-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vtraez2HhwGKVvIWpluwp6Su4UNk/KoF79o5DMiGxGYOPRR4c7OmpIMd7YHufDEu WyqwyWWlI3DS6+OTqb26lw== 0000713571-95-000011.txt : 19951018 0000713571-95-000011.hdr.sgml : 19951018 ACCESSION NUMBER: 0000713571-95-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951017 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPITAL REALTY INVESTORS II LTD PARTNERSHIP CENTRAL INDEX KEY: 0000713571 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 521321492 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11973 FILM NUMBER: 95581245 BUSINESS ADDRESS: STREET 1: 11200 ROCKVILLE PIKE STREET 2: 5TH CITY: ROCKVILLE STATE: MD ZIP: 20852 BUSINESS PHONE: 3014689200 MAIL ADDRESS: STREET 1: 11200 ROCKVILLE PIKE STREET 2: 5TH FLOOR CITY: ROCKVILLE STATE: MD ZIP: 20852 10-Q 1 LIVE FILE CRI2 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended September 30, 1995 ------------------ Commission file number 0-11973 ------------- CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP - -------------------------------------------------------------------------- (Exact name of registrant as specified in charter) Maryland 52-1321492 - ----------------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 11200 Rockville Pike, Rockville, Maryland 20852 - ----------------------------------------- -------------------- (Address of principal executive officer) (Zip Code) (301) 468-9200 - ------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at September 30, 1995 - ---------------------------------- ---------------------------------- (Not applicable) (Not applicable) CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP INDEX TO FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1995 PAGE ---- PART I. Financial Information (Unaudited) Item 1. Financial Statements Balance Sheets - September 30, 1995 and December 31, 1994 . . . . . . . . . . . . . 1 Statements of Operations - for the three and nine months ended September 30, 1995 and 1994 3 Statements of Cash Flows - for the nine months ended September 30, 1995 and 1994 . 5 Notes to Financial Statements . . . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . 12 PART II. Other Information Item 3. Defaults upon Senior Securities . . . . . . . 16 Item 6. Exhibits and Reports on Form 8-K . . . . . . 17 Signature . . . . . . . . . . . . . . . . . . . . . . 18 PART I. FINANCIAL INFORMATION --------------------- ITEM 1. FINANCIAL STATEMENTS --------------------- CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP BALANCE SHEETS ASSETS
September 30, December 31, 1995 1994 ------------- ------------ (Unaudited) Investments in and advances to partnerships $ 7,069,224 $ 7,990,026 Cash and cash equivalents 3,283,207 2,812,577 Acquisition fees, principally paid to related parties, net of accumulated amortization of $399,162 and $374,162, respectively 600,838 625,838 Property purchase costs, net of accumulated amortization of $252,866 and $236,432, respectively 404,446 420,880 Other assets 7,080 5,306 ------------ ------------ Total assets $ 11,364,795 $ 11,854,627 ============ ============
The accompanying notes are an integral part of these financial statements. -1- PART I. FINANCIAL INFORMATION --------------------- ITEM 1. FINANCIAL STATEMENTS --------------------- CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP BALANCE SHEETS - Continued LIABILITIES AND PARTNERS' DEFICIT
September 30, December 31, 1995 1994 ------------- ------------ (Unaudited) Due on investments in partnerships, net of unamortized discount on purchase money notes of $9,321,298 and $11,433,655, respectively $ 13,099,380 $ 10,987,023 Accrued interest payable 28,705,521 26,951,287 Accounts payable and accrued expenses 102,372 70,389 ------------ ------------ Total liabilities 41,907,273 38,008,699 ------------ ------------ Commitments and contingencies Partners' capital (deficit): Capital paid-in: General Partners 2,000 2,000 Limited Partners 50,015,000 50,015,000 ------------ ------------ 50,017,000 50,017,000 Less: Accumulated distributions to partners (1,254,612) (1,254,612) Offering costs (5,278,980) (5,278,980) Accumulated losses (74,025,886) (69,637,480) ------------ ------------ Total partners' deficit (30,542,478) (26,154,072) ------------ ------------ Total liabilities and partners' deficit $ 11,364,795 $ 11,854,627 ============ ============
The accompanying notes are an integral part of these financial statements. -2- PART I. FINANCIAL INFORMATION --------------------- ITEM 1. FINANCIAL STATEMENTS --------------------- CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS (Unaudited)
For the three months ended September 30, -------------------------- 1995 1994 ------------ ------------ Share of (loss) income from partnerships $ (117,258) $ 1,541 ------------ ------------ Other revenue and expenses: Revenue: Interest income 47,297 32,632 ------------ ------------ Expenses: Interest 1,364,771 1,091,853 Management fee 62,499 62,499 General and administrative 31,376 10,365 Professional fees 18,170 26,352 Amortization 13,812 13,812 ------------ ------------ 1,490,628 1,204,881 ------------ ------------ Total other revenue and expenses (1,443,331) (1,172,249) ------------ ------------ Net loss (1,560,589) (1,170,708) Accumulated losses, beginning of period (72,465,297) (66,522,397) ------------ ------------ Accumulated losses, end of period $(74,025,886) $(67,693,105) ============ ============ Loss allocated to General Partners (1.51%) $ (23,565) $ (17,678) ============ ============ Loss allocated to Initial and Special Limited Partners (1.49%) $ (23,252) $ (17,444) ============ ============ Loss allocated to Additional Limited Partners (97%) $ (1,513,772) $ (1,135,586) ============ ============ Loss per unit of Additional Limited Partnership Interest based on 50,000 units outstanding $ (30.28) $ (22.71) ============ ============
