UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2008
[ ]
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 0-11002
CONSOLIDATED CAPITAL PROPERTIES IV
(Exact Name of Registrant as Specified in Its Charter)
| |
California | 94-2768742 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | (Identification No.) |
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(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 (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.
[X] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| |
Large accelerated filer [ ] | Accelerated filer [ ] |
Non-accelerated filer [ ] (Do not check if a smaller reporting company) | Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
PART I – FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
CONSOLIDATED CAPITAL PROPERTIES IV
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
| | | | |
| March 31, | December 31, |
| 2008 | 2007 |
| (Unaudited) | (Note) |
| | (Restated) |
Assets | | |
Cash and cash equivalents | $ 696 | $ 1,346 |
Receivables and deposits | 1,060 | 686 |
Restricted escrows | 455 | 1,615 |
Other assets | 1,275 | 1,068 |
Investment properties: | | |
Land | 5,804 | 5,804 |
Buildings and related personal property | 98,562 | 96,806 |
| 104,366 | 102,610 |
Less accumulated depreciation | (47,117) | (46,314) |
| 57,249 | 56,296 |
Assets held for sale (Note A) | 8,348 | 7,910 |
| $ 69,083 | $ 68,921 |
| | |
Liabilities and Partners' Deficit | | |
Liabilities | | |
Accounts payable | $ 1,398 | $ 1,923 |
Tenant security deposit liabilities | 463 | 435 |
Accrued property taxes | 360 | 645 |
Other liabilities | 825 | 998 |
Distributions payable | 1,896 | 1,896 |
Due to affiliates (Note B) | 939 | -- |
Mortgage notes payable | 56,760 | 56,985 |
Liabilities related to assets held for sale | | |
(Note A) | 17,110 | 17,130 |
| 79,751 | 80,012 |
| | |
Partners' Deficit | | |
General partners | (7,349) | (7,366) |
Limited partners (342,773 units issued and | | |
outstanding) | (3,319) | (3,725) |
| (10,668) | (11,091) |
| $ 69,083 | $ 68,921 |
Note:
The consolidated balance sheet at December 31, 2007 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL PROPERTIES IV
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
| | |
| Three Months Ended |
| March 31, |
| 2008 | 2007 |
| | (Restated) |
Revenues: | | |
Rental income | $ 3,441 | $ 3,288 |
Other income | 384 | 362 |
Total revenues | 3,825 | 3,650 |
| | |
Expenses: | | |
Operating | 1,888 | 1,858 |
General and administrative | 153 | 214 |
Depreciation | 1,030 | 774 |
Interest | 739 | 797 |
Property taxes | 260 | 264 |
Total expenses | 4,070 | 3,907 |
| | |
Loss before casualty gain and discontinued operations | (245) | (257) |
Casualty gains (Note D) | 455 | 250 |
Income (loss) from discontinued operations (Note A and E) | 213 -- | (895) |
Gain on sale of discontinued operations (Note E) | -- | 10,756 |
Net income | $ 423 | $ 9,854 |
| | |
Net income (loss) allocated to general partners | $ 17 | $ (36) |
Net income allocated to limited partners | 406 | 9,890 |
| $ 423 | $ 9,854 |
Per limited partnership unit: | | |
Income (loss) from continuing operations | $ .59 | $ (.02) |
Income (loss) from discontinued operations | .59 | (2.51) |
Gain on sale of discontinued operations | -- | 31.38 |
Net income per limited partnership unit | $ 1.18 | $ 28.85 |
| | |
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL PROPERTIES IV
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
| | | | |
| Limited | | | |
| Partnership | General | Limited | |
| Units | Partners | Partners | Total |
| | | | |
Original capital contributions | 343,106 | $ 1 | $171,553 | $171,554 |
| | | | |
Partners' deficit at | | | | |
December 31, 2007 | 342,773 | $ (7,366) | $ (3,725) | $(11,091) |
| | | | |
Net income for the three | | | | |
months ended March 31, 2008 | -- | 17 | 406 | 423 |
| | | | |
Partners' deficit at | | | | |
March 31, 2008 | 342,773 | $ (7,349) | $ (3,319) | $(10,668) |
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL PROPERTIES IV
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
| | |
| Three Months Ended |
| March 31, |
| 2008 | 2007 |
Cash flows from operating activities: | | |
Net income | $ 423 | $ 9,854 |
Adjustments to reconcile net income to net cash provided by | | |
operating activities: | | |
Depreciation | 1,249 | 1,054 |
Amortization of loan costs | 55 | 81 |
Casualty gain | (455) | (255) |
Gain on sale of investment property | -- | (10,756) |
Loss on extinguishment of debt | -- | 1,092 |
Change in accounts: | | |
Receivables and deposits | (374) | (243) |
Other assets | (246) | (322) |
Accounts payable | 131 | 454 |
Tenant security deposit liabilities | 28 | (11) |
Accrued property taxes | (230) | (500) |
Other liabilities | (173) | 89 |
Due to affiliates | 16 | 147 |
Net cash provided by operating activities | 424 | 684 |
| | |
Cash flows from investing activities: | | |
Net proceeds from sale of investment property | -- | 12,040 |
Property improvements and replacements | (3,312) | (3,447) |
Net withdrawals from restricted escrows | 1,160 | 1,995 |
Insurance proceeds received | 455 | 255 |
Net cash (used in) provided by investing activities | (1,697) | 10,843 |
| | |
Cash flows from financing activities: | | |
Payments on mortgage notes payable | (300) | (382) |
Repayment of mortgage notes payable | -- | (5,447) |
Prepayment penalty paid | -- | (1,005) |
Advances from affiliates | 923 | 1,685 |
Payments on advances from affiliates | -- | (3,255) |
Net cash provided by (used in) financing activities | 623 | (8,404) |
| | |
Net (decrease) increase in cash and cash equivalents | (650) | 3,123 |
| | |
Cash and cash equivalents at beginning of period | 1,346 | 518 |
Cash and cash equivalents at end of period | $ 696 | $ 3,641 |
Supplemental Disclosure of Cash Flow Information and Non-Cash Activities:
Cash paid for interest, net of capitalized interest, was approximately $904,000 and $1,367,000 for the three months ended March 31, 2008 and 2007, respectively.
At March 31, 2008 and 2007 approximately $1,037,000 and $1,177,000, respectively, of property improvements and replacements were included in accounts payable. At December 31, 2007 and 2006 approximately $1,693,000 and $1,906,000, respectively, of property improvements and replacements were included in accounts payable and are included in property improvements at March 31, 2008 and 2007, respectively.
