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 June 30, 2005
[ ] 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)
June 30, 2005
Assets
Cash and cash equivalents $ 42
Receivables and deposits 63
Restricted escrow 35
Other assets 212
Investment property:
Land $ 213
Buildings and related personal property 5,380
5,593
Less accumulated depreciation (4,227) 1,366
$ 1,718
Liabilities and Partners' Deficit
Accounts payable $ 74
Tenant security deposit liabilities 27
Accrued property taxes 40
Other liabilities 98
Due to affiliates (Note B) 195
Mortgage notes payable 5,393
Partners' Deficit
General partner $ (289)
Corporate limited partner on behalf of the
Unitholders (128,810 units issued and
outstanding) (3,820) (4,109)
$ 1,718
See Accompanying Notes to Financial Statements
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Revenues:
Rental income $ 261 $ 260 $ 515 $ 517
Other income 29 27 57 52
Casualty gain (Note C) 25 92 124 92
Total revenues 315 379 696 661
Expenses:
Operating 145 115 284 241
General and administrative 45 38 84 77
Depreciation 65 68 131 138
Interest 105 71 204 140
Property taxes 20 20 39 39
Total expenses 380 312 742 635
Net (loss) income $ (65) $ 67 $ (46) $ 26
Net (loss) income allocated to
general partner (1%) $ (1) $ 1 $ -- $ --
Net (loss) income allocated to
limited partners (99%) (64) 66 (46) 26
$ (65) $ 67 $ (46) $ 26
Net (loss) income per Unit of
Depositary Receipt $ (0.50) $ 0.51 $ (0.36) $ 0.20
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, 2004 128,810 $ (289) $(3,774) $(4,063)
Net loss for the six months
ended June 30, 2005 -- -- (46) (46)
Partners' deficit at
June 30, 2005 128,810 $ (289) $(3,820) $(4,109)
See Accompanying Notes to Financial Statements
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2005 2004
Cash flows from operating activities:
Net (loss) income $ (46) $ 26
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation 131 138
Amortization of loan costs 14 3
Casualty gain (124) (92)
Change in accounts:
Receivables and deposits (36) (64)
Other assets 5 (10)
Accounts payable 8 (9)
Tenant security deposit liabilities -- (4)
Accrued property taxes 40 39
Other liabilities 3 (47)
Due to affiliates 59 --
Net cash provided by (used in) operating activities 54 (20)
Cash flows from investing activities:
Insurance proceeds received 130 74
Property improvements and replacements (223) (174)
Net deposits to restricted escrow (25) --
Net cash used in investing activities (118) (100)
Cash flows from financing activities:
Payments on mortgage note payable (14) (52)
Loan costs paid -- (69)
Advances from affiliate 67 7
Payments on advances from affiliate -- (7)
Proceeds from mortgage note payable -- 1,830
Net cash provided by financing activities 53 1,709
Net (decrease) increase in cash and cash equivalents (11) 1,589
Cash and cash equivalents at beginning of period 53 79
Cash and cash equivalents at end of period $ 42 $ 1,668
Supplemental disclosure of cash flow information:
Cash paid for interest $ 167 $ 137
Supplemental disclosure of non-cash activity:
Property improvements and replacements in accounts
payable $ 50 $ --
At December 31, 2004, approximately $20,000 of property improvements and
replacements were included in accounts payable, which are included in property
improvements and replacements for the six months ended June 30, 2005.
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 six month periods ended June
30, 2005 are not necessarily indicative of the results that may be expected for
the fiscal year ending December 31, 2005. 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, 2004. 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.
The Partnership Agreement provides for (i) certain payments to affiliates for
services and (ii) reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership.
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 $27,000 and
$23,000 were incurred to the General Partner and its affiliates for the six
months ended June 30, 2005 and 2004, respectively, which are included in general
and administrative expenses. Approximately $43,000 in asset management fees are
owed to the General Partner at June 30, 2005 and are included in due to
affiliates.
Affiliates of the General Partner 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
$28,000 for both of the six month periods ended June 30, 2005 and 2004. These
amounts are included in operating expenses.
Affiliates of the General Partner charged the Partnership for reimbursement of
accountable administrative expenses amounting to approximately $55,000 and
$33,000 for the six months ended June 30, 2005 and 2004, respectively, which are
included in general and administrative expenses and investment property. The
portion of these reimbursements included in investment property for the six
months ended June 30, 2005 and 2004 are fees related to construction management
services provided by an affiliate of the General Partner of approximately
$25,000 and $1,000, respectively. The construction management service fees are
calculated based on a percentage of additions to investment property.
