specify) 6600 $ 550,080
--------- ------------ ----------
Operating Profit or (Loss) $ (868,553)
--------- ------------ ----------
Corporate or Mortgagor Entity Expenses - 7100
Officer Salaries 7110
--------- ------------
Legal Expenses (Entity) 7120
--------- ------------
Taxes (Federal-State-Entity) 7130-32
--------- ------------
Other Expenses (Entity) 7190
--------- ------------
Amortization 7190 $ 151,837
--------- ------------
Total Corporate Expenses $ 151,837
--------- ------------ -----------
Net Profit or (Loss) $(1,020,390)
--------- ------------ -----------
</TABLE>
Warning: HUD will prosecute false claims and statements. Conviction may result
in criminal and/or civil penalties (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729,
3802) Miscellaneous or other Income & Expense, Sub-account Groups. If
miscellaneous or other Income and/or expense sub-accounts (5190, 5290, 5490,
5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or
more, attach a separate schedule describing or explaining the miscellaneous
income or expense.
Part II
1. Total principal payments required under the mortgage, even if payments under
a Workout Agreement are less or more than those required under the mortgage.
$ N/A
2. Replacement Reserve deposits required by the Regulatory Agreement or
Amendment, thereto, even if payments may be temporarily suspended or waived.
$ N/A
3. Replacement of Painting Reserve releases which are included as expense items
on the Profit and Loss statement.
$ N/A
4. Project improvement Reserve Releases under the Flexible Subsidy Program that
are included as expense items on this Profit and Loss statement.
$ N/A
Page 2 of 2 Form HUD-92410
See notes to financial statements
- 7 -
<PAGE>
CRICO of Woodlane Place Limited Partnership
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX BASIS
Year ended December 31, 1995
Partners' deficit, beginning $(3,792,116)
Net loss (1,020,390)
------------
Partners' deficit, end $(4,812,506)
==========
See notes to financial statements
- 8 -
<PAGE>
CRICO of Woodlane Place Limited Partnership
STATEMENT OF CASH FLOWS - INCOME TAX BASIS
Year ended December 31, 1995
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities
Net loss $(1,020,390)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation 550,080
Amortization 151,837
Tenants' security deposits - net (4,077)
Increase in cash and investments held by
bond servicer (52,812)
Increase in accounts receivable - tenants (8,970)
Increase in account receivable - other (301)
Decrease in accounts receivable -
real estate tax refund 60,627
Increase in prepaid expenses (6,066)
Increase in accrued interest payable 452,522
Increase in accrued mortgage servicing fee 90,440
Increase in accounts payable 6,130
-----------
Net cash provided by operating activities 219,020
-----------
Cash flows from investing activities
Acquisition of fixed assets (106,820)
Increase in cash and investments held by
bond servicer (4,744)
-----------
Net cash used in investing activities (111,564)
-----------
NET INCREASE IN CASH 107,456
Cash, beginning 2,480
-----------
Cash, end $ 109,936
===========
Supplemental disclosure of cash flow information
Cash paid during the year for interest
which includes base interest of $954,478 $959,845
===========
Detail of acquisition of fixed assets paid
Gutters $ 17,032
Erosion control/drainage system 66,789
Carpet 22,999
-----------
$106,820
=======
</TABLE>
See notes to financial statements
- 9 -
<PAGE>
CRICO of Woodlane Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The partnership was formed as a limited partnership under the laws of the State
of Minnesota on December 26, 1990 for the purpose of acquiring, owning and
operating a rental housing project. The project consists of 216 units located
in Woodbury, Minnesota and operates under the name of Woodlane Place Townhome
Apartments.
Income Tax Basis of Accounting
------------------------------
The partnership maintains its accounts and the financial statements have been
prepared on the accounting basis used for income tax purposes. Rents received in
advance are recognized as income when received, as opposed to when earned as
required by generally accepted accounting principles.
Investment in Real Estate and Depreciation and Amortization
-----------------------------------------------------------
Investment in real estate is recorded at cost. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations over
their estimated service lives by use of the straight-line and declining-balance
methods.
Favorable financing is amortized over the remaining life of the bonds by use of
the straight-line method.
Income Taxes
------------
No provision or benefit for income taxes has been included in these financial
statements since taxable income or loss passes through to, and is reportable by,
the partners individually.
Provision for Doubtful Accounts
-------------------------------
The partnership considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts become
uncollectible, they will be charged to operations when that determination is
made.
- 10 -
<PAGE>
CRICO of Woodlane Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Rental Income
-------------
Rental income is recognized as rentals become due. Rents received in advance are
recognized as income when received. All leases between the partnership and the
tenants of the property are operating leases.
NOTE B - GOING CONCERN
The accompanying financial statements have been prepared assuming the
partnership will continue as a going concern, which assumes the realization of
assets and the satisfaction of liabilities in the normal course of business. As
of December 31, 1995, the partnership was in default with regard to the mortgage
loan agreement due to its inability to generate sufficient cash flow to meet its
contractual obligations under this agreement. The partnership's lender, Capital
Realty Investors Tax Exempt Fund III Limited Partnership ("CRITEF") has not
availed itself of any of its contractual rights and remedies provided by the
mortgage loan agreement and is effectively treating this obligation as a cash
flow mortgage.
CRITEF entered into a merger agreement, subject to shareholder approval, with
Watermark III Partners, L.P. as of September 11, 1995, as amended on January 31,
1996. Capital Apartment Properties, Inc. ("CAPREIT"), who is the general
partner of Watermark III Partners, L.P., may therefore pursue one of the
following scenarios:
. The current partnership structure would be preserved and all of the
partnership interests would be transferred to CAPREIT.
or
. The current partnership structure would be preserved and CAPREIT would
replace the 1 percent general partner while leaving the 99 percent limited
partner in place.
or
- 11 -
<PAGE>
CRICO of Woodlane Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE B - GOING CONCERN (Continued)
. The current partnership structure would be collapsed and all of the assets
and liabilities of the partnership would be assumed by CAPREIT or one of
its subsidiaries.
Consequently, there is substantial doubt about the partnership's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustment that might result should the partnership be unable to
continue as a going concern.
NOTE C - RELATED PARTY TRANSACTIONS
The general partner of the partnership, CRICO of Woodlane Place, Inc., a
Delaware corporation, is a related party to the managing general partner of the
general partner of the holder of the mortgage loan for the project. On January
1, 1992, CRICO of Iona, Inc. assigned its limited partner interest in the
partnership to CRICO Minnesota Holdings, Inc., an affiliated entity.
Cash and Investments Held by Bond Servicer
------------------------------------------
Mortgage Escrow
---------------
The partnership is required to deposit on a monthly basis an amount equal to
one-twelfth of the aggregate annual amount of all real estate taxes to the
mortgage escrow account maintained by CRICO Mortgage Company, Inc. (the
servicer). The servicer is a related party to the general partner of the
partnership. Effective July 1, 1995, CRIIMI Mae Services Limited Partnership
("CMSLP") acquired the rights to service the mortgage from CRICO Mortgage
Company. On July 1, 1995, all of the unpaid mortgage servicing fees accrued
through June 30, 1995 were transferred to CRI, Inc., an affiliate of the
partnership's general partner. The owners of CRI, Inc. are the shareholders of
the partnership's general partner. In addition, the owners of CRI, Inc. are the
directors and are officers of the general partner of CMSLP and CRIIMI Mae
Management, Inc. (a wholly-owned subsidiary of CRIIMI Mae Inc., a publicly held
corporation).
Reserve for Replacements
------------------------
The partnership is required to make monthly deposits to the reserve for
replacement account maintained by the servicer. The fund is to be used for the
replacement of project assets. The required annual deposit into the reserve for
replacement account is $48,600 for 1995 and each year thereafter until such time
as the balance in the reserve equals or exceeds $200,000.
- 12 -
<PAGE>
CRICO of Woodlane Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
Cash and Investments Held by Bond Servicer (Continued)
------------------------------------------
Thereafter, no monthly deposits are required unless the balance falls below
$200,000.
At December 31, 1995, cash and investments held by the bond servicer consisted
of the following:
<TABLE>
<CAPTION>
Mortgage
escrow Reserve for
deposits replacements Total
---------- ------------- ------------
<S> <C> <C> <C>
Balance at December
31, 1994 $ 72,778 $129,443 $ 202,221
Deposits 404,400 48,600 453,000
Interest income 7,857 8,421 16,278
Tax Refund 60,627 - 60,627
Withdrawals:
Taxes (355,220) - (355,220)
Tax appeal fees (25,616) - (25,616)
Special assessment (12,206) - (12,206)
Insurance (27,021) - (27,021)
Interest (9) - (9)
Other withdrawals - (52,277) (52,277)
--------- -------- ---------
Balance at December
31, 1995 $ 125,590 $134,187 $ 259,777
========= ======== =========
</TABLE>
Real estate taxes paid during the year were $355,220. During 1995, the
partnership paid a tax appeal fee of $25,616 and a one-time special of $12,206.
Mortgage Payable
----------------
Financing has been provided to the partnership through the issuance of tax-
exempt bonds by the City of Woodbury, Minnesota, in the total amount of
$14,000,000, which are evidenced by a mortgage loan agreement with Capital
Realty Investors Tax Exempt Fund III Limited Partnership (CRITEF), the
bondowner, a related party. The maturity date of the mortgage is November 1,
1999. Upon maturity all outstanding principal and interest, including all
deferred interest, is due and payable.
- 13 -
<PAGE>
CRICO of Woodlane Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
The mortgage note provides for base interest payable at the rate of 10.05% per
annum through the maturity date. Primary contingent interest is payable each
quarter, at the rate of 1.5% per annum, out of that quarter's net cash flow. In
addition, supplemental contingent interest is payable each quarter, at the rate
of 4.45% per annum, out of 50% of that quarter's net cash flow remaining after
deduction of primary contingent interest. Unpaid construction period deferred
interest, primary contingent interest and supplemental contingent interest is
deferred until the earlier of the sale or refinancing of the project or
maturity. The deferred interest has not been recorded on the books of the
partnership. As of December 31, 1995, the partnership was in default with regard
to the mortgage loan agreement due to its inability to generate sufficient cash
flow to meet its contractual obligations under this agreement. CRITEF has not
exercised its contractual rights and remedies provided under the mortgage.
Under agreement with CRITEF, the partnership has paid base interest from
available cash flows. Any unpaid base interest is deferred until cash flow on
subsequent interest payment dates is sufficient for payment or until the earlier
of the sale or refinancing of the project or maturity. As of December 31, 1995,
accrued base interest was $2,662,408. Interest accrues on the unpaid base
interest at a compounded rate of 10.05%.
During the year ended December 31, 1995, the partnership recorded the base
interest and did not record interest accrued on the unpaid base interest of
$298,883, primary contingent interest of $210,000 and supplemental contingent
interest of $623,000. At December 31, 1995, interest accrued on the unpaid base
interest of $782,625, primary and supplemental contingent interest of $5,136,833
and construction period deferred base interest of $1,189,076 has not been
recorded. Total interest incurred on the mortgage for the year ended December
31, 1995 is as follows:
- 14 -
<PAGE>
CRICO of Woodlane Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
<TABLE>
<CAPTION>
Currently
Deferred payable Total
---------- ----------- ----------
<S> <C> <C> <C>
Base interest $ - $1,407,000 $1,407,000
Interest on interest 298,883 - 298,883
Primary contingent
interest 210,000 - 210,000
Supplemental contingent
interest 623,000 - 623,000
---------- ---------- ----------
Total interest incurred 1,131,883 1,407,000 $2,538,883
==========
Accrued interest,
beginning 5,976,651 2,209,886
Interest paid - (954,478)
---------- ----------
Accrued interest, ended $7,108,534 $2,662,408
========== ==========
</TABLE>
Interest earned on the bonds is exempt from Federal income tax pursuant to the
Internal Revenue Code. In accordance with the bond regulatory agreement, the
bond proceeds are to finance multifamily housing in which at least 20% of the
units in the project are to be occupied by individuals of low or moderate
income, as defined in the Internal Revenue Code. In the event that the
underlying bonds do not maintain their tax-exempt status, whether by change in
law or by noncompliance with the regulatory agreement, repayment of the bonds
may be accelerated.
The liability of the partnership under the mortgage is limited to the underlying
value of the real estate collateral, plus other amounts deposited with the
lender. As further security on the obligation, the partnership has assigned
existing and future rents and leases to the mortgagee.
- 15 -
<PAGE>
CRICO of Woodlane Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE C - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
The partnership is required to pay the servicer a mortgage servicing fee equal
to 0.632% of the outstanding principal balance of the loan. The fee is paid
monthly on each base interest payment date. Any unpaid fees are deferred until
cash flow on subsequent interest payment dates is sufficient for payment or
until the earlier of the sale or refinancing of the project or maturity. As of
December 31, 1995, the amount payable to CRI, Inc. and CRIIMI Mae Services
Limited Partnership is $316,073 and $45,220, respectively. During 1995, $90,440
was charged to operations.
Other Receivables
-----------------
The Project and Woodlane Place Townhome Apartments, Phase II, are managed by the
same management company. Certain expenses applicable to both are billed to the
management company and paid for collectively. These common charges are primarily
allocated on a pro rata basis based on the number of dwelling units. An account
has been established on the books of each partnership to record amounts payable
to or receivable from the related entity. At December 31, 1995, $2,453 was due
from this affiliate.
NOTE D - MANAGEMENT AGREEMENT
The property is managed by CAPREIT Residential Corporation pursuant to a
management agreement renewable annually. Management fees are equal to 3.75% of
rental income collected. For the year ended December 31, 1995, $80,229 has been
charged to operations.
- 16 -
<PAGE>
CRICO of Woodlane Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
<TABLE>
<CAPTION>
NOTE E - MISCELLANEOUS OTHER REVENUE (ACCOUNT NO. 5990)
Miscellaneous other revenue consist of the following:
<S> <C>
Non refundable fees $8,937
Application fees 6,143
Bad debt recovery 955
Pet fee 3,913
Miscellaneous 6,768
Furniture rental 7,992
------
$34,708
======
</TABLE>
NOTE F - OTHER RENTING EXPENSES (ACCOUNT NO. 6250)
<TABLE>
<CAPTION>
Other renting expenses consist of the following:
<S> <C>
Rental concessions $ 306
Resident retention 3,470
Credit report check 6,126
Corporate unit expense 11,802
-------
$21,704
======
</TABLE>
NOTE G - MISCELLANEOUS ADMINISTRATIVE EXPENSES (Account No. 6390)
Miscellaneous administrative expenses consist of the following:
Employee relations $4,663
=====
NOTE H - REAL ESTATE TAXES (ACCOUNT NO. 6710)
<TABLE>
<CAPTION>
Real estate taxes consist of the following:
<S> <C>
Real estate tax $355,220
Tax appeal fee 25,616
Road improvement one time
special assessment 12,206
--------
$393,042
=======
</TABLE>
- 17 -
<PAGE>
CRICO of Woodlane Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995
NOTE I - FROST HEAVING DAMAGES
In March, 1994, the project incurred frost heaving damages to certain buildings
due to drainage problems. Management believes the drainage problems are due to
faulty construction and design work, specifically an inadequate drainage system,
performed during the original construction of the project. The insurance company
will not reimburse the partnership for costs associated with the correction of
the drainage system. Management has estimated the cost to be $300,000. The
partnership is assessing whether it can make claims for such damage against
third parties connected with the development of the project.
During 1995, the partnership incurred approximately $76,000 to correct the
drainage system.
- 18 -
<PAGE>
EXHIBIT 99.g
CRICO OF ETHAN'S II LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 AND 1993,
TOGETHER WITH AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
CRICO of Ethan's II Limited Partnership:
We have audited the accompanying balance sheets - income tax basis - of CRICO of
Ethan's II Limited Partnership (a Missouri limited partnership, the
"Partnership") as of December 31, 1994 and 1993, and the related income tax
basis statements of operations, changes in partners' deficit and cash flows for
the years then ended. These financial statements and the schedule referred to
below are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and the
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 3, these financial statements were prepared on the income
tax basis of accounting, which is a comprehensive basis of accounting other than
generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CRICO of Ethan's II Limited
Partnership as of December 31, 1994 and 1993, and the results of its operations
and its cash flows for the years then ended, on the income tax basis of
accounting described in Note 3.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 2, the
Partnership was in default at December 31, 1994, with regard to its mortgage
loan agreement, due to its inability to generate sufficient cash flow to meet
the contractual obligations of this agreement. Additionally, the Partnership
does not expect to be able to generate sufficient cash flow to meet its
contractual obligations under the mortgage loan agreement in 1995. The
Partnership's lender, an affiliated entity, has represented that it will not
foreclose on the Partnership's defaulted loan prior to January 2, 1996.
However, the Partnership does not expect to be able to cure the default at that
time. While the lender has no plans to foreclose on the property in 1996, there
can be no assurance that the lender will not sell or assign its rights under the
mortgage loan agreement in 1995 or exercise its rights subsequent to January 2,
1996. This issue raises substantial doubt
<PAGE>
Page 2
about the Partnership's ability to continue as a going concern. Management's
plan in regard to this matter is also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The U.S. Department of Housing and Urban
Development Statement of Profit and Loss (Schedule I) is presented for purposes
of additional analysis and is not a required part of the basic financial
statements. This information has been subjected to the auditing procedures
applied in our audits of the basic financial statements and, in our opinion, is
fairly stated, in all material respects, in relation to the basic financial
statements taken as a whole.
