-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GleMj3ARoVUjIm27ImgIzuXiTQZYl2crr/PnczhoxbDRyiDv5dESPPwTc1ZvlXHD e9KoUGNmC1xL4pZ/nFah8g== 0000711642-02-000218.txt : 20020814 0000711642-02-000218.hdr.sgml : 20020814 20020814140130 ACCESSION NUMBER: 0000711642-02-000218 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSOLIDATED CAPITAL PROPERTIES III CENTRAL INDEX KEY: 0000317331 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 942653686 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-10273 FILM NUMBER: 02734305 BUSINESS ADDRESS: STREET 1: ONE INSIGNIA FINANCIAL PLZ STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8032391591 MAIL ADDRESS: STREET 1: ONE INSIGNIA FINANCIAL PLAZA STREET 2: PO BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 10QSB 1 ccp3.txt CCP3 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 [] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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) PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED CAPITAL PROPERTIES III CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) June 30, 2002
Assets Cash and cash equivalents $ 303 Receivables and deposits 114 Restricted escrows 118 Other assets 460 Investment properties: Land $ 507 Buildings and related personal property 11,749 12,256 Less accumulated depreciation (8,767) 3,489 $ 4,484 Liabilities and Partners' Deficit Liabilities Accounts payable $ 20 Tenant security deposit liabilities 79 Accrued property taxes 88 Other liabilities 280 Mortgage notes payable 8,732 Partners' Deficit General partners $(1,869) Limited partners (158,582 units issued and outstanding) (2,846) (4,715) $ 4,484 See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL PROPERTIES III CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data)
Three Months Six Months Ended June 30, Ended June 30, 2002 2001 2002 2001 (Restated) (Restated) Revenues: Rental income $ 709 $ 761 $ 1,435 $ 1,500 Other income 74 49 141 102 Total revenues 783 810 1,576 1,602 Expenses: Operating 350 382 696 740 General and administrative 65 90 133 203 Depreciation 157 150 313 295 Interest 169 146 342 253 Property taxes 49 51 98 99 Total expenses 790 819 1,582 1,590 Net (loss) income $ (7) $ (9) $ (6) $ 12 Net income allocated to general partners (4%) $ -- $ -- $ -- $ 1 Net (loss) income allocated to limited partners (96%) (7) (9) (6) 11 $ (7) $ (9) $ (6) $ 12 Net (loss) income per limited partnership unit $ (0.05) $ (0.06) $ (0.04) $ 0.07 Distributions per limited partnership unit $ 1.91 $ 0.92 $ 1.91 $ 2.93 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, 2001 158,582 $(1,869) $ (2,537) $ (4,406) Distributions to partners -- -- (303) (303) Net loss for the six months ended June 30, 2002 -- -- (6) (6) Partners' deficit at June 30, 2002 158,582 $(1,869) $ (2,846) $ (4,715) See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL PROPERTIES III CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Six Months Ended June 30, 2002 2001 Cash flows from operating activities: Net (loss) income $ (6) $ 12 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation 313 295 Loss on early extinguishment of debt -- 36 Amortization of loan costs 12 16 Change in accounts: Receivables and deposits (52) (267) Other assets (44) (6) Accounts payable (87) (21) Tenant security deposit liabilities (1) (2) Accrued property taxes 88 89 Other liabilities 64 69 Net cash provided by operating activities 287 221 Cash flows from investing activities: Property improvements and replacements (148) (345) Insurance proceeds received 173 -- Net withdrawals from restricted escrows 60 30 Net cash provided by (used in) investing activities 85 (315) Cash flows from financing activities: Loan costs paid -- (172) Proceeds from mortgage note payable -- 4,225 Repayment of mortgage note payable -- (2,200) Payments on mortgage notes payable (102) (13) Distributions to partners (303) (484) Advance from affiliate -- 150 Net cash (used in) provided by financing activities (405) 1,506 Net (decrease) increase in cash and cash equivalents (33) 1,412 Cash and cash equivalents at beginning of period 336 545 Cash and cash equivalents at end of period $ 303 $ 1,957 Supplemental disclosure of cash flow information: Cash paid for interest $ 333 $ 214 At December 31, 2001, receivables and deposits and cash flow from investing activities were adjusted by approximately $173,000 for non-cash activity related to insurance proceeds received which were held on deposit with the mortgage lender and received during the six months ended June 30, 2002. 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 six month periods ended June 30, 2002 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2002. 