Attached files
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EX-31 - CERTIFICATION REQUIRED UNDER SECTION 302 - CAPITAL REALTY INVESTORS LTD | exhibit31_123109-cri1.htm |
EX-99 - REPORT OF OTHER AUDITORS - CAPITAL REALTY INVESTORS LTD | exhibit99_123109-cri1.htm |
EX-32 - CERTIFICATION REQUIRED UNDER SECTION 906 - CAPITAL REALTY INVESTORS LTD | exhibit32_123109-cri1.htm |
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
OR
o 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 1-11149
CAPITAL REALTY INVESTORS, LTD.
(Exact Name of Issuer as Specified in its Charter)
District of Columbia
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52-1219926
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(State of Incorporation)
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(I.R.S. Employer Identification No.)
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11200 Rockville Pike
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Rockville, MD
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20852
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(Address of Principal Executive Offices)
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(ZIP Code)
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(301) 468-9200
(Issuer’s Telephone Number, Including Area Code)
_____________________
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨ No þ
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes ¨ No þ
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 þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K:
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of Aaccelerated filer and large accelerated filer@ in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ Accelerated filer o Non-accelerated filer o Smaller reporting company þ
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No þ
The units of limited partner interest of the Registrant are not traded in any market. Therefore, the units of limited partner interest had neither a market selling price nor an average bid or asked price.
DOCUMENTS INCORPORATED BY REFERENCE
CAPITAL REALTY INVESTORS, LTD.
2009 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Page Number
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PART I
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Item 1.
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Business
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I-1
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Item 2.
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Properties
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I-4
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Item 3.
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Legal Proceedings
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I-4
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Item 4.
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Submission of Matters to a Vote of Security Holders
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I-4
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PART II
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Item 5.
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Market for the Registrant’s Partnership Interests
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and Related Partnership Matters
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II-1
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Item 7.
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Management’s Discussion and Analysis of Financial Condition
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and Results or Operations
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II-2
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Item 8.
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Financial Statements
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II-7
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Item 9.
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Changes In and Disagreements With Accountants
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on Accounting and Financial Disclosure
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II-7
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Item 9A.
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Controls and Procedures
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II-8
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Item 9B.
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Other Information
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II-8
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PART III
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Item 10.
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Directors and Executive Officers of the Registrant
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III-1
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Item 11.
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Executive Compensation
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III-2
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management
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III-2
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Item 13.
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Certain Relationships and Related Transactions
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III-3
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Item 14.
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Principal Accountant Fees and Services
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III-4
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PART IV
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Item 15.
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Exhibits and Financial Statements
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IV-1
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PART I
ITEM 1. BUSINESS
Capital Realty Investors, Ltd. (the Partnership) is a limited partnership which was formed under the District of Columbia Limited Partnership Act on June 1, 1981. On December 31, 1981, the Partnership commenced offering 30,000 units of limited partner interest through a public offering managed by Merrill Lynch, Pierce, Fenner & Smith, Incorporated. The Partnership closed the offering on December 31, 1982, at which time 24,837 units of limited partner interest had become subscribed. As of December 31, 2009, 90 units of limited partner interest had been abandoned.
The General Partners of the Partnership are C.R.I., Inc. (CRI), which is the Managing General Partner, current and former shareholders of CRI and Rockville Pike Associates, Ltd., a Maryland limited partnership which includes the shareholders of CRI and certain former officers and employees of CRI. Services for the Partnership are performed by CRI, as the Partnership has no employees of its own.
The Partnership was formed to invest in real estate, which is the Partnership's principal business activity, by acquiring and holding limited partner interests in limited partnerships (Local Partnerships). The Partnership originally made investments in eighteen Local Partnerships. As of December 31, 2009, the Partnership retained investments in six Local Partnerships. Each of these Local Partnerships owns a federal or state government-assisted apartment complex, which provides housing principally to the elderly and/or to individuals and families of low or moderate income. The original objectives of these investments, not necessarily in order of importance, were to:
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(i)
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preserve and protect the Partnership's capital;
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(ii)
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provide, during the early years of the Partnership's operations, current tax benefits to the partners in the form of tax losses which the partners could use to offset income from other sources;
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(iii)
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provide capital appreciation through increases in the value of the Partnership's investments and increased equity through periodic payments on the indebtedness of the apartment complexes; and
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(iv)
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provide cash distributions from sale or refinancing of the Partnership's investments and, on a limited basis, from rental operations.
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See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, for a discussion of factors affecting the original investment objectives.
The Local Partnerships in which the Partnership invested were organized by private developers who acquired the sites, or options thereon, applied for mortgage financing and applicable mortgage insurance and/or subsidies, and who generally remain as the local general partners in the Local Partnerships. In most cases, the local general partners of the Local Partnerships retain responsibility for maintaining, operating and managing the projects. However, under certain circumstances, the Local Partnerships’ partnership agreements permit removal of the local general partner and replacement with another local general partner or with an affiliate of the Partnership's Managing General Partner.
I-1
PART I
ITEM 1. BUSINESS - Continued
On August 18, 2006, 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 an 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 could 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”).
The record date for voting was August 1, 2006, and the final voting deadline was October 17, 2006. The Managing General Partner received consent from a majority of Limited Partners for the increased Disposition Fee. A tabulation of votes received by the voting deadline follows.
FOR | AGAINST | ABSTAIN | TOTAL | |||||||
Units of
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Units of
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Units of
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Units of
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|||||||
Limited
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Limited
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limited
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Limited
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|||||||
Partner
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Partner
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partner
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Partner
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|||||||
Interest
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Percent
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Interest
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Percent
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Interest
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Percent
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Interest
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Percent
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12,856
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51.95%
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2,914
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11.77%
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375
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1.52%
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16,145
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65.24%
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As a result of its investment in the Local Partnerships, the Partnership became the principal limited partner in eighteen (six remaining as of December 31, 2009) Local Partnerships. As a limited partner, the Partnership's legal liability for obligations of the Local Partnerships is limited to its investment. In most cases, an affiliate of the Managing General Partner of the Partnership is also a general partner of the Local Partnerships. The local general partners and affiliates of the Managing General Partner may operate other apartment complexes which may be in competition for eligible tenants with the Local Partnerships' apartment complexes.
Although each of the Local Partnerships in which the Partnership invested owns an apartment complex that must compete in the market place for tenants, interest subsidies and/or rent supplements from governmental agencies generally make it possible to offer certain of the dwelling units to eligible tenants at a cost significantly below the market rate for comparable conventionally financed dwelling units. Based on available data, the Managing General Partner believes there to be no material risk of market competition in the operations of the apartment complexes described below which would adversely impact the Partnership.
I-2
PART I
ITEM 1. BUSINESS - Continued
A schedule of the apartment complexes owned by Local Partnerships in which the Partnership has an investment as of December 31, 2009, follows.
SCHEDULE OF APARTMENT COMPLEXES OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS, LTD. HAS AN INVESTMENT (1)
Units
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Mortgage
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Authorized for
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Expiration
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Name and Location
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Payable at
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Financed and/or Insured
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Number of
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Low Income
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of
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Of Apartment Complex
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12/31/09 (2)
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and/or Subsidized Under
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Rental Units
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Subsidies
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HAP Contract
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Capitol Commons
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$ 2,496,278
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Michigan State Housing
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200
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200
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05/31/12
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Lansing, MI
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Development Authority
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Chestnut
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928,062
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California Housing
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90
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90
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01/14/13
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Fresno, CA
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Finance Agency
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Hillview Terrace
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1,746,720
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Rural Economic Community
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125
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--
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--
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Traverse City, MI
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Development
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New Sharon Woods Apts.
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3,577,344
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Federal Housing Administration
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50
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50
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09/01/26
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Deptford, NJ
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(FHA)
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Shallowford Oaks
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4,897,674
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FHA
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204
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--
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--
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Chamblee, GA
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|||||
Westwood Village
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485,630
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Connecticut Housing Finance
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48
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48
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02/24/12
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New Haven, CT
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Authority
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Totals (6 Properties)
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$14,131,708
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717
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388
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Average Effective Annual
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||||||||||
Units Occupied As
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Rental Per Unit
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|||||||||
Percentage of Total Units
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for the Years Ended
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|||||||||
Name and Location
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As of December 31,
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December 31,
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||||||||
of Apartment Complex
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2009
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2008
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2007
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2006
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2005
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2009
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2008
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2007
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2006
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2005
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Capitol Commons
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99 %
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99%
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100%
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99%
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99%
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$10,376
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$10,122
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$10,114
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$ 9,831
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$ 9,717
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Lansing, MI
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||||||||||
Chestnut
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99 %
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99%
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99%
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99%
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99%
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8,806
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8,591
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8,347
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8,094
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7,584
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Fresno, CA
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||||||||||
Hillview Terrace
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99 %
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99%
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99%
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100%
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99%
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5,160
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5,062
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4,846
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4,608
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4,334
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Traverse City, MI
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||||||||||
New Sharon Woods Apts.