/s/ Arthur Andersen LLP
Washington, D.C.,
January 30, 1995
<PAGE>
CRICO OF ETHAN'S II LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
BALANCE SHEETS
(INCOME TAX BASIS)
AS OF DECEMBER 31, 1994 AND 1993
ASSETS
<TABLE>
<CAPTION>
1994 1993
---- ----
FIXED ASSETS:
<S> <C> <C>
Land $ 888,211 $ 888,211
Building and improvements 8,458,077 8,458,077
Furniture, fixtures and equipment 494,619 491,881
----------- -----------
Total 9,840,907 9,838,169
Less- Accumulated depreciation (1,817,956) (1,465,930)
----------- -----------
Net fixed assets 8,022,951 8,372,239
----------- -----------
CURRENT ASSETS:
Cash 63,426 81,914
Prepaid insurance 14,400 14,061
Tenant accounts receivable 843 -
Other assets 11,784 12,707
----------- -----------
Total current assets 90,453 108,682
----------- -----------
RESTRICTED CASH:
Tenants' security deposits,
separately held in an
interest-bearing account 20,728 25,363
Escrow deposits 156,229 186,258
----------- -----------
Total restricted cash 176,957 211,621
----------- -----------
OTHER ASSETS-
Favorable financing, net of
accumulated amortization of $61,872
and $48,731 in 1994 and 1993,
respectively 68,988 82,129
----------- -----------
Total assets $ 8,359,349 $ 8,774,671
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
CRICO OF ETHAN'S II LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
BALANCE SHEETS
(INCOME TAX BASIS)
AS OF DECEMBER 31, 1994 AND 1993
LIABILITIES AND PARTNERS' DEFICIT
<TABLE>
<CAPTION>
1994 1993
---- ----
CURRENT LIABILITIES:
<S> <C> <C>
Accrued interest $ 155,226 $ 76,745
Accounts payable 29,882 8,300
Accrued mortgage servicing fee 43,854 -
Mortgage loan payable 10,525,000 10,525,000
----------- -----------
Total current 10,753,962 10,610,045
liabilities
TENANTS' SECURITY DEPOSITS 19,968 25,363
CONSTRUCTION PERIOD DEFERRED BASE
INTEREST PAYABLE 526,077 526,077
----------- -----------
Total liabilities 11,300,007 11,161,485
PARTNERS' DEFICIT (2,940,658) (2,386,814)
----------- -----------
Total liabilities and
partners' deficit $ 8,359,349 $ 8,774,671
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
CRICO OF ETHAN'S II LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(INCOME TAX BASIS)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
OPERATING INCOME:
Rental income $1,347,727 $1,317,918
Interest income 6,829 9,126
Other income 55,131 55,024
---------- ----------
Total operating income 1,409,687 1,382,068
---------- ----------
OPERATING EXPENSES:
Real estate taxes 136,796 135,556
Salaries and related
payroll costs 139,373 129,807
Repairs and maintenance 100,671 74,359
Fuel and utilities 77,018 67,380
Marketing 50,054 62,455
Management fee 52,086 57,273
Insurance 24,872 32,874
Professional fees 7,780 9,217
Other 22,996 43,485
---------- ----------
Total operating expense 611,646 612,406
---------- ----------
Income from operations 798,041 769,662
DEPRECIATION 352,026 369,687
AMORTIZATION OF FAVORABLE
FINANCING 13,141 13,141
INTEREST ON MORTGAGE LOAN 920,937 920,937
FEES ON MORTGAGE LOAN 65,781 65,781
---------- ----------
Net loss $ (553,844) $ (599,884)
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CRICO OF ETHAN'S II LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(INCOME TAX BASIS)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
------- -------- -----
<S> <C> <C> <C>
PARTNERS' DEFICIT,
December 31, 1992 $(102,067) $(1,684,863) $(1,786,930)
Net loss (120,024) (479,860) (599,884)
--------- ----------- -----------
PARTNERS' DEFICIT,
December 31, 1993 (222,091) (2,164,723) (2,386,814)
Net loss (60,876) (492,968) (553,844)
--------- ----------- -----------
PARTNERS' DEFICIT,
December 31, 1994 $(282,967) $(2,657,691) $(2,940,658)
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CRICO OF ETHAN'S II LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(INCOME TAX BASIS)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(553,844) $(599,884)
Adjustments to reconcile net loss to
net cash (used in) provided by
operating activities-
Depreciation and amortization 365,167 382,828
Payments made to restricted funds
held by bond trustee (199,500) (194,375)
Disbursements made from insurance and
tax escrow 175,994 154,304
Disbursements made from operating
reserve 49,605 160,395
Disbursements made from debt service
reserve - 134,225
Disbursements made from replacement
reserve 10,044 -
Interest earned on restricted funds (6,114) (8,270)
Increase/decrease in assets and
liabilities:
Prepaid insurance (339) (1,437)
Tenant accounts receivable (843) -
Other assets 923 1,859
Tenants' security deposits, held in
an interest-bearing account 4,635 -
Accounts payable 21,582 3,960
Accrued mortgage servicing fee 43,854 -
Accrued interest 78,481 -
Tenants' security deposits (5,395) -
--------- ---------
Cash (used in) provided by operating
activities (15,750) 33,605
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES-
Purchase of fixed assets (2,738) -
--------- ---------
NET (DECREASE) INCREASE IN CASH (18,488) 33,605
CASH, beginning of year 81,914 48,309
--------- ---------
CASH, end of year $ 63,426 $ 81,914
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION-
Cash paid during the year for
interest $ 842,456 $ 920,937
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
CRICO OF ETHAN'S II LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 AND 1993
1. ORGANIZATION:
CRICO of Ethan's II Limited Partnership (the "Partnership") was formed April 15,
1990, for the purpose of acquiring interests in and/or investing in real and
personal property, including owning and operating an apartment complex in Kansas
City, Missouri. According to the provisions of the First Amended and Restated
Partnership Agreement (the "Agreement"), CRICO of Ethan's II, Inc., is the
general partner and CRICO of Iona, Inc., David A. Sislen, P. Richard Zitelman,
and Sislen Housing Partners are the limited partners. According to the
Agreement, the Partnership will terminate on December 31, 2030, if not
terminated sooner.
The Partnership owns a 242-unit apartment complex known as Ethan's Glen ("Phase
IIA" or the "Project"). This complex is part of a two-phase project involving
three apartment complexes, collectively known as Ethan's Ridge. The other
complexes, known as Ethan's Ridge ("Phase I") and Ethan's Glen ("Phase IIB"),
are owned by CRICO of Ethan's I Limited Partnership, an affiliated entity.
Construction of the Project commenced in 1988 and was completed on March 31,
1990. Under the terms of the bonds issued to provide permanent financing for
the Project, at least 20 percent of the completed project units must be occupied
by individuals or families qualified as lower income tenants under certain
sections of the Internal Revenue Code. At December 31, 1994 and 1993, the
Project complied with this requirement.
2. GOING CONCERN:
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern, which assumes the realization of
assets and the satisfaction of liabilities in the normal course of business. As
of December 31, 1994, the Partnership was in default with regard to the mortgage
loan agreement due to its inability to generate sufficient cash flow to meet its
contractual obligations under this agreement. The Partnership's lender, Capital
Realty Investors Tax Exempt Fund III Limited Partnership ("CRITEF III"), has not
availed itself of any of its contractual rights and remedies provided by the
mortgage loan agreement and is effectively treating this obligation as a cash
flow mortgage. CRITEF III has represented that it will not foreclose on the
Project through January 2, 1996. However, it has not represented that it will
not sell or assign its rights under the mortgage loan agreement in 1995 or
exercise its rights subsequent to January 2, 1996. Consequently, there is
substantial doubt about the Partnership's ability to continue as a going
concern. The accompanying financial statements do not include any adjustments
that might result should the Partnership be unable to continue as a going
concern.
<PAGE>
-2-
Should CRITEF sell or assign its rights under the mortgage loan agreement,
management plans to consider its options.
3. SIGNIFICANT ACCOUNTING POLICIES:
FAVORABLE FINANCING
On April 15, 1990, certain assets, liabilities, and operations were transferred
from the Project's previous owners to the Partnership in full satisfaction of
the related bond indebtedness. Upon transfer, assets and liabilities were
recorded at their respective fair values, and an intangible asset was
recognized, representing the value to the Partnership of the favorable financing
provided by the mortgage loan. According to Federal income tax rules and
regulations, the sale price equates to the face value of the indebtedness
assumed. Under tax guidelines, the intangible asset is being amortized on a
straight-line basis over the remaining life of the mortgage loan.
BASIS OF PRESENTATION
The Partnership's financial statements have been prepared on the accrual basis
of accounting used for Federal income tax purposes, as required by the
Agreement. The principal difference between the income tax basis and generally
accepted accounting principles ("GAAP") is that an intangible asset has been
recognized for income tax purposes representing the value to the Partnership of
its favorable financing and that certain assets were written up to their fair
market values when they were transferred to the Partnership. The intangible
asset is being amortized for income tax purposes on a straight-line basis over
the remaining life of the mortgage loan.
Management believes that the Federal income tax treatment of the respective
items entering into the determination of taxable loss is supportable based on
its interpretation of the Internal Revenue Code and the related regulations,
public rulings, and court decisions in effect as of the date of this report.
Since the Federal income tax treatment of certain items may be based on
conflicting or imprecise authoritative pronouncements, such treatment may be
successfully challenged by the Internal Revenue Service.
DEPRECIATION
Depreciation is computed under Federal income tax rules and regulations as
follows.
LIFE
(YEARS) BASIS
------ -----
Building and improvements 27.5 Straight line
Furniture, fixtures and equipment 7.0 200% declining balance
Repairs and maintenance are charged to expense when incurred, while major
improvements are capitalized in the applicable asset accounts. Additions to
building and improvements in 1994 consist of $2,738 of costs capitalized for
replacement of a sprinkler system.
<PAGE>
-3-
INCOME TAXES
No provision for Federal income taxes is reflected in these financial statements
since the income or loss of the Partnership is included in the individual income
tax returns of the respective partners.
4. PARTNERSHIP AGREEMENT:
The general partner has a 1 percent ownership interest, and the limited partners
together have a 99 percent ownership interest in the Partnership. In accordance
with the original Partnership Agreement, the general partner contributed $1, and
the original limited partner, CRICO of Iona, Inc., contributed $99 to the
Partnership.
On July 6, 1990, two additional limited partners joined the Partnership with a
contribution of $8,732 each. On November 1, 1991, the two additional limited
partners each increased their contributed capital by $3,715 to $12,447,
respectively, to acquire a total limited partner interest of 24.995 percent
each. Also on that date, a third additional limited partner joined the
Partnership with a contribution of $7,430 and acquired a 49 percent limited
partner interest. The Partnership was expanded to admit these new limited
partners in consideration of their commitment to make additional capital
contributions, as set forth in the first amendment to the First Amended and
Restated Partnership Agreement, dated November 1, 1991. Notwithstanding the
additional capital contribution obligations, the general partner retains the
right to remove these limited partners from the Partnership at any time after
April 15, 1992. As of December 31, 1994, this right has not been exercised.
Pursuant to the terms of the Agreement, all profits and losses, as defined, are
allocated to the partners, pro rata, in accordance with their percentage
interests after giving effect to certain allocations specified in the Agreement.
Cash flow, as defined, is to be distributed at the discretion of the general
partner (a) for the payments of all debts, liabilities and reasonable and
necessary expenses of operating the Partnership when due, (b) to set up any
reserves deemed necessary for any contingent or unforeseen liabilities or
obligations of the Partnership, and (c) to the partners, pro rata, in accordance
with their Partnership interests. Capital proceeds from the sale, refinancing,
or other disposition of the Partnership's property will be distributed (a) for
the payment of all debts and liabilities of the Partnership then due, (b) to set
up any reserves deemed necessary for any contingent or unforeseen liabilities or
obligations of the Partnership, (c) to the partners in the amounts of their
capital contributions, and (d) to the partners, pro rata, in accordance with
their percentage interests.
5. MANAGEMENT AGREEMENT:
During fiscal 1993, CRICO Management of Minnesota, Inc. ("CRICO"), a related
party to the general partner, was the manager of the property, with management
fees payable monthly at 3.75 percent of gross revenues with an annual incentive
fee of 0.5. percent of gross revenues, as defined by the agreement. During
1993, an incentive fee of $3,729 was paid for the prior year.
<PAGE>
-4-
Effective February 1, 1994, the property management responsibilities were
assigned from CRICO to CAPREIT Residential Corporation ("CAPREIT"), an unrelated
entity. Management fees are payable to CAPREIT at the same rate and terms as
under the agreement with CRICO. As of December 31, 1994 and 1993, management
fees paid were $52,087 and $56,580, respectively. Of the 1994 management fee
amount paid, management fees of $8,752 were paid to CRICO. In addition, during
1994, no incentive fees were paid.
6. MORTGAGE LOAN PAYABLE:
Permanent financing for the Project was provided through Multifamily Housing
Revenue Bonds issued by the Industrial Development Authority of the city of
Kansas City, Missouri ("Authority"), and purchased by CRITEF III, an affiliate
and the bond owner. The permanent financing for the Project equals $10,525,000
and is due March 31, 2000. Upon maturity, all outstanding principal and
interest, including base interest and construction period deferred based
interest, is due and payable. The bonds are collateralized by the apartment
complex and an assignment of rents.
The bonds for the Project bear a base annual interest rate of 8.75 percent, a
primary contingent interest rate of 1.75 percent per annum to be paid each
quarter from the net cash flow, as defined, and a supplemental contingent
interest rate of 5.5 percent per annum to be paid each quarter from 60 percent
of net cash flow, as defined, remaining after deduction of primary contingent
interest. If the quarterly net cash flow is insufficient, primary and
supplemental contingent interest are deferred without interest until the earlier
of sale or refinancing of the Project or maturity to the extent excess net
proceeds or fair value, as defined, exists. Because net cash flow for the years
ended December 31, 1994 and 1993, was insufficient, no provision has been
recorded for primary or supplemental contingent interest in the accompanying
financial statements. The unpaid primary and supplemental contingent interest
balances at December 31, 1994, were $874,892 and $690,704, respectively. The
unpaid primary and supplemental contingent interest balances at December 31,
1993, were $2,749,656 and $506,517, respectively. Pursuant to terms of the
Partnership Agreement, interest is also accrued on base interest payable,
compounded at the base interest rate. The December 31, 1994, balance is $3,179.
Because this amount is payable out of available cash flow after the payment of
all current and accrued base interest and all current and accrued servicing
fees, it is not recorded on the books of the Partnership. During the
construction period for the Project, interest accrued at 9.7 percent and was
payable at 6.206 percent, while the balance of the interest was deferred and
will be unconditionally due and payable upon sale, refinancing, or maturity. As
of December 31, 1994 and 1993, the construction period deferred base interest
payable was $526,077.
<PAGE>
-5-
The following schedule presents interest deferred, interest paid and accrued
interest for the years ended December 31, 1994 and 1993.
<TABLE>
<CAPTION>
CURRENTLY
DEFERRED PAYABLE TOTAL
-------- --------- -----
<S> <C> <C> <C>
ACCRUED INTEREST AT
DECEMBER 31, 1992 $2,098,423 $ 76,745
---------- ---------
Base interest - 920,937 $ 920,937
Primary
contingent 184,188 - 184,188
interest
Supplemental
contingent
interest 578,875 - 578,875
---------- --------- ----------
Total 1993
interest
incurred 763,063 920,937 $1,684,000
==========
Interest paid
from operations - (650,681)
Interest paid
from reserves - (270,256)
---------- ---------
ACCRUED INTEREST AT
DECEMBER 31, 1993 2,861,486 76,745
---------- ---------
Base interest - 920,937 $ 920,937
Primary
contingent
interest 184,188 - 184,188
Supplemental
contingent
interest 578,875 - 578,875
Interest on base
interest 3,179 - 3,179
---------- --------- ----------
Total 1994
interest
incurred 766,242 920,937 $1,687,179
==========
Interest paid
from operations - (776,803)
Interest paid
from reserves - (65,653)
---------- ---------
ACCRUED INTEREST AT
DECEMBER 31, 1994 $3,627,728 $ 155,226
========== =========
</TABLE>
Interest on the bonds is intended to be exempt from Federal income tax pursuant
to the Internal Revenue Code. In connection with obtaining the bonds, a
regulatory agreement was executed which provides, among other things, that
substantially all of the proceeds of the bonds issued be utilized to finance
multifamily housing in which 20 percent or more of the completed units in the
Project will be occupied on a continuous basis by individuals or families of low
or moderate income, as determined under certain sections of the Internal Revenue
Code. In the event that the underlying bonds do not maintain their tax-exempt
status, whether by a change in law or by noncompliance with the rules and
regulations related thereto, repayment of the bonds may be accelerated.
As discussed in Note 2, the Partnership was in default under the terms of the
mortgage loan agreement at December 31, 1994.
<PAGE>
-6-
7. ESCROW DEPOSITS:
In 1994 and 1993, escrow deposits consist of the following.
<TABLE>
<CAPTION>
DEBT
SERVICE OPERATING
RESERVE RESERVE
FUND FUND TOTAL
------- --------- -----
<S> <C> <C> <C>
BALANCE, December 31, 1992 $ - $ - $ -
Transfer from tax and insurance
escrow - 210,000 210,000
Withdrawals:
Interest - (160,395) (160,395)
Other - - -
Interest earned - - -
-------- -------- --------
BALANCE, December 31, 1993 - 49,605 49,605
Withdrawals:
Interest - - -
Other - (49,605) (49,605)
Interest earned - - -
-------- -------- --------
BALANCE, December 31, 1994 $ - $ - $ -
======== ======== ========
<CAPTION>
TAX AND
REPLACEMENT INSURANCE
RESERVE ESCROW TOTAL
----------- -------- -----
<S> <C> <C> <C>
BALANCE, December 31, 1992 $ 66,307 $ 234,002 $ 300,309
Deposits 36,300 158,075 194,375
Withdrawals:
Insurance (18,748) (18,748)
Taxes - (135,556) (135,556)
Transfer to operating reserve fund (210,000) (210,000)
Interest earned 1,781 4,492 6,273
-------- --------- ---------
BALANCE, December 31, 1993 104,388 32,265 136,653
Deposits 36,300 163,200 199,500
Withdrawals:
Insurance - (19,198) (19,198)
Taxes - (136,796) (136,796)
Transfer to interest - (20,000) (20,000)
Other (10,044) - (10,044)
Interest earned 2,472 3,642 6,114
-------- --------- ---------
BALANCE, December 31, 1994 $133,116 $ 23,113 $ 156,229
======== ========= =========
</TABLE>
<PAGE>
-7-
Certain restricted funds were obtained by the Partnership at April 15, 1990.
The operating reserve fund was established to fund operating deficits, as
defined. The debt service reserve fund was established for application to the
payment of interest on the bonds to the extent that there are insufficient funds
on deposit in the operating reserve fund.
The replacement reserve and tax and insurance escrow accounts were established
to fund future capital improvements and real estate taxes and insurance
premiums, respectively. The Partnership is required to deposit the following
amounts into the replacement reserve: $31,763 in 1992 and $36,300 thereafter
until the balance of the reserve is $318,000. The Partnership is required to
make monthly payments into the tax and insurance escrow, each equaling one-
twelfth of the Project's annual real estate taxes and insurance premiums.
During 1994 and 1993, the Partnership made all required deposits into these
accounts.
8. RELATED-PARTY TRANSACTIONS:
Certain expenditures applicable to the Project, Phase I and Phase IIB are billed
to and paid by the management company or by another affiliate. Amounts are
reimbursable and are maintained in the due to/from affiliate account on the
Project's books. These common charges are allocated to each of the projects on
a pro rata basis based on the number of dwelling units in each apartment
complex. At December 31, 1994 and 1993, amounts due to affiliates were
approximately $0 and $588, respectively, and are included in accounts payable.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF PROFIT AND LOSS U.S. Department of Housing and Urban Development
INCOME TAX BASIS Office of Housing
All amounts must be rounded to the nearest dollar; Federal Housing Commissioner
$.50 and over, round up - $.49 and below, round down. OMB Approval No. 2502-0052(Exp. 8/31/89)
- ------------------------------------------------------------------------------------------------------------------------------------
For Month/Period For Month/Period Project Number: Project Name:
Beginning Ending
January 1, 1994 December 31, 1994 CRICO of Ethan's II Limited Partnership
- ------------------------------------------------------------------------------------------------------------------------------------
Part I Description of Account Acct. No.
