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 0-10273
CONSOLIDATED CAPITAL PROPERTIES III
(Exact name of small business issuer as specified in its charter)
California 94-2653686
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes X No ___
Indicate by 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 PROPERTIES III
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 2005
Assets
Cash and cash equivalents $ 129
Receivables and deposits 74
Other assets 299
Investment properties:
Land $ 407
Buildings and related personal property 10,330
10,737
Less accumulated depreciation (8,353) 2,384
$ 2,886
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 32
Tenant security deposit liabilities 61
Accrued property taxes 136
Other liabilities 205
Due to affiliates (Note B) 1,046
Mortgage notes payable 6,988
Partners' Deficit
General partners $(1,892)
Limited partners (158,582 units issued and
outstanding) (3,690) (5,582)
$ 2,886
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL PROPERTIES III
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
Revenues:
Rental income $ 667 $ 572 $ 1,923 $ 1,643
Other income 49 51 136 160
Casualty gains (Note C) 11 -- 117 --
Total revenues 727 623 2,176 1,803
Expenses:
Operating 341 393 945 1,063
General and administrative 60 64 193 172
Depreciation 116 112 350 338
Interest 161 145 477 436
Property taxes 45 44 136 132
Total expenses 723 758 2,101 2,141
Net income (loss) $ 4 $ (135) $ 75 $ (338)
Net income (loss) allocated to general
partners (4%) $ -- $ (5) $ 3 $ (14)
Net income (loss) allocated to limited
partners (96%) 4 (130) 72 (324)
$ 4 $ (135) $ 75 $ (338)
Net income (loss) per limited partnership
unit $ 0.03 $ (0.82) $ 0.45 $ (2.04)
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL PROPERTIES III
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 158,945 $ 1 $ 79,473 $ 79,474
Partners' deficit
at December 31, 2004 158,582 $(1,895) $ (3,762) $ (5,657)
Net income for the nine months
ended September 30, 2005 -- 3 72 75
Partners' deficit
at September 30, 2005 158,582 $(1,892) $ (3,690) $ (5,582)
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL PROPERTIES III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2005 2004
Cash flows from operating activities:
Net income (loss) $ 75 $ (338)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 350 338
Amortization of loan costs 18 19
Casualty gain (122) --
Bad debt expense 14 63
Change in accounts:
Receivables and deposits 15 (68)
Other assets 3 (26)
Accounts payable (86) (34)
Tenant security deposit liabilities (4) 5
Accrued property taxes 136 132
Due to affiliates 73 115
Other liabilities (29) 14
Net cash provided by operating activities 443 220
Cash flows from investing activities:
Insurance proceeds received 119 --
Property improvements and replacements (531) (333)
Net cash used in investing activities (412) (333)
Cash flows from financing activities:
Payments on mortgage notes payable (167) (154)
Advances from affiliate 182 299
Net cash provided by financing activities 15 145
Net increase in cash and cash equivalents 46 32
Cash and cash equivalents at beginning of period 83 52
Cash and cash equivalents at end of period $ 129 $ 84
Supplemental disclosure of cash flow information:
Cash paid for interest $ 421 $ 434
Supplemental disclosure of non-cash activity:
Property improvements and replacements included in
accounts payable $ 24 $ --
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL PROPERTIES III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Consolidated
Capital Properties III (the "Partnership" or "Registrant") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the general partner of the Partnership,
ConCap Equities, Inc. (the "General Partner"), all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 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 consolidated 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 wholly-owned by Apartment Investment
and Management Company ("AIMCO"), a publicly traded real estate investment
trust.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and depends on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The partnership agreement ("Partnership Agreement") provides for payments to
affiliates for services and reimbursement of certain expenses incurred by
affiliates of the General Partner on behalf of the Partnership.
Affiliates of the General Partner receive 5% of gross receipts from both of the
Partnership's properties as compensation for providing property management
services. The Partnership paid to such affiliates approximately $102,000 and
$89,000 for the nine months ended September 30, 2005 and 2004, respectively,
which are included in operating expenses.
Affiliates of the General Partner charged the Partnership for reimbursement of
accountable administrative expenses amounting to approximately $177,000 and
$131,000 for the nine months ended September 30, 2005 and 2004, respectively.
