UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended June 30, 2002
[] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from _________to _________
Commission file number 0-10273
CONSOLIDATED CAPITAL PROPERTIES III
(Exact name of small business issuer as specified in its charter)
California 94-2653686
(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
(Issuer's telephone number)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CAPITAL PROPERTIES III
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 2002
Assets
Cash and cash equivalents $ 303
Receivables and deposits 114
Restricted escrows 118
Other assets 460
Investment properties:
Land $ 507
Buildings and related personal property 11,749
12,256
Less accumulated depreciation (8,767) 3,489
$ 4,484
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 20
Tenant security deposit liabilities 79
Accrued property taxes 88
Other liabilities 280
Mortgage notes payable 8,732
Partners' Deficit
General partners $(1,869)
Limited partners (158,582 units issued and
outstanding) (2,846) (4,715)
$ 4,484
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL PROPERTIES III
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
(Restated) (Restated)
Revenues:
Rental income $ 709 $ 761 $ 1,435 $ 1,500
Other income 74 49 141 102
Total revenues 783 810 1,576 1,602
Expenses:
Operating 350 382 696 740
General and administrative 65 90 133 203
Depreciation 157 150 313 295
Interest 169 146 342 253
Property taxes 49 51 98 99
Total expenses 790 819 1,582 1,590
Net (loss) income $ (7) $ (9) $ (6) $ 12
Net income allocated to general
partners (4%) $ -- $ -- $ -- $ 1
Net (loss) income allocated to
limited partners (96%) (7) (9) (6) 11
$ (7) $ (9) $ (6) $ 12
Net (loss) income per limited
partnership unit
$ (0.05) $ (0.06) $ (0.04) $ 0.07
Distributions per limited
partnership unit $ 1.91 $ 0.92 $ 1.91 $ 2.93
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL PROPERTIES III
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 158,945 $ 1 $ 79,473 $ 79,474
Partners' deficit
at December 31, 2001 158,582 $(1,869) $ (2,537) $ (4,406)
Distributions to partners -- -- (303) (303)
Net loss for the six months
ended June 30, 2002 -- -- (6) (6)
Partners' deficit
at June 30, 2002 158,582 $(1,869) $ (2,846) $ (4,715)
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL PROPERTIES III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2002 2001
Cash flows from operating activities:
Net (loss) income $ (6) $ 12
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation 313 295
Loss on early extinguishment of debt -- 36
Amortization of loan costs 12 16
Change in accounts:
Receivables and deposits (52) (267)
Other assets (44) (6)
Accounts payable (87) (21)
Tenant security deposit liabilities (1) (2)
Accrued property taxes 88 89
Other liabilities 64 69
Net cash provided by operating activities 287 221
Cash flows from investing activities:
Property improvements and replacements (148) (345)
Insurance proceeds received 173 --
Net withdrawals from restricted escrows 60 30
Net cash provided by (used in) investing activities 85 (315)
Cash flows from financing activities:
Loan costs paid -- (172)
Proceeds from mortgage note payable -- 4,225
Repayment of mortgage note payable -- (2,200)
Payments on mortgage notes payable (102) (13)
Distributions to partners (303) (484)
Advance from affiliate -- 150
Net cash (used in) provided by financing activities (405) 1,506
Net (decrease) increase in cash and cash equivalents (33) 1,412
Cash and cash equivalents at beginning of period 336 545
Cash and cash equivalents at end of period $ 303 $ 1,957
Supplemental disclosure of cash flow information:
Cash paid for interest $ 333 $ 214
At December 31, 2001, receivables and deposits and cash flow from investing
activities were adjusted by approximately $173,000 for non-cash activity related
to insurance proceeds received which were held on deposit with the mortgage
lender and received during the six months ended June 30, 2002.
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL PROPERTIES III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Consolidated
Capital Properties III (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-QSB and Item 310(b) of
Regulation S-B. 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 the general partner of the Partnership,
ConCap Equities, Inc. (the "General Partner"), all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended June
30, 2002 are not necessarily indicative of the results that may be expected for
the fiscal year ending December 31, 2002. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Partnership's Annual Report on Form 10-KSB for the fiscal year ended December
31, 2001. The General Partner is wholly-owned by Apartment Investment and
Management Company ("AIMCO"), a publicly traded real estate investment trust.
