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EXCEL - IDEA: XBRL DOCUMENT - CAPITAL REALTY INVESTORS III LTD PARTNERSHIP | Financial_Report.xls |
EX-31 - EXHIBIT - CAPITAL REALTY INVESTORS III LTD PARTNERSHIP | criiii93013ex31.htm |
EX-32 - EXHIBIT - CAPITAL REALTY INVESTORS III LTD PARTNERSHIP | criiii93013ex32.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2013
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 0-11962
CAPITAL REALTY INVESTORS-III
LIMITED PARTNERSHIP
(Exact Name of Issuer as Specified in its Charter)
Maryland | 52-1311532 |
(State of Incorporation) | (I.R.S. Employer Identification No.) |
11200 Rockville Pike | |
Rockville, MD | 20852 |
(Address of Principal Executive Offices) | (ZIP Code) |
(301) 468-9200
(Issuer’s Telephone Number, Including Area Code)
_____________________
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of Accelerated filer and large accelerated filer@ in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company þ
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ¨ No 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. As of November 14, 2013, the issuer had 59,882 outstanding units of limited partner interest.
PART III
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2013
Page | |
Part I FINANCIAL INFORMATION | |
Item 1. Financial Statements | |
Part II OTHER INFORMATION | |
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
September 30, | December 31, | ||||||
2013 | 2012 | ||||||
Investments in and receivable from partnerships | $ | 2,719,001 | $ | 2,582,473 | |||
Cash and cash equivalents | 1,428,274 | 2,079,580 | |||||
Acquisition fees, principally paid to related parties, | |||||||
net of accumulated amortization of $0 and $20,922, respectively | — | 608 | |||||
Property purchase costs, | |||||||
net of accumulated amortization of $0 and $27,630, respectively | — | 1,734 | |||||
Total assets | $ | 4,147,275 | $ | 4,664,395 | |||
LIABILITIES AND PARTNERS' CAPITAL
Due on investments in partnerships | $ | 119,544 | $ | 119,544 | |||
Accrued interest payable | 33,976 | 33,976 | |||||
Accounts payable and accrued expenses | 31,190 | 36,063 | |||||
Total liabilities | 184,710 | 189,583 | |||||
Commitments and contingencies | — | — | |||||
Partners' capital: | |||||||
Capital paid-in: | |||||||
General Partners | 2,000 | 2,000 | |||||
Limited Partners | 60,001,500 | 60,001,500 | |||||
60,003,500 | 60,003,500 | ||||||
Less: | |||||||
Accumulated distributions to partners | (31,184,819 | ) | (31,184,819 | ) | |||
Offering costs | (6,156,933 | ) | (6,156,933 | ) | |||
Accumulated losses | (18,699,183 | ) | (18,186,936 | ) | |||
Total partners' capital | 3,962,565 | 4,474,812 | |||||
Total liabilities and partners' capital | $ | 4,147,275 | $ | 4,664,395 |
The accompanying notes are an integral part
of these condensed financial statements.
