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 0-16010
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
(Exact Name of Small Business Issuer as Specified in Its Charter)
California 94-3004963
(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
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 2004
Assets
Cash and cash equivalents $ 60
Receivables and deposits 79
Restricted escrow 8
Other assets 201
Investment property:
Land $ 213
Buildings and related personal property 5,184
5,397
Less accumulated depreciation (4,118) 1,279
$ 1,627
Liabilities and Partners' Deficit
Accounts payable $ 52
Tenant security deposit liabilities 31
Accrued property taxes 59
Other liabilities 107
Mortgage notes payable 5,418
Partners' Deficit
General partner $ (288)
Corporate limited partner on behalf of the
Unitholders (128,810 units issued and
Outstanding) (3,752) (4,040)
$ 1,627
See Accompanying Notes to Financial Statements
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
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 $ 267 $ 283 $ 784 $ 839
Other income 25 36 77 99
Casualty gain (Note C) -- -- 92 --
Total revenues 292 319 953 938
Expenses:
Operating 131 136 372 364
General and administrative 37 47 114 129
Depreciation 71 69 209 209
Interest 108 68 248 212
Property taxes 20 18 59 54
Total expenses 367 338 1,002 968
Net loss $ (75) $ (19) $ (49) $ (30)
Net loss allocated to general
partner (1%) $ (1) $ -- $ -- $ --
Net loss allocated to
limited partners (99%) (74) (19) (49) (30)
$ (75) $ (19) $ (49) $ (30)
Net loss per Unit of Depositary
Receipt $ (0.57) $ (0.14) $ (0.38) $ (0.23)
Distributions per Unit of
Depositary Receipt $ 12.22 $ 0.38 $ 12.22 $ 0.38
See Accompanying Notes to Financial Statements
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Unitholders
Units of
Units of Depositary
Depositary General Receipt
Receipt Partner (Note A) Total
Original capital contributions 129,266 $ 1 $32,317 $32,318
Partners' deficit at
December 31, 2003 128,810 $ (272) $(2,129) $(2,401)
Distribution to partners (16) (1,574) (1,590)
Net loss for the nine months
ended September 30, 2004 -- -- (49) (49)
Partners' deficit at
September 30, 2004 128,810 $ (288) $(3,752) $(4,040)
See Accompanying Notes to Financial Statements
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2004 2003
Cash flows from operating activities:
Net loss $ (49) $ (30)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 209 209
Amortization of loan costs 23 5
Casualty gain (92) --
Change in accounts:
Receivables and deposits (68) (10)
Other assets -- (25)
Accounts payable 10 (8)
Tenant security deposit liabilities (10) (1)
Accrued property taxes 59 54
Other liabilities (55) 10
Net cash provided by operating activities 27 204
Cash flows from investing activities:
Net deposits to restricted escrow (8) --
Property improvements and replacements (247) (58)
Insurance proceeds received 99 --
Net cash used in investing activities (156) (58)
Cash flows from financing activities:
Proceeds from mortgage note payable 1,830 --
Payments on mortgage note payable (64) (72)
Advances from affiliate 7 18
Payments on advances from affiliate (7) (18)
Distributions to partners (1,590) (50)
Loan costs paid (66) --
Net cash provided by (used in) financing activities 110 (122)
Net (decrease) increase in cash and cash equivalents (19) 24
Cash and cash equivalents at beginning of period 79 35
Cash and cash equivalents at end of period $ 60 $ 59
Supplemental disclosure of cash flow information:
Cash paid for interest $ 227 $ 208
See Accompanying Notes to Financial Statements
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements of Johnstown/Consolidated Income
Partners (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.
The Partnership's general partner is ConCap Equities, Inc. (the "General
Partner"). In the opinion of 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 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 a subsidiary of Apartment Investment and
Management Company ("AIMCO"), a publicly traded real estate investment trust.
Units of Depositary Receipt
Johnstown/Consolidated Depositary Corporation (the "Corporate Limited Partner"),
an affiliate of the General Partner, serves as a depositary of certain units of
depositary receipt ("Units"). The Units represent economic rights attributable
to the limited partnership interests in the Partnership and entitle the
unitholders thereof ("Unitholders") to certain economic benefits, allocations
and distributions of the Partnership. For this reason, partners' deficit is
herein represented as an interest of the Unitholders.