The accompanying notes are an integral part of these financial statements. -3- PART I. FINANCIAL INFORMATION --------------------- ITEM 1. FINANCIAL STATEMENTS --------------------- CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS (Unaudited)
For the nine months ended September 30, -------------------------- 1995 1994 ------------ ------------ Share of loss from partnerships $ (50,463) $ (68,985) ------------ ------------ Other revenue and expenses: Revenue: Interest income 135,164 88,513 ------------ ------------ Expenses: Interest 4,094,313 3,300,512 Management fee 187,497 187,497 General and administrative 94,050 75,097 Professional fees 55,813 71,898 Amortization 41,434 41,433 ------------ ------------ 4,473,107 3,676,437 ------------ ------------ Total other revenue and expenses (4,337,943) (3,587,924) ------------ ------------ Net loss (4,388,406) (3,656,909) Accumulated losses, beginning of period (69,637,480) (64,036,196) ------------ ------------ Accumulated losses, end of period $(74,025,886) $(67,693,105) ============ ============ Loss allocated to General Partners (1.51%) $ (66,265) $ (55,219) ============ ============ Loss allocated to Initial and Special Limited Partners (1.49%) $ (65,387) $ (54,488) ============ ============ Loss allocated to Additional Limited Partners (97%) $ (4,256,754) $ (3,547,202) ============ ============ Loss per unit of Additional Limited Partnership Interest based on 50,000 units outstanding $ (85.14) $ (70.94) ============ ============
The accompanying notes are an integral part of these financial statements. -4- PART I. FINANCIAL INFORMATION --------------------- ITEM 1. FINANCIAL STATEMENTS --------------------- CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS (Unaudited)
For the nine months ended September 30, -------------------------- 1995 1994 ------------ ------------ Cash flows from operating activities: Net loss $ (4,388,406) $ (3,656,909) Adjustments to reconcile net loss to net cash used in operating activities: Share of loss from partnerships 50,463 68,985 Amortization of deferred costs 41,434 41,433 Amortization of discount on purchase money notes 2,112,357 1,236,003 Loss on early extinguishment of debt -- (117,353) Payment of purchase money note interest (227,722) (226,464) Changes in assets and liabilities: Increase in other assets (1,774) (3,156) Increase in accrued interest payable 1,981,956 2,064,508 Increase (decrease) in accounts payable and accrued expenses 31,983 (5,191) ------------ ------------ Net cash used in operating activities (399,709) (598,144) ------------ ------------ Cash flows from investing activities: Receipt of distributions from partnerships 870,339 775,529 ------------ ------------ Cash flows from financing activities: Pay-off of purchase money note -- (367,897) ------------ ------------ Net increase (decrease) in cash and cash equivalents 470,630 (190,512) Cash and cash equivalents, beginning of period 2,812,577 3,068,063 ------------ ------------ Cash and cash equivalents, end of period $ 3,283,207 $ 2,877,551 ============ ============
The accompanying notes are an integral part of these financial statements. -5- CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION In the opinion of C.R.I., Inc. (CRI), the Managing General Partner, the accompanying unaudited financial statements contain all adjustments of a normal recurring nature necessary to present fairly the financial position of Capital Realty Investors-II Limited Partnership (the Partnership) as of September 30, 1995 and December 31, 1994, and the results of its operations for the three and nine months ended September 30, 1995 and 1994 and its cash flows for the nine months ended September 30, 1995 and 1994. These unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. While the Managing General Partner believes that the dis- closures presented are adequate to make the information not misleading, it is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes included in the Partnership's Annual Report filed on Form 10-K for the year ended December 31, 1994. 2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS As of September 30, 1995, the Partnership's obligations with respect to its investments in Local Partnerships, in the form of purchase money notes of $22,420,678 (exclusive of unamortized discount on purchase money notes of $9,321,298) plus accrued interest of $28,705,521, are payable upon the earliest of: (1) sale or refinancing of the respective Local Partnership's rental property; (2) payment in full of the respective Local Partnership's permanent loan; or (3) maturity. Purchase money notes in an aggregate principal amount of $4,660,000 matured in August 1995, as discussed below. Purchase money notes in an aggregate principal amount of $2,100,000 are scheduled to mature in 1996. The remaining purchase money notes mature in 1998 and 1999. The purchase money notes are generally secured by the Partnership's interest in the respective Local Partnership. There is no assurance that the underlying properties will have sufficient appreciation and equity to enable the Partnership to pay the purchase money notes' principal and accrued interest when due. If a purchase money note is not paid in accordance with its terms, the Partnership will either have to renegotiate the terms of repayment or risk losing its partnership interest in the Local Partnership. The Managing