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97 %
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98%
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93%
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98%
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94%
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11,960
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11,784
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10,835
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11,680
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12,108
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Deptford, NJ
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||||||||||
Shallowford Oaks
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85%
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82%
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88%
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92%
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90%
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7,013
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7,877
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8,229
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8,166
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8,213
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Chamblee, GA
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||||||||||
Westwood Village
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97%
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96%
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95%
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98%
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100%
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14,891
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13,793
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12,853
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12,918
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12,191
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New Haven, CT
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||||||||||
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Totals (6 Properties) (3)
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95 %
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96%
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96%
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98%
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97%
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$ 8,725
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$ 8,771
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$ 9,204
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$ 9,216
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$ 9,025
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I-3
PART I
ITEM 1. BUSINESS – Continued
(1)
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All properties are multifamily housing complexes. No single tenant rents 10% or more of the rentable square footage. Residential leases are typically one year or less in length, with varying expiration dates, and substantially all rentable space is for residential purposes.
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(2)
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The amounts provided are the balances of first mortgage loans payable by the Local Partnerships as of December 31, 2009.
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(3)
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The totals for the percentage of units occupied and the average effective annual rental per unit are based on a simple average.
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On March 31, 2008, the Partnership’s interest in Court Place was sold. See the notes to financial statements for additional information concerning the sale.
On March 31, 2008, the Partnership’s interest in Park Glen was sold. See the notes to financial statements for additional information concerning the sale.
On March 31, 2008, the Partnership’s interest in Warner House was sold. See the notes to financial statements for additional information concerning the sale.
On January 1, 2008, the Partnership’s interest in Linden Place was sold. See the notes to financial statements for additional information concerning the sale.
ITEM 2. PROPERTIES
Through its ownership of limited partner interests in Local Partnerships, Capital Realty Investors, Ltd., indirectly holds an interest in the real estate owned by the Local Partnerships. See Part I, Item 1, for information concerning these properties.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Partnership is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of 2009.
On August 18, 2006, 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 an 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 could 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”).
I-4
PART I
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS – Continued
The record date for voting was August 1, 2006, and the final voting deadline was October 17, 2006. The Managing General Partner received consent from a majority of Limited Partners for the increased Disposition Fee. A tabulation of votes received by the voting deadline follows.
FOR | AGAINST | ABSTAIN | TOTAL | |||||||
Units of
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Units of
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Units of
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Units of
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|||||||
Limited
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Limited
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limited
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Limited
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|||||||
Partner
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Partner
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partner
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Partner
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|||||||
Interest
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Percent
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Interest
|
Percent
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Interest
|
Percent
|
Interest
|
Percent
|
|||
12,856
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51.95%
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2,914
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11.77%
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375
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1.52%
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16,145
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65.24%
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I-5
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S PARTNERSHIP INTERESTS
AND RELATED PARTNERSHIP MATTERS
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(a)
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There is no established market for the purchase and sale of units of limited partner interest (Units) in the Partnership, although various informal secondary market services may exist. Due to the limited markets, however, investors may be unable to sell or otherwise dispose of their Units.
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(b)
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As of May 18, 2010, there were approximately 1,277 registered holders of Units in the Partnership.
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(c)
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On April 5, 2007, the Partnership declared a cash distribution of $7,374,606 ($298 per Unit) to the Limited Partners who were holders of record as of May 1, 2007 of which, on August 7, 2007, $6,818,248 was paid to the Limited Partners. From the distribution amount, in April 2008, $155,574 was paid to the state of Maryland for non-resident withholding, and the excess amount of taxes withheld from the 2007 distribution of $403,464 was paid to Limited Partners in July 2008. This distribution consisted of proceeds received from the sales of Sundance Apartments and Frederick Heights.
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On March 27, 2009, the Partnership paid a cash distribution of $2,524,194 ($102 per Unit) to the Limited Partners who were holders of record as of March 27, 2009. The distribution consisted of a portion of the proceeds received from the sales of Linden Place, Court Place, Park Glen and Warner House.
II-1
PART II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Capital Realty Investors, Ltd.’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 this annual report on Form 10-K at December 31, 2009. 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 four 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 was 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.
II-2
PART II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS – Continued
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. The adoption of the guidance did not have a material impact on the financial position, results of operations or cash flows.
General
The Partnership has invested, through Local Partnerships, primarily in federal or state government-assisted apartment complexes intended to provide housing to the elderly and/or to low and moderate income tenants. In conjunction with such governmental assistance, which includes federal and/or state financing at below-market interest rates and rental subsidies, the Local Partnerships agreed to regulatory limitations on (i) cash distributions, (ii) use of the properties, and (iii) sale or refinancing. These limitations typically were designed to remain in place for the life of the mortgage.
The original investment objectives of the Partnership primarily were to deliver tax benefits, as well as cash proceeds upon disposition of the properties, through the Partnership’s investment in Local Partnerships. Regulatory restrictions on cash distributions from the properties limited the original projections of annual cash distributions from property operations.
The original investment objectives of the Partnership have been affected by the Tax Reform Act of 1986, which virtually eliminated many of the incentives for the new construction or the sale of existing low income housing properties by limiting the use of passive loss deductions. Therefore, C.R.I., Inc. (the Managing General Partner) continues to concentrate on transferring the source of investment yield from tax benefits to cash flow wherever possible, thereby potentially enhancing the ability of the Partnership to share in the appreciated value of the properties.
II-3
PART II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS – Continued
C.R.I., Inc. (the Managing General Partner) continues to evaluate the Partnership’s underlying apartment complexes to develop strategies that maximize the benefits to investors. Issues that are at the forefront of the Managing General Partner’s strategic planning include: the expiration of Section 8 Housing Assistance Payment (HAP) contracts, the restrictions on properties with state housing agency financing or the U. S. Department of Agriculture’s Rural Development agency (RD) financing, the cessation of losses to the Partnership due to the complete depletion of low-income housing accelerated depreciation deductions on the Local Partnerships’ properties, and the reduction of mortgage interest deductions as the mortgage loans move closer to maturity.
Most of the Local Partnerships in which the Partnership is invested have mortgage loans financed by various state housing agencies, and one Local Partnership has a mortgage loan financed by the RD agency. The Local Partnerships that have Section 8 HAP contracts in place are for all or substantially all of their apartment units. Section 8 HAP contracts are generally regulated by the Department of Housing and Urban Development (HUD) (the state housing agencies, RD and HUD, collectively, the “Agencies”). Currently, these Section 8 HAP contracts expire through 2026, and the Managing General Partner believes that, at expiration, the Agencies will strive to preserve the units as low income, or affordable housing by exercising their rights under the mortgage and/or regulatory agreements to disallow prepayment of the mortgage or conversion of the units to market rate housing. The Managing General Partner continues to monitor the actions of the Agencies to assess how the Agencies will deal with expiring Section 8 HAP contracts and what impact the Agencies’ strategies will have on the operations of the Local Partnerships and, consequently, the impact on the Partnership’s investments in the Local Partnerships.
In connection with renewals of the HAP Contracts under current law and policy, HUD has determined that the amount of rental assistance payments will be based on market rental instead of above market rentals (as may be the case under existing HAP Contracts). The payments under the renewed HAP Contracts may provide sufficient cash flow to permit owners of these properties to meet the debt service requirements of existing loans insured by the Federal Housing Administration of HUD (“FHA”). To address the reduction in payments under HAP Contracts as a result of this policy, HUD provides for the restructuring of mortgage loans insured by the FHA. An FHA-insured mortgage loan can be restructured into a first mortgage loan which will be amortized on a current basis and a low interest second mortgage loan payable to FHA which will only be payable on maturity of the first mortgage loan. This restructuring results in a reduction in annual debt service payable by the borrower of the FHA-insured mortgage loan and is expected to result in an insurance payment from FHA to the holder of the FHA-insured loan due to the reduction in the principal amount.
II-4
PART II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS – Continued
Sales of properties with state agency or RD financing will be extremely difficult. Since the Agencies are unlikely to allow mortgage prepayment and/or sale for a conversion to market rate housing, prospective buyers are generally limited to tax credit buyers or not-for-profit organizations.
As of December 31, 2009, the Partnership has no investments in Local Partnerships with Section 8 HAP contracts expiring in 2010.
The Managing General Partner is working diligently on behalf of the Partnership to produce the best results possible under these difficult circumstances. 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
As of December 31, 2009, the Partnership had approximately 1,281 investors who held a total of 24,747 units of limited partner interest which were originally sold for the aggregate amount of $24,747,000. The Partnership originally made investments in eighteen Local Partnerships, of which six remain at December 31, 2009. The Partnership’s liquidity, with unrestricted cash resources of $3,850,033, along with anticipated future cash distributions from the Local Partnerships, is expected to be adequate to meet its current and anticipated operating cash needs. As of May 18, 2010, there were no material commitments for capital expenditures.
During 2009 and 2008, the Partnership received cash distributions of $41,875 and $70,568, respectively, from the Local Partnerships.
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 year ended December 31, 2009, existing cash resources and the receipt of distributions from Local Partnerships were adequate to support net cash used in operating activities and investing activities. Cash and cash equivalents decreased $3,415,005 during 2009, primarily due to the distribution paid and advances made to the local partnership.
