-----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, WCG9L5jMEp50hiU7NgdAUIO6n2Immq+D+69WZhLTycUe+5+v8IYlEJMmu68+q78E IipQhwkGK2hkiIj1mPsJAw== 0000711642-99-000284.txt : 19991115 0000711642-99-000284.hdr.sgml : 19991115 ACCESSION NUMBER: 0000711642-99-000284 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: SEC FILE NUMBER: 000-10273 FILM NUMBER: 99747711 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 FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 QUARTERLY OR TRANSITIONAL REPORT U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 [ ] TRANSITION REPORT PURSUANT TO 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) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) CONSOLIDATED CAPITAL PROPERTIES III CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) September 30, 1999 Assets Cash and cash equivalents $ 4,584 Receivables and deposits 260 Restricted escrows 111 Other assets 193 Investment properties: Land $ 507 Buildings and related personal property 10,067 10,574 Less accumulated depreciation (7,269) 3,305 Investment in discontinued operations 111 $ 8,564 Liabilities and Partners' (Deficit) Capital Liabilities Accounts payable $ 56 Due to general partner 160 Tenant security deposit liabilities 100 Accrued property taxes 128 Distribution payable 4,048 Other liabilities 177 Mortgage notes payable 4,200 Partners' (Deficit) Capital General partners $ (1,829) Limited partners (158,582 units issued and outstanding) 1,524 (305) $ 8,564 See Accompanying Notes to Consolidated Financial Statements b) CONSOLIDATED CAPITAL PROPERTIES III CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 Revenues: Rental income $ 722 $ 676 $2,143 $ 2,039 Other income 57 72 167 187 Total revenues 779 748 2,310 2,226 Expenses: Operating 362 411 1,096 1,141 General and administrative 128 74 272 198 Depreciation 116 105 339 308 Interest 85 84 254 254 Property taxes 46 44 137 133 Total expenses 737 718 2,098 2,034 Income before discontinued operations 42 30 212 192 (Loss) income from discontinued operations (46) 80 175 304 Gain on sale of discontinued operations 2,161 -- 2,161 -- Net income $2,157 $ 110 $2,548 $ 496 Net income allocated to general partners (4%) $ 86 $ 5 $ 102 $ 20 Net income allocated to limited partners (96%) 2,071 105 2,446 476 $2,157 $ 110 $2,548 $ 496 Per limited partnership unit: Income before discontinued operations $ 0.25 $ 0.18 $ 1.28 $ 1.16 (Loss) income from discontinued operations (0.27) 0.48 1.06 1.84 Gain on sale of discontinued operations 13.08 -- 13.08 -- Net income per limited partnership unit $13.06 $ 0.66 $15.42 $ 3.00 Distribution per limited partnership $26.71 $ -- $39.19 $ -- unit See Accompanying Notes to Consolidated Financial Statements c) CONSOLIDATED CAPITAL PROPERTIES III CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL (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) capital at December 31, 1998 158,582 $(1,894) $ 5,293 $ 3,399 Distributions to partners -- (37) (6,215) (6,252) Net income for the nine months ended September 30, 1999 -- 102 2,446 2,548 Partners' (deficit) capital at September 30, 1999 158,582 $(1,829) $ 1,524 $ (305) See Accompanying Notes to Consolidated Financial Statements d) CONSOLIDATED CAPITAL PROPERTIES III CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Nine Months Ended September 30, 1999 1998 Cash flows from operating activities: Net income $ 2,548 $ 496 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 339 344 Amortization of lease commissions and loan costs 23 45 Gain on sale of discontinued operations (2,161) -- Change in accounts: Receivables and deposits (115) (182) Other assets (18) (19) Investment in discontinued operations 35 -- Accounts payable 6 (94) Due to general partner 160 -- Tenant security deposit liabilities 14 17 Accrued property taxes 128 168 Other liabilities 19 14 Net cash provided by operating activities 978 789 Cash flows from investing activities: Net proceeds from sale of discontinued operations 3,426 -- Property improvements and replacements (341) (298) Net deposits to restricted escrows (33) (3) Net cash provided by (used in) investing activities 3,052 (301) Cash flows used in financing activities: Distributions to partners (2,204) -- Net increase in cash and cash equivalents 1,826 488 Cash and cash equivalents at beginning of period 2,758 2,038 Cash and cash equivalents at end of period $ 4,584 $ 2,526 Supplemental disclosure of cash flow information: Cash paid for interest $ 231 $ 231 Supplemental disclosure of non-cash financing activity: Distribution payable $ 4,048 $ -- See Accompanying Notes to Consolidated Financial Statements e) 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 ConCap Equities, Inc. (the "General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 1999, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1999. 