General Partner is continuing to investigate possible alternatives to reduce the Partnership's long-term debt obligations. These alternatives include, among others, retaining the cash available for distribution to meet the purchase money note requirements, buying out certain purchase money notes at a discounted price, extending the due dates of certain purchase money notes, or refinancing the respective properties' underlying debt and using the Partnership's share of the proceeds to pay off or buy down certain purchase money note obligations. -6- CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Unaudited) 2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued Interest expense on the Partnership's purchase money notes for the three and nine months ended September 30, 1995 was $1,364,771 and $4,094,313, respectively, and for the three and nine months ended September 30, 1994 was $1,091,853 and $3,300,512, respectively. Amortization of the imputed interest on purchase money notes increased interest expense during the three and nine months ended September 30, 1995 by $704,119 and $2,112,357, respectively, and by $409,826 and $1,236,003 during the three and nine months ended September 30, 1994, respectively. As of September 30, 1995 and December 31, 1994, the Partnership had advanced funds totalling $324,410 to Local Partnerships. There were no funds advanced to the Local Partnerships during the nine months ended September 30, 1995. The local general partner of Frenchman's Wharf Apartments Associates II (Frenchman's Wharf II), in conjunction with the Managing General Partner, applied to the Department of Housing and Urban Development (HUD), holder of the mortgage on the property, for a three-year extension of the previous workout arrangement, which expired in December 1990. The local HUD office verbally agreed to an extension expiring December 31, 1993 and recommended approval of the extension to the HUD central office in Washington, D.C. In December 1993, the local HUD office requested that a new workout proposal be submitted, and in January 1994, the local general partner met with HUD to discuss the long-term capital needs of the property in connection with a workout proposal. On March 1, 1994, the local general partner submitted a nine-year workout proposal to HUD. As of October 10, 1995, the local general partner is continuing to work with the local HUD office to arrange an acceptable workout agreement. There is no assurance that approval for a workout will be received. If a workout proposal is not accepted and another alternative is not found, then HUD could foreclose on the property. Frenchman's Wharf II was notified by HUD that HUD planned to offer its mortgage loan for sale in the Fall of 1995. If the mortgage was sold by HUD, a new mortgagee would service the defaulted loan and could foreclose on the property. As of October 10, 1995, Frenchman's Wharf II had not been notified by HUD as to the status of the loan sale. The uncertainty about the Local Partnership's continued ownership of the property does not impact the Partnership's financial condition because the related purchase money note is nonrecourse and collateralized solely by the Partnership's interest in the Local Partnership. Therefore, should the investment in Frenchman's Wharf II not produce sufficient value to satisfy the purchase money note related to Frenchman's Wharf II, the Partnership's exposure to loss is limited since the amount of the nonrecourse indebtedness exceeds the carrying amount of the investment in and advances to the Local Partnership. Thus, even a complete loss of this investment would not have a material impact on the operations of the Partnership. Currently, debt service payments are being made from available cash flow in accordance with the proposed workout. To cover operating deficits incurred in prior years for Frenchman's Wharf II, the Partnership advanced funds totalling $324,410 as of both September 30, 1995 and December 31, 1994. The last advance was made to Frenchman's Wharf II in March 1987. The Partnership does not expect to advance any additional funds in connection with Frenchman's Wharf II's loan workout with HUD. These loans, together with accrued interest of $187,372 as of both September 30, 1995 and December 31, 1994, are payable from cash flow of Frenchman's Wharf II after payment of first-mortgage debt service and after satisfaction by the Partnership of certain other interest obligations on the purchase money notes due from the Local Partnership. There is no assurance that the Local Partnership, upon expiration of any workout, will be -7- CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Unaudited) 2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued able to repay any loans in accordance with the terms. In September 1995, HUD sold the mortgage of Palatine-Barrington Associates Limited Partnership (Deer Grove) to a new mortgagee. The new mortgagee now services the loan and Deer Grove is no longer subject to HUD regulatory requirements. Posada Associates Limited Partnership (Posada Vallarta Apartments) is currently operating under an extension of a three-year workout agreement with HUD, the holder of the mortgage. The workout provides for, among other things, a minimum monthly debt service payment, with excess cash, if any, being applied to delinquent interest. Currently, debt service payments are being made in accordance with the workout. In June 1995, the three-year workout which originally expired on October 1, 1995 was extended to October 1, 1996. Wexford Ridge Associates (located in Madison, Wisconsin), the local general partner, and