1
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF OPERATIONS AND ACCUMULATED LOSSES
(Unaudited)
For the three months ended September 30, | For the nine months ended September 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Share of income from partnerships | $ | 126,492 | $ | 50,610 | $ | 136,528 | $ | 167,916 | |||||||
Other revenue and expenses | |||||||||||||||
Revenue: | |||||||||||||||
(Loss) gain on disposition of property, net of disposition fee | (146,070 | ) | 849,033 | (146,070 | ) | 3,593,485 | |||||||||
Interest and other | 3,377 | 93,548 | 5,426 | 99,943 | |||||||||||
(142,693 | ) | 942,581 | (140,644 | ) | 3,693,428 | ||||||||||
Expenses: | |||||||||||||||
General and administrative | 46,371 | 93,259 | 208,771 | 243,022 | |||||||||||
Management fee | 75,000 | 75,000 | 225,000 | 225,000 | |||||||||||
Professional fees | 12,000 | 48,500 | 73,088 | 142,313 | |||||||||||
Amortization of deferred costs | 424 | 424 | 1,272 | 1,272 | |||||||||||
Impairment loss | — | — | — | 433,190 | |||||||||||
133,795 | 217,183 | 508,131 | 1,044,797 | ||||||||||||
Total other revenue and expenses | (276,488 | ) | 725,398 | (648,775 | ) | 2,648,631 | |||||||||
Net (loss) income | (149,996 | ) | 776,008 | (512,247 | ) | 2,816,547 | |||||||||
Accumulated losses, beginning of period | (18,549,187 | ) | (19,308,141 | ) | (18,186,936 | ) | (21,348,680 | ) | |||||||
Accumulated losses, end of period | $ | (18,699,183 | ) | $ | (18,532,133 | ) | $ | (18,699,183 | ) | $ | (18,532,133 | ) | |||
Net (loss) income allocated to General Partners (1.51%) | $ | (2,265 | ) | $ | 11,718 | $ | (7,735 | ) | $ | 42,530 | |||||
Net (loss) income allocated to Initial and | |||||||||||||||
Special Limited Partners (1.49%) | $ | (2,235 | ) | $ | 11,562 | $ | (7,632 | ) | $ | 41,967 | |||||
Net (loss) income allocated to Additional Limited Partners (97%) | $ | (145,496 | ) | $ | 752,728 | $ | (496,880 | ) | $ | 2,732,050 | |||||
Net (loss) income per unit of Additional Limited Partner Interest based on 59,882 units outstanding | $ | (2.43 | ) | $ | 12.57 | $ | (8.30 | ) | $ | 45.62 | |||||
The accompanying notes are an integral part
of these condensed financial statements.
2
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended September 30, | |||||||
2013 | 2012 | ||||||
Cash flows from operating activities: | |||||||
Net (loss) income | (512,247 | ) | $ | 2,816,547 | |||
Adjustments to reconcile net (loss) income to net cash | |||||||
used in operating activities: | |||||||
Share of income from partnerships | (136,528 | ) | (167,916 | ) | |||
Amortization of deferred costs | 1,272 | 1,272 | |||||
Loss (gain) on disposition of property | 146,070 | (3,593,485 | ) | ||||
Impairment loss | — | 433,190 | |||||
Changes in assets and liabilities: | |||||||
(Decrease) increase in accounts payable and accrued expenses | (4,873 | ) | 48,267 | ||||
Net cash used in operating activities | (506,306 | ) | (462,125 | ) | |||
Cash flows from investing activities: | |||||||
Proceeds from disposition of investment in property | — | 4,485,788 | |||||
Disposition fee paid | (145,000 | ) | (946,000 | ) | |||
Advance to Local Partnership | — | (20,000 | ) | ||||
Repayment of advances to Local Partnerships | 10,000 | ||||||
Receipt of distribution from Local Partnership | — | 11,211 | |||||
Net cash (used in) provided by investing activities | (145,000 | ) | 3,540,999 | ||||
Net (decrease) increase in cash and cash equivalents | (651,306 | ) | 3,078,874 | ||||
Cash and cash equivalents, beginning of period | 2,079,580 | 2,172,240 | |||||
Cash and cash equivalents, end of period | $ | 1,428,274 | $ | 5,251,114 |
The accompanying notes are an integral part
of these condensed financial statements.
3
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2013 and 2012
(Unaudited)
1. ORGANIZATION
Capital Realty Investors-III Limited Partnership (the Partnership) was formed under the Maryland Revised Uniform Limited Partnership Act on June 27, 1983, and shall continue until December 31, 2037, 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 apartment 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 Partnership originally made investments in thirty-seven Local Partnerships. As of September 30, 2013, the Partnership retained investment in one Local Partnership, owning no apartment complexes.
The General Partners of the Partnership are C.R.I., Inc. (CRI), which is the Managing General Partner, and current and former shareholders of CRI. The Initial Limited Partner was Rockville Pike Associates Limited Partnership-III, a limited partnership which includes certain current officers and former employees of CRI or its affiliates. The Special Limited Partner had been Two Broadway Associates II, a limited partnership comprised of an affiliate and employees of Merrill Lynch, Pierce, Fenner & Smith, Incorporated. Effective January 1, 2002, Two Broadway Associates II transferred its interest to MLH Merger Corporation and three individuals.
