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, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________to _________
Commission file number 0-8639
CONSOLIDATED CAPITAL GROWTH FUND
(Exact name of small business issuer as specified in its charter)
California 94-2382571
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (i) 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 ___
Indicate by a check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes ___ No __X__
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CAPITAL GROWTH FUND
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 2005
Assets
Cash and cash equivalents $ 49
Receivables and deposits 573
Other assets 253
Investment property:
Land $ 946
Buildings and related personal property 17,286
18,232
Less accumulated depreciation (14,057) 4,175
$ 5,050
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 175
Tenant security deposit liabilities 85
Accrued property taxes 186
Other liabilities 192
Due to affiliates (Note B) 3,949
Mortgage note payable (Note D) 9,695
Partners' Deficit
General partner $ (3,157)
Limited partners (49,196 units issued and
outstanding) (6,075) (9,232)
$ 5,050
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL GROWTH FUND
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
Revenues:
Rental income $ 795 $ 735 $ 2,373 $ 2,046
Other income 77 63 198 178
Casualty gain (Note C) -- -- -- 34
Total revenues 872 798 2,571 2,258
Expenses:
Operating 604 559 1,485 1,322
General and administrative 41 11 141 134
Depreciation 232 218 668 676
Property taxes 58 64 188 190
Interest 237 226 710 673
Total expenses 1,172 1,078 3,192 2,995
Net loss $ (300) $ (280) $ (621) $ (737)
Net loss allocated to general partner (1%) $ (3) $ (2) $ (6) $ (7)
Net loss allocated to limited partners (99%) (297) (278) (615) (730)
$ (300) $ (280) $ (621) $ (737)
Net loss per limited partnership unit $ (6.04) $ (5.65) $(12.50) $(14.84)
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL GROWTH FUND
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 49,196 $ 1 $ 49,196 $ 49,197
Partners' deficit at
December 31, 2004 49,196 $(3,151) $ (5,460) $ (8,611)
Net loss for the nine months
ended September 30, 2005 -- (6) (615) (621)
Partners' deficit at
September 30, 2005 49,196 $(3,157) $ (6,075) $ (9,232)
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL GROWTH FUND
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2005 2004
Cash flows from operating activities:
Net loss $ (621) $ (737)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 668 676
Amortization of loan costs 16 16
Bad debt expense 72 92
Casualty gain -- (34)
Change in accounts:
Receivables and deposits (329) (224)
Other assets (67) (26)
Accounts payable 33 (228)
Tenant security deposit liabilities (2) 10
Accrued property taxes 186 188
Due to affiliates 176 17
Other liabilities (89) (92)
Net cash provided by (used in) operating activities 43 (342)
Cash flows from investing activities:
Property improvements and replacements (614) (345)
Net withdrawals from (deposits to) restricted escrows 227 (61)
Insurance proceeds received -- 40
Net cash used in investing activities (387) (366)
Cash flows from financing activities:
Proceeds from mortgage note payable 9,708 --
Payments on mortgage notes payable (13) --
Repayment of mortgage notes payable (12,240) --
Advances from affiliates 2,878 500
Payments on advances from affiliate (4) --
Loan costs paid (92) --
Net cash provided by financing activities 237 500
Net decrease in cash and cash equivalents (107) (208)
Cash and cash equivalents at beginning of period 156 364
Cash and cash equivalents at end of period $ 49 $ 156
Supplemental disclosure of cash flow information:
Cash paid for interest $ 718 $ 640
Supplemental disclosure of non-cash flow information:
Property improvements and replacements included in
accounts payable $ 39 $ --
At December 31, 2004, approximately $65,000 of property improvements and
replacements were included in accounts payable which are included in property
improvements and replacements during the nine months ended September 30, 2005.
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements of Consolidated Capital Growth
Fund (the "Partnership" or "Registrant") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Article 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of ConCap Equities, Inc. (the "General Partner"), all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and nine month
periods ended September 30, 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 year ended December 31,
2004. The General Partner is a wholly owned subsidiary of Apartment Investment
and Management Company ("AIMCO"), a publicly traded real estate investment
trust.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and depends on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for (i) certain payments to affiliates for
services and (ii) reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership.