Approximately $40,000 of the accountable administrative expenses remain unpaid
as of June 30, 2005, and are included in due to affiliates.
In accordance with the Partnership Agreement, during the six months ended June
30, 2005, an affiliate of the General Partner advanced the Partnership
approximately $67,000 to fund casualty repairs related to the fire that occurred
at the property in January 2005 (see "Note C - Casualty Events" for further
discussion) and partnership expenses. During the six months ended June 30, 2004,
an affiliate of the General Partner advanced the Partnership approximately
$7,000 to fund a Partnership audit invoice. Principal and interest was repaid in
full during the six months ended June 30, 2004. Interest accrues at the prime
rate plus 2% (8.25% at June 30, 2005). Interest expense was approximately $2,000
for the six months ended June 30, 2005 and less than $1,000 for the six months
ended June 30, 2004. At June 30, 2005, the total amount of advances and related
accrued interest due to an affiliate of the General Partner was approximately
$112,000 and is included in due to affiliates.
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, general
liability 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 six months ended June 30, 2005
and 2004, the Partnership was charged by AIMCO and its affiliates approximately
$16,000 and $15,000, respectively, for insurance coverage and fees associated
with policy claims administration.
Note C - Casualty Events
On January 7, 2005, a fire occurred at Cedar Brooke Apartments causing damage to
two apartment units. The property incurred damages of approximately $140,000.
During the six months ended June 30, 2005, insurance proceeds of approximately
$130,000 were received to cover the damages. After writing off the undepreciated
cost of the damaged asset of approximately $6,000, the Partnership recognized a
casualty gain of approximately $124,000 for the six months ended June 30, 2005.
During reconstruction of the damaged units approximately $5,000 of interest,
approximately $1,000 of property taxes and approximately $2,000 of operating
expenses were capitalized related to this project.
On February 25, 2004, a fire occurred at Cedar Brooke Apartments, causing damage
to four apartment units. The property incurred damages of approximately
$144,000. During the six months ended June 30, 2004, insurance proceeds of
approximately $99,000 were received to cover the damages to the property,
$25,000 of which was held on deposit with the mortgage lender at June 30, 2004.
After writing off the undepreciated cost of the damaged asset, the Partnership
recognized a casualty gain of approximately $92,000 for the three and six months
ended June 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 (6.34% at June 30, 2005). Loan costs of approximately $69,000 that were
paid in connection with the second mortgage have been capitalized during the six
months ended June 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 28, 2002, the trial
court granted defendants motion to strike the complaint. Plaintiffs took an
appeal from this order.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action. 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 May 4, 2004, the Objector filed a
second appeal challenging the court's use of a referee and its order requiring
Objector to pay those fees.
On March 21, 2005, the Court of Appeals issued opinions in both pending appeals.
With regard to the settlement and judgment entered thereto, the Court of Appeals
vacated the trial court's order and remanded to the trial court for further
findings on the basis that the "state of the record is insufficient to permit
meaningful appellate review". With regard to the second appeal, the Court of
Appeals reversed the order requiring the Objector to pay referee fees. On April
26, 2005, the Court of Appeals lifted the stay of a pending appeal related to
the Heller action and the trial court's order striking the complaint. On April
28, 2005, the Objector filed a Petition for Review with the California Supreme
Court in connection with the opinion vacating the order approving settlement and
remanding for further findings. On June 10, 2005, the California Supreme Court
denied Objector's Petition for Review and the Court of Appeals sent the matter
back to the trial court on June 21, 2005. The parties intend to ask the trial
court to make further findings in connection with settlement consistent with the
Court of Appeal's remand order. With respect to the related Heller appeal, on
July 28, 2005, the Court of Appeals reversed the trial court's order striking
the first amended complaint.
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.
As previously disclosed, AIMCO Properties L.P. and NHP Management Company, both
affiliates of the General Partner, are defendants in a lawsuit alleging that
they willfully violated the Fair Labor Standards Act ("FLSA") by failing to pay
maintenance workers overtime for all hours worked in excess of forty per week.
