EXHIBIT 13
CONAM REALTY INVESTORS 81 L.P.
1998 ANNUAL REPORT
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CONAM REALTY INVESTORS 81 L.P.
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ConAm Realty Investors 81 L.P. is a California limited partnership
formed in 1981 to acquire, operate and hold for investment multifamily
residential properties. At December 31, 1998, the Partnership's
portfolio consisted of two apartment properties located in Arizona. On
January 29, 1999, with the consent of the Unitholders, the two
remaining properties were sold for a price of $22,250,000 (before
closing costs) and substantially all of the cash, less a contingency
amount, was subsequently distributed to the Unitholders on February 26,
1999.
CONTENTS
1 Message to Investors
2 Performance Summary
3 Financial Highlights
4 Consolidated Financial Statements
7 Notes to the Consolidated Financial Statements
13 Independent Auditors' Report
14 Report of Former Independent Accountants
15 Net Asset Valuation
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ADMINISTRATIVE INQUIRIES PERFORMANCE INQUIRIES/FORM 10-Ks
ADDRESS CHANGES/TRANSFERS Brock, Tibbitts and Snell
MAVRICC Management Systems, Inc. 625 Broadway, Suite 911
1845 Maxwell, Suite 101 San Diego, California 92101
Troy, MI 48084-4510
Attn: Financial Communications
248-637-7897 619-232-0365
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CONAM REALTY INVESTORS 81 L.P.
AND CONSOLIDATED VENTURES
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MESSAGE TO INVESTORS
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Presented for your review is the 1998 Annual Report for ConAm Realty
Investors 81 L.P. (the "Partnership"). In this report we have included a
performance summary which addresses operations at each of the properties (the
"Properties") and the financial highlights for the year.
We are pleased to announce that the proposed sale of the Partnership's two
remaining Properties to DOC Investors, L.L.C., a Delaware limited liability
company, was approved by a majority in interest of the Unitholders as of
January 15, 1999 and that the sale was completed on January 29, 1999.
Following the close of the sale of the Properties, a distribution of $172.50
per Unit, representing the majority of the net proceeds from the sale and
other cash from operations, was paid to Unitholders on February 26, 1999.
This distribution included the net proceeds from the sale of the
Partnership's Properties in January 1999 of $156.17 per Unit, and cash from
operations of $16.33 per Unit.
CASH DISTRIBUTIONS
The Partnership paid quarterly cash distributions of operating cash flow
totaling $6.00 per Unit for the year ended December 31, 1998. The General
Partner elected not to make a fourth quarter distribution pending the outcome of
the solicitation of the consent of the Unitholders to the sale of the
Partnership's Properties. Including the distribution of sale proceeds and cash
from operations made on February 26, 1999, since inception, the Partnership has
paid distributions totaling $628.05 per original $500 Unit.
OPERATIONS OVERVIEW
In 1998, operations at the Partnership's Properties continued to be impacted to
varying degrees by strong competition for residents. In the Scottsdale and
Tucson areas where the Properties are located, many renters opted to purchase
homes due to low interest rates. Despite this trend, strong economic growth
nonetheless helped strengthen multifamily housing, and the Properties were able
to sustain average occupancy levels at or above 95% in 1998 while increasing
rental rates at both Properties, in part due to the use of rental concessions.
The Tucson market also improved from its overbuilt situation of two years ago,
contributing to the increased occupancy at Tierra Catalina. Although rental
occupancy and rental rates have improved, rental concessions were required to
maintain occupancy levels.
SUMMARY
The sale of the Properties on January 29, 1999 and the initial distribution
of net sales proceeds and cash from operations on February 26, 1999
represented a major step toward the liquidation of the Partnership that
is expected to be completed in August 1999. A final distribution of remaining
Partnership cash, if any, will be made shortly thereafter.
Very truly yours,
/s/ Daniel J. Epstein
Daniel J. Epstein, President
Continental American Development Inc.
General Partner of ConAm Property Services, Ltd.
March 30, 1999
1
CONAM REALTY INVESTORS 81 L.P.