its management agent have been named in eight sexual harassment and discrimination complaints filed with HUD. The Managing General Partner and the Partnership have also been named in four of the complaints. The Managing General Partner is monitoring the situation and is investigating the Partnership's rights with regard to the local general partner and/or the management agent if the situation is not dealt with to the satisfaction of the Managing General Partner. The Managing General Partner believes the claims will have no aggregate material effect on the financial statements of the Partnership and that legal costs associated with the claims will be borne by the management agent. Many of the rental properties owned by the Local Partnerships have mortgages which are federally insured under Section 236 or Section 221(d)(3) of the National Housing Act, as amended. These properties may be eligible for sale or refinancing, subject to numerous requirements, under the Low Income Housing Preservation and Resident Homeownership Act of 1990 (LIHPRHA). This program may provide incentives to owners of qualifying multifamily housing who commit to permanently maintain their properties as low to moderate income housing. Incentives available under LIHPRHA include selling the property to qualified buyers or obtaining supplemental financing for the property. As of October 10, 1995, members of Congress were recommending substantial changes to the LIHPRHA program ranging from the elimination of the program to the redesigning of the program. Substantial uncertainty exists as to whether any properties which have already filed the notice of intent to participate under LIHPRHA will qualify under a redesigned program or as to whether the program will continue at all. -8- CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Unaudited) 2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued Many of the rental properties owned by the Local Partnerships are dependent on the receipt of housing assistance payments guaranteed by contract under the HUD Section 8 program. The level of funding for the Section 8 program, and HUD-insured multifamily housing in general, is dependent upon the continuation of appropriations approved by Congress for subsidy payments. In the event that the rental subsidy programs are reduced or phased out, there is no assurance that the rental properties will be able to maintain the occupancy levels necessary to pay debt service and operating costs or that the rents necessary to pay debt service and operating costs will be competitive with rents for comparable units in the rental properties' market areas. While the Managing General Partner has no reason to believe that HUD will not honor its obligations under the contracts, some uncertainty exists in light of the recent Congressional scrutiny of appropriations for HUD programs. The Partnership defaulted on its purchase money note relating to Beech Hill I on August 1, 1995 when the note matured and was not paid. The default amount included principal and accrued interest of $1,480,000 and $1,473,498, respectively. As of October 17, 1995, principal and accrued interest totalling $1,480,000 and $1,501,963, respectively, were due. In addition, the Partnership defaulted on its purchase money note relating to Beech Hill II on August 1, 1995 when the note matured and was not paid. The default amount included principal and accrued interest of $900,000 and $905,047, respectively. As of October 17, 1995, principal and accrued interest of $900,000 and $922,356, respectively, were due. The Managing General Partner is currently negotiating with the noteholders to extend the purchase money note due dates. There is no assurance, however, that the offer to extend the maturity dates will be accepted. The Partnership defaulted on its purchase money note relating to Rock Glen on August 1, 1995 when the note matured and was not paid. The default amount included principal and accrued interest of $2,280,000 and $1,116,256, respectively. As of October 17, 1995, principal and accrued interest totalling $2,280,000 and $1,160,107, respectively, were due. A standstill agreement from the noteholder has been granted until October 31, 1995. The Managing General Partner made an offer to the noteholder to extend the purchase money note due date to August 2000. This offer was rejected by the noteholder. The Managing General Partner is now reviewing other proposals to present to the noteholder. There is no assurance that any new proposals will be accepted. Should the noteholders of the Beech Hill I, Beech Hill II and/or Rock Glen purchase money notes begin foreclosure proceedings on any of the Partnership's interest in the related Local Partnerships, the Partnership intends to vigorously defend any action by the noteholders. However, there is no assurance that the Partnership will be able to retain its interest in any of the Local Partnerships. The uncertainty about the continued ownership of the Partnership's interest in the related Local Partnerships does not impact the Partnership's financial condition because the related purchase money notes are nonrecourse and collateralized solely by the Partnership's interest in the Local Partnerships. Therefore, should the investment in Beech Hill I, Beech Hill II and Rock Glen not produce sufficient value to satisfy the related purchase money notes, the Partnership's exposure to loss is limited since the amount of the nonrecourse indebtedness exceeds the carrying amount of the investment in and advances to the Local Partnerships. Thus, even a complete loss of any of these investments would not have a material impact on the operations of the Partnership. However, should the Partnership be unable to retain its interest in all of the Local Partnerships, the investments in and advances to Local -9- CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Unaudited) 2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued Partnerships would be reduced by the Partnership's basis in these Local Partnerships, which at September 30, 1995 is approximately 17% of the total investment in Local Partnerships. The following are combined statements of operations for the Local Partnerships in which the Partnership has invested. The statements are compiled from information supplied by the management agents of the projects and are unaudited. COMBINED STATEMENTS OF OPERATIONS (Unaudited)