These amounts are included in general and administrative expenses and investment
properties. The portion of these reimbursements included in investment
properties 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 $47,000 and $9,000, respectively. The
construction management service fees are calculated based on a percentage of
additions to investment properties. At September 30, 2005, approximately
$259,000 of such fees were owed to affiliates of the General Partner and are
included in due to affiliates.
The Partnership Agreement provides for a special management fee equal to 9% of
the total distributions made to the limited partners from cash flow from
operations to be paid to the General Partner for executive and administrative
management services. During the nine months ended September 30, 2005 and 2004,
no special management fees were paid as no distributions from cash flow from
operations were made.
During the nine months ended September 30, 2005 and 2004, an affiliate of the
General Partner advanced the Partnership approximately $182,000 and $299,000,
respectively to fund operations and capital improvements at both of the
Partnership's investment properties and professional fees. Interest is accrued
at the prime rate plus 2% (8.75% at September 30, 2005). Interest expense was
approximately $42,000 and $2,000 for the nine months ended September 30, 2005
and 2004, respectively. At September 30, 2005, the total amount of advances and
accrued interest was approximately $787,000 and is included in due to
affiliates.
The Partnership insures its properties up to certain limits through coverage
provided by AIMCO which is generally self-insured for a portion of losses and
liabilities related to workers compensation, property casualty, general
liability and vehicle liability. The Partnership insures its properties above
the AIMCO limits through insurance policies obtained by AIMCO from insurers
unaffiliated with the General Partner. During the nine months ended September
30, 2005 and 2004, the Partnership was charged by AIMCO and its affiliates
approximately $33,000 and $32,000, respectively, for insurance coverage and fees
associated with policy claims administration.
Note C - Casualty Events
In August and September 2004, Hurricanes Charley, Frances and Jeanne damaged
Ventura Landing Apartments. The property incurred damages of approximately
$266,000. During the nine months ended September 30, 2005, insurance proceeds of
approximately $105,000 have been received to cover damage to the property. After
writing off the fully depreciated cost of the damaged asset, the Partnership
recognized a casualty gain of approximately $105,000 for the nine months ended
September 30, 2005.
In September 2004, Village Green Apartments experienced damage from Hurricane
Frances. During the nine months ended September 30, 2005, the Partnership
recognized a casualty gain of approximately $5,000 due to a change in the
estimated building damages at the property, which is reflected in operating
expense.
In December 2004, Village Green Apartments experienced damage of approximately
$22,000 from a laundry room fire. During the nine months ended September 30,
2005, the Partnership received insurance proceeds of approximately $14,000 to
cover damage to the property. After writing off the undepreciated cost of the
damaged asset, the Partnership recognized a casualty gain of approximately
$12,000 for the nine months ended September 30, 2005.
Note D - 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.
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 consolidated
financial condition or results of operations.
The Partnership is unaware of any other pending or outstanding litigation
matters involving it or its investment properties that are not of a routine
nature arising in the ordinary course of business.
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 properties,
the Partnership could potentially be liable for environmental liabilities or
costs associated with its properties.
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 osts 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 consolidated 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 consolidated financial condition or results
of operations.
Note E - Subsequent Event
Subsequent to September 30, 2005, the Partnership entered into a Purchase and
Sale Contract to sell Ventura Landing Apartments to a third party for a purchase
price of approximately $12,372,000. The anticipated closing date for the
transaction is January 31, 2006. At September 30, 2005, the carrying amounts of
the mortgage notes payable and investment property are approximately $3,780,000
and $1,458,000, respectively. The operating results of Ventura Landing
Apartments for the three and nine months ended September 30, 2005 were income of
approximately $53,000 and $226,000, respectively, which included revenues of
approximately $384,000 and $1,179,000, respectively. The operating results of
the property for the three and nine months ended September 30, 2004 were losses
of approximately $28,000 and $41,000, respectively, which included revenues of
approximately $330,000 and $965,000, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this report contain certain forward-looking statements,
including, without limitation, statements regarding future financial performance
and the effect of government regulations. Actual results may differ materially
from those described in the forward-looking statements and will be affected by a
variety of risks and factors including, without limitation: national and local
economic conditions; the terms of governmental regulations that affect the
Registrant and interpretations of those regulations; the competitive environment
in which the Registrant operates; financing risks, including the risk that cash
flows from operations may be insufficient to meet required payments of principal
and interest; real estate risks, including variations of real estate values and
the general economic climate in local markets and competition for tenants in
such markets; litigation, including costs associated with prosecuting and
defending claims and any adverse outcomes, and possible environmental
liabilities. Readers should carefully review the Registrant's financial
statements and the notes thereto, as well as the risk factors described in the
documents the Registrant files from time to time with the Securities and
Exchange Commission.
