UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________to _________
Commission file number 0-8639
CONSOLIDATED CAPITAL GROWTH FUND
(Exact name of registrant as specified in its charter)
California 94-2382571
(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 GROWTH FUND
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 2003
Assets
Cash and cash equivalents $ 745
Receivables and deposits 483
Restricted escrows 38
Other assets 683
Investment properties:
Land $ 3,403
Buildings and related personal property 26,942
30,345
Less accumulated depreciation (20,687) 9,658
Assets held for sale 3,274
$ 14,881
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 164
Tenant security deposit liabilities 275
Accrued property taxes 398
Other liabilities 613
Mortgage notes payable 22,551
Liabilities related to assets held for sale 6,450
Partners' Deficit
General partner $ (4,908)
Limited partners (49,196 units issued and
outstanding) (10,662) (15,570)
$ 14,881
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL GROWTH FUND
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Six Months Ended
June 30, June 30,
2003 2002 2003 2002
Revenues: (Restated) (Restated)
Rental income $ 1,453 $ 1,621 $ 2,899 $ 3,319
Other income 178 83 299 181
Casualty gain 33 -- 33 --
Total revenues 1,664 1,704 3,231 3,500
Expenses:
Operating 870 687 1,450 1,259
General and administrative 95 246 230 356
Depreciation 377 379 749 757
Property taxes 151 138 348 276
Interest 416 422 835 845
Total expenses 1,909 1,872 3,612 3,493
(Loss) income from continuing operations $ (245) $ (168) $ (381) $ 7
(Loss) income from discontinued operations (43) 74 (51) 176
Gain on sale of discontinued operations 28 -- 8,181 --
Net (loss) income $ (260) $ (94) $ 7,749 $ 183
Net (loss) income allocated to general
partners (1%) $ -- $ (1) $ 1,140 $ 2
Net (loss) income allocated to limited
partners (99%) (260) (93) 6,609 181
$ (260) $ (94) $ 7,749 $ 183
Net (loss) income per limited partnership unit:
(Loss) income from continuing operations $ (4.92) $ (3.38) $ (7.66) $ 0.14
(Loss) income from discontinued operations (0.86) 1.49 (1.02) 3.54
Gain on sale of discontinued operations 0.49 -- 143.02 --
$ (5.29) $ (1.89) $134.34 $ 3.68
Distribution per limited partnership unit $ -- $ 30.59 $ 81.82 $ 30.59
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL GROWTH FUND
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 49,196 $ 1 $ 49,196 $ 49,197
Partners' deficit at
December 31, 2002 49,196 $(5,441) $(13,246) $(18,687)
Distributions to partners -- (607) (4,025) (4,632)
Net income for the six months
ended June 30, 2003 -- 1,140 6,609 7,749
Partners' deficit at
June 30, 2003 49,196 $(4,908) $(10,662) $(15,570)
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL GROWTH FUND
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2003 2002
Cash flows from operating activities:
Net income $ 7,749 $ 183
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,027 1,174
Amortization of loan costs 27 34
Bad debt expense, net 240 --
Casualty gain (33) --
Loss on early extinguishment of debt 39 --
Gain on sale of investment property (8,181)
Change in accounts:
Receivables and deposits (273) (225)
Other assets (143) (161)
Accounts payable (116) (17)
Tenant security deposit liabilities (32) 29
Accrued property taxes 398 366
Other liabilities 208 219
Net cash provided by operating activities 910 1,602
Cash flows from investing activities:
Property improvements and replacements (498) (372)
Net withdrawals from restricted escrows 163 235
Insurance proceeds received 39 --
Net proceeds from sale of investment property 10,341 --
Net cash provided by (used in) investing activities 10,045 (137)
Cash flows from financing activities:
Principal payments on mortgage notes payable (132) (122)
Distributions to partners (4,632) (1,520)
Repayment of mortgage note payable (6,000) --
Loan costs paid (5) --
Net cash used in financing activities (10,769) (1,642)
Net increase (decrease) in cash and cash equivalents 186 (177)
Cash and cash equivalents at beginning of period 559 644
Cash and cash equivalents at end of period $ 745 $ 467
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,058 $ 1,259
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements of Consolidated Capital Growth
Fund (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 Article 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 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, 2003, are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 2003. For further
information, refer to the financial statements and footnotes thereto included in
the Partnership's Annual Report on Form 10-KSB for the year ended December 31,
2002. The General Partner is a wholly owned subsidiary of Apartment Investment
and Management Company ("AIMCO"), a publicly traded real estate investment
trust.