For the three months ended For the nine months ended September 30, September 30, --------------------------- --------------------------- 1995 1994 1995 1994 ------------ ------------ ------------ ------------ Revenue: Rental revenue $ 6,992,515 $ 6,902,943 $ 21,168,915 $ 20,694,255 Other 444,233 426,521 1,227,585 1,246,114 ------------ ------------ ------------ ------------ 7,436,748 7,329,464 22,396,500 21,940,369 ------------ ------------ ------------ ------------ Expenses: Operating 4,999,332 4,741,934 14,778,431 14,132,480 Interest 2,097,325 2,066,390 6,291,984 6,199,183 Depreciation and amorti- zation 1,351,817 1,348,270 4,055,456 4,044,819 ------------ ------------ ------------ ------------ 8,448,474 8,156,594 25,125,871 24,376,482 ------------ ------------ ------------ ------------ Net loss $ (1,011,726) $ (827,130) $ (2,729,371) $ (2,436,113) ============ ============ ============ ============
As of September 30, 1995 and December 31, 1994, the Partnership's share of cumulative losses to date for ten and nine, respectively, of the twenty-two Local Partnerships exceeds the amount of the Partnership's investments in and advances to those Local Partnerships by $23,796,463 and $21,176,551, respectively. As the Partnership has no further obligation to advance funds or provide financing to these Local Partnerships, the excess losses have not been reflected in the accompanying financial statements. 3. RELATED-PARTY TRANSACTIONS In accordance with the terms of the Partnership Agreement, the Partnership is obligated to reimburse the Managing General Partner for its direct expenses in managing the Partnership and to pay an annual incentive management fee (the Management Fee) after all other expenses of the Partnership are paid. The Partnership paid $22,729 and $67,424 for the three and nine months ended -10- CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Unaudited) 3. RELATED-PARTY TRANSACTIONS - Continued September 30, 1995, respectively, and $23,083 and $66,533 for the three and nine months ended September 30, 1994, respectively, as direct reimbursement of expenses incurred on behalf of the Partnership. Additionally, the Partnership paid the Managing General Partner a Management Fee of $62,499 and $187,497 for the three and nine months, respectively, ended September 30, 1995 and 1994. From July 1990 through January 1994, CRICO Management Corporation (CRICO), an affiliate of the Managing General Partner, provided consulting, accounting and other services to Country Place I and II. From August 1990 through January 1994, CRICO provided these services to Rock Glen. Fees paid or accrued to CRICO for these services amounted to $6,704, $4,231 and $5,580, respectively, for the month ended January 31, 1994. On February 1, 1994, CRICO contributed its consulting contracts and personnel to CAPREIT Residential Corporation (CAPREIT). CAPREIT was formed by CRI but is not currently owned or controlled by CRI and/or its affiliates. On April 12, 1995, HUD approved CAPREIT as the new management agent. -11- PART I. FINANCIAL INFORMATION --------------------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- Financial Condition/Liquidity ----------------------------- Capital Realty Investors-II Limited Partnership's (the Partnership) liquidity, with unrestricted cash resources of $3,283,207 and $2,812,577 as of September 30, 1995 and December 31, 1994, respectively, along with anticipated future cash distributions from the Local Partnerships, is expected to meet its current and anticipated operating cash needs. As of October 10, 1995, there are no material commitments for capital expenditures. As of September 30, 1995, the Partnership's obligations with respect to its investments in Local Partnerships, in the form of purchase money notes of $22,420,678 (exclusive of unamortized discount on purchase money notes of $9,321,298) plus accrued interest of $28,705,521, are payable upon the earliest of: (1) sale or refinancing of the respective Local Partnership's rental property; (2) payment in full of the respective Local Partnership's permanent loan; or (3) maturity. Purchase money notes in an aggregate principal amount of $4,660,000 matured in August 1995, as discussed below. Purchase money notes in an aggregate principal amount of $2,100,000 are scheduled to mature in 1996. The remaining purchase money notes mature in 1998 and 1999. The purchase money notes are generally secured by the Partnership's interest in the respective Local Partnership. There is no assurance that the underlying properties will have sufficient appreciation and equity to enable the Partnership to pay the purchase money notes' principal and accrued interest when due. If a purchase money note is not paid in accordance with its terms, the Partnership will either have to renegotiate the terms of repayment or risk losing its partnership interest