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,
as provided for in the Partnership Agreement. The Partnership Agreement provides
for certain payments to affiliates for services and reimbursement of certain
expenses incurred by affiliates on behalf of the Partnership.
The Partnership Agreement provides that the Partnership shall pay in monthly
installments to the General Partner, or an affiliate, a yearly asset management
fee equal to: (i) 3/8 of 1% of the original principal balance of mortgage loans
outstanding at the end of the month preceding the installment payment; (ii) 1/8
of 1% of the market value of guaranteed mortgage-backed securities as of the end
of the Partnership quarter immediately preceding the installment payment; and
(iii) 5/8 of 1% of the purchase price of the properties plus improvements for
managing the Partnership's assets. In the event the property was not owned at
the beginning or end of the year, such fee shall be pro-rated for the short-year
period of ownership. Under this provision, fees of approximately $35,000 were
incurred to the General Partner and its affiliates for both the nine months
ended September 30, 2004 and 2003, which are included in general and
administrative expenses.
Affiliates of the General Partner are entitled to receive 5% of gross receipts
from the Partnership's investment property as compensation for providing
property management services. The Partnership paid to such affiliates
approximately $42,000 and $46,000 for the nine months ended September 30, 2004
and 2003, respectively, which are included in operating expenses.
Affiliates of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $72,000 and $58,000 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 $21,000 and $2,000 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 property. These reimbursements of accountable
administrative expenses are included in general and administrative expenses and
investment property.
In accordance with the Partnership Agreement, during the nine months ended
September 30, 2004, the General Partner loaned the Partnership approximately
$7,000 to fund a Partnership audit invoice. Interest accrued at the prime rate
plus 2%. Interest expense was less than $1,000 for the nine months ended
September 30, 2004. Principal and interest were repaid in full during the nine
months ended September 30, 2004. During the nine months ended September 30,
2003, the General Partner loaned the Partnership approximately $18,000 to fund a
real estate tax bill at Cedar Brooke Apartments. Interest accrued at the prime
rate plus 2%. Interest expense was less than $1,000 for the nine months ended
September 30, 2003. During the nine months ended September 30, 2003, the
Partnership repaid the loan plus the related accrued interest with cash from
operations.
In connection with the second mortgage obtained on Cedar Brooke Apartments, the
Partnership paid a fee of approximately $18,000 to the General Partner during
the nine months ended September 30, 2004. This fee has been capitalized and is
included in other assets.
The Partnership insures its property 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 property 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 $16,000 and
$14,000, respectively, for insurance coverage and fees associated with policy
claims administration.
Note C - Casualty Event
On February 25, 2004, a fire occurred at Cedar Brooke Apartments, causing damage
to four apartment units. The property incurred damages of approximately
$122,000. During the nine months ended September 30, 2004, insurance proceeds of
approximately $99,000 have been received to cover the damage to the property.
After writing off the undepreciated cost of the damaged asset, the Partnership
recognized a casualty gain of approximately $92,000 for the nine months ended
September 30, 2004.
Note D - Additional Financing
On June 25, 2004, the Partnership obtained a second mortgage, in the amount of
$1,830,000, on Cedar Brooke Apartments. The second mortgage requires monthly
payments of interest beginning on August 1, 2004 until the loan matures July 1,
2007, with interest being equal to the one month LIBOR rate plus 300 basis
points (4.84% at September 30, 2004). Loan costs of approximately $66,000 that
were paid in connection with the second mortgage have been capitalized during
the nine months ended September 30, 2004 and are included in other assets.
In connection with the new financing, the Partnership agreed to certain
modifications on the existing mortgage loan encumbering Cedar Brooke Apartments.
The modification of terms consisted of an interest rate of 7.74%, monthly
payments of approximately $26,000, commencing August 1, 2004 through its
maturity of July 1, 2014, with a balloon payment of approximately $3,088,000 due
at maturity. The previous terms consisted of monthly payments of approximately
$31,000 with a stated interest rate of 7.44% through its maturity of July 1,
2021, at which time the loan was scheduled to be fully amortized.
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, 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 financial condition or results of operations.
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.