Effective January 1, 2002, the Partnership adopted Statement of Financial
Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which established standards for the way that
public business enterprises report information about long-lived assets that are
either being held for sale or have already been disposed of by sale or other
means. The standard requires that results of operations for a long-lived asset
that is being held for sale or has already been disposed of be reported as a
discontinued operation on the statement of operations. As a result, the
accompanying consolidated statements of operations have been restated as of
January 1, 2002 to reflect the operations of Breckinridge Square (see Note C)
and Churchill Park (see Note F) as (loss) income from discontinued operations.
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 provides for (i) certain payments to affiliates for
services and (ii) reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership.
Affiliates of the General Partner are entitled to receive 5% of gross receipts
from all of the Partnership's properties for providing property management
services. The Partnership paid to such affiliates approximately $227,000 and
$285,000 for the six months ended June 30, 2003 and 2002, respectively, which is
included in operating expenses and (loss) income from discontinued operations.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $149,000 and $174,000 for the
six months ended June 30, 2003 and 2002, respectively, which is included in
general and administrative expenses and investment properties.
The Partnership Agreement provides for a fee equal to 9% of the total
distributions from operations made to the limited partners from "cash available
for distribution" (as defined in the Agreement) to be paid to the General
Partner for executive and administrative management services. During the six
months ended June 30, 2003 and 2002, affiliates of the General Partner received
approximately $28,000 and $135,000, respectively, for providing these services,
which is included in general and administrative expenses.
Pursuant to the Partnership Agreement and in connection with the sale of
Breckinridge Square in January 2003, the General Partner is entitled to a
commission of up to 3% for its assistance in the sale. During the six months
ended June 30, 2003, approximately $178,000 was paid to the General Partner.
The Partnership insures its properties up to certain limits through coverage
provided by AIMCO which is generally self-insured for a portion of losses and
liabilities related to workers compensation, property casualty 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, 2003 and 2002, the Partnership was
charged by AIMCO and its affiliates approximately $127,000 and $135,000,
respectively, for insurance coverage and fees associated with policy claims
administration.
Note C - Sale of Investment Property
On January 16, 2003, the Partnership sold Breckinridge Square to an unrelated
third party for net proceeds of approximately $10,341,000 after payment of
closing costs. The Partnership realized a gain of approximately $8,181,000 as a
result of the sale. The Partnership used approximately $6,000,000 of the net
proceeds to repay the mortgage encumbering the property. In addition, the
Partnership recorded a loss on early extinguishment of debt of approximately
$39,000 as a result of unamortized loan costs being written off. This amount is
included in loss from discontinued operations in the accompanying consolidated
statement of operations. In accordance with SFAS 144, the accompanying
statements of operations for the three and six months ended June 30, 2002 have
been restated to reflect the operations of Breckinridge Square as discontinued
operations. Included in (loss) income from discontinued operations for the six
months ended June 30, 2003 and 2002 is approximately $175,000 and $1,004,000,
respectively, of revenue generated by the property. The additional gain
recognized during the three months ended June 30, 2003 is due to expense
reserves established at the time of the sale, which were determined to be
unneeded.
Note D - Casualty Gain
In December 2002, one of the Partnership's investment properties, The Lakes,
incurred damages to its buildings as a result of a hailstorm. As a result of the
damage, approximately $26,000 of fixed assets and $20,000 of accumulated
depreciation were written off resulting in a net write off of approximately
$6,000. The property received approximately $39,000 in proceeds from the
insurance company to repair the damaged units. For financial statement purposes,
a casualty gain of approximately $33,000 was recognized during the six months
ended June 30, 2003 as a result of the difference between the proceeds received
and the net book value of the assets written off.
Note E - Legal Proceedings
In March 1998, several putative unit holders of limited partnership units which
are affiliates 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, certain affiliated partnerships,
the General Partner of the Partnership and several of their affiliated
partnerships and corporate entities. The action purported to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships that are named as nominal defendants, challenging, among
other things, the acquisition of interests in certain General Partner entities
by Insignia Financial Group, Inc. ("Insignia") and entities that were, at one
time, affiliates of Insignia; tender offers by affiliates of AIMCO and Insignia
to acquire limited partnership units; management of the partnerships; and the
series of transactions which closed on October 1, 1998 and February 26, 1999
whereby Insignia and Insignia Properties Trust, respectively, were merged into
AIMCO. The plaintiffs sought monetary damages and equitable relief, including
judicial dissolution of the Partnership.
