-----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, GBI8i4NHPTSCiic9/4mmkf3hQHf0Po7bKVPI3+DHELBey1oB6/IPV+4q1qBgBwog CRnskOuA0K6ErYIfKaDTlw== 0000928790-98-000048.txt : 19980401 0000928790-98-000048.hdr.sgml : 19980401 ACCESSION NUMBER: 0000928790-98-000048 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONAM REALTY INVESTORS 81 L P CENTRAL INDEX KEY: 0000350023 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 133069026 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-10223 FILM NUMBER: 98580702 BUSINESS ADDRESS: STREET 1: 1764 SAN DIEGO AVE CITY: SAN DIEGO STATE: CA ZIP: 92110 BUSINESS PHONE: 2125263237 MAIL ADDRESS: STREET 1: 3 WORLD FINANCIAL CENTER STREET 2: 29TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10285 FORMER COMPANY: FORMER CONFORMED NAME: HUTTON CONAM REALTY INVESTORS 81 DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: HUTTON CONAM PROPERTIES 81 DATE OF NAME CHANGE: 19810616 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period _____ to _____ Commission file number: 0-10223 CONAM REALTY INVESTORS 81 L.P. formerly known as HUTTON/CONAM REALTY INVESTORS 81 Exact name of Registrant as specified in its charter California 13-3069026 State or other jurisdiction of I.R.S. Employer Identification No. incorporation or organization 1764 San Diego Avenue 92110 San Diego, CA Attn: Robert J. Svatos Zip code Address of principal executive offices Registrant's telephone number, including area code: (619) 297-6771 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: UNITS OF LIMITED PARTNERSHIP INTEREST Title of Class Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) Documents Incorporated by Reference: Portions of Parts I, II, III and IV are incorporated by reference to the Partnership's Annual Report to Unitholders for the year ended December 31, 1997. PART I Item 1. Business General Description of Business and Objectives This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in or contemplated by the forward-looking statements as a result of a number of factors, including those identified herein. ConAm Realty Investors 81 L.P., formerly Hutton/ConAm Realty Investors 81 (the "Partnership") is a California limited partnership formed on April 30, 1981. ConAm Property Services Ltd. ("CPS"), a California limited partnership, and RI 81 Real Estate Services Inc. ("RI 81"), a Delaware corporation, were the original co-general partners of the Partnership. On October 8, 1997, CPS acquired RI 81's co-general partner interest in the Partnership, effective July 1, 1997, pursuant to a Purchase Agreement between CPS and RI 81 dated August 29, 1997. As a result, CPS now serves as the sole general partner (the "General Partner") of the Partnership. In conjunction with this transaction, the name of the Partnership was changed from Hutton/ConAm Realty Investors 81 to ConAm Realty Investors 81 L.P. The Partnership was organized to engage in the business of acquiring, operating and holding for investment multi-family residential properties. The Partnership originally invested in two joint ventures and three limited partnerships, each of which was formed to own a specified property. As described below, three properties have been sold. Funds held as a working capital reserve are invested in unaffiliated money market funds or other highly liquid short-term investments where there is appropriate safety of principal in accordance with the Partnership's investment objectives and policies. The Partnership's principal investment objectives with respect to its interests in real property are: (1) capital appreciation; (2) distributions of net cash from operations attributable to rental income; and (3) preservation and protection of capital. Distribution of net cash from operations is the Partnership's objective during its operational phase, while preservation and appreciation of capital are the Partnership's long-term objectives. The attainment of the Partnership's objectives will depend on many factors, including future economic conditions in the United States as a whole and, in particular, in the localities in which the Partnership's properties are located, especially with regard to achievement of capital appreciation. From time to time the Partnership expects to sell its real property interests taking into consideration such factors as the amount of appreciation in value, if any, to be realized and the possible risks of continued ownership. Proceeds from any future sale, financing or refinancing of properties will not be reinvested and may be distributed to the Limited Partners and General Partner (sometimes referred to together herein as the "Partners"), so that the Partnership will, in effect, be self-liquidating. If deemed necessary, the Partnership may retain a portion of the proceeds from any sale, financing or refinancing as capital reserves. As partial payment for properties sold, the Partnership may receive purchase money obligations secured by mortgages or deeds of trust. In such cases, the amount of such obligations will not be included in Net Proceeds From Sale or Refinancing (distributable to the Partners) until and only to the extent the obligations are realized in cash, sold or otherwise liquidated. Originally, the Partnership utilized the net proceeds of its public offering to acquire five residential apartment complexes (collectively, the "Properties") either directly or through investments in joint ventures, as follows: (1) Las Colinas Apartments I and II, a 300-unit apartment complex located in Scottsdale, Arizona; (2) Tierra Catalina, a 120-unit apartment complex located in Tucson, Arizona; (3) Ridge Park, a 100-unit apartment complex located in Tulsa, Oklahoma; (4) Cedar Bay Village, a 42-unit apartment complex located in Altamonte Springs, Florida; and (5) Kingston Village, a 120-unit complex located in Altamonte Springs, Florida. On July 20, 1995, Cedar Bay Village and Kingston Village were sold to an unaffiliated institutional buyer for $1,410,622 and $5,370,000, respectively. On November 27, 1996, Ridge Park Apartments was sold to an unaffiliated institutional investor for $3,385,000. The Partnership's mortgage loans secured by Las Colinas I and II and Tierra Catalina were refinanced in August 1992 and mature in September 1999. For information concerning the Partnership's current mortgage indebtedness, see Note 5, "Mortgages Payable," of the Notes to the Consolidated Financial Statements, included in the Partnership's Annual Report to Unitholders for the year ended December 31, 1997, which is filed as an exhibit under Item 14. The Partnership considers itself to be engaged in only one industry segment, real estate investment. Competition The Partnership's real property investments are subject to competition from similar types of properties in the vicinities in which they are located and such competition has increased since the Partnership's investment in the Properties due principally to the addition of newly constructed apartment complexes offering increased residential and recreational amenities. The Properties have also been subject to competition from condominiums and single-family properties, especially during periods of low mortgage interest rates. The Partnership competes with other real estate owners and developers in the rental and leasing of its Properties by offering competitive rental rates and, if necessary, leasing incentives. Such competition may affect the occupancy levels and revenues of the Properties. The occupancy levels at the Properties reflect some seasonality, which is typical of these markets. In some cases, Partnership properties may compete with properties owned by other partnerships affiliated with the General Partner. For a discussion of current market conditions in the areas where the Partnership's Properties are located, reference is made to the Partnership's 1997 Annual Report to Unitholders for the year ended December 31, 1997, which is filed as an exhibit under Item 14. Employees The Partnership has no employees. Services are provided by CPS, ConAm Management Corporation ("ConAm Management"), an affiliate of CPS, as well as Service Data Corporation and First Data Investor Services Group, both unaffiliated companies. The Partnership has entered into property management agreements pursuant to which ConAm Management provides management services with respect to the Properties. First Data Investor Services Group has been retained by the Partnership to provide all accounting and