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, 1998. Consolidation The consolidated financial statements of the Partnership include the accounts of ConCap Village Green Associates, Ltd. The Partnership owns a 99% interest in this partnership, and it has the ability to control the major operating and financial policies of this partnership. All inter-entity transactions have been eliminated. Certain reclassifications have been made to the 1998 information to conform to the 1999 presentation. NOTE B - TRANSFER OF CONTROL Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust merged into Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the General Partner. The General Partner does not believe that this transaction will have a material effect on the affairs and operations of the Partnership. NOTE C - DISCONTINUED SEGMENT On July 8, 1999, Professional Plaza, located in Salt Lake City, Utah, was sold to an unaffiliated third party for $3,600,000. After payment of closing expenses, the net proceeds received by the Partnership were approximately $3,426,000. The sale of the property resulted in a gain on sale of discontinued operations of approximately $2,161,000. Professional Plaza was the only property in the commercial segment of the Partnership. Due to the sale of this property, the net assets of Professional Plaza were classified as "Investment in discontinued operations" as of September 30, 1999. The results of operations of the property have been classified as "Income from discontinued operations" for the three and nine months ended September 30, 1999 and 1998, and the gain on sale of the property is reported as "Gain on sale of discontinued operations". Included in "Investment in discontinued operations" on the balance sheet is the remaining cash and deposits partially offset by accrued liabilities of Professional Plaza. NOTE D - TRANSACTIONS WITH AFFILIATED PARTNERS 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 Limited Partnership Agreement ("Partnership Agreement") provides for payments to affiliates of the General Partner for property management services based on a percentage of revenue; for a partnership management fee equal to 9% of the total distributions made to limited partners from cash flow from operations; and for reimbursements of certain expenses incurred by affiliates of the General Partner on behalf of the Partnership. The following amounts were paid or accrued to the General Partner or affiliates during each of the nine month periods ended September 30, 1999 and 1998, respectively: 1999 1998 (in thousands) Property management fees (included in operating expenses) $115 $143 Reimbursement for services of affiliates (included in investment properties, operating and general and administrative expenses) 96 112 Special management fees (included in due to general partner and general and administrative expenses) 88 -- Real estate brokerage commission (included in due to general partner) 108 -- During the nine months ended September 30, 1999 and 1998, affiliates of the General Partner were entitled to receive 5% of gross receipts from all of Registrant's residential properties as compensation for providing property management services. The Registrant paid to such affiliates approximately $115,000 and $108,000 for the nine months ended September 30, 1999 and 1998, respectively. During the nine months ended September 30, 1998, affiliates of the General Partner were entitled to varying percentages of gross receipts from the Registrant's commercial property as compensation for providing property management services. These services were performed by affiliates of the General Partner during the nine months ended September 30, 1998 and were approximately $35,000. Effective October 1, 1998 (the effective date of the Insignia Merger (See "Note B")), these services for the commercial property were provided by an unrelated party. An affiliate of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $96,000 and $112,000 for the nine months ended September 30, 1999 and 1998, respectively, including approximately $8,000 and $5,000, respectively, of construction oversight costs. The Limited Partnership Agreement ("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. Under this provision of the Partnership Agreement, a fee of approximately $36,000 was paid to the General Partner during the nine months ended September 30, 1999. An additional fee of approximately $52,000 was paid subsequent to September 30, 1999, which was accrued at September 30, 1999. No similar management fee was paid to the General Partner during the corresponding period in 1998. Additionally, the Partnership paid approximately $18,000 during the nine months ended September 30, 1998, to an affiliate of the General Partner for lease commissions at the Partnership's commercial property. These lease commissions were included in other assets and were amortized over the terms of the respective leases. Effective October 1, 1998, lease commissions were paid to an unrelated party. For acting as real estate broker in connection with the sale of Professional Plaza, the General Partner earned a real estate commission of approximately $108,000 during the nine months ended September 30, 1999. (See "Note C" for additional information about the sale.) This commission will be paid to the General Partner during the fourth quarter of 1999. These fees are subordinate to the limited partners receiving a preferred return, as specified in the Partnership Agreement. If the limited partners have not received their preferred return when the Partnership terminates, the General Partner will return this amount to the Partnership. During July 1998, an affiliate of the General Partner (the "Purchaser") commenced a tender offer for limited partnership interests in the Partnership. The Purchaser offered to purchase up to 75,000 (approximately 47.29% of the total outstanding units) of the outstanding units of limited partnership interest in the Partnership at $60 per Unit, net to the seller in cash. The Purchaser acquired 17,056.00 units pursuant to this tender offer. On May 19, 1999, AIMCO Properties, L.P., an affiliate of the General Partner commenced a tender offer to purchase up to 46,436.36 (approximately 29.28% of the total outstanding units) units of limited partnership interest in the Partnership for a purchase price of $64 per unit. The offer expired on July 30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 3,770.50 units. As a result, AIMCO and its affiliates currently own 62,330.50 units of limited partnership interest in the Partnership representing approximately 39.30% of the total outstanding units. