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 September 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)
September 30, 2003
Assets
Cash and cash equivalents $ 427
Receivables and deposits 499
Restricted escrows 38
Other assets 173
Investment property:
Land $ 946
Buildings and related personal property 16,098
17,044
Less accumulated depreciation (12,303) 4,741
$ 5,878
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 295
Tenant security deposit liabilities 80
Accrued property taxes 184
Other liabilities 349
Mortgage note payable 12,240
Partners' Deficit
General partner $ (3,145)
Limited partners (49,196 units issued and
outstanding) (4,125) (7,270)
$ 5,878
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL GROWTH FUND
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
Revenues: (Restated) (Restated)
Rental income $ 735 $ 944 $ 2,229 $ 2,679
Other income 59 81 185 200
Casualty gain -- -- 33 --
Total revenues 794 1,025 2,447 2,879
Expenses:
Operating 422 287 1,284 980
General and administrative 96 104 326 460
Depreciation 224 220 681 682
Property taxes 60 55 185 177
Interest 219 219 655 655
Total expenses 1,021 885 3,131 2,954
(Loss) income from continuing operations (227) 140 (684) (75)
(Loss) income from discontinued operations (3,741) 241 (4,366) 639
Gain on sales of discontinued operations 26,048 -- 34,879 --
Net income $22,080 $ 381 $29,829 $ 564
Net income allocated to general partners $ 3,607 $ 4 $ 4,832 $ 6
Net income allocated to limited partners 18,473 377 24,997 558
$22,080 $ 381 $29,829 $ 564
Net (loss) income per limited partnership unit:
(Loss) income from continuing operations $ (4.57) $ 2.82 $(13.76) $ (1.51)
(Loss) income from discontinued operations (75.27) 4.84 (87.85) 12.85
Gain on sales of discontinued operations 455.34 -- 609.72 --
$375.50 $ 7.66 $508.11 $ 11.34
Distribution per limited partnership unit $240.89 $ -- $322.71 $ 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 -- (2,536) (15,876) (18,412)
Net income for the nine months
ended September 30, 2003 -- 4,832 24,997 29,829
Partners' deficit at
September 30, 2003 49,196 $(3,145) $ (4,125) $ (7,270)
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL GROWTH FUND
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2003 2002
Cash flows from operating activities:
Net income $ 29,829 $ 564
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,388 1,730
Amortization of loan costs 40 51
Bad debt expense, net 253 239
Casualty gain (33) --
Loss on early extinguishment of debt 4,245 --
Gain on sale of discontinued operations (34,879) --
Change in accounts:
Receivables and deposits (302) (613)
Other assets (12) (79)
Accounts payable (322) (17)
Tenant security deposit liabilities (227) 36
Accrued property taxes 184 541
Other liabilities (56) 252
Net cash provided by operating activities 108 2,704
Cash flows from investing activities:
Property improvements and replacements (713) (826)
Net withdrawals from restricted escrows 163 272
Insurance proceeds received 39 --
Net proceeds from sales of investment properties 41,581 --
Net cash provided by (used in) investing activities 41,070 (554)
Cash flows from financing activities:
Principal payments on mortgage notes payable (177) (185)
Distributions to partners (18,412) (1,520)
Repayment of mortgage notes payable (22,716) --
Loan costs paid (5) --
Net cash used in financing activities (41,310) (1,705)
Net (decrease) increase in cash and cash equivalents (132) 445
Cash and cash equivalents at beginning of period 559 644
Cash and cash equivalents at end of period $ 427 $ 1,089
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,539 $ 1,886
Supplemental disclosure of non-cash activity:
Net proceeds from sale of investment properties has been adjusted by
approximately $3,840,000 to reflect prepayment penalties paid by the buyer.
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 nine month
periods ended September 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, Doral Springs
and Churchill Park Apartments (see Note C) as (loss) income from discontinued
operations due to the sale of these properties during 2003.