investor communication functions, while Service Data Corporation provides transfer agent services. Effective January 1, 1998, the accounting functions of the Partnership have been transferred to the firm of Brock, Tibbetts & Snell, an unaffiliated company located in San Diego, California. See Item 13, "Certain Relationships and Related Transactions", for a further description of the service and management agreements between the Partnership and affiliated entities. Item 2. Properties For a description of the Partnership's Properties and a discussion of current market conditions in the areas where the Properties are located and appraised values, reference is made to the Partnership's Annual Report to Unitholders for the year-ended December 31, 1997, which is filed as an exhibit to Item 14. For information on the purchase of the Properties, reference is made to Note 4 to the Consolidated Financial Statements included herein by reference to the Partnership's Annual Report to Unitholders. Average occupancy rates are incorporated by reference to Item 7. Item 3. Legal Proceedings The Partnership is not subject to any material pending legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders During the fourth quarter of the year ended December 31, 1997, no matter was submitted to a vote of security holders through the solicitation of proxies or otherwise. PART II Item 5. Market for the Registrant's Limited Partnership Units and Related Security Holder Matters As of December 31, 1997, the number of Unitholders of record was 3,461. No established public trading market exists for the Units and it is not anticipated that a market will develop in the future. Distributions of Net Cash Flow From Operations, when made, are paid on a quarterly basis, with distributions generally occurring approximately 45 days after the end of each quarter. Such distributions have been made primarily from net operating income with respect to the Partnership's investment in the Properties and from interest on short-term investments, and partially from excess cash reserves. Information on cash distributions paid by the Partnership for the past two years is incorporated by reference to the Partnership's Annual Report to Unitholders for the year ended December 31, 1997, which is filed as an exhibit under Item 14. The level of future distributions will be evaluated on a quarterly basis and will depend on the Partnership's operating results and future cash needs. Reference is made to Item 7 for a discussion of the General Partner's expectations for future cash distributions. Item 6. Selected Financial Data Incorporated by reference to the Partnership's Annual Report to Unitholders for the year ended December 31, 1997, which is filed as an exhibit under Item 14. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources At December 31, 1997, the Partnership had cash and cash equivalents of $1,388,845 that were invested in unaffiliated money market funds, compared with $2,741,077 at December 31, 1996. The decrease is primarily due to cash used for distributions and mortgage principal payments exceeding cash provided by operating activities, and a decrease in cash flow from operations due to the sale of Ridge Park Apartments ("Ridge Park") in November 1996. The Partnership also maintains a restricted cash balance, which totaled $430,849 at December 31, 1997, an increase from $351,444 at December 31, 1996, representing escrows for insurance, real estate taxes, and property replacements and repairs, required under the terms of the current mortgage loans. The increase in restricted cash is attributable to payments made to the escrow accounts for real estate taxes and property improvements. The Partnership expects sufficient cash to be generated from operations to meet its current operating expenses and debt service requirements. Distribution payable decreased from $1,478,811 at December 31, 1996 to $160,929 at December 31, 1997. The decrease is primarily attributable to the payment of the special cash distribution on February 27, 1997, which represented net proceeds from the sale of Ridge Park in November 1996. The decrease is also due to a decline in the quarterly distribution level to reflect reduced cash flow from the remaining properties. Accounts payable and accrued expenses totaled $202,484 at December 31, 1997, compared to $177,414 at December 31, 1996. The increase is primarily attributable to differences in the timing of payments and accruals for audit fees and appraisal fees, and a change in billing methods for Partnership administrative services. The General Partner declared a cash distribution of $1.85 per Unit for the quarter ended December 31, 1997 which was paid to investors on February 13, 1998. The level of future distributions will be evaluated on a quarterly basis and will depend on the Partnership's operating results and future cash needs. The Partnership continues to perform various exterior and interior improvements at the Partnership's remaining properties, Las Colinas I & II and Tierra Catalina. These improvements include landscaping, carpet and appliance replacement in selected units and other repairs to prepare vacant units for occupancy. Such improvements are funded from the Partnership's cash reserves. The General Partner will evaluate the need for additional improvement work at the Properties on an ongoing basis. The General Partner is continuing to evaluate the sale potential of the remaining properties and other options with respect to the Partnership's investments. One of these options includes refinancing the loans secured by the Properties in order to return capital to the limited partners on a tax-free basis and lock in favorable fixed interest rates. This would also potentially enhance the future marketability of the Properties, while enabling the Partnership to take advantage of possible future property appreciation. The Partnership's ability to sell the properties is dependent upon a variety of factors, many of which are not within the Partnership's control. There can be no assurance that any specific property or all the Properties can be sold, that particular prices can be achieved, or that the Properties can be sold within a specific time frame. Results of Operations 1997 versus 1996 Partnership operations for the year ended December 31, 1997 resulted in a net loss of $8,210 compared with net income of $1,285,707 in 1996. The change from net income in 1996 to a net loss in 1997 is attributable to the gain of $1,410,622 recognized on the sale of Ridge Park during 1996. Excluding the gain, the Partnership generated a net loss from operations of $124,915 in 1996. Rental income for the year ended December 31, 1997, was $3,196,975 compared with $3,622,403 for 1996. The decrease reflects the sale of Ridge Park in November 1996. Partially offsetting the decrease was an increase in rental income at Las Colinas and Tierra Catalina due to an increase in rental rates at both properties and an increase in occupancy at Tierra Catalina. Interest and other income totaled $102,512 in 1997 compared with $91,282 in 1996. The increase is attributable to the Partnership maintaining a higher average cash balance in 1997. Total expenses for the year ended December 31, 1997 were $3,307,697 compared with $3,838,600 in 1996. Property operating expenses decreased from $1,817,928 in 1996 to $1,520,450 in 1997, reflecting the decline in operating expenses primarily resulting from the sale of Ridge Park. Interest expense and depreciation and amortization also decreased from 1996 to 1997 primarily due to the sale of Ridge Park. General and administrative expenses increased from 1996 to 1997 due primarily to a change in the billing method for certain Partnership administrative services and an increase in professional consulting fees. 1996 versus 1995 Partnership operations for the year ended December 31, 1996 resulted in net income of $1,285,707, compared with net income of $1,141,669 in 1995. The increase in net income in 1996 was attributable to the decline in total expenses resulting from the sale of Cedar Bay Village and Kingston Village in July 1995 more than offsetting the corresponding decline in rental income. Rental income for the year ended December 31, 1996, was $3,622,403 compared with $4,313,044 for 1995. The decrease reflects the sale of Cedar Bay Village and Kingston Village in July 1995, the sale of Ridge Park in November 1996 and lower rental income at Tierra Catalina resulting