Hutton/ConAm Realty Investors 81
1996 Annual Report
Exhibit 13
Hutton/ConAm Realty Investors 81
Hutton/ConAm Realty Investors 81 is a California limited partnership
formed in 1981 to acquire, operate and hold for investment multifamily
housing properties. At December 31, 1996, the Partnership's portfolio
consisted of two apartment properties located in Arizona. Provided below
is a comparison of average occupancy levels for the years ended December
31, 1996 and 1995.
Average Occupancy
Property Location 1996 1995
Las Colinas I & II Scottsdale, Arizona 96% 93%
Tierra Catalina Tucson, Arizona 90% 93%
Contents
1 Message to Investors
3 Financial Highlights
4 Consolidated Financial Statements
7 Notes to the Consolidated Financial Statements
13 Report of Independent Accountants
14 Net Asset Valuation
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers First Data Investor Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts 02104-1527
Omaha, Nebraska 68144-2596 Attn: Financial Communications
800-223-3464 800-223-3464
Message to Investors
Presented for your review is the 1996 Annual Report for Hutton/ConAm Realty
Investors 81. In this report, we review Partnership operations and discuss
general market conditions affecting the Partnership's two remaining properties.
Property Sale
The most significant event during 1996 was the sale of Ridge Park Apartments on
November 27, 1996, to an unaffiliated institutional buyer for an adjusted sales
price of $3,385,000. The Partnership received net sales proceeds of
$3,196,264, of which $1,902,666, representing outstanding principal and
interest, was used to fully satisfy the Partnership's mortgage obligation on
Ridge Park. The transaction resulted in a gain on the sale of approximately
$1,410,622 which was reflected in the Partnership's consolidated statements of
operations for the period ending, December 31, 1996. The General Partners paid
a special cash distribution of $16.50 per Unit from the sales proceeds on
February 27, 1997.
Cash Distributions
The Partnership paid cash distributions totaling $8.00 per Unit for the year
ended December 31, 1996, including the fourth quarter distribution of $2.00 per
Unit, which was credited to your brokerage account or sent directly to you on
February 5, 1997. Since inception, the Partnership has paid distributions
totaling $442.15 per original $500 Unit, including $254.50 per Unit in return
of capital payments. The level of future distributions will be evaluated on a
quarterly basis and will depend on the Partnership's operating results and
future cash needs. Commencing with the first quarter 1997 distribution, which
will be paid on or about May 15, 1997, cash distributions will be reduced to
reflect the decline in cash flow resulting from the sale of Ridge Park.
Operations Overview
Multi-family real estate continued to perform well during 1996, with property
values and apartment rents increasing in many areas of the country. The
improving conditions, as well as positive job and population growth forecasts,
prompted a rise in new construction in the markets where the Partnership owns
properties. The addition of these new apartment properties caused a slowdown
in leasing activity towards the end of the year, particularly in Tucson. In
that market, conditions were also impacted by the decision of many renters to
purchase homes. This increased the use of rent specials at many large apartment
properties, including Tierra Catalina, to attract new tenants. The Scottsdale
market also experienced slow growth during the year as a result of increased
construction, even though Metro Phoenix was ranked as the nation's strongest
labor market in 1996. Nonetheless, both of the Partnership's properties
maintained average occupancy levels for the year of at least 90%, and the
Partnership's rental income for these two properties increased by 2.8% from the
previous year. It is expected that the competitive conditions will persist in
each market in 1997, but continued economic growth and a slowdown in
construction should prevent these areas from becoming significantly overbuilt.
Property Review
Las Colinas I & II
This 300-unit apartment community is located eight miles northeast of Phoenix
in southwest Scottsdale, and is comprised of two complexes. Las Colinas I and
II reported average occupancy of 96% in 1996 compared to 93% in 1995. In
addition, the property reported an increase in rental income of 5.7% from the
prior year. The Scottsdale apartment market experienced continued strong
competition during 1996, reflecting high levels of construction and notable
competition from condominiums and single family houses, as affordable prices
and low mortgage rates enticed renters to buy. City-wide, 5,229 apartment units
were permitted during the first six months of 1996, 1,938 of these in the
Scottsdale submarket and 1,042 of these had been completed or were currently
under construction. Although vacancy rates in Phoenix and the Scottsdale
submarket remained low in 1996, declining to 4.4% and 3.5%, respectively, as of
the second quarter, vacancies are expected to increase with the new
construction. While the area's strong population and job growth are likely to
absorb much of this new supply, competition for tenants is expected to remain
strong.