The Partnership's investment properties consist of two apartment complexes. The
following table sets forth the average occupancy of the properties for each of
the nine month periods ended September 30, 2005 and 2004:
Average Occupancy
Property 2005 2004
Ventura Landing Apartments (1) 97% 94%
Orlando, Florida
Village Green Apartments (2) 98% 93%
Altamonte Springs, Florida
(1) The General Partner attributes the increase in occupancy at Ventura
Landing Apartments to increased resident retention efforts and improved
economic conditions in the Orlando area.
(2) The General Partner attributes the increase in occupancy at Village Green
Apartments to market growth in the Altamonte Springs area.
The Partnership's financial results depend upon a number of factors including
the ability to attract and maintain tenants at the investment properties,
interest rates on mortgage loans, costs incurred to operate the investment
properties, general economic conditions and weather. As part of the ongoing
business plan of the Partnership, the General Partner monitors the rental market
environment of its investment properties to assess the feasibility of increasing
rents, maintaining or increasing occupancy levels and protecting the Partnership
from increases in expenses. As part of this plan, the General Partner attempts
to protect the Partnership from the burden of inflation-related increases in
expenses by increasing rents and maintaining a high overall occupancy level.
However, the General Partner may use rental concessions and rental rate
reductions to offset softening market conditions; accordingly, there is no
guarantee that the General Partner will be able to sustain such a plan. Further,
a number of factors that are outside the control of the Partnership such as the
local economic climate and weather can adversely or positively affect the
Partnership's financial results.
Results of Operations
The Partnership's net income for the three and nine months ended September 30,
2005 was approximately $4,000 and $75,000, respectively. The Partnership's net
loss for the three and nine months ended September 30, 2004 was approximately
$135,000 and $338,000, respectively. The increase in net income for both the
three and nine months ended September 30, 2005 is due to an increase in total
revenues and a decrease in total expenses. The increase in total revenues for
the three months ended September 30, 2005 is due to an increase in rental income
and the recognition of a casualty gain during 2005 (as discussed below). Other
income remained relatively constant for the three months ended September 30,
2005. The increase in total revenues for the nine months ended September 30,
2005 is due to an increase in rental income and the recognition of casualty
gains during 2005, partially offset by a decrease in other income. Rental income
increased for both the three and nine months ended September 30, 2005 primarily
due to increases in occupancy and average rental rates and reduced bad debt
expense at both of the Partnership's investment properties. Other income
decreased for the nine months ended September 30, 2005 primarily due to
decreases in lease cancellation fees at Ventura Landing Apartments and late
charges at both properties.
In August and September 2004, Hurricanes Charley, Frances and Jeanne damaged
Ventura Landing Apartments. The property incurred damages of approximately
$266,000. During the nine months ended September 30, 2005, insurance proceeds of
approximately $105,000 have been received to cover damage to the property. After
writing off the fully depreciated cost of the damaged asset, the Partnership
recognized a casualty gain of approximately $105,000 for the nine months ended
September 30, 2005.
In December 2004, Village Green Apartments experienced damage of approximately
$22,000 from a laundry room fire. During the nine months ended September 30,
2005, the Partnership received insurance proceeds of approximately $14,000 to
cover damage to the property. After writing off the undepreciated cost of the
damaged asset, the Partnership recognized a casualty gain of approximately
$12,000 for the nine months ended September 30, 2005.
In September 2004, Village Green Apartments experienced damage from Hurricane
Frances. During the nine months ended September 30, 2005, the Partnership
recognized a casualty gain of approximately $5,000 due to a change in the
estimated building damages at the property, which is reflected in operating
expense.