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 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 property consists of one apartment complex. The
following table sets forth the average occupancy of the property for each of the
nine month periods ended September 30, 2004 and 2003.
Average Occupancy
Property 2004 2003
Cedar Brooke Apartments 91% 98%
Independence, Missouri
The General Partner attributes the decrease in occupancy at Cedar Brooke
Apartments to an increase in home purchases in the Independence area and a
change in credit standards for acceptance of new residents.
The Partnership's financial results depend upon a number of factors including
the ability to attract and maintain tenants at the investment property, interest
rates on mortgage loans, costs incurred to operate the investment property,
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 property 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 $75,000 and $49,000, respectively, as compared to net
loss of approximately $19,000 and $30,000, respectively, for the three and nine
months ended September 30, 2003. The increase in net loss for the three months
ended September 30, 2004 is due to a decrease in total revenues and an increase
in total expenses. The increase in net loss for the nine months ended September
30, 2004 is due to an increase in total expenses, partially offset by an
increase in total revenues. The decrease in total revenues for the three months
ended September 30, 2004 is due to decreases in both rental and other income.
The increase in total revenues for the nine months ended September 30, 2004 is
due to the recognition during 2004 of a casualty gain (as discussed below),
partially offset by decreases in both rental and other income. The decrease in
rental income for both periods is due to decreases in occupancy and the average
rental rate at Cedar Brooke Apartments, partially offset by a decrease in bad
debt expense. The decrease in other income for both periods is due to decreases
in lease cancellation fees and late charges at the Partnership's investment
property.
On February 25, 2004, a fire occurred at Cedar Brooke Apartments, causing damage
to four apartment units. The property incurred damages of approximately
$122,000. During the nine months ended September 30, 2004, insurance proceeds of
approximately $99,000 have been received to cover the damages to the property.
After writing off the undepreciated cost of the damaged asset, the Partnership
recognized a casualty gain of approximately $92,000 for the nine months ended
September 30, 2004.
The increase in total expenses for the three months ended September 30, 2004 is
due to an increase in interest expense, partially offset by decreases in both
operating and general and administrative expenses. Both depreciation and
property tax expense 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 increases in operating, interest, and property tax
expenses, partially offset by a decrease in general and administrative expenses.
Depreciation expense remained relatively constant for the nine months ended
September 30, 2004. The increase in interest expense for both periods is
primarily due to the additional financing obtained on Cedar Brooke Apartments,
resulting in a higher debt balance, the modification of the terms of the
existing mortgage encumbering the property at a higher interest rate (as
discussed in "Liquidity and Capital Resources"), and increased loan cost
amortization expense. The decrease in operating expenses for the three months
ended September 30, 2004 is primarily due to a routine lead-based paint
assessment conducted during the three months ended September 30, 2003. The
increase in operating expenses for the nine months ended September 30, 2004 is
primarily due to an increase in advertising expense at the property. The
increase in property tax expense for the nine months ended September 30, 2004 is
due to an increase in the assessed value and tax rate at Cedar Brooke
Apartments. The decrease in general and administrative expenses for both periods
is due to decreases in management reimbursements to the General Partner as
allowed under the Partnership Agreement and professional expenses associated
with the administration of the Partnership. Also included in general and
administrative expenses for the three and nine months ended September 30, 2004
and 2003 are costs associated with the quarterly and annual communications with
investors and regulatory agencies and the annual audit required by the
Partnership Agreement.
Liquidity and Capital Resources
At September 30, 2004, the Partnership had cash and cash equivalents of
approximately $60,000, compared to approximately $59,000 at September 30, 2003.
The decrease in cash and cash equivalents of approximately $19,000 for the nine
months ended September 30, 2004, from December 31, 2003, is due to approximately
$156,000 of cash used in investing activities, partially offset by approximately
$110,000 of cash provided by financing activities and approximately $27,000 of
cash provided by operating activities. Cash used in investing activities
consisted of property improvement and replacements and net deposits to an escrow
account maintained by the mortgage lender, partially offset by insurance
proceeds received related to the fire at Cedar Brooke Apartments. Cash provided
by financing activities consisted of loan proceeds received as a result of the
second mortgage obtained on Cedar Brooke Apartments and an advance from an
affiliate of the General Partner, partially offset by a distribution to
partners, payments of principal made on the mortgage encumbering Cedar Brooke
Apartments, loan costs paid, and the repayment of an advance from an affiliate.