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO (see "Note G - Legal Proceedings"). NOTE E - DISTRIBUTIONS During the nine months ended September 30, 1999, cash distributions were paid totaling approximately $2,204,000 (approximately $2,189,000 to the limited partners or $13.80 per limited partnership unit) to the partners, of which approximately $378,000 (approximately $363,000 to the limited partners, $2.29 per limited partnership unit) was attributable to cash flow from operations and approximately $1,826,000 ($11.51 per limited partnership unit) represented a return of capital all of which was paid to the limited partners. Subsequent to September 30, 1999, a distribution of approximately $4,048,000 (approximately $4,026,000 to the limited partners or $25.39 per limited partnership unit) was paid to the partners, of which approximately $550,000 (approximately $528,000 to the limited partners or $3.33 per limited partnership unit) was attributable to cash flows from operations and approximately $3,498,000 ($22.06 per limited partnership unit) represented sale proceeds all of which was paid to the limited partners. No distributions were paid during the nine months ended September 30, 1998. NOTE F - SEGMENT INFORMATION The Partnership had two reportable segments: residential properties and commercial properties. The Partnership's residential property segment consists of three apartment complexes in Orlando, Florida; Altamonte Springs, Florida; and Lexington, Kentucky. The Partnership rents apartment units to tenants for terms that are typically twelve months or less. On July 8, 1999, the commercial property was sold to an unrelated party. Therefore, the commercial segment is reflected as discontinued operations (see "Note C" for further discussion regarding the sale). The Partnership evaluates performance based on net income. The accounting policies of the reportable segments are the same as those described in the Partnership's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998. The Partnership's reportable segments are investment properties that offer different products and services. The reportable segments are each managed separately because they provide distinct services with different types of products and customers. Segment information for the nine months ended September 30, 1999 and 1998, is shown in the tables below. The "Other" column includes Partnership administration related items and income and expense not allocated to the reportable segments (in thousands). 1999 Residential Commercial Other Totals (discontinued) Rental income $ 2,143 $ -- $ -- $ 2,143 Other income 135 -- 32 167 Interest expense 254 -- -- 254 Depreciation 339 -- -- 339 General and administrative expenses -- -- 272 272 Income from discontinued operations -- 175 -- 175 Gain on sale of discontinued operations -- 2,161 -- 2,161 Segment profit (loss) 452 2,336 (240) 2,548 Total assets 4,558 111 3,895 8,564 Capital expenditures for investment properties 341 -- -- 341 1998 Residential Commercial Other Totals (discontinued) Rental income $ 2,039 $ -- $ -- $ 2,039 Other income 113 -- 74 187 Interest expense 254 -- -- 254 Depreciation 308 -- -- 308 General and administrative expenses -- -- 198 198 Income from discontinued operations -- 304 -- 304 Segment profit (loss) 316 304 (124) 496 Total assets 4,007 1,449 2,388 7,844 Capital expenditures for investment properties 263 35 -- 298 NOTE G - 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. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, the General Partner and several of their affiliated partnerships and corporate entities. The complaint 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 the acquisition by Insignia Financial Group, Inc. ("Insignia") and entities which were, at one time, affiliates of Insignia ("Insignia Affiliates") of interests in certain general partner entities, past tender offers by Insignia Affiliates to acquire limited partnership units, the management of partnerships by Insignia Affiliates and the Insignia Merger (see "Note B - Transfer of Control"). The complaint seeks 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 have 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 ("Stipulation"), settling claims, subject to final court approval, on behalf of the Partnership and all limited partners who own units as of November 3, 1999. The Court has preliminarily approved the Settlement and scheduled a final approval hearing for December 10, 1999. In exchange for a release of all claims, the Stipulation provides that, among other things, an affiliate of the General Partner will make tender offers for all outstanding limited partnership interests in 49 partnerships, including the Registrant, subject to the terms and conditions set forth in the Stipulation, and has agreed to establish a reserve to pay an additional amount in settlement to qualifying class members (the "Settlement Fund"). At the final approval hearing, Plaintiffs' counsel will make an application for attorneys' fees and reimbursement of expenses, to be paid in part by the partnerships and in part from the Settlement Fund. The General Partner does not anticipate that costs associated with this case 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 discussions 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 nine month periods ended September 30, 1999 and 1998: Average Occupancy Property 1999 1998 Ventura Landing Apartments 94% 95% Orlando, Florida Village Green Apartments 95% 99% Altamonte