Attached files
--------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-Q
---------------------------
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2009
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From to
COMMISSION FILE NUMBER 0-11962
---------------------------
CAPITAL REALTY INVESTORS-III
LIMITED PARTNERSHIP
Maryland 52-1311532
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11200 Rockville Pike, Rockville, Maryland 20852
(Address of principal executive offices) (Zip Code)
(301) 468-9200
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the Registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See definition of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer |_| Accelerated filer |_|
Non-accelerated filer |_| Smaller reporting company |X|
Indicate by check mark whether the Registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
--------------------------------------------------------------------------------
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2009
Page
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
- September 30, 2009 and December 31, 2008...................... 1
Statements of Operations and Accumulated Losses
- for the three and nine months ended September 30, 2009
and 2008...................................................... 2
Statements of Cash Flows
- for the nine months ended September 30, 2009 and 2008......... 3
Notes to Financial Statements
- September 30, 2009 and 2008................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 10
Item 4. Controls and Procedures........................................... 13
Part II - OTHER INFORMATION
Item 5. Other Information................................................. 13
Item 6. Exhibits.......................................................... 14
Signature.................................................................. 15
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
September 30, December 31,
2009 2008
------------ ------------
(Unaudited)
Investments in partnerships ....................................................... $ 2,530,517 $ 2,543,918
Cash and cash equivalents ......................................................... 4,714,490 5,229,267
Acquisition fees, principally paid to related parties,
net of accumulated amortization of $67,776 and $65,847, respectively ............ 9,379 11,308
Property purchase costs,
net of accumulated amortization of $40,744 and $39,532, respectively ............ 7,738 8,950
Other assets ...................................................................... -- 5,645
------------ ------------
Total assets ................................................................ $ 7,262,124 $ 7,799,088
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Due on investment in partnership .................................................. $ 119,544 $ 119,544
Accrued interest payable .......................................................... 33,976 33,976
Accounts payable and accrued expenses ............................................. 312,078 339,199
------------ ------------
Total liabilities ........................................................... 465,598 492,719
------------ ------------
Commitments and contingencies
Partners' capital:
Capital paid-in:
General Partners .............................................................. 2,000 2,000
Limited Partners .............................................................. 60,001,500 60,001,500
------------ ------------
60,003,500 60,003,500
Less:
Accumulated distributions to partners ......................................... (26,573,905) (26,573,905)
Offering costs ................................................................ (6,156,933) (6,156,933)
Accumulated losses ............................................................ (20,476,136) (19,966,293)
------------ ------------
Total partners' capital ..................................................... 6,796,526 7,306,369
------------ ------------
Total liabilities and partners' capital ..................................... $ 7,262,124 $ 7,799,088
============ ============
The accompanying notes are an integral part
of these financial statements.
-1-
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
AND ACCUMULATED LOSSES
(Unaudited)
For the three months ended For the nine months ended
September 30, September 30,
---------------------------- ----------------------------
2009 2008 2009 2008
------------ ------------ ------------ ------------
Share of income (loss) from partnerships ........ $ 16,967 $ (24,153) $ (1,867) $ (48,686)
------------ ------------ ------------ ------------
Other revenue and expenses:
Revenue:
Interest .................................... 1,082 34,652 15,369 130,247
------------ ------------ ------------ ------------
1,082 34,652 15,369 130,247
------------ ------------ ------------ ------------
Expenses:
Management fee .............................. 75,000 75,000 225,000 225,000
General and administrative .................. 64,938 65,123 216,610 234,869
Professional fees ........................... 21,550 11,218 78,594 111,846
Amortization of deferred costs .............. 1,047 1,047 3,141 3,141
------------ ------------ ------------ ------------
162,535 152,388 523,345 574,856
------------ ------------ ------------ ------------
Total other revenue and expenses .......... (161,453) (117,736) (507,976) (444,609)
------------ ------------ ------------ ------------
Net loss ........................................ (144,486) (141,889) (509,843) (493,295)
Accumulated losses, beginning of period ......... (20,331,650) (19,839,850) (19,966,293) (19,488,444)
------------ ------------ ------------ ------------
Accumulated losses, end of period ............... $(20,476,136) $(19,981,739) $(20,476,136) $(19,981,739)
============ ============ ============ ============
Net loss allocated
to General Partners (1.51%) ................... $ (2,182) $ (2,143) $ (7,699) $ (7,449)
============ ============ ============ ============
Net loss allocated
to Initial and Special Limited Partners (1.49%) $ (2,153) $ (2,114) $ (7,597) $ (7,350)
============ ============ ============ ============
Net loss allocated
to Additional Limited Partners (97%) .......... $ (140,151) $ (137,632) $ (494,547) $ (478,496)
============ ============ ============ ============
Net loss per unit of
Additional Limited Partner Interest,
based on 59,882 units outstanding ............. $ (2.34) $ (2.30) $ (8.26) $ (7.99)
============ ============ ============ ============
The accompanying notes are an integral part
of these financial statements.