from a decline in occupancy. Partially offsetting the decrease was an increase in rental income at Las Colinas, due to an increase in rental rates and occupancy. Interest and other income totaled $91,282 in 1996 compared with $102,535 in 1995. The decrease was attributable to the Partnership maintaining a lower average cash balance in 1996. Total expenses for the year ended December 31, 1996 were $3,838,600 compared with $4,759,031 in 1995. Property operating expenses decreased from $2,261,179 in 1995 to $1,817,928 in 1996, reflecting the decline in operating expenses primarily resulting from the sale of Cedar Bay Village and Kingston Village. Interest expense and depreciation and amortization also decreased from 1995 to 1996 primarily due to the sale of Cedar Bay Village and Kingston Village. General and administrative expenses decreased from 1995 to 1996 due primarily to lower legal fees and audit fees in 1996. The average occupancy levels at each of the remaining Properties for the years ended December 31, 1997, 1996 and 1995 were as follows: Twelve Months Ended December 31, Property 1997 1996 1995 -------------------------------------------------------- Las Colinas I & II 96% 96% 93% Tierra Catalina 92% 90% 93% -------------------------------------------------------- New Accounting Pronouncements The Financial Accounting Standards Board also issued SFAS No. 129, "Disclosure of Information about Capital Structure," SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." These statements, which are effective for years beginning after December 15, 1997, expand or modify disclosures and, accordingly, will have no impact on the Partnership's reported financial position, results of operations or cash flows. Item 8. Financial Statements and Supplementary Data Incorporated by reference to the Partnership's Annual Report to Unitholders for the year ended December 31, 1997, which is filed as an exhibit under Item 14. Supplementary Data is incorporated by reference to page F-1 of this report. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Effective December 1, 1997, the Partnership advised Coopers & Lybrand L.L.P. that it was changing accounting firms and engaged KPMG Peat Marwick LLP. Coopers & Lybrand L.L.P.'s report on the financial statements for the years ended December 31, 1996 and December 31, 1995 contained no adverse opinion or disclaimer of opinion and was not qualified as to uncertainty, audit scope or accounting principles. There have been no disagreements with Coopers & Lybrand L.L.P. on any matters of accounting principles or practices, financial statement disclosure, or auditing scope procedure. The decision to change accountants was approved by CPS and RI 81, the general partners of the Partnership at that time. PART III Item 10. Directors and Executive Officers of the Registrant The Partnership has no officers or directors. CPS, the General Partner of the Partnership, manages and controls the affairs of the Partnership and has general responsibility and authority in all matters affecting its business. CPS is a California limited partnership organized on December 11, 1980. The general partners of CPS are Continental American Development, Inc. ("ConAm Development") and ConAm Development Corporation ("ConAm Corp.") The names and positions held by the directors and executive officers of both ConAm Development and ConAm Corp. are set forth below. There are no family relationships between any executive officers or directors. Name Office Daniel J. Epstein President and Director E. Scott Dupree Vice President and Director Robert J. Svatos Vice President and Director Ralph W. Tilley Vice President J. Bradley Forrester Vice President Daniel J. Epstein, 58, has been the President and a Director of ConAm Development and ConAm Corp. and a general partner of Continental American Properties, Ltd. ("ConAm"), an affiliate of ConAm Services, since their inception. He is also Chairman and Chief Executive Officer of ConAm Management. Prior to organizing ConAm, Mr. Epstein was Vice President and a Director of American Housing Guild, which he joined in 1969. At American Housing Guild, he was responsible for the formation of the Multi-Family Division and directed its development and property management activities. Mr. Epstein holds a Bachelor of Science degree in Engineering from the University of Southern California. E. Scott Dupree, 47, is a Senior Vice President and general counsel of ConAm Management responsible for negotiation, documentation, review and closing of acquisition, sale and financing proposals. Mr. Dupree also acts as principal legal advisor on general legal matters ranging from issues and contracts involving the management company to supervision of litigation and employment issues. Prior to joining ConAm Management in 1985, he was corporate counsel to Trusthouse Forte, Inc., a major international hotel and restaurant corporation. Mr. Dupree holds a B.A. from United States International University and a Juris Doctorate degree from the University of San Diego. Robert J. Svatos, 39, is a Senior Vice President and is the Chief Financial Officer of ConAm Management. His responsibilities include the accounting, treasury and data processing functions of the organization. Prior to joining ConAm Management in 1988, he was the Chief Financial Officer for AmeriStar Financial Corporation, a nationwide mortgage banking firm. Mr. Svatos holds an M.B.A. in Finance from the University of San Diego and a Bachelor's of Science degree in Accounting from the University of Illinois. He is a Certified Public Accountant. Ralph W. Tilley, 43, is a Senior Vice President and Treasurer of ConAm Management. He is responsible for the financial aspects of syndications and acquisitions, the company's asset management portfolio and risk management activities. Prior to joining ConAm Management in 1980, he was a senior accountant with KPMG Peat Marwick LLP, specializing in real estate. He holds a Bachelor's of Science degree in Accounting from San Diego State University and is a Certified Public Accountant. J. Bradley Forrester, 40, is the President of ConAm Management. He is currently responsible for overseeing all aspects of the operations of the firm. His primary focus is on new business related activities including property acquisitions, property development and rehabilitation, and the acquisition of other property management companies. Prior to joining ConAm in 1994, Mr. Forrester served as Senior Vice President - Commercial Real Estate for First Nationwide Bank in San Francisco, where he was responsible for a $2 billion problem asset portfolio including bank-owned real estate and non-performing commercial real estate loans for three years. His past experience includes significant involvement in real estate development and finance, property acquisitions and dispositions and owner's representation matters. Prior to entering the real estate profession, he worked for KPMG Peat Marwick LLP in Dallas, Texas. Mr. Forrester holds a Bachelor of Science degree in Accounting from Louisiana State University. He received his CPA certification in the State of Texas. Item 11. Executive Compensation Neither the General Partner nor any of its directors or executive officers received any compensation from the Partnership. See Item 13 of this report for a description of certain costs of the General Partner and its affiliates reimbursed by the Partnership. Item 12. Security Ownership of Certain Beneficial Owners and Management Except as indicated in this paragraph, no person was known by the Partnership to be the beneficial owner of more than five percent of the outstanding Units of the Partnership at March 1, 1998. Based on a Schedule 13D filed jointly with the Securities and Exchange Commission under the Securities Exchange Act of 1934 on November 26, 1997 (the Schedule 13D"), Everest Investors LLC ("Investors"), KM Investments, LLC ("KM"), Everest Properties, Inc. ("Properties") and Everest Properties II, LLC ("Properties II"), hold an aggregate of 4,513 Units, representing approximately 5.8% of the outstanding Units. The Units are held by Investors as to 3,455 Units, by KM as to 1,048 Units and by Properties as to 10 Units. According to the Schedule 13D, Properties is the manager of Investors and Properties II is the manager of KM. Because of such relationships, the Schedule 13D states that Properties and Properties II ,may be deemed to be beneficial owners of the Units held by Investors and