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL PROPERTIES IV
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A – Basis of Presentation
The accompanying unaudited consolidated financial statements of Consolidated Capital Properties IV (the "Partnership" or "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of ConCap Equities, Inc. ("CEI" or the "General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2008, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2008. For further information, refer to the consolidated financi al statements and footnotes thereto included in the Partnership's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007. The General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust.
In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the accompanying consolidated statement of operations for the three months ended March 31, 2007 has been restated to reflect the operations of Foothill Place Apartments as discontinued operations as a result of the property being classified as held for sale at March 31, 2008. The accompanying consolidated statement of operations for the three months ended March 31, 2007 also includes the operations of Citadel Apartments, The Apartments and Lake Forest Apartments as discontinued operations as a result of the sale of the respective properties during 2007. Citadel Apartments was sold on March 30, 2007. The Apartments and Lake Forest Apartments were both sold on April 3, 2007 and Foothill Place is anticipated to sell in the second half of 2008. The respective assets and liabilities of Foothill Place Apartments are classified as held for sale as of March 31, 2008 and the accompanying December 31, 2007 consolidated balance sheet has also been restated for this classification. Included in income from discontinued operations for the three months ended March 31, 2008 is income of approximately $213,000, including revenues of approximately $1,115,000 for Foothill Place Apartments. Included in loss from discontinued operations for the three months ended March 31, 2007 is a loss of approximately $1,135,000 from Citadel Apartments and income of approximately $39,000, $3,000 and $198,000 from Lake Forest Apartments, The Apartments and Foothill Place Apartments, respectively, including revenues of approximately $447,000, $606,000, $368,000 and $991,000 from Citadel Apartments, Lake Forest Apartments, The Apartments and Foothill Place Apartments, respectively.
Certain reclassifications have been made to the 2007 balances to conform to the 2008 presentation.
Recent Accounting Pronouncement
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements”. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS No. 157 applies whenever other standards require assets or liabilities to be measured at fair value and does not expand the use of fair value in any new circumstances. SFAS No. 157 establishes a hierarchy that prioritizes the information used in developing fair value estimates. The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, such as the reporting entity’s own data. SFAS No. 157 requires fair value measurements to be disclosed by level within the fair value hierarchy. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, 7;Effective Date of FASB Statement No. 157”, which deferred the effective date of SFAS No. 157 for all nonrecurring fair value measurements of non-financial assets and non-financial liabilities until fiscal years beginning after November 15, 2008. The provisions of SFAS No. 157 are applicable to recurring fair value measurements of financial assets and liabilities for fiscal years beginning after November 15, 2007, which for the Partnership is generally limited to annual disclosures required by SFAS No. 107. The Partnership adopted the provisions of SFAS No. 157 during the three months ended March 31, 2008, and at that time determined no transition adjustment was required.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and depends on the General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for certain payments to affiliates for services and for reimbursements of certain expenses incurred by affiliates on behalf of the Partnership.
Affiliates of the General Partner receive 5% of gross receipts from all the Partnership's properties as compensation for providing property management services. The Partnership paid to such affiliates approximately $243,000 and $298,000 for the three months ended March 31, 2008 and 2007 respectively, which is included in operating expenses and income (loss) from discontinued operations.
Affiliates of the General Partner charged the Partnership for reimbursement of accountable administrative expenses amounting to approximately $334,000 and $410,000 for the three months ended March 31, 2008 and 2007, respectively, which is included in general and administrative expenses, investment properties, assets held for sale and gain on sale of discontinued operations. The portion of these reimbursements included in investment properties, assets held for sale, and gain on sale of discontinued operations for the three months ended March 31, 2008 and 2007, are construction management services provided by an affiliate of the General Partner of approximately $168,000 and $155,000, respectively. Additionally, in connection with the redevelopment project (as discussed in Note C), an affiliate of the General Partner is to receive a redevelopment supervision fee of 4% of the actual redevelopment costs incurred. The Partnership was charged approx imately $68,000 and $93,000 in redevelopment supervision fees during the three months ended March 31, 2008 and 2007, respectively, which are included in investment properties.
In accordance with the Partnership Agreement, AIMCO Properties, L.P., an affiliate of the General Partner advanced the Partnership approximately $923,000 and $1,685,000 during the three months ended March 31, 2008 and 2007, respectively, to assist with the payment of real estate taxes and operations for several investment properties and redevelopment draws for 865 Bellevue. During the period ended March 31, 2007, the Partnership repaid AIMCO Properties, L.P., approximately $3,345,000 which included approximately $90,000 of interest. The Partnership did not make any payments during the three months ended March 31, 2008. Interest on advances was charged at prime plus 2% which was 7.25% at March 31, 2008. At March 31, 2008, the amount of outstanding loans and accrued interest owed to AIMCO Properties, L.P. was approximately $939,000 and is included in due to affiliates. No such balances were outstanding at December 31, 20 07. Interest expense was approximately $16,000 and $75,000 for the three months ended March 31, 2008 and 2007, respectively. The Partnership may receive additional advances of funds from AIMCO Properties, L.P. although AIMCO Properties, L.P. is not obligated to provide such advances. For more information on AIMCO Properties, L.P., including copies of its audited balance sheets, please see its reports filed with the Securities and Exchange Commission. Subsequent to March 31, 2008, AIMCO Properties, L.P. advanced the Partnership funds of approximately $648,000 primarily to cover operating expenses and redevelopment costs at 865 Bellevue.
The Partnership Agreement provides for a special management fee equal to 9% of the total distributions made to the limited partners from cash flow provided by operations to be paid to the General Partner for executive and administrative management services. There were no such special management fees paid or earned during the three months ended March 31, 2008 and 2007 as there were no operating distributions during this time.
For acting as real estate broker in connection with the sale of South Port Apartments in 2003, the General Partner was paid a real estate commission of approximately $295,000. When the Partnership terminates, the General Partner will have to return this commission if the limited partners do not receive their original invested capital plus a 6% per annum cumulative return.
As of March 31, 2008 and December 31, 2007, the Partnership has distributed various amounts from the proceeds of property sales and refinancings. At March 31, 2008 and December 31, 2007, approximately $1,896,000 of these distributions from proceeds are payable to the General Partner and special limited partners as these distributions are subordinated and deferred per the Partnership Agreement until the limited partners receive 100% of their original capital contributions from surplus cash.
The Partnership insures its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty, general liability and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the General Partner. During the three months ended March 31, 2008, the Partnership was charged by AIMCO and its affiliates approximately $258,000 for hazard insurance coverage and fees associated with policy claims administration. Additional charges will be incurred by the Partnership during 2008 as other insurance policies renew later in the year. The Partnership was charged by AIMCO and its affiliates approximately $693,000 for insurance coverage and fees associated with policy claims administration during the year ended December 31, 2007.