-2-
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended
September 30,
---------------------------
2009 2008
------------ ------------
Cash flows from operating activities:
Net loss .................................................................. $ (509,843) $ (493,295)
Adjustments to reconcile net loss to net cash used in operating activities:
Share of loss from partnerships ......................................... 1,867 48,686
Amortization of deferred costs .......................................... 3,141 3,141
Changes in assets and liabilities:
Decrease in other assets .............................................. 5,645 12,895
Decrease in accounts payable and accrued expenses ..................... (27,121) (73,075)
----------- -----------
Net cash used in operating activities ............................... (526,311) (501,648)
----------- -----------
Cash flows from investing activities:
Receipt of distributions from partnerships ................................ 11,534 8,660
----------- -----------
Net cash provided by investing activities ........................... 11,534 8,660
----------- -----------
Net decrease in cash and cash equivalents ................................... (514,777) (492,988)
Cash and cash equivalents, beginning of period .............................. 5,229,267 5,827,583
----------- -----------
Cash and cash equivalents, end of period .................................... $ 4,714,490 $ 5,334,595
=========== ===========
The accompanying notes are an integral part
of these financial statements.
-3-
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
September 30, 2009 and 2008
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of C.R.I., Inc. (CRI), the Managing General Partner, the
accompanying unaudited financial statements reflect all adjustments, consisting
of normal recurring accruals, necessary for a fair presentation of the financial
position of Capital Realty Investors-III Limited Partnership (the Partnership)
as of September 30, 2009, and the results of its operations for the three and
nine month periods ended September 30, 2009 and 2008, and its cash flows for the
nine month periods ended September 30, 2009 and 2008. The results of operations
for the interim periods ended September 30, 2009 are not necessarily indicative
of the results to be expected for the full year.
The accompanying unaudited financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America (US GAAP) and with the instructions to Form 10-Q. Certain information
and accounting policies and footnote disclosures normally included in financial
statements prepared in conformity with US GAAP have been condensed or omitted
pursuant to such instructions. These condensed financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Partnership's annual report on Form 10-K at December 31, 2008.
2. NEW ACCOUNTING PRONOUNCEMENTS
On July 1, 2009, the Partnership adopted Financial Accounting Standards
Board Accounting Standards Codification ("ASC"), which establishes the ASC as
the source of authoritative accounting principles to be applied in preparation
of financial statements in conformity with US GAAP. The adoption of this
standard did not have a material impact on the financial position, results of
operations or cash flows.
On January 1, 2009, the Partnership adopted the new accounting standard
which requires adoption of the fair value standards in the ASC for nonfinancial
assets and nonfinancial liabilities. The adoption did not have a material impact
on the financial position, results of operations or cash flows.
During the quarter ended June 30, 2009, the Partnership adopted the new
accounting standard which requires disclosure regarding the fair value of
financial instruments for interim reporting periods as well as in annual
financial statements.
The ASC establishes a hierarchy for inputs used in measuring fair value as
follows:
1. Level 1 Inputs -- quoted prices in active markets for identical assets
of liabilities.
2. Level 2 Inputs -- observable inputs other than quoted prices in active
markets for identical assets and liabilities.