KM, respectively. The persons filing the Schedule 13D deny the existence of a "group" within the meaning of Section 13(d)(3) of the Securities and Exchange Act of 1934 and each such person disclaims beneficial ownership of Units held by the other persons filing the Schedule 13D. The Schedule 13D discloses, however, that the individuals who perform management services for Properties and Properties II are substantially the same and that Investors and KM have entered into an agreement to share information in connection with the offer and sale of Units. According to the Schedule 13D, the address of each of Investors, KM, Properties and Properties II is 199 South Los Robles Avenue, Suite 440, Pasadena, CA 91101. The General Partner owns 66 Units, as required by the terms of the Partnership's public offering of Units. In addition, at March 1, 1998, Daniel J. Epstein, President and Director of CPS, owned twenty Units. No other directors or executive officers of the General Partner own any Units. Item 13. Certain Relationships and Related Transactions RI 81 and CPS received a total of $64,372 as the General Partners' allocable share of Net Cash from Operations with respect to the year ended December 31, 1997. Pursuant to the Amended and Restated Certificate and Agreement of Limited Partnership of the Partnership, for the year ended December 31, 1997, $82 of the Partnership's net loss was allocated to CPS and RI 81. For a description of the share of net cash from operations and the allocation of income and loss to which the General Partner and former co-General Partner are entitled, reference is made to Note 3 to the Consolidated Financial Statements, included in the Partnership's annual report to Unitholders for the year ended December 31, 1997, which is filed as an exhibit under Item 14. Effective July 1, 1997, all General Partner allocations were made solely to CPS. The Partnership has entered into property management agreements with ConAm Management pursuant to which ConAm Management has assumed direct responsibility for day-to-day management of the Properties. It is the responsibility of ConAm Management to select resident managers and monitor their performance. ConAm Management's services also include the supervision of leasing, rent collection, maintenance, budgeting, employment of personnel, payment of operating expenses, strategic asset management and related services. For such services, ConAm Management is entitled to receive a management fee of five percent of gross revenues. A summary of property management fees earned by ConAm Management during the past three years is incorporated by reference to Note 7 to the Consolidated Financial Statements, incorporated herein by reference to the Partnership's Annual Report to Unitholders for the year ended December 31, 1997, which is filed as an exhibit under Item 14. Pursuant to Section 12(g) of the Partnership's Amended and Restated Certificate and Agreement of Limited Partnership, the General Partner may be reimbursed by the Partnership for certain of its costs. A summary of amounts paid to the General Partners or their affiliates during the past three years is incorporated by reference to Note 7 to the Consolidated Financial Statements, included in the Partnership's Annual Report to Unitholders for the fiscal year ended December 31, 1997, which is filed as an exhibit under Item 14. PART IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K Page (a)(1) Financial Statements: Number ------ Consolidated Balance Sheets - December 31, 1997 and 1996 (1) Consolidated Statements of Operations - For the years ended December 31, 1997, 1996 and 1995 (1) Consolidated Statements of Partners' Capital (Deficit) - For the years ended December 31, 1997, 1996 and 1995 (1) Consolidated Statements of Cash Flows - For the years ended December 31, 1997, 1996 and 1995 (1) Notes to the Consolidated Financial Statements (1) Independent Auditors' Report (1) Report of Former Independent Accountants (1) (a)(3) Financial Statement Schedule: Schedule III - Real Estate and Accumulated Depreciation F-1 Independent Auditors' Report F-2 Report of Former Independent Accountants F-3 (1) Incorporated by reference to the Partnership's Annual Report to Unitholders for the year ended December 31, 1997, filed as an exhibit under Item 14. (a) (3) Exhibits: (3) (A) Amended and Restated Certificate and Agreement of Limited Partnership (included as, and incorporated herein by reference to, Exhibit A to the Prospectus of Registrant dated June 24, 1981 (the "Prospectus"), contained in Amendment No. 2 to Registration Statement, No. 2-70331, of Registrant filed June 24, 1981, (the "Registration Statement"), and in Amendment No. 1 to Registration Statement, No. 2-73558, of Registrant filed August 20, 1981). (B) Subscription Agreement and Signature Page (included as, and incorporated herein by reference to, Exhibit B to the Prospectus). (10)(A) Financing Documents relating to Las Colinas I and II (Promissory Note, Deed of Trust, Assignment of Rents and Leases) (included as, and incorporated herein by reference to, Exhibit 10-I to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 (Commission file No. 0-10223)). (B) Financing Documents relating to Ridge Park (Promissory Note, Deed of Trust, Assignment of Rents and Leases) (included as, and incorporated herein by reference to, Exhibit 10-J to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 (Commission file No. 0-10223)). (c) Financing Documents relating to Tierra Catalina (Promissory Note, Deed of Trust, Assignment of Rents and Leases) (included as, and incorporated herein by reference to, Exhibit 10-K to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 (Commission file No. 0-10223)). (D) Settlement Agreement by and among the Managing Joint Venturers and the Epoch Joint Venturers dated July 1, 1992 (included as, and incorporated herein by reference to, Exhibit 10.I to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1992 (Commission file No. 0-10223)). (E) Agreement of Limited Partnership of RI-81 Las Colinas Limited Partnership dated as of July 1, 1992 (included as, and incorporated herein by reference to, Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1992 (Commission file No. 0-10223)). (F) Agreement of Limited Partnership of RI-81 Tierra Catalina Limited Partnership dated as of July 1, 1992 (included as, and incorporated herein by reference to, Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1992 (Commission file No. 0-10223)). (G) Amended and Restated Agreement of Limited Partnership of Ridge Park Associates Limited Partnership dated as of April 23, 1992 (included as, and incorporated herein by reference to, Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1992 (Commission file No. 0-10223)). (H) Property Management Agreement between Hutton/ConAm Realty Investors 81 and ConAm Management Corp. for the Las Colinas I & II properties (included as, and incorporated herein by reference to Exhibit 10-L to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (Commission file No. 0-10223)). (I) Property Management Agreement between Hutton/ConAm Realty Investors 81 and ConAm Management Corp. for the Tierra Catalina property (included as, and incorporated herein by reference to Exhibit 10-M to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (Commission file No. 0-10223)). (13) Annual Report to Unitholders for the year ended December 31, 1997. (21) List of Subsidiaries - Joint Ventures (included as, and incorporated herein by reference to Exhibit 22 to the Registrant's 1991 Annual Report on Form 10-K for the year ended December 31, 1991(Commission file No. 0-10223)). (27) Financial Data Schedule (99) Portions of the Prospectus of Registrant dated June 24, 1981 (included as, and incorporated herein by reference to Exhibit 28 to the Registrant's 1988 Annual Report on Form 10-K for the year ended December 31, 1988 (Commission file No. 0-10223)). (b) Reports on Form 8-K: On December 15, 1997 the Partnership filed a Form 8-K reporting the change in Partnership's Certifying Accountants. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 25, 1998 BY: ConAm Property Services, Ltd. General Partner BY: Continental American Development, Inc. General Partner BY: /s/ Daniel J. Epstein Name: Daniel J. Epstein Title: President, Director and Principal Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. CONAM PROPERTY SERVICES, LTD. A General Partner By: Continental American Development, Inc. General Partner Date: March 25, 1998 BY: /s/ Daniel J. Epstein Daniel J. Epstein Director, President and Principal Executive Officer Date: March 25, 1998 BY: /s/ E. Scott Dupree E. Scott Dupree Vice President and Director Date: March 25, 1998 BY: /s/ Robert J. Svatos Robert J. Svatos Vice President and Director Date: March 25, 1998 BY: /s/ Ralph W. Tilley Ralph W. Tilley Vice President Date: March 25, 1998 BY: /s/ J. Bradley Forrester J. Bradley Forrester Vice President EX-13 2 1997 ANNUAL REPORT TO UNITHOLDERS Exhibit 13 ConAm Realty Investors 81 L.P. 1997 Annual Report ConAm Realty Investors 81 L.P. ConAm Realty Investors 81 L.P. is a California limited partnership formed in 1981 to acquire, operate and hold for investment multifamily residential properties. At December 31, 1997, the Partnership's portfolio consisted of two apartment properties located in Arizona. Provided below is a comparison of average occupancy levels for the years ended December 31, 1997 and 1996. Average Occupancy Property Location 1997 1996 -------------------------------------------------------------- Las Colinas I & II Scottsdale, Arizona 96% 96% Tierra Catalina Tucson, Arizona 92% 90% -------------------------------------------------------------- Contents 1 Message to Investors 3 Financial Highlights 4 Consolidated Financial Statements 7 Notes to the Consolidated Financial Statements 12 Independent Auditors' Report and Report of Former Independent Accountants 14 Net Asset Valuation Administrative Inquiries Performance Inquiries/Form 10-Ks Address Changes/Transfers First Data Investor Services Group Service Data Corporation P.O. Box 1527 2424 South 130th Circle Boston, Massachusetts 02104-1527 Omaha, Nebraska 68144-2596 Attn: Financial Communications 800-223-3464 800-223-3464 Message to Investors Presented for your review is the 1997 Annual Report for ConAm Realty Investors 81 L.P. (the "Partnership"). In this report, we discuss general market conditions affecting the Partnership's two remaining properties (the "Properties"). We have also included a performance summary which addresses operations at each of the properties and financial highlights for the year. This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ from those projected in or contemplated by the forward- looking statements as a result of a number of factors, including those identified herein. Cash Distributions - ------------------ The Partnership declared cash distributions totaling $23.90 per Unit for the year ended December 31, 1997, including the fourth quarter distribution of $1.85 per Unit, which was credited to your brokerage account or sent directly to you on February 13, 1998. Such amount also includes a special cash distribution of $16.50, paid on February 24, 1997, representing net proceeds from the sale of Ridge Park Apartments in December 1996. Since inception, the Partnership has paid distributions totaling $449.55 per original $500 Unit, including $254.50 per Unit in return of capital payments. The level of future distributions will be evaluated on a quarterly basis and will depend on the Partnership's operating results and future cash needs. Operations Overview - ------------------- Operations at the Properties remained stable in 1997, reflecting healthy economic conditions, tempered by increased competition for tenants in the markets where the properties are located. As a result of new apartment construction in the Tucson and Scottsdale markets, some large apartment properties have begun to offer rental concessions to attract tenants. In both markets, many high-end renters opted to purchase homes due to low interest rates. Despite these trends, strong economic growth in Tucson and Scottsdale helped strengthen multi-family housing, and Tierra Catalina and Las Colinas I and II sustained average occupancy levels of 92% and 96%, respectively, in 1997. In addition, the appraised values of the Properties increased by 4.0% in total when compared to the prior year. Several interior and exterior repairs were performed at each property in 1997, including landscaping, carpet and appliance replacement in selected units and other repairs to prepare vacant units for occupancy. The General Partner will evaluate the need for capital improvements to increase the appeal of the Properties and position them for eventual sale. The General Partner continues to evaluate the sale potential of the remaining properties and other options with respect to the Partnership's investments. One of these options includes refinancing the loans secured by the Properties in order to return capital to the limited partners on a tax-free basis and lock in favorable fixed interest rates. This would also potentially enhance the future marketability of the Properties, while enabling the Partnership to take advantage of possible future property appreciation. The Partnership's ability to sell the Properties is dependent upon a variety of factors, many of which are not within the Partnership's control. There can be no assurance that any specific property or all the properties can be sold, that particular prices will be achieved, or that the Properties can be sold within a specific time frame. We will keep you apprised of our sales efforts in future correspondence. Property Review - --------------- Las Colinas I & II Las Colinas I & II is a 300-unit apartment community located eight miles northeast of Phoenix in southwest Scottsdale. Las Colinas I and II reported average occupancy of 96% in 1997, unchanged from 1996, and an increase in rental income due to an increase in rental rates. The Scottsdale apartment market experienced continued strong competition during 1997, reflecting high levels of construction and notable competition from condominiums and single family houses, as affordable prices and low mortgage rates enticed renters to buy. Although vacancy rates in Phoenix and the Scottsdale submarket remained low in 1997, occupancy levels are expected to decline due to the significant new construction. The Scottsdale market is experiencing strong job and population growth with over 70,000 new jobs created in the first six months of 1997 and over 100,000 new residents added to the market during the year. This economic growth should favorably impact the market, and ease competition until the pace of new construction subsides. Tierra Catalina Tierra Catalina is a 120-unit apartment community located near the Foothills region of Tucson. The property maintained an average occupancy rate of 92% during 1997, an increase from 90% for 1996. The increase in occupancy as well as an increase in rental rates led to a 4.2% rise in the property's rental income. Apartment vacancy rates remain high in this market, but significant population growth in Tucson over the last few years is slowly reducing the number of available units. Low interest rates and affordable home prices have also increased competition by luring many renters to purchase homes. This competition has led to the reemergence of rental incentives and other concessions in the marketplace to attract tenants. Summary - ------- We will continue to monitor market conditions at the Properties and evaluate a potential refinance of the Partnership's mortgage obligations. In the interim, we intend to maximize the performance of the Properties and further improve their appearance and condition. We will keep you apprised of significant developments affecting your investment in future reports. Very truly yours, /s/ Daniel J. Epstein Daniel J. Epstein President Continental American Development, Inc. and ConAm Development Corporation, General Partners of ConAm Property Services, Ltd. March 11, 1998 Financial Highlights Selected Financial Data For the periods ended December 31, 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------- Dollars in thousands, except for per unit data Total Income $ 3,299 $ 3,714 $ 4,416 $ 4,760 $ 4,485 Gain on Sale of Properties _ 1,411 1,485 _ _ Net Income (Loss) (8) 1,286 1,142 (253) (618) Net Cash Provided by Operating Activities 722 753 974 949 1,020 Long-term Obligations at Year End 9,830 9,943 11,954 15,601 15,736 Total Assets at Year End 12,495 14,545 16,022 22,497 23,565 Net Income (Loss) per Limited Partnership Unit* (.10) 15.53 (1.38) (3.19) (7.81) Distributions per Limited Partnership Unit* 7.40 8.00 8.00 8.00 3.50 Special Distributions per Limited Partnership Unit* 16.50 _ 40.50 _ _ - ------------------------------------------------------------------------------- * 78,290 units outstanding Cash Distributions Per Limited Partnership Unit 1997 1996 - ------------------------------------------------------------------------------- Special Distributions* $16.50 $ _ First Quarter 1.85 2.00 Second Quarter 1.85 2.00 Third Quarter 1.85 2.00 Fourth Quarter 1.85 2.00 ------ ------ Total $23.90 $ 8.00 - ------------------------------------------------------------------------------- * On February 27, 1997, the Partnership paid a special cash distribution totaling $16.50 per Unit, reflecting net proceeds received from the sale of Ridge Park Apartments. Consolidated Balance Sheets At December 31, At December 31, 1997 1996 Assets Investments in real estate: Land $ 3,630,175 $ 3,630,175 Buildings and improvements 17,975,267 17,975,267 ---------------------------- 21,605,442 21,605,442 Less accumulated depreciation (11,022,393) (10,303,382) ---------------------------- 10,583,049 11,302,060 Cash and cash equivalents 1,388,845 2,741,077 Restricted cash 430,849 351,444 Mortgage fees, net of accumulated amortization of $270,880 in 1997 and $220,063 in 1996. 