Note C – Redevelopment of Property
During August 2006 the Partnership commenced with a phased redevelopment project for 865 Bellevue. The initial phase of the redevelopment project was initially estimated to cost approximately $7,500,000 and to be completed by the middle of 2007. The scope of the initial phase of the redevelopment project consists of modifications to the electrical wiring, replacement of HVAC and water heaters, new siding, roof replacements, windows and doors, clubhouse renovations and major landscaping. During the year ended December 31, 2007, the Partnership commenced with the second phase of the redevelopment project. The scope of the second phase of the redevelopment project consists of the addition of 34 garages, a gated entry, renovations to the clubhouse, pool, leasing and business center, tennis courts, new playground equipment and renovations to apartment kitchens, baths and living spaces. The revised estimated cost to complete both phases of the redevelopment project is approximately $18,100,000 and the redevelopment is expected to be completed by the end of 2008. During the years ended December 31, 2006 and 2007, approximately $3,245,000 and $8,028,000, respectively, of redevelopment costs had been incurred. During the three months ended March 31, 2008 additional costs of approximately $1,378,000 have been incurred. The Partnership expects to fund the redevelopment from operations, proceeds received in connection with the sales and financings of other investment properties and advances from AIMCO Properties, L.P, an affiliate of the General Partner, although AIMCO Properties, L.P. is not obligated to provide such advances. For more information on AIMCO Properties, L.P., including copies of its audited balance sheet, please see its reports filed with the Securities and Exchange Commission. During the construction period, certain expenses are being capitalized and will be depreciated over the remaining life of the property. During the three months ended March 31, 2008, approximately $68,000 of construction period interest, $1,000 of construction period operating costs and $4,000 of construction period taxes were capitalized related to the redevelopment. During the three months ended March 31, 2007, approximately $28,000 of construction period interest was capitalized related to the redevelopment.
Note D – Casualty Events
In January 2007, Arbours of Hermitage Apartments suffered fire damage to eight rental units. The estimated cost to repair the units was approximately $940,000. Insurance proceeds of approximately $484,000 and $455,000 were received during the year ended December 31, 2007 and the three months ended March 31, 2008 respectively. The Partnership recognized casualty gains of approximately $484,000 and $455,000 during the year ended December 31, 2007 and the three months ended March 31, 2008 as the damaged assets were fully depreciated at the time of the casualty. No additional insurance proceeds are expected to be received related to this casualty.
In July 2006, 865 Bellevue suffered fire damage to eighteen rental units. The estimated cost to repair the damaged units was approximately $1,012,000. During the three months ended March 31, 2007 the Partnership received approximately $250,000 of insurance proceeds related to this casualty. The Partnership recognized a casualty gain of approximately $250,000 during the three months ended March 31, 2007 as the damaged assets were fully depreciated at the time of the casualty. Additional proceeds of approximately $820,000 were received during the remainder of 2007 of which approximately $68,000 was to cover lost rents. The Partnership recognized a casualty gain of approximately $1,002,000 during the year ended December 31, 2007 as the damaged assets were fully depreciated at the time of the casualty.
Note E – Sale of Investment Property
On March 30, 2007, the Partnership sold Citadel Apartments to a third party for a gross sales price of $12,250,000. The net proceeds realized by the Partnership were approximately $12,040,000 after payment of closing costs of approximately $210,000. The Partnership used approximately $5,447,000 to repay the first and second mortgages encumbering the property. The Partnership realized a gain on sale of discontinued operations of approximately $10,756,000 during the three months ended March 31, 2007 as a result of the sale. In addition, the Partnership recorded a loss on extinguishment of debt of approximately $1,092,000 due to the write-off of unamortized loan costs and the payment of a prepayment penalty associated with the payment of the first mortgage of approximately $1,005,000. The loss on extinguishment of debt is included in loss from discontinued operations. In accordance with SFAS No. 144 the operations of Citadel Apartments, lo ss of approximately $1,135,000 including revenues of approximately $447,000, have been classified as loss from discontinued operations on the accompanying consolidated statement of operations for the three months ended March 31, 2007.
Note F – Contingencies
In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its General Partner and several of their affiliated partnerships and corporate entities. The action purported to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) that are named as nominal defendants, challenging, among other things, the acquisition of interests in certain General Partner entities by Insignia Financial Group, Inc. ("Insignia") and entities that were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; m anagement of the partnerships by the Insignia affiliates; and the series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs sought monetary damages and equitable relief, including judicial dissolution of the Partnership. In addition, during the third quarter of 2001, a complaint captioned Heller v. Insignia Financial Group (the "Heller action") was filed against the same defendants that are named in the Nuanes action. On or about August 6, 2001, plaintiffs filed a first amended complaint. The Heller action was brought as a purported derivative action, and asserted claims for, among other things, breach of fiduciary duty, unfair competition, conversion, unjust enrichment, and judicial dissolution. On January 28, 2002, the trial court granted defendants motion to strike the complaint. Plaintiffs took an appeal from this order.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed settlement of the Nuanes action and the Heller action. On June 13, 2003, the court granted final approval of the settlement and entered judgment in both the Nuanes and Heller actions. On August 12, 2003, an objector ("Objector") filed an appeal (the “Appeal”) seeking to vacate and/or reverse the order approving the settlement and entering judgment thereto. On May 4, 2004 the Objector filed a second appeal challenging the court’s use of a referee and its order requiring Objector to pay those fees.
On March 21, 2005, the Court of Appeals issued opinions in both pending appeals. With regard to the settlement and judgment entered thereto, the Court of Appeals vacated the trial court’s order and remanded to the trial court for further findings on the basis that the “state of the record is insufficient to permit meaningful appellate review”. The matter was transferred back to the trial court on June 21, 2005. With regard to the second appeal, the Court of Appeals reversed the order requiring the Objector to pay referee fees. With respect to the related Heller appeal, on July 28, 2005, the Court of Appeals reversed the trial court’s order striking the first amended complaint.