AND CONSOLIDATED VENTURES
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PERFORMANCE SUMMARY
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LAS COLINAS I & II SCOTTSDALE, ARIZONA
Las Colinas I & II is a 300-unit apartment community located in Scottsdale
eight miles northeast of Phoenix. Las Colinas I & II reported average
occupancy of 97% in 1998, up from 96% in 1997, and an increase in rental
rates. The Scottsdale apartment market experienced continued strong
competition during 1998 and 1997, 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. The Scottsdale market
is experiencing strong job and population growth.
TIERRA CATALINA TUCSON, ARIZONA
Tierra Catalina is a 120-unit apartment community located near the Foothills
region of Tucson. The property maintained an average occupancy rate of 95%
during 1998, an increase from 92% for 1997, in part due to the use of rental
incentives and other concessions in the marketplace to attract residents. The
increase in occupancy as well as an increase in rental rates led to a 7.5%
rise in the property's rental income in 1998. Apartment vacancy rates
generally remain high in this market, but significant population growth in
Tucson over the last few years is slowly reducing the number of available
units. Low interest rates and affordable home prices have also increased
competition for residents by encouraging many renters to purchase homes.
2
CONAM REALTY INVESTORS 81 L.P.
AND CONSOLIDATED VENTURES
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FINANCIAL HIGHLIGHTS
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SELECTED FINANCIAL DATA
For the years ended December 31, 1998 1997 1996 1995 1994
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DOLLARS IN THOUSANDS, EXCEPT FOR
PER UNIT DATA
Total Income $ 3,463 $ 3,299 $ 3,714 4,416 4,760
Gain on Sale of Properties -- -- 1,411 1,485 --
Net Income (Loss) 193 (8) 1,286 1,142 (253)
Net Cash Provided by
Operating Activities 998 722 753 974 949
Long-term Obligations at Year End 9,718 9,830 9,943 11,954 15,601
Total Assets at Year End 12,057 12,495 14,545 16,022 22,497
Net Income (Loss) per
Limited Partnership Unit* 2.22 (.10) 15.53 (1.38) (3.19)
Distributions per Limited Partnership
Unit* 6.00 7.40 8.00 8.00 8.00
Special Distributions per Limited
Partnership Unit* -- 16.50 -- 40.50 --
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* 78,290 UNITS OUTSTANDING
CASH DISTRIBUTIONS
PER LIMITED PARTNERSHIP UNIT 1998 1997
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Special Distributions* $ -- $16.50
First Quarter 2.00 1.85
Second Quarter 2.00 1.85
Third Quarter 2.00 1.85
Fourth Quarter -- 1.85
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TOTAL $ 6.00 $ 23.90
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Cash distributions were reduced in 1998 due to a suspension of distributions
in the fourth quarter pending the outcome of the solicitation of the consent
of the Unitholders to the sale of the Properties.
* On February 27, 1997, the Partnership paid a special cash distribution
totaling $16.50 per Unit, reflecting net proceeds received from the sale of
Ridge Park.
3
CONAM REALTY INVESTORS 81 L.P.
AND CONSOLIDATED VENTURES
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CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, AT DECEMBER 31,
1998 1997
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ASSETS
Investments in real estate:
Land $ 3,630,175 $ 3,630,175
Buildings and improvements 17,984,707 17,975,267
--------------------------------------------
21,614,882 21,605,442
Less accumulated depreciation (11,739,275) (11,022,393)
--------------------------------------------
9,875,607 10,583,049
Cash and cash equivalents 1,578,924 1,388,845
Restricted cash 410,262 430,849
Mortgage fees, net of accumulated amortization
of $321,697 in 1998 and $270,880 in 1997 34,020 84,837
Other assets 158,544 7,162
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TOTAL ASSETS $ 12,057,357 $ 12,494,742
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LIABILITIES AND PARTNERS' CAPITAL
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Liabilities:
Mortgages payable $ 9,718,148 $ 9,830,261
Distribution payable -- 160,929
Accounts payable and accrued expenses 307,101 202,484
Due to general partner and affiliates 14,966 13,797
Interest payable 68,837 --
Security deposits 68,378 78,834
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Total Liabilities 10,177,430 10,286,305
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Partners' Capital (Deficit):
General Partner (298,566) (265,715)
Limited Partners (78,290 Units outstanding) 2,178,493 2,474,152
-------------------------------------------
Total Partners' Capital 1,879,927 2,208,437
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TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 12,057,357 $ 12,494,742
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SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
4
CONAM REALTY INVESTORS 81 L.P.