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental Income - 5100
Apartments or Member Carrying Charges (Coops) 5120 $1,472,476
--------------------------------------------------------------------------------------------------
Tenant Assistance Payments 5121
--------------------------------------------------------------------------------------------------
Furniture and Equipment 5130
--------------------------------------------------------------------------------------------------
Stores and Commercial 5140
--------------------------------------------------------------------------------------------------
Garage and Parking Spaces 5170 $13,352
--------------------------------------------------------------------------------------------------
5 Flexible Subsidy Income 5180
--------------------------------------------------------------------------------------------------
0 Miscellaneous (specify) 5190
--------------------------------------------------------------------------------------------------
0 Total Rent Revenue Potential at 100% Occupancy $1,485,828
--------------------------------------------------------------------------------------------------------------------------
0 Vacancies - 5200
Apartments 5220 ($138,101)
--------------------------------------------------------------------------------------------------
R Furniture and Equipment 5230
--------------------------------------------------------------------------------------------------
e Stores and Commercial 5240
--------------------------------------------------------------------------------------------------
v Garage and Parking Spaces 5270
--------------------------------------------------------------------------------------------------
e Miscellaneous (specify) 5290
--------------------------------------------------------------------------------------------------
n Total Vacancies ($138,101)
-------------------------------------------------------------------------------------------------------------------------
u Net Rental Revenue (Rent Revenue Less Vacancies) $1,347,727
-------------------------------------------------------------------------------------------------------------------------
e Elderly and Congregate Services Income - 5300
Total Service Income 5300 $0
-------------------------------------------------------------------------------------------------------------------------
A Financial Revenue - 5400
c Interest Income - Project Operations 5410
--------------------------------------------------------------------------------------------------
c Income from Investments - Residual Receipts 5430
--------------------------------------------------------------------------------------------------
o Income from Investments - Reserve for Replacement 5440 $2,472
--------------------------------------------------------------------------------------------------
u Income from Investments - Miscellaneous (Escrows) 5490 $4,357
--------------------------------------------------------------------------------------------------
n Total Financial Revenue $6,829
-------------------------------------------------------------------------------------------------------------------------
t Other Revenue - 5900
--------------------------------------------------------------------------------------------------
s Laundry and Vending 5910
--------------------------------------------------------------------------------------------------
NSF and Late Charges 5920 $3,260
--------------------------------------------------------------------------------------------------
Damages and Cleaning Fees 5930 $5,462
--------------------------------------------------------------------------------------------------
Forfeited Tenant Security Deposits 5940 $3,497
--------------------------------------------------------------------------------------------------
Other Revenue (specify) Application Fees, Pet & Cancellation Fees 5990 $42,912
--------------------------------------------------------------------------------------------------
Total Other Revenue $55,131
-------------------------------------------------------------------------------------------------------------------------
Total Revenue $1,409,687
- -----------------------------------------------------------------------------------------------------------------------------------
Administrative Expenses - 6200/6300
6 Advertising 6210 $30,116
--------------------------------------------------------------------------------------------------
0 Other Renting Expense 6250 $22,649
--------------------------------------------------------------------------------------------------
0 Office Salaries 6310 $43,256
--------------------------------------------------------------------------------------------------
0 Office Supplies 6311 $2,979
--------------------------------------------------------------------------------------------------
Office or Model Apartment Rent 6312
--------------------------------------------------------------------------------------------------
P Management Fee 6320 $52,086
--------------------------------------------------------------------------------------------------
r Manager or Superintendent Salaries 6330 $16,815
--------------------------------------------------------------------------------------------------
o Manager or Superintendent Rent Free Unit 6331 $5,349
--------------------------------------------------------------------------------------------------
j Legal Expenses (Project) 6340 $380
--------------------------------------------------------------------------------------------------
e Auditing Expenses (Project) 6350 $7,400
--------------------------------------------------------------------------------------------------
c Bookkeeping Fees/Accounting Services 6351
--------------------------------------------------------------------------------------------------
t Telephone and Answering Service 6360 $3,753
--------------------------------------------------------------------------------------------------
Bad Debts 6370 $1,748
--------------------------------------------------------------------------------------------------
E Miscellaneous Administrative Expenses (specify) 6390 $14,397
--------------------------------------------------------------------------------------------------
x Total Administrative Expenses $200,928
-------------------------------------------------------------------------------------------------------------------------
p Utilities Expense - 6400
e Fuel Oil/Coal 6420
--------------------------------------------------------------------------------------------------
n Electricity 6450 $23,774
--------------------------------------------------------------------------------------------------
s Water 6451 $37,232
--------------------------------------------------------------------------------------------------
e Gas 6452
--------------------------------------------------------------------------------------------------
s Sewer 6453 $16,012
--------------------------------------------------------------------------------------------------
Total Utilities Expense $77,018
-------------------------------------------------------------------------------------------------------------------------
Total Expenses ( Carry forward to page 2) $277,946
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance from
Acct. No Page 1 (277,946)
- -----------------------------------------------------------------------------------------------------------------------------------
Operating and Maintenance Expenses - 6500
Janitor and Cleaning Payroll 6510 $14,184
-------------------------------------------------------------------------------------------
Janitor and Cleaning Supplies 6515 $1,006
-------------------------------------------------------------------------------------------
Janitor and Cleaning Contract 6517 $12,321
-------------------------------------------------------------------------------------------
Exterminating Payroll/Contract 6519 $4,859
-------------------------------------------------------------------------------------------
6 Exterminating Supplies 6520
-------------------------------------------------------------------------------------------
0 Garbage and Trash Removal 6525 $3,777
-------------------------------------------------------------------------------------------
0 Security Payroll/Contract 6530
-------------------------------------------------------------------------------------------
0 Grounds Payroll 6535
-------------------------------------------------------------------------------------------
Grounds Supplies 6536 $10,151
-------------------------------------------------------------------------------------------
P Grounds Contracts 6537 $18,561
-------------------------------------------------------------------------------------------
r Repairs Payroll 6540 $42,655
-------------------------------------------------------------------------------------------
o Repairs Material 6541 $11,343
-------------------------------------------------------------------------------------------
j Repairs Contract 6542 $2,829
-------------------------------------------------------------------------------------------
e Elevator Maintenance/Contract 6545
-------------------------------------------------------------------------------------------
c Heating/Cooling Repairs Maintenance 6546 $693
-------------------------------------------------------------------------------------------
t Swimming Pool Maintenance/Contract 6547 $962
-------------------------------------------------------------------------------------------
Snow Removal 6548 $3,270
-------------------------------------------------------------------------------------------
E Decorating Payroll/Contract Painting 6560 $9,850
-------------------------------------------------------------------------------------------
x Decorating Supplies 6561
-------------------------------------------------------------------------------------------
p Vehicle & Maintenance Equipment Operation and Repairs 6570
-------------------------------------------------------------------------------------------
e Miscellaneous Operating & Maintenance Expense 6590 $14,234
-------------------------------------------------------------------------------------------
n Total Operating & Maintenance Expenses $150,695
---------------------------------------------------------------------------------------------------------------------------
s Taxes and Insurance - 6700
e Real Estate Taxes 6710 $136,796
-------------------------------------------------------------------------------------------
Payroll Taxes (FICA) 6711 $12,171
-------------------------------------------------------------------------------------------
A Miscellaneous Taxes, Licenses, and Permits 6719 $118
-------------------------------------------------------------------------------------------
c Property and Liability Insurance (Hazard) 6720 $18,859
-------------------------------------------------------------------------------------------
c Fidelity Bond Insurance 6721
-------------------------------------------------------------------------------------------
o Workmen's Compensation 6722 $1,547
-------------------------------------------------------------------------------------------
u Health Insurance & Other Employee Benefits 6723 $6,013
-------------------------------------------------------------------------------------------
n Other Insurance (specify) 6729
-------------------------------------------------------------------------------------------
t Total Taxes and Insurance $175,504
---------------------------------------------------------------------------------------------------------------------------
s Financial Expenses - 6800
Interest on Bonds Payable 6810
-------------------------------------------------------------------------------------------
Interest on Mortgage Payable 6820 $920,938
-------------------------------------------------------------------------------------------
Interest on Notes Payable (Long-Term) 6830
-------------------------------------------------------------------------------------------
c Interest on Notes Payable (Short-Term) 6840
-------------------------------------------------------------------------------------------
o Mortgage Insurance Premium/Service Charge 6850 $65,781
-------------------------------------------------------------------------------------------
n Miscellaneous Financial Expenses-Trustee fees 6890 $7,500
-------------------------------------------------------------------------------------------
t Total Financial Expenses $994,219
---------------------------------------------------------------------------------------------------------------------------
i Elderly and Congregate Service Expenses
n Total Service Expenses - Schedule Attached 6900
--------------------------------------------------------------------------------------------------------------------------
u Total Cost of Operations before Depreciation $1,598,364
--------------------------------------------------------------------------------------------------------------------------
e Profit (Loss) before Depreciation ($188,677)
--------------------------------------------------------------------------------------------------------------------------
d Depreciation (Total) - 6600 (specify) and Amortization 6600 $365,167
--------------------------------------------------------------------------------------------------------------------------
Operating Profit or (Loss) ($553,844)
--------------------------------------------------------------------------------------------------------------------------
Corporate or Mortgagor Entity Expenses - 7100
Officer Salaries 7110
-------------------------------------------------------------------------------------------
Legal Expenses (Entity) 7120
-------------------------------------------------------------------------------------------
Taxes (Federal-State-Entity) 7130-32
-------------------------------------------------------------------------------------------
Other Expenses (Entity) 7190
-------------------------------------------------------------------------------------------
Total Corporate Expenses $0
--------------------------------------------------------------------------------------------------------------------------
Net Profit or (Loss) ($553,844)
- -----------------------------------------------------------------------------------------------------------------------------------
Miscellaneous or other Income & Expense Sub-account Groups. If miscellaneous or other and/or expense sub-accounts
(5190, 5290, 5490, 5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or more, attach a
separate schedule describing or explaining the miscellaneous income or expense.
- -----------------------------------------------------------------------------------------------------------------------------------
Part II 1. Total principal payments required under the mortgage,
even if payments under a Workout Agreement are less
or more than those required under the mortgage.
$0
- -----------------------------------------------------------------------------------------------------------------------------------
2. Replacement Reserve deposits required by the
Regulatory Agreement or Amendment thereto, even if
payments may be temporarily suspended or waived. $36,300
- ------------------------------------------------------------------------------------------------------------------------------------
3. Replacement or Painting Reserve releases which are
included as expense items on this Profit and Loss
Statement. $0
- -----------------------------------------------------------------------------------------------------------------------------------
4. Project improvement Reserve Releases under the
Flexible Subsidy Program that are included as
expense items on this Profit and Loss Statement. $0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE I
CRICO OF ETHAN'S II LIMITED PARTNERSHIP
(A MISSOURI LIMITED PARTNERSHIP)
SUPPLEMENTAL SCHEDULE TO HUD STATEMENT OF PROFIT AND LOSS
(INCOME TAX BASIS)
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
ACCOUNT NO. 5990 - OTHER REVENUE:
<S> <C>
Nonrefundable fees $11,300
Application fees 4,689
Pet fees 6,014
Washer/dryer fees 3,758
Bad debt collections 5,988
Cancellations fees 7,989
Other fees 3,174
-------
Total other revenue $42,912
=======
ACCOUNT NO. 6250 - OTHER
RENTING EXPENSE:
Rental concessions $17,678
Resident retention 38
Credit report 2,708
Resident referrals 2,225
-------
Total other renting expense $22,649
=======
ACCOUNT NO. 6590 -
MISCELLANEOUS OPERATING
AND MAINTENANCE EXPENSE:
Floor and wood
replacement $ 7,812
Parking lots and walkway
repair 2,894
Other 3,528
-------
Total miscellaneous
operating and
maintenance expense $14,234
=======
ACCOUNT NO. 6390 -
MISCELLANEOUS
ADMINISTRATIVE EXPENSE:
Washer/dryer expense $ 5,270
Bonuses 4,188
Employee relations and 1,655
computer expense
Other 3,284
-------
Total miscellaneous
administrative expense $14,397
=======
</TABLE>
<PAGE>
EXHIBIT 99.h
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
GEARY COURTYARD ASSOCIATES
DECEMBER 31, 1994
<PAGE>
Geary Courtyard Associates
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS
STATEMENT OF ASSETS, LIABILITIES AND PARTNERS'
DEFICIT - INCOME TAX BASIS 5
STATEMENT OF PROFIT AND LOSS - INCOME TAX BASIS 6
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX BASIS 8
STATEMENT OF CASH FLOWS - INCOME TAX BASIS 9
NOTES TO FINANCIAL STATEMENTS 10
SUPPLEMENTAL INFORMATION
SCHEDULE OF CAPITAL IMPROVEMENTS RECLASSIFIED
TO OPERATING EXPENSES 18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
Geary Courtyard Associates
We have audited the accompanying statement of assets, liabilities and
partners' deficit - income tax basis of Geary Courtyard Associates as of
December 31, 1994, and the related statements of profit and loss - income tax
basis (on HUD Form No. 92410), partners' deficit - income tax basis and cash
flows -income tax basis for the year then ended. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As described in Note A, these financial statements were prepared on the
basis of accounting the Partnership uses for income tax purposes, which is a
comprehensive basis of accounting other than generally accepted accounting
principles.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets, liabilities and partners' deficit of Geary
Courtyard Associates as of December 31, 1994, and its profit and loss, changes
in partners' deficit and cash flows for the year then ended, on the basis of
accounting described in Note A.
- 3 -
<PAGE>
As discussed in Note C, the Partnership was in default with regard to its
mortgage due to its inability to generate sufficient cash flow to meet its
contractual obligation. The Partnership's lender, an affiliated entity, has
represented that it will not foreclose on the Partnership's defaulted loan prior
to January 2, 1996, While the lender has no immediate plans to foreclose on the
property subsequent to that date, the Partnership does not expect to be able to
cure the default at that time. Therefore, there can be no assurance that the
lender will not execute its rights under the loan agreement subsequent to that
date.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information, has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
Baltimore, Maryland
January 12, 1995
- 4 -
<PAGE>
Geary Courtyard Associates
STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' DEFICIT - INCOME TAX BASIS
December 31, 1994
ASSETS
INVESTMENT IN REAL ESTATE
Building $19,276,225
Furniture and equipment 318,066
-----------
19,594,291
Less accumulated depreciation 1,124,340
-----------
18,469,951
Land 3,429,188
-----------
21,899,139
-----------
OTHER ASSETS
Cash 64,810
Tenant accounts receivable 35,893
Prepaid expenses 40,035
Tenant security deposits 30,587
Mortgage escrows 59,796
Replacement reserve 62,314
Loan costs, net of accumulated amortization
of $30,475 113,322
-----------
406,757
-----------
$22,305,896
===========
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES APPLICABLE TO INVESTMENT IN REAL ESTATE
Mortgages payable $18,900,000
Deferred interest payable 818,160
Accrued interest payable - mortgages 4,743,903
Accrued mortgage servicing fee 475,110
-----------
24,937,173
OTHER LIABILITIES
Accounts payable 78,248
Tenant security deposits 36,071
Obligations under capital leases 24,400
-----------
25,075,892
PARTNERS' DEFICIT (2,769,996)
-----------
$22,305,896
===========
See notes to financial statements
- 5 -
<PAGE>
Statement of Profit and U.S. DEPARTMENT OF HOUSING
Loss - Income Tax Basis AND URBAN DEVELOPMENT
Office of Housing
Federal Housing Commissioner
[LOGO]
OMB Approval No. 2502-0052 (exp. 8/31/92)
Public Reporting Burden for this collection of information is estimated to
average 1.0 hours per response, including the time for reviewing instructions,
searching existing data sources, gathering and maintaining the data needed, and
completing and reviewing the collection of information. Send comments regarding
this burden estimate or any other aspect of this collection of information,
including suggestions for reducing this burden, to the Reports Management
Officer, Office of Information Policies and Systems, U.S. Department of Housing
and Urban Development, Washington, D.C. 20410-3600, and to the Office of
Management and Budget Paperwork Reduction Project (2502-0052), Washington, D.C.
20503. Do not send this completed form to either of these addresses.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
For Month/Period Project Number: Project Name:
Beginning: 1/1/94 Ending: 12/31/94 N/A Geary Courtyard Apartments
- -------------------------------------------------------------------------------------------------------------------
Part I DESCRIPTION OF ACCOUNT ACCOUNT NO. AMOUNT*
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Apartments or Member Carrying Charges (Coops) 5120 $ 526,459
--------------------------------------------------------------------------------
Tenant Assistance Payments 5121 $
--------------------------------------------------------------------------------
RENTAL Furniture and Equipment 5130 $
--------------------------------------------------------------------------------
INCOME Stores and Commercial 5140 $
--------------------------------------------------------------------------------
5100 Garage and Parking Spaces 5170 $ 61,505
--------------------------------------------------------------------------------
Flexible Subsidy Income 5180 $
--------------------------------------------------------------------------------
Miscellaneous (Specify) - Corporate rentals 5190 $1,307,165
---------------------------------------------------------------------------------------------------
TOTAL RENT REVENUE Potential at 100% Occupancy $1,895,129
- -------------------------------------------------------------------------------------------------------------------
Apartments 5220 $( 23,188)
--------------------------------------------------------------------------------
Furniture and Equipment 5230 $( )
--------------------------------------------------------------------------------
VACANCIES Stores and Commercial 5240 $( )
--------------------------------------------------------------------------------
5200 Garage and Parking Spaces 5270 $( )
--------------------------------------------------------------------------------
Miscellaneous (Specify) - Corporate apartments 5290 $( 136,822)
---------------------------------------------------------------------------------------------------
TOTAL VACANCIES $ (160,010)
---------------------------------------------------------------------------------------------------
NET RENTAL REVENUE Rent Revenue Less Vacancies $1,735,119
- -------------------------------------------------------------------------------------------------------------------
ELDERLY AND CONGREGATE SERVICES INCOME-5300
TOTAL SERVICE INCOME (SCHEDULE ATTACHED) 5300 $ $
- -------------------------------------------------------------------------------------------------------------------
Interest Income-Project Operations 5410 $ 666
--------------------------------------------------------------------------------
FINANCIAL Income from Investments-Residential Receipts 5430 $
--------------------------------------------------------------------------------
REVENUE Income from Investments-Reserve for Replacement 5440 $ 1,649
--------------------------------------------------------------------------------
5400 Income from Investments-Mortgage Escrows 5490 $ 2,461
---------------------------------------------------------------------------------------------------
TOTAL FINANCIAL REVENUE $ 4,776
- -------------------------------------------------------------------------------------------------------------------
Laundry and Vending 5910 $ 19,453
--------------------------------------------------------------------------------
NSF and Late Charges 5920 $ 1,286
--------------------------------------------------------------------------------
OTHER Damages and Cleaning Fees 5930 $ 10,503
--------------------------------------------------------------------------------
REVENUE Forfeited Tenant Security Deposits 5940 $ 670
--------------------------------------------------------------------------------
5900 Other Revenue (Specify) - Admin. fee - $11,234,
Other - $320, Misc. Project Inc. - $984,
Drycleaning rev. - $1,347, Net furn. rent -
$5,382, Other Rental, Inc. - $2,830, Lease Break,
Inc. - $1,650, Collections - $1,206 $ 24,953
---------------------------------------------------------------------------------------------------
TOTAL OTHER REVENUE $ 56,865
---------------------------------------------------------------------------------------------------
TOTAL REVENUE $1,796,760
- -------------------------------------------------------------------------------------------------------------------
Advertising 6210 $ 44,097
--------------------------------------------------------------------------------
Other Renting Expenses - See Note F 6250 $ 64,412
--------------------------------------------------------------------------------
Office Salaries 6310 $ 16,815
--------------------------------------------------------------------------------
Office Supplies 6311 $ 8,730
--------------------------------------------------------------------------------
Office or Model Apartment Rent 6312 $
--------------------------------------------------------------------------------
ADMINISTRATIVE Management Fee 6320 $ 78,350
--------------------------------------------------------------------------------
EXPENSES Manager or Superintendent Salaries 6330 $ 41,144
--------------------------------------------------------------------------------
6200/6300 Manager or Superintendent Rent Free Unit 6331 $ 32,439
--------------------------------------------------------------------------------
Legal Expenses (Project) 6340 $ 11,596
--------------------------------------------------------------------------------
Auditing Expenses (Project) 6350 $ 14,673
--------------------------------------------------------------------------------
Bookkeeping Fees/Accounting Services 6351 $ 4,365
--------------------------------------------------------------------------------
Telephone and Answering Services 6360 $ 13,227
--------------------------------------------------------------------------------
Bad Debts 6370 $ 9,984
--------------------------------------------------------------------------------
Misc. Administrative Expenses (Specify) - See Note G 6390 $ 84,601
---------------------------------------------------------------------------------------------------
TOTAL ADMINISTRATIVE EXPENSES $ 424,433
- -------------------------------------------------------------------------------------------------------------------
Fuel Oil/Coal 6420 $
--------------------------------------------------------------------------------
UTILITIES Electricity 6450 $ 32,924
--------------------------------------------------------------------------------
EXPENSE Water 6451 $ 9,398
--------------------------------------------------------------------------------
6400 Gas 6452 $ 15,995
--------------------------------------------------------------------------------
Sewer 6453 $ 13,949
---------------------------------------------------------------------------------------------------
</TABLE>
* All amounts must be rounded Page 1 of 2 form HUD-92410 (7/91)
to the nearest dollar, $.50 ref Handbook 4370.2
and over, round up - $.49 and
below round down.