On August 18, 2005, Objector and his counsel filed a motion to disqualify the trial court based on a peremptory challenge and filed a motion to disqualify for cause on October 17, 2005, both of which were ultimately denied and/or struck by the trial court. On or about October 13, 2005 Objector filed a motion to intervene and on or about October 19, 2005 filed both a motion to take discovery relating to the adequacy of plaintiffs as derivative representatives and a motion to dissolve the anti-suit injunction in connection with settlement. On November 14, 2005, Plaintiffs filed a Motion For Further Findings pursuant to the remand ordered by the Court of Appeals. Defendants joined in that motion. On February 3, 2006, the Court held a hearing on the various matters pending before it and ordered additional briefing from the parties and Objector. On June 30, 2006, the trial court entered an order confirming its approval of the class act ion settlement and entering judgment thereto after the Court of Appeals had remanded the matter for further findings. The substantive terms of the settlement agreement remain unchanged. The trial court also entered supplemental orders on July 1, 2006, denying Objector’s Motion to File a Complaint in Intervention, Objector’s Motion for Leave of Discovery and Objector’s Motion to Dissolve the Anti-Suit Injunction. Notice of Entry of Judgment was served on July 10, 2006.
On August 31, 2006, the Objector filed a Notice of Appeal to the Court’s June 30, 2006 and July 1, 2006 orders. The matter was argued and submitted and the Court of Appeal issued an opinion on February 20, 2008 affirming the order approving the settlement and judgment entered thereto. On March 12, 2008 the Court of Appeal denied Appellant’s Petition for Re-Hearing. Appellant has filed a Petition for Review with the California Supreme Court. The matter has been submitted and the parties are awaiting a decision by the California Supreme Court regarding whether or not it will accept the matter for review.
The General Partner does not anticipate that any costs to the Partnership, whether legal or settlement costs, associated with these cases will be material to the Partnership’s overall operations.
The Partnership is unaware of any other pending or outstanding litigation matters involving it or its investment properties that are not of a routine nature arising in the ordinary course of business.
Environmental
Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, and potential fines or penalties imposed by such agencies in connection therewith, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of its properties, the Partnership could potentially be liable for environmental liabilities or costs associated with its properties.
Mold
The Partnership is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements. The Partnership has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure. Affiliates of the General Partner have implemented policies, procedures, third-party audits and training and the General Partner believes that these measures will prevent or eliminate mold exposure and will minimize the effects that mold may have on residents. To date, the Partnership has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. Because the law regarding mold is unsettled and subject to change the General Partner can make no assura nce that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Partnership’s consolidated financial condition or results of operations.
Note G – Subsequent Event
Subsequent to March 31, 2008, the Partnership entered into a sales contract with a third party relating to the sale of both Citadel Village Apartments and Village East Apartments which are expected to close during the second quarter of 2008. The Partnership determined that certain criteria of SFAS No. 144 were not met at March 31, 2008 and therefore continues to report the assets and liabilities of the two investment properties as held for investment and their respective operations as continuing operations.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements in certain circumstances. Certain information included in this Report contains or may contain information that is forward-looking, including, without limitation, statements regarding the effect of redevelopments, the Partnership’s future financial performance, including the Partnership’s ability to maintain current or meet projected occupancy and rent levels, and the effect of government regulations. Actual results may differ materially from those described in the forward-looking statements and, in addition, will be affected by a variety of risks and factors that are beyond the Partnership’s control including, without limitation: natural disasters such as hurricanes; national and local economic conditions; the general level of interest rates; energy costs; the terms of governmental regulations that affect the Partner ship’s properties and interpretations of those regulations; the competitive environment in which the Partnership operates; financing risks, including the risk that the Partnership’s cash flows from operations may be insufficient to meet required payments of principal and interest; real estate risks, including fluctuations in real estate values and the general economic climate in local markets and competition for tenants in such markets; insurance risks; development risks; litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by the Partnership. Readers should carefully review the Partnership’s consolidated financial statements and the notes thereto, as well as the risk factors described in the documents the Partnership files from time to time with the Secur ities and Exchange Commission.
The Partnership's investment properties consist of eight apartment complexes. The following table sets forth the average occupancy of the properties for the three months ended March 31, 2008 and 2007 including Foothill Place Apartments, which is classified as held for sale at March 31, 2008:
| | |
| Average Occupancy |
Property | 2008 | 2007 |
| | |
Arbours of Hermitage Apartments | 97% | 95% |
Nashville, TN | | |
Belmont Place (1) | 89% | 94% |
Marietta, GA | | |
Citadel Village Apartments | 98% | 96% |
Colorado Springs, CO | | |
Foothill Place Apartments (2) | 98% | 95% |
Salt Lake City, UT | | |
865 Bellevue Apartments | 87% | 88% |
Nashville, TN | | |
Post Ridge Apartments (3) | 98% | 95% |
Nashville, TN | | |
Rivers Edge Apartments | 99% | 98% |
Auburn, WA | | |
Village East Apartments | 94% | 96% |
Colorado Springs, CO | | |
(1)
The decrease in occupancy at Belmont Place Apartments is due to market competition. The property has been increasing its marketing and resident retention efforts to attract new tenants.
(2)
The increase in occupancy at Foothill Place Apartments is due to a stabilized market as well as the property upgrading apartment units as they become available for rent.
(3)
The increase in occupancy at Post Ridge Apartments is due to an increase in resident retention and outreach marketing.
The Partnership’s financial results depend upon a number of factors including the ability to attract and maintain tenants at the investment properties, interest rates on mortgage loans, costs incurred to operate the investment properties, general economic conditions and weather. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, the General Partner may use rental concessions and rental rate reductions to offset softening market conditions, accordingly, there is no guarantee that the General Part ner will be able to sustain such a plan. Further, a number of factors that are outside the control of the Partnership such as the local economic climate and weather can adversely or positively affect the Partnership’s financial results.
Results of Operations
The Partnership’s net income for the three months ended March 31, 2008 was approximately $423,000, compared to net income of approximately $9,854,000 for the three months ended March 31, 2007. The decrease in net income is primarily due to the recognition of a gain on sale of discontinued operations in 2007 and an increase in total expenses partially offset by an increase in the recognition of casualty gains, an increase in total revenues and an increase in income from discontinued operations.
In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the accompanying consolidated statement of operations for the three months ended March 31, 2007 has been restated to reflect the operations of Foothill Place Apartments as discontinued operations as a result of the property being classified as held for sale at March 31, 2008. The accompanying consolidated statement of operations for the three months ended March 31, 2007 also includes the operations of Citadel Apartments, The Apartments and Lake Forest Apartments as discontinued operations as a result of the sale of the respective properties during 2007. Citadel Apartments was sold on March 30, 2007. The Apartments and Lake Forest Apartments were both sold on April 3, 2007 and Foothill Place is anticipated to sell in the second half of 2008. The respective assets and liabilities of Foothill Place Apartments are classified as held for sale as of March 31, 2008 and the accompanying December 31, 2007 consolidated balance sheet has also been restated for this classification. Included in income from discontinued operations for the three months ended March 31, 2008 is income of approximately $213,000, including revenues of approximately $1,115,000 for Foothill Place Apartments. Included in loss from discontinued operations for the three months ended March 31, 2007 is a loss of approximately $1,135,000 from Citadel Apartments and income of approximately $39,000, $3,000 and $198,000 from Lake Forest Apartments, The Apartments and Foothill Place Apartments, respectively, including revenues of approximately $447,000, $606,000, $368,000 and $991,000 from Citadel Apartments, Lake Forest Apartments, The Apartments and Foothill Place Apartments, respectively.
