UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________to _________
Commission file number 0-10273
CONSOLIDATED CAPITAL PROPERTIES III
(Exact Name of Small Business Issuer as Specified in Its Charter)
California 94-2653686
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No ___
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CAPITAL PROPERTIES III
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 2004
Assets
Cash and cash equivalents $ 84
Receivables and deposits 54
Other assets 351
Investment properties:
Land $ 407
Buildings and related personal property 9,670
10,077
Less accumulated depreciation (7,932) 2,145
$ 2,634
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 115
Tenant security deposit liabilities 66
Accrued property taxes 132
Other liabilities 201
Due to affiliates (Note B) 485
Mortgage notes payable 7,209
Partners' Deficit
General partners $(1,892)
Limited partners (158,582 units issued and
outstanding) (3,682) (5,574)
$ 2,634
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL PROPERTIES III
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
Revenues:
Rental income $ 572 $ 582 $ 1,643 $ 1,675
Other income 51 54 160 160
Total revenues 623 636 1,803 1,835
Expenses:
Operating 393 360 1,063 903
General and administrative 64 50 172 172
Depreciation 112 111 338 342
Interest 145 147 436 446
Property taxes 44 38 132 132
Total expenses 758 706 2,141 1,995
Loss from continuing operations (135) (70) (338) (160)
Loss from discontinued operations -- (402) -- (488)
Gain from sale of discontinued operations -- 988 -- 988
Net (loss) income $ (135) $ 516 $ (338) $ 340
Net (loss) income allocated to general
partners (4%) $ (5) $ 21 $ (14) $ 14
Net (loss) income allocated to limited
partners (96%) (130) 495 (324) 326
$ (135) $ 516 $ (338) $ 340
Per limited partnership unit:
Loss from continuing operations $ (0.82) $ (0.42) $ (2.04) $ (0.97)
Loss from discontinued operations -- (2.44) -- (2.95)
Gain from sale of discontinued operations -- 5.98 -- 5.98
Net (loss) income $ (0.82) $ 3.12 $ (2.04) $ 2.06
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL PROPERTIES III
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 158,945 $ 1 $ 79,473 $ 79,474
Partners' deficit
at December 31, 2003 158,582 $(1,878) $ (3,358) $ (5,236)
Net loss for the nine months
ended September 30, 2004 -- (14) (324) (338)
Partners' deficit
at September 30, 2004 158,582 $(1,892) $ (3,682) $ (5,574)
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL PROPERTIES III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2004 2003
Cash flows from operating activities:
Net (loss) income $ (338) $ 340
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Gain from sale of discontinued operations -- (988)
Depreciation 338 478
Loss on early extinguishment of debt -- 332
Amortization of loan costs 19 21
Bad debt expense 63 115
Change in accounts:
Due to affiliates 115 99
Receivables and deposits (68) (67)
Other assets (26) (49)
Accounts payable (34) (65)
Tenant security deposit liabilities 5 (8)
Accrued property taxes 132 132
Other liabilities 14 25
Net cash provided by operating activities 220 365
Cash flows from investing activities:
Proceeds from sale of discontinued operations -- 1,651
Property improvements and replacements (333) (245)
Net cash (used in) provided by investing activities (333) 1,406
Cash flows from financing activities:
Repayment of mortgage note payable -- (1,047)
Payments on mortgage notes payable (154) (166)
Advances from affiliate 299 70
Payments on advances from affiliate -- (58)
Net cash provided by (used in) financing activities 145 (1,201)
Net increase in cash and cash equivalents 32 570
Cash and cash equivalents at beginning of period 52 88
Cash and cash equivalents at end of period $ 84 $ 658
Supplemental disclosure of cash flow information:
Cash paid for interest $ 434 $ 496
At September 30, 2003, proceeds from the sale of discontinued operations has
been adjusted by approximately $299,000 in connection with prepayment penalties
paid by the buyer of West Chase Apartments.
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL PROPERTIES III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Consolidated
Capital Properties III (the "Partnership" or "Registrant") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the general partner of the Partnership,
ConCap Equities, Inc. (the "General Partner"), all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 2004 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 2004. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Partnership's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2003. The General Partner is wholly-owned by Apartment Investment
and Management Company ("AIMCO"), a publicly traded real estate investment
trust.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and depends on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The partnership agreement ("Partnership Agreement") provides for payments to
affiliates for services and reimbursement of certain expenses incurred by
affiliates of the General Partner on behalf of the Partnership.