On April 5, 2007, the Partnership declared a cash distribution of $7,374,606 ($298 per Unit) to the Limited Partners who were holders of record as of May 1, 2007 of which, on August 7, 2007, $6,818,248 was paid to the Limited Partners. From the distribution amount, in April 2008, $155,574 was paid to the state of Maryland for non-resident withholding, and the excess amount of taxes withheld from the 2007 distribution of $403,464 was paid to Limited Partners in July 2008. This distribution consisted of proceeds received from the sales of Sundance Apartments and Frederick Heights.
II-5
PART II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS – Continued
On March 27, 2009, the Partnership paid a cash distribution of $2,524,194 ($102 per Unit) to the Limited Partners who were holders of record as of March 27, 2009. The distribution consisted of a portion of the proceeds received from the sales of Linden Place, Court Place, Park Glen and Warner House.
Results of Operations
2009 versus 2008
The Partnership recognized net loss for the year ended December 31, 2009, compared to net income for the year ended 2008, primarily due to decreases in gain on disposition of investment in partnerships, share of income from partnerships, interest revenue and higher professional fees, partially offset by lower general and administrative expenses. Share of income from partnerships decreased primarily due to advances which were reduced to zero by the Partnership as a result of losses at the Local Partnership level. Interest revenue decreased due to lower cash and cash equivalent balances and rates in 2009. Professional fees increased due to higher audit costs. General and administrative expenses decreased primarily due to lower reimbursed payroll cost.
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 years ended December 31, 2009 and 2008, did not include losses of $275,248 and $110,317, respectively. Distributions of $14,439 and $0 received from one and zero Local Partnerships during 2009 and 2008, respectively, for which the Partnership’s carrying value is zero (equity method suspended), were recorded as increases in the Partnership’s share of income from partnerships in the year received.
Inflation
Inflation allows for increases in rental rates, usually offsetting any higher operating and replacement costs. Furthermore, inflation generally does not impact the fixed rate long-term financing under which the Partnership’s real property investments were purchased. Future inflation could allow for appreciated values of the Local Partnerships’ properties over an extended period of time as rental revenues and replacement values gradually increase.
The combined rental revenues of the Partnership’s remaining properties for the five years ended December 31, 2009, follow. Combined rental revenue amounts have been adjusted to reflect property sales and interests transferred during 2009 and prior years.
II-6
PART II
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS – Continued
For the years ended December 31,
|
|||||||||
2009
|
2008
|
2007
|
2006
|
2005
|
|||||
Combined Rental
|
|||||||||
Revenue
|
$6,256,068
|
$6,288,472
|
$6,217,188
|
$6,140,419
|
$6,033,627
|
||||
Annual Percentage
|
|||||||||
Increase
(decrease)
|
(.5%)
|
1.1%
|
1.3%
|
1.8%
|
ITEM 8. FINANCIAL STATEMENTS
The information required by this item is contained in Part IV.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
II-7
PART II
ITEM 9A. CONTROLS AND PROCEDURES
In February 2010, 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 December 31, 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.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on our evaluation, management has concluded that its internal control over financial reporting was effective as of December 31, 2009.
II-8
PART II
ITEM 9A. CONTROLS AND PROCEDURES - Continued
This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report on Form 10-K.
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.
ITEM 9B. OTHER INFORMATION
There has not been any information required to be disclosed in a report on Form 8-K during the quarter ended December 31, 2009, but not reported, whether or not otherwise required by this Form 10-K at December 31, 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.
II-9
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) and (b)
The Partnership has no directors, executive officers or employees of its own.
(a) and (b)
The names, ages and business experience of the directors and executive officers of C.R.I., Inc. (CRI), the Managing General Partner of the Partnership, follow.
William B. Dockser, 73, has been the Chairman of the Board and a Director of CRI since 1974. Prior to forming CRI, he served as President of Kaufman and Broad Asset Management, Inc., an affiliate of Kaufman and Broad, Inc., which managed publicly held limited partnerships created to invest in low and moderate income multifamily apartment properties. Prior to joining Kaufman and Broad, he served in various positions at HUD, culminating in the post of Deputy FHA Commissioner and Deputy Assistant Secretary for Housing Production and Mortgage Credit, where he was responsible for all federally insured housing production programs. Before coming to the Washington, D. C. area, Mr. Dockser was a practicing attorney in Boston and served as a special Assistant Attorney General for the Commonwealth of Massachusetts. He holds a Bachelor of Laws degree from Yale University Law School and a Bachelor of Arts degree, cum laude, from Harvard University.
H. William Willoughby, 63, has been President, Secretary and a Director of CRI since January 1990, and was Senior Executive Vice President, Secretary and a Director of CRI from 1974 to 1989. Effective May 7, 2005, he assumed the duties of Principal Financial Officer and Principal Accounting Officer of CRI. He is principally responsible for the financial management of CRI and its associated partnerships. Prior to joining CRI in 1974, he was Vice President of Shelter Corporation of America and a number of its subsidiaries dealing principally with real estate development and equity financing. Before joining Shelter Corporation, he was a senior tax accountant with Arthur Andersen & Co. He holds a Juris Doctor degree, a Master of Business Administration degree and a Bachelor of Science degree in Business Administration from the University of South Dakota.
|
(c)
|
There is no family relationship between any of the foregoing directors and executive officers.
|
|
(d)
|
Involvement in certain legal proceedings.
|
None.
III-1
PART III
ITEM 11. EXECUTIVE COMPENSATION
(a), (b), (c), (d), (e), (f), (g), and (h)
The Partnership has no officers or directors. However, in accordance with the Partnership Agreement, and as disclosed in the public offering, various kinds of compensation and fees were paid or are payable to the General Partners and their affiliates. Additional information required by this Item 11 is incorporated herein by reference to Notes 3 and 4 of the notes to financial statements contained in Part IV.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
|
(a)
|
Security ownership of certain beneficial owners.
|
The following table sets forth certain information concerning any person (including any “group”) who is known by the Partnership to be the beneficial owner of more than five percent of the issued and outstanding units of additional limited partner interest (Units) at May 18, 2010.
% of Total
|
||||
Name and Address
|
Amount and Nature
|
Units Issued
|
||
Of Beneficial Owner
|
of Beneficial Ownership
|
and Outstanding
|
||
Equity Resource
|
5,715.25 Units
|
23.09%
|
||
Investments, LLC
|
||||
44 Brattle Street
|
||||
Cambridge, MA 02138
|
|
(b)
|
Security ownership of management.
|
The following table sets forth certain information concerning all Units beneficially owned, as of May 18, 2010, by each director and by all directors and officers as a group of the Managing General Partner of the Partnership.
% of Total
|
||||
Name of
|
Amount and Nature
|
Units Issued
|
||
Beneficial Owner
|
of Beneficial Ownership
|
and Outstanding
|
||
William B. Dockser
|
None
|
0.0%
|
||
H. William Willoughby
|
None
|
0.0%
|
||
All Directors and Officers
|
||||
as a Group (2 persons)
|
None
|
0.0%
|
III-2
PART III
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT - Continued
|
(c)
|
Changes in control.
|
There exists no arrangement known to the Partnership, the operation of which may, at a subsequent date, result in a change in control of the Partnership. There is a provision in the Limited Partnership Agreement which allows, under certain circumstances, the ability to change control.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) and (b)
Transactions with management and others.
The Partnership has no directors or officers. In addition, the Partnership has had no transactions with individual officers or directors of the Managing General Partner of the Partnership other than any indirect interest such officers and directors may have in the amounts paid to the Managing General Partner or its affiliates by virtue of their stock ownership in CRI. Item 11 of this report, which contains a discussion of the fees and other compensation paid or accrued by the Partnership to the General Partners or their affiliates, is incorporated herein by reference. Note 3 of the notes to financial statements contained in Part IV, which contains disclosure of related party transactions, is also incorporated herein by reference.
|
(c)
|
Certain business relationships.
|
The Partnership's response to Item 13(a) is incorporated herein by reference. In addition, the Partnership has no business relationship with entities of which the officers and directors of the Managing General Partner of the Partnership are officers, directors or equity owners other than as set forth in the Partnership's response to Item 13(a).
|
(d)
|
Transactions with promoters.
|
Not applicable.
III-3
PART III
ITEM 14.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
During the years ended December 31, 2009 and 2008, the Partnership retained Grant Thornton LLP to provide services as follows.
Year Ended
|
||||||
December 31,
|
||||||
2009
|
2008
|
|||||
Audit fees
|
$ |
112,500
|
$ |
109,200
|
||
Audit-related fees
|
--
|
--
|
||||
Tax fees (1)
|
16,000
|
16,000
|
||||
All other fees
|
|
--
|
--
|
|||
Total billed
|
$ |
128,500
|
$ |
125,200
|
|
(1)
|
Preparation of Partnership federal and state tax returns.
|
The Partnership has no directors or officers. The Board of Directors of the Managing General Partner of the Partnership, serving as the audit committee, has approved in advance 100% of the fees paid to, and services provided by, Grant Thornton LLP. Prior to approving Grant Thornton LLP’s providing any non-audit services, the Board of Directors of the Managing General Partner of the Partnership would assess whether the provision of those services would compromise Grant Thornton LLP’s independence. Grant Thornton LLP provided partnership tax return preparation services during the years ended December 31, 2009 and 2008, which services it was determined did not compromise Grant Thornton LLP’s independence.