Tierra Catalina
Tierra Catalina contains 120 units and is located near the Foothills region of
Tucson. The property maintained an average occupancy rate of 90% during 1996
compared to 93% for 1995. The slight decline in occupancy caused a similar
decrease in the property's rental income. These operating results are
indicative of the increasing competition in the Tucson market. While Tucson's
economy began to slow in 1995 and 1996, construction of multifamily properties
has increased significantly. The addition of new properties is beginning to
put downward pressure on occupancy rates and is limiting rental rate increases.
The increased competition has also led to the reemergence of rental incentives.
In addition, the multifamily market has been unfavorably impacted by relatively
low interest rates which has made home ownership a viable alternative for
renters. A local survey of metropolitan Tucson conducted in the second quarter
of 1996 showed an average occupancy rate of 88.9% among multifamily properties,
down from 91.1% in the same period in 1995. In the Catalina Foothills
submarket, where Tierra Catalina is located, occupancy rates declined from 91%
in the second quarter of 1995 to 84.5% in the same period in 1996.
General Information
As you are probably aware, several third parties have commenced partial tender
offers to purchase Units of the Partnership at grossly inadequate prices which
are substantially below the Partnership's Net Asset Value. In response, we
recommended that limited partners reject these offers because they do not
reflect the underlying value of the Partnership's assets. To date, holders of
over 93% of the outstanding Units agreed that these offers were inadequate,
rejected the offer and did not tender their Units. Please be assured that if
any additional tender offers are made for your Units, we will make every effort
to provide you with our position regarding such offer on a timely basis.
Summary
During 1997, we intend to monitor market conditions in an effort to sell the
Partnership's two remaining properties within the next few years. Assuming
these efforts are successful, we would expect to distribute the sales proceeds
and subsequently dissolve the Partnership in 1998 or 1999. However, meeting
this objective will be dependent upon a variety of factors, many of which are
not within the Partnership's control. Consequently, there can be no assurance
that any specific property or all the properties can be sold, that certain
prices will be achieved, or that both of the properties can be sold within this
time frame. In the interim, we will continue to manage and maintain the
properties to maximize their performance and improve their marketability and
appeal. We will keep you apprised of significant developments affecting your
investment in future reports.
Very truly yours,
/s/ Paul L. Abbott /s/ Daniel J. Epstein
Paul L. Abbott Daniel J. Epstein
President President
RI 81 Real Estate Services Inc. Continental American Development, Inc.
General Partner of ConAm Property
Services, Ltd.
March 26, 1997
Financial Highlights
Selected Financial Data
For the periods ended December 31, 1996 1995 1994 1993 1992
Dollars in thousands,
except for per unit data
Total Income $ 3,714 $ 4,416 $ 4,760 $ 4,485 $ 4,284
Gain on Sale of Properties 1,411 1,485 -- -- --
Net Income (Loss) 1,286 1,142 (253) (618) (465)
Net Cash Provided by (Used for)
Operating Activities 753 974 949 1,020 (362)
Long-term Obligations at Year End 9,943 11,954 15,601 15,736 15,861
Total Assets at Year End 14,545 16,022 22,497 23,565 24,518
Net Income (Loss) per
Limited Partnership Unit* 15.53 (1.38) (3.19) (7.81) (5.88)
Distributions per
Limited Partnership Unit* 8.00 8.00 8.00 3.50 --
Special Distributions per
Limited Partnership Unit* 16.50 40.50 -- -- --
* 78,290 units outstanding
- Total income decreased in 1996, reflecting the sale of Cedar Bay
Village and Kingston Village in July 1995 and lower rental income from
Tierra Catalina resulting from the decline in occupancy. This was
partially offset by increased rental income at Las Colinas I and II.