The Partnership sold 60,000 units at $1,000 per unit of additional limited partner interest through a public offering. The offering period was terminated in January 1984. As of September 30, 2013, 118 units of limited partner interest had been abandoned.
2. | BASIS OF PRESENTATION |
The accompanying unaudited condensed financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (US GAAP) and with the instructions to Form 10-Q. Certain information and accounting policies and footnote disclosures normally included in financial statements prepared in conformity with US GAAP have been condensed or omitted pursuant to such instructions. These condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Partnership's Annual Report on Form 10-K at December 31, 2012. The balance sheet amounts at December 31, 2012 are compiled from the Partnership's Annual Report on Form 10-K at December 31, 2012.
In the opinion of CRI, the Managing General Partner of the Partnership, the accompanying unaudited condensed financial statements reflect all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial position of the Partnership as of September 30, 2013, and the results of its operations and its cash flows for the three and nine month periods ended September 30, 2013 and 2012. The results of operations for the interim period ended September 30, 2013 are not necessarily indicative of the results to be expected for the full year.
Recent Accounting Pronouncement
In April 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-07 to improve consistency and comparability of financial reporting in the area of liquidation accounting. This ASU clarifies when an entity should apply the liquidation basis of accounting and provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting. The ASU is effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and is applied prospectively from the day liquidation becomes imminent. Early adoption is permitted. The Partnership has elected to adopt this ASU on July 1, 2013. The adoption of this ASU did not have a material affect on the Partnership.
4
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS- CONTINUED
September 30, 2013 and 2012
(Unaudited)
3. | PLAN OF LIQUIDATION |
On November 21, 2005, the General Partners recommended that the limited partners approve a plan of liquidation and dissolution for the partnership, or the "Plan". The Plan was approved by the limited partners on January 20, 2006.
Currently, all properties in which the Partnership had invested through its investments in the Local Partnerships have been sold. There can be no assurance as to when the liquidation and dissolution of the Partnership will be completed, but it is anticipated that the process will be completed prior to December 31, 2013. Liquidation is imminent as of August 19, 2013, the date Meadow Lanes apartments was sold. However, in accordance with ASU No. 2013-07, the Partnership is a limited life entity whose liquidation follows a plan for liquidation that was specified in the Partnership’s governing documents at the Partnership’s inception. Therefore, the Partnership is not required to present the financial statements on the liquidation basis of accounting.
4. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
At September 30, 2013 and 2012, the Partnership had limited partnership equity interests in one and four Local Partnerships, owning zero and three apartment complexes, respectively.
Under the terms of the Partnership's investment in each Local Partnership, the Partnership was required to make capital contributions to the Local Partnerships. These contributions were payable in installments upon each Local Partnership achieving specified levels of construction and/or operations. At September 30, 2013 and 2012, all such capital contributions had been paid to the Local Partnerships.
a. Summarized financial information
Combined statements of operations for the Local Partnership in which the Partnership was invested as of September 30, 2013 and the four Local Partnerships in which the Partnership was invested as of September 30, 2012 follow. The combined statements are compiled from information supplied by the management agent of the Local Partnership properties and are unaudited. The information for each of the periods is presented separately for those Local Partnerships which have investment basis (equity method), and for those Local Partnerships which have cumulative losses in excess of the amount of the Partnership's investments in those local Partnerships (equity method suspended). Appended after the combined statements is information concerning the Partnership's share of income from partnerships related to cash distributions recorded as income, and related to the Partnership's share of income from Local Partnerships.