On March 30, 2007, the Partnership sold Citadel Apartments to a third party for a gross sales price of $12,250,000. The net proceeds realized by the Partnership were approximately $12,040,000 after payment of closing costs of approximately $210,000. The Partnership used approximately $5,447,000 to repay the first and second mortgages encumbering the property. The Partnership realized a gain on sale of discontinued operations of approximately $10,756,000 during the three months ended March 31, 2007 as a result of the sale. In addition, the Partnership recorded a loss on extinguishment of debt of approximately $1,092,000 due to the write-off of unamortized loan costs and the payment of a prepayment penalty associated with the payment of the first mortgage of approximately $1,005,000. The loss on extinguishment of debt is included in loss from discontinued operations.
Total revenues increased due to an increase in both rental income and other income. The increase in rental income is due to an increase in occupancy at four of the investment properties and an increase in the average rental rate at six of the investment properties which more than offset the decrease in occupancy at three of the investment properties. Other income increased due to an increase in interest income and resident utility payments offset by a slight decrease in lease cancellation fees.
In January 2007, Arbours of Hermitage Apartments suffered fire damage to eight rental units. The estimated cost to repair the units was approximately $940,000. Insurance proceeds of approximately $484,000 and $455,000 were received during the year ended December 31, 2007 and the three months ended March 31, 2008 respectively. The Partnership recognized casualty gains of approximately $484,000 and $455,000 during the year ended December 31, 2007 and the three months ended March 31, 2008 as the damaged assets were fully depreciated at the time of the casualty. No additional insurance proceeds are expected to be received related to this casualty.
In July 2006, 865 Bellevue suffered fire damage to eighteen rental units. The estimated cost to repair the damaged units was approximately $1,012,000. During the three months ended March 31, 2007 the Partnership received approximately $250,000 of insurance proceeds related to this casualty. The Partnership recognized a casualty gain of approximately $250,000 during the three months ended March 31, 2007 as the damaged assets were fully depreciated at the time of the casualty. Additional proceeds of approximately $820,000 were received during the remainder of 2007 of which approximately $68,000 was to cover lost rents. The Partnership recognized a casualty gain of approximately $1,002,000 during the year ended December 31, 2007 as the damaged assets were fully depreciated at the time of the casualty.
Total expenses increased due to an increase in depreciation expense partially offset by decreases in general and administrative and interest expenses. Operating and property tax expenses remained relatively constant for the comparable periods. Depreciation expense increased due to assets being placed into service at several of the investment properties over the past year. Interest expense decreased due to a decrease in interest charged on advances received from AIMCO Properties, L.P. during the comparable periods, as a result of a decrease in the principal balances owed during the periods, scheduled principal payments on the mortgages encumbering the investment properties and an increase in capitalized interest related to the redevelopment of 865 Bellevue. Operating expense remained relatively constant as a decrease in insurance expense was offset by increases in administrative and advertising expenses. The decrease in insurance e xpense is due to a decrease in hazard insurance premiums at four of the investment properties. Administrative expense increased as a result of an increase in common area cleaning, telephone costs and office costs predominantly at Belmont Place. Advertising expense increased due primarily to an increase in marketing costs at 865 Bellevue.
General and administrative expense decreased due to a decrease in management reimbursements as a result of the 2007 investment property sales. Included in general and administrative expenses for the three months ended March 31, 2008 and 2007 are management reimbursements to the General Partner as allowed under the Partnership Agreement. Also included in general and administrative expenses for the three months ended March 31, 2008 and 2007 are costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement.
Liquidity and Capital Resources
At March 31, 2008, the Partnership had cash and cash equivalents of approximately $696,000 compared to approximately $3,641,000 at March 31, 2007. The decrease in cash and cash equivalents of approximately $650,000 from December 31, 2007, is due to approximately $1,697,000 of cash used in investing activities, partially offset by approximately $623,000 and $424,000 of cash provided by financing and operating activities, respectively. Cash used in investing activities consisted of property improvements and replacements partially offset by withdrawals from restricted escrows and the receipt of insurance proceeds. Cash provided by financing activities consisted of the receipt of advances from affiliates, partially offset by payments on mortgages notes payable. The Partnership invests its working capital reserves in interest bearing accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the properties to adequately maintain the physical assets and other operating needs of the Partnership and to comply with Federal, state, and local legal and regulatory requirements. The General Partner monitors developments in the area of legal and regulatory compliance. Capital improvements planned for each of the Partnership's properties are detailed below.
Arbours of Hermitage Apartments
During the three months ended March 31, 2008, the Partnership completed approximately $382,000 of capital improvements at Arbours of Hermitage Apartments, consisting primarily of casualty repairs and floor covering replacements. These improvements were funded from operating cash flow and insurance proceeds. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2008. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.
Belmont Place
During the three months ended March 31, 2008, the Partnership completed approximately $27,000 of capital improvements at Belmont Place, consisting primarily of outdoor lighting fixtures replacements and floor covering replacements. These improvements were funded from operating cash flow. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2008. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.
Citadel Village Apartments
During the three months ended March 31, 2008, the Partnership completed approximately $33,000 of capital improvements at Citadel Village Apartments, consisting primarily of fitness equipment and recreational facility upgrades and floor covering replacements. These improvements were funded from operating cash flow. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2008. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.
Foothill Place Apartments
During the three months ended March 31, 2008, the Partnership completed approximately $673,000 of capital improvements at Foothill Place Apartments, consisting primarily of recreational facility improvements, plumbing upgrades, floor covering, appliance and countertop replacements, structural improvements, exterior painting and grounds lighting upgrades. These improvements were funded from operating cash flow and advances from AIMCO Properties, L.P., although AIMCO Properties, L.P. is not obligated to provide such advances. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2008. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.