The decrease in total expenses for the three months ended September 30, 2005 is
due to a decrease in operating expenses, partially offset by increases in
depreciation and interest expenses. Both general and administrative and property
tax expenses remained relatively constant for the three months ended September
30, 2005. The decrease in total expenses for the nine months ended September 30,
2005 is due to a decrease in operating expense, partially offset by increases in
general and administrative, depreciation and interest expenses. Property tax
expense remained relatively constant for both the three and nine months ended
September 30, 2005. The decrease in operating expenses for the three months
ended September 30, 2005 is primarily due to decreases in advertising expenses
and clean up costs associated with the 2004 hurricane damage, partially offset
by tenant application processing costs and management fees as a result of the
increase in rental income at both of the Partnership's investment properties.
The decrease in operating expenses for the nine months ended September 30, 2005
is primarily due to decreases in contract maintenance, advertising expenses and
clean up costs associated with the 2004 hurricane damage at both of the
Partnership's investment properties, partially offset by increases in payroll
related expenses at Village Green Apartments and tenant application processing
costs and management fees as a result of the increase in rental income at both
properties. The increase in interest expense for both periods is due to
increases in interest on advances from an affiliate of the General Partner and
interest on unpaid management reimbursements to the General Partner, partially
offset by scheduled principal payments made on the mortgages encumbering the
Partnership's investment properties, which reduced the carrying balance of the
loans. The increase in depreciation expense for the three and nine months ended
September 30, 2005 is due to property improvements and replacements placed into
service at Ventura Landing Apartments during the past twelve months. General and
administrative expenses increased for the nine months ended September 30, 2005
primarily due to increases in management reimbursements to the General Partner
as allowed under the Partnership Agreement and professional expenses associated
with the administration of the Partnership. Also included in general and
administrative expenses for the three and nine months ended September 30, 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 $129,000, compared to approximately $84,000 at September 30, 2004.
The increase in cash and cash equivalents of approximately $46,000, from
December 31, 2004, is due to approximately $443,000 of cash provided by
operating activities and approximately $15,000 of cash provided by financing
activities partially offset by approximately $412,000 of cash used in investing
activities. Cash provided by financing activities consisted of advances received
from an affiliate of the General Partner, partially offset by payments of
principal made on the mortgages encumbering the Partnership's investment
properties. Cash used in investing activities consisted of property improvements
and replacements, partially offset by insurance proceeds received. The
Partnership invests its working capital reserves in interest bearing accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Partnership and to comply with Federal,
state, and local legal and regulatory requirements. The General Partner monitors
developments in the area of legal and regulatory compliance. For example, the
Sarbanes-Oxley Act of 2002 mandates or suggests additional compliance measures
with regard to governance, disclosure, audit and other areas. In light of these
changes, the Partnership expects that it will incur higher expenses related to
compliance. Capital improvements planned for each of the Partnership's
properties are detailed below.
Village Green Apartments
During the nine months ended September 30, 2005, the Partnership completed
approximately $127,000 of capital improvements at Village Green Apartments,
consisting primarily of furniture, air conditioning unit upgrades and floor
covering replacement. These improvements were funded from operations and
insurance proceeds. 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 anticipated cash flow generated by the
property.
Ventura Landing Apartments
During the nine months ended September 30, 2005, the Partnership completed
approximately $428,000 of capital improvements at Ventura Landing Apartments,
consisting primarily of roof replacement, plumbing upgrades, structural
improvements, sewer upgrades, floor covering replacement and construction
related to the hurricane damage. These improvements were funded from operations,
insurance proceeds, 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 anticipated cash flow generated by the property.
Capital expenditures will be incurred only if cash is available from operations,
Partnership reserves, or advances from affiliates 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. The mortgage
indebtedness encumbering the Partnership's investment properties of
approximately $6,988,000 requires monthly payments of principal and interest
until the loans mature between July and August 2021, at which time the loans are
scheduled to be fully amortized.