5
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS- CONTINUED
September 30, 2013 and 2012
(Unaudited)
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
For the nine months ended September 30, | ||||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||||
Equity Method | Suspended | Total | Equity Method | Suspended | Total | |||||||||||||||||||
Number of Local Partnerships | 1 | (a) | — | 1 | 2 | (b) | 2 | (c) | 4 | |||||||||||||||
Revenue: | ||||||||||||||||||||||||
Rental | $ | 507,408 | $ | — | $ | 507,408 | $ | 1,014,163 | $ | 615,020 | $ | 1,629,183 | ||||||||||||
Other | 8,338 | — | 8,338 | 18,606 | 19,805 | 38,411 | ||||||||||||||||||
Gain on sale of property | 2,900,927 | — | 2,900,927 | — | — | — | ||||||||||||||||||
Total revenue | 3,416,673 | — | 3,416,673 | 1,032,769 | 634,825 | 1,667,594 | ||||||||||||||||||
Expenses: | ||||||||||||||||||||||||
Operating and other | 328,022 | — | 328,022 | 647,581 | 326,612 | 974,193 | ||||||||||||||||||
Interest (income) expense | (57,251 | ) | — | (57,251 | ) | 25,476 | 123,043 | 148,519 | ||||||||||||||||
Depreciation and amortization | 199,310 | — | 199,310 | 179,784 | 40,235 | 220,019 | ||||||||||||||||||
Total expenses | 470,081 | — | 470,081 | 852,841 | 489,890 | 1,342,731 | ||||||||||||||||||
Net income | $ | 2,946,592 | $ | — | $ | 2,946,592 | $ | 179,928 | $ | 144,935 | $ | 324,863 | ||||||||||||
Cash distribution | $ | — | $ | — | — | $ | 11,211 | $ | — | $ | 11,211 | |||||||||||||
Partnership’s share of Local Partnership net income | $ | 136,528 | $ | — | $ | 136,528 | $ | 177,916 | $ | — | $ | 177,916 | ||||||||||||
Advances to Local Partnerships | — | — | — | — | (10,000 | ) | (10,000 | ) | ||||||||||||||||
Share of income from partnerships | $ | 136,528 | $ | — | $ | 136,528 | $ | 177,916 | $ | (10,000 | ) | $ | 167,916 |
__________________________________________
6
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS- CONTINUED
September 30, 2013 and 2012
(Unaudited)
For the three months ended | ||||||||||||||||||||||||
September 30, | ||||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||||
Equity Method | Suspended | Total | Equity Method | Suspended | Total | |||||||||||||||||||
Number of Local Partnerships | 1 | (a) | — | 1 | 2 | (b) | 2 | (c) | 4 | |||||||||||||||
Revenue: | ||||||||||||||||||||||||
Rental | $ | 102,298 | $ | — | $ | 102,298 | $ | 314,808 | $ | 120,718 | $ | 435,526 | ||||||||||||
Other | 781 | — | 781 | 6,388 | 718 | 7,106 | ||||||||||||||||||
Gain on sale of property | 2,900,927 | — | 2,900,927 | — | — | — | ||||||||||||||||||
Total revenue | 3,004,006 | — | 3,004,006 | 321,196 | 121,436 | 442,632 | ||||||||||||||||||
Expenses: | ||||||||||||||||||||||||
Operating and other | 62,353 | — | 62,353 | 199,191 | 66,885 | 266,076 | ||||||||||||||||||
Interest (income) expense | (19,083 | ) | — | (19,083 | ) | 8,492 | 22,345 | 30,837 | ||||||||||||||||
Depreciation and amortization | 66,436 | — | 66,436 | 59,928 | 582 | 60,510 | ||||||||||||||||||
Total expenses | 109,706 | — | 109,706 | 267,611 | 89,812 | 357,423 | ||||||||||||||||||
Net income | $ | 2,894,300 | $ | — | $ | 2,894,300 | $ | 53,585 | $ | 31,624 | $ | 85,209 | ||||||||||||
Cash distribution | $ | — | $ | — | $ | — | $ | 11,211 | $ | — | $ | 11,211 | ||||||||||||
Partnership’s share of Local Partnership net income | $ | 126,492 | $ | — | $ | 126,492 | $ | 50,610 | $ | — | $ | 50,610 | ||||||||||||
Share of income from partnerships | $ | 126,492 | $ | — | $ | 126,492 | $50,610 | $ | — | $ | 50,610 |
__________________________________________
(a) Meadow Lanes (operations through date of sale)
(b) Meadow Lanes; Villa Mirage I
(c) Monterey/Hillcrest (operations through date of sale); Villa Mirage II
Cash distributions received from Local Partnerships which have investment basis (equity method) are recorded as a reduction of investments in partnerships and as cash receipts on the respective balance sheets. Cash distributions received from Local Partnerships which have cumulative losses in excess of the amount of the Partnership's investments in those Local Partnerships (equity method suspended) are recorded as share of income from partnerships on the respective statements of operations and as cash receipts on the respective balance sheets. As of September 30, 2012, the Partnership's share of cumulative losses to date for two of four Local Partnerships exceeded amount of the Partnership's investments in and advances to those Local Partnerships by $8,930,372. As of September 30, 2013, the remaining Local Partnership did not have cumulative losses in excess of the Partnership's investment. As the Partnership has no further obligation to advance funds or provide financing to these Local Partnerships, the excess losses have not been reflected in the accompanying financial statements.