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 as compensation for providing property
management services. The Partnership paid to such affiliates approximately
$325,000 and $432,000 for the nine months ended September 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 $240,000 and $266,000 for the
nine months ended September 30, 2003 and 2002, respectively, which is included
in general and administrative expenses and investment properties. Included in
these amounts are fees related to construction management services provided by
an affiliate of the General Partner of approximately $23,000 and $8,000 for the
nine months ended September 30, 2003 and 2002, respectively. The construction
management service fees are calculated based on a percentage of current year
additions to 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 Partnership Agreement) to be paid to the
General Partner for executive and administrative management services. During the
nine months ended September 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, Churchill Park in July 2003, and Doral
Springs in September 2003, the General Partner is entitled to a commission of up
to 3% for its assistance in the sales of these investment properties. During the
nine months ended September 30, 2003, approximately $603,000 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 nine months ended September 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 $10,990,000 after payment of
closing costs. The Partnership realized a gain of approximately $8,831,000 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
$689,000 as a result of unamortized loan costs being written off and prepayment
penalties. This amount is included in loss from discontinued operations in the
accompanying statements of operations. In accordance with SFAS 144, the
accompanying statements of operations for the three and nine months ended
September 30, 2002 have been restated to reflect the operations of Breckinridge
Square as discontinued operations. Included in (loss) income from discontinued
operations for the nine months ended September 30, 2003 and 2002 is
approximately $175,000 and $1,537,000, respectively, of revenue generated by the
property.
On July 25, 2003, the Partnership sold Churchill Park to an unrelated third
party for net proceeds of approximately $12,604,000 after payment of closing
costs. The Partnership realized a gain of approximately $9,176,000 as a result
of the sale. The Partnership used approximately $6,450,000 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 $650,000 as a
result of unamortized loan costs being written off and prepayment penalties.
This amount is included in loss from discontinued operations in the accompanying
statements of operations. In accordance with SFAS 144, the accompanying
statements of operations for the three and nine months ended September 30, 2002
have been restated to reflect the operations of Churchill Park as discontinued
operations. Included in (loss) income from discontinued operations for the nine
months ended September 30, 2003 and 2002 is approximately $1,357,000 and
$1,661,000 respectively, of revenue generated by the property.
On September 4, 2003, the Partnership sold Doral Springs to an unrelated third
party for net proceeds of approximately $21,827,000 after payment of closing
costs. The Partnership realized a gain of approximately $16,872,000 as a result
of the sale. The Partnership used approximately $10,266,000 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 $2,906,000 as a
result of unamortized loan costs being written off and prepayment penalties.
This amount is included in loss from discontinued operations in the accompanying
statements of operations. In accordance with SFAS 144, the accompanying
statements of operations for the three and nine months ended September 30, 2002
have been restated to reflect the operations of Doral Springs as discontinued
operations. Included in (loss) income from discontinued operations for the nine
months ended September 30, 2003 and 2002 is approximately $2,136,000 and
$2,411,000 respectively, of revenue generated by the property.
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 nine months
ended September 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 of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of California for the County of San Mateo. The plaintiffs named as
defendants, among others, the Partnership, its General Partner and several of
their affiliated partnerships and corporate entities. The action purported to
assert claims on behalf of a class of limited partners and derivatively on
behalf of a number of limited partnerships (including the Partnership) that are
named as nominal defendants, challenging, among other things, the acquisition of
interests in certain General Partner entities by Insignia Financial Group, Inc.
("Insignia") and entities that were, at one time, affiliates of Insignia; past
tender offers by the Insignia affiliates to acquire limited partnership units;
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 sought monetary damages and equitable relief, including judicial
dissolution of the Partnership. In addition, 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.
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 at least
one round of tender offers 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. On August 12, 2003, an objector
filed an appeal seeking to vacate and/or reverse the order approving the
settlement and entering judgment thereto. The General Partner intends to file a
respondent's brief in support of the order approving settlement and entering
judgment thereto.
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.
On August 8, 2003 AIMCO Properties L.P., an affiliate of the General Partner,
was served with a Complaint in the United States District Court, District of
Columbia alleging that AIMCO Properties L.P. willfully violated the Fair Labor
Standards Act (FLSA) by failing to pay maintenance workers overtime for all
hours worked in excess of forty per week. The Complaint is styled as a
Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the Complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The Complaint also attempts to certify a subclass for salaried
service directors who are challenging their classification as exempt from the
overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to
the Complaint denying the substantive allegations. Although the outcome of any
litigation is uncertain, in the opinion of the General Partner the claims will
not result in any material liability to the Partnership.
The Partnership is unaware of any other pending or outstanding litigation
matters involving it or its investment property that are not of a routine nature
arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this 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 property consists of one apartment complex. The
following table sets forth the average occupancy of the property for the nine
months ended September 30, 2003 and 2002:
Average Occupancy
Property 2003 2002
The Lakes 84% 87%
Raleigh, North Carolina
The General Partner attributes the decrease in occupancy at The Lakes to
increased competition from newer properties in the local area.