AND CONSOLIDATED VENTURES
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CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
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INCOME
Rental $ 3,402,923 $ 3,196,975 $ 3,622,403
Interest and other 59,998 102,512 91,282
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Total Income 3,462,921 3,299,487 3,713,685
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EXPENSES
Property operating 1,497,797 1,520,450 1,817,928
Depreciation and amortization 769,749 769,828 880,445
Interest 830,863 840,832 992,745
General and administrative 169,197 176,587 147,482
Write-off of assets 1,892 -- --
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Total Expenses 3,269,498 3,307,697 3,838,600
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Income (Loss) from operations 193,423 (8,210) (124,915)
Gain on sale of property -- -- 1,410,622
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NET INCOME (LOSS) $ 193,423 $ (8,210) $ 1,285,707
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NET INCOME (LOSS) ALLOCATED:
To the General Partner $ 19,342 $ (82) $ 69,591
To the Limited Partners 174,081 (8,128) 1,216,116
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NET INCOME (LOSS) $ 193,423 $ (8,210) $ 1,285,707
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PER LIMITED PARTNERSHIP UNIT
(78,290 UNITS OUTSTANDING):
Income (Loss) from operations $ 2.22 $ (.10) $ (1.58)
Gain on sale of property -- -- 17.11
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NET INCOME (LOSS) $ 2.22 $ (.10) $ 15.53
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CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
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FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 GENERAL LIMITED
PARTNER PARTNERS TOTAL
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BALANCE (DEFICIT) AT DECEMBER 31, 1995 $ (188,213) $ 3,763,613 $ 3,575,400
Net income 69,591 1,216,116 1,285,707
Distributions ($24.50 per Unit) (82,639) (1,918,105) (2,000,744)
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BALANCE (DEFICIT) AT DECEMBER 31, 1996 $ (201,261) $ 3,061,624 $ 2,860,363
Net loss (82) (8,128) (8,210)
Distributions ($7.40 per Unit) (64,372) (579,344) (643,716)
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BALANCE (DEFICIT) AT DECEMBER 31, 1997 $ (265,715) $ 2,474,152 $ 2,208,437
Net income 19,342 174,081 193,423
Distributions ($6.00 per Unit) (52,193) (469,740) (521,933)
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BALANCE (DEFICIT) AT DECEMBER 31, 1998 $ (298,566) $ 2,178,493 $ 1,879,927
===================================================================================================================
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
5
CONAM REALTY INVESTORS 81 L.P.
AND CONSOLIDATED VENTURES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 193,423 $ (8,210) $ 1,285,707
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 769,749 769,828 880,445
Gain on sale of properties -- -- (1,410,622)
Write-off of assets 1,892 -- --
Increase (decrease) in cash arising from changes in
operating assets and liabilities:
Fundings to restricted cash (405,639) (396,778) (450,460)
Release of restricted cash 426,226 317,373 493,163
Other assets (151,382) 7,130 10,654
Accounts payable and accrued expenses 104,617 25,070 (48,337)
Due to general partner and affiliates 1,169 752 (2,218)
Interest payable 68,837 -- --
Security deposits (10,456) 6,976 (5,575)
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Net cash provided by operating activities 998,436 722,141 752,757
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate (13,382) -- --
Net proceeds from sale of property -- -- 3,196,264
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Net cash provided by (used in) investing activities (13,382) -- 3,196,264
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CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (682,862) (1,961,598) (695,911)
Mortgage principal payments (112,113) (112,775) (2,011,152)
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Net cash used in financing activities (794,975) (2,074,373) (2,707,063)
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Net increase (decrease) in cash and cash equivalents 190,079 (1,352,232) 1,241,958
Cash and cash equivalents, beginning of period 1,388,845 2,741,077 1,499,119
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,578,924 $ 1,388,845 $ 2,741,077
===================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 762,026 $ 840,832 $ 992,745
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SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITIES:
Write-off of buildings and improvements $ (3,942) $ -- $ --
Write-off of accumulated depreciation $ 2,050 $ -- $ --
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SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
6
CONAM REALTY INVESTORS 81 L.P.