84,837 135,654 Other assets 7,162 14,292 - ------------------------------------------------------------------------------- Total Assets $12,494,742 $14,544,527 - ------------------------------------------------------------------------------- Liabilities and Partners' Capital Liabilities: Mortgages payable $ 9,830,261 $ 9,943,036 Distribution payable 160,929 1,478,811 Accounts payable and accrued expenses 202,484 177,414 Security deposits 78,834 71,858 Due to general partners and affiliates 13,797 13,045 ---------------------------- Total Liabilities 10,286,305 11,684,164 ---------------------------- Partners' Capital (Deficit): General Partners (265,715) (201,261) Limited Partners (78,290 Units outstanding) 2,474,152 3,061,624 ---------------------------- Total Partners' Capital 2,208,437 2,860,363 - ------------------------------------------------------------------------------- Total Liabilities and Partners' Capital $12,494,742 $14,544,527 - ------------------------------------------------------------------------------- See accompanying notes to the consolidated financial statements. Consolidated Statements of Operations For the years ended December 31, 1997 1996 1995 Income Rental $ 3,196,975 $ 3,622,403 $ 4,313,044 Interest and other 102,512 91,282 102,535 ------------------------------------- Total Income 3,299,487 3,713,685 4,415,579 - ------------------------------------------------------------------------------- Expenses Property operating 1,520,450 1,817,928 2,261,179 Interest 840,832 992,745 1,191,397 Depreciation and amortization 769,828 880,445 1,087,749 General and administrative 176,587 147,482 218,706 ------------------------------------- Total Expenses 3,307,697 3,838,600 4,759,031 - ------------------------------------------------------------------------------- Loss from operations (8,210) (124,915) (343,452) Gain on sale of properties _ 1,410,622 1,485,121 - ------------------------------------------------------------------------------- Net Income (Loss) $ (8,210) $ 1,285,707 $ 1,141,669 - ------------------------------------------------------------------------------- Net Income (Loss) Allocated: To the General Partners $ (82) $ 69,591 $ 1,250,091 To the Limited Partners (8,128) 1,216,116 (108,422) - ------------------------------------------------------------------------------- $ (8,210) $ 1,285,707 $ 1,141,669 - ------------------------------------------------------------------------------- Per limited partnership unit (78,290 Units outstanding) Loss from operations $(.10) $(1.58) $(4.34) Gain on sale of properties _ 17.11 2.96 - ------------------------------------------------------------------------------- Net Income (Loss) $(.10) $15.53 $(1.38) - ------------------------------------------------------------------------------- See accompanying notes to the consolidated financial statements. Consolidated Statements of Partners' Capital (Deficit) For the years ended December 31, 1997, 1996 and 1995 General Limited Partners Partners Total - ------------------------------------------------------------------------------- Balance at December 31, 1994 $(1,316,915) $7,669,098 $6,352,183 Net income (loss) 1,250,091 (108,422) 1,141,669 Distributions ($48.50 per Unit) (121,389) (3,797,063) (3,918,452) - ------------------------------------------------------------------------------- Balance at December 31, 1995 (188,213) 3,763,613 3,575,400 Net income 69,591 1,216,116 1,285,707 Distributions ($24.50 per Unit) (82,639) (1,918,105) (2,000,744) - ------------------------------------------------------------------------------- Balance at December 31, 1996 (201,261) 3,061,624 2,860,363 Net loss (82) (8,128) (8,210) Distributions ($7.40 per Unit) (64,372) (579,344) (643,716) - ------------------------------------------------------------------------------- Balance at December 31, 1997 $ (265,715) $2,474,152 $2,208,437 - ------------------------------------------------------------------------------- See accompanying notes to the consolidated financial statements. Consolidated Statements of Cash Flows For the years ended December 31, 1997 1996 1995 - ------------------------------------------------------------------------------- Cash Flows From Operating Activities: Net income (loss) $ (8,210) $1,285,707 $1,141,669 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 769,828 880,445 1,087,749 Gain on sale of properties _ (1,410,622) (1,485,121) Increase (decrease) in cash arising from changes in operating assets and liabilities: Fundings to restricted cash (396,778) (450,460) (536,471) Release of restricted cash to property operations 317,373 493,163 801,400 Other assets 7,130 10,654 16,109 Accounts payable and accrued expenses 25,070 (48,337) 16,898 Security deposits 6,976 (5,575) (63,975) Due to general partners and affiliates 752 (2,218) (4,567) ---------------------------------- Net cash provided by operating activities 722,141 752,757 973,691 - ------------------------------------------------------------------------------- Cash Flows From Investing Activities - Net proceeds from sale of properties _ 3,196,264 6,555,332 - ------------------------------------------------------------------------------- Cash Flows From Financing Activities: Distributions (1,961,598) (695,911) (3,918,452) Mortgage principal payments (112,775) (2,011,152) (3,646,843) Net cash used for financing activities (2,074,373) (2,707,063) (7,565,295) - ------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (1,352,232) 1,241,958 (36,272) Cash and cash equivalents, beginning of period 2,741,077 1,499,119 1,535,391 - ------------------------------------------------------------------------------- Cash and cash equivalents, end of period $1,388,845 $2,741,077 $1,499,119 - ------------------------------------------------------------------------------- Supplemental Disclosure of Cash Flow Information: Cash paid during the period for interest $ 840,832 $ 992,745 $1,191,397 - ------------------------------------------------------------------------------- See accompanying notes to the consolidated financial statements. Notes to the Consolidated Financial Statements December 31, 1997, 1996 and 1995 1. Organization ConAm Realty Investors 81 L.P. (formerly Hutton/ConAm Realty Investors 81) (the "Partnership") was organized as a limited partnership under the laws of the State of California pursuant to a Certificate and Agreement of Limited Partnership (the "Partnership Agreement") dated April 30, 1981, as amended and restated August 31, 1981. The Partnership was formed for the purpose of acquiring and operating certain types of residential real estate. The general partners of the Partnership were RI-81 Real Estate Services Inc. ("RI-81"), an affiliate of Lehman Brothers Inc., and ConAm Property Services, Ltd. ("CPS"), an affiliate of Continental American Properties, Ltd. (the "General Partners"). On October 8, 1997, CPS acquired RI-81's co-general partner interest in the Partnership effective July 1, 1997, pursuant to a purchase agreement between CPS and RI-81 dated August 29, 1997. As a result, CPS now serves as the sole general partner (the "General Partner") of the Partnership. In conjunction with this transaction, the name of the Partnership changed from Hutton/ConAm Realty Investors 81 to ConAm Realty Investors 81 L.P. The Partnership will continue until December 31, 2010 unless sooner terminated pursuant to the terms of the Partnership Agreement. 