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, 2001. The General Partner is wholly-owned by Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. Effective April 1, 2002, the Partnership adopted Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of FASB Statements No. 4, 44 and 64". SFAS No. 4 "Reporting Gains and Losses from Extinguishment of Debt," required that all gains and losses from extinguishment of debt be aggregated and, if material, classified as an extraordinary item. SFAS No. 145 rescinds SFAS No. 4, and accordingly, gains and losses from extinguishment of debt should only be classified as extraordinary if they are unusual in nature and occur infrequently. Neither of these criteria applies to the Partnership. As a result, the accompanying consolidated statements of operations for the three and six months ended June 30, 2001 have been restated to reflect the loss on early extinguishment of debt at Ventura Landing Apartments (see Note D) as interest expense. Note B - Transactions with Affiliated Parties The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement ("Partnership Agreement") provides for (i) payments to affiliates for services and (ii) reimbursements of certain expenses incurred by affiliates of the General Partner on behalf of the Partnership. Affiliates of the General Partner are entitled to receive 5% of gross receipts from all of the Registrant's properties as compensation for providing property management services. The Registrant paid to such affiliates approximately $79,000 and $81,000 for the six months ended June 30, 2002 and 2001, respectively, which are included in operating expenses. Affiliates of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $88,000 and $149,000 for the six months ended June 30, 2002 and 2001, respectively. Included in these amounts are fees related to construction management services provided by an affiliate of the General Partner of approximately $51,000 for the six months ended June 30, 2001. No such fees were incurred for the six months ended June 30, 2002. The construction management service fees are calculated based on additions to investment properties. These reimbursements of accountable administrative expenses are included in investment properties and general and administrative expenses. 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 six months ended June 30, 2001, fees of approximately $46,000 were paid to the General Partner, which are included in general and administrative expenses. During the six months ended June 30, 2002, no special management fee was paid as no distributions from cash flow from operations were made. During the six months ended June 30, 2001, an affiliate of the General Partner advanced the Registrant $150,000 to pay for repairs related to a fire in January 2001 (see "Note C"). This advance accrued interest at the prime rate plus 2%. At June 30, 2001, the Partnership owed such affiliate approximately $150,000 including accrued interest. During the third quarter of 2001, the Partnership repaid this advance with the refinancing proceeds from Ventura Landing Apartments. There were no advances from affiliates of the General Partner to the Registrant during the six months ended June 30, 2002. Beginning in 2001, the Partnership began insuring 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 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 six months ended June 30, 2002 and 2001, the Partnership was charged by AIMCO and its affiliates approximately $37,000 and $63,000, respectively, for insurance coverage and fees associated with policy claims administration. Note C - Casualty Event In January 2001, a fire occurred at West Chase Apartments, which resulted in damage to twelve apartment units. The property incurred damages of approximately $178,000. Insurance proceeds of approximately $173,000 were received in 2001 to cover these damages. These proceeds were held on deposit with the mortgage lender at December 31, 2001 and were released during the six months ended June 30, 2002 upon completion of repairs at the property. Note D - Refinancing and Loss on Early Extinguishment of Debt On June 28, 2001, the Partnership refinanced the mortgage encumbering Ventura Landing Apartments. The refinancing replaced indebtedness of approximately $2,200,000 with a new mortgage in the amount of $4,225,000. Approximately $60,000 of the proceeds were placed into a restricted escrow account maintained by the lender. The new mortgage carries a stated interest rate of 7.54%. Interest on the old mortgage was 7.33%. Principal and interest payments on the mortgage loan of approximately $34,000 are due monthly until the loan matures in July 2021 at which time the loan will be fully amortized. Total capitalized loan costs were approximately $172,000 during the six months ended June 30, 2001. The Partnership recognized a loss on the early extinguishment of debt of approximately $36,000 due to the write-off of unamortized loan costs, which is included in interest expense. Note E - 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 purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which 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 which 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 seek monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs filed an amended complaint. The General Partner filed demurrers to the amended complaint which were heard February 1999. Pending the ruling on such demurrers, settlement negotiations commenced. On November 2, 1999, the parties executed and filed a Stipulation of Settlement, settling claims, subject to court approval, on behalf of the Partnership and all limited partners who owned units as of November 3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999 from the Court, at which time the Court set a final approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing, the Court received various objections to the settlement, including a challenge to the Court's preliminary approval based upon the alleged lack of authority of prior lead counsel to enter the settlement. On December 14, 1999, the General Partner and its