865 Bellevue Apartments
During the three months ended March 31, 2008, the Partnership completed approximately $1,378,000 of capital improvements at 865 Bellevue Apartments, consisting primarily of redevelopment costs. These improvements were funded from operating cash flow, Partnership reserves and advances from AIMCO Properties, L.P., although AIMCO Properties, L.P. is not obligated to provide such advances. During August 2006 the Partnership commenced with a phased redevelopment project for 865 Bellevue. The initial phase of the redevelopment project was initially estimated to cost approximately $7,500,000 and to be completed by the middle of 2007. The scope of the initial phase of the redevelopment project consists of modifications to the electrical wiring, replacement of HVAC and water heaters, new siding, roof replacements, windows and doors, clubhouse renovations and major landscaping. During the year ended December 31, 2007, the Partnership commenced wi th the second phase of the redevelopment project. The scope of the second phase of the redevelopment project consists of the addition of 34 garages, a gated entry, renovations to the clubhouse, pool, leasing and business center, tennis courts, new playground equipment and renovations to apartment kitchens, baths and living spaces. The revised estimated cost to complete both phases of the redevelopment project is approximately $18,100,000 and the redevelopment is expected to be completed by the end of 2008. During the years ended December 31, 2006 and 2007, approximately $3,245,000 and $8,028,000, respectively, of redevelopment costs had been incurred. During the three months ended March 31, 2008 additional costs of approximately $1,378,000 have been incurred. The Partnership expects to fund the redevelopment from operations, proceeds received in connection with the sales and financings of other investment properties and advances from AIMCO Properties, L.P, an affiliate of the General Partner, although AIMCO Properties, L.P. is not obligated to provide such advances. For more information on AIMCO Properties, L.P., including copies of its audited balance sheet, please see its reports filed with the Securities and Exchange Commission. During the construction period, certain expenses are being capitalized and will be depreciated over the remaining life of the property. During the three months ended March 31, 2008, approximately $68,000 of construction period interest, $1,000 of construction period operating costs and $4,000 of construction period taxes were capitalized related to the redevelopment. Additional routine capital expenditures are anticipated during 2008. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.
Post Ridge Apartments
During the three months ended March 31, 2008, the Partnership completed approximately $75,000 of capital improvements at Post Ridge Apartments, consisting primarily of roof replacements, plumbing fixtures, electrical and breaker replacements, floor covering replacements and kitchen and bath upgrades. These improvements were funded from operating cash flow. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2008. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.
Rivers Edge Apartments
During the three months ended March 31, 2008, the Partnership completed approximately $11,000 of capital improvements at Rivers Edge Apartments, consisting primarily of floor covering replacements. These improvements were funded from operating cash flow. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2008. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.
Village East Apartments
During the three months ended March 31, 2008, the Partnership completed approximately $77,000 of capital improvements at Village East Apartments, consisting primarily of water heater replacements, floor covering replacements and recreational facility and grounds lighting upgrades. These improvements were funded from operating cash flow. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2008. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.
Capital expenditures will be incurred only if cash is available from operations, Partnership cash reserves or advances from AIMCO Properties, L.P., although AIMCO Properties, L.P. is not obligated to provide such advances. To the extent that capital improvements are completed, the Partnership’s distributable cash flow, if any, may be adversely affected at least in the short term.
The Partnership's assets are thought to be generally sufficient for any near-term needs (exclusive of capital improvements and the redevelopment project) of the Partnership. The mortgage indebtedness encumbering the Partnership’s investment properties of approximately $73,748,000 matures at various dates between 2008 and 2034 with balloon payments of approximately $27,936,000, $6,810,000, $8,964,000, $1,644,000 and $3,086,000 due in 2008, 2010, 2015, 2020 and 2022, respectively. The General Partner will attempt to refinance such indebtedness and/or sell the properties prior to such maturity dates. If a property cannot be refinanced or sold for a sufficient amount, the Partnership will risk losing such property through foreclosure.
Subsequent to March 31, 2008, the Partnership entered into a sales contract with a third party relating to the sale of both Citadel Village Apartments and Village East Apartments, which are projected to close during the second quarter of 2008. The Partnership is also actively marketing Foothill Place Apartments for sale.
There were no distributions during the three months ended March 31, 2008 and 2007. Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves and the timing of debt maturities, refinancings and/or property sales. The Partnership’s cash available for distribution is reviewed on a monthly basis. In light of the amounts accrued and payable to affiliates of the General Partner at March 31, 2008, and the redevelopment project at 865 Bellevue, there can be no assurance that the Partnership will generate sufficient funds from operations, after planned capital improvements, to permit any distributions to its partners during the remainder of 2008 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 237,778.5 limited partnership units (the “Units”) in the Partnership representing 69.37% of the outstanding Units at March 31, 2008. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 69.37% of the outstanding units, AIMCO is in a position to control all such voting decisions with respect to the Partnership. Although the General Partner owes fiduciary duties to the limited partners of the Partnership, the General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the General Partner, as general partner, to the Partnership and its limited partners may come into conflict with the duties of the General Partner to AIMCO as its sole stockholder.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the Partnership to make estimates and assumptions. The Partnership believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity.
Impairment of Long-Lived Assets
Investment properties are recorded at cost, less accumulated depreciation, unless the carrying amount of the asset is not recoverable. If events or circumstances indicate that the carrying amount of a property may not be recoverable, the Partnership will make an assessment of its recoverability by comparing the carrying amount to the Partnership’s estimate of the undiscounted future cash flows, excluding interest charges, of the property. If the carrying amount exceeds the aggregate undiscounted future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property.
Real property investment is subject to varying degrees of risk. Several factors may adversely affect the economic performance and value of the Partnership’s investment properties. These factors include, but are not limited to, general economic climate; competition from other apartment communities and other housing options; local conditions, such as loss of jobs or an increase in the supply of apartments that might adversely affect apartment occupancy or rental rates; changes in governmental regulations and the related cost of compliance; increases in operating costs (including real estate taxes) due to inflation and other factors, which may not be offset by increased rents; and changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multi-family housing. Any adverse changes in these factors could cause impairment of the Partnership’s assets.
Capitalized Costs Related to Redevelopment and Construction Projects
The Partnership capitalizes costs incurred in connection with capital expenditure activities, including redevelopment and construction projects. Costs including interest, property taxes and operating costs associated with redevelopment and construction projects are capitalized during periods in which redevelopment and construction projects are in progress in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 34 “Capitalization of Interest Costs” and SFAS No. 67, “Accounting for Costs and the Initial Rental Operations of Real Estate Properties.” Included in these capitalized costs are payroll costs associated with time spent by site employees in connection with the planning, execution and control of all capital expenditure activities at the property level.
Revenue Recognition
The Partnership generally leases apartment units for twelve-month terms or less. The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Rental income attributable to leases, net of any concessions, is recognized on a straight-line basis over the term of the lease. The Partnership evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants.