Affiliates of the General Partner are entitled to receive 5% of gross receipts
from all of the Partnership's properties as compensation for providing property
management services. The Partnership paid to such affiliates approximately
$89,000 and $118,000 for the nine months ended September 30, 2004 and 2003,
respectively, which are included in operating expenses and loss from
discontinued operations.
Affiliates of the General Partner charged the Partnership for reimbursement of
accountable administrative expenses amounting to approximately $131,000 and
$129,000 for the nine months ended September 30, 2004 and 2003, respectively.
Included in these amounts are fees related to construction management services
provided by an affiliate of the General Partner of approximately $9,000 and
$18,000 for the nine months ended September 30, 2004 and 2003, respectively. The
construction management service fees are calculated based on a percentage of
current additions to investment properties. These reimbursements of accountable
administrative expenses are included in general and administrative expenses and
investment properties. At September 30, 2004, approximately $184,000 of such
fees were owed and are included in due to affiliates.
The Partnership Agreement provides for a special management fee equal to 9% of
the total distributions made to the limited partners from cash flow from
operations to be paid to the General Partner for executive and administrative
management services. During the nine months ended September 30, 2004 and 2003,
no special management fees were paid as no distributions from cash flow from
operations were made.
During the nine months ended September 30, 2004, an affiliate of the General
Partner advanced the Partnership approximately $299,000 to fund operations and
capital improvements at both of the Partnership's investment properties.
Interest is accrued at the prime rate plus 2% (6.75% at September 30, 2004).
Interest expense was approximately $2,000 for the nine months ended September
30, 2004. During the nine months ended September 30, 2003, an affiliate of the
General Partner advanced the Partnership approximately $70,000 to fund
operations at Ventura Landing Apartments. During the nine months ended September
30, 2003, the Partnership made payments on advances of approximately $58,000.
Interest expense for the nine months ended September 30, 2003 was approximately
$3,000. At September 30, 2004, the total amount of advances and accrued interest
was approximately $301,000 and is included in due to affiliates.
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, 2004 and 2003, the
Partnership was charged by AIMCO and its affiliates approximately $34,000 and
$29,000, respectively, for insurance coverage and fees associated with policy
claims administration.
Note C - Disposition of Investment Property
On September 29, 2003, the Partnership sold West Chase Apartments to a third
party for a gross sale price of approximately $2,124,000. The net proceeds
realized by the Partnership were approximately $1,651,000 after payment of
closing costs of approximately $174,000 and a prepayment penalty of
approximately $299,000 owed by the Partnership and paid by the buyer. The
Partnership used approximately $1,047,000 of the net proceeds to repay the
mortgage encumbering the property. As a result of the sale, the Partnership
realized a gain of approximately $988,000 for the three and nine months ended
September 30, 2003, and this amount is included in gain from sale of
discontinued operations on the accompanying consolidated statements of
operations. The property's operations, loss of approximately $402,000 and
$488,000 for the three and nine months ended September 30, 2003, respectively,
are shown as loss from discontinued operations. Included in loss from
discontinued operations are revenues of approximately $139,000 and $477,000, for
the three and nine months ended September 30, 2003, respectively. In addition,
the Partnership recorded a loss on early extinguishment of debt of approximately
$332,000 for the three and nine months ended September 30, 2003 due to the write
off of unamortized loan costs and a prepayment penalty, which is also included
in loss from discontinued operations on the accompanying consolidated statements
of operations.
Note D - Casualty Event
In August 2004, Ventura Landing Apartments experienced damage from Hurricane
Charley. As of September 30, 2004, the Partnership estimates damage and cleanup
costs of approximately $225,000. The Partnership does not expect a casualty loss
to result from the damage as the damaged assets were fully depreciated.
In September 2004, Ventura Landing Apartments experienced damage from Hurricane
Frances. As of September 30, 2004 the Partnership estimates the damage and
cleanup costs to be approximately $140,000. The Partnership does not expect a
casualty loss to result from the damage as the damaged assets were fully
depreciated.