- The increase in net income from 1995 to 1996 is primarily attributable
to the decline in operating expenses resulting from the sale of Cedar
Bay Village and Kingston Village which more than offset the
corresponding decline in rental income.
- Net cash provided by operating activities declined in 1996 reflecting
decreases in the release of restricted cash resulting from the sale of
Cedar Bay Village and Kingston Village in July 1995.
Cash Distributions
Per Limited Partnership Unit
1996 1995
Special Distributions* $16.50 $40.50
First Quarter 2.00 2.00
Second Quarter 2.00 2.00
Third Quarter 2.00 2.00
Fourth Quarter 2.00 2.00
Total $24.50 $48.50
*On August 17, 1995, the Partnership paid a special cash distribution totaling
$40.50 per Unit, reflecting net proceeds received from the sale of Cedar Bay
Village and Kingston Village and excess cash reserves. On February 27, 1997,
the Partnership paid a special cash distribution totaling $16.50 per Unit,
reflecting a return of capital from the net proceeds of the November 1996 sale
of Ridge Park.
Consolidated Balance Sheets At December 31, At December 31,
1996 1995
Assets
Investments in real estate:
Land $ 3,630,175 $ 3,944,195
Buildings and improvements 17,975,267 21,299,382
21,605,442 25,243,577
Less accumulated depreciation (10,303,382) (11,370,295)
11,302,060 13,873,282
Cash and cash equivalents 2,741,077 1,499,119
Restricted cash 351,444 394,147
Mortgage fees, net of accumulated
amortization of $220,063 in 1996
and $209,153 in 1995 135,654 230,519
Other assets 14,292 24,946
Total Assets $ 14,544,527 $ 16,022,013
Liabilities and Partners' Capital
Liabilities:
Mortgages payable $ 9,943,036 $ 11,954,188
Distribution payable 1,478,811 173,978
Accounts payable and accrued expenses 177,414 225,751
Security deposits 71,858 77,433
Due to general partners and affiliates 13,045 15,263
Total Liabilities 11,684,164 12,446,613
Partners' Capital (Deficit):
General Partners (201,261) (188,213)
Limited Partners 3,061,624 3,763,613
Total Partners' Capital 2,860,363 3,575,400
Total Liabilities and Partners' Capital $ 14,544,527 $ 16,022,013
Consolidated Statements of Partners' Capital (Deficit)
For the years ended December 31, 1996, 1995 and 1994
General Limited
Partners Partners Total
Balance at December 31, 1993 $ (1,244,798) $ 8,545,519 $ 7,300,721
Net loss (2,526) (250,101) (252,627)
Cash distributions (69,591) (626,320) (695,911)
Balance at December 31, 1994 (1,316,915) 7,669,098 6,352,183
Net income (loss) 1,250,091 (108,422) 1,141,669
Cash distributions (121,389) (3,797,063) (3,918,452)
Balance at December 31, 1995 (188,213) 3,763,613 3,575,400
Net income 69,591 1,216,116 1,285,707
Cash distributions (82,639) (1,918,105) (2,000,744)
Balance at December 31, 1996 $ (201,261) $ 3,061,624 $ 2,860,363
Consolidated Statements of Operations
For the years ended December 31, 1996 1995 1994
Income
Rental $ 3,622,403 $ 4,313,044 $ 4,702,059
Interest and other 91,282 102,535 58,009
Total Income 3,713,685 4,415,579 4,760,068
Expenses
Property operating 1,817,928 2,261,179 2,301,465
Interest 992,745 1,191,397 1,327,560
Depreciation and amortization 880,445 1,087,749 1,227,183
General and administrative 147,482 218,706 156,487
Total Expenses 3,838,600 4,759,031 5,012,695
Loss from operations (124,915) (343,452) (252,627)
Gain on sale of properties 1,410,622 1,485,121 --
Net Income (Loss) $ 1,285,707 $ 1,141,669 $ (252,627)
Net Income (Loss) Allocated:
To the General Partners $ 69,591 $ 1,250,091 $ (2,526)
To the Limited Partners 1,216,116 (108,422) (250,101)
$ 1,285,707 $ 1,141,669 $ (252,627)
Per limited partnership unit
(78,290 outstanding)
Loss from operations $ (1.58) $ (4.34) $ (3.19)
Gain on sale of properties 17.11 2.96 --
Net Income (Loss) $ 15.53 $ (1.38) $ (3.19)
Consolidated Statements of Cash Flows
For the years ended December 31, 1996 1995 1994
Cash Flows From Operating Activities:
Net income (loss) $ 1,285,707 $ 1,141,669 $ (252,627)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization 880,445 1,087,749 1,227,183