2. Significant Accounting Policies Financial Statements The consolidated financial statements are prepared on the accrual basis of accounting and include the accounts of the Partnership and its affiliated ventures when the Partnership has a controlling interest in the ventures. The effect of transactions between the Partnership and its ventures have been eliminated in consolidation. Investments in Real Estate Investments in real estate are recorded at cost less accumulated depreciation and include the initial purchase price of the property, legal fees, acquisition and closing costs. Revenue is recognized when earned and expenses (including depreciation) are recognized when incurred in accordance with generally accepted accounting principles. Leases are generally for terms of one year or less. Depreciation is computed using the straight-line method based upon the estimated useful lives of the properties (25 years). Maintenance and repairs are charged to operations as incurred. Costs incurred for significant betterments and improvements are capitalized and depreciated over their estimated useful lives. For assets sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in net income for the period. Impairment of Long-Lived Assets Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("FAS 121"), requires the Partnership to assess its real estate investments for impairment whenever events or changes in circumstances indicate that the carrying amount of the real estate may not be recoverable. Recoverability of real estate to be held and used is measured by a comparison of the carrying amount of the real estate to future net cash flows (undiscounted and without interest) expected to be generated by the real estate. If the real estate is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the real estate exceeds the fair value of the real estate. Income Taxes No provision for income taxes has been made in the financial statements as the liability for such taxes is that of the partners rather than the Partnership. Mortgage Fees Included in mortgage fees are deferred mortgage costs incurred in connection with obtaining financing on the Partnership's properties. Such costs are amortized over the 7- year term of the applicable loans. Cash and Cash Equivalents Cash and cash equivalents consist of highly liquid short-term investments with original maturities of three months or less. Concentration of Credit Risk Financial instruments which potentially subject the Partnership to a concentration of credit risk principally consist of cash and cash equivalents and restricted cash in excess of the financial institution's federally insured limits. The Partnership invests its cash and cash equivalents and restricted cash with high credit quality federally insured financial institutions. Restricted Cash Restricted cash consists of escrows for insurance, real estate taxes and property replacement and repairs as required by the first mortgage lender. Use of Estimates Management of the Partnership has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. 3. The Partnership Agreement The Partnership Agreement provides that net cash from operations, as defined, is to be distributed quarterly, 90% to the limited partners and 10% to the General Partners. Net loss for any fiscal year is to be allocated 99% to the limited partners and 1% to General Partners. Net income for any fiscal year will generally be allocated 90% to the limited partners and 10% to the General Partners. Net proceeds from sales or refinancing are to be distributed 99% to the limited partners and 1% to the General Partners until each limited partner has received an amount equal to its adjusted capital value (as defined) and an annual, non-compounded cumulative 7% return thereon. The balance, if any, is to be distributed 85% to the limited partners and 15% to the General Partners. Gain from sales resulting from mortgage debt in excess of basis is to be allocated to each partner having a negative capital account balance, pro rata, to the extent of such negative balance. Thereafter, such gain is to be allocated in accordance with the distribution of net proceeds from sale or refinancing, with the balance allocated to the limited partners. 4. Investments in Real Estate The Partnership owns two residential apartment complexes that were acquired either directly or through investments in joint ventures as follows: Apartment Date Purchase Property Name Units Location Acquired Price - ------------------------------------------------------------------------------- Las Colinas I & II 300 Scottsdale, AZ 5/20/81 & 9/23/82 $12,831,783 Tierra Catalina 120 Tucson, AZ 3/9/84 7,012,650 - ------------------------------------------------------------------------------- On July 20, 1995, the Partnership sold Kingston Village and Cedar Bay Village (the "Properties") to an institutional buyer (the "Buyer"), which was unaffiliated with the Partnership. The selling price was determined by arm's length negotiations between the Partnership and the Buyer. Kingston Village and Cedar Bay Village were sold for $5,370,000 and $1,410,000, respectively. The Partnership received aggregate net proceeds of $6,555,332 from the sales of which $3,541,400, representing outstanding principal and interest, was used to fully satisfy the Partnership's mortgage obligations on the Properties. The sales resulted in a gain on sale of $1,485,121 which included the recognition of mortgage prepayment penalties of $120,926 and a $101,146 write-off of the unamortized portion of mortgage fees. The gain was allocated in accordance with the Partnership Agreement. On August 17, 1995, the Partnership paid a special distribution of $3,170,745 or $40.50 per Unit to the limited partners. The special distribution was comprised of the net proceeds from the sale of the Properties and Partnership cash reserves. On November 27, 1996, the Partnership sold Ridge Park (the "Property") to Ridge Park Limited Partnership, an Oklahoma limited partnership ("Ridge Park L.P."), which is unaffiliated with the Partnership. The selling price was determined by arm's length negotiations between the Partnership and Ridge Park L.P. The Property was sold for $3,385,000. The Partnership received net proceeds of $3,196,264 from the transaction of which $1,902,666, representing outstanding principal and interest, was used to fully satisfy the Partnership's mortgage obligation on the Property. The transaction resulted in a gain on sale of $1,410,622 which included the recognition of mortgage prepayment penalties of $36,843, and a $33,154 write-off of the unamortized portion of mortgage fees. The gain was allocated in accordance with the Partnership Agreement. On February 27, 1997, the Partnership paid a special distribution of $1,291,785 ($16.50 per unit) to the limited partners, representing the net proceeds from the sale of the Property. Cedar Bay Village, Ridge Park, Kingston Village and Tierra Catalina were originally acquired through joint ventures with unaffiliated developers. To each venture, the Partnership contributed the apartment projects as its initial capital contribution. On March 30, 1984, the co-venturer's interest with respect to Tierra Catalina was acquired for $400,000. The joint venture and limited partnership agreements for Cedar Bay Village, Kingston Village, Ridge Park Associates, Tierra Catalina and Las Colinas substantially provide that: a. Available cash from operations is to be distributed 100% to the Partnership until it has received an annual, non-cumulative preferred return, as defined. Any remaining balance is to be distributed 99% to the Partnership and 1% to the corporate General Partners. b. Net income is to be allocated first, proportionately to partners with negative capital accounts, as defined, until such capital accounts have been increased to zero then, to the Partnership up to the amount of any payments made on account of its preferred return and thereafter, 99% to the Partnership and 1% to the corporate General Partners. All losses are to be allocated first, to the partners with positive capital accounts, as defined, until such accounts have been reduced to zero and then, 99% to the Partnership and 1% to the corporate General Partners. c. Income from a sale is to be allocated first, to the Partnership until the Partnership's capital accounts, as defined, are equal to the fair market value of the ventures' assets at the date of the amendments. Then, any remaining balance is to be allocated 99% to the Partnership and 1% to the corporate General Partners. Net proceeds from a sale or refinancing are to be distributed first, to the partners with the positive capital account balance, as defined; thereafter, 99% to the Partnership and 1% to the corporate General Partners. 