III-4
PART IV
ITEM 15. EXHIBITS
1. Financial Statements
a. The following documents are included as part of this report:
(1) Financial Statements
Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations
Statements of Changes in Partners’ (Deficit) Capital
Statements of Cash Flows
Notes to Financial Statements
(2) Financial Statement Schedules
None.
(3) Exhibits
Index of Exhibits (Listed according to the number assigned in the table in Item 601 of Regulation S-K.)
Exhibit No. 4 - Instruments defining the rights of security holders, including indentures.
|
a.
|
Amended Certificate and Limited Partnership Agreement of Capital Realty Investors, Ltd. (Incorporated by reference to Exhibit No. 4 to Registrant's Registration Statement on Form S-11, as amended, dated December 4, 1981.)
|
Exhibit No. 10 - Material Contracts.
|
a.
|
Management Services Agreement between CRI and Capital Realty Investors, Ltd. (Incorporated by reference to Exhibit No. 10(b) to Registrant's Registration Statement on Form S-11, as amended, dated December 4, 1981.)
|
Exhibit No. 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.
|
IV-1
|
PART IV
|
ITEM 15. EXHIBITS - Continued
Exhibit No. 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.
|
|
Exhibit No. 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.
|
Exhibit No. 99 - Additional Exhibits.
|
a.
|
Prospectus of the Partnership, dated December 31, 1981. (Incorporated by reference to Registrant's Registration Statement on Form S-11, as amended, dated December 4, 1981.)
|
|
b.
|
Reports of other auditors relating to the audits of the financial statements of Local Partnerships in which Capital Realty Investors, Ltd. has invested.
|
|
c.
|
Definitive Proxy Statement. (Incorporated by reference to Registrant’s Definitive Proxy Statement dated August 18, 2006.)
|
IV-2
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CAPITAL REALTY INVESTORS, LTD.
|
|
(Registrant)
|
|
May 18, 2010
|
By: /s/ William B. Dockser
|
DATE
|
William B. Dockser
|
Director, Chairman of the Board,
|
|
and Treasurer
|
|
Principal Executive Officer
|
|
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
May 18, 2010
|
By: /s/ H. William Willoughby
|
DATE
|
H. William Willoughby
|
Director, President, Secretary,
|
|
Principal Financial Officer and
|
|
Principal Account Officer
|
|
IV-3
CAPITAL REALTY INVESTORS, LTD.
INDEX TO FINANCIAL STATEMENTS
Page
|
|
Financial Statements of Capital Realty Investors, Ltd.
|
|
Report of Independent Registered Public Accounting Firm
|
IV-5
|
Balance Sheets as of December 31, 2009 and 2008
|
IV-6
|
Statements of Operations for the Years Ended
|
|
December 31, 2009, 2008 and 2007
|
IV-7
|
Statements of Changes in Partners’ (Deficit) Capital for the Years Ended
|
|
December 31, 2009, 2008 and 2007
|
IV-8
|
Statements of Cash Flows for the Years Ended
|
|
December 31, 2009, 2008 and 2007
|
IV-9
|
Notes to Financial Statements
|
IV-10
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Partners
Capital Realty Investors, Ltd.
We have audited the accompanying balance sheets of Capital Realty Investors, Ltd (a District of Columbia limited partnership) (the Partnership) as of December 31, 2009 and 2008, and the related statements of operations, changes in partners’ (deficit) capital, and cash flows for each of the three years in the period ended December 31, 2009. 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 audits. We did not audit the financial statements of the Local Partnerships. The Partnership’s share of income from these Local Partnerships constitutes $0, $0 and $746,891 of income in 2009, 2008 and 2007, respectively, included in the Partnership’s 2009, 2008 and 2007 net income. The financial statements of these Local Partnerships were audited by other auditors whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amount included for these Local Partnerships, is based solely upon the reports of the other auditors.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 and reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based upon our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Capital Realty Investors, Ltd as of December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the three years ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
/s/ GRANT THORNTON LLP
McLean, Virginia
May 18, 2010
IV-5
CAPITAL REALTY INVESTORS, LTD.
BALANCE SHEETS
ASSETS
December 31,
|
||||||||
2009
|
2008
|
|||||||
Investments in and advances to partnerships
|
$ | 3,144,406 | $ | 2,469,275 | ||||
Cash and cash equivalents
|
3,850,033 | 7,265,038 | ||||||
Acquisition fees, principally paid to related parties,
|
||||||||
net of accumulated amortization of $178,047 and $171,568, respectively
|
81,108 | 87,587 | ||||||
Property purchase costs,
|
||||||||
net of accumulated amortization of $46,154 and $44,489, respectively
|
20,691 | 22,356 | ||||||
Other assets
|
-- | 7,791 | ||||||
Total assets
|
$ | 7,096,238 | $ | 9,852,047 | ||||
LIABILITIES AND PARTNERS’ CAPITAL
Accounts payable and accrued expenses
|
$ | 21,886 | $ | 51,483 | ||||
Total liabilities
|
21,886 | 51,483 | ||||||
Commitments and contingencies
|
||||||||
Partners’ capital
|
||||||||
Capital paid in:
|
||||||||
General Partners
|
14,000 | 14,000 | ||||||
Limited Partners
|
24,837,000 | 24,837,000 | ||||||
24,851,000 | 24,851,000 | |||||||
Less:
|
||||||||
Accumulated distributions to partners
|
(15,509,272 | ) | (12,985,078 | ) | ||||
Offering costs
|
(2,689,521 | ) | (2,689,521 | ) | ||||
Accumulated (losses) gain
|
422,145 | 624,163 | ||||||
Total partners’ capital
|
7,074,352 | 9,800,564 | ||||||
Total liabilities and partners’ capital
|
$ | 7,096,238 | $ | 9,852,047 |
The accompanying notes are an integral part
of these financial statements.
IV-6
CAPITAL REALTY INVESTORS, LTD.
STATEMENTS OF OPERATIONS
For the years ended
|
||||||||||||
December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Share of income from partnerships
|
$ | 267,006 | $ | 348,731 | $ | 1,281,197 | ||||||
Other revenue and expenses:
|
||||||||||||
Revenue:
|
||||||||||||
Interest and other
|
18,540 | 210,784 | 202,110 | |||||||||
Expenses:
|
||||||||||||
General and administrative
|
270,648 | 349,262 | 342,929 | |||||||||
Professional fees
|
113,564 | 73,157 | 139,045 | |||||||||
Management fee
|
95,208 | 95,208 | 95,208 | |||||||||
Amortization of deferred costs
|
8,144 | 8,668 | 49,815 | |||||||||
487,564 | 526,295 | 626,997 | ||||||||||
Total other revenue and expenses
|
(469,024 | ) | (315,511 | ) | (424,887 | ) | ||||||
(Loss) income before gain on disposition of investment in
|
||||||||||||
Partnerships and impairment loss
|
(202,018 | ) | 33,220 | 856,310 | ||||||||
Gain on disposition of investment in partnerships, net of
|
||||||||||||
disposition fee
|
-- | 2,975,217 | 7,398,258 | |||||||||
Impairment loss
|
-- | -- | (1,756,434 | ) | ||||||||
Net (loss) income
|
$ | (202,018 | ) | $ | 3,008,437 | $ | 6,498,134 | |||||
Net (loss) income allocated to General Partners (3%)
|
$ | (6,061 | ) | $ | 90,253 | $ | 194,944 | |||||
Net (loss) income allocated to Limited Partners (97%)
|
$ | (195,957 | ) | $ | 2,918,184 | $ | 6,303,190 | |||||
Net (loss) income per unit of Limited Partner Interest,
|
||||||||||||
based on 24,747 units outstanding
|
$ | (7.92 | ) | $ | 117.92 | $ | 254.71 |
The accompanying notes are an integral part
of these financial statements.
IV-7
CAPITAL REALTY INVESTORS, LTD.
STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
General
|
Limited
|
|||||||||||
Partners
|
Partners
|
Total
|
||||||||||
Partners’ (deficit) capital, January 1, 2007
|
$ | (325,377 | ) | $ | 7,996,657 | $ | 7,671,280 | |||||
Net income
|
194,944 | 6,303,190 | 6,498,134 | |||||||||
Distribution of $298 per Unit
|
||||||||||||
of Limited Partner Interest
|
-- | (6,818,248 | ) | (6,818,248 | ) | |||||||
Distribution payable
|
-- | (556,358 | ) | (556,358 | ) | |||||||
Partners’ (deficit) capital, December 31, 2007
|
(130,433 | ) | 6,925,241 | 6,794,808 | ||||||||
Net income
|
90,253 | 2,918,184 | 3,008,437 | |||||||||
Distribution paid
|
-- | (2,681 | ) | (2,681 | ) | |||||||
Partners’ (deficit) capital, December 31, 2008
|
(40,180 | ) | 9,840,744 | 9,800,564 | ||||||||
Net loss
|
(6,061 | ) | (195,957 | ) | (202,018 | ) | ||||||
Distribution of $102 per Unit
|
||||||||||||
of Limited Partner Interest
|
-- | (2,524,194 | ) | (2,524,194 | ) | |||||||
Partners’ (deficit) capital, December 31, 2009
|
$ | (46,241 | ) | $ | 7,120,593 | $ | 7,074,352 |
The accompanying notes are an integral part
of these financial statements.