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 Heller action was brought as a purported
derivative action, and asserted claims for, among other things, breach of
fiduciary duty, unfair competition, conversion, unjust enrichment, and judicial
dissolution. 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. Before completing
briefing on the appeal, the parties stayed further proceedings in the appeal in
light of a settlement.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action.
In general terms, the proposed settlement provides for certification for
settlement purposes of a settlement class consisting of all limited partners in
this Partnership and others (the "Partnerships") as of December 20, 2002, the
dismissal with prejudice and release of claims in the Nuanes and Heller
litigation, payment by AIMCO of $9.9 million (which shall be distributed to
settlement class members after deduction of attorney fees and costs of class
counsel and certain costs of settlement) and up to $1 million toward the cost of
independent appraisals of the Partnerships' properties by a Court appointed
appraiser. An affiliate of the General Partner has also agreed to make a tender
offer to purchase all of the partnership interests in the Partnerships within
one year of final approval, if it is granted, and to provide partners with the
independent appraisals at the time of these tenders. The proposed settlement
also provided for the limitation of the allowable costs which the General
Partner or its affiliates will charge the Partnerships in connection with this
litigation and imposes limits on the class counsel fees and costs in this
litigation. On April 11, 2003, notice was distributed to limited partners
providing the details of the proposed settlement.
On June 13, 2003, the Court granted final approval of the settlement and entered
judgment in both the Nuanes and Heller actions.
The General Partner does not anticipate that any costs to the Partnership,
whether legal or settlement costs, associated with these cases will be material
to the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
Note F - Subsequent Event
On July 25, 2003, the Partnership sold Churchill Park to an unrelated third
party for approximately $12,488,000. After payments of closing costs and
property indebtedness, the Partnership received net proceeds of approximately
$5,576,000. It is anticipated that the Partnership will recognize a gain on the
sale of discontinued operations of approximately $8,715,000 during July 2003. In
accordance with SFAS 144, the operations of Churchill Park for the three and six
months ended June 30, 2003 and 2002 have been shown in the accompanying
financial statements as (loss) income from discontinued operations. The property
generated revenues of approximately $1,176,000 and $1,072,000 and had net income
of approximately $56,000 and $59,000 for the six months ended June 30, 2003 and
2002, respectively. The Partnership is currently evaluating whether any portion
of the net proceeds will be distributed to the partners.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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. 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; litigation, including costs associated with prosecuting and
defending claims and any adverse outcomes, 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 the
six months ended June 30, 2003 and 2002:
Average Occupancy
Property 2003 2002
Churchill Park (1) 89% 75%
Louisville, Kentucky
The Lakes 84% 84%
Raleigh, North Carolina
Doral Springs 95% 95%
Miami, Florida
(1) The General Partner attributes the increase in occupancy at Churchill Park
to an adjustment in rental rates to be more in line with competition in
the local market. The property was sold in July 2003.
Results of Operations
The Partnership's net loss for the three months ended June 30, 2003 and 2002 was
approximately $260,000 and $94,000 respectively. The Partnership's net income
for the six months ended June 30, 2003 and 2002 was approximately $7,749,000 and
$183,000, respectively. The increase in net loss for the three month period is
due to an increase in total expenses and a decrease in total revenue. The
increase in net income for the six month period is due to the recognition of a
gain on the sale of Breckinridge Square.
Effective January 1, 2002, the Partnership adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", which established standards for the way that public business
enterprises report information about long-lived assets that are either being
held for sale or have already been disposed of by sale or other means. The
standard requires that results of operations for a long-lived asset that is
being held for sale or has already been disposed of be reported as a
discontinued operation on the statement of operations. As a result, the
accompanying consolidated statements of operations have been restated as of
January 1, 2002 to reflect the operations of Breckinridge Square Apartments (see
Note C) and Churchill Park Apartments (see Note F) as (loss) income from
discontinued operations.
On January 16, 2003, the Partnership sold Breckinridge Square to an unrelated
third party for net proceeds of approximately $10,341,000 after payment of
closing costs. The Partnership realized a gain of approximately $8,181,000 as a
result of the sale. The Partnership used approximately $6,000,000 of the net
proceeds to repay the mortgage encumbering the property. In addition, the
Partnership recorded a loss on early extinguishment of debt of approximately
$39,000 as a result of unamortized loan costs being written off. This amount is
included in loss from discontinued operations in the accompanying statement of
operations. In accordance with SFAS 144, the accompanying statements of
operations for the three and six months ended June 30, 2002 have been restated
to reflect the operations of Breckinridge Square Apartments (see Note C) and
Churchill Park Apartments (see Note F) as discontinued operations. Included in
(loss) income from discontinued operations for the six months ended June 30,
2003 and 2002 is approximately $1,351,000 and $2,077,000, respectively, of
revenue generated by the properties.