Gain on sale of properties (1,410,622) (1,485,121) --
Increase (decrease) in cash
arising from changes in operating
assets and liabilities:
Fundings to restricted cash (450,460) (536,471) (581,675)
Release of restricted cash to
property operations 493,163 801,400 543,194
Other assets 10,654 16,109 (3,609)
Accounts payable and accrued expenses (48,337) 16,898 3,501
Security deposits (5,575) (63,975) 11,700
Due to general partners and affiliates (2,218) (4,567) 946
Net cash provided by operating activities 752,757 973,691 948,613
Cash Flows From Investing Activities:
Net proceeds from sale of properties 3,196,264 6,555,332 --
Net cash provided by investing activities 3,196,264 6,555,332 --
Cash Flows From Financing Activities:
Distributions (695,911) (3,918,452) (695,911)
Mortgage principal payments (2,011,152) (3,646,843) (135,365)
Net cash used for financing activities (2,707,063) (7,565,295) (831,276)
Net increase (decrease) in cash and
cash equivalents 1,241,958 (36,272) 117,337
Cash and cash equivalents,
beginning of period 1,499,119 1,535,391 1,418,054
Cash and cash equivalents,
end of period $ 2,741,077 $ 1,499,119 $ 1,535,391
Supplemental Disclosure of Cash
Flow Information:
Cash paid during the period
for interest $ 992,745 $ 1,191,397 $ 1,327,560
Notes to the Consolidated Financial Statements
December 31, 1996, 1995 and 1994
1. Organization
Hutton/ConAm Realty Investors 81 (the "Partnership") was organized as a limited
partnership under the laws of the State of California pursuant to a Certificate
and Agreement of Limited Partnership (the "Partnership Agreement") dated April
30, 1981, as amended and restated August 31, 1981. The Partnership was formed
for the purpose of acquiring and operating certain types of residential real
estate. The general partners of the Partnership are RI 81 Real Estate Services
Inc., an affiliate of Lehman Brothers (see below), and ConAm Property Services,
Ltd., an affiliate of Continental American Properties, Ltd (the "General
Partners"). The Partnership will continue until December 31, 2010 unless
sooner terminated pursuant to the terms of the Partnership Agreement.
On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its domestic
retail brokerage and asset management businesses to Smith Barney, Harris Upham
& Co. Incorporated ("Smith Barney"). Subsequent to the sale, Shearson Lehman
Brothers Inc. changed its name to Lehman Brothers Inc. ("Lehman Brothers"). The
transaction did not affect the ownership of the General Partners. However, the
assets acquired by Smith Barney included the name "Hutton." Consequently,
effective October 29, 1993, the Hutton Real Estate Services III, Inc. General
Partner changed its name to RI 81 Real Estate Services Inc.
On March 15, 1996, based upon, among other things, the advice of legal counsel,
Skadden, Arps, Slate, Meagher & Flom, the General Partners adopted a resolution
that states, among other things, if a Change of Control (as defined below)
occurs, the General Partners may distribute the Partnership's cash balances not
required for its ordinary course day-to-day operations. "Change of Control"
means any purchase or offer to purchase more than 10% of the Units that is not
approved in advance by the General Partners. In determining the amount of the
distribution, the General Partners may take into account all material factors.
In addition, the Partnership will not be obligated to make any distribution to
any partner and no partner will be entitled to receive any distribution until
the General Partners have declared the distribution and established a record
date and distribution date for the distribution.
2. Significant Accounting Policies
Financial Statements - The consolidated financial statements include the
accounts of the Partnership and its affiliated ventures. The effect of
transactions between the Partnership and its ventures has been eliminated in
consolidation.