In September 2004, Village Green Apartments experienced damage from Hurricane
Frances. As of September 30, 2004 the Partnership estimates the damage to be
approximately $45,000. The General Partner anticipates a loss of approximately
$5,000 to result from this event.
Note E - Contingencies
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of California for the County of San Mateo. The plaintiffs named as
defendants, among others, the Partnership, its General Partner and several of
their affiliated partnerships and corporate entities. The action purported to
assert claims on behalf of a class of limited partners and derivatively on
behalf of a number of limited partnerships (including the Partnership) that are
named as nominal defendants, challenging, among other things, the acquisition of
interests in certain General Partner entities by Insignia Financial Group, Inc.
("Insignia") and entities that were, at one time, affiliates of Insignia; past
tender offers by the Insignia affiliates to acquire limited partnership units;
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 captioned Heller v. Insignia Financial Group (the "Heller action") was
filed against the same defendants that are named in the Nuanes action. On or
about August 6, 2001, the 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
("Objector") filed an appeal (the "Appeal") seeking to vacate and/or reverse the
order approving the settlement and entering judgment thereto. On November 24,
2003, the Objector filed an application requesting the court order AIMCO to
withdraw settlement tender offers it had commenced, refrain from making further
offers pending the appeal and auction any units tendered to third parties,
contending that the offers did not conform with the terms of the settlement.
Counsel for the Objector (on behalf of another investor) had alternatively
requested the court take certain action purportedly to enforce the terms of the
settlement agreement. On December 18, 2003, the court heard oral argument on the
motions and denied them both in their entirety. The Objector filed a second
appeal challenging the court's use of a referee and its order requiring Objector
to pay those fees.
On January 28, 2004, the Objector filed his opening brief in the Appeal. On
April 23, 2004, the General Partner and its affiliates filed a response brief in
support of the settlement and the judgment thereto. The plaintiffs have also
filed a brief in support of the settlement. On June 4, 2004, Objector filed a
reply to the briefs submitted by the General Partner and Plaintiffs. In addition
both the Objector and plaintiffs filed briefs in connection with the second
appeal. The Court of Appeals heard oral argument on both appeals on September
22, 2004 and took the matters under submission.
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. On March 5, 2004 the plaintiffs filed
an amended complaint also naming NHP Management Company, which is also an
affiliate of the General Partner. 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 defendants have
filed an answer to the amended complaint denying the substantive allegations.
Some discovery has taken place and settlement negotiations continue. Although
the outcome of any litigation is uncertain, AIMCO Properties, L.P. does not
believe that the ultimate outcome will have a material adverse effect on its
financial condition or results of operations. Similarly, the General Partner
does not believe that the ultimate outcome will have a material adverse effect
on the Partnership's consolidated financial condition or results of operations.
The Partnership is unaware of any other pending or outstanding litigation
matters involving it or its investment properties that are not of a routine
nature arising in the ordinary course of business.
As previously disclosed, the Central Regional Office of the United States
Securities and Exchange Commission (the "SEC") is conducting a formal
investigation relating to certain matters. Although the staff of the SEC is not
limited in the areas that it may investigate, AIMCO believes the areas of
investigation include AIMCO's miscalculated monthly net rental income figures in
third quarter 2003, forecasted guidance, accounts payable, rent concessions,
vendor rebates, capitalization of payroll and certain other costs, and tax
credit transactions. AIMCO is cooperating fully. AIMCO is not able to predict
when the matter will be resolved. AIMCO does not believe that the ultimate
outcome will have a material adverse effect on its consolidated financial
condition or results of operations. Similarly, the General Partner does not
believe that the ultimate outcome will have a material adverse effect on the
Partnership's consolidated financial condition or results of operations.
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 two apartment complexes. The
following table sets forth the average occupancy of the properties for each of
the nine month periods ended September 30, 2004 and 2003:
Average Occupancy
Property 2004 2003
Ventura Landing Apartments 94% 95%
Orlando, Florida
Village Green Apartments 93% 95%
Altamonte Springs, Florida
The Partnership's financial results depend upon a number of factors including
the ability to attract and maintain tenants at the investment properties,
interest rates on mortgage loans, costs incurred to operate the investment
properties, general economic conditions and weather. As part of the ongoing
business plan of the Partnership, the General Partner monitors the rental market
environment of its investment properties to assess the feasibility of increasing
rents, maintaining or increasing occupancy levels and protecting the Partnership
from increases in expenses. As part of this plan, the General Partner attempts
to protect the Partnership from the burden of inflation-related increases in
expenses by increasing rents and maintaining a high overall occupancy level.