7
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS- CONTINUED
September 30, 2013 and 2012
(Unaudited)
b. Due on investments in partnerships and accrued interest payable
Due on investment in partnerships includes $119,544 due to a previous owner related to Meadow Lanes Apartments at both September 30, 2013 and December 31, 2012; accrued interest payable thereon was $33,976 at both September 30, 2013 and December 31, 2012. These amounts are scheduled to be paid upon the occurrence of certain specific events, as outlined in the note agreement. At September 30, 2013 and December 31, 2012, the Partnership is in dispute with the previous owner regarding amounts owed under the note agreement. Management cannot determine the outcome of the dispute at this time. Accordingly, the condensed financial statements do not reflect any adjustment due to the uncertainty.
c. Completed Sales
Villa Mirage I and Villa Mirage II
On November 15, 2011, the general partners of Villa Mirage I, a California limited partnership, and Villa Mirage II, a California limited partnership, entered into a contract with an unaffiliated third party to sell their properties for an aggregate sale price of $6,500,000. On September 27, 2012, the sale of the properties closed. The investment balance in the Local Partnerships at the time of sale was $214,467. Of the $1,388,500 of proceeds received as a result of the sale, a disposition fee was paid to the managing general partner in the amount of $325,000. The disposition fee was netted against the related gain on disposition of property.
A gain of $849,033 was recorded during the three months ended September 30, 2012 as a result of the sale of Villa Mirage I and Villa Mirage II.
Monterey/Hillcrest
On September 29, 2011, the general partners of Pebble Valley Housing Partners Limited Partnership, a Wisconsin limited partnership, entered into a contract with an unaffiliated third party to sell its property (Monterey/Hillcrest) and the transaction closed on January 31, 2012. The sales price was $18,920,000 and total proceeds amounted to $3,694,108. Proceeds received in February 2012 totaled $3,611,288. The investment balance in the Local Partnership was $0 at December 31, 2011. Net unamortized acquisition costs and property purchase costs of $3,656 were written off and netted against the gain on sale of property. A disposition fee of $946,000 was paid to the managing general partner. The disposition fee was netted against the related gain on disposition of property.
During the three months ended March 31, 2012, a gain of $2,744,452 was recorded as a result of the sale of Monterey/Hillcrest.
Meadow Lanes
On June 18, 2012, the Local Partnership entered into a purchase and sale agreement to sell Meadow Lanes Apartments for $2,900,000. The sale occurred on August 19, 2013. All sale proceeds were used to satisfy Local Partnership obligations and the remaining funds available will be distributed to partners in accordance with the Meadow Lanes–II Associates Limited Dividend Housing Association Limited Partnership Agreement. The Partnership's investment basis in this Local Partnership at December 31, 2012 was $2,582,473. The Partnership expects to receive $2,719,001 as a result of the sale. Net unamortized acquisition and property purchases costs of $1,070 were written off and a disposition fee of $145,000 was paid to the managing general partner. Both of these amounts are included in the loss on disposition of properties line item on the accompanying condensed statements of operations and accumulated losses.