Results of Operations
The Partnership's net income for the three and nine months ended September 30,
2003 was $22,080,000 and $29,829,000, respectively, compared to net income of
approximately $381,000 and $564,000 for the three and nine months ended
September 30, 2002, respectively. The increase in net income for the three and
nine month periods is due to the recognition of the gain on the sales of
Breckinridge Square, Churchill Park, and Doral Springs Apartments.
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, Churchill Park
and Doral Springs Apartments as (loss) income from discontinued operations due
to the sale of these properties during 2003.
On January 16, 2003, the Partnership sold Breckinridge Square to an unrelated
third party for net proceeds of approximately $10,990,000 after payment of
closing costs. The Partnership realized a gain of approximately $8,831,000 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
$689,000 as a result of unamortized loan costs being written off and prepayment
penalties. This amount is included in loss from discontinued operations.
Included in (loss) income from discontinued operations for the nine months ended
September 30, 2003 and 2002 is approximately $175,000 and $1,537,000,
respectively, of revenue generated by the property.
On July 25, 2003, the Partnership sold Churchill Park to an unrelated third
party for net proceeds of approximately $12,604,000 after payment of closing
costs. The Partnership realized a gain of approximately $9,176,000 as a result
of the sale. The Partnership used approximately $6,450,000 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 $650,000 as a
result of unamortized loan costs being written off and prepayment penalties.
This amount is included in loss from discontinued operations. Included in (loss)
income from discontinued operations for the nine months ended September 30, 2003
and 2002 is approximately $1,357,000 and $1,661,000 respectively, of revenue
generated by the property.
On September 4, 2003, the Partnership sold Doral Springs to an unrelated third
party for net proceeds of approximately $21,827,000 after payment of closing
costs. The Partnership realized a gain of approximately $16,872,000 as a result
of the sale. The Partnership used approximately $10,266,000 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 $2,906,000 as a
result of unamortized loan costs being written off and prepayment penalties.
This amount is included in loss from discontinued operations. Included in (loss)
income from discontinued operations for the nine months ended September 30, 2003
and 2002 is approximately $2,136,000 and $2,411,000 respectively, of revenue
generated by the property.
Excluding the gain on sales and the discontinued operations, the Partnership's
loss from continuing operations for the three months ended September 30, 2003
was approximately $227,000 compared to income from continuing operations of
approximately $140,000 for the corresponding period in 2002. The Partnership's
loss from continuing operations for the nine months ended September 30, 2003 and
2002 was approximately $684,000 and $75,000, respectively. The decrease in
income from continuing operations for the three and nine month periods is due to
a decrease in total revenue and an increase in total expenses. Total revenue
decreased due to a decrease in rental income caused by decreases in occupancy
and the average rental rates at The Lakes 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 nine months
ended September 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 and nine month periods increased due to an increase
in operating expenses partially offset by a decrease in general and
administrative expenses. Operating expenses increased due to increases in
advertising, property, and maintenance expenses. Advertising expense increased
due to increases in newspaper and periodical advertising at The Lakes
Apartments. Property expenses increased due to the accrual for a projected OSHA
penalty arising from various citations at The Lakes Apartments. Maintenance
expense increased due to an increase in contract labor and repairs at The Lakes
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 nine months ended
September 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, the General Partner may use rental
concessions and rental rate reductions to offset softening market conditions,
accordingly, there is no guarantee that the General Partner will be able to
sustain such a plan.
Liquidity and Capital Resources
At September 30, 2003, the Partnership had cash and cash equivalents of
approximately $427,000 compared to approximately $1,089,000 at September 30,
2002. Cash and cash equivalents decreased approximately $132,000 from December
31, 2002 due to approximately $41,310,000 of cash used in financing activities
partially offset by approximately $41,070,000 and $108,000 of cash provided by
investing and operating activities, respectively. Cash used in financing
activities consisted of the repayment of the mortgages encumbering Breckinridge
Square, Churchill Park and Doral Springs Apartments, payment of loan costs,
principal payments on the mortgage encumbering Doral Springs Apartments, and
distributions to partners. Cash provided by investing activities consisted of
proceeds from the sales of Breckinridge Square, Churchill Park and Doral Springs
Apartments, net withdrawals from restricted escrows maintained by the mortgage
lender, and insurance proceeds received, partially offset by property
improvements and replacements. 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 the Partnership's remaining investment property is detailed below.