IV-8
CAPITAL REALTY INVESTORS, LTD.
STATEMENTS OF CASH FLOWS
For the years ended
|
||||||||||||
December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Cash flows from operating activities:
|
||||||||||||
Net (loss) income
|
$ | (202,018 | ) | $ | 3,008,437 | $ | 6,498,134 | |||||
Adjustments to reconcile net (loss) income to net cash
|
||||||||||||
(used in) provided by operating activities:
|
||||||||||||
Share of income from partnerships
|
(267,006 | ) | (348,731 | ) | (1,281,197 | ) | ||||||
Amortization of deferred costs
|
8,144 | 8,668 | 49,815 | |||||||||
Gain on disposition of investment in partnership, net of
|
||||||||||||
disposition fee
|
-- | (2,975,217 | ) | (6,891,180 | ) | |||||||
Impairment loss
|
-- | -- | 1,756,434 | |||||||||
Changes in assets and liabilities:
|
||||||||||||
Decrease (increase) in other assets
|
7,791 | (876 | ) | 279 | ||||||||
Decrease in accounts payable and accrued expenses
|
(29,597 | ) | (73,688 | ) | (122,914 | ) | ||||||
Net cash (used in) provided by in operating activities
|
(482,686 | ) | (381,407 | ) | 9,371 | |||||||
Cash flows from investing activities:
|
||||||||||||
Proceeds from disposition of investment in partnerships
|
-- | 7,451,019 | 7,828,286 | |||||||||
Collection of sale proceeds due to the Partnership
|
-- | 536,727 | 151,409 | |||||||||
Receipt of distributions from partnerships
|
41,875 | 70,568 | 179,193 | |||||||||
Sale proceeds receivable
|
-- | -- | (517,428 | ) | ||||||||
Disposition fee paid to a related party
|
-- | (1,464,800 | ) | (530,000 | ) | |||||||
Advances made to local partnership
|
(450,000 | ) | (135,000 | ) | -- | |||||||
Collection of advance made to local partnership
|
-- | 3,260 | -- | |||||||||
Net cash (used in) provided by investing activities
|
(408,125 | ) | 6,461,774 | 7,111,460 | ||||||||
Cash flows from financing activities:
|
||||||||||||
Distributions to Limited Partners
|
(2,524,194 | ) | (403,464 | ) | (6,818,248 | ) | ||||||
Tax distribution on behalf of Limited Partners
|
-- | (155,574 | ) | -- | ||||||||
Net cash used in financing activities
|
(2,524,194 | ) | (559,038 | ) | (6,818,248 | ) | ||||||
Net (decrease) increase in cash and cash equivalents
|
(3,415,005 | ) | 5,521,329 | 302,583 | ||||||||
Cash and cash equivalents, beginning of year
|
7,265,038 | 1,743,709 | 1,441,126 | |||||||||
Cash and cash equivalents, end of year
|
$ | 3,850,033 | $ | 7,265,038 | $ | 1,743,709 |
The accompanying notes are an integral part
of these financial statements.
IV-9
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
Capital Realty Investors, Ltd. (the Partnership) was formed under the District of Columbia Limited Partnership Act on June 1, 1981, and shall continue until December 31, 2030, unless sooner dissolved in accordance with the terms of the Partnership Agreement. The Partnership was formed to invest in real estate by acquiring and holding limited partner interests in limited partnerships (Local Partnerships) that own and operate federal or state government-assisted properties or properties which provide housing principally to the elderly or to individuals and families of low or moderate income, or conventionally financed apartment properties, located throughout the United States.
The General Partners of the Partnership are C.R.I., Inc. (CRI), which is the Managing General Partner, current and former shareholders of CRI, and Rockville Pike Associates, Ltd., a Maryland limited partnership which includes the shareholders of CRI and certain former officers and employees of CRI.
The Partnership sold 24,837 units at $1,000 per unit of limited partner interest through a public offering. The offering period was terminated on December 31, 1982. As of December 31, 2009, 90 units of limited partner interest had been abandoned.
b. Method of accounting
The financial statements of the Partnership are prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America.
c. Investments in and advances to partnerships
The investments in and advances to Local Partnerships are accounted for by the equity method because the Partnership is a limited partner in the Local Partnerships. Under this method, the carrying amount of the investments in and advances to Local Partnerships is (i) reduced by distributions received and (ii) increased or reduced by the Partnership's share of earnings or losses, respectively, of the Local Partnerships. As of December 31, 2009 and 2008, the Partnership's share of cumulative losses for four of the Local Partnerships exceeded the amount of the Partnership's investments in and advances to those Local Partnerships by $4,951,574 and $4,936,906, respectively. Since 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. Distributions of $14,439 and $0 received from one and zero Local Partnerships during 2009 and 2008, respectively, for which the Partnership’s carrying value is zero (equity method suspended) were recorded as increases in the Partnership’s share of income from partnerships in the year received.
IV-10
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Costs incurred in connection with acquiring these investments have been capitalized and are being amortized using the straight-line method over the estimated useful lives of the properties owned by the Local Partnerships.
d. Investment in partnerships held for sale
When investments are reclassified to investment in partnerships held for sale, amortization of acquisition fees and property purchase costs are discontinued. Assets held for sale are recorded at the lower of the carrying amount or expected sales price less costs to sell.
e. Cash and cash equivalents
Cash and cash equivalents consist of money market funds, time and demand deposits, and repurchase agreements with original maturities of three months or less. Interest income is recognized as earned.
f. Income taxes
For federal and state income tax purposes, each partner reports on his or her personal income tax return his or her share of the Partnership’s income or loss as determined for tax purposes. Accordingly, no provision has been made for income taxes in these financial statements.
g. Use of estimates
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, the Partnership is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
h. Fair Value of Financial Instruments
On January 1, 2009, the Partnership adopted the new accounting standard which requires adoption of the fair value standards in the Financing Accounting Standards Board Accounting Standards Codification (“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.
IV-11
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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 and 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.
The balance sheet carrying amount for cash and cash equivalents approximates their fair value.
i. Impairment analysis
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.
j. Proxy Statement
On August 18, 2006, 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 an 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 could 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”).
IV-12
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
The record date for voting was August 1, 2006, and the final voting deadline was October 17, 2006. The Managing General Partner received consent from a majority of Limited Partners for the increased Disposition Fee. A tabulation of votes received by the voting deadline follows.
FOR | AGAINST | ABSTAIN | TOTAL | |||||||
Units of
|
Units of
|
Units of
|
Units of
|
|||||||
Limited
|
Limited
|
limited
|
Limited
|
|||||||
Partner
|
Partner
|
partner
|
Partner
|
|||||||
Interest
|
Percent
|
Interest
|
Percent
|
Interest
|
Percent
|
Interest
|
Percent
|
|||
12,856
|
51.95%
|
2,914
|
11.77%
|
375
|
1.52%
|
16,145
|
65.24%
|
k. Allocation of net income (loss)
Net income (loss) is allocated based on respective partnership interest or units outstanding. The Partnership has no dilutive interests.
1. New accounting pronouncements
On July 1, 2009, the Partnership adopted Financial Accounting Standards Board Accounting Standards Codification, 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.
IV-13
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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. The adoption of the guidance did not have a material impact on the financial position, results of operations or cash flows.
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
a. Interests in profits, losses and cash distributions made by Local Partnerships
The Partnership has a 94.99% to 98.98% interest in profits, losses and cash distributions (as restricted by various federal and state housing agencies) (collectively, the Agencies) of each Local Partnership. An affiliate of the Managing General Partner of the Partnership is also a general partner of each Local Partnership. As stipulated by the Local Partnerships’ partnership agreements, the Local Partnerships are required to make annual cash distributions from surplus cash flow, if any. During 2009, 2008 and 2007, the Partnership received cash distributions from rental operations of the Local Partnerships of $41,875, $70,568 and $179,193, respectively. As of December 31, 2009, 2008 and 2007, three, three and five of the Local Partnerships had aggregate surplus cash, as defined by their respective regulatory Agencies, in the amounts of $855,928, $757,062 and $981,019, respectively, which may be available for distribution in accordance with their respective regulatory Agencies' regulations.
The cash distributions to the Partnership from the operations of the Local Partnerships may be limited by the Agencies' regulations. Such regulations limit annual cash distributions to a percentage of the owner's equity investment in a rental property. Funds in excess of those which may be distributed to owners are generally required to be placed in a residual receipts account held by the governing state or federal agency for the benefit of the property. In addition, local general partners have the authority to withhold funds if needed for property repairs, improvements, or other property needs.