affiliates terminated the proposed settlement. In February 2000, counsel for some of the named plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated the settlement. On June 27, 2000, the Court entered an order disqualifying them from the case and an appeal was taken from the order on October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the putative class. Plaintiffs filed a third amended complaint on January 19, 2001. On March 2, 2001, the General Partner and its affiliates filed a demurrer to the third amended complaint. On May 14, 2001, the Court heard the demurrer to the third amended complaint. On July 10, 2001, the Court issued an order sustaining defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed a fourth amended class and derivative action complaint. On September 12, 2001, the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the General Partner and affiliated defendants filed a demurrer to the fourth amended complaint, which was heard on December 11, 2001. On February 2, 2002, the Court served its order granting in part the demurrer. The Court has dismissed without leave to amend certain of the plaintiffs' claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a putative class comprised of all non-affiliated persons who own or have owned units in the partnerships. The General Partner and affiliated defendants oppose the motion. On April 29, 2002, the Court held a hearing on plaintiffs' motion for class certification and took the matter under submission after further briefing, as ordered by the court, was submitted by the parties. On July 10, 2002, the Court entered an order vacating the current trial date of January 13, 2003 (as well as the pre-trial and discovery cut-off dates) and stayed the case in its entirety through November 7, 2002 so that the parties can have an opportunity to discuss settlement. During the third quarter of 2001, a complaint (the "Heller action") was filed against the same defendants that are named in the Nuanes action, captioned Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed a first amended complaint. The first amended complaint in the Heller action is brought as a purported derivative action, and asserts claims for among other things breach of fiduciary duty; unfair competition; conversion, unjust enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a motion to consolidate the Heller action with the Nuanes action and stated that the Heller action was filed in order to preserve the derivative claims that were dismissed without leave to amend in the Nuanes action by the Court order dated July 10, 2001. On October 5, 2001, the General Partner and affiliated defendants moved to strike the first amended complaint in its entirety for violating the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer in the Nuanes action, or alternatively, to strike certain portions of the complaint based on the statute of limitations. Other defendants in the action demurred to the fourth amended complaint, and, alternatively, moved to strike the complaint. On December 11, 2001, the court heard argument on the motions and took the matters under submission. On February 4, 2002, the Court served notice of its order granting defendants' motion to strike the Heller complaint as a violation of its July 10, 2001 order in the Nuanes action. On March 27, 2002, the plaintiffs filed a notice appealing the order striking the complaint. The parties are currently in the midst of briefing that appeal. The General Partner does not anticipate that any costs, whether legal or settlement costs, associated with these cases will be material to the Partnership's overall operations. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The matters discussed in this Form 10-QSB contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosures contained in this Form 10-QSB and the other filings with the Securities and Exchange Commission made by the Registrant from time to time. The discussion of the Registrant's business and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Registrant's business and results of operation. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. The Partnership's investment properties consist of three apartment complexes. The following table sets forth the average occupancy of the properties for each of the six month periods ended June 30, 2002 and 2001: Average Occupancy Property 2002 2001 Ventura Landing Apartments 92% 94% Orlando, Florida Village Green Apartments 92% 94% Altamonte Springs, Florida West Chase Apartments 93% 90% Lexington, Kentucky The General Partner attributes the increase in occupancy at West Chase Apartments to increased marketing efforts and competitive pricing relative to other apartment complexes in the Lexington area. Results of Operations The Partnership's net loss for the six months ended June 30, 2002 was approximately $6,000 as compared to net income of approximately $12,000 for the six months ended June 30, 2001. The Partnership's net loss for the three months ended June 30, 2002 was approximately $7,000 as compared to a net loss of approximately $9,000 for the three months ended June 30, 2001. The increase in net loss for the six months ended June 30, 2002 is due to a decrease in total revenues, partially offset by a decrease in total expenses. Net loss remained relatively constant for the three months ended June 30, 2002, as a decrease in total revenues was offset by a decrease