Affiliates of the General Partner receive 5% of gross receipts from the
Partnership's property as compensation for providing property management
services. The Partnership paid to such affiliates approximately $124,000 and
$109,000 for the nine months ended September 30, 2005 and 2004, respectively,
which is included in operating expenses.
Affiliates of the General Partner charged the Partnership for reimbursement of
accountable administrative expenses amounting to approximately $151,000 and
$92,000 for the nine months ended September 30, 2005 and 2004, respectively,
which is included in general and administrative expenses and investment
property. The portion of these reimbursements included in investment property
for the nine months ended September 30, 2005 and 2004 are fees related to
construction management services provided by an affiliate of the General Partner
of approximately $54,000 and $7,000, respectively. The construction management
service fees are calculated based on a percentage of additions to the investment
property. At September 30, 2005, approximately $143,000 in reimbursements was
due to the General Partner and is included in due to affiliates on the
accompanying balance sheet.
The Partnership Agreement provides for a fee equal to 9% of the total
distributions made to the limited partners from "cash available for
distribution" (as defined in the Partnership Agreement) to be paid to the
General Partner for executive and administrative management services. No fees
were earned or paid for the nine months ended September 30, 2005 and 2004.
During the nine months ended September 30, 2005, an affiliate of the General
Partner advanced to the Partnership approximately $158,000 to fund property and
Partnership operations and approximately $2,720,000 to fund costs associated
with obtaining a new mortgage on The Lakes Apartments and an amount to cover the
deficiency between the existing mortgage payoff amount and the new mortgage.
During the nine months ended September 30, 2004, an affiliate of the General
Partner advanced the Partnership approximately $500,000 to assist in paying city
taxes related to the sales of two investment properties and to fund replacement
reserves at The Lakes Apartments. The Partnership repaid approximately $4,000 of
advances during the nine months ended September 30, 2005. No payments were made
during 2004. Interest on advances is charged at the prime rate plus 2% (8.75% at
September 30, 2005). Interest expense was approximately $74,000 and $17,000 for
the nine months ended September 30, 2005 and 2004, respectively. At September
30, 2005, approximately $3,806,000 in principal and accrued interest is included
in due to affiliates. Subsequent to September 30, 2005, the General Partner
advanced approximately $37,000 to the property to fund Partnership operations.
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 nine months ended September
30, 2005 and 2004, the Partnership was charged by AIMCO and its affiliates
approximately $64,000 and $62,000 for insurance coverage and fees associated
with policy claims administration.
Note C - Casualty
In October 2003, the Partnership's investment property, The Lakes Apartments,
incurred damage to four apartment units as a result of a fire. As a result of
the damage, approximately $32,000 of property improvements and replacements and
$26,000 of accumulated depreciation were written off resulting in a net write
off of approximately $6,000. The property received approximately $40,000 in
insurance proceeds from the insurance company to repair the damaged units. For
financial statement purposes, a casualty gain of approximately $34,000 was
recognized during the nine months ended September 30, 2004 as a result of the
difference between the proceeds received and the net book value of the assets
written off.
Note D - Mortgage Refinancing
On August 29, 2005, the Partnership refinanced the mortgage encumbering The
Lakes Apartments. The refinancing replaced the existing mortgage, which at the
time of refinancing had a principal balance of $12,240,000, with a new mortgage
loan in the principal amount of approximately $9,708,000. The new loan was
refinanced under a permanent credit facility ("Permanent Credit Facility") with
Fannie Mae, which has a maturity of September 16, 2007, with one five-year
extension option. The Permanent Credit Facility includes properties in other
partnerships that are affiliated with the general partner of the Partnership.
The Permanent Credit Facility creates separate loans for each property that are
not cross-collateralized or cross-defaulted with the other property loans. The
new loan has a variable interest rate of the Fannie Mae discounted
mortgage-backed security index plus 85 basis points, which rate is currently
4.60% per annum, and resets monthly, compared to 6.95% per annum on the prior
mortgage. Monthly principal payments are required based on a 30-year
amortization schedule using the interest rate in effect during the first month
that any property is in the Permanent Credit Facility. The loans are prepayable
without penalty. In connection with the refinancing, an affiliate of the
Partnership's general partner advanced the Partnership approximately $2,720,000
to cover the amount needed to payoff the existing mortgage and closing costs.