AND CONSOLIDATED VENTURES
Notes to the Consolidated Financial Statements
DECEMBER 31, 1998, 1997 AND 1996
1. ORGANIZATION
ConAm Realty Investors 81 L.P. (formerly 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 (as subsequently amended, 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 multi-family residential
real estate. The general partners of the Partnership were RI-81 Real Estate
Services Inc. ("RI-81"), an affiliate of Lehman Brothers, Inc., and ConAm
Property Services, Ltd. ("CPS"), an affiliate of Continental American
Properties, Ltd. (the "General Partners"). On October 8, 1997, CPS acquired
RI-81's co-general partner interest in the Partnership, effective July 1,
1997, pursuant to a purchase agreement between CPS and RI-81 dated August 29,
1997. As a result, CPS now serves as the sole general partner (the "General
Partner") of the Partnership. In conjunction with this transaction, the name
of the Partnership was changed from Hutton/ConAm Realty Investors 81 to ConAm
Realty Investors 81 L.P. On January 15, 1999, a majority in interest of
Unitholders agreed to sell the Partnership's remaining properties and
liquidate the Partnership. The Partnership sold its properties on January
29,1999 (Note 10) and expects to liquidate during 1999.
2. SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
FINANCIAL STATEMENTS The consolidated financial statements are prepared on
the accrual basis of accounting and include the accounts of the Partnership
and its affiliated ventures when the Partnership has a controlling interest
in the ventures. The effect of transactions between the Partnership and its
ventures have been eliminated in consolidation.
INVESTMENTS IN REAL ESTATE Investments in real estate are recorded at cost
less accumulated depreciation and include the initial purchase price of the
property, legal fees, acquisition and closing costs.
Revenue is recognized when earned and expenses (including depreciation) are
recognized when incurred in accordance with generally accepted accounting
principles. 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 (25 years). Maintenance and repairs
are charged to operations as incurred. Costs incurred for 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 net income for the period.
IMPAIRMENT OF LONG-LIVED ASSETS The Partnership assesses its real estate
investments for impairment whenever events or changes in circumstances
indicate that the carrying amount of the real estate may not be recoverable.
Recoverability of real estate to be held and used is measured by a comparison
of the carrying amount of the real estate to future net cash flows
(undiscounted and without interest) expected to be generated by the real
estate. If the real estate is considered to be impaired, the impairment to be
recognized is measured as the amount by which the carrying amount of the real
estate exceeds the fair value of the real estate. At December 31, 1998, the
Partnership's properties were assets to be held and used as the Partnership
did not have the ability to sell the properties without the approval of a
majority of the Unitholders.
7
CONAM REALTY INVESTORS 81 L.P.
AND CONSOLIDATED VENTURES
MORTGAGE FEES Mortgage fees are costs incurred in connection with obtaining
financing for the Partnership's properties. Such costs are amortized over the
initial term of the loan on a method which approximates the
effective-interest method.
INCOME TAXES No provision for income taxes has been made in the financial
statements as the liability for such taxes is that of the partners rather
than the Partnership.
CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of highly liquid
short-term investments with original maturities of three months or less.
CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash
and cash equivalents and restricted cash in excess of the financial
institution's federally insured limits. The Partnership invests its cash and
cash equivalents and restricted cash with high credit quality federally
insured financial institutions or treasury based money market funds.
RESTRICTED CASH Restricted cash consists of escrow deposits for real estate
taxes and casualty insurance as required by the first mortgage lender.
USE OF ESTIMATES Management of the Partnership has made a number of estimates
and assumptions relating to the reporting of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from
those estimates.
3. THE PARTNERSHIP AGREEMENT
The Partnership Agreement provides that net cash from operations, as defined,
is to be distributed quarterly, 90% to the limited partners and 10% to the
General Partner.
Net loss for any fiscal year is to be allocated 99% to the limited partners
and 1% to General Partner. Net income for any fiscal year will generally be
allocated 90% to the limited partners and 10% to the General Partner.
Net proceeds from sales or refinancing are to be distributed 99% to the
limited partners and 1% to the General Partner until each limited partner has
received an amount equal to its adjusted capital value (as defined) and an
annual, non-compounded cumulative 7% return thereon. The balance, if any, is
to be distributed 85% to the limited partners and 15% to the General Partner.