in total expenses. Total revenues decreased due to a decrease in rental income, partially offset by an increase in other income. Other income increased primarily due to increases in lease cancellation fees at Ventura Landing Apartments and West Chase Apartments and late charges at Village Green Apartments and Ventura Landing Apartments, partially offset by a decrease in interest income, as a result of lower average cash balances in interest bearing accounts. Rental income decreased primarily due to the decreases in occupancy at Ventura Landing Apartments and Village Green Apartments and an increase in bad debt expense at both properties, partially offset by an increase in the average rental rate at all three investment properties and the increase in occupancy at West Chase Apartments. Total expenses decreased for both the three and six months ended June 30, 2002 due to decreases in both operating and general and administrative expenses, partially offset by increases in both interest and depreciation expense. Operating expense decreased primarily due to decreases in maintenance expense at Ventura Landing Apartments and West Chase Apartments and payroll related expenses at all three properties, partially offset by an increase in insurance expense as a result of increased premiums at Village Green Apartments and Ventura Landing Apartments. General and administrative expenses decreased primarily due to the special partnership management fees charged during the six months ended June 30, 2001, as a result of the distributions from operations, and, to a lesser extent, a decrease in management reimbursements to the General Partner allowed under the Partnership Agreement. Also included in general and administrative expenses for the six months ended June 30, 2002 and 2001 are costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement. Depreciation expense increased at all three investment properties due to property improvements and replacements placed into service during the past twelve months. Interest expense increased due to the refinancing of the mortgages at Ventura Landing Apartments and Village Green Apartments in 2001 which resulted in larger loan balances, partially offset by the loss recognized on the early extinguishment of debt at Ventura Landing Apartments (as discussed below). Property tax expense remained relatively constant for the comparable periods. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of each 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, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the General Partner will be able to sustain such a plan. Liquidity and Capital Resources At June 30, 2002, the Partnership had cash and cash equivalents of approximately $303,000, compared to approximately $1,957,000 at June 30, 2001. Cash and cash equivalents decreased approximately $33,000 from the Partnership's year ended December 31, 2001, due to approximately $405,000 of cash used in financing activities, partially offset by approximately $287,000 of cash provided by operating activities and approximately $85,000 of cash provided by investing activities. Cash provided by investing activities consisted of the release of insurance proceeds related to the 2001 casualty at West Chase Apartments and net receipts from escrow accounts maintained by the mortgage lender, partially offset by property improvements and replacements. Cash used in financing activities consisted of payments of principal on the mortgages encumbering the Partnership's properties and distributions to partners. 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 Registrant and to comply with Federal, state, and local legal and regulatory requirements. Capital improvements planned for each of the Registrant's properties are detailed below. Village Green Apartments For 2002, the Partnership has budgeted, but is not limited to, approximately $76,000 for capital improvements, consisting primarily of gutter replacement, structural improvements and air conditioning unit and floor covering replacements. The Partnership completed approximately $71,000 of budgeted and non-budgeted capital improvements at Village Green Apartments as of June 30, 2002, consisting primarily of gutter replacement, air conditioning upgrades, structural improvements, and floor covering replacement. These improvements were funded from operations. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. West Chase Apartments For 2002, the Partnership has budgeted, but is not limited to, approximately $45,000 for capital improvements, consisting primarily of parking area upgrades, fencing improvements and floor covering replacement. The Partnership completed approximately $35,000 of capital improvements at West Chase Apartments as of June 30, 2002, consisting primarily of construction related to the damage caused by a January 2001 fire (as discussed in "Note C" to the financial statements), office computers and floor covering replacement. These improvements were funded from operations and insurance proceeds. Additional improvements may be considered and will depend on the physical condition of the property as well as anticipated cash flow generated by the property. Ventura Landing Apartments For 2002, the Partnership has budgeted, but is not limited to, approximately $67,000 for capital improvements consisting primarily of parking area upgrades, structural improvements, and air conditioning unit and floor covering replacements. The Partnership completed approximately $42,000 of capital improvements at Ventura Landing Apartments as of June 30, 2002, consisting primarily of parking area upgrades, office computers, and floor covering replacement. These improvements were funded from operations and replacement reserves. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. The additional capital expenditures will be incurred only if cash is available from operations or from Partnership reserves. To the extent that such budgeted capital improvements are completed, the Registrant's distributable cash flow, if any, may be adversely affected at least in the short term. The Registrant's current assets are thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Registrant. On June 28, 2001, the Partnership refinanced the mortgage encumbering Ventura Landing Apartments. The refinancing replaced indebtedness of approximately $2,200,000 with a new mortgage in the amount of $4,225,000. Approximately $60,000 of the proceeds were placed into a restricted escrow account maintained by the lender. The new mortgage carries a stated interest rate of 7.54%. The interest rate on the old mortgage was 7.33%. Principal and interest payments on the mortgage loan of approximately $34,000 are due monthly until the loan matures in July 2021 at which time the mortgage will be fully amortized. The Partnership recognized a loss on the early extinguishment of debt of approximately $36,000 due to the write-off of unamortized loan costs. On July 24, 2001, the Partnership refinanced the mortgage encumbering Village Green Apartments. The refinancing replaced indebtedness of approximately $2,000,000 with a new mortgage in the amount of $3,575,000. Approximately $117,000 of the proceeds was placed into a restricted escrow account maintained by the lender. The new mortgage carries a stated interest rate of 7.54%. The interest rate on the old mortgage was 7.33%. Principal and interest payments on the mortgage loan of approximately $29,000 are due monthly until the loan matures in August 2021 at which time the mortgage will be fully amortized. The mortgage indebtedness on West Chase Apartments of approximately $1,084,000 requires monthly payments of principal and interest until the loan matures in December 2019, at which time the loan will be fully amortized. Pursuant to the Partnership Agreement, the term of the Partnership is scheduled to expire on December 31, 2010. Accordingly, prior to such date the Partnership will need to either sell its investment properties or extend the term of the Partnership. The Partnership distributed the following amounts during the six months ended June 30, 2002 and 2001 (in thousands, except per unit data):
Six Months Per Limited Six Months Per Limited Ended Partnership Ended Partnership June 30, 2002 Unit June 30, 2001 Unit Operations $ -- $ -- $ 484 $ 2.93 Refinancing Proceeds (1) 303 1.91 -- -- $ 303 $ 1.91 $ 484 $ 2.93 (1) From previously undistributed proceeds from the 2001 refinancing of Village Green Apartments.
Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves, and the timing of debt maturities, property sales, and/or refinancings. The Partnership's cash available for distribution is reviewed on a monthly basis. There can be no assurance that the Partnership will generate sufficient funds from operations after required capital expenditures to permit any additional distributions to its partners during the remainder of 2002 or subsequent periods. Other In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 81,419.50 limited partnership units (the "Units") in the Partnership representing 51.34% of the outstanding Units at June 30, 2002. 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 of limited partnership interest in the Partnership in exchange for cash or a combination of cash and units in the operating partnership of AIMCO either through private purchases or tender offers. In this regard, on June 25, 2002, a tender offer by AIMCO Properties, L.P., to acquire any and all of the units not owned by affiliates of AIMCO for a purchase price of $9.00 per unit expired. Pursuant to this offer, AIMCO acquired 2,678.50 units during the quarter ended June 30, 2002. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters which would include voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 51.34% of the outstanding Units, AIMCO is in a position to control all voting decisions with respect to the Registrant. Although the General Partner owes fiduciary duties to the limited partners of the Partnership, the General Partner also owed 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 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 an impairment in the Partnership's assets. Revenue Recognition The Partnership generally leases apartment units for twelve-month terms or less. Rental income attributable to leases is recognized monthly as it is earned. The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Concessions are charged to income as incurred. 