Unamortized loan costs for the prior mortgage of approximately $5,000 were
written off and are included in interest expense.
In accordance with the terms of the loan agreement relating to the new mortgage,
the payment of the mortgage may be accelerated at the option of the lender if an
Event of Default, as defined in the loan agreement occurs. Events of Default
include, but are not limited to nonpayment of monthly interest and reserve
requirements and nonpayment of amounts outstanding on or before the maturity
date. An affiliate of the General Partner has entered into a guaranty agreement
with the lender.
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 Appeal reversed the trial court's order striking the
first amended complaint.
On August 18, 2005, Objector and his counsel filed a motion to disqualify the
trial court based on a peremptory challenge and filed a motion to disqualify for
cause on October 17, 2005. On or about October 13, 2005 Objector filed a motion
to intervene and on or about October 19, 2005 filed both a motion to take
discovery relating to the adequacy of plaintiffs as derivative representatives
and a motion to dissolve the anti-suit injunction in connection with settlement.
On October 27, 2005, the Court denied Objector's peremptory challenge and struck
Objector's motion to disqualify for cause. No hearing has been set on Objector's
remaining motions. On November 3, 2005, Objector and his counsel filed a writ of
mandate to the Court of Appeals challenging the court's October 27, 2005 order.
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.
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, filed in the
United States District Court for the District of Columbia, 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. In June 2005 the Court
conditionally certified the collective action on both the on-call and overtime
issues, which allows the 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,
and AIMCO Properties, L.P. and NHP Management Company will have the opportunity
to move to decertify the collective action. Because the court denied plaintiffs'
motion to certify state subclasses, on September 26, 2005, the plaintiffs filed
a class action with the same allegations in the Superior Court of California
(Contra Costa County). 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
its 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 remaining investment property consists of one apartment
complex. The following table sets forth the average occupancy of the property
for the nine months ended September 30, 2005 and 2004:
Average Occupancy
Property 2005 2004
The Lakes Apartments 86% 77%
Raleigh, North Carolina
The General Partner attributes the increase in occupancy at The Lakes Apartments
to property management focusing on increasing occupancy through rental
concessions, the addition of an additional leasing agent and tenant retention.
In addition various capital improvements have been made at the property over the
last year which has improved the overall appearance and has helped to attract
new tenants.
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 recognized a net loss of approximately $300,000 and $621,000 for
the three and nine months ended September 30, 2005 compared to a net loss of
approximately $280,000 and $737,000 for the three and nine months ended
September 30, 2004. The decrease in net loss for the nine months ended September
30, 2005 is due to an increase in total revenues partially offset by an increase
in total expenses. The increase in net loss for the three months ended September
30, 2005 is due to an increase in total expenses partially offset by increase in
total revenues.
Total revenues increased for both the three and nine months ended September 30,
2005 due to an increase in rental income and other income slightly offset by a
decrease in casualty gain. Rental income increased due to an increase in
occupancy and the average rental rate at the Partnership's sole investment
property and a decrease in bad debt expense. Other income increased due to an
increase in laundry income, cleaning and damage fees, and non refundable
administrative fees.
In October 2003, the Partnership's investment property, The Lakes Apartments,
incurred damage to four apartment units as a result of a fire. As a result of
the damage, approximately $32,000 of property improvement and replacements and
$26,000 of accumulated depreciation were written off resulting in a net write
off of approximately $6,000. The property received approximately $40,000 in
insurance proceeds from the insurance company to repair the damaged units. For
financial statement purposes, a casualty gain of approximately $34,000 was
recognized during the nine months ended September 30, 2004 as a result of the
difference between the proceeds received and the net book value of the assets
written off.
Total expenses for the three months ended September 30, 2005 increased due to an
increase in operating, general and administrative, depreciation and interest
expenses. Property tax expense remained relatively constant for the comparable
period. Operating expense increased due to increases in property, maintenance
and administrative expenses and property management fees partially offset by a
decrease in advertising expense. Property expense increased due to an increase
in utility costs, salaries and related benefits. Maintenance expense increased
due to an increase in contract services at the Partnership's investment
property. Administrative expense increased as a result of the expense for 2004
being reduced by approximately $50,000 for a legal reserve related to a 2003
OSHA penalty that was not needed upon settlement of the penalty in 2004.