Springs, Florida West Chase Apartments 94% 83% Lexington, Kentucky The decrease in occupancy at Village Green is due to new apartment construction filling the market in Altamonte Springs. The increase in occupancy at West Chase is due to increased concessions offered late in 1998. Results of Operations The Partnership realized net income of approximately $2,548,000 for the nine months ended September 30, 1999, compared to approximately $496,000 for the nine months ended September 30, 1999. The Partnership had net income of approximately $2,157,000 for the three months ended September 30, 1999, compared to approximately $110,000 for the three months ended September 30, 1998. The increase in net income is primarily attributable to the gain on sale of discontinued operations of approximately $2,161,000 realized on the sale of Professional Plaza. Excluding the impact of the sale and operations of Professional Plaza, the Registrant had net income of approximately $212,000 and $192,000 for the nine months ending September 30, 1999 and 1998, respectively. For the three months ending September 30, 1999 and 1998, the Registrant had net income of approximately $42,000 and $30,000, respectively. The increase in net income for the three and nine months ended September 30, 1999 is due to increased total revenues partially offset by increased total expenses. Total revenues increased primarily due to increased rental income, partially offset by a decrease in other income. Rental income increased primarily due to increased average rental rates at Ventura Landing and Village Green and improved occupancy at West Chase. Partially offsetting these increases were decreased occupancy at Village Green and Ventura Landing and reduced average rental rates at West Chase. Other income decreased primarily due to a decrease in interest income due to lower cash balances in interest bearing accounts, partially offset by an increase in laundry income and tenant charges at Ventura Landing and Village Green. Total expenses for the three and nine months ended September 30, 1999, increased due to increased general and administrative expenses and depreciation expense, partially offset by reduced operating expenses. General and administrative expense increased due to increased legal expenses due to the settlement of a lawsuit as disclosed in the Partnership's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998, and to special management fees paid or accrued to the General Partner during the nine months ended September 30, 1999. There were no operating distributions made to the limited partners during the nine months ended September 30, 1998, so no special management fees were paid during this period. These increases were partially offset by reductions in professional fees and management reimbursements. Included in general and administrative expenses at both September 30, 1999 and 1998, are management reimbursements to the General Partner allowed under the Partnership Agreement. Costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement are also included. Depreciation expense increased due to capital improvements completed during the past twelve months that are now being depreciated. Offsetting the increase in total expenses was a decrease in operating expenses. Operating expenses decreased primarily due to decreased maintenance expense at all the Partnership's properties and decreased payroll expenses at Ventura Landing. Partially offsetting the decrease in maintenance and payroll expenses were increased expenses for common area cleaning at Ventura Landing and employee bonuses at all the Partnership's properties. Income from discontinued operations decreased for both the three and nine month periods due to the sale of Professional Plaza as discussed below. Since Professional Plaza was the last commercial property held by the Partnership, its results of operations were shown as "Income from discontinued operations". This income decreased due to the fact that there was only six months of activity for 1999 prior to the sale of the property and that additional expenses were incurred in getting the property ready for sale. On July 8, 1999, Professional Plaza, located in Salt Lake City, Utah, was sold to an unaffiliated third party for $3,600,000. After payment of closing expenses, the net proceeds received by the Partnership were approximately $3,426,000. The sale of the property resulted in a gain on sale of discontinued operations of approximately $2,161,000. The proceeds were distributed to the partners subsequent to September 30, 1999. 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 As of September 30, 1999, the Partnership held cash and cash equivalents of approximately $4,584,000 compared to approximately $2,526,000 at September 30, 1998. The increase in cash and cash equivalents of approximately $1,826,000 from the Partnership's year ended December 31, 1998, is due primarily to approximately $978,000 of cash provided by operating activities and $3,052,000 of cash provided by investing activities, partially offset by approximately $2,204,000 of cash used in financing activities. Cash provided by investing activities primarily consisted of proceeds from sale of discontinued operations, partially offset by property improvements and replacements and deposits to escrow accounts maintained by the mortgage lender. Cash used in financing activities consisted of distributions paid to the partners. The Registrant invests its working capital reserves in a money market account. 