Effective April 1, 2002, the Partnership adopted Statement of Financial
Accounting Standards ("SFAS") No. 145, "Rescission of FASB Statements No. 4, 44
and 64". SFAS No. 4 "Reporting Gains and Losses from Extinguishment of Debt,"
required that all gains and losses from extinguishment of debt be aggregated
and, if material, classified as an extraordinary item. SFAS No. 145 rescinds
SFAS No. 4, and accordingly, gains and losses from extinguishment of debt should
only be classified as extraordinary if they are unusual in nature and occur
infrequently. Neither of these criteria applies to the Partnership. As a result,
the accompanying consolidated statements of operations for the three and six
months ended June 30, 2001 have been restated to reflect the loss on early
extinguishment of debt at Ventura Landing Apartments (see Note D) as interest
expense.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement ("Partnership Agreement") provides for (i) payments to
affiliates for services and (ii) reimbursements of certain expenses incurred by
affiliates of the General Partner on behalf of the Partnership.
Affiliates of the General Partner are entitled to receive 5% of gross receipts
from all of the Registrant's properties as compensation for providing property
management services. The Registrant paid to such affiliates approximately
$79,000 and $81,000 for the six months ended June 30, 2002 and 2001,
respectively, which are included in operating expenses.
Affiliates of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $88,000 and $149,000 for the
six months ended June 30, 2002 and 2001, respectively. Included in these amounts
are fees related to construction management services provided by an affiliate of
the General Partner of approximately $51,000 for the six months ended June 30,
2001. No such fees were incurred for the six months ended June 30, 2002. The
construction management service fees are calculated based on additions to
investment properties. These reimbursements of accountable administrative
expenses are included in investment properties and general and administrative
expenses.
The Partnership Agreement provides for a special management fee equal to 9% of
the total distributions made to the limited partners from cash flow from
operations to be paid to the General Partner for executive and administrative
management services. During the six months ended June 30, 2001, fees of
approximately $46,000 were paid to the General Partner, which are included in
general and administrative expenses. During the six months ended June 30, 2002,
no special management fee was paid as no distributions from cash flow from
operations were made.
During the six months ended June 30, 2001, an affiliate of the General Partner
advanced the Registrant $150,000 to pay for repairs related to a fire in January
2001 (see "Note C"). This advance accrued interest at the prime rate plus 2%. At
June 30, 2001, the Partnership owed such affiliate approximately $150,000
including accrued interest. During the third quarter of 2001, the Partnership
repaid this advance with the refinancing proceeds from Ventura Landing
Apartments. There were no advances from affiliates of the General Partner to the
Registrant during the six months ended June 30, 2002.
Beginning in 2001, the Partnership began insuring 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 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 six months ended June 30, 2002
and 2001, the Partnership was charged by AIMCO and its affiliates approximately
$37,000 and $63,000, respectively, for insurance coverage and fees associated
with policy claims administration.
Note C - Casualty Event
In January 2001, a fire occurred at West Chase Apartments, which resulted in
damage to twelve apartment units. The property incurred damages of approximately
$178,000. Insurance proceeds of approximately $173,000 were received in 2001 to
cover these damages. These proceeds were held on deposit with the mortgage
lender at December 31, 2001 and were released during the six months ended June
30, 2002 upon completion of repairs at the property.
Note D - Refinancing and Loss on Early Extinguishment of Debt
On June 28, 2001, the Partnership refinanced the mortgage encumbering Ventura
Landing Apartments. The refinancing replaced indebtedness of approximately
$2,200,000 with a new mortgage in the amount of $4,225,000. Approximately
$60,000 of the proceeds were placed into a restricted escrow account maintained
by the lender. The new mortgage carries a stated interest rate of 7.54%.
Interest on the old mortgage was 7.33%. Principal and interest payments on the
mortgage loan of approximately $34,000 are due monthly until the loan matures in
July 2021 at which time the loan will be fully amortized. Total capitalized loan
costs were approximately $172,000 during the six months ended June 30, 2001. The
Partnership recognized a loss on the early extinguishment of debt of
approximately $36,000 due to the write-off of unamortized loan costs, which is
included in interest expense.