The complaint attempts to bring 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. and NHP
Management Company failed to compensate maintenance workers for time that they
were required to be "on-call". Additionally, the complaint alleges AIMCO
Properties L.P. and NHP Management Company failed to comply with the FLSA in
compensating maintenance workers for time that they worked in excess of 40 hours
in a week. On June 23, 2005 the Court conditionally certified the collective
action on both the on-call and overtime issues. The Court ruling allows
plaintiffs to provide notice of the collective action to all non-exempt
maintenance workers from August 7, 2000 through the present. Those employees
will have the opportunity to opt-in to the collective action. Defendants have
asked the Court to reconsider its ruling or in the alternative certify the
ruling for appeal on that issue. After the notice goes out, defendants will have
the opportunity to move to decertify the collective action. The Court further
denied plaintiffs' Motion for Certification of the state subclass. 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
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.
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.
Environmental
Various Federal, state and local laws subject property owners or operators to
liability for management, and the costs of removal or remediation, of certain
hazardous substances present on a property. Such laws often impose liability
without regard to whether the owner or operator knew of, or was responsible for,
the release or presence of the hazardous substances. The presence of, or the
failure to manage or remedy properly, hazardous substances may adversely affect
occupancy at affected apartment communities and the ability to sell or finance
affected properties. In addition to the costs associated with investigation and
remediation actions brought by government agencies, and potential fines or
penalties imposed by such agencies in connection therewith, the presence of
hazardous substances on a property could result in claims by private plaintiffs
for personal injury, disease, disability or other infirmities. Various laws also
impose liability for the cost of removal, remediation or disposal of hazardous
substances through a licensed disposal or treatment facility. Anyone who
arranges for the disposal or treatment of hazardous substances is potentially
liable under such laws. These laws often impose liability whether or not the
person arranging for the disposal ever owned or operated the disposal facility.
In connection with the ownership, operation and management of its property, the
Partnership could potentially be liable for environmental liabilities or costs
associated with its property.
Mold
The Partnership is aware of lawsuits against owners and managers of multifamily
properties asserting claims of personal injury and property damage caused by the
presence of mold, some of which have resulted in substantial monetary judgments
or settlements. The Partnership has only limited insurance coverage for property
damage loss claims arising from the presence of mold and for personal injury
claims related to mold exposure. Affiliates of the General Partner have
implemented a national policy and procedures to prevent or eliminate mold from
it s properties and the General Partner believes that these measures will
minimize the effects that mold could have on residents. To date, the Partnership
has not incurred any material costs or liabilities relating to claims of mold
exposure or to abate mold conditions. Because the law regarding mold is
unsettled and subject to change the General Partner can make no assurance that
liabilities resulting from the presence of or exposure to mold will not have a
material adverse effect on the Partnership's financial condition or results of
operations.
SEC Investigation
The Central Regional Office of the United States Securities and Exchange
Commission (the "SEC") continues its 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 have included 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, tax credit transactions and
tender offers for limited partnership interests. AIMCO is cooperating fully.
AIMCO is not able to predict when the investigation 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
six month periods ended June 30, 2005 and 2004.
Average Occupancy
Property 2005 2004
Cedar Brooke Apartments 92% 89%
Independence, Missouri
The General Partner attributes the increase in occupancy at Cedar Brooke
Apartments to increased marketing efforts.
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 six months ended June 30, 2005 was
approximately $65,000 and $46,000, respectively, as compared to net income of
approximately $67,000 and $26,000 for the three and six months ended June 30,
2004, respectively. The increase in net loss for the three months ended June 30,
2005 is due to a decrease in total revenues and an increase in total expenses.
The increase in net loss for the six months ended June 30, 2005 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 June 30, 2005 is due
to a decrease in casualty gain recognized during the three months ended June 30,
2005 compared to the casualty gain recognized during the three months ended June
30, 2004. The increase in total revenues for the six months ended June 30, 2005
is due to an increase in casualty gain recognized during the six months ended
June 30, 2005 compared to the casualty gain recognized during the six months
ended June 30, 2004. Both rental and other income remained relatively constant
for the comparable periods.
On January 7, 2005, a fire occurred at Cedar Brooke Apartments causing damage to
two apartment units. The property incurred damages of approximately $140,000.
During the six months ended June 30, 2005, insurance proceeds of approximately
$130,000 were received to cover the damages. After writing off the undepreciated
cost of the damaged asset of approximately $6,000, the Partnership recognized a
casualty gain of approximately $124,000 for the six months ended June 30, 2005.
During reconstruction of the damaged units approximately $5,000 of interest,
approximately $1,000 of property taxes and approximately $2,000 of operating
expenses were capitalized related to this project.