Gain from sales resulting from mortgage debt in excess of basis is to be
allocated to each partner having a negative capital account balance, pro
rata, to the extent of such negative balance. Thereafter, such gain is to be
allocated in accordance with the distribution of net proceeds from sale or
refinancing, with the balance allocated to the limited partners.
Effective July 1, 1997, all general partner allocations were made solely to
CPS.
4. INVESTMENTS IN REAL ESTATE
The Partnership's two remaining properties at December 31, 1998 were as
follows:
PROPERTY NAME UNITS LOCATION DATE ACQUIRED PURCHASE PRICE
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Las Colinas I & II 300 Scottsdale, AZ 5/20/81 & 9/23/82 $12,831,783
Tierra Catalina 120 Tucson, AZ 3/9/84 7,012,650
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8
CONAM REALTY INVESTORS 81 L.P.
AND CONSOLIDATED VENTURES
Since inception, the Partnership acquired five residential apartment complexes
either directly or through investments in joint ventures. On July 20, 1995, the
Partnership sold Kingston Village and Cedar Bay Village 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 aggregate net proceeds of
$6,555,332 from the sales of which $3,541,400, representing outstanding
principal and interest, was used to fully satisfy the Partnership's mortgage
obligations on Kingston Village and Cedar Bay Village. The sales 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 Kingston Village and Cedar
Bay Village and Partnership cash reserves.
On November 27, 1996, the Partnership sold Ridge Park 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
Ridge Park. 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 Partnership paid a special distribution of $1,291,785 ($16.50 per unit) to
the limited partners, representing the net proceeds from the sale of Ridge Park.
Cedar Bay Village, Ridge Park, Kingston Village and Tierra Catalina were
originally acquired through joint ventures with unaffiliated developers. To each
venture, the Partnership contributed the apartment projects as its initial
capital contribution. On March 30, 1984, the co-venturer's interest with respect
to Tierra Catalina was acquired for $400,000.
The limited partnership agreements for Ridge Park Associates, Tierra Catalina
and Las Colinas substantially provide that:
a. Available cash from operations is to be distributed 100% to the Partnership
until it has received an annual, non-cumulative preferred return, as defined.
Any remaining balance is to be distributed 99% to the Partnership and 1% to the
General Partner.
b. Net income is to be allocated first, proportionately to partners with
negative capital accounts, as defined, until such capital accounts have been
increased to zero then, to the Partnership up to the amount of any payments made
on account of its preferred return and thereafter, 99% to the Partnership and 1%
to the General Partner. All losses are to be allocated first, to the partners
with positive capital accounts, as defined, until such accounts have been
reduced to zero and then, 99% to the Partnership and 1% to the General Partner.
c. Income from a sale is to be allocated first, to the Partnership until the
Partnership's capital accounts, as defined, are equal to the fair market value
of the Partnerships' assets at the date of the amendments. Then, any remaining
balance is to be allocated 99% to the Partnership and 1% to the General Partner.
Net proceeds from a sale or refinancing are to be distributed first, to the
partners with the positive capital account balance, as defined; thereafter, 99%
to the Partnership and 1% to the General Partner. Upon dissolution or
termination of the Partnerships, the General Partner is to be required to
contribute an amount equal to the lesser of (i) the excess of 1.01% of the
capital account, as defined, of the Partnership as of the date of the
dissolution or termination over any capital contributions made by the General
Partner; or (ii) the deficit balance, if any, in the General Partner's capital
accounts, as defined.
9
CONAM REALTY INVESTORS 81 L.P.
AND CONSOLIDATED VENTURES
5. MORTGAGE PAYABLE
On August 27, 1992, the Partnership obtained first mortgage loans on Las
Colinas I and II, Tierra Catalina, Kingston Village, Cedar Bay Village, and
Ridge Park properties totaling $15,900,000. The loans, secured by the
respective properties and an assignment of rents and leases, bear interest at
an annual rate of 8.5%. Each of the loans is a non-recourse loan with monthly
payments of principal and interest based on a thirty year amortization
schedule and a seven year term with the balance of the principal due on
September 1, 1999. The loans require monthly insurance, real estate tax and
property replacement and repair reserve escrow fundings.