(continued)
- 6 -
<PAGE>
<TABLE>
<S> <C>
---------------------------------------------------------------------------------------------------
TOTAL UTILITIES EXPENSE $ 72,266
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* All amounts must be rounded Page 1 of 2 form HUD-92410 (7/91)
to the nearest dollar, $.50 ref Handbook 4370.2
and over, round up - $.49 and
below round down.
(continued)
- 7 -
<PAGE>
<TABLE>
<C> <S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Janitor and Cleaning Payroll 6510 $ 31,085
--------------------------------------------------------------------------------
Janitor and Cleaning Supplies 6515 $ 3,284
--------------------------------------------------------------------------------
Janitor and Cleaning Contract 6517 $
--------------------------------------------------------------------------------
Exterminating Payroll/Contract 6519 $
--------------------------------------------------------------------------------
Exterminating Supplies 6520 $ 1,392
--------------------------------------------------------------------------------
Garbage and Trash Removal 6525 $ 11,177
--------------------------------------------------------------------------------
Security Payroll/Contract 6530 $ 69,674
--------------------------------------------------------------------------------
Grounds Payroll 6535 $ 5,700
--------------------------------------------------------------------------------
Grounds Supplies 6536 $ 2,734
--------------------------------------------------------------------------------
OPERATING AND Grounds Contract 6537 $
--------------------------------------------------------------------------------
MAINTENANCE Repairs Payroll 6540 $ 13,328
--------------------------------------------------------------------------------
EXPENSES Repairs Material 6541 $ 15,752
--------------------------------------------------------------------------------
6500 Repairs Contract 6542 $
--------------------------------------------------------------------------------
Elevator Maintenance/Contract 6545 $ 11,103
--------------------------------------------------------------------------------
Heating/Cooling Repairs and Maintenance 6546 $
--------------------------------------------------------------------------------
Swimming Pool Maintenance/Contract 6547 $
--------------------------------------------------------------------------------
Snow Removal 6548 $
--------------------------------------------------------------------------------
Decorating Payroll/Contract 6560 $ 13,377
--------------------------------------------------------------------------------
Decorating Supplies 6561 $ 9,810
--------------------------------------------------------------------------------
Other 6570 $
--------------------------------------------------------------------------------
Miscellaneous Operating and Maintenance Expenses - Fire
alarm service - $7,753, Recre. supplies - $7,079 6590 $ 14,832
----------------------------------------------------------------------------------------------------
TOTAL OPERATING AND MAINTENANCE EXPENSES $ 203,248
- --------------------------------------------------------------------------------------------------------------------
Real Estate Taxes 6710 $ 169,035
--------------------------------------------------------------------------------
Payroll Taxes (FICA) 6711 $ 25,716
--------------------------------------------------------------------------------
Miscellaneous Taxes, Licenses and Permits 6719 $ 5,215
--------------------------------------------------------------------------------
TAXES AND Property and Liability Insurance (Hazard) 6720 $ 36,964
--------------------------------------------------------------------------------
INSURANCE Fidelity Bond Insurance 6721 $
--------------------------------------------------------------------------------
6700 Workmen's Compensation 6722 $ 9,520
--------------------------------------------------------------------------------
Health Insurance & Other Employee Benefits 6723 $ 31,417
--------------------------------------------------------------------------------
Other Insurance (Specify) 6729 $
----------------------------------------------------------------------------------------------------
TOTAL TAXES AND INSURANCE $ 277,867
- --------------------------------------------------------------------------------------------------------------------
Interest on Bonds Payable 6810 $
--------------------------------------------------------------------------------
Interest on Mortgage Payable 6820 $1,731,825
--------------------------------------------------------------------------------
FINANCIAL Interest on Notes Payable (Long-Term) 6830 $
--------------------------------------------------------------------------------
EXPENSES Interest on Notes Payable (Short-Term) 6840 $
--------------------------------------------------------------------------------
6800 Mortgage Insurance Premium/Service Charge 6850 $ 118,125
--------------------------------------------------------------------------------
Miscellaneous Financial Expenses - Int. on cap. lease -
$6,360, Trustee fee - $5,400, City fee - $22,500,
Other - $915 6890 $ 35,175
----------------------------------------------------------------------------------------------------
TOTAL FINANCIAL EXPENSES $ 1,885,125
- --------------------------------------------------------------------------------------------------------------------
ELDERLY & Total Service Expenses-Schedule Attached 6900 $
----------------------------------------------------------------------------------------------------
CONGREGATE Total Cost of Operations Before Depreciation $ 2,862,939
----------------------------------------------------------------------------------------------------
SERVICE PROFIT (LOSS) BEFORE DEPRECIATION $(1,066,179)
----------------------------------------------------------------------------------------------------
EXPENSES Depreciation (Total)-6600 (Specify) 6600 $ 775,839
----------------------------------------------------------------------------------------------------
6900 OPERATING PROFIT OR (LOSS) $(1,842,018)
- --------------------------------------------------------------------------------------------------------------------
CORPORATE OR Officer Salaries 7110 $
--------------------------------------------------------------------------------
MORTGAGOR Legal Expenses (Entity) 7120 $
--------------------------------------------------------------------------------
ENTITY Taxes (Federal-State-Entity) 7130-32 $
--------------------------------------------------------------------------------
EXPENSES Other Expenses (Entity) - Amortization 7190 $ 20,055
----------------------------------------------------------------------------------------------------
7100 TOTAL CORPORATE EXPENSES $ 20,055
----------------------------------------------------------------------------------------------------
NET PROFIT OR (LOSS) $(1,862,073)
</TABLE>
Warning: HUD will prosecute false claims and statements. Conviction may result
in criminal and/or civil penalties (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729,
3802) Miscellaneous or other Income and Expenses Sub-account Groups. If
miscellaneous or other Income and/or expense sub-accounts (5190, 5290, 5490,
5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or
more, attach a separate schedule describing or explaining the miscellaneous
income or expense.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
PART II
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Total principal payments required under the mortgage, even if payments under a Workout Agreement
are less or more than those required under the mortgage. $ N/A
. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto, even if
payments may be temporarily suspended or waived. $ 28,704
3. Replacement or Painting Reserve releases which are included as expense items on the Profit and
Loss statement. $ NONE
4. Project Improvement Reserve Releases under the Flexible Subsidy Program that are included as
expense items on this Profit and Loss statement. $ N/A
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 2 of 2 Form HUD-92410
See notes to financial statements
- 8 -
<PAGE>
Geary Courtyard Associates
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX BASIS
Year ended December 31, 1994
Partners' deficit, beginning $ (907,923)
Net loss (1,862,073)
-----------
Partners' deficit, ending $(2,769,996)
===========
See notes to financial statements
- 9 -
<PAGE>
Geary Courtyard Associates
STATEMENT OF CASH FLOWS - INCOME TAX BASIS
Year ended December 31, 1994
Cash flows from operating activities
Net loss $(1,862,073)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation 775,839
Amortization 20,055
Changes in assets and liabilities
Increase in tenant accounts receivable (14,905)
Increase in prepaid expenses (23,111)
Decrease in net tenants' security deposits 4,150
Increase in mortgage escrows (12,303)
Increase in accounts payable 57,486
Increase in accrued mortgage servicing fee 118,125
Increase in accrued interest payable 1,130,496
-----------
Net cash provided by operating activities 193,759
-----------
Cash flows from investing activities
Payments made for fixed asset additions (110,472)
Decrease in replacement reserve 10,976
-----------
Net cash used in investing activities (99,496)
-----------
Cash flows from financing activities
Principal payments under capital lease (48,576)
-----------
Net cash used in financing activities (48,576)
-----------
NET INCREASE IN CASH 45,687
Cash, beginning 19,123
-----------
Cash, ending $ 64,810
===========
Supplemental disclosure of cash flow information
Cash paid for interest (including $6,360
paid under capital lease agreement) $ 607,689
===========
See notes to financial statements
- 10 -
<PAGE>
Geary Courtyard Associates
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The Partnership was formed as a limited partnership under the laws of the
State of California on December 23, 1985, for the purpose of constructing,
owning and operating a 164-unit rental housing project. The high-rise
project, located at 639 Geary Street, San Francisco, California operates under
the name of Geary Courtyard Apartments and consists of studio and one bedroom
apartments which are leased as both corporate apartments and market rate
units, of which 20% have been set aside for persons with low or moderate
incomes within the meaning of Section 103(b)(4)(A) of the Internal Revenue
Code. All leases between the Partnership and tenants of the property are
operating leases.
Financing has been provided by Capital Realty Investors Tax Exempt Fund III
Limited Partnership from the proceeds of tax exempt Multifamily Housing
Revenue Bonds. The Partnership is regulated as to the operation of the
project under a regulatory agreement with the City and County of San
Francisco.
On June 30, 1993, the 1% general partner interest and the 99% limited partner
interest were transferred to CRICO of Geary Courtyard, Inc. and CRICO
Holdings, Inc., affiliates of CRITEF III, in satisfaction of certain defaults
under the loan and guarantee agreements executed by the Partnership and the
former general partner. This transfer resulted in a technical termination of
the Partnership for federal income tax reporting purposes, as well as a step-
up in the basis of the investment in real estate to its fair market value, as
of the date of the transfer.
Income Tax Basis of Accounting
------------------------------
The Partnership maintains its accounts and the financial statements have been
prepared on the accounting basis used for income tax purposes.
Loan Costs
----------
Loan costs are being amortized on a straight-line method over the remaining
terms of the mortgages.
Tenant Security Deposits
------------------------
Tenant security deposits are held in a separate interest bearing bank account
in the name of the Partnership.
- 11 -
<PAGE>
Geary Courtyard Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - Continued
Investment in Real Estate
-------------------------
Investment in real estate is carried at cost, which is not in excess of net
realizable value. Depreciation is provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated
service lives using accelerated methods.
Rental Income
-------------
Rental income is recognized as rentals are received.
Income Taxes
------------
No provision or benefit for income taxes has been included in these financial
statements since taxable income or loss passes through to, and is reportable
by, the partners individually.
NOTE B - CAPITAL LEASES
The Partnership leases furniture under capital leases between the Partnership
and R&B Rehabilitation Services, Inc., an affiliate of the management agent.
These assets are included in furniture and equipment. The following is a
schedule by years of future minimum lease payments under the capital leases
together with the present value of the minimum lease payments as of December
31, 1994:
Year ending December 31:
1995 $26,276
Less amount representing interest 1,876
-------
Present value of net minimum lease
payments $24,400
=======
- 12 -
<PAGE>
Geary Courtyard Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE C - RELATED PARTY TRANSACTIONS
The general partner of the Partnership, CRICO of Geary Courtyard, Inc., a
Maryland corporation, is a related party to the managing general partner of
the general partner of the holder of the mortgage for the project.
Mortgages Payable
-----------------
The first and second mortgages payable to CRITEF III in the combined amount of
$18,900,000 have been funded partially through the sale of City and County of
San Francisco Multifamily Housing Revenue Bonds ($18,000,000) and partially
through a working capital loan from CRITEF III ($900,000). The mortgages are
secured by first and second deeds of trust against the rental property and an
assignment of rents.
While the underlying City and County of San Francisco tax exempt Multifamily
Housing Revenue Bonds mature on December 1, 2008 (a twenty-year term), the
project's mortgage loans securing the bonds have terms not to exceed ten
years. Principal is not amortized during the term of the loans and is due in
a lump-sum payment on maturity of the mortgage (November 1, 1999) or at such
earlier time as CRITEF III may require under terms of the Indenture of Trust.
The mortgages may not be prepaid during the first seven years of the loan and
may be renegotiated between the seventh and tenth years.
As of December 31, 1994, the Partnership was in default with regard to its
mortgage due to its inability to generate sufficient cash flow to meet its
contractual obligations under this agreement. CRITEF has not exercised its
contractual rights and remedies provided under the mortgage. CRITEF has
represented that it will not foreclose on the project through Janaury 2, 1996.
Interest is determined by the sum of three component rates, a base interest
rate, a primary contingent interest rate and a supplemental contingent
interest rate described as follows:
Base Interest accrues at a rate of 9.085% for the mortgage backed bond loan
-------------
and 11.7% for the working capital loan and is to be paid monthly from project
operations. At December 31, 1994, unpaid base interest amounted to
$4,743,903. At December 31, 1994, compounding interest calculated on the
outstanding base interest of $871,846 has not been recorded.
- 13 -
<PAGE>
Geary Courtyard Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE C - RELATED PARTY TRANSACTIONS - Continued
In addition, for the first twenty months a construction period deferred base
interest was payable only as a priority distribution from the proceeds
available upon sale or refinancing and accrued at the rate of 2.285% for the
first year (construction period) and 1.81% for the next eight months (rent-up
period). The accrued construction period deferred base interest was $818,160
at December 31, 1994.
Primary Contingent Interest is payable quarterly and only as a priority
---------------------------
distribution from first available net cash flow. The primary contingent
interest is to be paid currently each quarter if net cash flow is available on
a noncumulative basis. The total primary contingent interest cannot exceed a
maximum rate of 1.5% for the period from September 1, 1991 to December 31,
1994; 2.206% for the period from January 1, 1994 until December 31, 1997, and
1.5% thereafter on both the bond and working capital mortgage loans. During
the year ended December 31, 1994, there was no net cash flow available to pay
primary contingent interest.
Supplemental Contingent Interest is payable quarterly only from the available
--------------------------------
net cash flow remaining after payment of primary contingent interest. The
supplemental contingent interest is to be paid currently each quarter if net
cash flow after payment of primary contingent interest is available on a
noncumulative basis. The total supplemental contingent interest cannot exceed
a maximum rate of 5.415% on the bond mortgage and 6.3% on the working capital
mortgage. However, for the period from January 1, 1994 through December 31,
1995 the interest rate shall be 4.709% for the bond mortgage and 5.594% for
the working capital mortgage. During the year ended December 31, 1994, there
was no net cash flow available to pay supplemental contingent interest.
Shortfalls in Contingent Interest are to be paid as a priority distribution
upon sale or refinancing of the project as follows:
1. All primary contingent interest calculated and unpaid shall be paid from
net sales or refinance proceeds, if available, after the payment of all
outstanding principal on the mort-gages and any base interest, deferred
base interest and various fees related to the bonds that are unpaid at
the time of sale or refinancing.
- 14 -
<PAGE>
Geary Courtyard Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE C - RELATED PARTY TRANSACTIONS - Continued
2. All supplemental contingent interest calculated and unpaid shall be paid
from net sales or refinance proceeds remaining after the payment of the
shortfall, if any, in primary contingent interest.
At December 31, 1994, primary and supplemental contingent interest of
$5,697,900 has not been recorded.
A summary of interest incurred on the mortgages for the year ended December
31, 1994 is as follows:
Currently
Deferred Payable Total
---------- ----------- ----------
Base interest $ - $1,731,825 $1,731,825
Primary contingent interest 416,934 - 416,934
Supplemental contingent interest 897,966 - 897,966
---------- ---------- ----------
Total interest incurred 1,314,900 1,731,825 $3,046,725
==========
Accrued interest payable,
beginning 4,383,000 4,431,567
Interest paid - (601,329)
---------- ----------
Accrued interest payable, ending $5,697,900 $5,562,063
========== ==========
Mortgage Administration and Servicing Fee is payable monthly to the servicer
-----------------------------------------
at an amount equal to .625% per annum of the outstanding principal amount of
the bonds and working capital loan and amounted to $118,125 for the year
ending December 31, 1994. This fee is to be paid only from available net cash
flow. During 1994, there was no net cash flow available to pay the mortgage
administration and servicing fee, accordingly, the entire $118,125 fee has
been accrued and at December 31, 1994, $475,110 is outstanding.
Mortgage Escrows and Replacement Reserve Activity
-------------------------------------------------
For the year ending December 31, 1994, cash and investments held by the bond
trustee consist of the following:
- 15 -
<PAGE>
Geary Courtyard Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE C - RELATED PARTY TRANSACTIONS - Continued
Mortgage Replacement
Escrows Reserve
---------- ------------
Balance at December 31, 1993 $ 47,493 $ 73,291
Deposits 266,800 28,704
Withdrawals
City fees (22,500)
Trustee fees (5,400)
Real estate taxes (169,035)
Insurance (60,023)
Reserves disbursements - (41,330)
Service fees - (142)
Interest earned 2,461 1,791
--------- --------
Balance at December 31, 1994 $ 59,796 $ 62,314
========= ========
Mortgage Escrows
----------------
The Partnership is required to make monthly deposits for both real estate
taxes and insurance premiums to the mortgage escrow account maintained by
CRICO Mortgage Company, Inc. During the year ending December 31, 1994, the
Partnership made all required deposits to this escrow account. The servicer
is a related party of the general partner of the Partnership.
Replacement Reserve
-------------------
In accordance with the terms of the regulatory agreement, the Partnership was
required to make monthly deposits to the replacement reserve which was held
by CRICO Mortgage Company, Inc. The Fund is to be used for the replacement of
project assets. The required deposit into the replacement reserve account for
the year ending December 31, 1994 is $28,704.
NOTE D - CITY AND TRUSTEE FEES
The City Fee is payable quarterly to the City and County of San Francisco in
the amount of .125% of the outstanding principal amount of the bonds. During
the year ended December 31, 1994, $22,500 was paid and charged to operations.
- 16 -
<PAGE>
Geary Courtyard Associates
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE D - CITY AND TRUSTEE FEES - Continued
Trustee Fees are payable annually to the Bankers Trust Company of California
National Association of California in the amount of .03% of the outstanding
principal amount of the bonds. During the year ended December 31, 1994, the
entire $5,400 annual fee was paid and charged to operations.
NOTE E - MANAGEMENT FEES
The property is managed by R&B Realty Group, an unaffiliated entity, pursuant
to a management agreement, which has an initial term of one year with annual
automatic renewal terms until notice is given of cancellation. The current
management agreement provides for a management fee of 4% of monthly rental
collections. Such fees charged to operations during the year ended December
31, 1994 were $69,061.
NOTE F - OTHER RENTING EXPENSES
Other renting expenses consist of the following:
Corporate sales $55,874
Concessions 8,538
-------
$64,412
=======
NOTE G - MISCELLANEOUS ADMINISTRATIVE EXPENSES
Miscellaneous administrative expenses consist of the following:
Leasing salaries $44,315
Recreation director 23,545
Other 12
Credit information 14,741
Armored car 1,988
-------
$84,601
=======
NOTE H - FIXED ASSET ADDITIONS
During 1994, the Partnership incurred $110,472 for fixed asset additions
related to the conversion of vacant space originally intended for commercial
use to a leasing office and community room.
- 17 -
<PAGE>
SUPPLEMENTAL INFORMATION
<PAGE>
Geary Courtyard Associates
SCHEDULE OF CAPITAL IMPROVEMENTS
RECLASSIFIED TO OPERATING EXPENSES
Year ended December 31, 1994
Account
Description Account Name Number Amount
- -------------------- ------------------- ------- ------
Carpeting Decorating supplies 6561 $7,718
Radio Repairs material 6541 1,248
Exercise equipment Misc. maintenance
expense 6590 842
Telephone system Repairs material 6541 1,131
------
$10,939
=======
- 19 -
<PAGE>
EXHIBIT 99.i
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
CRICO OF OCEAN WALK LIMITED PARTNERSHIP
DECEMBER 31, 1994
<PAGE>
CRICO of Ocean Walk Limited Partnership
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES -
INCOME TAX BASIS 5
STATEMENT OF PROFIT AND LOSS -
INCOME TAX BASIS 6
STATEMENT OF PARTNERS' DEFICIT -
INCOME TAX BASIS 8
STATEMENT OF CASH FLOWS - INCOME TAX BASIS 9
NOTES TO FINANCIAL STATEMENTS 10
<PAGE>
[LETTERHEAD OF REZNICK FEDDER & SILVERMAN]
INDEPENDENT AUDITORS' REPORT
To the Partners
CRICO of Ocean Walk Limited Partnership
We have audited the accompanying statement of assets and liabilities -
income tax basis of CRICO of Ocean Walk Limited Partnership as of December 31,
1994, and the related statements of profit and loss - income tax basis,
partners' deficit - income tax basis and cash flows - income tax basis for the
year then ended. These financial statements are the responsibility of the
partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As described in note A, these financial statements were prepared on the
basis of accounting the partnership uses for income tax purposes, which is a
comprehensive basis of accounting other than generally accepted accounting
principles.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities of CRICO of Ocean Walk
Limited Partnership as of December 31, 1994, and its profit and loss, changes in
partners' deficit and cash flows for the year then ended, on the basis of
accounting described in note A.