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. Ventura Landing During the nine months ended September 30, 1999, the Partnership completed approximately $163,000 of capital improvements, consisting primarily of carpet and vinyl replacement, plumbing improvements, appliances, counter top replacement, outside lighting and other structural improvements. The plumbing improvements are complete as of September 30, 1999. These improvements were funded from the cash provided by operations. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the General Partner on interior improvements, it is estimated that the property requires approximately $302,000 of capital improvements over the next few years. Capital improvements budgeted for, but not limited to, approximately $298,000 which includes certain of the required improvements, are planned for 1999, including carpet and vinyl replacement, parking lot improvements, light fixtures, roof replacement and other structural improvements. Village Green During the nine months ended September 30, 1999, the Partnership completed approximately $74,000 of capital improvements, consisting primarily of carpet and vinyl replacement, fencing replacement, air conditioning unit replacement, and appliances. The fencing replacement is complete as of September 30, 1999. These improvements were funded from Partnership reserves and cash from operations. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the General Partner on interior improvements, it is estimated that the property requires approximately $282,000 of capital improvements over the next few years. Capital improvements budgeted for, but not limited to, approximately $299,000 which includes certain of the required improvements, are planned for 1999, including carpet and vinyl replacement, air conditioning units, fencing, exterior building enhancements, parking lot improvements, and other structural improvements. West Chase During the nine months ended September 30, 1999, the Partnership completed approximately $104,000 of capital improvements, consisting primarily of carpeting and vinyl replacement, heating upgrades, plumbing improvements, and other structural improvements. The heating upgrades and structural improvements are substantially complete as of September 30, 1999. These improvements were funded from cash provided by operations. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the General Partner on interior improvements, it is estimated that the property requires approximately $302,000 of capital improvements over the next few years. Capital improvements budgeted for, but not limited to, approximately $250,000, which includes certain of the required improvements, are planned for 1999, including carpet and vinyl replacement, heating upgrades, plumbing, landscaping, roof replacement, and other building improvements. The 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 required, 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. The mortgage indebtedness of $4,200,000 requires interest only payments with the principal balance due in November 2003. The General Partner will attempt to refinance such indebtedness and/or sell the properties prior to such maturity dates. If the properties cannot be refinanced or sold for a sufficient amount, the Registrant may risk losing such properties through foreclosure. During the nine months ended September 30, 1999, cash distributions were paid totaling approximately $2,204,000 (approximately $2,189,000 to the limited partners or $13.80 per limited partnership unit) to the partners, of which approximately $378,000 (approximately $363,000 to the limited partners, $2.29 per limited partnership unit) was attributable to cash flow from operations and approximately $1,826,000 ($11.51 per limited partnership unit) represented a return of capital all of which was paid to the limited partners. Subsequent to September 30, 1999, a distribution of approximately $4,048,000 (approximately $4,026,000 to the limited partners or $25.39 per limited partnership unit) was paid to the partners, of which approximately $550,000 (approximately $528,000 to the limited partners or $3.33 per limited partnership unit) was attributable to cash flows from operations and approximately $3,498,000 ($22.06 per limited partnership unit) represented sale proceeds all of which was paid to the limited partners. No distributions were paid during the nine months ended September 30, 1998. 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 Registrant's distribution policy is reviewed on a semi-annual basis. There can be no assurance, however, that the Registrant will generate sufficient funds from operations after required capital expenditures to permit further distributions to its partners during the remainder of 1999 or subsequent periods. Tender Offers During July 1998, an affiliate of the General Partner (the "Purchaser") commenced a tender offer for limited partnership interests in the Partnership. The Purchaser offered to purchase up to 75,000 (approximately 47.29% of the total outstanding units) of the outstanding units of limited partnership interest in the Partnership at $60 per Unit, net to the seller in cash. The Purchaser acquired 17,056.00 units pursuant to this tender offer. On May 19, 1999, AIMCO Properties, L.P., an affiliate of the General Partner commenced a tender offer to purchase up to 46,436.36 (approximately 29.28% of the total outstanding units) units of limited partnership interest in the Partnership for a purchase price of $64 per unit. The offer expired on July 30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 3,777.50 units. As a result, AIMCO and its affiliates currently own 62,330.50 units of limited partnership interest in the Partnership representing approximately 39.30% of the total outstanding units. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO (see "Item 1. Financial Statements, Note G - Legal Proceedings"). Year 2000 Compliance General Description of the Year 2000 Issue and the Nature and Effects of the Year 2000 on Information Technology (IT) and Non-IT Systems The Year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. The Partnership is dependent upon the General Partner and its affiliates for management and administrative services ("Managing Agent"). Any of the computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Over the past two years, the Managing Agent has determined that it will be required to modify or replace significant portions of its software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Managing Agent presently believes that with modifications or replacements of existing software and certain hardware, the Year 2000 issue can be mitigated. However, if such modifications and replacements are not made, or not completed in time, the Year 2000 issue could have a material impact on the operations of the Partnership. The Managing Agent's plan to resolve Year 2000 issues involves four phases: assessment, remediation, testing, and implementation. To date, the Managing Agent has fully completed its assessment of all the information systems that could be significantly affected by the Year 2000, and has begun the remediation, testing and implementation phases on both hardware and software systems. Assessments are continuing in regards to embedded systems. The status of each is detailed below. Status of Progress in Becoming Year 2000 Compliant, Including Timetable for Completion of Each Remaining Phase Computer Hardware: During 1997 and 1998, the Managing Agent identified all of the computer systems at risk and formulated a plan to repair or replace each of the affected systems. In August 1998, the main computer system used by the Managing Agent became fully functional. In addition to the main computer system, PC-based network servers, routers and desktop PCs were analyzed for compliance. The Managing Agent has begun to replace each of the non-compliant network connections and desktop PCs and, as of September 30, 1999, had virtually completed this effort. The total cost to the Managing Agent to replace the PC-based network servers, routers and desktop PCs is expected to be approximately $1.5 million of which $1.3 million has been incurred to date. Computer Software: The Managing Agent utilizes a combination of off-the-shelf, commercially available software programs as well as custom-written programs that are designed to fit specific needs. Both of these types of programs were studied, and implementation plans written and executed with the intent of repairing or replacing any non-compliant software programs. In April 1999 the Managing Agent embarked on a data center consolidation project that unifies its core financial systems under its Year 2000 compliant system. The estimated completion date for this project is October 1999. During 1998, the Managing agent began converting the existing property management and rent collection systems to its management properties Year 2000 compliant systems. The estimated additional costs to convert such systems at all properties, is $200,000, and the implementation and testing process was completed in June 1999. The final software area is the office software and server operating systems. The Managing Agent has upgraded all non-compliant office software systems on each PC and has upgraded virtually all of the server operating systems. Operating Equipment: The Managing Agent has operating equipment, primarily at the property sites, which needed to be evaluated for Year 2000 compliance. In September 1997, the Managing Agent began taking a census and inventory of embedded systems (including those devices that use time to control systems and machines at specific properties, for example elevators, heating, ventilating, and air conditioning systems, security and alarm systems, etc.). The Managing Agent has chosen to focus its attention mainly upon security systems, elevators, heating, ventilating and air conditioning systems, telephone systems and switches, and sprinkler systems. While this area is the most difficult to fully research adequately, management has not yet found any major non-compliance issues that put the Managing Agent at risk financially or operationally. A pre-assessment of the properties by the Managing Agent has indicated virtually no Year 2000 issues. A complete, formal assessment of all the properties by the Managing Agent was virtually completed by September 30, 1999. Any operating equipment that is found non-compliant will be repaired or replaced. The total cost incurred for all properties managed by the Managing Agent as of September 30, 1999 to replace or repair the operating equipment was approximately $75,000. The Managing Agent estimates the cost to replace or repair any remaining operating equipment is approximately $125,000. The Managing Agent continues to have "awareness campaigns" throughout the organization designed to raise awareness and report any possible compliance issues regarding operating equipment within its enterprise. Nature and Level of Importance of Third Parties and Their Exposure to the Year 2000 The Managing Agent has banking relationships with three major financial institutions, all of which have designated their compliance. The Managing Agent has updated data transmission standards with all of the financial institutions. All financial institutions have communicated that they are Year 2000 compliant and accordingly no accounts were required to be moved from the existing