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.
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.
Mortgages payable for Las Colinas I & II and Tierra Catalina at December 31,
1998 are $6,182,567 and $3,535,581, respectively. These mortgages contain
provisions for prepayment penalties if the mortgages are repaid prior to
their maturity date of September 1, 1999. The loans were repaid in full in
conjunction with the sale of Las Colinas I & II and Tierra Catalina on
January 29, 1999 (note 10).
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires that the fair values be disclosed
for the Partnership's financial instruments. The carrying amount of cash and
cash equivalents, restricted cash, distribution payable, accounts payable and
accrued expenses, due to general partner and affiliates, interest payable,
and security deposits are reasonable estimates of their fair values due to
the short-term nature of those instruments.
The carrying amount of the mortgage payable is a reasonable estimate of fair
value based on management's belief that the interest rates and terms of the
debt are comparable to those commercially available to the Partnership in the
marketplace for similar instruments.
7. 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, 1998, 1997
and 1996, and the unpaid portion at December 31, 1998:
EARNED AND
UNPAID AT
DECEMBER 31, EARNED
------------------ ---------------- ----------------
1998 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
RI-81 Real Estate Services Inc. and
affiliates -
Out-of-pocket expenses $4,509 $ 4,509 $4,615 $3,968
ConAm and affiliates:
Property operating salaries -- 234,521 260,841 296,558
Property management fees 14,966 171,226 160,005 181,291
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TOTAL $19,475 $410,256 $425,461 $481,817
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10
CONAM REALTY INVESTORS 81 L.P.
AND CONSOLIDATED VENTURES
8. RECONCILIATION OF FINANCIAL STATEMENT AND TAX INFORMATION
The following is a reconciliation of the net income for financial statement
purposes to net income (loss) for federal income tax purposes for the years
ended December 31, 1998, 1997 and 1996:
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) per financial statements $ 193,423 $ (8,210) $ 1,285,707
Tax basis partnership net income (loss)
in excess of GAAP basis joint
venture net income (unaudited) 397,234 274,150 (74,666)
Gain on sale of properties
for tax purposes in excess of gain per
financial statements (unaudited) -- -- 1,357,592
Other (unaudited) (20,000) 18,312 (700)
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TAXABLE NET INCOME (UNAUDITED) $ 570,657 $ 284,252 $ 2,567,933
===================================================================================================================
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, 1998, 1997 and 1996:
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Partners' capital per financial statements $ 1,879,927 $ 2,208,437 $ 2,860,363
Accrued distribution from sale of property (unaudited) -- -- 1,304,833
Adjustment for cumulative difference between
tax basis net income and net income
per financial statements (unaudited) (2,325,025) (2,702,259) (2,994,721)
- -------------------------------------------------------------------------------------------------------------------
PARTNERS' CAPITAL (DEFICIT) PER INCOME TAX RETURN (UNAUDITED) $ (445,097) $ (493,822) $ 1,170,475
===================================================================================================================
At December 31, 1998, the tax basis of the Partnership's assets was
$(208,258) and the tax basis of the Partnership's liabilities was $236,839.
The Partnership does not consolidate its investment in joint ventures for
income tax purposes.
9. DISTRIBUTIONS PAID
Cash distributions, per the consolidated statements of partners' capital, are
recorded on the accrual basis, which recognizes specific record dates for
payments within each year. The consolidated statements of cash flows
recognize actual cash distributions paid during the year. The following table
discloses the annual amounts as presented on the consolidated financial
statements:
Distributions Distributions
Payable Distributions Distributions Payable
Beginning of Year Declared Paid December 31,
- ------------------------------------------------------------------------------------------------------
1998 $ 160,929 $ 521,933 $ 682,862 $ --
1997 1,478,811 643,716 1,961,598 160,929
1996 173,978 2,000,744 695,911 1,478,811
- ------------------------------------------------------------------------------------------------------
10. SALE OF PROPERTIES
On January 29, 1999, the Partnership consummated the sale of the Las Colinas
I & II and Tierra Catalina to DOC Investors, L.L.C., a Delaware limited
liability company, for a sales price of $22,250,000 (before selling costs and
prorations). As required by the Partnership's Partnership Agreement, the
General Partner solicited the consent of a majority in interest of the
Unitholders to the sale pursuant to a Consent
11
CONAM REALTY INVESTORS 81 L.P.