Real Estate Investments - Real estate investments are recorded at cost less
accumulated depreciation which includes the initial purchase price of the
property, legal fees, capitalized interest, acquisition and closing costs.
Leases are accounted for under the operating method. Under this method,
revenue is recognized as rentals are earned and expenses (including
depreciation) are charged to operations when incurred. Leases are generally for
terms of one year or less.
Depreciation is computed using the straight-line method based upon the
estimated useful lives of the properties. Maintenance and repairs are charged
to operations as incurred. Significant betterments and improvements are
capitalized and depreciated over their estimated useful lives.
For assets sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
reflected in income for the period.
Accounting for Impairment - In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" ("FAS 121"), which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. FAS 121 also addresses the accounting
for long- lived assets that are expected to be disposed of. The Partnership
adopted FAS 121 in the fourth quarter of 1995.
Fair Value of Financial Instruments - Statements of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments"
("FAS 107"), requires that the Partnership disclose the estimated fair values
of its financial instruments. Fair values generally represent estimates of
amounts at which a financial instrument could be exchanged between willing
parties in a current transaction other than in forced liquidation.
Fair value estimates are subjective and are dependent on a number of
significant assumptions based on management's judgment regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. In addition, FAS 107 allows
a wide range of valuation techniques, therefore, comparisons between entities,
however similar, may be difficult.
Mortgage Fees - Included in mortgage fees are deferred mortgage costs incurred
in connection with obtaining financing on the Partnership's properties. Such
costs are amortized over the 7-year term of the applicable loans.
Offering Costs - Costs relating to the sale of limited partnership units were
deferred during the offering period and charged to the limited partners'
capital accounts upon the consummation of the public offering.
Income Taxes - No provision for income taxes has been made in the financial
statements since income, losses and tax credits are passed through to the
individual partners.
Cash and Cash Equivalents - Cash equivalents consist of short-term highly
liquid investments which have maturities of three months or less from the date
of issuance. The carrying amount approximates fair value because of the short
maturity of these instruments. Cash and cash equivalents include security
deposits of $0 and $17,670 for December 31, 1996 and 1995, respectively,
restricted under certain state statutes.
Restricted Cash - Restricted cash consists of escrows for betterments and
improvements, real estate taxes, and casualty insurance as required by the
first mortgage lender.
Concentration of Credit Risk - Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash
and cash equivalents in excess of the financial institutions' insurance limits.
The Partnership invests available cash with high credit quality financial
institutions.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications - Certain prior year amounts have been reclassified in order
to conform to the current year's presentation.
3. The Partnership Agreement
The Partnership Agreement provides that net cash from operations, as defined,
will be distributed quarterly, 90% to the limited partners and 10% to the
General Partners.
Net loss for any year will be allocated 99% to the limited partners and 1% to
the General Partners. Net income will generally be allocated in accordance
with the distribution of net cash from operations.
Net proceeds from sales or refinancing will be distributed 99% to the limited
partners and 1% to the General Partners until each limited partner has received
an amount equal to his adjusted capital value (as defined) and an annual,
cumulative 7% return thereon, and until the General Partners have received 15%
of the aggregate distributions of net proceeds. The balance, if any, will be
distributed 85% to the limited partners and 15% to the General Partners. Gain
from sales will be allocated to each partner having a negative capital account
balance, pro rata, to the extent of such negative balance. Thereafter, such
gain will be allocated in accordance with the distribution of net proceeds from
sale or refinancing, with the balance allocated to the limited partners.
4. Real Estate Investments
Real estate investments consist of three residential apartment complexes
acquired either directly or through investments in joint ventures as follows:
Apartment Date Purchase
Property Name Units Location Acquired Price
Las Colinas I 226 Scottsdale, AZ 5/20/81 $9,266,864
Las Colinas II 74 Scottsdale, AZ 9/23/82 3,564,919
Tierra Catalina 120 Tucson, AZ 3/9/84 7,012,650
Cedar Bay Village, Ridge Park, Kingston Village and Tierra Catalina were
originally acquired through joint ventures with unaffiliated developers. On
March 30, 1984, the co-venturer's interest with respect to Tierra Catalina was
acquired for $400,000. To each venture, the Partnership contributed the
apartment projects as its initial capital contribution.