- 3 -
[BOTTOM PART OF LETTERHEAD OF REZNICK FEDDER & SILVERMAN]
<PAGE>
As discussed in note B, the partnership was in default with regard to the
mortgage loan agreement due to its inability to generate sufficient cash flow to
meet its contractual obligations. The partnership's lender, an affiliated
entity, has represented that it will not foreclose on the partnership's
defaulted loan prior to January 2, 1996. While the lender has no immediate
plans to foreclose on the property subsequent to that date, the partnership does
not expect to be able to cure the default at that time. Therefore, there can be
no assurance that the lender will not exercise its rights under the loan
agreement subsequent to that date.
/s/ Reznick Fedder & Silverman
Bethesda, Maryland
January 30, 1995
- 4 -
<PAGE>
CRICO of Ocean Walk Limited Partnership
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX BASIS
December 31, 1994
ASSETS
INVESTMENT IN REAL ESTATE
Building $16,161,210
Personal property 176,590
-----------
16,337,800
Less accumulated depreciation 1,084,321
-----------
15,253,479
Land 4,378,943
-----------
19,632,422
Tenants' security deposits, separately
held in an interest-bearing account 134,647
Cash and investments held by the
bond servicer 231,496
-----------
19,998,565
OTHER ASSETS
Cash $167,065
Accounts receivable - tenants 29,431
Prepaid insurance 76,793
Subscriptions receivable 100
Utility deposits 8,300 281,689
-------- -----------
$20,280,254
===========
LIABILITIES
LIABILITIES APPLICABLE TO REAL ESTATE
Mortgage payable $19,826,000
Accrued interest payable 1,340,913
-----------
21,166,913
Tenants' security deposits
liability 134,620
Accrued mortgage servicing fee 299,357
-----------
21,600,890
OTHER LIABILITIES
Accounts payable 53,601
Accrued expenses 41,752
-----------
Total liabilities 21,696,243
PARTNERS' DEFICIT (1,415,989)
-----------
$20,280,254
===========
See notes to financial statements
- 5 -
<PAGE>
Statement of U.S. DEPARTMENT OF HOUSING
Profit and Loss - Income Tax AND URBAN DEVELOPMENT
Basis Office of Housing
Federal Housing
Commissioner
[LOGO]
OMB Approval No. 2502-0052 (exp. 8/31/92)
- --------------------------------------------------------------------------------
Public Reporting Burden for this collection of information is estimated to
average 1.0 hours per response, including the time for reviewing instructions,
searching existing data sources, gathering and maintaining the data needed, and
completing and reviewing the collection of information. Send comments regarding
this burden estimate or any other aspect of this collection of information,
including suggestions for reducing this burden, to the Reports Management
Officer, Office of Information Policies and Systems, U.S. Department of Housing
and Urban Development, Washington, D.C. 20410-3600, and to the Office of
Management and Budget Paperwork Reduction Project (2502-0052), Washington, D.C.
20503. Do not send this completed form to either of these addresses.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
For Month/Period Project Number: Project Name: CRICO of
Beginning: 1/1/94 (inception) Ending: 12/31/94 Ocean Walk Limited Partnership
- -------------------------------------------------------------------------------------------------------------------
Part I DESCRIPTION OF ACCOUNT ACCOUNT NO. AMOUNT*
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Apartments or Member Carrying Charges (Coops) 5120 $2,904,052
--------------------------------------------------------------------------------
Tenant Assistance Payments 5121 $
--------------------------------------------------------------------------------
RENTAL Furniture and Equipment 5130 $ 4,758
--------------------------------------------------------------------------------
INCOME Stores and Commercial 5140 $
--------------------------------------------------------------------------------
5100 Garage and Parking Spaces 5170 $ 19,486
--------------------------------------------------------------------------------
Flexible Subsidy Income 5180 $
--------------------------------------------------------------------------------
Miscellaneous (Specify) Prepaid Rent 5190 $ 29,861
---------------------------------------------------------------------------------------------------
TOTAL RENT REVENUE Potential at 100% Occupancy $ 2,958,157
- -------------------------------------------------------------------------------------------------------------------
Apartments 5220 $( 158,961)
--------------------------------------------------------------------------------
Furniture and Equipment 5230 $( )
--------------------------------------------------------------------------------
VACANCIES Stores and Commercial 5240 $( )
--------------------------------------------------------------------------------
5200 Garage and Parking Spaces 5270 $( )
--------------------------------------------------------------------------------
Miscellaneous (Specify) 5290 $( )
---------------------------------------------------------------------------------------------------
TOTAL VACANCIES $ (158,961)
---------------------------------------------------------------------------------------------------
NET RENTAL REVENUE Rent Revenue Less Vacancies $ 2,799,196
- -------------------------------------------------------------------------------------------------------------------
ELDERLY AND CONGREGATE SERVICES INCOME-5300
TOTAL SERVICE INCOME (SCHEDULE ATTACHED) 5300 $
- -------------------------------------------------------------------------------------------------------------------
Interest Income-Project Operations 5410 $ 978
--------------------------------------------------------------------------------
FINANCIAL Income from Investments-Residual Receipts 5430 $
--------------------------------------------------------------------------------
REVENUE Income from Investments-Reserve for Replacement 5440 $ 4,523
--------------------------------------------------------------------------------
5400 Income from Investments-Miscellaneous 5490 $ 6,397
---------------------------------------------------------------------------------------------------
TOTAL FINANCIAL REVENUE $ 11,898
- -------------------------------------------------------------------------------------------------------------------
Laundry and Vending - One-Time Laundry Fee $35,000 5910 $ 61,838
--------------------------------------------------------------------------------
NSF and Late Charges 5920 $ 13,909
--------------------------------------------------------------------------------
OTHER Damages and Cleaning Fees 5930 $ 20,702
--------------------------------------------------------------------------------
REVENUE Forfeited Tenant Security Deposits 5940 $ 20,237
--------------------------------------------------------------------------------
5900 OTHER REVENUE (SPECIFY) See Note C 5990 $ 380,249
---------------------------------------------------------------------------------------------------
TOTAL OTHER REVENUE $ 496,935
---------------------------------------------------------------------------------------------------
TOTAL REVENUE $ 3,308,029
- -------------------------------------------------------------------------------------------------------------------
Advertising 6210 $ 8,845
--------------------------------------------------------------------------------
Other Renting Expenses See Note C 6250 $ 8,953
--------------------------------------------------------------------------------
Office Salaries 6310 $ 53,489
--------------------------------------------------------------------------------
Office Supplies 6311 $ 6,634
--------------------------------------------------------------------------------
Office or Model Apartment Rent 6312 $
--------------------------------------------------------------------------------
ADMINISTRATIVE Management Fee 6320 $ 89,291
--------------------------------------------------------------------------------
EXPENSES Manager or Superintendent Salaries 6330 $ 34,092
--------------------------------------------------------------------------------
6200/6300 Manager or Superintendent Rent Free Unit 6331 $
--------------------------------------------------------------------------------
Legal Expenses (Project) 6340 $ 2,221
--------------------------------------------------------------------------------
Auditing Expenses (Project) 6350 $ 5,750
--------------------------------------------------------------------------------
Bookkeeping Fees/Accounting Services 6351 $ 1,345
--------------------------------------------------------------------------------
Telephone and Answering Services 6360 $ 6,436
--------------------------------------------------------------------------------
Bad Debts 6370 $ 30,788
--------------------------------------------------------------------------------
Miscellaneous Administrative Expenses (See Note C) 6390 $ 11,757
---------------------------------------------------------------------------------------------------
TOTAL ADMINISTRATIVE EXPENSES $ 259,601
- -------------------------------------------------------------------------------------------------------------------
Fuel Oil/Coal 6420 $
--------------------------------------------------------------------------------
UTILITIES Electricity 6450 $ 102,487
--------------------------------------------------------------------------------
EXPENSE Water 6451 $ 43,992
--------------------------------------------------------------------------------
6400 Gas 6452 $
--------------------------------------------------------------------------------
Sewer 6453 $ 97,378
---------------------------------------------------------------------------------------------------
TOTAL UTILITIES EXPENSE $ 243,857
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* All amounts must be Page 1 of 2 form HUD-92410 (7/91)
rounded to the nearest ref Handbook 4370.2
dollar, $.50 and over,
round up - $.49 and
below round down.
- 6 -
<PAGE>
<TABLE>
<C> <S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Janitor and Cleaning Payroll 6510 $ 23,535
--------------------------------------------------------------------------------
Janitor and Cleaning Supplies 6515 $ 2,880
--------------------------------------------------------------------------------
Janitor and Cleaning Contract 6517 $ 37,225
--------------------------------------------------------------------------------
Exterminating Payroll/Contract 6519 $ 13,593
--------------------------------------------------------------------------------
Exterminating Supplies 6520 $
--------------------------------------------------------------------------------
Garbage and Trash Removal 6525 $ 82,406
--------------------------------------------------------------------------------
Security Payroll/Contract 6530 $ 36,000
--------------------------------------------------------------------------------
Grounds Payroll 6535 $
--------------------------------------------------------------------------------
Grounds Supplies 6536 $ 2,558
--------------------------------------------------------------------------------
OPERATING AND Grounds Contract 6537 $ 18,880
--------------------------------------------------------------------------------
MAINTENANCE Repairs Payroll 6540 $ 76,879
--------------------------------------------------------------------------------
EXPENSES Repairs Material 6541 $ 3,599
--------------------------------------------------------------------------------
6500 Repairs Contract 6542 $ 32,287
--------------------------------------------------------------------------------
Elevator Maintenance/Contract 6545 $ 10,416
--------------------------------------------------------------------------------
Heating/Cooling Repairs and Maintenance 6546 $
--------------------------------------------------------------------------------
Swimming Pool Maintenance/Contract 6547 $ 8,449
--------------------------------------------------------------------------------
Snow Removal 6548 $
--------------------------------------------------------------------------------
Decorating Payroll/Contract 6560 $
--------------------------------------------------------------------------------
Decorating Supplies 6561 $ 67,490
--------------------------------------------------------------------------------
Other - Fire Loss Expense 6570 $ 162,327
--------------------------------------------------------------------------------
Misc. Operating and Maintenance Expenses (See Note C) 6590 $ 109
---------------------------------------------------------------------------------------------------
TOTAL OPERATING AND $ 578,633
- -------------------------------------------------------------------------------------------------------------------
MAINTENANCE EXPENSES
--------------------------------------------------------------------------------
Real Estate Taxes 6710 $ 204,555
--------------------------------------------------------------------------------
Payroll Taxes (FICA) 6711 $ 28,733
--------------------------------------------------------------------------------
Miscellaneous Taxes, Licenses and Permits 6719 $ 3,862
--------------------------------------------------------------------------------
TAXES AND Property and Liability Insurance (Hazard) 6720 $ 104,771
--------------------------------------------------------------------------------
INSURANCE Fidelity Bond Insurance 6721 $
--------------------------------------------------------------------------------
6700 Workmen's Compensation 6722 $ 12,904
--------------------------------------------------------------------------------
Health Insurance & Other Employee Benefits 6723 $ 14,650
--------------------------------------------------------------------------------
Other Insurance (Specify) 6729 $
---------------------------------------------------------------------------------------------------
TOTAL TAXES AND INSURANCE $ 369,475
- -------------------------------------------------------------------------------------------------------------------
Interest on Bonds Payable 6810 $
--------------------------------------------------------------------------------
Interest on Mortgage Payable 6820 $1,774,427
--------------------------------------------------------------------------------
FINANCIAL Interest on Notes Payable (Long-Term) 6830 $
--------------------------------------------------------------------------------
EXPENSES Interest on Notes Payable (Short-Term) 6840 $
--------------------------------------------------------------------------------
6800 Mortgage Insurance Premium/Service Charge 6850 $ 123,912
--------------------------------------------------------------------------------
Miscellaneous Financial Expenses 6890 $ 31,714
---------------------------------------------------------------------------------------------------
TOTAL FINANCIAL EXPENSES $ 1,930,053
- -------------------------------------------------------------------------------------------------------------------
ELDERLY & Total Service Expenses-Schedule Attached 6900 $
---------------------------------------------------------------------------------------------------
CONGREGATE Total Cost of Operations Before Depreciation $ 3,381,619
---------------------------------------------------------------------------------------------------
SERVICE PROFIT (LOSS) BEFORE DEPRECIATION $ (73,590)
---------------------------------------------------------------------------------------------------
EXPENSES Depreciation (Total)-6600 (Specify) 6600 $ (614,820)
---------------------------------------------------------------------------------------------------
6900 OPERATING PROFIT OR (LOSS) $ (688,410)
- -------------------------------------------------------------------------------------------------------------------
Officer Salaries 7110 $
--------------------------------------------------------------------------------
CORPORATE OR Legal Expenses (Entity) 7120 $
--------------------------------------------------------------------------------
MORTGAGOR Taxes (Federal-State-Entity) 7130-32 $
--------------------------------------------------------------------------------
ENTITY Other Expenses (Entity) 7190 $
---------------------------------------------------------------------------------------------------
EXPENSES TOTAL CORPORATE EXPENSES $
---------------------------------------------------------------------------------------------------
7100 NET PROFIT OR (LOSS) $ 688,410
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Warning: HUD will prosecute false claims and statements. Conviction may result
in criminal and/or civil penalties (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729,
3802) Miscellaneous or other Income and Expenses Sub-account Groups. If
miscellaneous or other Income and/or expense sub-accounts (5190, 5290, 5490,
5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or
more, attach a separate schedule describing or explaining the miscellaneous
income or expense.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
PART II
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Total principal payments required under the mortgage, even if payments under a Workout Agreement
are less or more than those required under the mortgage. $ N/A
- -------------------------------------------------------------------------------------------------------------------
2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto, even if
payments may be temporarily suspended or waived. $ N/A
- -------------------------------------------------------------------------------------------------------------------
3. Replacement or Painting Reserve releases which are included as expense items on the Profit and
Loss statement. $ N/A
- -------------------------------------------------------------------------------------------------------------------
4. Project Improvement Reserve Releases under the Flexible Subsidy Program that are included as
expense items on this Profit and Loss statement. $ N/A
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 2 of 2 Form HUD-92410
See notes to financial statements
- 7 -
<PAGE>
CRICO of Ocean Walk Limited Partnership
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX BASIS
Year ended December 31, 1994
Partners' deficit, beginning $ (727,579)
Net loss (688,410)
-----------
Partners' deficit, end $(1,415,989)
===========
See notes to financial statements
- 8 -
<PAGE>
CRICO of Ocean Walk Limited Partnership
STATEMENT OF CASH FLOWS - INCOME TAX BASIS
Year ended December 31, 1994
Cash flows from operating activities
Net loss $(688,410)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation 614,820
Tenants' security deposits - net (50,023)
Increase in accounts receivable - tenants (9,483)
Decrease in prepaid insurance 2,380
Increase in accrued interest 167,651
Decrease in accounts payable - operations (6,623)
Decrease in accrued expenses (1,020)
Increase in accrued mortgage servicing fee 123,815
Decrease in cash and investments held
by the bond servicer 35,794
---------
Net cash provided by operating activities 188,901
---------
Cash flows from investing activities
Increase in cash and investments held by the
bond servicer (20,107)
Increase in building (13,162)
Increase in personal property (144,406)
---------
Net cash used in investing activities (177,675)
---------
Cash flows from financing activities
Increase in accounts payable - fixed assets 23,040
---------
Net cash provided by financing activities 23,040
---------
NET INCREASE IN CASH 34,266
Cash, beginning 132,799
---------
Cash, end $ 167,065
=========
Supplemental disclosure of cash flow information
Cash paid during the year for interest $1,606,776
==========
See notes to financial statements
- 9 -
<PAGE>
CRICO of Ocean Walk Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The partnership was formed as a limited partnership under the laws of the State
of Florida in March, 1993, for the purpose of constructing, owning and operating
a rental housing project. The project consists of 296 units located in Key West,
Florida and operates under the name of Ocean Walk Apartments. Operations began
March 16, 1993
Income Tax Basis of Accounting
- ------------------------------
The partnership maintains its accounts and the financial statements have been
prepared on the accounting basis used for income tax purposes. Rents received in
advance are recognized when collected.
Investment in Real Estate and Depreciation
- ------------------------------------------
Investment in real estate is carried at cost.
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives by use of
the straight-line and declining-balance methods.
Income Taxes
- ------------
No provision or benefit for income taxes has been included in these financial
statements since taxable income or loss passes through to, and is reportable by,
the partners individually.
Provision for Doubtful Accounts
- -------------------------------
The partnership considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts become
uncollectible, they will be charged to operations when that determination is
made.
- 10 -
<PAGE>
CRICO of Ocean Walk Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Rental Income
- -------------
Rental income is recognized as rentals become due. Rents received in advance are
recognized when collected. All leases between the partnership and tenants of the
property are operating leases.
NOTE B - RELATED PARTY TRANSACTIONS
The general partner of the partnership, CRICO of Ocean Walk, Inc., a Maryland
corporation, is a related party to the managing general partner of the general
partner of the holder of the mortgage loan for the project.
Cash and Investments Held by Bond Servicer
- ------------------------------------------
Mortgage Escrow
- ---------------
The partnership is required to deposit on a monthly basis an amount equal to
one-twelfth of the aggregate annual amount of all real estate taxes and
insurance premiums to the mortgage escrow account maintained by CRICO Mortgage
Company, Inc. (the servicer). The servicer is a related party to the general
partner of the partnership.
Reserve for Replacements
- ------------------------
The partnership is required to make monthly deposits to the reserve for
replacement account maintained by the servicer. The fund is to be used for the
replacement of project assets. The required annual deposits into the reserve for
replacement account is $53,700 for 1994 and each year thereafter until such time
as the balance in the reserve equals or exceeds $300,000. Thereafter, no monthly
deposits are required unless the balance falls below $300,000.
- 11 -
<PAGE>
CRICO of Ocean Walk Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
At December 31, 1994, cash and investments held by the bond servicer consist of
the following:
Reserve
Additional for
funds Mortgage replace-
escrows escrows ments Total
--------- ----------- --------- ----------
[S] [C] [C] [C] [C]
Balance at
December 31, 1993 $ 35,794 $ 63,841 $138,598 $ 238,233
Deposits - 336,000 62,649 398,649
Transfers (35,835) (19,700) - (55,535)
Interest income 41 6,356 4,523 10,920
Withdrawals:
Taxes - (204,555) - (204,555)
Insurance - (102,391) - (102,391)
Withdrawals - - (53,700) (53,700)
Service charge - - (125) (125)
-------- --------- -------- ---------
Balance at
December 31, 1994 $ - $ 79,551 $151,945 $ 231,496
======== ========= ======== =========
Mortgage Payable
- ----------------
Financing has been provided to the partnership through the issuance of tax-
exempt bonds by the Florida Housing Finance Agency in the total amount of
$19,826,000, which are evidenced by a mortgage loan agreement with Capital
Realty Investors Tax Exempt Fund III, Limited Partnership (CRITEF), the
bondowner, a related party. The maturity date of the mortgage is April 1, 2000.
Upon maturity all outstanding principal and interest, including all deferred
interest, is due and payable.
The mortgage note provides for base interest payable at the rate of 8.95% per
annum through the maturity date. Primary contingent interest is payable each
quarter, at the rate of 1.5% per annum, out of that quarter's net cash flow. In
addition, supplemental contingent interest is payable each quarter, at the rate
of 5.55% per annum, out of 55% of that quarter's net cash flow remaining after
deduction of primary contingent interest. Unpaid construction period deferred
interest, primary contingent interest and supplemental contingent interest is
deferred until the earlier of the sale or refinancing of the project or
maturity. The deferred interest has not been recorded on the books of the
partnership.