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 property 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 the
Partnership's property are discussed below.
During the nine months ended September 30, 2004, the Partnership completed
approximately $247,000 of capital improvements at Cedar Brooke Apartments,
consisting primarily of swimming pool upgrades, floor covering replacement and
construction related to the fire that occurred at the property in February 2004
(as discussed in "Results of Operations"). These improvements were funded from
operations and insurance proceeds. The Partnership evaluates the capital
improvement needs of the property during the year and currently expects to
complete an additional $19,000 in capital improvements during the remainder of
2004. 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.
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. On June 25, 2004, the
Partnership obtained a second mortgage, in the amount of $1,830,000, on Cedar
Brooke Apartments. The second mortgage requires monthly payments of interest
beginning on August 1, 2004 until the loan matures July 1, 2007, with interest
being equal to the one month LIBOR rate plus 300 basis points (4.84% at
September 30, 2004). Loan costs of approximately $66,000 that were paid in
connection with the second mortgage have been capitalized during the nine months
ended September 30, 2004 and are included in other assets.
In connection with the new financing, the Partnership agreed to certain
modifications on the existing mortgage loan encumbering Cedar Brooke Apartments.
The modification of terms consisted of an interest rate of 7.74%, monthly
payments of approximately $26,000, commencing August 1, 2004 through its
maturity of July 1, 2014, with a balloon payment of approximately $3,088,000 due
at maturity. The previous terms consisted of monthly payments of approximately
$31,000 with a stated interest rate of 7.44% through its maturity of July 1,
2021, at which time the loan was scheduled to be fully amortized.
The Partnership distributed the following amounts during the nine months ended
September 30, 2004 and 2003 (in thousands, except per unit data):
Nine Months Ended Per Unit of Nine Months Ended Per Unit of
September 30, Depositary September 30, Depositary
2004 Receipt 2003 Receipt
Financing
Proceeds (1) $1,590 $12.22 $ -- $ --
Operations -- -- 50 0.38
$1,590 $12.22 $ 50 $ 0.38
(1) Proceeds from the additional financing obtained on Cedar Brooke Apartments
in June 2004.
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, the timing of the debt
maturities, refinancing and/or property sale. The Partnership's cash available
for distribution is reviewed on a monthly basis. There can be no assurance,
however, that the Partnership will generate sufficient funds from operations,
after required capital expenditures, to permit additional 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 72,794 units of depositary receipt
(the "Units") in the Partnership representing 56.51% 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 56.51% of the
outstanding Units, AIMCO and its affiliates are 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 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 property is recorded at cost, less accumulated
depreciation, unless considered impaired. If events or circumstances indicate
that the carrying amount of the 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
asset.
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, 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 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.
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
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
JOHNSTOWN CONSOLIDATED INCOME PARTNERS
INDEX OF EXHIBITS
EXHIBIT NO. DOCUMENT DESCRIPTION
3 Certificates of Limited Partnership, as amended to date
(Incorporated by reference to the Annual Report on Form 10-K
for the year ended December 31, 1991)
10.40 Multifamily Note dated June 27, 2001, by and between
Johnstown/Consolidated Income Partners, a California limited
partnership, and GMAC Commercial Mortgage Corporation relating to
Cedar Brooke Apartments. (Incorporated by reference to the
Quarterly Report on Form 10-QSB for the quarter ended June 30,
2001).
10.41 Allonge and Amendment to Multifamily Note dated June 25, 2004, by
and among Johnstown/Consolidated Income Partners, a California
limited partnership, GMAC Commercial Mortgage Corporation, and
Federal Home Loan Mortgage Corporation. (Incorporated by reference
to the Current Report on Form 8-K dated June 25, 2004)
10.42 Multifamily Note dated June 25, 2004, by and between
Johnstown/Consolidated Income Partners, a California limited
partnership, and GMAC Commercial Mortgage Bank. (Incorporated by
reference to the Current Report on Form 8-K dated June 25, 2004)
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
Johnstown/Consolidated Income Partners;
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
Johnstown/Consolidated Income Partners;
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 Johnstown/Consolidated
Income Partners (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.