During the three months ended September 30, 2013, a loss of $146,070 was recorded as a result of the sale of Meadow Lanes.
Subsequent to the the receipt of the distribution related to the sale, the Partnership will be liquidated.
8
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS- CONTINUED
September 30, 2013 and 2012
(Unaudited)
d. Advances to Local Partnerships
On February 8, 2012, the Partnership advanced $10,000 to Villa Mirage I and $10,000 to Villa Mirage II Limited Partnerships for the issuance of a prepayment letter, as required by CalHFA. For financial statement purposes the advance to Villa Mirage II was charged off by the Partnership as a result of losses at the Local Partnership level during prior years.
e. Investment Reconciliation
The following reconciliation of investments in partnership at September 30, 2013:
Investments in and receivable from partnership at December 31, 2012: | $ | 2,582,473 | |
Share of income from partnership | 136,528 | ||
Investments in and receivable from partnership at September 30, 2013: | $ | 2,719,001 | |
5. RELATED PARTY TRANSACTIONS
In accordance with the terms of the Partnership Agreement, the Partnership is obligated to reimburse the Managing General Partner or its affiliates for certain direct expenses and payroll expenses in connection with managing the Partnership. Payroll expenses are reimbursed at a factor of 1.75 times base salary. For the three and nine month periods ended September 30, 2013, the Partnership paid $19,847 and $65,622, respectively, and $27,003 and $82,543 for the three and nine month periods ended September 30, 2012, respectively, to the Managing General Partner or its affiliates as direct reimbursement of expenses incurred on behalf of the Partnership. In addition, certain employees of the Managing General Partner provided legal and tax accounting services to the Partnership. These are reimbursed comparable to third party service charges. For the three and nine month periods ended September 30, 2013, the Partnership paid $20,153 and $96,922, respectively, and $52,856 and $123,797 for the three and nine month periods ended September 30, 2012, respectively, to the Managing General Partner or its affiliates for these services. Such reimbursed expenses are included in the accompanying condensed statements of operations and accumulated losses as general and administrative expenses.
In accordance with the terms of the Partnership Agreement, the Partnership is obligated to pay the Managing General Partner an annual incentive management fee (“Management Fee”) after all other expenses of the Partnership are paid. The Partnership paid the Managing General Partner Management Fees of $75,000 and $225,000, for the three and nine month periods ended September 30, 2013 and 2012, respectively.
In accordance with the terms of the Partnership agreement, the Managing General Partner and/or its affiliates may receive a fee of not more than 5% of the sale price of an investment in a Local Partnership or the property it owns, payable under certain conditions upon the sale of an investment in a Local Partnership or the property it owns. The payment of the fee is subject to certain
restrictions including the achievement of a certain level of sales proceeds and making certain distributions to limited partners. In accordance with the terms of the Partnership agreement, in February 2012, the Managing General Partner was paid a disposition fee of $946,000 related to sale of Monterey/Hillcrest, which was netted against the related gain on the disposition of the property.
9
CAPITAL REALTY INVESTORS-III LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS- CONTINUED
September 30, 2013 and 2012
(Unaudited)
Additionally, also in accordance with the terms of the Partnership agreement, in August 2013, the Managing General Partner was paid a disposition fee of $145,000 related to the sale of Meadow Lanes, which was included with the loss on disposition of property line item on the accompanying condensed statements of operations and accumulated losses. The fee is based on 5% of the gross sales price of the property sold.
6. CASH DISTRIBUTIONS
There were no cash distributions for the three and nine month periods ended September 30, 2013.
For the nine month period ended September 30, 2012, the Partnership received a distribution totaling $4,485,788 related to the sale of the Monterey/Hillcrest and Villa Mirage I and II properties. This amount is included in gain on disposition of investment in partnerships on the condensed statements of operations and accumulated losses.
7. CASH CONCENTRATION RISK
Financial instruments that potentially subject the Partnership to concentrations of risk consist primarily of cash. The Partnership maintains one cash account at SunTrust Bank and three cash accounts at Eagle Bank. As of September 30, 2013, the uninsured portion of the cash balances was $1,063,708.