in the Local Partnership. The Managing General Partner is continuing to investigate possible alternatives to reduce the Partnership's long-term debt obligations. These alternatives include, among others, retaining the cash available for distribution to meet the purchase money note requirements, buying out certain purchase money notes at a discounted price, extending the due dates of certain purchase money notes, or refinancing the respective properties' underlying debt and using the Partnership's share of the proceeds to pay off or buy down certain purchase money note obligations. The Partnership defaulted on its purchase money note relating to Beech Hill I on August 1, 1995 when the note matured and was not paid. The default amount included principal and accrued interest of $1,480,000 and $1,473,498, respectively. As of October 17, 1995, principal and accrued interest totalling $1,480,000 and $1,501,963, respectively, were due. In addition, the Partnership defaulted on its purchase money note relating to Beech Hill II on August 1, 1995 when the note matured and was not paid. The default amount included principal and accrued interest of $900,000 and $905,047, respectively. As of October 17, 1995, principal and accrued interest of $900,000 and $922,356, respectively, were due. The Managing General Partner is currently negotiating with the noteholders to extend the purchase money note due dates. There is no assurance, however, that the offer to extend the maturity dates will be accepted. The Partnership defaulted on its purchase money note relating to Rock Glen on August 1, 1995 when the note matured and was not paid. The default amount included principal and accrued interest of $2,280,000 and $1,116,256, respectively. As of October 17, 1995, principal and accrued interest totalling $2,280,000 and $1,160,107, respectively, were due. A standstill agreement from the noteholder has been granted until October 31, 1995. The Managing General Partner made an offer to the noteholder to extend the purchase money note due -12- PART I. FINANCIAL INFORMATION --------------------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS - Continued ----------------------------------- date to August 2000. This offer was rejected by the noteholder. The Managing General Partner is now reviewing other proposals to present to the noteholder. There is no assurance that any new proposals will be accepted. Should the noteholders of the Beech Hill I, Beech Hill II and/or Rock Glen purchase money notes begin foreclosure proceedings on any of the Partnership's interest in the related Local Partnerships, the Partnership intends to vigorously defend any action by the noteholders. However, there is no assurance that the Partnership will be able to retain its interest in any of the Local Partnerships. The uncertainty about the continued ownership of the Partnership's interest in the related Local Partnerships does not impact the Partnership's financial condition because the related purchase money notes are nonrecourse and collateralized solely by the Partnership's interest in the Local Partnerships. Therefore, should the investment in Beech Hill I, Beech Hill II and Rock Glen not produce sufficient value to satisfy the related purchase money notes, the Partnership's exposure to loss is limited since the amount of the nonrecourse indebtedness exceeds the carrying amount of the investment in and advances to the Local Partnerships. Thus, even a complete loss of any of these investments would not have a material impact on the operations of the Partnership. However, should the Partnership be unable to retain its interest in all of the Local Partnerships, the investments in and advances to Local Partnerships would be reduced by the Partnership's basis in these Local Partnerships, which at September 30, 1995 is approximately 17% of the total investment in 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 nine months ended September 30, 1995, the receipt of distributions from Local Partnerships was adequate to support operating cash requirements. Results of Operations --------------------- The Partnership's net loss for the three months ended September 30, 1995 increased from the comparable period in 1994 primarily due to an increase in interest expense as a result of the amortization of imputed interest. Contributing to the increase in net loss was an increase in loss from Local Partnerships primarily due to an increase in operating expenses at two properties, which was partially offset by a decrease in operating expenses at one property. Also contributing to the increase in net loss was an increase in general and administrative expenses in 1995 due to the recognition in the third quarter of 1994 of decreased annual report printing costs. Partially offsetting the increase in the Partnership's net loss was an increase in interest income resulting from an increase in investment yields and higher cash balances as compared to the same period in 1994, as well as a decrease in professional fees primarily due to a reduction in legal expenses. The Partnership's net loss for the nine months ended September 30, 1995 increased from the comparable period in 1994 primarily due to an increase in interest expense and general and administrative expenses, as discussed above. Partially offsetting the increase in the Partnership's net loss was an increase in interest income and a decrease in professional fees, as discussed above. Also, partially offsetting the increase in net loss was a decrease in loss from Local Partnerships primarily due to the loss incurred in 1994 relating the payoff of Country Place I and II purchase money notes, which was partially -13- PART I. FINANCIAL INFORMATION --------------------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS - Continued ----------------------------------- offset by an increase in operating expenses at two properties in 1995, as discussed above. 