On November 27, 1996, the Partnership sold Ridge Park (the "Property") to Ridge
Park Limited Partnership, an Oklahoma limited partnership ("Ridge Park L.P."),
which is unaffiliated with the Partnership. The selling price was determined
by arm's length negotiations between the Partnership and Ridge Park L.P. Ridge
Park was sold for $3,385,000. The Partnership received net proceeds of
$3,196,264 from the transaction of which $1,902,666, representing outstanding
principal and interest, was used to fully satisfy the Partnership's mortgage
obligation on the Property. The transaction resulted in a gain on sale of
$1,410,622 which included the recognition of mortgage prepayment penalties of
$36,843, and a $33,154 write-off of the unamortized portion of mortgage fees.
The gain was allocated in accordance with the Partnership Agreement. On
February 27, 1997, the General Partners paid a special distribution of
$1,291,785 ($16.50 per unit) to the Limited Partners, representing the net
proceeds from the sale of the Property.
On July 20, 1995, the Partnership sold Kingston Village and Cedar Bay Village
(the "Properties") to an institutional buyer (the "Buyer"), which was
unaffiliated with the Partnership. The selling price was determined by arm's
length negotiations between the Partnership and the Buyer. Kingston Village
and Cedar Bay Village were sold for $5,370,000 and $1,410,000, respectively.
The Partnership received net proceeds of $6,555,332 from the transaction of
which $3,541,400, representing outstanding principal and interest, was used to
fully satisfy the Partnership's mortgage obligations on the Properties. The
transaction resulted in a gain on sale of $1,485,121 which included the
recognition of mortgage prepayment penalties of $120,926 and a $101,146
write-off of the unamortized portion of mortgage fees. The gain was allocated
in accordance with the Partnership Agreement.
On August 17, 1995, the Partnership paid a special distribution of $3,170,745
or $40.50 per Unit to the limited partners. The special distribution was
comprised of the net proceeds from the sale of the Properties and Partnership
cash reserves.
The joint venture and limited partnership agreements for Cedar Bay Village,
Kingston Village, Ridge Park Associates, Tierra Catalina and Las Colinas
substantially provide that:
a. Available cash from operations will be distributed 100% to the Partnership
until it has received an annual, non-cumulative preferred return, as defined.
Any remaining balance will be distributed 99% to the Partnership and 1% to the
corporate General Partners.
b. Net income will be allocated first, proportionately to partners with
negative capital accounts, as defined, until such capital accounts, as defined,
have been increased to zero. Then, to the Partnership up to the amount of any
payments made on account of its preferred return; thereafter, 99% to the
Partnership and 1% to the corporate General Partners. All losses will be
allocated first, to the partners with positive capital accounts, as defined,
until such accounts have been reduced to zero. Then, 99% to the Partnership
and 1% to the corporate General Partners.
c. Income from a sale will be allocated first, to the Partnership until the
Partnership's capital accounts, as defined, are equal to the fair market value
of the ventures' assets at the date of the amendments. Then, any remaining
balance will be allocated 99% to the Partnership and 1% to the corporate
General Partners. Net proceeds from a sale or refinancing will be distributed
first to the partners with the positive capital account balance, as defined;
thereafter, 99% to the Partnership and 1% to the corporate General Partners.
5. Mortgages Payable
Mortgages payable, at December 31, 1996, consist of the following first
mortgage loans:
Interest Date of
Property Name Principal Rate Loan Term
Las Colinas I and II $6,325,637 8.50% 9/1/92 7 years
Tierra Catalina 3,617,399 8.50% 9/1/92 7 years
On August 27, 1992, the Partnership obtained new first mortgage loans on all of
its properties from Washington Mortgage Financial Group, an unaffiliated party.
Total proceeds of $15,900,000 were received and collateralized by deeds of
trust and assignments of rents as security encumbering the properties.
Additionally, these mortgages contain provisions for prepayment penalties if
the mortgages are repaid prior to their maturity date of September 1, 1999.
On November 27, 1996, Ridge Park was sold. A portion of the sales proceeds, in
the amount of $1,939,509 representing outstanding principal, interest and
pre-payment penalties, was used to fully satisfy the Partnership's mortgage
obligation on the Property.