3. Level 3 Inputs -- unobservable inputs.
In certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for disclosure
purposes, the level within which the fair value measurement is categorized is
based on the lowest level input that is significant to the fair value
measurement.
-4-
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
September 30, 2009 and 2008
(Unaudited)
2. NEW ACCOUNTING PRONOUNCEMENTS - Continued
The balance sheet carrying amount for cash and cash equivalents
approximates their fair value.
The ASC establishes general standards of accounting and disclosure of
events that occur after the balance sheet date but before the Partnership issues
financial statements or has them available to issue. The ASC defines (i) the
period after the balance sheet date during which a reporting entity's management
should evaluate events or transactions that may occur for potential recognition
or disclosure in the financial statements, (ii) the circumstances under which an
entity should recognize events or transactions occurring after the balance sheet
date in its financial statements, and (iii) the disclosures an entity should
make about events or transactions that occurred after the balance sheet date.
The guidance became effective for periods ending after June 15, 2009. Subsequent
events have been evaluated through November 12, 2009, which is the issue date of
the financial statements. The adoption of the guidance did not have a material
impact on the financial position, results of operations or cash flows.
3. PLAN OF LIQUIDATION AND DISSOLUTION
On November 21, 2005, the Partnership filed a Definitive Proxy Statement
pursuant to Section 14(a) of the Securities Exchange Act of 1934, and mailed it
to limited partners to solicit consents for approval of the following:
(1) The sale of all of the Partnership's assets and the dissolution of the
Partnership pursuant to a Plan of Liquidation and Dissolution, and the
amendment of the Partnership's Limited Partnership Agreement to permit
the Managing General Partner, CRI, to be eligible to receive an
increased property disposition fee from the Partnership on the same
basis as such fees may currently be paid to Local General Partners,
real estate brokers or other third party intermediaries employed to
sell properties in which the Partnership holds interests, to the
extent that CRI markets and sells the Partnership's assets instead of
such persons (a "Disposition Fee"); and
(2) the amendment of the Partnership's Limited Partnership Agreement to
permit CRI to be eligible to receive a partnership liquidation fee in
the amount of $500,000, payable only if the Managing General Partner
is successful in liquidating all of the Partnership's investments
within 48 months from the date the liquidation is approved [January
20, 2006], in recognition that one or more of the properties in which
the Partnership holds an interest might not be saleable to parties not
affiliated with the respective Local Partnership due to the amount
and/or terms of their current indebtedness (the "Partnership
Liquidation Fee").
The matters for which consent was solicited are collectively referred to as the
"Liquidation."
The record date for voting was November 1, 2005, and the final voting
deadline was January 20, 2006. The Managing General Partner received consent
from a majority of Limited Partners for the liquidation of the Partnership. A
tabulation of votes received by the voting deadline follows.
-5-
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
September 30, 2009 and 2008
(Unaudited)
3. PLAN OF LIQUIDATION AND DISSOLUTION - Continued
FOR AGAINST ABSTAIN TOTAL
-------------------- -------------------- -------------------- -------------------
Units of Units of Units of Units of
limited limited limited limited
partner partner partner partner
Description interest Percent interest Percent interest Percent interest Percent
----------- -------- ------- -------- ------- -------- ------- -------- -------
Sale, dissolution
and increased
Disposition Fee 34,464 57.55% 1,778 2.97% 250 0.42% 36,492 60.94%
$500,000 Partnership
Liquidation Fee 30,535 50.99% 5,087 8.49% 860 1.44% 36,482 60.92%
There can be no assurance that the Liquidation will be completed pursuant
to the Plan of Liquidation and Dissolution.
4. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
a. Due on investment in partnership and accrued interest payable
-------------------------------------------------------------
Notes
-----
Due on investment in partnership includes $119,544 due to a previous owner
related to Meadow Lanes Apartments at both September 30, 2009 and December 31,
2008; accrued interest payable thereon was $33,976 at both September 30, 2009
and December 31, 2008. These amounts will be paid upon the occurrence of certain
specific events, as outlined in the note agreement.
b. Assets held for sale or transfer
--------------------------------
Villa Mirage I and Villa Mirage II
----------------------------------
On November 8, 2006, contracts for the sales of the Villa Mirage I and
Villa Mirage II properties were signed. The contracts have been extended through
December 31, 2009 on each of the properties. Due to the possible sale of the
properties related to Villa Mirage I and Villa Mirage II, the Partnership's
basis in the Local Partnerships, which totaled $0 as of both September 30, 2009
and December 31, 2008, have been reclassified to asset held for sale or transfer
in the accompanying balance sheets. Net capitalized acquisition fees and
property purchase costs were reduced to zero at December 31, 2007. At December
31, 2007, the Partnership accrued transaction fees payable relating to the sale
of the properties of $255,000.There is no assurance that the sales of the
properties will occur.
c. Advances to Local Partnerships
------------------------------
On October 23, 2009, the Partnership advanced $66,300 to Villa Mirage II
for operating expenses. For financial statement purposes, the loan will be
reduced to zero by the Partnership as a result of losses at the Local
Partnership level during prior years.
-6-
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
September 30, 2009 and 2008
(Unaudited)
4. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
On October 23, 2009, the Partnership advanced $56,681 to Monterey/Hillcrest
(Pebble Valley Housing Partners Ltd. Partnership) for withholding taxes. For
financial statement purposes, the loan will be reduced to zero by the
Partnership as a result of losses at the Local Partnership level during prior
years.
d. Summarized financial information
--------------------------------
Combined statements of operations for the four Local Partnerships in which
the Partnership was invested as of September 30, 2009 and 2008, respectively,
follow. The combined statements have been compiled from information supplied by
the management agents of the properties and are unaudited. The information for
each of the periods is presented separately for those Local Partnerships which
have investment basis (equity method), and for those Local Partnerships which
have cumulative losses in excess of the amount of the Partnership's investments
in those Local Partnerships (equity method suspended). Appended after the
combined statements is information concerning the Partnership's share of income
from Local Partnerships.
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended
September 30,
---------------------------------------------------------
2009 2008
------------------------ ----------------------
Equity Equity
Method Suspended Method Suspended
---------- ---------- ---------- ----------
Number of Local Partnerships 1 3 1 3
= = = =
Revenue:
Rental $ 174,668 $ 925,375 $ 158,812 $ 903,837
Other 4,595 54,720 (3,069) 55,676
---------- ---------- ---------- ----------
Total revenue 179,263 980,095 155,743 959,513
---------- ---------- ---------- ----------
Expenses:
Operating 124,664 597,295 141,717 596,776
Interest (10,556) 253,563 (8,733) 264,853
Depreciation and amortization 47,842 212,156 47,405 203,162
---------- ---------- ---------- ----------
Total expenses 161,950 1,063,014 180,389 1,064,791
---------- ---------- ---------- ----------
Net income (loss) $ 17,313 $ (82,919) $ (24,646) $ (105,278)
========== ========== ========== ==========
Cash distributions $ 11,534 $ -- $ -- $ --
========== ========== ========== ==========
Partnership's share of Local
Partnership net income (loss) $ 16,967 -- $ (24,153) --
------------------------- -------------------------
Share of income (loss) from
partnerships $16,967 $(24,153)
======= ========
-7-
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
September 30, 2009 and 2008
(Unaudited)
4. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
For the nine months ended
September 30,
---------------------------------------------------------
2009 2008
------------------------ ------------------------
Equity Equity
Method Suspended Method Suspended
---------- ---------- ---------- ----------
Number of Local Partnerships 1 3 1 3
= = = =
Revenue:
Rental $ 522,192 $2,760,816 $ 484,620 $2,711,510
Other 10,802 162,610 8,215 167,027
---------- ---------- ---------- ----------
Total revenue 532,994 2,923,426 492,835 2,878,537
---------- ---------- ---------- ----------
Expenses:
Operating 423,042 1,802,585 426,499 1,790,329
Interest (31,669) 760,689 (26,198) 794,560