IV-14
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
Upon sale or refinancing of a property owned by a Local Partnership, or upon the liquidation of a Local Partnership, the proceeds from such sale, refinancing or liquidation shall be distributed in accordance with the respective provisions of each Local Partnership's partnership agreement. In accordance with such provisions, the Partnership would receive from such proceeds its respective percentage interest of any remaining proceeds, after payment of (i) all debts and liabilities of the Local Partnership and certain other items, (ii) the Partnership's capital contributions plus certain specified amounts as outlined in each partnership agreement, and (iii) certain special distributions to general partners and related entities of the Local Partnership.
b. Advance to Local Partnership
As of both December 31, 2009 and 2008, the Partnership had advanced funds, including accrued interest, totaling $872,636 and $422,636, respectively, to ARA Associates - Shangri-La Ltd. (Shallowford Oaks). On April 28, 2009, the Partnership advanced $150,000 to Shallowford Oaks for operating expenses. On July 29, 2009, the Partnership advanced $300,000 to Shallowford Oaks for maintenance expenses. For financial reporting purposes, these loans have been reduced to zero by the Partnership as a result of losses at the Local Partnership level during prior years.
c. Property matters
Baltic Plaza
On June 24, 2001, the Local Managing General Partner entered into a contract to sell the property owned by Sencit Baltic Associates (Baltic Plaza). On December 19, 2002, Baltic Plaza was sold. Cash proceeds received by the Partnership totaled $2,053,358. As part of the consideration, the Local Partnership took back a 30-year purchase money note in the principal amount of $2,300,000, collateralized by the partnership interests of the general partner of the maker/purchaser. The Local Partnership assigned the purchase money note to an escrow for the benefit of its partners (with CRI serving as escrow agent), so that the Local Partnership entity could be dissolved. The purchase money note bears interest at 4.6% compounded annually, and requires a minimum annual payment equal to 50% of the maker/purchaser’s annual audited cash flow, as defined, with the balance of unpaid principal, if any, plus accrued interest, due and payable on December 31, 2032. As of May 18, 2010, no payments of principal or interest have been received on this purchase money note. The Partnership’s 98% beneficial interest in this purchase money note is reflected in the accompanying balance sheets at December 31, 2009 and 2008, at its original principal balance of $2,300,000 plus estimated accrued but unpaid interest, all discounted to $619,000 to provide for an effective interest rate commensurate with the investment risk. The resulting discounted amount has been fully reserved due to uncertainty of collection of the purchase money note and related interest.
IV-15
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
d. Completed sales
Court Place
On March 31, 2008, the Partnership’s interest in Court Place was sold. The sale resulted in net gain on disposition of investment in partnerships of $0 for financial statement purposes in 2008 and in gain of $70,099 for federal tax purposes. In accordance with the terms of the Partnership Agreement, in April 2008, the Managing General Partner was paid a disposition fee of $246,690 related to the sale. The fee was netted against the related gain on disposition of investment in partnerships at March 31, 2008.
Frederick Heights
On March 30, 2007, Frederick Heights Limited Partnership (Frederick Heights) was sold. Gross cash sale proceeds received and receivable by the Partnership totaled $8,423,388. The sale resulted in net gain on disposition of investment in partnerships of $7,335,473 for financial statement purposes in 2007 and a total gain of $9,563,599 for federal tax purposes. In accordance with the terms of the Partnership Agreement, in April 2007, the Managing General Partner was paid a disposition fee of $530,000 related to the sale. The fee was netted against the related gain on disposition of investment in partnerships at March 31, 2007. During the second quarter of 2007, gain on disposition of investment in partnerships was increased $155,377, of which $3,969 was received in the second quarter and $151,408 was received in July 2007. The Partnership received $55,045 in August 2007 and September 2007, which was recorded as gain on disposition of investment in partnerships at September 30, 2007. In March 2008, the Partnership received $507,078 for reserves which had been held in escrow by the title company, which was included in gain on disposition of investment in partnerships at December 31, 2007 for financial statement purposes.
IV-16
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
Lihue Gardens
On December 30, 2005, the property owned by Lihue Associates (Lihue Gardens) was sold. Gross cash sale proceeds received March 1, 2006 by the Partnership totaled $1,524,292. The sale resulted in net gain on disposition of investment in partnership of $1,356,733 for financial statement purposes and in total gain of $2,030,688 for federal tax purposes. In accordance with the terms of the Partnership Agreement, in March 2006, the Managing General Partner was paid a disposition fee of $86,000 related to the sale. The fee was accrued and netted against the related gain on disposition of investment in partnership at December 31, 2005. The Local Partnership was withholding reserves for contingent liabilities. In December 2007, the Partnership received additional proceeds related to the reserves of $62,786, which was included in gain on disposition of investment in partnerships at December 31, 2007 for financial statement purposes, and resulted in loss of $690,917 for federal tax purposes.
Linden Place
On January 1, 2008, the Partnership’s interest in Linden Place Associates (Linden Place) was sold. The sale resulted in net gain on disposition of investment in partnerships of $2,796,506 for financial statement purposes in 2008 and in gain of $5,153,743 for federal tax purposes. In accordance with the terms of the Partnership Agreement, in January 2008, the Managing General Partner was paid a disposition fee of $917,500 related to the sale. The fee was netted against the related gain on disposition of investment in partnerships in January 2008. In May 2008, the Partnership received a cash flow distribution of $39,265 which was accrued and included in net gain on disposition of investment in partnerships at March 31, 2008.
Park Glen
On March 31, 2008, the Partnership’s interest in Park Glen Associates (Park Glen) was sold. The sale resulted in net gain on disposition of investment in partnerships of $38,518 for financial statement purposes in 2008 and in gain of $2,220,956 for federal tax purposes. In accordance with the terms of the Partnership Agreement, in April 2008, the Managing General Partner was paid a disposition fee of $300,610 related to the sale. The fee was netted against the related gain on disposition of investment in partnerships at March 31, 2008.
IV-17
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
Tandem Townhouses
On December 31, 2007, the Partnership’s interest in Tandem Associates (Tandem Townhouses) was sold. Cash proceeds to the Partnership totaled $19,900 of which $1,000 was received in September 2007 as a deposit and $18,900 in January 2008. The sale resulted in $0 gain for financial statement purposes in 2007 and a total loss of $113,356 for federal tax purposes. The Partnership’s basis in the Local Partnership totaled $19,900 net of an impairment loss of $327,632 at December 31, 2007. Net capitalized acquisition fees and property purchase costs were reduced to zero at September 30, 2007.
Warner House
On October 22, 2007, a contract for the sale of the Partnership’s interest in Warner House Partnership (Warner House) was signed. On March 31, 2008, the Partnership’s interest in Warner House was sold. The sale resulted in net gain on disposition of investment in partnerships of $140,193 for financial statement purposes in 2008 and in gain of $1,529,981 for federal tax purposes.
IV-18
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
e. Summarized financial information
Combined balance sheets and combined statements of operations for the six Local Partnerships in which the Partnership is invested as of December 31, 2009, follow. The information is presented separately for two Local Partnerships which have investment basis (equity method), and for four Local Partnerships for which the Partnership’s carrying value is zero (equity method suspended).
COMBINED BALANCE SHEETS
December 31, 2009
Equity
|
||||||||||||
Method
|
Suspended
|
Total
|
||||||||||
Number of Local Partnerships
|
2 | 4 | 6 | |||||||||
Rental property, at cost, net of accumulated
|
||||||||||||
depreciation of $11,442,354, $15,898,429,
|
||||||||||||
and $27,340,783, respectively
|
$ | 2,209,021 | $ | 2,473,741 | $ | 4,682,762 | ||||||
Land
|
709,103 | 960,528 | 1,669,631 | |||||||||
Other assets
|
3,369,422 | 2,311,054 | 5,680,476 | |||||||||
Total assets
|
$ | 6,287,546 | $ | 5,745,323 | $ | 12,032,869 | ||||||
Mortgage notes payable
|
$ | 3,424,340 | $ | 10,707,368 | $ | 14,131,708 | ||||||
Other liabilities
|
225,777 | 2,555,465 | 2,781,242 | |||||||||
Due to general partners
|
294,158 | 242,578, | 536,736 | |||||||||
Total liabilities
|
3,944,275 | 13,505,411 | 17,449,686 | |||||||||
Partners' capital (deficit)
|
2,343,271 | (7,760,088 | ) | (5,416,817 | ) | |||||||
Total liabilities and partners'
|
||||||||||||
capital (deficit)
|
$ | 6,287,546 | $ | 5,745,323 | $ | 12,032,869 |
IV-19
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
COMBINED STATEMENTS OF OPERATIONS
For the year ended December 31, 2009
Equity
|
||||||||||||
Method
|
Suspended
|
Total
|
||||||||||
Number of Local Partnerships
|
2 | 4 | 6 | |||||||||
Revenue:
|
||||||||||||
Rental
|
$ | 2,867,670 | $ | 3,388,398 | $ | 6,256,068 | ||||||
Other
|
232,966 | 54,274 | 287,240 | |||||||||
Total revenue
|
3,100,636 | 3,442,672 | 6,543,308 | |||||||||
Expenses:
|
||||||||||||
Operating
|
1,477,230 | 2,478,422 | 3,955,652 | |||||||||
Interest
|
438,782 | 630,682 | 1,069,464 | |||||||||
Depreciation and amortization
|
467,663 | 366,339 | 834.002 | |||||||||
Total expenses
|
2,383,675 | 3,475,443 | 5,859,118 | |||||||||
Net income (loss)
|
$ | 716,961 | $ | (32,771 | ) | $ | 684,190 | |||||
Cash distributions
|
$ | 27,436 | $ | 14,439 | $ | 41,875 | ||||||
Cash distributions recorded as reduction
|
||||||||||||
of investments in partnerships
|
$ | 27,436 | $ | -- | $ | 27,436 | ||||||
Cash distributions recorded as income
|
$ | -- | $ | 14,439 | $ | 14,439 | ||||||
Partnership’s share of Local Partnership
|
||||||||||||
net income
|
$ | 702,567 | $ | -- | $ | 702,567 | ||||||
Advance to Local Partnership
|
-- | ( 450,000 | ) | (450,000 | ) | |||||||
Share of income (loss) from partnerships
|
$ | 702,567 | $ | (435,561 | ) | $ | 267,006 |
IV-20
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
|
Combined balance sheets and combined statements of operations for the six Local Partnerships in which the Partnership was invested as of December 31, 2008, follow. The information is presented separately for two Local Partnerships which have investment basis (equity method), and for four Local Partnerships for which the Partnership’s carrying value is zero (equity method suspended).