- 12 -
<PAGE>
CRICO of Ocean Walk Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
- ----------------
As of December 31, 1994, the partnership was in default with regard to the
mortgage loan agreement due to its inability to generate sufficient cash flow to
meet its contractual obligations under this agreement. CRITEF has not exercised
its contractual rights and remedies provided under the mortgage. CRITEF has
represented that it will not foreclose on the project through January 2, 1996.
Under agreement with CRITEF, the partnership has paid base interest from
available cash flows. Any unpaid base interest shall be deferred until cash
flow on subsequent interest payment dates is sufficient for payment or until the
earlier of the sale or refinancing of the project or maturity. As of December
31, 1994, accrued base interest was $1,340,913. Interest accrues on the unpaid
base interest at a compounded rate of 8.95%.
During the year ended December 31, 1994, the partnership recorded the base
interest and did not record interest accrued on the unpaid base interest of
$118,229, primary contingent interest of $297,390 and supplemental contingent
interest of $1,100,343. At December 31, 1994, interest accrued on the unpaid
base interest primary and supplemental contingent interest and construction
period base interest of $8,675,711 has not been recorded. Total interest
incurred on the mortgage for the year ended December 31, 1994 is as follows:
Currently
Deferred payable Total
---------- ------------ ----------
Base interest $ - $ 1,774,427 $1,774,427
Interest on interest 118,229 - 118,229
Primary contingent interest 297,390 - 297,390
Supplemental contingent
interest 1,100,343 - 1,100,343
---------- ----------- ----------
Total interest incurred 1,515,962 1,774,427 $3,290,389
==========
Accrued interest, beginning 7,159,749 1,173,346
Interest paid - (1,606,860)
----------
Accrued interest, ending $8,675,711 $ 1,340,913
========== ===========
- 13 -
<PAGE>
CRICO of Ocean Walk Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
- ----------------
Interest earned on the bonds is exempt from Federal income tax pursuant to the
Internal Revenue Code. In accordance with the bond regulatory agreement, the
bond proceeds are to finance multifamily housing in which at least 20% of the
units in the project are to be occupied by individuals of low or moderate
income, as defined in the Internal Revenue Code. In the event that the
underlying bonds do not maintain their tax-exempt status, whether by change in
law or by noncompliance with the regulatory agreement, repayment of the bonds
may be accelerated.
The liability of the partnership under the mortgage is limited to the underlying
value of the real estate collateral, plus other amounts deposited with the
lender. As further security on the obligation, the partnership has assigned
existing and future rents and leases to the mortgagee.
The partnership is required to pay the servicer a mortgage servicing fee equal
to 0.625% of the outstanding principal balance of the loan. The fee is payable
monthly on each base interest payment date. Any unpaid fees shall be deferred
until cash flow on subsequent interest payment dates is sufficient for payment
or until the earlier of the sale or refinancing of the project or maturity. As
of December 31, 1994, $299,357 has been accrued and $123,912 was charged to
operations.
Management Agreement
- --------------------
Commencing November 1, 1993, CRICO Management of Minnesota, Inc., a related
party, managed the property through January 31, 1994. Effective February 1,
1994, the property management responsi-bilities were assigned from CRICO
Management of Minnesota, Inc. to CAPREIT Residential Corporation, an unrelated
entity. Management fees are payable to CAPREIT Residential Corporation at the
same rate and same terms as under the agreement with CRICO Management of
Minnesota, Inc.
- 14 -
<PAGE>
CRICO of Ocean Walk Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
Management Agreement (Continued)
- --------------------
Management fees are equal to 3.0% of Gross Revenues received, as defined.
Management fees paid to CRICO Management of Minnesota, Inc. of $7,216 were
charged to operations during 1994. For the year ended December 31, 1994,
management fees totalling $89,291 were charged to operations and $7,891 is
payable at December 31, 1994.
NOTE C - SCHEDULES TO SUPPORT HUD STATEMENT OF PROFIT AND LOSS
(FORM 92410)
Other revenue (Account No. 5990) consists of the following:
Utility reimbursements $ 99,128
Corporate unit income 47,802
Other receipts 8,344
Application fees 7,678
Non-refundable fees 2,800
Bad debt collections 2,664
Pet fee income 600
Storage locker income 240
Insurance proceeds 162,327
Security deposit adjustment 48,666
--------
$380,249
========
Miscellaneous administrative (Account No. 6390) consists of the following:
Employee relations $ 4,681
Furniture rental 4,059
Miscellaneous 3,017
-------
$11,757
=======
- 15 -
<PAGE>
CRICO of Ocean Walk Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE C - SCHEDULES TO SUPPORT HUD STATEMENT OF PROFIT AND LOSS
(FORM 92410) (Continued)
Other renting expenses (Account No. 6250) consists of the following:
Resident retention $2,844
Rent concessions 2,455
Resident referrals 959
Credit reports 2,695
------
$8,953
======
Miscellaneous operating and maintenance (Account No. 6590)
consists of the following:
Vehicle expense $109
====
- 16 -
<PAGE>
EXHIBIT 99.j
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
CRICO OF VALLEY CREEK II
LIMITED PARTNERSHIP
DECEMBER 31, 1994
<PAGE>
CRICO of Valley Creek II Limited Partnership
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES -
INCOME TAX BASIS 5
STATEMENT OF PROFIT AND LOSS -
INCOME TAX BASIS 6
STATEMENT OF PARTNERS' DEFICIT -
INCOME TAX BASIS 8
STATEMENT OF CASH FLOWS - INCOME TAX BASIS 9
NOTES TO FINANCIAL STATEMENTS 10
<PAGE>
[LETTERHEAD OF REZNICK FEDDER & SILVERMAN]
INDEPENDENT AUDITORS' REPORT
To the Partners
CRICO of Valley Creek II
Limited Partnership
We have audited the accompanying statement of assets and liabilities -
income tax basis of CRICO of Valley Creek II Limited Partnership as of December
31, 1994, and the related statements of profit and loss - income tax basis,
partners' deficit - income tax basis and cash flows - income tax basis for the
year then ended. These financial statements are the responsibility of the
partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As described in note A, these financial statements were prepared on the
basis of accounting the partnership uses for income tax purposes, which is a
comprehensive basis of accounting other than generally accepted accounting
principles.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities of CRICO of Valley Creek II
Limited Partnership as of December 31, 1994, and its profit and loss, changes in
partners' deficit and cash flows for the year then ended, on the basis of
accounting described in note A.
- 3 -
[BOTTOM PART OF LETTERHEAD OF REZNICK FEDDER & SILVERMAN]
<PAGE>
As discussed in note B, the partnership was in default with regard to the
mortgage loan agreement due to its inability to generate sufficient cash flow to
meet its contractual obligations. The partnership's lender, an affiliated
entity, has represented that it will not foreclose on the partnership's
defaulted loan prior to January 2, 1996. While the lender has no immediate
plans to foreclose on the property subsequent to that date, the partnership does
not expect to be able to cure the default at that time. Therefore, there can be
no assurance that the lender will not exercise its rights under the loan
agreement subsequent to that date.
/s/ Reznick Fedder & Silverman
Bethesda, Maryland
January 27, 1995
- 4 -
<PAGE>
CRICO of Valley Creek II Limited Partnership
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX BASIS
December 31, 1994
ASSETS
INVESTMENT IN REAL ESTATE
Building $8,594,998
Personal property 1,098,185
----------
9,693,183
Less accumulated depreciation 1,037,867
----------
8,655,316
Land 124,335
----------
8,779,651
Tenants' security deposits, separately held
in an interest-bearing account 36,443
Cash and investments held by bond servicer 167,310
----------
8,983,404
OTHER ASSETS
Cash $72,572
Accounts receivable - tenants 469
Prepaid insurance 10,664 83,705
------- ----------
$9,067,109
==========
LIABILITIES
LIABILITIES APPLICABLE TO REAL ESTATE
Mortgage payable $10,100,000
Accrued interest payable 510,606
-----------
10,610,606
Tenants' security deposit
liability 35,921
Assessments payable 20,005
Accrued mortgage servicing fee 89,427
-----------
10,755,959
OTHER LIABILITY
Accounts payable 24,746
-----------
10,780,705
Total liabilities
PARTNERS' DEFICIT (1,713,596)
-----------
$ 9,067,109
===========
See notes to financial statements
- 5 -
<PAGE>
Statement of U.S. DEPARTMENT OF HOUSING
Profit and Loss - Income Tax AND URBAN DEVELOPMENT
Basis Office of Housing
Federal Housing Commissioner
[LOGO]
OMB Approval No. 2502-0052 (exp. 8/31/92)
- --------------------------------------------------------------------------------
Public Reporting Burden for this collection of information is estimated to
average 1.0 hours per response, including the time for reviewing instructions,
searching existing data sources, gathering and maintaining the data needed, and
completing and reviewing the collection of information. Send comments regarding
this burden estimate or any other aspect of this collection of information,
including suggestions for reducing this burden, to the Reports Management
Officer, Office of Information Policies and Systems, U.S. Department of Housing
and Urban Development, Washington, D.C. 20410-3600, and to the Office of
Management and Budget Paperwork Reduction Project (2502-0052), Washington, D.C.
20503. Do not send this completed form to either of these addresses.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
For Month/Period Project Number: Project Name:
Beginning: 1/1/94 Ending: 12/31/94 HUD Project No.: CRICO of Valley Creek II Limited Partnership
- -------------------------------------------------------------------------------------------------------------------
Part I DESCRIPTION OF ACCOUNT ACCOUNT NO. AMOUNT*
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Apartments or Member Carrying Charges (Coops) 5120 $1,369,510
--------------------------------------------------------------------------------
Tenant Assistance Payments 5121 $
--------------------------------------------------------------------------------
RENTAL Furniture and Equipment 5130 $ 3,996
--------------------------------------------------------------------------------
INCOME Stores and Commercial 5140 $
--------------------------------------------------------------------------------
5100 Garage and Parking Spaces 5170 $ 1,318
--------------------------------------------------------------------------------
Flexible Subsidy Income 5180 $
--------------------------------------------------------------------------------
Miscellaneous (Specify) Storage 5190 $ 3,937
---------------------------------------------------------------------------------------------------
TOTAL RENT REVENUE Potential at 100% Occupancy $ 1,378,761
- -------------------------------------------------------------------------------------------------------------------
Apartments 5220 $( 71,148)
--------------------------------------------------------------------------------
Furniture and Equipment 5230 $( )
--------------------------------------------------------------------------------
VACANCIES Stores and Commercial 5240 $( )
--------------------------------------------------------------------------------
5200 Garage and Parking Spaces 5270 $( )
--------------------------------------------------------------------------------
Miscellaneous (Specify) 5290 $( )
---------------------------------------------------------------------------------------------------
TOTAL VACANCIES $ (71,148)
---------------------------------------------------------------------------------------------------
NET RENTAL REVENUE Rent Revenue Less Vacancies $ 1,307,613
- -------------------------------------------------------------------------------------------------------------------
ELDERLY AND CONGREGATE SERVICES INCOME-5300
TOTAL SERVICE INCOME (SCHEDULE ATTACHED) 5300 $ $
- -------------------------------------------------------------------------------------------------------------------
Interest Income-Project Operations 5410 $ 1,167
--------------------------------------------------------------------------------
FINANCIAL Income from Investments-Residual Receipts 5430 $
--------------------------------------------------------------------------------
REVENUE Income from Investments-Reserve for Replacement 5440 $ 1,793
--------------------------------------------------------------------------------
5400 Income from Investments-Escrows 5490 $ 4,876
---------------------------------------------------------------------------------------------------
TOTAL FINANCIAL REVENUE $ 7,836
- -------------------------------------------------------------------------------------------------------------------
Laundry and Vending - One-Time Laundry Fee $6,600 5910 $ 27,154
--------------------------------------------------------------------------------
NSF and Late Charges 5920 $ 2,812
--------------------------------------------------------------------------------
OTHER Damages and Cleaning Fees 5930 $
--------------------------------------------------------------------------------
REVENUE Forfeited Tenant Security Deposits 5940 $ 9,064
--------------------------------------------------------------------------------
5900 OTHER REVENUE (SPECIFY) (See Note D) 5990 $ 21,945
---------------------------------------------------------------------------------------------------
TOTAL OTHER REVENUE $ 60,975
---------------------------------------------------------------------------------------------------
TOTAL REVENUE $ 1,376,424
- -------------------------------------------------------------------------------------------------------------------
Advertising 6210 $ 29,269
--------------------------------------------------------------------------------
Other - Rental Concessions
$8,168; Resident Retention $4,015 6250 $ 12,183
--------------------------------------------------------------------------------
Office Salaries 6310 $ 25,156
--------------------------------------------------------------------------------
Office Supplies 6311 $ 10,602
--------------------------------------------------------------------------------
Office or Model Apartment Rent 6312 $ 3,432
--------------------------------------------------------------------------------
ADMINISTRATIVE Management Fee 6320 $ 51,287
--------------------------------------------------------------------------------
EXPENSES Manager or Superintendent Salaries 6330 $ 12,423
--------------------------------------------------------------------------------
6200/6300 Manager or Superintendent Rent Free Unit 6331 $ 4,414
--------------------------------------------------------------------------------
Legal Expenses (Project) 6340 $ 396
--------------------------------------------------------------------------------
Auditing Expenses (Project) 6350 $ 5,750
--------------------------------------------------------------------------------
Bookkeeping Fees/Accounting Services 6351 $
--------------------------------------------------------------------------------
Telephone and Answering Services 6360 $ 6,134
--------------------------------------------------------------------------------
Bad Debts 6370 $ 1,065
--------------------------------------------------------------------------------
Misc Administrative Expenses (Specify) (See Note D) 6390 $ 13,532
---------------------------------------------------------------------------------------------------
TOTAL ADMINISTRATIVE EXPENSES $ 175,643
- -------------------------------------------------------------------------------------------------------------------
Fuel Oil/Coal 6420 $
--------------------------------------------------------------------------------
UTILITIES Electricity 6450 $ 19,356
--------------------------------------------------------------------------------
EXPENSE Water 6451 $ 6,055
--------------------------------------------------------------------------------
6400 Gas 6452 $ 38,106
--------------------------------------------------------------------------------
Sewer 6453 $ 15,595
---------------------------------------------------------------------------------------------------
TOTAL UTILITIES EXPENSE $ 79,112
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* All amounts must be Page 1 of 2 form HUD-92410 (7/91)
rounded to the nearest ref Handbook 4370.2
dollar, $.50 and over,
round up - $.49 and
below round down.
- 6 -
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Janitor and Cleaning Payroll 6510 $ 39,620
--------------------------------------------------------------------------------
Janitor and Cleaning Supplies 6515 $ 1,506
--------------------------------------------------------------------------------
Janitor and Cleaning Contract 6517 $ 3,511
--------------------------------------------------------------------------------
Exterminating Payroll/Contract 6519 $ 733
--------------------------------------------------------------------------------
Exterminating Supplies 6520 $
--------------------------------------------------------------------------------
Garbage and Trash Removal 6525 $ 6,622
--------------------------------------------------------------------------------
Security Payroll/Contract 6530 $ 13,768
--------------------------------------------------------------------------------
Grounds Payroll 6535 $
--------------------------------------------------------------------------------
Grounds Supplies 6536 $
--------------------------------------------------------------------------------
OPERATING AND Grounds Contract 6537 $ 10,351
--------------------------------------------------------------------------------
MAINTENANCE Repairs Payroll 6540 $ 19,392
--------------------------------------------------------------------------------
EXPENSES Repairs Material 6541 $ 51,427
--------------------------------------------------------------------------------
6500 Repairs Contract 6542 $ 6,938
--------------------------------------------------------------------------------
Elevator Maintenance/Contract 6545 $ 4,847
--------------------------------------------------------------------------------
Heating/Cooling Repairs and Maintenance 6546 $ 1,110
--------------------------------------------------------------------------------
Swimming Pool Maintenance/Contract 6547 $ 496
--------------------------------------------------------------------------------
Snow Removal 6548 $ 3,955
--------------------------------------------------------------------------------
Decorating Payroll/Contract 6560 $
--------------------------------------------------------------------------------
Decorating Supplies 6561 $ 10,197
--------------------------------------------------------------------------------
Other 6570 $ 996
--------------------------------------------------------------------------------
Miscellaneous Operating and Maintenance Expenses 6590 $ 291
---------------------------------------------------------------------------------------------------
TOTAL OPERATING AND MAINTENANCE EXPENSES $ 175,760
- -------------------------------------------------------------------------------------------------------------------
Real Estate Taxes - Net of Refund $18,221 6710 $ 224,735
--------------------------------------------------------------------------------
Payroll Taxes (FICA) 6711 $ 14,825
--------------------------------------------------------------------------------
Miscellaneous Taxes, Licenses and Permits 6719 $ 1,000
--------------------------------------------------------------------------------
TAXES AND Property and Liability Insurance (Hazard) 6720 $ 13,414
--------------------------------------------------------------------------------
INSURANCE Fidelity Bond Insurance 6721 $
--------------------------------------------------------------------------------
6700 Workmen's Compensation 6722 $ 6,794
--------------------------------------------------------------------------------
Health Insurance & Other Employee Benefits 6723 $ 5,351
--------------------------------------------------------------------------------
Other Insurance (Specify) 6729 $
---------------------------------------------------------------------------------------------------
TOTAL TAXES AND INSURANCE $ 266,119
- -------------------------------------------------------------------------------------------------------------------
Interest on Bonds Payable 6810 $
--------------------------------------------------------------------------------
Interest on Mortgage Payable 6820 $ 919,100
--------------------------------------------------------------------------------
FINANCIAL Interest on Notes Payable Special Assessments 6830 $ 4,656
--------------------------------------------------------------------------------
EXPENSES Interest on Notes Payable (Short-Term) 6840 $
--------------------------------------------------------------------------------
6800 Mortgage Servicing Fee 6850 $ 63,125
--------------------------------------------------------------------------------
Misc Financial Expenses - Security Deposit Interest 6890 $ 1,360
---------------------------------------------------------------------------------------------------
TOTAL FINANCIAL EXPENSES $ 988,241
- -------------------------------------------------------------------------------------------------------------------
ELDERLY & Total Service Expenses-Schedule Attached 6900 $
---------------------------------------------------------------------------------------------------
CONGREGATE Total Cost of Operations Before Depreciation $ 1,684,875
---------------------------------------------------------------------------------------------------
SERVICE PROFIT (LOSS) BEFORE DEPRECIATION $ (308,451)
---------------------------------------------------------------------------------------------------
EXPENSES Depreciation (Total)-6600 (Specify) 6600 $ 581,460
---------------------------------------------------------------------------------------------------
6900 OPERATING PROFIT OR (LOSS) $ (889,911)
- -------------------------------------------------------------------------------------------------------------------
Officer Salaries 7110 $
--------------------------------------------------------------------------------
CORPORATE OR Legal Expenses (Entity) 7120 $
--------------------------------------------------------------------------------
MORTGAGOR Taxes (Federal-State-Entity) 7130-32 $
--------------------------------------------------------------------------------
ENTITY Other Expenses (Entity) 7190 $
---------------------------------------------------------------------------------------------------
EXPENSES TOTAL CORPORATE EXPENSES $
---------------------------------------------------------------------------------------------------
7100 NET PROFIT OR (LOSS) $ (889,911)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Warning: HUD will prosecute false claims and statements. Conviction may result
in criminal and/or civil penalties (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729,
3802) Miscellaneous or other Income and Expenses Sub-account Groups. If
miscellaneous or other Income and/or expense sub-accounts (5190, 5290, 5490,
5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or
more, attach a separate schedule describing or explaining the miscellaneous
income or expense.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
PART II
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Total principal payments required under the mortgage, even if payments under a Workout Agreement
are less or more than those required under the mortgage. $ NONE
2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto, even if
payments may be temporarily suspended or waived. $ NONE
3. Replacement or Painting Reserve releases which are included as expense items on the Profit and
Loss statement. $ NONE
4. Project Improvement Reserve Releases under the Flexible Subsidy Program that are included as
expense items on this Profit and Loss statement. $ N/A
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 2 of 2 Form HUD-92410
See notes to financial statements
- 7 -
<PAGE>
CRICO of Valley Creek II Limited Partnership
STATEMENT OF PARTNERS' DEFICIT -
INCOME TAX BASIS
Year ended December 31, 1994
Partners' deficit, beginning $ (823,685)
Net loss (889,911)
-----------
Partners' deficit, end $(1,713,596)
===========
See notes to financial statements
- 8 -
<PAGE>
CRICO of Valley Creek II Limited Partnership
STATEMENT OF CASH FLOWS - INCOME TAX BASIS
Year ended December 31, 1994
Cash flows from operating activities
Net loss $(889,911)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation 581,460
Tenants' security deposits - net 1,588
Decrease in accounts receivable - tenants 746
Decrease in subscription receivable 100
Decrease in cash and investments held by bond
servicer 5,877
Increase in prepaid insurance (805)
Increase in accrued interest 304,768
Increase in accounts payable - operations 14,314
Increase in accrued mortgage servicing fee 63,125
---------
Net cash provided by operating activities 81,262
---------
Cash flows from investing activities
Decrease in cash and investments held by bond
servicer (28,348)
---------
Net cash used in investing activities (28,348)
---------
Cash flows from financing activities
Payments of special assessments payable (21,544)
---------
Net cash used in financing activities (21,544)
---------
NET INCREASE IN CASH 31,370
Cash, beginning 41,202
---------
Cash, end $ 72,572
=========
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 618,988
=========
See notes to financial statements
- 9 -
<PAGE>
CRICO of Valley Creek II Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The partnership was formed as a limited partnership under the laws of the
State of Minnesota on December 26, 1990, for the purpose of constructing,
owning and operating a rental housing project. The project consists of 177
units located in the City of Woodbury, Minnesota and operates under the name
of Valley Creek II Apartments.