AND CONSOLIDATED VENTURES
Solicitation Statement dated December 16, 1998. The requisite consent was
obtained on January 15, 1999. The Partnership received approximately
$12,371,000 of cash proceeds from the sale, net of closing costs of
approximately $1,000 and repayment or assumption of indebtedness of
approximately $9,878,000.
On February 26, 1999, the Partnership distributed $13,505,025 ($172.50 per
Unit) to the Unitholders and $142,072 to the General Partner.
12
CONAM REALTY INVESTORS 81 L.P.
AND CONSOLIDATED VENTURES
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
The General Partner
ConAm Realty Investors 81 L.P.:
We have audited the accompanying consolidated balance sheets of ConAm Realty
Investors 81 L.P. (a California limited partnership) and consolidated
ventures (the Partnership), as of December 31, 1998 and 1997, and the related
consolidated statements of operations, partners' capital, and cash flows for
the years then ended. 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.
As further discussed in Note 10 to the consolidated financial statements, the
Partnership sold substantially all of its assets on January 29, 1999.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ConAm
Realty Investors 81 L.P. and consolidated ventures as of December 31, 1998
and 1997, and the results of their operations and their cash flows for the
years then ended, in conformity with generally accepted accounting principles.
KPMG LLP
San Diego, California
March 12, 1999
13
CONAM REALTY INVESTORS 81 L.P.
AND CONSOLIDATED VENTURES
- -------------------------------------------------------------------------------
REPORT OF FORMER INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Partners of
ConAm Realty Investors 81 L.P.:
We have audited the consolidated balance sheet of ConAm Realty Investors 81
L.P. (formerly Hutton/ConAm Realty Investors 81), a California Limited
Partnership, and Consolidated Ventures as of December 31, 1996 and the
related consolidated statements of operations, partners' capital (deficit)
and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides 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 ConAm Realty Investors 81 L.P., a California Limited Partnership, and
Consolidated Ventures as of December 31, 1996, and the consolidated results
of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 14, 1997
14
CONAM REALTY INVESTORS 81 L.P.
AND CONSOLIDATED VENTURES
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUATION
- ------------------------------------------------------------------------------------------------------------------------
COMPARISON OF ACQUISITION COSTS TO DECEMBER 31, 1998 PROPERTY VALUES AND
DETERMINATION OF NET ASSET VALUE PER UNIT AT DECEMBER 31, 1998 (UNAUDITED)
ACQUISITION COST PARTNERSHIP'S SHARE NET ASSET VALUE
PROPERTY DATE OF ACQUISITION (PURCHASE PRICE PLUS OF PROPERTY DETERMINATION
GENERAL PARTNER'S VALUE (1)
ACQUISITION FEES)
- ------------------------------------------------------------------------------------------------------------------------
Las Colinas I & II 05-20-81 & 09-23-82 $ 13,326,613 $15,850,000
Tierra Catalina 03-09-84 7,759,670 6,400,000
Aggregate Property Value at 12-31-98 $22,250,000
Less estimated transaction costs in escrow (1,000)
-------------------
Sales proceeds (before repayment of secured debt) 22,249,000
Cash and cash equivalents (including previously restricted cash) 1,989,186
Other assets 158,544
-------------------
Total assets 24,396,730
-------------------
Less:
Secured debt 9,718,148
Other liabilities 459,282
Prepayment penalties 97,075
Contingency amounts (2) 475,128
-------------------
Total liabilities 10,749,633
-------------------
Partnership Net Asset Value (3) 13,647,097
-------------------
Net Asset Value Allocated:
Limited Partners 13,505,025
General Partner 142,072
-------------------
13,647,097
-------------------
NET ASSET VALUE PER UNIT (78,290 UNITS OUTSTANDING) 172.50
- ------------------------------------------------------------------------------------------------------------------------
(1) Represents the Partnership's share of the fair market value of the
properties as reflected in the purchase and sale agreements pursuant to
which the properties were sold on January 29, 1999. The purchase prices
contained in such agreements were negotiated and agreed to in December
1998.