Excluding the gain on sale and the discontinued operations, the Partnership's
loss from operations for the three months ended June 30, 2003 and 2002 was
approximately $245,000 and $168,000, respectively. The Partnership's loss from
operations for the six months ended June 30, 2003 was approximately $381,000
compared to income of approximately $7,000 for the corresponding period in 2002.
The increase in loss from operations for the three month period is due to an
increase in total expenses and a decrease in total revenue. The decrease in
income from operations for the six month period is due to a decrease in total
revenue and an increase in total expenses. Total revenue for both periods
decreased due to a decrease in rental income partially offset by an increase in
other income and the recognition of a casualty gain. Rental income decreased due
to decreases in the average rental rates at Doral Springs and The Lakes
Apartments and an increase in bad debt expense at Doral Springs. Other income
increased due to an increase in lease cancellation fees and late charges,
primarily at Doral Springs Apartments.
In December 2002, one of the Partnership's investment properties, The Lakes,
incurred damages to its buildings as a result of a hailstorm. As a result of the
damage, approximately $26,000 of fixed assets and $20,000 of accumulated
depreciation were written off resulting in a net write off of approximately
$6,000. The Partnership received approximately $39,000 in proceeds from the
insurance company to repair the damaged units. For financial statement purposes,
a casualty gain of approximately $33,000 was recognized during the six months
ended June 30, 2003 as a result of the difference between the proceeds received
and the net book value of the assets written off.
Total expenses for the three month period increased due to an increase in
operating expense offset by a decrease in general and administrative expense.
Total expenses for the six month period increased due to increases in operating
and property tax expenses partially offset by a decrease in general and
administrative expense. Operating expense for both periods increased due to
increases in advertising and property expenses. Advertising expense increased
due to increases in newspaper and periodical advertising at The Lakes
Apartments. Property expense increased due to the accrual for a projected OSHA
penalty arising from various citations at The Lakes Apartments. Property tax
expense increased due to an increase in the assessed value at Doral Springs
Apartments.
General and administrative expense decreased due to a decrease in Partnership
management fees that are only payable with distributions from operations.
Included in general and administrative expense for the six months ended June 30,
2003 and 2002 are management reimbursements to the General Partner as allowed
under the Partnership Agreement. In addition, costs associated with the
quarterly and annual communications with investors and regulatory agencies and
the annual audit required by the Partnership Agreement are also included in
general and administrative expenses.
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 expense. 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, 2003, the Partnership had cash and cash equivalents of approximately
$745,000 compared to approximately $467,000 at June 30, 2002. Cash and cash
equivalents increased approximately $186,000 from December 31, 2002 due to
approximately $10,045,000 and $910,000 of cash provided by investing and
operating activities, respectively, partially offset by approximately
$10,769,000 of cash used in financing activities. Cash provided by investing
activities consisted of proceeds from the sale of Breckinridge Square, net
withdrawals from restricted escrows maintained by the mortgage lender, and
insurance proceeds received, partially offset by property improvements and
replacements. Cash used in financing activities consisted of the repayment of
the mortgage encumbering Breckinridge Square, payment of loan costs, principal
payments on the mortgage encumbering Doral Springs Apartments, 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 investment properties to adequately maintain the
physical assets and other operating needs of the Partnership and to comply with
Federal, state, 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.
Breckinridge Square Apartments:
During the six months ended June 30, 2003, the Partnership completed
approximately $11,000 of capital improvements at Breckinridge Square Apartments,
consisting primarily of appliance and floor covering replacements. These
improvements were funded from operating cash flow. Breckinridge Square
Apartments was sold in January 2003.
Doral Springs Apartments:
During the six months ended June 30, 2003, the Partnership completed
approximately $156,000 of capital improvements at Doral Spring Apartments,
consisting primarily of electrical upgrades, plumbing fixtures, interior
decoration, structural improvements, and floor covering replacements. These
improvements were funded from operating cash flow. The Partnership evaluates the
capital improvement needs of the property during the year and currently expects
to complete an additional $100,000 in capital improvements during the remainder
of 2003. The additional capital improvements will consist primarily of
appliances, flooring and cabinet replacements, roofing improvements, parking lot
upgrades, and pool improvements. Additional capital improvements may be
considered and will depend on the physical condition of the property as well as
the anticipated cash flow generated by the property.