Note E - 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 purports to
assert claims on behalf of a class of limited partners and derivatively on
behalf of a number of limited partnerships (including the Partnership) which 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 which were, at one time, affiliates of Insignia; past
tender offers by the Insignia affiliates to acquire limited partnership units;
management 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 seek monetary damages and equitable relief, including judicial
dissolution of the Partnership. On June 25, 1998, the General Partner filed a
motion seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs filed an amended complaint. The General Partner filed demurrers to
the amended complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the General Partner and its affiliates terminated the
proposed settlement. In February 2000, counsel for some of the named plaintiffs
filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated
the settlement. On June 27, 2000, the Court entered an order disqualifying them
from the case and an appeal was taken from the order on October 5, 2000. On
December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann &
Bernstein LLP as new lead counsel for plaintiffs and the putative class.
Plaintiffs filed a third amended complaint on January 19, 2001. On March 2,
2001, the General Partner and its affiliates filed a demurrer to the third
amended complaint. On May 14, 2001, the Court heard the demurrer to the third
amended complaint. On July 10, 2001, the Court issued an order sustaining
defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a
motion for reconsideration of the Court's July 10, 2001 order granting in part
and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed
a fourth amended class and derivative action complaint. On September 12, 2001,
the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the
General Partner and affiliated defendants filed a demurrer to the fourth amended
complaint, which was heard on December 11, 2001. On February 2, 2002, the Court
served its order granting in part the demurrer. The Court has dismissed without
leave to amend certain of the plaintiffs' claims. On February 11, 2002,
plaintiffs filed a motion seeking to certify a putative class comprised of all
non-affiliated persons who own or have owned units in the partnerships. The
General Partner and affiliated defendants oppose the motion. On April 29, 2002,
the Court held a hearing on plaintiffs' motion for class certification and took
the matter under submission after further briefing, as ordered by the court, was
submitted by the parties. On July 10, 2002, the Court entered an order vacating
the current trial date of January 13, 2003 (as well as the pre-trial and
discovery cut-off dates) and stayed the case in its entirety through November 7,
2002 so that the parties can have an opportunity to discuss settlement.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the General Partner and affiliated defendants
moved to strike the first amended complaint in its entirety for violating the
Court's July 10, 2001 order granting in part and denying in part defendants'
demurrer in the Nuanes action, or alternatively, to strike certain portions of
the complaint based on the statute of limitations. Other defendants in the
action demurred to the fourth amended complaint, and, alternatively, moved to
strike the complaint. On December 11, 2001, the court heard argument on the
motions and took the matters under submission. On February 4, 2002, the Court
served notice of its order granting defendants' motion to strike the Heller
complaint as a violation of its July 10, 2001 order in the Nuanes action. On
March 27, 2002, the plaintiffs filed a notice appealing the order striking the
complaint. The parties are currently in the midst of briefing that appeal.
The General Partner does not anticipate that any costs, 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 that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time. The
discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operation. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Partnership's investment properties consist of three apartment complexes.
The following table sets forth the average occupancy of the properties for each
of the six month periods ended June 30, 2002 and 2001:
Average Occupancy
Property 2002 2001
Ventura Landing Apartments 92% 94%
Orlando, Florida
Village Green Apartments 92% 94%
Altamonte Springs, Florida
West Chase Apartments 93% 90%
Lexington, Kentucky
The General Partner attributes the increase in occupancy at West Chase
Apartments to increased marketing efforts and competitive pricing relative to
other apartment complexes in the Lexington area.
Results of Operations
The Partnership's net loss for the six months ended June 30, 2002 was
approximately $6,000 as compared to net income of approximately $12,000 for the
six months ended June 30, 2001. The Partnership's net loss for the three months
ended June 30, 2002 was approximately $7,000 as compared to a net loss of
approximately $9,000 for the three months ended June 30, 2001. The increase in
net loss for the six months ended June 30, 2002 is due to a decrease in total
revenues, partially offset by a decrease in total expenses. Net loss remained
relatively constant for the three months ended June 30, 2002, as a decrease in
total revenues was offset by a decrease in total expenses. Total revenues
decreased due to a decrease in rental income, partially offset by an increase in
other income. Other income increased primarily due to increases in lease
cancellation fees at Ventura Landing Apartments and West Chase Apartments and
late charges at Village Green Apartments and Ventura Landing Apartments,
partially offset by a decrease in interest income, as a result of lower average
cash balances in interest bearing accounts. Rental income decreased primarily
due to the decreases in occupancy at Ventura Landing Apartments and Village
Green Apartments and an increase in bad debt expense at both properties,
partially offset by an increase in the average rental rate at all three
investment properties and the increase in occupancy at West Chase Apartments.