However, the General Partner may use rental concessions and rental rate
reductions to offset softening market conditions; accordingly, there is no
guarantee that the General Partner will be able to sustain such a plan. Further,
a number of factors that are outside the control of the Partnership, such as the
local economic climate and weather, can adversely or positively affect the
Partnership's financial results.
Results of Operations
The Partnership's net loss for the three and nine months ended September 30,
2004 was approximately $135,000 and $338,000, respectively, as compared to net
income of approximately $516,000 and $340,000, respectively, for the three and
nine months ended September 30, 2003. On September 29, 2003, the Partnership
sold West Chase Apartments to a third party for a gross sale price of
approximately $2,124,000. The net proceeds realized by the Partnership were
approximately $1,651,000 after payment of closing costs of approximately
$174,000 and a prepayment penalty of approximately $299,000 owed by the
Partnership and paid by the buyer. The Partnership used approximately $1,047,000
of the net proceeds to repay the mortgage encumbering the property. As a result
of the sale, the Partnership realized a gain of approximately $988,000 for the
three and nine months ended September 30, 2003, which is included in gain from
sale of discontinued operations on the accompanying consolidated statements of
operations. The property's operations, loss of approximately $402,000 and
$488,000, respectively, for the three and nine months ended September 30, 2003,
are shown as loss from discontinued operations. Included in loss from
discontinued operations are revenues of approximately $139,000 and $477,000,
respectively, for the three and nine months ended September 30, 2003. In
addition, the Partnership recorded a loss on early extinguishment of debt of
approximately $332,000 for the three and nine months ended September 30, 2003
due to the write off of unamortized loan costs and a prepayment penalty, which
is also included in loss from discontinued operations on the accompanying
consolidated statements of operations.
The Partnership's loss from continuing operations for the three and nine months
ended September 30, 2004 was approximately $135,000 and $338,000, respectively,
as compared to loss from continuing operations of approximately $70,000 and
$160,000 for the three and nine months ended September 30, 2003, respectively.
The increase in loss from continuing operations for both the three and nine
months ended September 30, 2004 is due to an increase in total expenses and a
decrease in total revenues. The increase in total expenses for the three months
ended September 30, 2004 is due to increases in both operating and general and
administrative expenses. Depreciation, property tax and interest expenses
remained relatively constant for the three months ended September 30, 2004. The
increase in total expenses for the nine months ended September 30, 2004 is due
to an increase in operating expenses, partially offset by a decrease in interest
expense. Depreciation, property tax, and general and administrative expenses
remained relatively constant for the nine months ended September 30, 2004. The
increase in operating expenses for both periods is primarily due to increases in
advertising, contract maintenance, and payroll related expenses at both of the
Partnerships investment properties, and cleanup expenses at Ventura Landing
Apartments related to damage sustained from Hurricane Charley (as discussed
below). The decrease in interest expense for the nine months ended September 30,
2004 is a result of scheduled principal payments made on the mortgages
encumbering the Partnership's investment properties, which reduced the carrying
balance of the loans. General and administrative expenses increased for the
three months ended September 30, 2004 primarily due to an increase in the costs
of services included in the 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 for the three and nine months ended
September 30, 2004 and 2003.
The decrease in total revenues for the three and nine months ended September 30,
2004 is due to a decrease in rental income. Other income remained relatively
constant for the comparable periods. The decrease in rental income for the three
and nine months ended September 30, 2004 is due to decreases in both occupancy
and the average rental rate at both of the Partnership's investment properties.
In August 2004, Ventura Landing Apartments experienced damage from Hurricane
Charley. As of September 30, 2004, the Partnership estimates damage and cleanup
costs of approximately $225,000. The Partnership does not expect a casualty loss
to result from the damage as the damaged assets were fully depreciated.
In September 2004, Ventura Landing Apartments experienced damage from Hurricane
Frances. As of September 30, 2004 the Partnership estimates the damage and
cleanup costs to be approximately $140,000. The Partnership does not expect a
casualty loss to result from the damage as the damaged assets were fully
depreciated.