Churchill Park Apartments:
During the six months ended June 30, 2003, the Partnership completed
approximately $58,000 of capital improvements at Churchill Park, consisting
primarily of appliance and floor covering replacements. These improvements were
funded from operating cash flow. Churchill Park Apartments was sold in July
2003.
The Lakes Apartments:
During the six months ended June 30, 2003, the Partnership completed
approximately $273,000 of capital improvements at The Lakes, consisting
primarily of swimming pool upgrades, lighting improvements, appliance
replacements, maintenance equipment, building improvements, structural
improvements, and floor covering replacements. These improvements were funded
from operating cash flow and replacement reserves. The Partnership evaluates the
capital improvement needs of the property during the year and currently expects
to complete an additional $100,000 in capital improvements during the remainder
of 2003. The additional capital improvements will consist primarily of breezeway
upgrades, exterior breezeway lighting, exterior painting of common areas,
resurfacing tennis courts, and appliance, flooring, and cabinet replacements.
These improvements are part of a redevelopment project at the property.
Additional capital 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.
Additional capital expenditures will be incurred only if cash is available from
operations and Partnership reserves. To the extent that such budgeted capital
improvements are completed, the Partnership's distributable cash flow, if any,
may be adversely affected at least in the short term.
The Partnership's assets are thought to be sufficient for any near-term needs
(exclusive of capital improvements) of the Partnership. The Partnership's
mortgage indebtedness is approximately $29,001,000 of which approximately
$18,690,000 requires monthly interest only payments. These notes require balloon
payments on December 1, 2005. The remaining indebtedness, approximately
$10,311,000, requires monthly principal and interest payments of approximately
$87,000. This note is scheduled to be fully amortized when it matures on July 1,
2021. The General Partner may attempt to refinance such indebtedness and/or sell
the properties prior to such maturity dates. If the properties cannot be
refinanced or sold for a sufficient amount, the Partnership will risk losing
such properties through foreclosure.
The Partnership distributed the following amounts during the six months ended
June 30, 2003 and 2002 (in thousands, except per unit data):
Six Months Per Limited Six Months Per Limited
Ended Partnership Ended Partnership
June 30, 2003 Unit June 30, 2002 Unit
Operations $ 317 $ 6.38 $1,520 $30.59
Sale proceeds from
Breckinridge Square 4,315 75.44 -- --
$4,632 $81.82 $1,520 $30.59
The Partnership's cash available for distribution is reviewed on a monthly
basis. Future cash distributions will depend on the levels of net cash generated
from operations, the availability of cash reserves, and the timing of debt
maturities, refinancings, and/or property sales. There can be no assurance that
the Partnership will generate sufficient funds from operations, after required
capital expenditures, to permit further distributions to its partners during the
remainder of 2003 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 31,760.75 limited partnership units
(the "Units") in the Partnership representing 64.56% of the outstanding Units at
June 30, 2003. A number of these Units were acquired pursuant to tender offers
made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates
will acquire additional Units in exchange for cash or a combination of cash and
units in the operating partnership of AIMCO either through private purchases or
tender offers. Pursuant to the Partnership Agreement, unitholders holding a
majority of the Units are entitled to take action with respect to a variety of
matters that include, but are not limited to, voting on certain amendments to
the Partnership Agreement and voting to remove the General Partner. As a result
of its ownership of 64.56% of the outstanding Units, AIMCO and its affiliates
are in a position to influence all such voting decisions with respect to the
Partnership. Although the General Partner owes fiduciary duties to the limited
partners of the Partnership, the General Partner also owes fiduciary duties to
AIMCO as its sole stockholder. As a result, the duties of the General Partner,
as general partner, to the Partnership and its limited partners may come into
conflict with the duties of the General Partner to AIMCO, as its sole
stockholder.
Critical Accounting Policies and Estimates
The 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 and
the Partnership fully reserves all balances outstanding over thirty days. The
Partnership will offer rental concessions during particularly slow months or in
response to heavy competition from other similar complexes in the area. Any
concessions given at the inception of the lease are amortized over the life of
the lease.
