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 September 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)
September 30, 2002
Assets
Cash and cash equivalents $ 561
Receivables and deposits, net of allowance for
bad debt of $61 69
Other assets 423
Investment properties:
Land $ 507
Buildings and related personal property 11,799
12,306
Less accumulated depreciation (8,919) 3,387
$ 4,440
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 74
Tenant security deposit liabilities 74
Accrued property taxes 137
Other liabilities 332
Mortgage notes payable 8,680
Partners' Deficit
General partners $(1,875)
Limited partners (158,582 units issued and
outstanding) (2,982) (4,857)
$ 4,440
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL PROPERTIES III
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Nine Months
Ended September 30, Ended September 30,
2002 2001 2002 2001
(Restated) (Restated)
Revenues:
Rental income $ 709 $ 755 $ 2,144 $ 2,255
Other income 78 68 219 170
Total revenues 787 823 2,363 2,425
Expenses:
Operating 485 452 1,181 1,192
General and administrative 66 69 199 272
Depreciation 152 146 465 441
Interest 177 206 519 459
Property taxes 49 51 147 150
Total expenses 929 924 2,511 2,514
Net loss $ (142) $ (101) $ (148) $ (89)
Net loss allocated to general
partners (4%) $ (6) $ (4) $ (6) $ (3)
Net loss allocated to
limited partners (96%) (136) (97) (142) (86)
$ (142) $ (101) $ (148) $ (89)
Net loss per limited partnership
unit $ (0.86) $ (0.61) $ (0.90) $ (0.54)
Distributions per limited
partnership unit $ -- $ 17.40 $ 1.91 $ 20.33
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 nine months
ended September 30, 2002 -- (6) (142) (148)
Partners' deficit
at September 30, 2002 158,582 $(1,875) $ (2,982) $ (4,857)
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL PROPERTIES III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2002 2001
Cash flows from operating activities:
Net loss $ (148) $ (89)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 465 441
Loss on early extinguishment of debt -- 70
Amortization of loan costs 23 23
Bad debt expense 172 37
Change in accounts:
Receivables and deposits (179) (168)
Other assets (18) (21)
Accounts payable (33) (4)
Tenant security deposit liabilities (6) (6)
Accrued property taxes 137 140
Other liabilities 116 78
Net cash provided by operating activities 529 501
Cash flows from investing activities:
Property improvements and replacements (198) (618)
Insurance proceeds received 173 --
Net withdrawals from (deposits to) restricted escrows 178 (33)
Net cash provided by (used in) investing activities 153 (651)
Cash flows from financing activities:
Loan costs paid -- (338)
Proceeds from mortgage notes payable -- 7,800
Repayment of mortgage notes payable -- (4,200)
Payments on mortgage notes payable (154) (41)
Distributions to partners (303) (3,257)
Advance from affiliate -- 150
Payment on advance from affiliate -- (150)
Net cash used in financing activities (457) (36)
Net increase (decrease) in cash and cash equivalents 225 (186)
Cash and cash equivalents at beginning of period 336 545
Cash and cash equivalents at end of period $ 561 $ 359
Supplemental disclosure of cash flow information:
Cash paid for interest $ 498 $ 343
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 nine months ended September 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 nine month periods ended
September 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 nine
months ended September 30, 2001 have been restated to reflect the loss on early
extinguishment of debt at Ventura Landing Apartments and Village Green
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
$118,000 and $122,000 for the nine months ended September 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 $135,000 and $358,000 for the
nine months ended September 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 $3,000 and $215,000 for the
nine months ended September 30, 2002 and 2001, respectively. 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 nine months ended September 30, 2001, fees of
approximately $46,000 were paid to the General Partner, which are included in
general and administrative expenses. During the nine months ended September 30,
2002, no special management fee was paid as no distributions from cash flow from
operations were made.
During the nine months ended September 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%. During the nine months ended September 30, 2001, the Partnership repaid
this advance and accrued interest of approximately $1,000 with the refinancing
proceeds from Ventura Landing Apartments. There were no advances from affiliates
of the General Partner to the Partnership during the nine months ended September
30, 2002.
For services provided in connection with the refinancing of two mortgages
encumbering the Partnership's investment properties, the General Partner was
paid approximately $78,000 during the nine months ended September 30, 2001.
These costs were capitalized and are included in other assets on the
consolidated balance sheet.