Depreciation and amortization 143,526 636,469 142,214 609,485
---------- ---------- ---------- ----------
Total expenses 534,899 3,199,743 542,515 3,194,374
---------- ---------- ---------- ----------
Net loss $ (1,905) $ (276,317) $ (49,680) $ (315,837)
========== ========== ========== ==========
Cash distributions $ 11,534 $ -- $ 8,660 $ --
========== ========== ========== ==========
Partnership's share of Local
Partnership net loss $ (1,867) -- $ (48,686) --
------------------------- -------------------------
Share of loss from partnerships $(1,867) $(48,686)
======= ========
Cash distributions received from Local Partnerships which have investment
basis (equity method) are recorded as a reduction of investments in partnerships
and as cash receipts on the respective balance sheets. Cash distributions
received from Local Partnerships which have cumulative losses in excess of the
amount of the Partnership's investments in those Local Partnerships (equity
method suspended) are recorded as share of income from partnerships on the
respective statements of operations and as cash receipts on the respective
balance sheets. As of September 30, 2009 and 2008, the Partnership's share of
cumulative losses to date for three of four Local Partnerships, exceeded the
amount of the Partnership's investments in and advances to those Local
Partnerships by $9,454,378 and $9,143,461, respectively. As the Partnership has
no further obligation to advance funds or provide financing to these Local
Partnerships, the excess losses have not been reflected in the accompanying
financial statements.
5. RELATED PARTY TRANSACTIONS
In accordance with the terms of the Partnership Agreement, the Partnership
is obligated to reimburse the Managing General Partner or its affiliates for
direct expenses in connection with managing the Partnership. The Partnership
paid $46,855 and $163,152 for the three and nine month periods ended September
30, 2009, respectively, and $50,451 and $192,169 for the three and nine month
periods ended September 30, 2008. Such expenses are included in general and
administrative expenses in the accompanying statements of operations.
-8-
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
September 30, 2009 and 2008
(Unaudited)
5. RELATED PARTY TRANSACTIONS - Continued
In accordance with the terms of the Partnership Agreement, the Partnership
is obligated to pay the Managing General Partner an annual incentive management
fee (Management Fee) after all other expenses of the Partnership are paid. The
Partnership paid the Managing General Partner a Management Fee of $75,000 for
each of the three month periods ended September 30, 2009 and 2008, and $225,000
for each of the nine month periods ended September 30, 2009 and 2008.
Until January 22, 2006, when the Liquidation Proxy authorized an increased
disposition fee to the Managing General Partner under the terms set forth
therein, the Managing General Partner and/or its affiliates had been authorized
to receive a fee of not more than two percent of the sales price of an
investment in a Local Partnership or the property it owns, payable under certain
conditions upon the sale of an investment in a Local Partnership or the property
it owns. The payment of the fee had been subject to certain restrictions,
including the achievement of a certain level of sales proceeds and making
certain minimum distributions to limited partners. In accordance with the terms
of a Definitive Proxy Statement for the Liquidation and Dissolution of the
Partnership, which was approved on January 20, 2006, by holders of a majority of
the Units of Limited Partner Interest, the Managing General Partner may receive
property disposition fees from the Partnership on the same basis as such fees
may be paid to Local General Partners, real estate brokers or other third party
intermediaries employed to sell Partnership properties, to the extent that CRI
markets and sells the Partnership's properties instead of such persons. In
addition, the Managing General Partner may receive a partnership liquidation fee
in the amount of $500,000, payable only if the Managing General Partner is
successful in liquidating all of the Partnership's investments within 48 months
from the date the liquidation is approved January 20, 2006, in recognition that
one or more of the properties in which the Partnership holds an interest might
not be saleable to parties not affiliated with the respective Local Partnership
due to the amount and/or terms of their current indebtedness. In March 2006
after the increased disposition fee was approved, the Managing General Partner
was paid a disposition fee of $975,000 related to the sale of the Partnership's
interest in Arboretum Village in March 2006, which was netted against the
related gain on disposition of investment in partnerships. In July 2006, the
Managing General Partner was paid a disposition fee of $810,000 related to the
sales of Village Squire I & II and Village Squire III, which was netted against
the related gain on disposition of investment in partnerships.