On February 25, 2004, a fire occurred at Cedar Brooke Apartments, causing damage
to four apartment units. The property incurred damages of approximately
$144,000. During the six months ended June 30, 2004, insurance proceeds of
approximately $99,000 were received to cover the damages to the property,
$25,000 of which was held on deposit with the mortgage lender at June 30, 2004.
After writing off the undepreciated cost of the damaged asset, the Partnership
recognized a casualty gain of approximately $92,000 for the three and six months
ended June 30, 2004.
The increase in total expenses for the three and six months ended June 30, 2005
is due to increases in operating, general and administrative and interest
expenses. Depreciation and property tax expenses remained relatively constant
for the comparable periods. The increase in operating expense is due to
increases in maintenance, property, administrative and insurance expenses. The
increase in maintenance expense is primarily due to increases in environmental
expense and contract services. The increase in property expense is primarily due
to increases in salaries and related benefit expenses. The increase in
administrative expense is primarily due to increased legal fees. The increase in
insurance expense is due to higher insurance premiums. The increase in interest
expense is primarily due to the second mortgage obtained on Cedar Brooke
Apartments, resulting in a higher debt balance, the modification of 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.
General and administrative expenses increased for the three and six months ended
June 30, 2005 primarily due to an increase in the costs associated with the
quarterly and annual communications with investors and regulatory agencies and
increased asset management fees which are paid to the General Partner per the
Partnership Agreement. The increase in general and administrative expenses for
the three months ended June 30, 2005 is also due to an increase in the costs
associated with the annual audit required by the Partnership Agreement. Also
included in general and administrative expenses are management reimbursements to
the General Partner as allowed under the Partnership Agreement.
Liquidity and Capital Resources
At June 30, 2005, the Partnership had cash and cash equivalents of approximately
$42,000, compared to approximately $1,668,000 at June 30, 2004. The decrease in
cash and cash equivalents of approximately $11,000 from December 31, 2004 is due
to approximately $118,000 of cash used in investing activities, partially offset
by approximately $54,000 and $53,000 of cash provided by operating and financing
activities, respectively. Cash used in investing activities consisted of
property improvements and replacements and net deposits to an escrow account
maintained by the mortgage lender, partially offset by insurance proceeds
received related to the January 2005 fire at Cedar Brooke Apartments. Cash
provided by financing activities consisted of advances from affiliates partially
offset by payments of principal made on the first mortgage encumbering Cedar
Brooke Apartments. 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 six months ended June 31, 2005, the Partnership completed
approximately $253,000 of capital improvements at Cedar Brooke Apartments
consisting primarily of reconstruction related to the fire that occurred at the
property in January 2005 (as discussed in "Results of Operations"), floor
covering replacements and structural improvements. These improvements were
funded from operations, insurance proceeds and advances from affiliates. The
Partnership regularly evaluates the capital improvement needs of the property.
While the Partnership has no material commitments for property improvements and
replacements, certain routine capital expenditures are anticipated during 2005.
Such capital expenditures will depend on the physical condition of the property
as well as replacement reserves and anticipated cash flow generated by the
property.
Capital improvements will be made only to the extent of cash available from
operations and Partnership reserves. To the extent that 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 (6.34% at June 30,
2005).
In connection with the new financing, the Partnership agreed to certain
modifications on the existing mortgage loan encumbering Cedar Brooke Apartments.
The modification 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 $3,121,000 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.
There were no distributions to the partners during the six months ended June 30,
2005 or 2004. Future cash distributions will depend on the levels of net cash
generated from operations, the timing of debt maturities, refinancings 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 planned capital expenditures,
to permit any distributions to its partners during 2005 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 73,046 units of depositary receipt
(the "Units") in the Partnership representing 56.71% of the outstanding Units at
June 30, 2005. 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 56.71% 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 a property may be impaired, the Partnership will
make an assessment of its recoverability by estimating the undiscounted future
cash flows, excluding interest charges, of the property. If the carrying amount
exceeds the aggregate future cash flows, the Partnership would recognize an
impairment loss to the extent the carrying amount exceeds the fair value of the
property.
Real property investments are subject to varying degrees of risk. Several
factors may adversely affect the economic performance and value of the
Partnership's investment property. These factors include, but are not limited
to, changes in 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.
The Partnership will offer rental concessions during particularly slow months or
in response to heavy competition from other similar complexes in the area.