On July 20, 1995, Kingston Village and Cedar Bay Village were sold. A portion
of the sales proceeds, in the amount of $3,662,325, representing outstanding
principal, interest and pre- payment penalties, was used to fully satisfy the
Partnership's mortgage obligations on the Properties.
Annual maturities of mortgage notes principal over the next three years are as
follows:
Year Amount
1997 $ 112,775
1998 122,743
1999 9,707,518
$ 9,943,036
Based on borrowing rates currently available to the Partnership for mortgage
loans with similar terms and average maturities, the fair value of long-term
debt approximates carrying value.
6. Transactions with Related Parties
The following is a summary of fees earned and reimbursable expenses to the
General Partners and affiliates for the years ended December 31, 1996, 1995 and
1994, and the unpaid portion at December 31, 1996:
Unpaid at
December 31, Earned
1996 1996 1995 1994
RI 81 Real Estate
Services, Inc. and
affiliates:
Out-of-pocket expenses $ -- $ 3,968 $ 2,244 $ 1,132
ConAm and affiliates:
Property operating
salaries -- 296,558 394,663 418,143
Property management
fees 13,045 181,291 217,706 234,723
Total $ 13,045 $481,817 $614,613 $653,998
7. Reconciliation of Financial Statement and Tax Information
The following is a reconciliation of the net income (loss) for financial
statement purposes to net income (loss) for federal income tax purposes for the
years ended December 31, 1996, 1995 and 1994:
1996 1995 1994
Net income (loss) per
financial statements $ 1,285,707 $ 1,141,669 $ (252,627)
Tax basis joint venture net
loss in excess of GAAP basis
joint venture net income (loss) (74,666) (443,083) (253,640)
Gain on sale of property for tax
purposes in excess of gain per
financial statements 1,357,592 2,755,883 --
Other (700) 1,000 1,050
Taxable net income (loss) $ 2,567,933 $ 3,455,469 $ (505,217)
The following is a reconciliation of partners' capital for financial statement
purposes to partners' capital (deficit) for federal income tax purposes as of
December 31, 1996, 1995 and 1994:
1996 1995 1994
Partners' capital per
financial statements $ 2,860,363 $ 3,575,400 $ 6,352,183
Accrued distribution from sale
of property 1,304,833 -- --
Adjustment for cumulative difference
between tax basis loss and
net income (loss) per
financial statements (2,994,721) (4,276,947) (6,590,747)
Partners' capital (deficit) per
tax return $ 1,170,475 $ (701,547) $ (238,564)
8. Distributions Paid
Cash distributions, per the consolidated statements of partners' capital
(deficit), are recorded on the accrual basis, which recognizes specific record
dates for payments within each calendar year. The consolidated statements of
cash flows recognize actual cash distributions paid during the calendar year.
The following table discloses the annual differences as presented on the
consolidated financial statements:
Distributions Distributions
Payable Distributions Distributions Payable
Beginning of Year Declared Paid December 31
1996 $173,978 $2,000,744 $ 695,911 $1,478,811
1995 173,978 3,918,452 3,918,452 173,978
1994 173,978 695,911 695,911 173,978
Report of Independent Accountants
To the Partners of
Hutton/ConAm Realty Investors 81:
We have audited the consolidated balance sheets of Hutton/ConAm Realty
Investors 81, a California limited partnership, and Consolidated Ventures as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, partners' capital (deficit) and cash flows for each of the three
years in the period ended December 31, 1996. These consolidated financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Hutton/ConAm Realty Investors 81, a California limited partnership, and
Consolidated Ventures as of December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 14, 1997
Net Asset Valuation
Comparison of Acquisition Costs to Appraised Value and
Determination of Net Asset Value Per $262 Unit
at December 31, 1996 (Unaudited)
Acquisition Cost
(Purchase Price Partnership's
Plus General Share of
Partners' December 31,
Acquisition 1996 Appraised
Property Date of Acquisition Fees) Value (1)
Las Colinas I & II 5/20/81 & 9/23/82 $ 13,326,613 $ 14,100,000
Tierra Catalina 3/9/84 7,759,670 6,000,000
$ 21,086,283 20,100,000
Cash and cash equivalents 3,092,521
Other assets 14,292
23,206,813
Less:
Total liabilities (10,379,331)
Partnership Net Asset Value (2) $ 12,827,482
Net Asset Value Allocated:
Limited Partners $ 12,458,860
General Partners 368,622
$ 12,827,482
Net Asset Value Per Unit
(78,290 units outstanding) $ 159.14
(1) This represents the Partnership's share of the December 31, 1996 Appraised
Values which were determined by an independent property appraisal firm.