In September 2004, Village Green Apartments experienced damage from Hurricane
Frances. As of September 30, 2004 the Partnership estimates the damage to be
approximately $45,000. The General Partner anticipates a loss of approximately
$5,000 to result from this event.
Liquidity and Capital Resources
At September 30, 2004, the Partnership had cash and cash equivalents of
approximately $84,000, compared to approximately $658,000 at September 30, 2003.
The increase in cash and cash equivalents of approximately $32,000, from
December 31, 2003, is due to approximately $220,000 of cash provided by
operating activities and approximately $145,000 of cash provided by financing
activities, partially offset by approximately $333,000 of cash used in investing
activities. Cash provided by financing activities consisted of advances received
from an affiliate of the General Partner, partially offset by payments of
principal made on the mortgages encumbering the Partnership's investment
properties. Cash used in investing activities consisted of 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 properties to adequately maintain the physical
assets and other operating needs of the Partnership and to comply with Federal,
state, and local legal and regulatory requirements. The General Partner monitors
developments in the area of legal and regulatory compliance. For example, 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. Capital improvements planned for each of the Partnership's
properties are detailed below.
Village Green Apartments
During the nine months ended September 30, 2004, the Partnership completed
approximately $112,000 of capital improvements at Village Green Apartments,
consisting primarily of structural improvements, parking area upgrades, air
conditioning unit upgrades and floor covering replacement. These improvements
were funded from operations and an advance from an affiliate of the General
Partner. The Partnership evaluates the capital improvement needs of the property
during the year and currently expects that only necessary improvements will be
made during the remainder of 2004 in order to maintain occupancy at the
property. 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.
Ventura Landing Apartments
During the nine months ended September 30, 2004, the Partnership completed
approximately $221,000 of capital improvements at Ventura Landing Apartments,
consisting primarily of major landscaping, parking area resurfacing, exterior
painting, structural improvements, and floor covering replacement. These
improvements were funded from operations and an advance from an affiliate of the
General Partner. The Partnership evaluates the capital improvement needs of the
property during the year and currently expects that only necessary improvements
will be made during the remainder of 2004 in order to maintain occupancy at the
property. 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.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the 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 Partnership's investment properties of
approximately $7,209,000 requires monthly payments of principal and interest
until the loans mature between July and August 2021, at which time the loans are
scheduled to be fully amortized.
There were no distributions made to the partners during the nine months ended
September 30, 2004 and 2003. Future cash distributions will depend on the levels
of net cash generated from operations, the availability of cash reserves, and
the timing of property sales and/or refinancings. The Partnership's cash
available for distribution is reviewed on a monthly basis. There can be no
assurance that the Partnership will generate sufficient funds from operations
after required capital expenditures to permit any distributions to its partners
during the remainder of 2004 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 83,938.50 limited partnership units
(the "Units") in the Partnership representing 52.93% of the outstanding Units at
September 30, 2004. 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 52.93% of the
outstanding Units, AIMCO is in a position to control 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 consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States, which require the
Partnership to make estimates and assumptions. The Partnership believes that of
its significant accounting policies, the following may involve a higher degree
of judgment and complexity.
Impairment of Long-Lived Assets
The Partnership's 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, 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. The
Partnership evaluates all accounts receivable from residents and establishes an
allowance, after the application of security deposits, for accounts greater than
30 days past due on current tenants and all receivables due from former tenants.
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 captioned Heller v. Insignia Financial Group (the "Heller action") was
filed against the same defendants that are named in the Nuanes action. On or
about August 6, 2001, the 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
("Objector") filed an appeal (the "Appeal") seeking to vacate and/or reverse the
order approving the settlement and entering judgment thereto. On November 24,
2003, the Objector filed an application requesting the court order AIMCO to
withdraw settlement tender offers it had commenced, refrain from making further
offers pending the appeal and auction any units tendered to third parties,
contending that the offers did not conform with the terms of the settlement.
Counsel for the Objector (on behalf of another investor) had alternatively
requested the court take certain action purportedly to enforce the terms of the
settlement agreement. On December 18, 2003, the court heard oral argument on the
motions and denied them both in their entirety. The Objector filed a second
appeal challenging the court's use of a referee and its order requiring Objector
to pay those fees.