Rental income attributable to leases, net of any concessions, is recognized on a
straight-line basis over the term of the lease. 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.
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 28, 2002, the trial
court granted defendants motion to strike the complaint. Plaintiffs took an
appeal from this order.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action. 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 May 4, 2004, the Objector filed a
second appeal challenging the court's use of a referee and its order requiring
Objector to pay those fees.
On March 21, 2005, the Court of Appeals issued opinions in both pending appeals.
With regard to the settlement and judgment entered thereto, the Court of Appeals
vacated the trial court's order and remanded to the trial court for further
findings on the basis that the "state of the record is insufficient to permit
meaningful appellate review". With regard to the second appeal, the Court of
Appeals reversed the order requiring the Objector to pay referee fees. On April
26, 2005, the Court of Appeals lifted the stay of a pending appeal related to
the Heller action and the trial court's order striking the complaint. On April
28, 2005, the Objector filed a Petition for Review with the California Supreme
Court in connection with the opinion vacating the order approving settlement and
remanding for further findings. On June 10, 2005, the California Supreme Court
denied Objector's Petition for Review and the Court of Appeals sent the matter
back to the trial court on June 21, 2005. The parties intend to ask the trial
court to make further findings in connection with settlement consistent with the
Court of Appeal's remand order. With respect to the related Heller appeal, on
July 28, 2005, the Court of Appeals reversed the trial court's order striking
the first amended complaint.
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.
As previously disclosed, AIMCO Properties L.P. and NHP Management Company, both
affiliates of the General Partner, are defendants in a lawsuit alleging that
they willfully violated the Fair Labor Standards Act ("FLSA") by failing to pay
maintenance workers overtime for all hours worked in excess of forty per week.
The complaint attempts to bring 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. and NHP
Management Company failed to compensate maintenance workers for time that they
were required to be "on-call". Additionally, the complaint alleges AIMCO
Properties L.P. and NHP Management Company failed to comply with the FLSA in
compensating maintenance workers for time that they worked in excess of 40 hours
in a week. On June 23, 2005 the Court conditionally certified the collective
action on both the on-call and overtime issues. The Court ruling allows
plaintiffs to provide notice of the collective action to all non-exempt
maintenance workers from August 7, 2000 through the present. Those employees
will have the opportunity to opt-in to the collective action. Defendants have
asked the Court to reconsider its ruling or in the alternative certify the
ruling for appeal on that issue. After the notice goes out, defendants will have
the opportunity to move to decertify the collective action. The Court further
denied plaintiffs' Motion for Certification of the state subclass. 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
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 5. OTHER INFORMATION
On July 5, 2005 (the "Effective Date"), Johnstown/Consolidated Income Partners,
a California limited partnership (the "Partnership"), entered into an agreement
(the "Purchase Agreement"), with a third party, First Pacific Investments, Ltd.,
a Colorado corporation (the "Purchaser"). Under the terms of the Purchase
Agreement, the Purchaser agreed to purchase Cedar Brooke Apartments, a 158-unit
apartment complex located in Independence, Missouri (the "Property"), for a
gross purchase price of $7,300,000, subject to certain conditions (the "Purchase
Price").
Under the terms of the Purchase Agreement, the Purchaser may terminate the
Purchase Agreement at any time prior to the expiration of the feasibility period
as defined in the Purchase Agreement, acting in their sole discretion and for
any reason or no reason, upon written notice to the Partnership and the escrow
agent. On August 10, 2005, the Purchaser delivered written notice to the
Partnership and the escrow agent of its election to terminate the Purchase
Agreement pursuant to its terms.
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: August 15, 2005
JOHNSTOWN CONSOLIDATED INCOME PARTNERS
INDEX OF EXHIBITS
EXHIBIT NO. DOCUMENT DESCRIPTION
3 Certificate of Limited Partnership, as amended to date,
incorporated herein by reference to the Partnership's
Annual Report on Form 10-KSB 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)
10.43 Purchase and Sale Contract between Johnstown/Consolidated
Income Partners, a California limited partnership and First
Pacific Investments, Ltd., a Colorado Corporation, dated July
5, 2005. (Incorporated by reference to the Current Report on
Form 8-K dated July 5, 2005.)
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 of the equivalent of the Chief Executive
Officer and Chief Financial Officer 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: August 15, 2005
/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: August 15, 2005
/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 June 30,
2005 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: August 15, 2005
/s/Stephen B. Waters
Name: Stephen B. Waters
Date: August 15, 2005
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.