ITEM 3. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. The Partnership's management, with the
participation of the principal executive officer and principal financial officer
of the General Partner, who are the equivalent of the Partnership's principal
executive officer and principal financial officer, respectively, has evaluated
the effectiveness of the Partnership's disclosure controls and procedures (as
such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the
period covered by this report. Based on such evaluation, the principal executive
officer and principal financial officer of the General Partner, who are the
equivalent of the Partnership's principal executive officer and principal
financial officer, respectively, have concluded that, as of the end of such
period, the Partnership's disclosure controls and procedures are effective.
(b) Internal Control Over Financial Reporting. There have not been any changes
in the Partnership's internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect, the Partnership's internal control
over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units which
are affiliates 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, certain affiliated partnerships,
the General Partner of the Partnership and several of their affiliated
partnerships and corporate entities. The action purported to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships that are named as nominal defendants, challenging, among
other things, the acquisition of interests in certain General Partner entities
by Insignia Financial Group, Inc. ("Insignia") and entities that were, at one
time, affiliates of Insignia; tender offers by affiliates of AIMCO and Insignia
to acquire limited partnership units; management of the partnerships; and the
series of transactions which closed on October 1, 1998 and February 26, 1999
whereby Insignia and Insignia Properties Trust, respectively, were merged into
AIMCO. The plaintiffs sought monetary damages and equitable relief, including
judicial dissolution of the Partnership.
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 Heller action was brought as a purported
derivative action, and asserted claims for, among other things, breach of
fiduciary duty, unfair competition, conversion, unjust enrichment, and judicial
dissolution. 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. Before completing
briefing on the appeal, the parties stayed further proceedings in the appeal in
light of a settlement.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action.
In general terms, the proposed settlement provides for certification for
settlement purposes of a settlement class consisting of all limited partners in
this Partnership and others (the "Partnerships") as of December 20, 2002, the
dismissal with prejudice and release of claims in the Nuanes and Heller
litigation, payment by AIMCO of $9.9 million (which shall be distributed to
settlement class members after deduction of attorney fees and costs of class
counsel and certain costs of settlement) and up to $1 million toward the cost of
independent appraisals of the Partnerships' properties by a Court appointed
appraiser. An affiliate of the General Partner has also agreed to make a tender
offer to purchase all of the partnership interests in the Partnerships within
one year of final approval, if it is granted, and to provide partners with the
independent appraisals at the time of these tenders. The proposed settlement
also provided for the limitation of the allowable costs which the General
Partner or its affiliates will charge the Partnerships in connection with this
litigation and imposes limits on the class counsel fees and costs in this
litigation. On April 11, 2003, notice was distributed to limited partners
providing the details of the proposed settlement.
On June 13, 2003, the Court granted final approval of the settlement and entered
judgment in both the Nuanes and Heller actions.
The General Partner does not anticipate that any costs to the Partnership,
whether legal or settlement costs, associated with these cases will be material
to the Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 3.1, Certificate of Limited Partnership (incorporated
by reference to Registration Statement of Registrant (File No.
2-57960) filed March 30, 1978, as amended to date).
Exhibit 3.2, Agreement of Limited Partnership (Exhibit A to
the Prospectus of Registrant dated February 25, 1977 is
incorporated herein by reference).
Exhibit 31.1, Certification of equivalent of Chief Executive
Officer pursuant to Securities Exchange Act Rules
13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 31.2, Certification of equivalent of Chief Financial
Officer pursuant to Securities Exchange Act Rules
13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Exhibit 32.1, Certification Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
b) Reports on Form 8-K:
None filed during the quarter ended June 30, 2003.
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 GROWTH FUND
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 13, 2003
Exhibit 31.1
CERTIFICATION
I, Patrick J. Foye, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Consolidated
Capital Growth Fund;
2. Based on my knowledge, this 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 13, 2003
/s/Patrick J. Foye
Patrick J. Foye
Executive Vice President of ConCap Equities
Inc., equivalent of the chief executive officer
of the Partnership
Exhibit 31.2
CERTIFICATION
I, Paul J. McAuliffe, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Consolidated
Capital Growth Fund;
2. Based on my knowledge, this 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 13, 2003
/s/Paul J. McAuliffe
Paul J. McAuliffe
Executive Vice President and Chief Financial
Officer of ConCap Equities Inc., equivalent of
the chief financial officer of the Partnership
Exhibit 32.1
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
Growth Fund (the "Partnership"), for the quarterly period ended June 30, 2003 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 13, 2003
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: August 13, 2003
This certification is furnished with this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.