On January 28, 2004, the Objector filed his opening brief in the Appeal. On
April 23, 2004, the General Partner and its affiliates filed a response brief in
support of the settlement and the judgment thereto. The plaintiffs have also
filed a brief in support of the settlement. On June 4, 2004, Objector filed a
reply to the briefs submitted by the General Partner and Plaintiffs. In addition
both the Objector and plaintiffs filed briefs in connection with the second
appeal. The Court of Appeals heard oral argument on both appeals on September
22, 2004 and took the matters under submission.
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. On March 5, 2004 the plaintiffs filed
an amended complaint also naming NHP Management Company, which is also an
affiliate of the General Partner. 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 defendants have
filed an answer to the amended complaint denying the substantive allegations.
Some discovery has taken place and settlement negotiations continue. Although
the outcome of any litigation is uncertain, AIMCO Properties, L.P. does not
believe that the ultimate outcome will have a material adverse effect on its
financial condition or results of operations. Similarly, the General Partner
does not believe that the ultimate outcome will have a material adverse effect
on the Partnership's consolidated financial condition or results of operations.
ITEM 6. EXHIBITS
See Exhibit Index.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CONSOLIDATED CAPITAL PROPERTIES III
By: CONCAP EQUITIES, INC.
General Partner
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
By: /s/Stephen B. Waters
Stephen B. Waters
Vice President
Date: November 12, 2004
EXHIBIT INDEX
Exhibit Number
3.1 Certificate of Limited Partnership, as amended to date
(Exhibit 3 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991, is incorporated herein by
reference).
3.2 Partnership Agreement dated May 22, 1980 is incorporated by
reference to Exhibit A to the Prospectus of the Registration
dated August 17, 1981 as filed with the Commission pursuant to
Rule 424(b) under the Act.
10.51 Multifamily Note dated June 27, 2001 between Consolidated
Capital Properties III, a California limited partnership, and
GMAC Commercial Mortgage Corporation. (Incorporated by
reference to the Quarterly Report on Form 10-QSB for the
quarter ended June 30, 2001).
10.52 Multifamily Note dated July 23, 2001 between ConCap Village
Green Associates, Ltd., a Texas limited partnership, and GMAC
Commercial Mortgage Corporation. (Incorporated by reference to
the Quarterly Report on Form 10-QSB for the quarter ended June
30, 2001).
10.53 Purchase and Sale Contract between Consolidated Capital
Properties III and West Chase Apartments, LLC, dated August
13, 2003 (incorporated by reference to the Current Report on
Form 8-K dated September 29, 2003).
31.1 Certification of equivalent of Chief Executive Officer
pursuant to Securities Exchange Act Rules
13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of equivalent of Chief Financial Officer
pursuant to Securities Exchange Act Rules
13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
Exhibit 31.1
CERTIFICATION
I, Martha L. Long, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Consolidated
Capital Properties III;
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 small business issuer as of, and for, the periods presented in this
report;
4. The small business issuer'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 small business issuer 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
small business issuer, 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 small business issuer'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 small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small
business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer'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 small business issuer'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 small business
issuer's internal control over financial reporting.
Date: November 12, 2004
/s/Martha L. Long
Martha L. Long
Senior Vice President of ConCap
Equities, Inc., equivalent of the
chief executive officer of the
Partnership
Exhibit 31.2
CERTIFICATION
I, Stephen B. Waters, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Consolidated
Capital Properties III;
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 small business issuer as of, and for, the periods presented in this
report;
4. The small business issuer'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 small business issuer 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
small business issuer, 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 small business issuer'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 small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small
business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer'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 small business issuer'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 small business
issuer's internal control over financial reporting.
Date: November 12, 2004
/s/Stephen B. Waters
Stephen B. Waters
Vice President 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
Properties III (the "Partnership"), for the quarterly period ended September 30,
2004 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), Martha L. Long, as the equivalent of the Chief Executive Officer
of the Partnership, and Stephen B. Waters, 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/Martha L. Long
Name: Martha L. Long
Date: November 12, 2004
/s/Stephen B. Waters
Name: Stephen B. Waters
Date: November 12, 2004
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.