6. CASH CONCENTRATION RISK
Financial instruments that potentially subject the Partnership to
concentrations of risk consist primarily of cash. The Partnership maintains two
cash accounts with the same bank. As of September 30, 2009, the uninsured
portion of the cash balances was $0.
# # #
-9-
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Capital Realty Investors-III Limited Partnership's (the Partnership)
Management's Discussion and Analysis of Financial Condition and Results of
Operations section is based on the financial statements, and contains
information that may be considered forward looking, including statements
regarding the effect of governmental regulations. Actual results may differ
materially from those described in the forward looking statements and will be
affected by a variety of factors including national and local economic
conditions, the general level of interest rates, governmental regulations
affecting the Partnership and interpretations of those regulations, the
competitive environment in which the Partnership operates, and the availability
of working capital.
Critical Accounting Policies
----------------------------
The Partnership has disclosed its selection and application of significant
accounting policies in Note 1 of the notes to financial statements included in
the Partnership's annual report on Form 10-K at December 31, 2008. The
Partnership accounts for its investments in partnerships (Local Partnerships) by
the equity method because the Partnership is a limited partner in the Local
Partnerships. As such the Partnership has no control over the selection and
application of accounting policies, or the use of estimates, by the Local
Partnerships. Environmental and operational trends, events and uncertainties
that might affect the properties owned by the Local Partnerships would not
necessarily have a significant impact on the Partnership's application of the
equity method of accounting, since the equity method has been suspended for
three Local Partnerships which have cumulative losses in excess of the amount of
the Partnership's investments in those Local Partnerships. The Partnership
reviews property assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be fully
recoverable. Recoverability is measured by a comparison of the carrying amount
of an asset to the estimated future net cash flows expected to be generated by
the asset. If an asset were determined to be impaired, its basis would be
adjusted to fair value through the recognition of an impairment loss.
New Accounting Pronouncements
-----------------------------
On July 1, 2009, the Partnership adopted Financial Accounting Standards
Board Accounting Standards Codification ("ASC"), which establishes the ASC as
the source of authoritative accounting principles to be applied in preparation
of financial statements in conformity with US GAAP. The adoption of this
standard did not have a material impact on the financial position, results of
operations or cash flows.
On January 1, 2009, the Partnership adopted the new accounting standard
which requires adoption of the fair value standards in the ASC for nonfinancial
assets and nonfinancial liabilities. The adoption did not have a material impact
on the financial position, results of operations or cash flows.
During the quarter ended June 30, 2009, the Partnership adopted the new
accounting standard which requires disclosure regarding the fair value of
financial instruments for interim reporting periods as well as in annual
financial statements.
The ASC establishes general standards of accounting and disclosure of
events that occur after the balance sheet date but before the Partnership issues
financial statements or has them available to issue. The ASC defines (i) the
period after the balance sheet date during which a reporting entity's management
should evaluate events or transactions that may occur for potential recognition
or disclosure in the financial statements, (ii) the circumstances under which an
entity should recognize events or transactions occurring after the balance sheet
date in its financial statements, and (iii) the disclosures an entity should
make about events or transactions that occurred after the balance sheet date.
The guidance became effective for periods ending after June 15, 2009.
-10-
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Continued
Subsequent events have been evaluated through November 12, 2009, which is the
issue date of the financial statements. The adoption of the guidance did not
have a material impact on the financial position, results of operations or cash
flows.
Plan of Liquidation and Dissolution
-----------------------------------
On November 21, 2005, the Partnership filed a Definitive Proxy Statement
pursuant to Section 14(a) of the Securities Exchange Act of 1934, to solicit
consent for, among other things, the sale of all the Partnership's assets and
the dissolution of the Partnership pursuant to a Plan of Liquidation and
Dissolution. As of the voting deadline, January 20, 2006, the holders of 34,464
units of limited partner interest (57.6%) voted "for" such sale and dissolution.