Income Tax Basis of Accounting
------------------------------
The partnership maintains its accounts and the financial statements have been
prepared on the accounting basis used for income tax purposes. Rents received
in advance are recognized when received.
Rental Property
---------------
Rental property is carried at cost. Depreciation is provided for in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives by using the straight-line and declining-balance
methods.
Income Taxes
------------
No provision or benefit for income taxes has been included in these financial
statements since taxable income or loss passes through to, and is reportable
by, the partners individually.
Provision for Doubtful Accounts
-------------------------------
The partnership considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
Rental Income
-------------
Rental income is recognized as rentals become due. Rents received in advance
are recognized when received. All leases between the partnership and tenants
of the property are operating leases.
- 10 -
<PAGE>
CRICO of Valley Creek II Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS
The general partner of the partnership, CRICO of Valley Creek II, Inc., a
Delaware corporation, is a related party to the managing general partner of
the general partner of the holder of the mortgage loan for the project. On
January 1, 1992, CRICO of Iona, Inc. assigned its limited partner interest in
the partnership to CRICO Minnesota Holdings, Inc., an affiliated entity.
Cash and Investments Held by Bond Servicer
------------------------------------------
1. Mortgage Escrow
---------------
The partnership is required to deposit on a monthly basis an amount equal to
one-twelfth of the aggregate annual amount of all real estate taxes, special
assessments and insurance premiums to the mortgage escrow account maintained
by CRICO Mortgage Company, Inc. (the servicer). The servicer is a related
party to the general partner of the partnership.
2. Reserve for Replacements
------------------------
The partnership is required to make monthly deposits to the reserve for
replacement account maintained by the servicer. The fund is to be used for
the replacement of project assets. The required annual deposit into the
reserve for replacement account is $26,550 for 1994 and each year thereafter
until such time as the balance in the reserve equaled or exceeded $265,500.
Thereafter, no monthly deposits are required unless the balance falls below
$265,500.
- 11 -
<PAGE>
CRICO of Valley Creek II Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
At December 31, 1994, cash and investments held by the bond servicer consist
of the following:
Reserve
Mortgage for
escrow replacements Total
---------- ------------ ----------
Balance, beginning $ 84,362 $60,477 $ 144,839
Deposits 332,400 26,556 358,956
Interest income 4,876 1,793 6,669
Withdrawals:
Interest (78,000) - (78,000)
Taxes (242,956) - (242,956)
Tax assessment (26,200) - (26,200)
Insurance (14,219) - (14,219)
Tax refund 18,221 - 18,221
--------- ------- ---------
$ 78,484 $88,826 $ 167,310
========= ======= =========
Real estate taxes paid during the year were $242,956. During 1994, the
partnership received a refund of $46,740 less a tax appeal fee of $28,519.
Mortgage Payable
----------------
Financing has been provided to the partnership through the issuance of tax-
exempt bonds by the City of Woodbury, Minnesota, in the total amount of
$10,100,000, which are evidenced by a mortgage loan agreement with Capital
Realty Investors Tax Exempt Fund III, Limited Partnership (CRITEF), the
bondowner, a related party. The maturity date of the mortgage is July 1,
2000. Upon maturity all outstanding principal and interest, including all
deferred interest, is due and payable.
The mortgage note provides for base interest payable at the rate of 9.10% per
annum through the maturity date. Primary contingent interest is payable each
quarter, at the rate of 1.5% per annum, out of that quarter's net cash flow.
In addition, supplemental contingent interest is payable each quarter, at the
rate of 5.4%
- 12 -
<PAGE>
CRICO of Valley Creek II Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
per annum, out of 50% of that quarter's net cash flow remaining after
deduction of primary contingent interest. Unpaid construction period deferred
interest, primary contingent interest and supplemental contingent interest is
deferred until the earlier of the sale or refinancing of the project or
maturity. The deferred interest has not been recorded on the books of the
partnership.
As of December 31, 1994, the partnership was in default with regard to the
mortgage loan agreement due to its inability to generate sufficient cash flow
to meet its contractual obligations under this agreement. CRITEF has not
exercised its contractual rights and remedies provided under the mortgage.
CRITEF has represented that it will not foreclose on the project through
January 2, 1996.
Under agreement with CRITEF, the partnership has paid base interest from
available cash flows. Any unpaid base interest shall be deferred until cash
flow on subsequent interest payment dates is sufficient for payment or until
the earlier of the sale or refinancing of the project or maturity. As of
December 31, 1994, accrued base interest was $510,606. Interest accrues on
the unpaid base interest at a compounded rate of 9.1%.
During the year ended December 31, 1994, the partnership recorded the base
interest and did not record interest accrued on the unpaid base interest of
$28,222, primary contingent interest of $151,500, and supplemental contingent
interest of $545,400. At December 31, 1994, interest accrued on the unpaid
base interest of $33,283, primary and supplemental contingent interest of
$3,136,050 and construction period deferred base interest at $339,184 has not
been recorded. Total interest incurred on the mortgage for the year ended
December 31, 1994 is as follows:
- 13 -
<PAGE>
CRICO of Valley Creek II Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
Currently
Deferred payable Total
---------- ---------- ----------
Base interest $ - $ 919,100 $ 919,100
Interest on interest 28,222 - 28,222
Primary contingent
interest 151,500 - 151,500
Supplemental contingent
interest 545,400 - 545,400
---------- --------- ----------
Total interest incurred 725,122 919,100 $1,644,222
==========
Accrued interest, beginning 2,783,395 205,838
Interest paid - (614,332)
----------
Accrued interest, ending $3,508,517 $ 510,606
========== =========
Interest earned on the bonds is exempt from Federal income tax pursuant to the
Internal Revenue Code. In accordance with the bond regulatory agreement, the
bond proceeds are to finance multifamily housing in which at least 20% of the
units in the project are to be occupied by individuals of low or moderate
income, as defined in the Internal Revenue Code. In the event that the
underlying bonds do not maintain their tax-exempt status, whether by change in
law or by noncompliance with the regulatory agreement, repayment of the bonds
may be accelerated.
The liability of the partnership under the mortgage is limited to the
underlying value of the real estate collateral, plus other amounts deposited
with the lender. As further security on the obligation, the partnership has
assigned existing and future rents and leases to the mortgagee.
- 14 -
<PAGE>
CRICO of Valley Creek II Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
The partnership is required to pay the servicer a mortgage servicing fee equal
to 0.625% of the outstanding principal balance of the loan. The fee is paid
monthly on each base interest payment date. Any unpaid fees shall be deferred
until cash flow on subsequent interest payment dates is sufficient for payment
or until the earlier of the sale or refinancing of the project or maturity.
As of December 31, 1994, $89,427 has been accrued and $63,125 was charged to
operations.
Management Agreement
--------------------
CRICO Management of Minnesota, Inc., a related party to the general partner of
the partnership, managed the property through January 31, 1994. Effective
February 1, 1994, the property management responsibilities were assigned from
CRICO Management of Minnesota, Inc. to CAPREIT Residential Corporation, an
unrelated entity. Management fees are payable to CAPREIT Residential
Corporation at the same rate and same terms as under the agreement with CRICO
Management of Minnesota, Inc.
Management fees are equal to 3.75% of Gross Revenues received, as defined.
The management agent is eligible to receive an incentive bonus of .5% of Gross
Revenues if conditions, as outlined in the agreement, are met. For the year
ended December 31, 1994, management fees totalling $51,287 were charged to
operations. Management fees of $4,273 paid to CRICO Management of Minnesota,
Inc. were charged to operations during 1994. At December 31, 1994, $4,577 is
included in accounts payable for management fees.
Other Receivables
-----------------
CRICO of Valley Creek I Limited Partnership is an affiliate of the partnership
and owns a complex known as Valley Creek Apartments, Phase I. Both the Project
and Valley Creek Apartments, Phase I, are managed by the same management
company. Certain expenses applicable to both are billed to the management
company and paid for collectively. These common charges are primarily
allocated on a pro rata basis based on the number of dwelling units. An
account has been established on the books of each partnership to record
amounts payable to or receivable from the related entity. At December 31,
1994, there were no amounts due from these affiliates.
- 15 -
<PAGE>
CRICO of Valley Creek II Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE C - ASSESSMENTS PAYABLE
The assessments payable is due to the City of Woodbury, Minnesota. Payments
are made with the real estate tax bill payments. During 1994, principal and
interest payments of $26,200 were paid.
NOTE D - SCHEDULES TO SUPPORT HUD STATEMENT OF PROFIT AND LOSS
Other revenue include the following:
Corporate unit income $ 8,424
Application fees 4,015
Bad debt collections 3,766
Other 5,740
------
$21,945
=======
Miscellaneous administrative expenses include the following:
Employee relations $ 3,199
Corporate unit expense 9,442
Miscellaneous administrative 891
-------
$13,532
=======
- 16 -
<PAGE>
EXHIBIT 99.k
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
CRICO OF WOODLANE PLACE
LIMITED PARTNERSHIP
DECEMBER 31, 1994
<PAGE>
CRICO of Woodlane Place Limited Partnership
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES - INCOME
TAX BASIS 5
STATEMENT OF PROFIT AND LOSS - INCOME
TAX BASIS 6
STATEMENT OF PARTNERS' DEFICIT - INCOME TAX
BASIS 8
STATEMENT OF CASH FLOWS - INCOME TAX BASIS 9
NOTES TO FINANCIAL STATEMENTS 10
<PAGE>
[LETTERHEAD OF REZNICK FEDDER & SILVERMAN]
INDEPENDENT AUDITORS' REPORT
To the Partners
CRICO of Woodlane Place
Limited Partnership
We have audited the accompanying statement of assets and liabilities -
income tax basis of CRICO of Woodlane Place Limited Partnership as of December
31, 1994, and the related statements of profit and loss - income tax basis,
partners' deficit - income tax basis and cash flows - income tax basis for the
year then ended. These financial statements are the responsibility of the
partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As described in note A, these financial statements were prepared on the
basis of accounting the partnership uses for income tax purposes, which is a
comprehensive basis of accounting other than generally accepted accounting
principles.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets and liabilities of CRICO of Woodlane Place
Limited Partnership as of December 31, 1994, and its profit and loss, changes in
partners' deficit and cash flows for the year then ended, on the basis of
accounting described in note A.
- 3 -
[BOTTOM PART OF LETTERHEAD OF REZNICK FEDDER & SILVERMAN]
<PAGE>
As discussed in note B, the partnership was in default with regard to the
mortgage loan agreement due to its inability to generate sufficient cash flow to
meet its contractual obligations. The partnership's lender, an affiliated
entity, has represented that it will not foreclose on the partnership's
defaulted loan prior to January 2, 1996. While the lender has no immediate
plans to foreclose on the property subsequent to that date, the partnership does
not expect to be able to cure the default at that time. Therefore, there can be
no assurance that the lender will not execute its rights under the loan
agreement subsequent to that date.
/s/ Reznick Fedder & Silverman
Bethesda, Maryland
January 27, 1995
- 4 -
<PAGE>
CRICO of Woodlane Place Limited Partnership
STATEMENT OF ASSETS AND LIABILITIES - INCOME TAX BASIS
December 31, 1994
ASSETS
INVESTMENT IN REAL ESTATE
Building $11,750,180
Personal property 945,024
-----------
12,695,204
Less accumulated depreciation 1,792,809
-----------
10,902,395
Land 796,599
-----------
11,698,994
Tenants' security deposits, separately
held in an interest bearing account 103,754
Cash and investments held
by bond servicer 202,221
Favorable financing, less
accumulated amortization
of $455,386 733,501
-----------
12,738,470
OTHER ASSETS
Cash $ 2,480
Accounts receivable - tenants 1,391
Accounts receivable - other 2,152
Prepaid insurance 14,200
Accounts receivable - real
estate tax refund 60,627 80,850
------- -----------
$12,819,320
===========
LIABILITIES
LIABILITIES APPLICABLE TO REAL ESTATE
Mortgage payable $14,000,000
Accrued interest payable 2,209,886
-----------
16,209,886
Tenants' security deposit
liability 103,235
Accrued mortgage servicing
fee 270,853
-----------
16,583,974
OTHER LIABILITY
Accounts payable 27,462
-----------
Total liabilities 16,611,436
PARTNERS' DEFICIT (3,792,116)
-----------
$12,819,320
===========
See notes to financial statements
- 5 -
<PAGE>
Statement of U.S. DEPARTMENT OF HOUSING
Profit and Loss - Income Tax AND URBAN DEVELOPMENT
Basis Office of Housing
Federal Housing
Commissioner
[LOGO]
OMB Approval No. 2502-0052 (exp. 8/31/92)
- --------------------------------------------------------------------------------
Public Reporting Burden for this collection of information is estimated to
average 1.0 hours per response, including the time for reviewing instructions,
searching existing data sources, gathering and maintaining the data needed, and
completing and reviewing the collection of information. Send comments regarding
this burden estimate or any other aspect of this collection of information,
including suggestions for reducing this burden, to the Reports Management
Officer, Office of Information Policies and Systems, U.S. Department of Housing
and Urban Development, Washington, D.C. 20410-3600, and to the Office of
Management and Budget Paperwork Reduction Project (2502-0052), Washington, D.C.
20503. Do not send this completed form to either of these addresses.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
For Month/Period Project Number: Project Name:
Beginning: 1/1/94 Ending: 12/31/94 CRICO of Woodlane Place Limited Partnership
- -------------------------------------------------------------------------------------------------------------------
Part I DESCRIPTION OF ACCOUNT ACCOUNT NO. AMOUNT*
- -------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Apartments or Member Carrying Charges (Coops) 5120 $2,029,010
--------------------------------------------------------------------------------
Tenant Assistance Payments 5121 $
--------------------------------------------------------------------------------
RENTAL Furniture and Equipment 5130 $
--------------------------------------------------------------------------------
INCOME Stores and Commercial 5140 $
--------------------------------------------------------------------------------
5100 Garage and Parking Spaces 5170 $
--------------------------------------------------------------------------------
Flexible Subsidy Income 5180 $
--------------------------------------------------------------------------------
Miscellaneous (Specify) 5190 $
---------------------------------------------------------------------------------------------------
TOTAL RENT REVENUE Potential at 100% Occupancy $ 2,029,010
- -------------------------------------------------------------------------------------------------------------------
Apartments 5220 $( 46,393)
--------------------------------------------------------------------------------
Furniture and Equipment 5230 $( )
--------------------------------------------------------------------------------
VACANCIES Stores and Commercial 5240 $( )
--------------------------------------------------------------------------------
5200 Garage and Parking Spaces 5270 $( )
--------------------------------------------------------------------------------
Miscellaneous (Specify) 5290 $( )
---------------------------------------------------------------------------------------------------
TOTAL VACANCIES $ (46,393)
---------------------------------------------------------------------------------------------------
NET RENTAL REVENUE Rent Revenue Less Vacancies $ 1,982,617
- -------------------------------------------------------------------------------------------------------------------
ELDERLY AND CONGREGATE SERVICES INCOME-5300
TOTAL SERVICE INCOME (SCHEDULE ATTACHED) 5300 $ $
- -------------------------------------------------------------------------------------------------------------------
Interest Income-Project Operations 5410 $ 3,631
--------------------------------------------------------------------------------
FINANCIAL Income from Investments-Residual Receipts 5430 $
--------------------------------------------------------------------------------
REVENUE Income from Investments-Reserve for Replacement 5440 $ 5,995
--------------------------------------------------------------------------------
5400 Income from Investments-Miscellaneous 5490 $ 7,110
---------------------------------------------------------------------------------------------------
TOTAL FINANCIAL REVENUE $ 16,736
- -------------------------------------------------------------------------------------------------------------------
Laundry and Vending 5910 $
--------------------------------------------------------------------------------
NSF and Late Charges 5920 $ 4,041
--------------------------------------------------------------------------------
OTHER Damages and Cleaning Fees 5930 $
--------------------------------------------------------------------------------
REVENUE Forfeited Tenant Security Deposits 5940 $ 26,841
--------------------------------------------------------------------------------
5900 OTHER REVENUE (SPECIFY) (See Note D) 5990 $ 250,935
---------------------------------------------------------------------------------------------------
TOTAL OTHER REVENUE $ 281,817
---------------------------------------------------------------------------------------------------
TOTAL REVENUE $ 2,281,170
- -------------------------------------------------------------------------------------------------------------------
Advertising 6210 $ 60,241
--------------------------------------------------------------------------------
Other Renting Expenses (See Note E) 6250 $ 20,049
--------------------------------------------------------------------------------
Office Salaries 6310 $ 38,285
--------------------------------------------------------------------------------
Office Supplies 6311 $ 9,584
--------------------------------------------------------------------------------
Office or Model Apartment Rent 6312 $
--------------------------------------------------------------------------------
ADMINISTRATIVE Management Fee 6320 $ 86,417
--------------------------------------------------------------------------------
EXPENSES Manager or Superintendent Salaries 6330 $ 23,098
--------------------------------------------------------------------------------
6200/6300 Manager or Superintendent Rent Free Unit 6331 $
--------------------------------------------------------------------------------
Legal Expenses (Project) 6340 $ 219
--------------------------------------------------------------------------------
Auditing Expenses (Project) 6350 $ 5,750
--------------------------------------------------------------------------------
Computer Fees 6351 $
--------------------------------------------------------------------------------
Telephone and Answering Services 6360 $ 6,971
--------------------------------------------------------------------------------
Bad Debts 6370 $ 4,233
--------------------------------------------------------------------------------
Miscellaneous Administrative Expenses (Specify) 6390 $ 14,071
---------------------------------------------------------------------------------------------------
TOTAL ADMINISTRATIVE EXPENSES (up arrow) (See Note F) $ 268,918
- -------------------------------------------------------------------------------------------------------------------
Fuel Oil/Coal 6420 $
--------------------------------------------------------------------------------
UTILITIES Electricity 6450 $ 6,657
--------------------------------------------------------------------------------
EXPENSE Water 6451 $ 10,800
--------------------------------------------------------------------------------
6400 Gas 6452 $ 2,711
--------------------------------------------------------------------------------
Sewer 6453 $ 32,572
---------------------------------------------------------------------------------------------------
TOTAL UTILITIES EXPENSE $ 52,740
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* All amounts must be Page 1 of 2 form HUD-92410 (7/91)
rounded to the nearest ref Handbook 4370.2
dollar, $.50 and over,
round up - $.49 and
below round down.