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 purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which 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 which 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 seek monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs filed an amended complaint. The General Partner filed demurrers to the amended complaint which were heard February 1999. Pending the ruling on such demurrers, settlement negotiations commenced. On November 2, 1999, the parties executed and filed a Stipulation of Settlement, settling claims, subject to court approval, on behalf of the Partnership and all limited partners who owned units as of November 3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999 from the Court, at which time the Court set a final approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing, the Court received various objections to the settlement, including a challenge to the Court's preliminary approval based upon the alleged lack of authority of prior lead counsel to enter the settlement. On December 14, 1999, the Managing General Partner and its affiliates terminated the proposed settlement. In February 2000, counsel for some of the named plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated the settlement. On June 27, 2000, the Court entered an order disqualifying them from the case and an appeal was taken from the order on October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the putative class. Plaintiffs filed a third amended complaint on January 19, 2001. On March 2, 2001, the Managing General Partner and its affiliates filed a demurrer to the third amended complaint. On May 14, 2001, the Court heard the demurrer to the third amended complaint. On July 10, 2001, the Court issued an order sustaining defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed a fourth amended class and derivative action complaint. On September 12, 2001, the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the Managing General Partner and affiliated defendants filed a demurrer to the fourth amended complaint, which was heard on December 11, 2001. On February 2, 2002, the Court served its order granting in part the demurrer. The Court has dismissed without leave to amend certain of the plaintiffs' claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a putative class comprised of all non-affiliated persons who own or have owned units in the partnerships. The Managing General Partner and affiliated defendants oppose the motion. On April 29, 2002, the Court held a hearing on plaintiffs' motion for class certification and took the matter under submission after further briefing, as ordered by the court, was submitted by the parties. On July 10, 2002, the Court entered an order vacating the current trial date of January 13, 2003 (as well as the pre-trial and discovery cut-off dates) and stayed the case in its entirety through November 7, 2002 so that the parties can have an opportunity to discuss settlement. During the third quarter of 2001, a complaint (the "Heller action") was filed against the same defendants that are named in the Nuanes action, captioned Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed a first amended complaint. The first amended complaint in the Heller action is brought as a purported derivative action, and asserts claims for among other things breach of fiduciary duty; unfair competition; conversion, unjust enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a motion to consolidate the Heller action with the Nuanes action and stated that the Heller action was filed in order to preserve the derivative claims that were dismissed without leave to amend in the Nuanes action by the Court order dated July 10, 2001. On October 5, 2001, the Managing General Partner and affiliated defendants moved to strike the first amended complaint in its entirety for violating the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer in the Nuanes action, or alternatively, to strike certain portions of the complaint based on the statute of limitations. Other defendants in the action demurred to the fourth amended complaint, and, alternatively, moved to strike the complaint. On December 11, 2001, the court heard argument on the motions and took the matters under submission. On February 4, 2002, the Court served notice of its order granting defendants' motion to strike the Heller complaint as a violation of its July 10, 2001 order in the Nuanes action. On March 27, 2002, the plaintiffs filed a notice appealing the order striking the complaint. The parties are currently in the midst of briefing that appeal. The General Partner does not anticipate that any costs, whether legal or settlement costs, associated with these cases will be material to the Partnership's overall operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: 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. 99 Certification of Chief Executive Officer and Chief Financial Officer b) Reports on Form 8-K: None filed during the quarter ended June 30, 2002. 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/Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/ Thomas C. Novosel Thomas C. Novosel Senior Vice President and Chief Accounting Officer Date: August 14, 2002 Exhibit 99 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 June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Patrick J. Foye, as the equivalent of the Chief Executive Officer of the Partnership, and Paul J. McAuliffe, 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/Patrick J. Foye Name: Patrick J. Foye Date: August 14, 2002 /s/Paul J. McAuliffe Name: Paul J. McAuliffe Date: August 14, 2002 This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Partnership for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----