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 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 such term is 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. Based on such evaluation, the principal executive officer and principal financial officer of the 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. There have been no significant changes in the Partnership’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Partnership’s internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its General Partner and several of their affiliated partnerships and corporate entities. The action purported to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) that are named as nominal defendants, challenging, among other things, the acquisition of interests in certain General Partner entities by Insignia Financial Group, Inc. ("Insignia") and entities that were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; m anagement of the partnerships by the Insignia affiliates; and the series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs sought monetary damages and equitable relief, including judicial dissolution of the Partnership. In addition, during the third quarter of 2001, a complaint captioned Heller v. Insignia Financial Group (the "Heller action") was filed against the same defendants that are named in the Nuanes action. On or about August 6, 2001, plaintiffs filed a first amended complaint. The Heller action was brought as a purported derivative action, and asserted claims for, among other things, breach of fiduciary duty, unfair competition, conversion, unjust enrichment, and judicial dissolution. On January 28, 2002, the trial court granted defendants motion to strike the complaint. Plaintiffs took an appeal from this order.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed settlement of the Nuanes action and the Heller action. On June 13, 2003, the court granted final approval of the settlement and entered judgment in both the Nuanes and Heller actions. On August 12, 2003, an objector ("Objector") filed an appeal (the “Appeal”) seeking to vacate and/or reverse the order approving the settlement and entering judgment thereto. On May 4, 2004 the Objector filed a second appeal challenging the court’s use of a referee and its order requiring Objector to pay those fees.
On March 21, 2005, the Court of Appeals issued opinions in both pending appeals. With regard to the settlement and judgment entered thereto, the Court of Appeals vacated the trial court’s order and remanded to the trial court for further findings on the basis that the “state of the record is insufficient to permit meaningful appellate review”. The matter was transferred back to the trial court on June 21, 2005. With regard to the second appeal, the Court of Appeals reversed the order requiring the Objector to pay referee fees. With respect to the related Heller appeal, on July 28, 2005, the Court of Appeals reversed the trial court’s order striking the first amended complaint.
On August 18, 2005, Objector and his counsel filed a motion to disqualify the trial court based on a peremptory challenge and filed a motion to disqualify for cause on October 17, 2005, both of which were ultimately denied and/or struck by the trial court. On or about October 13, 2005 Objector filed a motion to intervene and on or about October 19, 2005 filed both a motion to take discovery relating to the adequacy of plaintiffs as derivative representatives and a motion to dissolve the anti-suit injunction in connection with settlement. On November 14, 2005, Plaintiffs filed a Motion For Further Findings pursuant to the remand ordered by the Court of Appeals. Defendants joined in that motion. On February 3, 2006, the Court held a hearing on the various matters pending before it and ordered additional briefing from the parties and Objector. On June 30, 2006, the trial court entered an order confirming its approval of the class act ion settlement and entering judgment thereto after the Court of Appeals had remanded the matter for further findings. The substantive terms of the settlement agreement remain unchanged. The trial court also entered supplemental orders on July 1, 2006, denying Objector’s Motion to File a Complaint in Intervention, Objector’s Motion for Leave of Discovery and Objector’s Motion to Dissolve the Anti-Suit Injunction. Notice of Entry of Judgment was served on July 10, 2006.
On August 31, 2006, the Objector filed a Notice of Appeal to the Court’s June 30, 2006 and July 1, 2006 orders. The matter was argued and submitted and the Court of Appeal issued an opinion on February 20, 2008 affirming the order approving the settlement and judgment entered thereto. On March 12, 2008 the Court of Appeal denied Appellant’s Petition for Re-Hearing. Appellant has filed a Petition for Review with the California Supreme Court. The matter has been submitted and the parties are awaiting a decision by the California Supreme Court regarding whether or not it will accept the matter for review.
The General Partner does not anticipate that any costs to the Partnership, whether legal or settlement costs, associated with these cases will be material to the Partnership’s overall operations.
ITEM 5.
OTHER INFORMATION
None.
ITEM 6.
EXHIBITS
See Exhibit Index.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| |
| CONSOLIDATED CAPITAL PROPERTIES IV |
| |
| By: ConCap Equities, Inc. |
| General Partner |
| |
Date: May 14, 2008 | By: /s/Martha L. Long |
| Martha L. Long |
| Senior Vice President |
| |
Date: May 14, 2008 | By: /s/Stephen B. Waters |
| Stephen B. Waters |
| Vice President |
CONSOLIDATED CAPITAL PROPERTIES IV
EXHIBIT INDEX
Exhibit
3
Certificate of Limited Partnership, as amended to date.
3.1
Seventh Amendment to The Limited Partnership Agreement of Consolidated Capital Properties IV, dated October 15, 2006 (Incorprorated by reference to the Quarterly Report on Form 10-QSB for the quarter ended September 30, 2006).
10.81
Multifamily Note dated August 29, 2000 between ConCap Rivers Edge Associates, Ltd., a Texas Limited Partnership, and GMAC Commercial Mortgage Corporation, a California Corporation. (Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended September 30, 2000).
10.93
Form of Cross-Collateralization Agreement dated October 22, 2003 between Foothill Chimney Associates Limited Partnership, a Georgia limited partnership, and Federal Home Loan Mortgage Corporation, a corporation organized and existing under the laws of the United States of America. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2003).
10.94
Form of Debt Service Escrow Agreement dated October 22, 2003 between Foothill Chimney Associates Limited Partnership, a Georgia limited partnership, and Federal Homes Loan Mortgage Corporation, a corporate instrumentality of the United States of America. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2003).
10.95
Form of Second Modification to Replacement Reserve Agreement dated October 22, 2003 between Foothill Chimney Associates Limited Partnership, a Georgia limited partnership, and Federal Homes Loan Mortgage Corporation, a corporate instrumentality of the United States of America. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2003).
10.107
Promissory Note (Belmont) dated April 29, 2005 between Foothill Chimney Associates Limited Partnership, a Georgia limited partnership and ING USA Annuity and Life Insurance Company. (Incorporated by reference to Current Report on Form 8-K dated April 29, 2005).
10.108
Form of Letter of Credit (Belmont) dated April 29, 2005 between Foothill Chimney Associates Limited Partnership, a Georgia limited partnership and ING USA Annuity and Life Insurance Company. (Incorporated by reference to Current Report on Form 8-K dated April 29, 2005).
10.109
Deed to Secure Debt and Security Agreement (Belmont) dated April 29, 2005 between Foothill Chimney Associates Limited Partnership, a Georgia limited partnership and ING USA Annuity and Life Insurance Company. (Incorporated by reference to Current Report on Form 8-K dated April 29, 2005).