Total expenses decreased for both the three and six months ended June 30, 2002
due to decreases in both operating and general and administrative expenses,
partially offset by increases in both interest and depreciation expense.
Operating expense decreased primarily due to decreases in maintenance expense at
Ventura Landing Apartments and West Chase Apartments and payroll related
expenses at all three properties, partially offset by an increase in insurance
expense as a result of increased premiums at Village Green Apartments and
Ventura Landing Apartments. General and administrative expenses decreased
primarily due to the special partnership management fees charged during the six
months ended June 30, 2001, as a result of the distributions from operations,
and, to a lesser extent, a decrease in management reimbursements to the General
Partner allowed under the Partnership Agreement. Also included in general and
administrative expenses for the six months ended June 30, 2002 and 2001 are
costs associated with the quarterly and annual communications with investors and
regulatory agencies and the annual audit required by the Partnership Agreement.
Depreciation expense increased at all three investment properties due to
property improvements and replacements placed into service during the past
twelve months. Interest expense increased due to the refinancing of the
mortgages at Ventura Landing Apartments and Village Green Apartments in 2001
which resulted in larger loan balances, partially offset by the loss recognized
on the early extinguishment of debt at Ventura Landing Apartments (as discussed
below). Property tax expense remained relatively constant for the comparable
periods.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of each 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, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At June 30, 2002, the Partnership had cash and cash equivalents of approximately
$303,000, compared to approximately $1,957,000 at June 30, 2001. Cash and cash
equivalents decreased approximately $33,000 from the Partnership's year ended
December 31, 2001, due to approximately $405,000 of cash used in financing
activities, partially offset by approximately $287,000 of cash provided by
operating activities and approximately $85,000 of cash provided by investing
activities. Cash provided by investing activities consisted of the release of
insurance proceeds related to the 2001 casualty at West Chase Apartments and net
receipts from escrow accounts maintained by the mortgage lender, partially
offset by property improvements and replacements. Cash used in financing
activities consisted of payments of principal on the mortgages encumbering the
Partnership's properties and distributions to partners. 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 Registrant and to comply with Federal,
state, and local legal and regulatory requirements. Capital improvements planned
for each of the Registrant's properties are detailed below.
Village Green Apartments
For 2002, the Partnership has budgeted, but is not limited to, approximately
$76,000 for capital improvements, consisting primarily of gutter replacement,
structural improvements and air conditioning unit and floor covering
replacements. The Partnership completed approximately $71,000 of budgeted and
non-budgeted capital improvements at Village Green Apartments as of June 30,
2002, consisting primarily of gutter replacement, air conditioning upgrades,
structural improvements, and floor covering replacement. These improvements were
funded from operations. Additional improvements may be considered and will
depend on the physical condition of the property as well as replacement reserves
and anticipated cash flow generated by the property.
West Chase Apartments
For 2002, the Partnership has budgeted, but is not limited to, approximately
$45,000 for capital improvements, consisting primarily of parking area upgrades,
fencing improvements and floor covering replacement. The Partnership completed
approximately $35,000 of capital improvements at West Chase Apartments as of
June 30, 2002, consisting primarily of construction related to the damage caused
by a January 2001 fire (as discussed in "Note C" to the financial statements),
office computers and floor covering replacement. These improvements were funded
from operations and insurance proceeds. Additional improvements may be
considered and will depend on the physical condition of the property as well as
anticipated cash flow generated by the property.
Ventura Landing Apartments
For 2002, the Partnership has budgeted, but is not limited to, approximately
$67,000 for capital improvements consisting primarily of parking area upgrades,
structural improvements, and air conditioning unit and floor covering
replacements. The Partnership completed approximately $42,000 of capital
improvements at Ventura Landing Apartments as of June 30, 2002, consisting
primarily of parking area upgrades, office computers, and floor covering
replacement. These improvements were funded from operations and replacement
reserves. Additional improvements may be considered and will depend on the
physical condition of the property as well as replacement reserves and
anticipated cash flow generated by the property.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Registrant's distributable cash flow, if
any, may be adversely affected at least in the short term.