financial institutions. The Partnership does not rely heavily on any single vendor for goods and services, and does not have significant suppliers and subcontractors who share information systems (external agent). To date, the Partnership is not aware of any external agent with a Year 2000 compliance issue that would materially impact the Partnership's results of operations, liquidity, or capital resources. However, the Partnership has no means of ensuring that external agents will be Year 2000 compliant. The Managing Agent does not believe that the inability of external agents to complete their Year 2000 remediation process in a timely manner will have a material impact on the financial position or results of operations of the Partnership. However, the effect of non-compliance by external agents is not readily determinable. Costs to Address Year 2000 The total cost of the Year 2000 project to the Managing Agent is estimated at $3.5 million and is being funded from operating cash flows. To date, the Managing Agent has incurred approximately $2.9 million ($0.7 million expenses and $2.2 million capitalized for new systems and equipment) related to all phases of the Year 2000 project. Of the total remaining project costs, approximately $0.5 million is attributable to the purchase of new software and operating equipment, which will be capitalized. The remaining $0.2 million relates to repair of hardware and software and will be expensed as incurred. The Partnership's portion of these costs are not material. Risks Associated with the Year 2000 The Managing Agent believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. As noted above, the Managing Agent has not yet completed all necessary phases of the Year 2000 program. In the event that the Managing Agent does not complete any additional phases, certain worst case scenarios could occur. The worst case scenarios could include elevators, security and heating, ventilating and air conditioning systems that read incorrect dates and operate with incorrect schedules (e.g., elevators will operate on Monday as if it were Sunday). Although such a change would be annoying to residents, it is not business critical. In addition, disruptions in the economy generally resulting from Year 2000 issues could also adversely affect the Partnership. The Partnership could be subject to litigation for, among other things, computer system failures, equipment shutdowns or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. Contingency Plans Associated with the Year 2000 The Managing Agent has contingency plans for certain critical applications and is working on such plans for others. These contingency plans involve, among other actions, manual workarounds and selecting new relationships for such activities as banking relationships and elevator operating systems. 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. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, the General Partner and several of their affiliated partnerships and corporate entities. The complaint 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 the acquisition by Insignia Financial Group, Inc. ("Insignia") and entities which were, at one time, affiliates of Insignia ("Insignia Affiliates") of interests in certain general partner entities, past tender offers by Insignia Affiliates to acquire limited partnership units, the management of partnerships by Insignia Affiliates and the Insignia Merger (see "Part I - Financial Information, Item 1. Financial Statements, Note B - Transfer of Control"). The complaint seeks 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 have 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 ("Stipulation"), settling claims, subject to final court approval, on behalf of the Partnership and all limited partners who own units as of November 3, 1999. The Court has preliminarily approved the Settlement and scheduled a final approval hearing for December 10, 1999. In exchange for a release of all claims, the Stipulation provides that, among other things, an affiliate of the General Partner will make tender offers for all outstanding limited partnership interests in 49 partnerships, including the Registrant, subject to the terms and conditions set forth in the Stipulation, and has agreed to establish a reserve to pay an additional amount in settlement to qualifying class members (the "Settlement Fund"). At the final approval hearing, Plaintiffs' counsel will make an application for attorneys' fees and reimbursement of expenses, to be paid in part by the partnerships and in part from the Settlement Fund. The General Partner does not anticipate that costs associated with this case will be material to the Partnership's overall operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report. b) Reports on Form 8-K: A current report on Form 8-K was filed by the Registrant, dated July 23, 1999, relating to the sale of Professional Plaza on July 8, 1999. 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. Its General Partner By: /s/Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/Martha L. Long Martha L. Long Senior Vice President and Controller Date: EX-27 2
5 This schedule contains summary financial information extracted from Consolidated Capital Properties III 1999 Third Quarter 10-QSB and is qualified in its entirety by reference to such 10-QSB filing. 0000317331 CONSOLIDATED CAPITAL PROPERTIES III 1,000 9-MOS DEC-31-1999 SEP-30-1999 4,584 0 0 0 0 0 10,574 7,269 8,564 0 4,200 0 0 0 (305) 8,564 0 2,310 0 0 2,098 0 254 0 0 212 2,336 0 0 2,548 15.42 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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