Subsequent to September 30, 2005, the Partnership entered into a Purchase and
Sale Contract to sell Ventura Landing Apartments to a third party for a purchase
price of approximately $12,372,000. The anticipated closing date for the
transaction is January 31, 2006. At September 30, 2005, the carrying amounts of
the mortgage notes payable and investment property are approximately $3,780,000
and $1,458,000, respectively. The operating results of Ventura Landing
Apartments for the three and nine months ended September 30, 2005 were income of
approximately $53,000 and $226,000, respectively, which included revenues of
approximately $384,000 and $1,179,000, respectively. The operating results of
the property for the three and nine months ended September 30, 2004 were losses
of approximately $28,000 and $41,000, respectively, which included revenues of
approximately $330,000 and $965,000, respectively.
There were no distributions made to the partners during the nine months ended
September 30, 2005 or 2004. Future cash distributions will depend on the levels
of net cash generated from operations, property sales and/or refinancings. The
Partnership's cash available for distribution is reviewed on a monthly basis. In
light of the amounts accrued and payable to affiliates of the General Partner at
September 30, 2005, there can be no assurance that the Partnership will generate
sufficient funds from operations after 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 84,051.50 limited partnership units
(the "Units") in the Partnership representing 53.00% 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, 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 53.00% of the
outstanding Units, AIMCO is in a position to control all voting decisions with
respect to the Partnership. Although the General Partner owes fiduciary duties
to the limited partners of the Partnership, the General Partner also owes
fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of
the General Partner, as general partner, to the Partnership and its limited
partners may come into conflict with the duties of the General Partner to AIMCO
as its sole stockholder.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the Partnership
to make estimates and assumptions. The Partnership believes that of its
significant accounting policies, the following may involve a higher degree of
judgment and complexity.
Impairment of Long-Lived Assets
Investment properties are recorded at cost, less accumulated depreciation,
unless considered impaired. If events or circumstances indicate that the
carrying amount of a property may be impaired, the Partnership will make an
assessment of its recoverability by estimating the undiscounted future cash
flows, excluding interest charges, of the property. If the carrying amount
exceeds the aggregate future cash flows, the Partnership would recognize an
impairment loss to the extent the carrying amount exceeds the fair value of the
property.
Real property investments are subject to varying degrees of risk. Several
factors may adversely affect the economic performance and value of the
Partnership's investment properties. These factors include, but are not limited
to, changes in the national, regional and local economic climate; local
conditions, such as an oversupply of multifamily properties; competition from
other available multifamily property owners and changes in market rental rates.
Any adverse changes in these factors could cause impairment of the Partnership's
assets.
Revenue Recognition
The Partnership generally leases apartment units for twelve-month terms or less.
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.
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 consolidated
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 PROPERTIES III
By: CONCAP EQUITIES, INC.
General Partner
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
By: /s/Stephen B. Waters
Stephen B. Waters
Vice President
Date: November 14, 2005
CONSOLIDATED CAPITAL PARTNERS III
EXHIBIT INDEX
Exhibit Number
3.1 Certificate of Limited Partnership, as amended to date (Exhibit 3 to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991, is incorporated herein by reference).
3.2 Partnership Agreement dated May 22, 1980 is incorporated by
reference to Exhibit A to the Prospectus of the Registration dated
August 17, 1981 as filed with the Commission pursuant to Rule 424(b)
under the Act.
10.51 Multifamily Note dated June 27, 2001 between Consolidated Capital
Properties III, a California limited partnership, and GMAC
Commercial Mortgage Corporation. (Incorporated by reference to the
Quarterly Report on Form 10-QSB for the quarterly period ended June
30, 2001).
10.52 Multifamily Note dated July 23, 2001 between ConCap Village Green
Associates, Ltd., a Texas limited partnership, and GMAC Commercial
Mortgage Corporation. (Incorporated by reference to the Quarterly
Report on Form 10-QSB for the quarterly period ended June 30, 2001).
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 Consolidated
Capital Properties III;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the small business issuer as of, and for, the periods presented in this
report;
4. The small business issuer's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for
the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
small business issuer, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based
on such evaluation; and
(c) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small
business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business
issuer's internal control over financial reporting.
Date: November 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 Properties III;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the small business issuer as of, and for, the periods presented in this
report;
4. The small business issuer's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for
the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
small business issuer, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based
on such evaluation; and
(c) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small
business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business
issuer's internal control over financial reporting.
Date: November 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
Properties III (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.