8. SIGNIFICANT SUBSIDIARIES
The following Local Partnership invested in by the Partnership represents more than 20% of the Partnership's total assets or equity as of September 30, 2013 and 2012 or net income (loss) for the three-month periods then ended. The following financial information represents the performance of this Local Partnership for the nine-month periods ended September 30, 2013 and 2012. The financial information consists of estimates based on the audited financial statements of the Local Partnerships at December 31, 2012 and these estimates are unaudited.
Meadow Lanes | 2013 | 2012 |
Total Assets | $— | $3,685,416 |
Total Liabilities | — | 325,896 |
Revenue | 3,416,673 | 607,098 |
Net Income | 2,946,591 | 61,340 |
9. SUBSEQUENT EVENTS
Events that occur after the balance sheet date but before the financial statements were available to be issued must be evaluated for recognition or disclosure. The effects of subsequent events that provide evidence about conditions that existed at the balance sheet date are recognized in the accompanying financial statements. Subsequent events which provide evidence about conditions that existed after the balance sheet date require disclosure in the accompanying notes.
ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The Management's Discussion and Analysis of Financial Condition and Results of Operations section is based on the financial statements, and contains information that may be considered forward looking, including statements regarding the effect of governmental regulations. Actual results may differ materially from those described in the forward looking statements and will be affected by a variety of factors including national and local economic conditions, the general level of interest rates, governmental regulations affecting the Partnership and interpretations of those regulations, the competitive environment in which the Partnership operates, and the availability of working capital.
Critical Accounting Policies
The Partnership has disclosed its selection and application of significant accounting policies in Note 1 of the notes to financial statements included in the Partnership's Annual Report on Form 10-K at December 31, 2012. The Partnership accounts for its investments in partnership (Local Partnership) by the equity method because the Partnership is a limited partner in the Local Partnership. As such, the Partnership has no control over the selection and application of accounting policies, or the use of estimates, by the Local Partnership. 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.
Generally accepted accounting principles (GAAP) in the United States provides guidance on when a company should include the assets, liabilities, and activities of a variable interest entity (VIE) in its financial statements and when it should disclose information
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about its relationship with a VIE. Generally, a variable interest entity, or VIE, is an entity with one or more of the following characteristics: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) as a group the holders of the equity investment at risk lack (i) the ability to make decisions about an entity's activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests and substantially all of the entity's activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. The primary beneficiary of a VIE is generally the entity that will receive a majority of the VIE's expected losses, receive a majority of a VIE's expected residual returns, or both.
The Partnership does not consolidate the Partnership's interest in this VIE under this guidance, as it is not considered to be the primary beneficiary. Accounting guidance requires continued reconsideration as to the consideration of the primary beneficiary. The Partnership currently records the amount of its investment in this partnership as an asset on its balance sheet, recognizes its share of partnership income or losses in the statements of operations, and discloses how it accounts for material types of these investments in its financial statements.
The Partnership's balance in investment in this Local Partnership represents its maximum exposure to loss. The Partnership's exposure to loss on this partnership is mitigated by the condition and financial performance of the underlying properties as well as the strength of the local general partners.
In April 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-07 to improve consistency and comparability of financial reporting in the area of liquidation accounting. This ASU clarifies when an entity should apply the liquidation basis of accounting and provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting. The ASU is effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and is applied prospectively from the day liquidation becomes imminent. Early adoption is permitted. The Partnership has elected to adopt this ASU on July 1, 2013. The adoption of this ASU did not have a material affect on the Partnership.
Financial Condition/Liquidity
The Partnership's liquidity, with unrestricted cash resources of $1,428,274 as of September 30, 2013, along with anticipated future cash distributions from Local Partnerships, is expected to be adequate to meet its current and anticipated operating cash needs. As of November 14, 2013, there were no material commitments for capital expenditures.