The Registrant's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Registrant. On June 28, 2001,
the Partnership refinanced the mortgage encumbering Ventura Landing Apartments.
The refinancing replaced indebtedness of approximately $2,200,000 with a new
mortgage in the amount of $4,225,000. Approximately $60,000 of the proceeds were
placed into a restricted escrow account maintained by the lender. The new
mortgage carries a stated interest rate of 7.54%. The interest rate on the old
mortgage was 7.33%. Principal and interest payments on the mortgage loan of
approximately $34,000 are due monthly until the loan matures in July 2021 at
which time the mortgage will be fully amortized. The Partnership recognized a
loss on the early extinguishment of debt of approximately $36,000 due to the
write-off of unamortized loan costs.
On July 24, 2001, the Partnership refinanced the mortgage encumbering Village
Green Apartments. The refinancing replaced indebtedness of approximately
$2,000,000 with a new mortgage in the amount of $3,575,000. Approximately
$117,000 of the proceeds was placed into a restricted escrow account maintained
by the lender. The new mortgage carries a stated interest rate of 7.54%. The
interest rate on the old mortgage was 7.33%. Principal and interest payments on
the mortgage loan of approximately $29,000 are due monthly until the loan
matures in August 2021 at which time the mortgage will be fully amortized.
The mortgage indebtedness on West Chase Apartments of approximately $1,084,000
requires monthly payments of principal and interest until the loan matures in
December 2019, at which time the loan will be fully amortized.
Pursuant to the Partnership Agreement, the term of the Partnership is scheduled
to expire on December 31, 2010. Accordingly, prior to such date the Partnership
will need to either sell its investment properties or extend the term of the
Partnership.
The Partnership distributed the following amounts during the six months ended
June 30, 2002 and 2001 (in thousands, except per unit data):
Six Months Per Limited Six Months Per Limited
Ended Partnership Ended Partnership
June 30, 2002 Unit June 30, 2001 Unit
Operations $ -- $ -- $ 484 $ 2.93
Refinancing
Proceeds (1) 303 1.91 -- --
$ 303 $ 1.91 $ 484 $ 2.93
(1) From previously undistributed proceeds from the 2001 refinancing of Village
Green Apartments.
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, property sales, and/or refinancings. The Partnership's cash
available for distribution is reviewed on a monthly basis. There can be no
assurance that the Partnership will generate sufficient funds from operations
after required capital expenditures to permit any additional distributions to
its partners during the remainder of 2002 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 81,419.50 limited partnership units
(the "Units") in the Partnership representing 51.34% of the outstanding Units at
June 30, 2002. 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 of limited partnership interest in the Partnership
in exchange for cash or a combination of cash and units in the operating
partnership of AIMCO either through private purchases or tender offers. In this
regard, on June 25, 2002, a tender offer by AIMCO Properties, L.P., to acquire
any and all of the units not owned by affiliates of AIMCO for a purchase price
of $9.00 per unit expired. Pursuant to this offer, AIMCO acquired 2,678.50 units
during the quarter ended June 30, 2002. Under the Partnership Agreement,
unitholders holding a majority of the Units are entitled to take action with
respect to a variety of matters which would include voting on certain amendments
to the Partnership Agreement and voting to remove the General Partner. As a
result of its ownership of 51.34% of the outstanding Units, AIMCO is in a
position to control all voting decisions with respect to the Registrant.
Although the General Partner owes fiduciary duties to the limited partners of
the Partnership, the General Partner also owed 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 considered impaired. If events or circumstances indicate that the
carrying amount of a property may be impaired, the Partnership will make an
assessment of its recoverability by estimating the undiscounted future cash
flows, excluding interest charges, of the property. If the carrying amount
exceeds the aggregate future cash flows, the Partnership would recognize an
impairment loss to the extent the carrying amount exceeds the fair value of the
property.
Real property investments are 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 changes in the
national, regional and local economic climate; local conditions, such as an
oversupply of multifamily properties; competition from other available
multifamily property owners and changes in market rental rates. Any adverse
changes in these factors could cause an impairment in the Partnership's assets.