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 recognized losses for the three and nine months ended September 30, 1995 did not include losses of $873,303 and $2,619,912, respectively, compared to excluded losses of $807,943 and $2,423,834 for the three and nine months ended September 30, 1994, respectively. The local general partner of Frenchman's Wharf Apartments Associates II (Frenchman's Wharf II), in conjunction with the Managing General Partner, applied to the Department of Housing and Urban Development (HUD), holder of the mortgage on the property, for a three-year extension of the previous workout arrangement, which expired in December 1990. The local HUD office verbally agreed to an extension expiring December 31, 1993 and recommended approval of the extension to the HUD central office in Washington, D.C. In December 1993, the local HUD office requested that a new workout proposal be submitted, and in January 1994, the local general partner met with HUD to discuss the long-term capital needs of the property in connection with a workout proposal. On March 1, 1994, the local general partner submitted a nine-year workout proposal to HUD. As of October 10, 1995, the local general partner is continuing to work with the local HUD office to arrange an acceptable workout agreement. There is no assurance that approval for a workout will be received. If a workout proposal is not accepted and another alternative is not found, then HUD could foreclose on the property. Frenchman's Wharf II was notified by HUD that HUD planned to offer its mortgage loan for sale in the Fall of 1995. If the mortgage was sold by HUD, a new mortgagee would service the defaulted loan and could foreclose on the property. As of October 10, 1995, Frenchman's Wharf II had not been notified by HUD as to the status of the loan sale. The uncertainty about the Local Partnership's continued ownership of the property does not impact the Partnership's financial condition because the related purchase money note is nonrecourse and collateralized solely by the Partnership's interest in the Local Partnership. Therefore, should the investment in Frenchman's Wharf II not produce sufficient value to satisfy the purchase money note related to Frenchman's Wharf II, the Partnership's exposure to loss is limited since the amount of the nonrecourse indebtedness exceeds the carrying amount of the investment in and advances to the Local Partnership. Thus, even a complete loss of this investment would not have a material impact on the operations of the Partnership. Currently, debt service payments are being made from available cash flow in accordance with the proposed workout. To cover operating deficits incurred in prior years for Frenchman's Wharf II, the Partnership advanced funds totalling $324,410 as of both September 30, 1995 and December 31, 1994. The last advance was made to Frenchman's Wharf II in March 1987. The Partnership does not expect to advance any additional funds in connection with Frenchman's Wharf II's loan workout with HUD. These loans, together with accrued interest of $187,372 as of both September 30, 1995 and December 31, 1994, are payable from cash flow of Frenchman's Wharf II after payment of first-mortgage debt service and after satisfaction by the Partnership of certain other interest obligations on the purchase money notes due from the Local Partnership. There is no assurance that the Local Partnership, upon expiration of any workout, will be able to repay any loans in accordance with the terms. -14- PART I. FINANCIAL INFORMATION --------------------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS - Continued ----------------------------------- In September 1995, HUD sold the mortgage of Palatine-Barrington Associates Limited Partnership (Deer Grove) to a new mortgagee. The new mortgagee now services the loan and Deer Grove is no longer subject to HUD regulatory requirements. Posada Associates Limited Partnership (Posada Vallarta Apartments) is currently operating under an extension of a three-year workout agreement with HUD, the holder of the mortgage. The workout provides for, among other things, a minimum monthly debt service payment, with excess cash, if any, being applied to delinquent interest. Currently, debt service payments are being made in accordance with the workout. In June 1995, the three-year workout which originally expired on October 1, 1995 was extended to October 1, 1996. Many of the rental properties owned by the Local Partnerships have mortgages which are federally insured under Section 236 or Section 221(d)(3) of the National Housing Act, as amended. These properties may be eligible for sale or refinancing, subject to numerous requirements, under the Low Income Housing Preservation and Resident Homeownership Act of 1990 (LIHPRHA). This program may provide incentives to owners of qualifying multifamily housing who commit to permanently maintain their properties as low to moderate income housing. Incentives available under LIHPRHA include selling the property to qualified buyers or obtaining supplemental financing for the property. As of October 10, 1995, members of Congress were recommending substantial changes to the LIHPRHA program ranging from the elimination of the program to the redesigning of the program. Substantial uncertainty exists as to whether