|
COMBINED BALANCE SHEETS
December 31, 2008
Equity
|
||||||||||||
Method
|
Suspended
|
Total
|
||||||||||
Number of Local Partnerships
|
2 | 4 | 6 | |||||||||
Rental property, at cost, net of accumulated
|
||||||||||||
depreciation of $10,522,315, $15,620,630,
|
||||||||||||
and $26,142,945, respectively
|
$ | 2,659,661 | $ | 2,590,388 | $ | 5,250,049 | ||||||
Land
|
709,103 | 960,528 | 1,669,631 | |||||||||
Other assets
|
3,052,174 | 2,136,061 | 5,188,235 | |||||||||
Total assets
|
$ | 6,420,938 | $ | 5,686,977 | $ | 12,107,915 | ||||||
Mortgage notes payable
|
$ | 4,317,586 | $ | 11,182,326 | $ | 15,499,912 | ||||||
Other liabilities
|
154,884 | 1,970,468 | 2,125,352 | |||||||||
Due to general partners
|
294,158 | 253,900 | 548,058 | |||||||||
Total liabilities
|
4,766,628 | 13,406,694 | 18,173,322 | |||||||||
Partners' capital (deficit)
|
1,654,310 | (7,719,717 | ) | (6,065,407 | ) | |||||||
Total liabilities and partners' capital (deficit)
|
$ | 6,420,938 | $ | 5,686,977 | $ | 12,107,915 |
IV-21
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
COMBINED STATEMENTS OF OPERATIONS
For the year ended December 31, 2008
Equity
|
||||||||||||
Method
|
Suspended
|
Total
|
||||||||||
Number of Local Partnerships
|
2 | 4 | 6 | |||||||||
Revenue:
|
||||||||||||
Rental
|
$ | 2,797,627 | $ | 3,490,845 | $ | 6,288,472 | ||||||
Other
|
183,581 | 92,164 | 275,745 | |||||||||
Total revenue
|
2,981,208 | 3,583,009 | 6,564,217 | |||||||||
Expenses:
|
||||||||||||
Operating
|
1,478,613 | 2,392,811 | 3,871,424 | |||||||||
Interest
|
535,279 | 649,323 | 1,184,602 | |||||||||
Depreciation and amortization
|
485,709 | 378,254 | 863,963 | |||||||||
Total expenses
|
2,499,601 | 3,420,388 | 5,919,989 | |||||||||
Net income
|
$ | 481,607 | $ | 162,621 | $ | 644,228 | ||||||
Cash distributions
|
$ | 62,035 | $ | -- | $ | 62,035 | ||||||
Partnership’s share of Local Partnership
|
||||||||||||
net income
|
$ | 471,938 | $ | 8,533 | (1) | $ | 480,471 | |||||
Advance to Local Partnership
|
-- | (131,740 | ) | (131,740 | ) | |||||||
Share of income from partnerships
|
$ | 471,938 | $ | (123,207 | ) | $ | 348,731 |
(1) Includes Warner House sold in March 2008.
IV-22
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
|
Combined balance sheets and combined statements of operations for the ten Local Partnerships in which the Partnership was invested as of December 31, 2007, follow. The information is presented separately for four Local Partnerships which have investment basis (equity method), and for six Local Partnerships for which the Partnership’s carrying value is zero (equity method suspended).
|
COMBINED BALANCE SHEETS
December 31, 2007
Equity
|
||||||||||||
Method
|
Suspended
|
Total
|
||||||||||
Number of Local Partnerships
|
4 | 6 | 10 | |||||||||
Rental property, at cost, net of accumulated
|
||||||||||||
depreciation of $27,509,022, $25,103,933,
|
||||||||||||
and $52,612,955, respectively
|
$ | 10,131,406 | $ | 5,197,547 | $ | 15,328,953 | ||||||
Land
|
2,001,559 | 1,337,981 | 3,339,540 | |||||||||
Other assets
|
11,262,489 | 4,221,219 | 15,483,708 | |||||||||
Total assets
|
$ | 23,395,454 | $ | 10,756,747 | $ | 34,152,201 | ||||||
Mortgage notes payable
|
$ | 17,396,369 | $ | 18,318,503 | $ | 35,714,872 | ||||||
Other liabilities
|
1,151,720 | 2,453,980 | 3,605,700 | |||||||||
Due to general partners
|
340,492 | 657,072 | 997,564 | |||||||||
Total liabilities
|
18,888,581 | 21,429,555 | 40,318,136 | |||||||||
Partners' capital (deficit)
|
4,506,873 | (10,672,808 | ) | (6,165,935 | ) | |||||||
Total liabilities and partners' capital (deficit)
|
$ | 23,395,454 | $ | 10,756,747 | $ | 34,152,201 |
IV-23
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
COMBINED STATEMENTS OF OPERATIONS
For the year ended December 31, 2007
Equity
|
||||||||||||
Method
|
Suspended
|
Total
|
||||||||||
Number of Local Partnerships
|
4 | 6 | 10 | |||||||||
Revenue:
|
||||||||||||
Rental
|
$ | 7,892,202 | $ | 5,117,570 | $ | 13,009,772 | ||||||
Other
|
612,133 | 280,831 | 892,964 | |||||||||
Total revenue
|
8,504,335 | 5,398,401 | 13,902,736 | |||||||||
Expenses:
|
||||||||||||
Operating
|
3,921,010 | 3,508,599 | 7,429,609 | |||||||||
Interest
|
1,808,601 | 1,193,034 | 3,001,635 | |||||||||
Depreciation and amortization
|
1,529,068 | 744,776 | 2,273,844 | |||||||||
Total expenses
|
7,258,679 | 5,446,409 | 12,705,088 | |||||||||
Net income
|
$ | 1,245,656 | $ | (48,008 | ) | $ | 1,197,648 | |||||
Cash distributions
|
$ | 138,496 | $ | 40,697 | $ | 179,193 | ||||||
Cash distributions recorded as reduction
|
||||||||||||
of investments in partnerships
|
$ | 138,496 | $ | -- | $ | 138,496 | ||||||
Cash distributions recorded as income
|
$ | -- | $ | 40,697 | $ | 40,697 | ||||||
Partnership’s share of Local Partnership
|
||||||||||||
net income
|
$ | 1,240,500 | (1) | $ | -- | $ | 1,240,500 | |||||
Share of income from partnerships
|
$ | 1,240,500 | (1) | $ | 40,697 | $ | 1,281,197 |
(1) Includes Tandem Townhouses sold in December 2007.
All of the cash distributions recorded as income are included in share of income from partnerships on the statements of operations for the respective years, and are recorded as cash receipts on the respective balance sheets. Cash distributions recorded as a reduction of the related investment are recorded as cash receipts on the respective balance sheets, and are recorded as a reduction of investments in and advances to partnerships, also on the respective balance sheets.