Revenue Recognition
The Partnership generally leases apartment units for twelve-month terms or less.
Rental income attributable to leases is recognized monthly as it is earned. The
Partnership will offer rental concessions during particularly slow months or in
response to heavy competition from other similar complexes in the area.
Concessions are charged to income as incurred.
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 purports to
assert claims on behalf of a class of limited partners and derivatively on
behalf of a number of limited partnerships (including the Partnership) which 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 which were, at one time, affiliates of Insignia; past
tender offers by the Insignia affiliates to acquire limited partnership units;
management 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 seek monetary damages and equitable relief, including judicial
dissolution of the Partnership. On June 25, 1998, the General Partner filed a
motion seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs filed an amended complaint. The General Partner filed demurrers to
the amended complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the Managing General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case and an appeal was taken from the order on
October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff
Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the
putative class. Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001, the Managing General Partner and its affiliates filed a
demurrer to the third amended complaint. On May 14, 2001, the Court heard the
demurrer to the third amended complaint. On July 10, 2001, the Court issued an
order sustaining defendants' demurrer on certain grounds. On July 20, 2001,
Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
Plaintiffs filed a fourth amended class and derivative action complaint. On
September 12, 2001, the Court denied Plaintiffs' motion for reconsideration. On
October 5, 2001, the Managing General Partner and affiliated defendants filed a
demurrer to the fourth amended complaint, which was heard on December 11, 2001.
On February 2, 2002, the Court served its order granting in part the demurrer.
The Court has dismissed without leave to amend certain of the plaintiffs'
claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a
putative class comprised of all non-affiliated persons who own or have owned
units in the partnerships. The Managing General Partner and affiliated
defendants oppose the motion. On April 29, 2002, the Court held a hearing on
plaintiffs' motion for class certification and took the matter under submission
after further briefing, as ordered by the court, was submitted by the parties.
On July 10, 2002, the Court entered an order vacating the current trial date of
January 13, 2003 (as well as the pre-trial and discovery cut-off dates) and
stayed the case in its entirety through November 7, 2002 so that the parties can
have an opportunity to discuss settlement.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Managing General Partner and affiliated
defendants moved to strike the first amended complaint in its entirety for
violating the Court's July 10, 2001 order granting in part and denying in part
defendants' demurrer in the Nuanes action, or alternatively, to strike certain
portions of the complaint based on the statute of limitations. Other defendants
in the action demurred to the fourth amended complaint, and, alternatively,
moved to strike the complaint. On December 11, 2001, the court heard argument on
the motions and took the matters under submission. On February 4, 2002, the
Court served notice of its order granting defendants' motion to strike the
Heller complaint as a violation of its July 10, 2001 order in the Nuanes action.
On March 27, 2002, the plaintiffs filed a notice appealing the order striking
the complaint. The parties are currently in the midst of briefing that appeal.
The General Partner does not anticipate that any costs, whether legal or
settlement costs, associated with these cases will be material to the
Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
3.1 Certificate of Limited Partnership, as amended to date
(Exhibit 3 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1991, is
incorporated herein by reference).
3.2 Partnership Agreement dated May 22, 1980 is incorporated
by reference to Exhibit A to the Prospectus of the
Registration dated August 17, 1981 as filed with the
Commission pursuant to Rule 424(b) under the Act.
99 Certification of Chief Executive Officer and Chief
Financial Officer
b) Reports on Form 8-K:
None filed during the quarter ended June 30, 2002.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CONSOLIDATED CAPITAL PROPERTIES III
By: CONCAP EQUITIES, INC.
General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/ Thomas C. Novosel
Thomas C. Novosel
Senior Vice President
and Chief Accounting Officer
Date: August 14, 2002
Exhibit 99
Certification of CEO and CFO
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-QSB of Consolidated Capital
Properties III (the "Partnership"), for the quarterly period ended June 30, 2002
as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), Patrick J. Foye, as the equivalent of the Chief Executive Officer of
the Partnership, and Paul J. McAuliffe, as the equivalent of the Chief Financial
Officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Partnership.
/s/Patrick J. Foye
Name: Patrick J. Foye
Date: August 14, 2002
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: August 14, 2002
This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Partnership for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.