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 nine months ended September
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 nine months ended
September 30, 2002 upon completion of repairs at the property. The Partnership
recognized a casualty gain of approximately $132,000 during the fourth quarter
of 2001, due to the write off of the undepreciated damaged assets.
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 $180,000 during the nine months ended September 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.
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. Total
capitalized loan costs were approximately $158,000 during the nine months ended
September 30, 2001. The Partnership recognized a loss on the early
extinguishment of debt of approximately $34,000 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. On
October 30, 2002, the court entered an order extending the stay in effect
through January 10, 2003.
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 Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements in certain circumstances. The matters discussed
in this report contain certain forward-looking statements, including, without
limitation, statements regarding future financial performance and the effect of
government regulations. The discussions of the Registrant's business and results
of operations, including forward-looking statements pertaining to such matters,
do not take into account the effects of any changes to the Registrant's business
and results of operations. Actual results may differ materially from those
described in the forward-looking statements and will be affected by a variety of
risks and factors including, without limitation: national and local economic
conditions; the terms of governmental regulations that affect the Registrant and
interpretations of those regulations; the competitive environment in which the
Registrant operates; financing risks, including the risk that cash flows from
operations may be insufficient to meet required payments of principal and
interest; real estate risks, including variations of real estate values and the
general economic climate in local markets and competition for tenants in such
markets; and possible environmental liabilities. Readers should carefully review
the Registrant's financial statements and the notes thereto, as well as the risk
factors described in the documents the Registrant files from time to time with
the Securities and Exchange Commission.
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 nine month periods ended September 30, 2002 and 2001:
Average Occupancy
Property 2002 2001
Ventura Landing Apartments 91% 94%
Orlando, Florida
Village Green Apartments 93% 94%
Altamonte Springs, Florida
West Chase Apartments 94% 90%
Lexington, Kentucky
The General Partner attributes the decrease in occupancy at Ventura Landing
Apartments to increased market competition in the Orlando area.
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 nine months ended September 30, 2002 was
approximately $148,000 as compared to a net loss of approximately $89,000 for
the nine months ended September 30, 2001. The Partnership's net loss for the
three months ended September 30, 2002 was approximately $142,000 as compared to
a net loss of approximately $101,000 for the three months ended September 30,
2001. The increase in net loss for both the three and nine months ended
September 30, 2002 is due to a decrease in total revenues. Total revenues
decreased due to a decrease in rental income, partially offset by an increase in
other income. Rental income decreased primarily due to the decreases in
occupancy at Ventura Landing Apartments and Village Green Apartments, an
increase in bad debt expense at Ventura Landing Apartments, and a decrease in
the average rental rate at Village Green Apartments, partially offset by an
increase in the average rental rate at Ventura Landing Apartments and West Chase
Apartments and the increase in occupancy at West Chase Apartments. Other income
increased primarily due to increases in lease cancellation fees at Ventura
Landing Apartments and West Chase Apartments and an increase in late charges at
Village Green Apartments and Ventura Landing Apartments, partially offset by a
decrease in interest income resulting from lower average cash balances
maintained in interest bearing accounts.
Total expenses remained relatively constant for the comparable periods. For the
three months ended September 30, 2002, increases in both operating and
depreciation expense were offset by a decrease in interest expense. General and
administrative and property tax expenses remained relatively constant for the
three months ended September 30, 2002. For the nine months ended September 30,
2002, increases in both depreciation and interest expense were offset by
decreases in operating and general and administrative expenses, while property
tax expense remained relatively constant. The increase in operating expenses for
the three months ended September 30, 2002 is primarily due to increases in
utility and maintenance expenses, partially offset by a decrease in insurance
expense at Village Green Apartments and Ventura Landing Apartments. The decrease
in interest expense for the three months ended September 30, 2002 is due to
scheduled principal payments made on the mortgages encumbering the Partnership's
investment properties, which reduced the carrying balances of the respective
loans, and the loss recognized in 2001 on the early extinguishment of debt at
Village Green Apartments (as discussed in "Liquidity and Capital Resources"
below).
The decrease in operating expenses for the nine months ended September 30, 2002
is primarily due to a decrease in insurance expense at Village Green Apartments
and Ventura Landing Apartments. Interest expense increased for the nine months
ended September 30, 2002 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 in 2001 on the early
extinguishment of debt at Village Green Apartments and Ventura Landing
Apartments (as discussed below). Depreciation expense increased for both the
three and nine months ended September 30, 2002 at all three investment
properties due to property improvements and replacements placed into service
during the past twelve months. General and administrative expenses decreased for
the nine months ended September 30, 2002 primarily due to the special
partnership management fees charged during the nine months ended September 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 at
both September 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.