any properties which have already filed the notice of intent to participate under LIHPRHA will qualify under a redesigned program or as to whether the program will continue at all. Many of the rental properties owned by the Local Partnerships are dependent on the receipt of housing assistance payments guaranteed by contract under the HUD Section 8 program. The level of funding for the Section 8 program, and HUD-insured multifamily housing in general, is dependent upon the continuation of appropriations approved by Congress for subsidy payments. In the event that the rental subsidy programs are reduced or phased out, there is no assurance that the rental properties will be able to maintain the occupancy levels necessary to pay debt service and operating costs or that the rents necessary to pay debt service and operating costs will be competitive with rents for comparable units in the rental properties' market areas. While the Managing General Partner has no reason to believe that HUD will not honor its obligations under the contracts, some uncertainty exists in light of the recent Congressional scrutiny of appropriations for HUD programs. No other significant changes in the Partnership's operations have taken place during this period. PART II. OTHER INFORMATION ----------------- ITEM 3. DEFAULTS UPON SENIOR SECURITIES ------------------------------- The Partnership defaulted on its purchase money note relating to Beech Hill I on August 1, 1995 when the note matured and was not paid. The default amount included principal and accrued interest of $1,480,000 and $1,473,498, respectively. As of October 17, 1995, principal and accrued interest totalling -15- PART II. OTHER INFORMATION ----------------- ITEM 3. DEFAULTS UPON SENIOR SECURITIES - Continued ------------------------------- $1,480,000 and $1,501,963, respectively, were due. In addition, the Partnership defaulted on its purchase money note relating to Beech Hill II on August 1, 1995 when the note matured and was not paid. The default amount included principal and accrued interest of $900,000 and $905,047, respectively. As of October 17, 1995, principal and accrued interest of $900,000 and $922,356, respectively, were due. The Managing General Partner is currently negotiating with the noteholders to extend the purchase money note due dates. There is no assurance, however, that the offer to extend the maturity dates will be accepted. The Partnership defaulted on its purchase money note relating to Rock Glen on August 1, 1995 when the note matured and was not paid. The default amount included principal and accrued interest of $2,280,000 and $1,116,256, respectively. As of October 17, 1995, principal and accrued interest totalling $2,280,000 and $1,160,107, respectively, were due. A standstill agreement from the noteholder has been granted until October 31, 1995. The Managing General Partner made an offer to the noteholder to extend the purchase money note due date to August 2000. This offer was rejected by the noteholder. The Managing General Partner is now reviewing other proposals to present to the noteholder. There is no assurance that any new proposals will be accepted. Should the noteholders of the Beech Hill I, Beech Hill II and/or Rock Glen purchase money notes begin foreclosure proceedings on any of the Partnership's interest in the related Local Partnerships, the Partnership intends to vigorously defend any action by the noteholders. However, there is no assurance that the Partnership will be able to retain its interest in any of the Local Partnerships. The uncertainty about the continued ownership of the Partnership's interest in the related Local Partnerships does not impact the Partnership's financial condition because the related purchase money notes are nonrecourse and collateralized solely by the Partnership's interest in the Local Partnerships. Therefore, should the investment in Beech Hill I, Beech Hill II and Rock Glen not produce sufficient value to satisfy the related purchase money notes, the Partnership's exposure to loss is limited since the amount of the nonrecourse indebtedness exceeds the carrying amount of the investment in and advances to the Local Partnerships. Thus, even a complete loss of any of these investments would not have a material impact on the operations of the Partnership. However, should the Partnership be unable to retain its interest in all of the Local Partnerships, the investments in and advances to Local Partnerships would be reduced by the Partnership's basis in these Local Partnerships, which at September 30, 1995 is approximately 17% of the total investment in Local Partnerships. PART II. OTHER INFORMATION ----------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- No Reports on Form 8-K were filed with the Commission during the quarter ended September 30, 1995. All other items are not applicable. -16- SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CAPITAL REALTY INVESTORS-II LIMITED PARTNERSHIP (Registrant) By: C.R.I., Inc. Managing General Partner October 17, 1995 /s/ Richard J. Palmer - -------------------------- ------------------------------ Date Richard J. Palmer Senior Vice President/Finance Signing on behalf of the Registrant and as Principal Accounting Officer -17- EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE THIRD QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q. 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 3,283,207 0 0 0 0 0 0 0 11,364,795 0 41,804,901 0 0 0 (30,542,478) 11,364,795 0 84,701 0 0 378,794 0 4,094,313 (4,388,406) 0 (4,388,406) 0 0 0 (4,388,406) (85.14) (85.14)
-----END PRIVACY-ENHANCED MESSAGE-----