(2) The Net Asset Value assumes a hypothetical sale at December 31, 1996 of
all the Partnership's properties at a price based upon their value as a
rental property as determined by an independent property appraisal firm,
and the distribution of the proceeds of such sale, combined with the
Partnership's cash after liquidation of the Partnership's liabilities, to
the Partners.
Limited Partners should note that appraisals are only estimates of current
value and actual values realizable upon sale may be significantly different. A
significant factor in establishing an appraised value is the actual selling
price for properties which the appraiser believes are comparable. In addition,
the appraised value does not reflect the actual costs which would be incurred
in selling the properties. As a result of these factors and the illiquid
nature of an investment in Units of the Partnership, the variation between the
appraised value of the Partnership's properties and the price at which Units of
the Partnership could be sold may be significant. Fiduciaries of Limited
Partners which are subject to ERISA or other provisions of law requiring
valuations of Units should consider all relevant factors, including, but not
limited to Net Asset Value per Unit, in determining the fair market value of
the investment in the Partnership for such purposes.
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1996
Residential Property: Las Colinas Las Colinas
Consolidated Ventures: Apts I Apts II Tierra Catalina Total
Location Scottsdale, AZ Scottsdale, AZ Tucson, AZ na
Construction date 1981 1982 1983, 1984 na
Acquisition date 05-20-81 09-23-82 03-09-84 na
Life on which depreciation
in latest income statements
is computed (3) (3) (3) na
Encumbrances $ 6,325,637 $ -- $ 3,617,399 $ 9,943,036
Initial cost to
Partnership:
Land $ 1,582,000 $ 514,564 $ 1,497,150 $ 3,593,714
Buildings and
improvements $ 8,268,721 $3,268,996 $ 6,403,622 $17,941,339
Costs capitalized
subsequent to acquisition:
Land, buildings
and improvements $ 29,123 $ 8,494 $ 32,772 $ 70,389
Gross amount at which
carried at close of period: (1)
Land $ 1,611,123 $ 515,719 $ 1,503,333 $ 3,630,175
Buildings and
improvements 8,268,721 3,276,335 6,430,211 17,975,267
$ 9,879,844 $3,792,054 $ 7,933,544 $21,605,442
Accumulated
depreciation (2) $ 5,126,566 $1,878,005 $ 3,298,811 $10,303,382
(1) Represents aggregate cost for both financial reporting and Federal income
tax purposes.
(2) The amount of accumulated depreciation for Federal income tax purposes is
$17,151,014.
(3) Buildings and improvements - 25 years; personal property - 10 years.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1996, 1995, and 1994 follows:
1996 1995 1994
Real estate investments:
Beginning of year $ 25,243,577 $ 33,729,297 $ 33,729,297
Dispositions (3,638,135) (8,485,720) --
End of year $ 21,605,442 $ 25,243,577 $ 33,729,297
Accumulated depreciation:
Beginning of year $ 11,370,295 $ 13,875,550 $ 12,735,626
Depreciation expense 818,734 1,011,400 1,139,924
Dispositions (1,885,647) (3,516,655) --
End of year $ 10,303,382 $ 11,370,295 $ 13,875,550
Report of Independent Accountants
Our report on the consolidated financial statements of Hutton/ConAm Realty
Investors 81, a California Limited Partnership, and Consolidated Ventures has
been incorporated by reference in this Form 10-K from the Annual Report to
unitholders of Hutton/ConAm Realty Investors 81 for the year ended December 31,
1996. In connection with our audits of such financial statements, we have also
audited the related financial statement schedule listed in the index of this
Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 14, 1997
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