General
-------
The Managing General Partner has sold, and will continue to sell, certain
properties by utilizing opportunities presented by federal affordable housing
legislation, favorable financing terms and preservation incentives available to
tax credit and not-for-profit purchasers. Some of the rental properties owned by
the Local Partnerships are financed by state and federal housing agencies. The
Managing General Partner has sold or refinanced, and will continue to sell or
refinance, certain properties pursuant to programs developed by these agencies.
These programs may include opportunities to sell a property to a qualifying
purchaser who would agree to maintain the property as low to moderate income
housing, or to refinance a property, or to obtain supplemental financing. The
Managing General Partner continues to monitor certain state housing agency
programs, and/or programs provided by certain lenders, to ascertain whether the
properties would qualify within the parameters of a given program and whether
these programs would provide an appropriate economic benefit to the Limited
Partners of the Partnership.
The U. S. Department of Housing and Urban Development (HUD) subsidies are
provided principally under Sections 8 and 236 of the National Housing Act. Under
Section 8, the government pays to the applicable apartment partnership the
difference between market rental rates (determined in accordance with government
procedures) and the rate the government deems residents can afford. Under
Section 236, the government provides interest subsidies directly to the
applicable apartment partnership through a reduction in the property's mortgage
interest rate. In turn, the partnership provides a corresponding reduction in
resident rental rates. In compliance with the requirements of Section 8, and
Section 236, residents are screened for eligibility under HUD guidelines.
Subsidies are provided under contracts between the federal government and the
apartment partnerships.
Subsidy contracts for the investment apartment properties are scheduled to
expire through 2024. The Local Partnerships seek the renewal of expiring subsidy
contracts, when appropriate, for their properties. HUD has in the past approved
new subsidy contracts on an annual basis subject to annual appropriations by
Congress. The initial HUD contract renewal process currently provides owners six
options for renewing their Section 8 contract depending upon whether the owner
can meet the eligibility criteria. Historically, the Local Partnerships in which
the Partnership is invested have met the criteria necessary to renew their
Section 8 contracts.
Villa Mirage I has a Section 8 HAP contract which expires December 19,
2009. The Section 8 HAP contract covers all of the apartment units in Villa
Mirage I. It is anticipated that the Local Partnership will extend its Section 8
HAP contract for a one-year period at expiration.
As of September 30, 2009, the carrying amount of the Partnership's
investment in the Local Partnership with a Section 8 HAP contract expiring in
the next 12 months and which was not sold on or before November 12, 2009, was
$0.
-11-
Part I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Continued
The Managing General Partner continues to seek strategies to deal with
affordable housing requirements. While the Managing General Partner cannot
predict the outcome for any particular property at this time, the Managing
General Partner will continue to work with the Local Partnerships to develop
strategies that maximize the benefits to investors.
Financial Condition/Liquidity
-----------------------------
The Partnership's liquidity, with unrestricted cash resources of $4,714,490
as of September 30, 2009, along with anticipated future cash distributions from
Local Partnerships, is expected to be adequate to meet its current and
anticipated operating cash needs. As of November 12, 2009, there were no
material commitments for capital expenditures. The Managing General Partner
currently intends to retain all of the Partnership's remaining undistributed
cash for operating cash reserves pending further distributions under its Plan of
Liquidation and Dissolution.
The Partnership closely monitors its cash flow and liquidity position in an
effort to ensure that sufficient cash is available for operating requirements.
For the nine month period ended September 30, 2009, existing cash resources were
adequate to support operating cash requirements. Cash and cash equivalents
decreased $514,777 during the nine month period ended September 30, 2009,
primarily due to cash used in operating activities.
Results of Operations
---------------------
The Partnership's net loss for the three month period ended September 30,
2009 increased compared to 2008, primarily due to decreased interest revenue as
a result of lower rates in 2009, partially offset by increased share of income
(loss) from partnerships. Share of income (loss) from partnership increased due
to higher rental revenue and lower operating expenses at one property.
The Partnership's net loss for the nine month period ended September 30,
2009 increased compared to 2008, primarily due to decreased interest revenue, as
stated above, partially offset by decreases in share of income (loss), also as
stated above, general and administrative expenses and professional fees. General
and administrative expenses decreased primarily due to lower reimbursed payroll
costs. Professional fees decreased due to lower accrued audit costs.