IV-24
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
|
f.
|
Reconciliation of the Local Partnerships' financial statement
|
net income to taxable income
For federal income tax purposes, the Local Partnerships report on a basis whereby: (i) certain revenue and the related assets are recorded when received rather than when earned; (ii) certain costs are expensed when paid or incurred rather than capitalized and amortized over the period of benefit; and (iii) a shorter life is used to compute depreciation on the property as permitted by the Internal Revenue Code and the underlying regulations. These returns are subject to examination and, therefore, possible adjustment by the IRS.
|
A reconciliation of the Local Partnerships' financial statement net income reflected above to taxable income follows.
|
For the years ended
|
||||||||||||
December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Financial statement net income
|
$ | 684,190 | $ | 644,228 | $ | 1,197,648 | ||||||
Differences between financial statement
|
||||||||||||
and tax depreciation, amortization,
|
||||||||||||
and miscellaneous differences
|
418,614 | 523,814 | 1,341,270 | |||||||||
Taxable income
|
$ | 1,102,804 | $ | 1,168,042 | $ | 2,538,918 |
3. RELATED PARTY TRANSACTIONS
In accordance with the terms of the Partnership Agreement, the Partnership paid the Managing General Partner a fee for services in connection with the review, selection, evaluation, negotiation and initial acquisition of the original interests in the Local Partnerships. The fee amounted to $993,480, which is equal to four percent of the Limited Partners' capital contributions to the Partnership. The acquisition fee was capitalized and is being amortized over a 40-year period using the straight-line method.
In accordance with the terms of the Partnership Agreement, the Partnership is obligated to reimburse the Managing General Partner or its affiliates for its direct expenses in connection with managing the Partnership. For the years ended December 31, 2009, 2008 and 2007, the Partnership paid $235,423, $317,254 and $320,070, respectively, as direct reimbursement of expenses incurred on behalf of the Partnership. Such expenses are included in general and administrative expenses in the accompanying statements of operations.
IV-25
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
3. 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 amount of the Management Fee shall be equal to 0.25% of invested assets, as defined in the Partnership Agreement, and shall be payable from the Partnership's cash available for distribution, as defined in the Partnership Agreement, as of the end of each calendar year, as follows:
|
(i)
|
First, on a monthly basis as an operating expense before any distributions to limited partners in an annual amount equal to $95,208; and
|
|
(ii)
|
Second, after distributions to the limited partners in the amount of one percent of the gross proceeds of the offering, the balance of such 0.25% of invested assets.
|
For each of the years ended December 31, 2009, 2008 and 2007, the Partnership paid the Managing General Partner a Management Fee of $95,208.
In accordance with the terms of the Partnership Agreement as in effect at the time, in March 2006 the Managing General Partner was paid a disposition fee of $86,000 related to the sale of Lihue Gardens in December 2005, which was accrued and netted against the related gain on disposition of investment in partnerships at December 31, 2005. Pursuant to approval of the Partnership’s Consent Solicitation Statement on October 17, 2006, the Managing General Partner may receive an increased property disposition fee from the Partnership on the same basis as such fees could 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. In accordance with the terms of the Partnership Agreement, in January 2007 the Managing General Partner was paid a disposition fee of $120,000 related to the sale of Sundance Apartments in December 2006, which was accrued and netted against the related gain on disposition of investment in partnerships at December 31, 2006. In accordance with the terms of the Partnership Agreement, in April 2007 the Managing General Partner was paid a disposition fee of $530,000 related to the sale of the Frederick Heights property, which was netted against the related gain on disposition of investment in partnerships at March 31, 2007. In accordance with the terms of the Partnership Agreement, in January 2008 the Managing General Partner was paid a disposition fee of $917,500 related to the sale of the Partnership’s interest in Linden Place, which was netted against the related gain on disposition of investment in partnerships at March 31, 2008. In accordance with the terms of the Partnership Agreement, in April 2008 the Managing General Partner was paid disposition fees of $246,690 and $300,610 related to the sales of the Partnership’s interests in Court Place and Park Glen, respectively, which were netted against the related gain on disposition of investment in partnerships.
IV-26
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
4. PARTNERSHIP PROFITS AND LOSSES, AND DISTRIBUTIONS
All profits and losses are allocated 97% to the limited partners and 3% to the General Partners. The net proceeds resulting from the liquidation of the Partnership or the Partnership's share of the net proceeds from any sale or refinancing of the Local Partnerships or their rental properties which are not reinvested shall be distributed and applied as follows:
|
(i)
|
to the payment of debts and liabilities of the Partnership (including all expenses of the Partnership incident to the sale or refinancing) other than loans or other debts and liabilities of the Partnership to any partner or any affiliate; such debts and liabilities, in the case of a non-liquidating distribution, to be only those which are then required to be paid or, in the judgment of the Managing General Partner, required to be provided for;
|
|
(ii)
|
to the establishment of any reserves which the Managing General Partner deems reasonably necessary for contingent, unmatured or unforeseen liabilities or obligations of the Partnership;
|
|
(iii)
|
to the limited partners in the amount of their capital contributions without deduction for prior cash distributions other than prior distributions of proceeds from any sale or refinancing;
|
|
(iv)
|
to the repayment of any unrepaid loans theretofore made by any partner or any affiliate to the Partnership for Partnership obligations and to the payment of any unpaid amounts owing to the General Partners pursuant to the Partnership Agreement;
|
|
(v)
|
to the General Partners in the amount of their capital contributions;
|
|
(vi)
|
thereafter, for their services to the Partnership, in equal shares to certain general partners (or their designees), whether or not any is then a general partner, an aggregate fee of one percent of the gross proceeds resulting from (A) such sale (if the proceeds are from a sale rather than a refinancing) and (B) any prior sales from which such one percent fee was not paid to the General Partners or their designees; and,
|
|
(vii)
|
the remainder, 15% to the General Partner (or their assignees) and 85% to the limited partners (or their assignees). Fees payable to certain general partners (or their designees) under (vi) above, together with all other property disposition fees and any other commissions or fees payable upon the sale of apartment properties, shall not in the aggregate exceed the lesser of the competitive rate or six percent of the sales price of the apartment properties.
|
IV-27
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
4. PARTNERSHIP PROFITS AND LOSSES, AND DISTRIBUTIONS - Continued
Pursuant to the Partnership Agreement, all cash available for distribution, as defined, shall be distributed, not less frequently than annually, 97% to the limited partners and three percent to the General Partners, after payment of the Management Fee (see Note 3), as specified in the Partnership Agreement. On April 5, 2007, the Partnership declared a cash distribution of $7,374,606 ($298 per Unit) to the Limited Partners who were holders of record as of May 1, 2007 of which, on August 7, 2007, $6,818,248 was paid to the Limited Partners. From the distribution amount, in April 2008, $155,574 was paid to the state of Maryland for non-resident withholding, and the excess amount of taxes withheld from the 2007 distribution of $403,464 was paid to Limited Partners in July 2008. This distribution consisted of proceeds received from the sales of Sundance Apartments and Frederick Heights. On March 27, 2009, the Partnership paid a cash distribution of $2,524,194 ($102 per Unit) to the Limited Partners who were holders of record as of March 27, 2009. The distribution consisted of a portion of the proceeds received from the sales of Linden Place, Court Place, Park Glen and Warner House.
As defined in the Partnership Agreement, after the payment of the distributions described in the previous paragraph, after the establishment of any reserves deemed necessary by the Managing General Partner and after payment of the Management Fee, the Partnership had no remaining cash available for distribution for the years ended December 31, 2009, 2008 and 2007. The Managing General Partner currently intends to retain all of the Partnership's remaining undistributed cash for operating cash reserves.
IV-28
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
5. RECONCILIATION OF THE PARTNERSHIP'S FINANCIAL STATEMENT
NET INCOME TO TAXABLE INCOME
For federal income tax purposes, the Partnership reports on a basis whereby: (i) certain expenses are amortized rather than expensed when incurred; (ii) certain costs are amortized over a shorter period for tax purposes, as permitted by the Internal Revenue Code and underlying regulations, and (iii) certain costs are amortized over a longer period for tax purposes. The Partnership records its share of income or losses from its investments in limited partnerships for federal income tax purposes as reported on the Local Partnerships' federal income tax returns (see Note 2.e.), including losses in excess of related investment amounts. These returns are subject to examination and, therefore, possible adjustment by the IRS.
A reconciliation of the Partnership's financial statement net (loss) income to taxable income follows.
For the years ended
|
||||||||||||
December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Financial statement net (loss) income
|
$ | (202,018 | ) | $ | 3,008,437 | $ | 6,498,134 | |||||
Adjustments:
|
||||||||||||
Differences between financial statement
|
||||||||||||
net income and taxable income related
|
||||||||||||
to the Partnership's equity in the Local
|
||||||||||||
Partnerships' income or losses and accrued
|
||||||||||||
Expenses
|
829,717 | 819,310 | 2,448,155 | |||||||||
Difference between financial statement
|
||||||||||||
gain (loss) and tax gain (loss) from
|
||||||||||||
the sale or transfer properties
|
-- | 5,999,562 | 1,868,146 | |||||||||
Costs amortized over a shorter period for
|
||||||||||||
income tax purposes
|
8,144 | 8,669 | 49,815 | |||||||||
Taxable income
|
$ | 635,843 | $ | 9,835,978 | $ | 10,864,250 |
6. CASH CONCENTRATION RISK
Financial instruments that potentially subject the Partnership to concentrations of risk consist primarily of cash. The Partnership maintains three cash accounts with the same bank. As of December 31, 2009, the uninsured portion of the cash balances was $0.
# # #
IV-29