Property management fees increased as a result of the increase in rental income
on which such fee is based. Advertising expense decreased due to a decrease in
leasing promotions. Depreciation expense increased due to property improvements
and replacements being placed into service during the past twelve months which
are now being depreciated. Interest expense increased due to interest charged on
the advances outstanding to an affiliate of the General Partner partially offset
by a decrease in interest on the mortgage encumbering the Partnership's
investment property due to the refinancing discussed below.
Total expenses for the nine months ended September 30, 2005 increased due to
increases in operating, general and administrative and interest expense as
discussed above and below. Depreciation and property tax expenses remained
relatively constant for the comparable period.
General and administrative expense increased for the three and nine months ended
September 30, 2005 due to an increase in the costs of services included in the
management reimbursements to the General Partner as allowed under the
Partnership Agreement and an increase in the cost of the annual audit for the
Partnership. Also included in general and administrative expenses at both
September 30, 2005 and 2004 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, 2005 the Partnership had cash and cash equivalents of
approximately $49,000 compared to approximately $156,000 at September 30, 2004.
The decrease in cash and cash equivalents of approximately $107,000 since
December 31, 2004 is due to approximately $387,000 used in investing activities,
partially offset by approximately $237,000 and $43,000 of cash provided by
financing and operating activities. Cash used in investing activities consisted
of property improvements and replacements partially offset by withdrawals from
restricted escrows. Cash provided by financing activities consisted of proceeds
received from the refinancing of the mortgage encumbering the Partnership's
investment property, advances received from an affiliate of the General Partner
offset by repayment of the existing mortgage encumbering the Partnership's
investment property, payments on the new mortgage, payments on advances from an
affiliate of the General Partner and the payment of loan costs associated with
the refinancing of the mortgage. 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, 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 detailed below.
During the nine months ended September 30, 2005, the Partnership completed
approximately $588,000 of capital improvements at The Lakes Apartments,
consisting primarily of structural and building upgrades, interior lighting,
plumbing fixtures and floor covering replacements. These improvements were
funded from operating cash flow and advances from an affiliate of the General
Partner. 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 expenditures will be incurred only if cash is available from operations,
from Partnership reserves or from advances from an affiliate of the General
Partner. 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 August 29, 2005, the
Partnership refinanced the mortgage encumbering The Lakes Apartments. The
refinancing replaced the existing mortgage, which at the time of refinancing had
a principal balance of $12,240,000, with a new mortgage loan in the principal
amount of approximately $9,708,000. The new loan was refinanced under a
permanent credit facility ("Permanent Credit Facility") with Fannie Mae, which
has a maturity of September 16, 2007, with one five-year extension option. The
Permanent Credit Facility includes properties in other partnerships that are
affiliated with the general partner of the Partnership. The Permanent Credit
Facility creates separate loans for each property that are not
cross-collateralized or cross-defaulted with the other property loans. The new
loan has a variable interest rate of the Fannie Mae discounted mortgage-backed
security index plus 85 basis points, which rate is currently 4.60% per annum,
and resets monthly, compared to 6.95% per annum on the prior mortgage. Monthly
principal payments are required based on a 30-year amortization schedule using
the interest rate in effect during the first month that any property is in the
Permanent Credit Facility. The loans are prepayable without penalty. In
connection with the refinancing, an affiliate of the Partnership's general
partner advanced the Partnership approximately $2,720,000 to cover the amount
needed to payoff the existing mortgage and closing costs. Unamortized loan costs
for the prior mortgage of approximately $5,000 were written off and are included
in interest expense.
Pursuant to the Partnership Agreement, the term of the Partnership is scheduled
to expire on December 31, 2006. Accordingly, prior to such date the Partnership
will need to either sell its investment property or extend the term of the
Partnership.