10.110
Deed of Trust, Assignment of Leases and Rents and Security Agreement dated August 31, 2005 between AIMCO Arbours of Hermitage, LLC, a Delaware limited liability company and New York Life Insurance Company. (Incorporated by reference to Current Report on Form 8-K dated August 31, 2005).
10.111
Promissory Note dated August 31, 2005 between AIMCO Arbours of Hermitage, LLC, a Delaware limited liability company and New York Life Insurance Company. (Incorporated by reference to Current Report on Form 8-K dated August 31, 2005).
10.112
Guarantee Agreement dated August 31, 2005 between AIMCO Properties, L.P., a Delaware limited partnership and New York Life Insurance Company. (Incorporated by reference to Current Report on Form 8-K dated August 31, 2005).
10.113
Deed of Trust, Security Agreement and Fixture Filing dated August 30, 2005 between Foothill Chimney Associates L.P., a Georgia limited partnership and Transamerica Financial Life Insurance Company. (Incorporated by reference to the Quarterly Report on Form 10-Q dated September 30, 2005).
10.114
Promissory Note dated August 30, 2005 between Foothill Chimney Associates, L.P., a Georgia limited partnership and Transamerica Financial Life Insurance Company. (Incorporated by reference to the Quarterly Report on Form 10-Q dated September 30, 2005).
10.115
Deed of Trust, Assignment of Leases and Rents and Security Agreement dated November 30, 2005 between AIMCO Knollwood, LLC, a Delaware limited liability company and New York Life Insurance Company (Incorporated by reference to Current Report on Form 8-K dated November 30, 2005).
10.116
Promissory Note dated November 30, 2005 between AIMCO Knollwood, LLC, a Delaware limited liability company and New York Life Insurance Company. (Incorporated by reference to Current Report on Form 8-K dated November 30, 2005).
10.117
Form of Escrow Agreement dated November 30, 2005 between AIMCO Knollwood, LLC, a Delaware limited liability company and New York Life Insurance Company. (Incorporated by reference to Current Report on Form 8-K dated November 30, 2005).
10.118
Guarantee Agreement dated November 30, 2005 between AIMCO Properties, L.P., a Delaware limited partnership and New York Life Insurance Company. (Incorporated by reference to Current Report on Form 8-K dated November 30, 2005).
10.126
Purchase and Sale contract between Consolidated Capital Properties IV, a California limited partnership, Apartment Associates, Ltd., a Texas limited partnership and the affiliated Selling Partnership, and Northview Realty Group, Inc., a Canadian corporation, dated December 4, 2006. (Incorporated by reference to Current Report on Form 8-K dated December 4, 2006).
10.126a
First Amendment to Purchase and Sale contract between Consolidated Capital Properties IV, a California limited partnership, Apartment Associates, Ltd., a Texas limited partnership and the affiliated Selling Partnership, and Northview Realty Group, Inc., a Canadian corporation, dated January 18, 2007. (Incorporated by reference to Current Report on Form 8-K dated January 18, 2007).
10.127
Purchase and Sale contract between ConCap Citadel Associates, Ltd., a Texas limited partnership, and Cash Investments of El Paso, LLC, a Texas limited liability company dated December 11, 2006. (Incorporated by reference to Current Report on Form 8-K dated December 11, 2006).
10.127a
First Amendment to Purchase and Sale contract between ConCap Citadel Associates, Ltd., a Texas limited partnership, and Cash Investments of El Paso, LLC, a Texas limited liability company dated January 12, 2007. (Incorporated by reference to Current Report on Form 8-K dated January 12, 2007).
10.128
Third Amendment to Purchase and Sale Contract between Consolidated Capital Properties IV, a California limited partnership, Apartment Associates, Ltd, a Texas limited partnership and the affiliated Selling Partnerships, and 11402 Evans Omaha LLC, 7349 Grant Omaha LLC, and 1010 Grand Plaza Omaha LLC, all three of which are Iowa limited liability companies, dated March 28, 2007. (Incorporated by reference to Current Report on Form 8-K dated March 28, 2007).
10.129
Multifamily Note between Capmark Bank and Post Ridge Associates, Ltd., Limited Partnership, a Tennessee limited partnership, dated August 31, 2007. (Incorporated by reference to Current Report on Form 8-K dated August 31, 2007.)
10.130
Amended and Restated Multifamily Note (Recast Transaction) between Federal Home Loan Mortgage Corporation and Post Ridge Associates, Ltd., Limited Partnership, a Tennessee limited partnership, dated August 31, 2007. (Incorporated by reference to Current Report on Form 8-K dated August 31, 2007.)
10.131
Deed of Trust, Security Agreement and Fixture Filing between CCP IV Associates, Ltd., a Texas limited partnership (Citadel Village) and Transamerica Occidental Life Insurance Company, an Iowa corporation dated September 21, 2007. (Incorporated by reference to Current Report on Form 8-K dated September 21, 2007.)
10.132
Secured Promissory Note between CCP IV Associates, Ltd., a Texas limited partnership (Citadel Village) and Transamerica Occidental Life Insurance Company, an Iowa corporation dated September 21, 2007. (Incorporated by reference to Current Report on Form 8-K dated September 21, 2007.)
10.133
Carveout Guarantee and Indemnity Agreement between AIMCO Properties, L.P., a Delaware limited partnership (Citadel Village) and Transamerica Occidental Life Insurance Company, an Iowa corporation dated September 21, 2007. (Incorporated by reference to Current Report on Form 8-K dated September 21, 2007.)
10.134
Deed of Trust, Security Agreement and Fixture Filing between CCP IV Associates, Ltd., a Texas limited partnership (Village East) and Transamerica Occidental Life Insurance Company, an Iowa corporation dated November 30, 2007. (Incorporated by reference to Current Report on Form 8-K dated November 30, 2007.)
10.135
Secured Promissory Note between CCP IV Associates, Ltd., a Texas limited partnership (Village East) and Transamerica Occidental Life Insurance Company, an Iowa corporation dated November 30, 2007. (Incorporated by reference to Current Report on Form 8-K dated November 30, 2007.)
10.136
Carveout Guarantee and Indemnity Agreement between AIMCO Properties, L.P., a Delaware limited partnership (Village East) and Transamerica Occidental Life Insurance Company, an Iowa corporation dated November 30, 2007. (Incorporated by reference to Current Report on Form 8-K dated November 30, 2007.)
10.138
Purchase and Sale Contract between CCP IV Associates, Ltd., a Texas limited partnership and the affiliated Selling Partnerships, and Hamilton Zanze and Company, a California corporation, dated April 2, 2008. (Citadel Village and Village East) (Incorporated by reference to Current Report on Form 8-K dated April 2, 2008).
31.1
Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of equivalent of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.