- 6 -
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Janitor and Cleaning Payroll 6510 $ 21,964
--------------------------------------------------------------------------------
Janitor and Cleaning Supplies 6515 $ 694
--------------------------------------------------------------------------------
Janitor and Cleaning Contract 6517 $ 21,133
--------------------------------------------------------------------------------
Exterminating Payroll/Contract 6519 $ 589
--------------------------------------------------------------------------------
Exterminating Supplies 6520 $
--------------------------------------------------------------------------------
Garbage and Trash Removal 6525 $ 25,605
--------------------------------------------------------------------------------
Security Payroll/Contract 6530 $
--------------------------------------------------------------------------------
Grounds Payroll 6535 $
--------------------------------------------------------------------------------
Grounds Supplies 6536 $
--------------------------------------------------------------------------------
OPERATING AND Grounds Contract 6537 $ 24,102
--------------------------------------------------------------------------------
MAINTENANCE Repairs Payroll 6540 $ 34,743
--------------------------------------------------------------------------------
EXPENSES Repairs Material 6541 $ 78,666
--------------------------------------------------------------------------------
6500 Repairs Contract 6542 $ 43,962
--------------------------------------------------------------------------------
Elevator Maintenance/Contract 6545 $
--------------------------------------------------------------------------------
Heating/Cooling Repairs and Maintenance 6546 $ 4,640
--------------------------------------------------------------------------------
Swimming Pool Maintenance/Contract 6547 $ 991
--------------------------------------------------------------------------------
Snow Removal 6548 $ 20,661
--------------------------------------------------------------------------------
Decorating Payroll/Contract 6560 $
--------------------------------------------------------------------------------
Decorating Supplies 6561 $ 31,279
--------------------------------------------------------------------------------
Other - Frost Heaving Damages 6570 $ 241,781
--------------------------------------------------------------------------------
Miscellaneous Operating and Maintenance Expenses 6590 $ 495
---------------------------------------------------------------------------------------------------
TOTAL OPERATING AND MAINTENANCE EXPENSES $ 551,305
- -------------------------------------------------------------------------------------------------------------------
Real Estate Taxes- Net of Refund $60,627 6710 $ 383,831
--------------------------------------------------------------------------------
Payroll Taxes (FICA) 6711 $ 20,901
--------------------------------------------------------------------------------
Misc Taxes, Licenses & Permits 6719 $ 2,000
--------------------------------------------------------------------------------
TAXES AND Property and Liability Insurance (Hazard) 6720 $ 18,300
--------------------------------------------------------------------------------
INSURANCE Fidelity Bond Insurance 6721 $
--------------------------------------------------------------------------------
6700 Workmen's Compensation 6722 $ 3,113
--------------------------------------------------------------------------------
Health Insurance & Other Employee Benefits 6723 $ 4,320
--------------------------------------------------------------------------------
Other Insurance (Specify) 6729 $
---------------------------------------------------------------------------------------------------
TOTAL TAXES AND INSURANCE $ 432,465
- -------------------------------------------------------------------------------------------------------------------
Interest on Bonds Payable 6810 $1,398,322
--------------------------------------------------------------------------------
Interest on Mortgage Payable 6820 $
--------------------------------------------------------------------------------
FINANCIAL Interest on Notes Payable Special Assessment 6830 $ 8,284
--------------------------------------------------------------------------------
EXPENSES Interest on Notes Payable (Short-Term) 6840 $
--------------------------------------------------------------------------------
6800 Mortgage Servicing 6850 $ 88,480
--------------------------------------------------------------------------------
Misc Financial Expenses Security Deposit Interest 6890 $ 2,612
--------------------------------------------------------------------------------
TOTAL FINANCIAL EXPENSES $ 1,497,698
---------------------------------------------------------------------------------------------------
ELDERLY & Total Service Expenses-Schedule Attached 6900 $
- -------------------------------------------------------------------------------------------------------------------
CONGREGATE Total Cost of Operations Before Depreciation $ 2,803,126
--------------------------------------------------------------------------------
SERVICE PROFIT (LOSS) BEFORE DEPRECIATION $ (521,956)
--------------------------------------------------------------------------------
EXPENSES Depreciation (Total)-6600 (Specify) 6600 $ 591,680
--------------------------------------------------------------------------------
6900 OPERATING PROFIT OR (LOSS) $(1,113,636)
--------------------------------------------------------------------------------
Officer Salaries 7110 $
--------------------------------------------------------------------------------
CORPORATE OR Legal Expenses (Entity) 7120 $
--------------------------------------------------------------------------------
MORTGAGOR Taxes (Federal-State-Entity) 7130-32 $
--------------------------------------------------------------------------------
ENTITY Other Expenses (Entity) 7190 $
--------------------------------------------------------------------------------
Amortization 7190 $ 151,837
---------------------------------------------------------------------------------------------------
EXPENSES TOTAL CORPORATE EXPENSES $ 151,837
---------------------------------------------------------------------------------------------------
7100 NET PROFIT OR (LOSS) $(1,265,473)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Warning: HUD will prosecute false claims and statements. Conviction may result
in criminal and/or civil penalties (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729,
3802) Miscellaneous or other Income and Expenses Sub-account Groups. If
miscellaneous or other Income and/or expense sub-accounts (5190, 5290, 5490,
5990, 6390, 6590, 6729, 6890, and 7190) exceed the Account Groupings by 10% or
more, attach a separate schedule describing or explaining the miscellaneous
income or expense.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
PART II
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
1. Total principal payments required under the mortgage, even if payments under a Workout Agreement
are less or more than those required under the mortgage. $ N/A
- -------------------------------------------------------------------------------------------------------------------
2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto, even if
payments may be temporarily suspended or waived. $ N/A
- -------------------------------------------------------------------------------------------------------------------
3. Replacement or Painting Reserve releases which are included as expense items on the Profit and
Loss statement. $ N/A
- -------------------------------------------------------------------------------------------------------------------
4. Project Improvement Reserve Releases under the Flexible Subsidy Program that are included as
expense items on this Profit and Loss statement. $ N/A
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 2 of 2 Form HUD-92410
See notes to financial statements
- 7 -
<PAGE>
CRICO of Woodlane Place Limited Partnership
STATEMENT OF PARTNERS' DEFICIT -
INCOME TAX BASIS
Year ended December 31, 1994
Partners' deficit, beginning as originally stated $(2,469,214)
Prior period adjustment (57,429)
-----------
Partners' deficit, beginning as restated (2,526,643)
Net loss (1,265,473)
-----------
Partners' deficit, end $(3,792,116)
===========
See notes to financial statements
- 8 -
<PAGE>
CRICO of Woodlane Place Limited Partnership
STATEMENT OF CASH FLOWS - INCOME TAX BASIS
Year ended December 31, 1994
Cash flows from operating activities
Net loss $(1,265,473)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation 591,680
Amortization 151,837
Tenants' security deposits - net 38,069
Decrease in cash and investments held by
bond servicer 75,756
Decrease in accounts receivable - tenants 1,316
Decrease in account receivable - other 6,774
Increase in accounts receivable -
real estate tax refund (60,627)
Decrease in subscriptions receivable 100
Increase in prepaid expenses (641)
Increase in accrued interest payable 418,575
Increase in accrued mortgage servicing fee 88,480
Increase in accounts payable 10,282
-----------
Net cash provided by operating activities 56,128
-----------
Cash flows from investing activities
Purchase of fixed assets (29,220)
Decrease in cash and investments held by
bond servicer 27,664
-----------
Net cash used in investing activities (1,556)
-----------
Cash flows from financing activities
Payments of special assessments payable (114,183)
-----------
Net cash used in financing activities (114,183)
-----------
NET DECREASE IN CASH (59,611)
Cash, beginning 62,091
-----------
Cash, end $ 2,480
===========
Supplemental disclosure of cash flow information
Cash paid during the year for interest $ 988,031
===========
See notes to financial statements
- 9 -
<PAGE>
CRICO of Woodlane Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The partnership was formed as a limited partnership under the laws of the
State of Minnesota on December 26, 1990 for the purpose of acquiring, owning
and operating a rental housing project. The project consists of 216 units
located in the Woodbury, Minnesota and operates under the name of Woodlane
Place Townhome Apartments.
Income Tax Basis of Accounting
------------------------------
The partnership maintains its accounts and the financial statements have been
prepared on the accounting basis used for income tax purposes. Rents received
in advance are recognized as income when received, as opposed to when earned
as required by generally accepted accounting principles.
Investment in Real Estate and Depreciation and Amortization
-----------------------------------------------------------
Investment in real estate is recorded at cost. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations over
their estimated service lives by use of the straight-line and declining-
balance methods.
Favorable financing is amortized over the remaining life of the bonds by use
of the straight-line method.
Income Taxes
------------
No provision or benefit for income taxes has been included in these financial
statements since taxable income or loss passes through to, and is reportable
by, the partners individually.
Provision for Doubtful Accounts
-------------------------------
The partnership considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required. If amounts
become uncollectible, they will be charged to operations when that
determination is made.
- 10 -
<PAGE>
CRICO of Woodlane Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Rental Income
-------------
Rental income is recognized as rentals become due. Rents received in advance
are recognized as income when received. All leases between the partnership and
the tenants of the property are operating leases.
NOTE B - RELATED PARTY TRANSACTIONS
The general partner of the partnership, CRICO of Woodlane Place, Inc., a
Delaware corporation, is a related party to the managing general partner of
the general partner of the holder of the mortgage loan for the project. On
January 1, 1992, CRICO of Iona, Inc. assigned its limited partner interest in
the partnership to CRICO Minnesota Holdings, Inc., an affiliated entity.
Cash and Investments Held by Bond Servicer
------------------------------------------
Mortgage Escrow
---------------
The partnership is required to deposit on a monthly basis an amount equal to
one-twelfth of the aggregate annual amount of all real estate taxes to the
mortgage escrow account maintained by CRICO Mortgage Company, Inc. (the
servicer). The servicer is a related party to the general partner of the
partnership.
Reserve for Replacements
------------------------
The partnership is required to make monthly deposits to the reserve for
replacement account maintained by the servicer. The fund is to be used for
the replacement of project assets. The required annual deposit into the
reserve for replacement account is $48,600 for 1994 and each year thereafter
until such time as the balance in the reserve equals or exceeds $200,000.
Thereafter, no monthly deposits are required unless the balance falls below
$200,000.
- 11 -
<PAGE>
CRICO of Woodlane Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
Cash and Investments Held by Bond Servicer (Continued)
------------------------------------------
At December 31, 1994, cash and investments held by the bond servicer consisted
of the following:
Mortgage Reserve for
escrow deposits replacements Total
---------------- ------------- ------------
[S] [C] [C] [C]
Balance at December
31, 1993 $ 148,534 $157,107 $ 305,641
Deposits 588,000 48,600 636,600
Interest income 7,110 5,995 13,105
Withdrawals:
Taxes (444,458) - (444,458)
Tax assessments (122,467) - (122,467)
Insurance (18,941) - (18,941)
Interest (85,000) - (85,000)
Other withdrawals - (82,259) (82,259)
--------- -------- ---------
Balance at December
31, 1994 $ 72,778 $129,443 $ 202,221
========= ======== =========
Real estate taxes paid during the year were $444,458. During 1994, the
partnership was awarded a refund of $86,724 less a tax appeal fee of $26,097.
As of December 31, 1994, net refund of $60,627 has been recorded.
Mortgage Payable
----------------
Financing has been provided to the partnership through the issuance of tax-
exempt bonds by the City of Woodbury, Minnesota, in the total amount of
$14,000,000, which are evidenced by a mortgage loan agreement with Capital
Realty Investors Tax Exempt Fund III Limited Partnership (CRITEF), the
bondowner, a related party. The maturity date of the mortgage is November 1,
1999. Upon maturity all outstanding principal and interest, including all
deferred interest, is due and payable.
- 12 -
<PAGE>
CRICO of Woodlane Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
The mortgage note provides for base interest payable at the rate of 10.05% per
annum through the maturity date. Primary contingent interest is payable each
quarter, at the rate of 1.5% per annum, out of that quarter's net cash flow.
In addition, supplemental contingent interest is payable each quarter, at the
rate of 4.45% per annum, out of 50% of that quarter's net cash flow remaining
after deduction of primary contingent interest. Unpaid construction period
deferred interest, primary contingent interest and supplemental contingent
interest is deferred until the earlier of the sale or refinancing of the
project or maturity. The deferred interest has not been recorded on the books
of the partnership. As of December 31, 1994, the partnership was in default
with regard to the mortgage loan agreement due to its inability to generate
sufficient cash flow to meet its contractual obligations under this agreement.
CRITEF has not exercised its contractual rights and remedies provided under
the mortgage. CRITEF has represented that it will not foreclose on the
project through January 2, 1996.
Under agreement with CRITEF, the partnership has paid base interest from
available cash flows. Any unpaid base interest is deferred until cash flow on
subsequent interest payment dates is sufficient for payment or until the
earlier of the sale or refinancing of the project or maturity. As of December
31, 1994, accrued base interest was $2,209,886. Interest accrues on the unpaid
base interest at a compounded rate of 10.05%.
- 13 -
<PAGE>
CRICO of Woodlane Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
During the year ended December 31, 1994, the partnership recorded the base
interest and did not record interest accrued on the unpaid base interest of
$264,656, primary contingent interest of $210,000 and supplemental contingent
interest of $623,000. At December 31, 1994, interest accrued on the unpaid
base interest of $483,742, primary and supplemental contingent interest of
$4,303,833 and construction period deferred base interest of $1,189,076 has
not been recorded. Total interest incurred on the mortgage for the year ended
December 31, 1994 is as follows:
Currently
Deferred payable Total
---------- ----------- ----------
Base interest $ - $1,398,322 $1,398,322
Interest on interest 264,656 - 264,656
Primary contingent
interest 210,000 - 210,000
Supplemental contingent
interest 623,000 - 623,000
---------- ---------- ----------
Total interest incurred 1,097,656 1,398,322 $2,495,978
==========
Accrued interest,
beginning 4,878,995 1,791,311
Interest paid - (979,747)
---------- ----------
Accrued interest, ended $5,976,651 $2,209,886
========== ==========
Interest earned on the bonds is exempt from Federal income tax pursuant to the
Internal Revenue Code. In accordance with the bond regulatory agreement, the
bond proceeds are to finance multifamily housing in which at least 20% of the
units in the project are to be occupied by individuals of low or moderate
income, as defined in the Internal Revenue Code. In the event that the
underlying bonds do not maintain their tax-exempt status, whether by change in
law or by noncompliance with the regulatory agreement, repayment of the bonds
may be accelerated.
- 14 -
<PAGE>
CRICO of Woodlane Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
Mortgage Payable (Continued)
----------------
The liability of the partnership under the mortgage is limited to the
underlying value of the real estate collateral, plus other amounts deposited
with the lender. As further security on the obligation, the partnership has
assigned existing and future rents and leases to the mortgagee.
The partnership is required to pay the servicer a mortgage servicing fee equal
to 0.632% of the outstanding principal balance of the loan. The fee is paid
monthly on each base interest payment date. Any unpaid fees are deferred
until cash flow on subsequent interest payment dates is sufficient for payment
or until the earlier of the sale or refinancing of the project or maturity.
As of December 31, 1994, $270,853 has been accrued.
Management Agreement
--------------------
CRICO Management of Minnesota, Inc., a related party to the general partner of
the partnership, managed the project through January 31, 1994. Effective
February 1, 1994, the property management responsibilities were assigned from
CRICO Management of Minnesota, Inc. to CAPREIT Residential Corporation, an
unrelated entity. Management fees are payable to CAPREIT Residential
Corporation at the same rate and same terms as under the agreement with CRICO
Management of Minnesota, Inc.
Management fees are equal to 3.75% of gross revenues received, as defined.
The management agent is eligible to receive an incentive bonus of .5% of gross
revenues if conditions, as outlined in the agreement, are met. For the year
ended December 31, 1994, management fees totalling $86,417, which includes
$9,990 for an incentive bonus, were charged to operations. Management fees
paid to CRICO Management of Minnesota, Inc. of $15,949 were charged to
operations. At December 31, 1994, $6,064 is included in accounts payable for
December management fees.
- 15 -
<PAGE>
CRICO of Woodlane Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE B - RELATED PARTY TRANSACTIONS (Continued)
Other Receivables
-----------------
CRICO of Woodlane Place II Limited Partnership is an affiliate of the
partnership and owns a complex known as Woodlane Place Townhome Apartments,
Phase II. Both the Project and Woodlane Place Townhome Apartments, Phase II,
are managed by the same management company. Certain expenses applicable to
both are billed to the management company and paid for collectively. These
common charges are primarily allocated on a pro rata basis based on the number
of dwelling units. An account has been established on the books of each
partnership to record amounts payable to or receivable from the related
entity. At December 31, 1994, $2,152 was due from this affiliate.
NOTE C - ASSESSMENTS PAYABLE
The partnership paid to Washington County, Minnesota assessments in the amount
of $122,467, of which $114,183 and $8,284 was applied to interest and
principal, respectively. Payments are made with the real estate tax bill
payments.
NOTE D - MISCELLANEOUS OTHER REVENUE (ACCOUNT NO. 5990)
Miscellaneous other revenue consists of the following:
Insurance proceeds $241,781
Application fees 6,150
Bad debt recovery 1,786
Pet fee 955
Miscellaneous 263
--------
$250,935
========
- 16 -
<PAGE>
CRICO of Woodlane Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE E - OTHER RENTING EXPENSES (ACCOUNT NO. 6250)
Other renting expenses consists of the following:
Rental concessions $ 4,895
Resident retention 3,451
Credit report check 6,122
Corporate unit expense 5,581
-------
$20,049
=======
NOTE F - MISCELLANEOUS ADMINISTRATIVE EXPENSES (Account No. 6390)
Miscellaneous administrative expenses consists of the follow-ing:
Employee relations $ 4,689
CRI/CSM Agreement 9,382
-------
$14,071
=======
NOTE G - PRIOR PERIOD ADJUSTMENT
During 1993, Goodwill was reclassified to investment in real estate due to
changes in current tax laws. Accordingly, prior year tax returns were amended
to adjust depreciation expense.
The cumulative effect to accumulated depreciation and partners deficit is
$57,429 and has been reflected in the accompanying financial statements as a
prior period adjustment.
NOTE H - FROST HEAVING DAMAGES
In March, 1994, the project incurred frost heaving damages to certain
buildings due to drainage problems. The partnership filed a claim with the
insurance company and received $241,781 for the damages.
- 17 -
<PAGE>
CRICO of Woodlane Place Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1994
NOTE H - FROST HEAVING DAMAGES (Continued)
Management believes the drainage problems are due to faulty construction and
design work, specifically an inadequate drainage system, performed during the
original construction of the project. The insurance company will not reimburse
the partnership for costs associated with the correction of the drainage
system. Management has estimated the cost to be $300,000. The partnership is
assessing whether it can make claims for such damage against third parties
connected with the development of the project.
NOTE I - REAL ESTATE TAX RECEIVABLE
In December, 1994, the partnership was granted a refund of $86,724 as a result
of a tax appeal. The partnership was charged a tax appeal fee of $26,097,
which will be deducted from the refund amount. As of December 31, 1994, the
net refund due to the partnership is $60,627. Total real estate taxes paid in
1994 were $444,458.
- 18 -