The Partnership made no distributions during the nine months ended September 30,
2005 and 2004. Future cash distributions will depend on the levels of cash
generated from operations, and the timing of the debt maturity, property sale
and/or refinancing. The Partnership's cash available for distribution is
reviewed on a monthly basis. In light of the amounts accrued and payable to an
affiliate of the General Partner at September 30, 2005, there can be no
assurance that the Partnership will generate sufficient funds from operations
after required capital expenditures to permit any distributions to its partners
during 2005 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 32,142.75 limited partnership units
(the "Units") in the Partnership representing 65.34% of the outstanding Units at
September 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, unit holders 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 65.34% of the
outstanding Units, AIMCO and its affiliates are in a position to control all
such voting decisions with respect to the Partnership. Although the General
Partner owes fiduciary duties to the limited partners of the Partnership, the
General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As
a result, the duties of the General Partner, as general partner, to the
Partnership and its limited partners may come into conflict with the duties of
the General Partner to AIMCO as its sole stockholder.
Critical Accounting Policies and Estimates
The financial statements are prepared in accordance with accounting principles
generally accepted in the United States, which require the Partnership to make
estimates and assumptions. The Partnership believes that of its significant
accounting policies, the following may involve a higher degree of judgment and
complexity.
Impairment of Long-Lived Assets
Investment 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.
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 Appeal reversed the trial court's order striking the
first amended complaint.
On August 18, 2005, Objector and his counsel filed a motion to disqualify the
trial court based on a peremptory challenge and filed a motion to disqualify for
cause on October 17, 2005. On or about October 13, 2005 Objector filed a motion
to intervene and on or about October 19, 2005 filed both a motion to take
discovery relating to the adequacy of plaintiffs as derivative representatives
and a motion to dissolve the anti-suit injunction in connection with settlement.
On October 27, 2005, the Court denied Objector's peremptory challenge and struck
Objector's motion to disqualify for cause. No hearing has been set on Objector's
remaining motions. On November 3, 2005, Objector and his counsel filed a writ of
mandate to the Court of Appeals challenging the court's October 27, 2005 order.
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.
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, filed in the
United States District Court for the District of Columbia, 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. In June 2005 the Court
conditionally certified the collective action on both the on-call and overtime
issues, which allows the 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,
and AIMCO Properties, L.P. and NHP Management Company will have the opportunity
to move to decertify the collective action. Because the court denied plaintiffs'
motion to certify state subclasses, on September 26, 2005, the plaintiffs filed
a class action with the same allegations in the Superior Court of California
(Contra Costa County). 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
None.
ITEM 6. EXHIBITS
See Exhibit Index.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CONSOLIDATED CAPITAL GROWTH FUND
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 14, 2005
CONSOLIDATED CAPITAL GROWTH FUND
EXHIBIT INDEX
Exhibit
3 Certificate of Limited Partnership, as amended to date.
10.40 a) Multifamily Note dated August 29, 2005 between Consolidated
Capital Growth Fund, a California Limited Partnership and
GMAC Commercial Mortgage Corporation. (Incorporated by
reference to the Form 8-K dated August 29, 2005)
10.40 b) Guaranty dated August 29, 2005 by AIMCO Properties, L.P.
for the benefit of GMAC Commercial Mortgage Corporation.
(Incorporated by reference to the Form 8-K dated August 29,
2005)
10.40 c) Replacement Reserve and Security Agreement dated August 29,
2005 between Consolidated Capital Growth Fund, a California
Limited Partnership and GMAC Commercial Mortgage Corporation.
(Incorporated by reference to the Form 8-K dated August 29,
2005)
10.40 d) Assignment of Security Instrument dated August 29, 2005
between GMAC Commercial Mortgage Corporation and Fannie Mae.
(Incorporated by reference to the Form 8-K dated August 29,
2005)
10.40 e) Multifamily Deed of Trust, Assignment of Rents and Security
Agreement dated August 29, 2005 between Consolidated Capital
Growth Fund, a California Limited Partnership and GMAC
Commercial Mortgage Corporation. (Incorporated by reference to
the Form 8-K dated August 29, 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 equivalent of 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 Consolidated
Capital Growth Fund;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the 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 14, 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 Consolidated
Capital Growth Fund;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the 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 14, 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 Consolidated Capital
Growth Fund (the "Partnership"), for the quarterly period ended September 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: November 14, 2005
/s/Stephen B. Waters
Name: Stephen B. Waters
Date: November 14, 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.