The Partnership closely monitors its cash flow and liquidity position in an effort to ensure that sufficient cash is available for operating requirements. For the three and nine month periods ended September 30, 2013, existing cash resources were adequate to support operating cash requirements. Cash and cash equivalents decreased $651,306 during the nine month period ended September 30, 2013, primarily due to normal operating expenses.
Results of Operations
The Partnership's had a net loss for the nine month period ended September 30, 2013 compared to net income for nine month period ended September 30, 2012, primarily due to the gain recorded on the disposition of Monterrey/Hillcrest in 2012.
For financial reporting purposes, the Partnership, as a limited partner in the Local Partnership, does not record losses from the Local Partnerships in excess of its investment to the extent that the Partnership has no further obligation to advance funds or provide financing to the Local Partnerships. As a result, the Partnership's share of income from partnerships for the three and nine month periods ended September 30, 2012 did not include income of $30,992 and $142,216, respectively, compared to excluded losses of $0 for both the three and nine month periods ended September 30, 2013.
On June 18, 2012, the Local Partnership entered into a purchase and sale agreement to sell Meadow Lanes Apartments for $2,900,000. The Partnership's investment basis in this Local Partnership at December 31, 2012 was $2,582,473. The Partnership expects to receive $2,719,001 as a result of the sale.
Certain taxing authorities may assert claims against the Partnership for failure to withhold and remit 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 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.
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No other significant changes in the Partnership's operations have taken place during the three and nine month periods ended September 30, 2013.
Plan of Liquidation and Dissolution
On November 21, 2005, the General Partners recommended that the limited partners approve a plan of liquidation and dissolution for the Partnership. The plan of liquidation and dissolution was approved by the limited partners on January 20, 2006. The one remaining Property in which the Partnership is invested through its investments in the Local Partnerships sold on August 19, 2013. The Villa Mirage I and Villa Mirage II property sales closed September 27, 2012. Subsequent to the receipt of the anticipated proceeds related to the sale of the Meadow Lanes property, the Local Partnership, in which the Partnership is invested, will be dissolved and terminated, at which time the General Partner will commence the dissolution and termination of the Partnership. There can be no assurance as to when the liquidation and dissolution of the Partnership will be completed but it is anticipated that the process will be completed prior to December 31, 2013.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
None.
Item 4. CONTROLS AND PROCEDURES
a) Disclosure Controls and Procedures.
The Partnership's management, with the participation of the principal executive officer and principal financial officer of the Managing General Partner, who are the equivalent of the Partnership's principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnership's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. A control system, no matter how well conceived and operated, can provide only reasonable assurance that the objectives of the control system are met. Based on such evaluation, the principal executive officer and principal financial officer of the Managing General Partner, who are the equivalent of the Partnership's principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period, the Partnership's disclosure controls and procedures are effective.
b) Changes in Internal Control Over Financial Reporting.
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There has been no change in the Partnership's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, the Partnership's internal control over financial reporting.
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Partnership is unaware of any pending or outstanding litigation involving it or the underlying investment property of the Local Partnerships in which the Partnership invests that are not of a routine nature arising in the ordinary course of business or that would have a material adverse effect on the business of the Partnership.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
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None.
Item 4. MINE SAFETY DISCLOSURES
None.
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Item 5. OTHER INFORMATION
There has not been any information required to be disclosed in a report on Form 8-K during the quarter ended September 30, 2013, but not reported, whether or not otherwise required by this Form 10-Q at September 30, 2013.
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.
Item 6. EXHIBITS
Exhibit No. | Description |
31.1 | Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32 | Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
All other Items are not applicable.
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-III | ||||||
LIMITED PARTNERSHIP | ||||||
(Registrant) | ||||||
November 14, 2013 | by: | /s/ William B. Dockser | ||||
DATE | William B. Dockser, | |||||
Director, Chairman of the Board | ||||||
and Treasurer | ||||||
Principal Executive Officer |
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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.
November 14, 2013 | by: | /s/ H. William Willoughby | |||
DATE | H. William Willoughby | ||||
Director, President, Secretary, | |||||
Principal Financial Officer and | |||||
Principal Accounting Officer |
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