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 September 30, 2002, the Partnership had cash and cash equivalents of
approximately $561,000, compared to approximately $359,000 at September 30,
2001. Cash and cash equivalents increased approximately $225,000 from the
Partnership's fiscal year ended December 31, 2001, due to approximately $529,000
of cash provided by operating activities and approximately $153,000 of cash
provided by investing activities, partially offset by approximately $457,000 of
cash used in financing 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. The General Partner monitors
developments in the area of legal and regulatory compliance and is studying new
federal laws, including the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act
of 2002 mandates or suggests additional compliance measures with regard to
governance, disclosure, audit and other areas. In light of these changes, the
Partnership expects that it will incur higher expenses related to compliance,
including increased legal and audit fees. Capital improvements planned for each
of the Partnership's properties are detailed below.
Village Green Apartments
For 2002, the Partnership has budgeted, but is not limited to, approximately
$88,000 for capital improvements, consisting primarily of structural
improvements and air conditioning unit and floor covering replacements. The
Partnership completed approximately $113,000 of budgeted and non-budgeted
capital improvements at Village Green Apartments during the nine months ended
September 30, 2002, consisting primarily of gutter replacement, heating and air
conditioning upgrades, structural improvements, and floor covering replacement.
These improvements were funded from replacement reserves and operating cash
flow. 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.
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 $38,000 of capital improvements at West Chase Apartments during
the nine months ended September 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, water heaters, and floor covering
replacement. These improvements were funded from operating cash flow 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
$72,000 for capital improvements consisting primarily of parking area upgrades,
structural improvements, and air conditioning unit and floor covering
replacements. The Partnership completed approximately $47,000 of capital
improvements at Ventura Landing Apartments during the nine months ended
September 30, 2002, consisting primarily of parking area upgrades, office
computers, and floor covering replacement. These improvements were funded from
operating cash flow and replacement reserves. 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.
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 Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. 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, which is included in interest expense.
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
Partnership recognized a loss on the early extinguishment of debt of
approximately $34,000 due to the write-off of unamortized loan costs, which is
included in interest expense.
The mortgage indebtedness on West Chase Apartments of approximately $1,077,000
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 nine months ended
September 30, 2002 and 2001 (in thousands, except per unit data):
Per Per
Nine months Limited Nine months Limited
Ended Partnership Ended Partnership
September 30, 2002 Unit September 30, 2001 Unit
Operations $ -- $ -- $ 497 $ 2.93
Refinancing
Proceeds (1) 303 1.91 2,760 17.40
$ 303 $ 1.91 $3,257 $20.33
(1) From proceeds from the 2001 refinancings of Village Green Apartments and
Ventura Landing 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 81,505.50 limited partnership units
(the "Units") in the Partnership representing 51.40% of the outstanding Units at
September 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. 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 51.40% 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 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 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.
ITEM 3. CONTROLS AND PROCEDURES
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, within 90 days of the
filing date of this quarterly report, evaluated the effectiveness of the
Partnership's disclosure controls and procedures (as defined in Exchange Act
Rules (13a-14(c) and (15d-14(c)) and have determined that such disclosure
controls and procedures are adequate. There have been no significant changes in
the Partnership's internal controls or in other factors that could significantly
affect the Partnership's internal controls since the date of evaluation. The
Partnership does not believe any significant deficiencies or material weaknesses
exist in the Partnership's internal controls. Accordingly, no corrective actions
have been taken.
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. On October 30, 2002, the court
entered an order extending the stay in effect through January 10, 2003.
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 September 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: November 13, 2002
CERTIFICATION
I, Patrick J. Foye, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Consolidated Capital
Properties III;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
-----------------------
Patrick J. Foye
Executive Vice President of ConCap Equities,
Inc., equivalent of the chief executive officer
of the Partnership
CERTIFICATION
I, Paul J. McAuliffe, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Consolidated Capital
Properties III;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
-----------------------
Paul J. McAuliffe
Executive Vice President and Chief Financial
Officer of ConCap Equities, Inc., equivalent of
the chief financial officer of the Partnership
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 September 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: November 13, 2002
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: November 13, 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.