(2) Includes an amount for estimated future costs related to the sale of the
properties and liquidation of the Partnership and an amount the General
Partner determined to set aside for contingencies.
(3) The Partnership Net Asset Value assumes a sale at December 31, 1998 of all
the Partnership's properties at prices equal to the sales prices set forth
in the purchase and sale agreements described in Note (1) above, payment of
all Partnership liabilities, and the distribution of the net proceeds of
such sale and other Partnership cash to the Partners.
Since the Partnership sold all of its real property assets in January 1999,
is in dissolution, and is in the process of winding up and liquidating, the
foregoing Partnership Net Asset Value is intended to approximate the
liquidation value of the Partnership and the Net Asset Value Per Unit is
intended to approximate the per Unit amount which is expected to be
distributed to the Limited Partners in connection with the Partnership's
liquidation. The Net Asset Valuation does not take into account the illiquid
nature of an investment in the Units or the fact that at December 31, 1998 a
holder of Units would likely not have been able to sell their Units for the
Net Asset Value Per Unit set forth above. Fiduciaries of Limited Partners
which are subject to ERISA or other provisions of law requiring valuation 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.
15
CONAM REALTY INVESTORS 81 L.P.
AND CONSOLIDATED VENTURES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
LAS COLINAS LAS COLINAS
RESIDENTIAL PROPERTY: 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 25 years 25 years 25 years na
Encumbrances $ 6,182,567 $ -- $ 3,535,581 $ 9,718,148
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 $ 46,154 $ 83,771
Write-off of buildings
and improvements $ -- $ -- $ (3,942) $ (3,942)
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 6,439,651 17,984,707
- --------------------------------------------------------------------------------------------------------------------------
$ 9,879,844 $ 3,792,054 $ 7,942,984 $ 21,614,882
==========================================================================================================================
Accumulated depreciation $ 5,729,208 $ 2,198,968 $ 3,811,099 $ 11,739,275
- --------------------------------------------------------------------------------------------------------------------------
(1) The aggregate costs for Land, Buildings and Improvements for Federal
income tax purposes are $17,984,708.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1998, 1997 and 1996 follows:
1998 1997 1996
- -----------------------------------------------------------------------------------------
INVESTMENTS IN REAL ESTATE:
Beginning of period $ 21,605,442 $ 21,605,442 $ 25,243,577
Additions 13,382 -- --
Dispositions and disposals (3,942) -- (3,638,135)
- -----------------------------------------------------------------------------------------
End of period $ 21,614,882 $ 21,605,442 $ 21,605,442
=========================================================================================
ACCUMULATED DEPRECIATION:
Beginning of period $ 11,022,393 $ 10,303,382 $ 11,370,295
Depreciation expense 718,932 719,011 818,734
Dispositions and disposals (2,050) -- (1,885,647)
- -----------------------------------------------------------------------------------------
End of period $ 11,739,275 $ 11,022,393 $ 10,303,382
=========================================================================================
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
F-1
CONAM REALTY INVESTORS 81 L.P.
AND CONSOLIDATED VENTURES
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
The General Partner
ConAm Realty Investors 81 L.P.:
Under date of March 12, 1999, we reported on the consolidated balance sheets
of ConAm Realty Investors 81 L.P. (a California limited partnership) and
consolidated ventures (the Partnership) as of December 31, 1998 and 1997, and
the related consolidated statements of operations, partners' capital, and
cash flows for the years then ended, as contained in the 1998 annual report
to Unitholders. These consolidated financial statements and our report
thereon are incorporated by reference in the 1998 annual report on Form 10-K.
In connection with our audits of the aforementioned consolidated financial
statements, we also have audited the related consolidated financial statement
schedule III. This consolidated financial statement schedule is the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on this consolidated financial statement schedule based on
our audits.
In our opinion, the consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information set
forth therein.
KPMG LLP
San Diego, California
March 12, 1999
F-2
CONAM REALTY INVESTORS 81 L.P.
AND CONSOLIDATED VENTURES
- -------------------------------------------------------------------------------
REPORT OF FORMER INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
Our report on the consolidated financial statements of ConAm Realty Investors
81 L.P. (formerly 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 ConAm Realty
Investors 81 L.P. for the year ended December 31, 1996. In connection with
our audit 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
F-3