Breckinridge Square Apartments
During the nine months ended September 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 nine months ended September 30, 2003, the Partnership completed
approximately $196,000 of capital improvements at Doral Springs Apartments,
consisting primarily of electrical and plumbing fixtures upgrades, interior
decoration, structural improvements, and floor covering replacements. These
improvements were funded from operating cash flow. Doral Springs Apartments was
sold in September 2003.
Churchill Park Apartments
During the nine months ended September 30, 2003, the Partnership completed
approximately $126,000 of capital improvements at Churchill Park Apartments,
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 nine months ended September 30, 2003, the Partnership completed
approximately $380,000 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 $49,000 in capital improvements during the remainder
of 2003. The additional capital improvements will consist primarily of
structural upgrades and appliance and floor covering 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 mortgage
indebtedness encumbering The Lakes Apartments is approximately $12,240,000 which
requires monthly interest only payments. This note requires a balloon payment on
December 1, 2005. The General Partner may attempt to refinance such indebtedness
and/or sell the property prior to such maturity date. If the property cannot be
refinanced or sold for a sufficient amount, the Partnership will risk losing
such property through foreclosure.
Pursuant to the Partnership Agreement, the term of the Partnership is scheduled
to expire on December 31, 2006. Accordingly, prior to such date the Partnership
will need to either sell its investment property or extend the term of the
Partnership.
The Partnership distributed the following amounts during the nine months ended
September 30, 2003 and 2002 (in thousands, except per unit data):
Per Limited Per Limited
Nine Months Ended Partnership Nine Months Ended Partnership
September 30, 2003 Unit September 30, 2002 Unit
Operations $ 317 $ 6.38 $ 1,520 $ 30.59
Sale proceeds (1) 18,095 316.33 -- --
$18,412 $322.71 $ 1,520 $ 30.59
(1) Proceeds from the sales of Breckinridge Square, Churchill Park and Doral
Springs Apartments.
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 sale. 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
September 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 AIMCO Properties, L.P., the operating partnership of AIMCO,
either through private purchases or tender offers. Pursuant to the Partnership
Agreement, unitholders holding a majority of the Units are entitled to take
action with respect to a variety of matters that include, but are not limited
to, voting on certain amendments to the Partnership Agreement and voting to
remove the General Partner. As a result of its ownership of 64.56% of the
outstanding Units, AIMCO and its affiliates are in a position to influence all
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 property is 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 property. These factors include, but are not limited
to, 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 impairment of 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 of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of California for the County of San Mateo. The plaintiffs named as
defendants, among others, the Partnership, its General Partner and several of
their affiliated partnerships and corporate entities. The action purported to
assert claims on behalf of a class of limited partners and derivatively on
behalf of a number of limited partnerships (including the Partnership) that are
named as nominal defendants, challenging, among other things, the acquisition of
interests in certain General Partner entities by Insignia Financial Group, Inc.
("Insignia") and entities that were, at one time, affiliates of Insignia; past
tender offers by the Insignia affiliates to acquire limited partnership units;
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 sought monetary damages and equitable relief, including judicial
dissolution of the Partnership. In addition, 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.
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 at least
one round of tender offers 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. On August 12, 2003, an objector
filed an appeal seeking to vacate and/or reverse the order approving the
settlement and entering judgment thereto. The General Partner intends to file a
respondent's brief in support of the order approving settlement and entering
judgment thereto.
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.
On August 8, 2003 AIMCO Properties L.P., an affiliate of the General Partner,
was served with a Complaint in the United States District Court, District of
Columbia alleging that AIMCO Properties L.P. willfully violated the Fair Labor
Standards Act (FLSA) by failing to pay maintenance workers overtime for all
hours worked in excess of forty per week. The Complaint is styled as a
Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the Complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The Complaint also attempts to certify a subclass for salaried
service directors who are challenging their classification as exempt from the
overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to
the Complaint denying the substantive allegations. Although the outcome of any
litigation is uncertain, in the opinion of the General Partner the claims will
not result in any material liability to the Partnership.
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 filed during the quarter ended September
30, 2003:
Current Report on Form 8-K dated July 29, 2003 and filed on
August 13, 2003 disclosing the sale of Churchill Park
Apartments.
Current Report on Form 8-K dated September 4, 2003 and filed
on September 18, 2003 disclosing the sale of Doral Springs
Apartments.
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/Paul J. McAuliffe
Paul J. McAuliffe
Executive Vice President
and Chief Financial Officer
Date: November 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: November 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: November 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 September 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: November 13, 2003
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: November 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.