For financial reporting purposes, the Partnership, as a limited partner in
the Local Partnerships, does not record losses from the Local Partnerships in
excess of its investment to the extent that the Partnership has no further
obligation to advance funds or provide financing to the Local Partnerships. As a
result, the Partnership's share of income from partnerships for the three and
nine month periods ended September 30, 2009, did not include losses of $82,118
and $273,363, respectively, compared to excluded losses of $103,878 and $311,635
for the three and nine month periods ended September 30, 2008, respectively.
No other significant changes in the Partnership's operations have taken
place during the three month period ended September 30, 2009.
Certain states may assert claims against the Partnership for failure to
withhold and remit state income tax on operating profit or where the sale(s) of
property in which the Partnership was invested failed to produce sufficient cash
proceeds with which to pay the state tax and/or to pay statutory partnership
filing fees. The Partnership is unable to quantify the amount of such potential
claims at this time. The Partnership has consistently advised its Partners that
they should consult with their tax advisors as to the necessity of filing
non-resident returns in such states with respect to their proportional taxes
due.
-12-
Part I. FINANCIAL INFORMATION
Item 4. Controls and Procedures
In October, 2009, representatives of the Managing General Partner of the
Partnership carried out an evaluation of the effectiveness of the design and
operation of the Partnership's disclosure controls and procedures, pursuant to
Exchange Act Rules 13a-15 and 15d-15. The Managing General Partner does not
expect that the Partnership's disclosure controls and procedures will prevent
all error and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable assurance that the objectives of the
control system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. The design of any system of
controls also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time,
controls may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate. Because of the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected. Based on such evaluation, our
principal executive officer and principal financial officer have concluded that
as of September 30, 2009, our disclosure controls and procedures were effective
to ensure that (i) the information required to be disclosed by us in the reports
filed or submitted by us under the Securities Exchange Act of 1934, as amended,
was recorded, processed, summarized or reported within the time periods
specified in the SEC's rules and forms and (ii) such information was accumulated
and communicated to management, including our principal executive officer and
principal financial officer, to allow timely decisions regarding required
disclosure. In addition, there have been no significant changes in the
Partnership's internal control over financial reporting that occurred during the
Partnership's most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the Partnership's internal control over
financial reporting.
Part II. OTHER INFORMATION
Item 5. Other Information
There has not been any information required to be disclosed in a report on
Form 8-K during the quarter ended September 30, 2009, but not reported, whether
or not otherwise required by this Form 10-Q at September 30, 2009.
There is no established market for the purchase and sale of units of
additional limited partner interest (Units) in the Partnership, although various
informal secondary market services exist. Due to the limited markets, however,
investors may be unable to sell or otherwise dispose of their Units.
On or about July 10, 2009, Peachtree Partners (Peachtree) initiated a
unregistered tender offer to purchase up to 4.9% of the outstanding Units in the
Partnership at a price of $50 per Unit. The offer expired on or about August 10,
2009. Peachtree is not affiliated with the Partnership or the Managing General
Partner. The price offered was determined solely at the discretion of Peachtree
and did not necessarily represent the fair market value of each Unit.
In response to the Peachtree tender offer, on July 30, 2009, the Managing
General Partner issued a press release. In the press release, the Managing
General Partner recommended that Limited Partners reject the Peachtree offer
because it viewed the offer price as inadequate.
-13-
Part II. OTHER INFORMATION
Item 6. Exhibits
Exhibit No. Description
----------- -----------
31.1 Certification of Principal Executive Officer, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial Officer, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32 Certification of Principal Executive Officer and Principal
Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
All other Items are not applicable.
-14-
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CAPITAL REALTY INVESTORS-III LIMITED
PARTNERSHIP
------------------------------------------------------
(Registrant)
by: C.R.I., Inc.
------------------------------------------------
Managing General Partner
November 12, 2009 by: /s/ H. William Willoughby
----------------- -------------------------------------------
DATE H. William Willoughby
Director, President, Secretary,
Principal Financial Officer and
Principal Account Officer
-15-