5. Mortgages Payable On August 27, 1992, the Partnership obtained first mortgage loans on Las Colinas I and II, Tierra Catalina, Kingston Village, Cedar Bay Village, and Ridge Park properties totaling $15,900,000. The loans, secured by the respective properties and an assignment of rents and leases, bear interest at an annual rate of 8.5%. Each of the loans is a non-recourse loan with monthly payments of principal and interest based on a thirty year amortization schedule and a seven year term with the balance of the principal due on September 1, 1999. The loans require monthly insurance, real estate tax and property replacement and repair reserve escrow fundings. On July 20, 1995, Kingston Village and Cedar Bay Village were sold. A portion of the sales proceeds, in the amount of $3,662,325, representing outstanding principal, interest and pre- payment penalties, was used to fully satisfy the Partnership's mortgage obligations on the Properties. On November 27, 1996, Ridge Park was sold. A portion of the sales proceeds, in the amount of $1,939,509 representing outstanding principal, interest and pre-payment penalties, was used to fully satisfy the Partnership's mortgage obligation on the Property. The monthly payment of principal and interest on the remaining outstanding first mortgage loans is $79,467. Upon maturity of the first mortgage loans, a balloon payment of $9,619,720 and any accrued interest are due. Additionally, these mortgages contain provisions for prepayment penalties if the mortgages are repaid prior to their maturity date of September 1, 1999. Mortgages payable for Las Colinas I and II and Tierra Catalina at December 31, 1997 are $6,253,891 and $3,576,370, respectively. Annual maturities of mortgage principal at December 31, 1997, are as follows: Year Amount ---------------------------------- 1998 122,743 1999 9,707,518 ---------------------------------- $9,830,261 ---------------------------------- 6. Fair Value of Financial Instruments Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments", requires that the fair values be disclosed for the Partnership's financial instruments. The carrying amount of cash and cash equivalents, restricted cash, distribution payable, accounts payable and accrued expenses, security deposits and due to general partners and affiliates are reasonable estimates of their fair values due to the short-term nature of those instruments. The carrying amount of the mortgages payable is a reasonable estimate of its fair value based on management's belief that the interest rates and terms of the debt are comparable to those commercially available to the Partnership in the marketplace for similar instruments. 7. Transactions with Related Parties The following is a summary of fees earned and reimbursable expenses to the General Partners and affiliates for the years ended December 31, 1997, 1996 and 1995, and the unpaid portion at December 31, 1997: Earned and Unpaid at December 31, Earned 1997 1997 1996 1995 - ------------------------------------------------------------------------------- RI 81 Real Estate Services, Inc. and affiliates: Out-of-pocket expenses $ _ $ 4,615 $3,968 $ 2,244 ConAm and affiliates: Property operating salaries _ 260,841 296,558 394,663 Property management fees 13,797 160,005 181,291 217,706 - ------------------------------------------------------------------------------- Total $13,797 $425,461 $481,817 $614,613 - ------------------------------------------------------------------------------- 8. Reconciliation of Financial Statement and Tax Information The following is a reconciliation of the consolidated net income (loss) for financial statement purposes to net income for federal income tax purposes for the years ended December 31, 1997, 1996 and 1995: 1997 1996 1995 - ------------------------------------------------------------------------------- Net income (loss) per financial statements $(8,210) $1,285,707 $1,141,669 Tax basis joint venture net income (loss) in excess of GAAP basis joint venture net income (loss)(unaudited) 274,150 (74,666) (443,083) Gain on sale of properties for tax purposes in excess of gain per financial statements (unaudited) _ 1,357,592 2,755,883 Other (unaudited) 18,312 (700) 1,000 - ------------------------------------------------------------------------------- Taxable net income (unaudited) $284,252 $2,567,933 $3,455,469 - ------------------------------------------------------------------------------- The following is a reconciliation of partners' capital for financial statement purposes to partners' capital (deficit) for federal income tax purposes as of December 31, 1997, 1996 and 1995: 1997 1996 1995 - ------------------------------------------------------------------------------- Partners' capital per financial statements $2,208,437 $2,860,363 $3,575,400 Accrued distribution from sale of property _ 1,304,833 _ Adjustment for cumulative difference between tax basis loss and net income (loss) per financial statements (unaudited) (2,702,259) (2,994,721) (4,276,947) - ------------------------------------------------------------------------------- Partners' capital (deficit) per tax return (unaudited) $ (493,822) $1,170,475 $ (701,547) - ------------------------------------------------------------------------------- At December 31, 1997, the tax basis of the Partnership's assets was $9,941,445 and the tax basis of the Partnership's liabilities was $10,435,267. 9. Distributions Paid Distributions, per the consolidated statements of partners' capital (deficit), are recorded on the accrual basis, which recognizes specific record dates for payments within each calendar year. The consolidated statements of cash flows recognize actual cash distributions paid during the calendar year. The following table discloses the annual differences as presented on the consolidated financial statements: Distributions Distributions Payable Distributions Distributions Payable Beginning of Year Declared Paid December 31, - ------------------------------------------------------------------------------- 1997 $1,478,811 $ 643,716 $1,961,598 $ 160,929 1996 173,978 2,000,744 695,911 1,478,811 1995 173,978 3,918,452 3,918,452 173,978 - ------------------------------------------------------------------------------- Independent Auditors' Report The General Partner ConAm Realty Investors 81 L.P.: We have audited the accompanying consolidated balance sheet of ConAm Realty Investors 81 L.P. (a California limited partnership) (formerly Hutton/ConAm Realty Investors 81) and consolidated ventures (the "Partnership"), as of December 31, 1997, and the related consolidated statements of operations, partners' capital (deficit), and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 1997 consolidated financial statements referred to above present fairly, in all material respects, the financial position of ConAm Realty Investors 81 L.P. and consolidated ventures as of December 31, 1997, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP San Diego, California March 3, 1998 Report of Former Independent Accountants To the Partners of ConAm Realty Investors 81 L.P.: We have audited the consolidated balance sheet of ConAm Realty Investors 81 L.P. (formerly Hutton/ConAm Realty Investors 81), a California limited partnership, and Consolidated Ventures as of December 31, 1996 and the related consolidated statements of operations, partners' capital (deficit) and cash flows for each of the two years in the period ended December 31, 1996. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of ConAm Realty Investors 81 L.P., a California limited partnership, and Consolidated Ventures as of December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Hartford, Connecticut February 14, 1997 Net Asset Valuation Comparison of Acquisition Costs to Appraised Value and Determination of Net Asset Value Per Unit at December 31, 1997 (Unaudited) Acquisition Cost (Purchase Price Plus General Partners' December 31, Acquisition 1997 Appraised Property Date of Acquisition Fees) Value (1) - ------------------------------------------------------------------------------ Las Colinas I & II 5/20/81 & 9/23/82 $13,326,613 $14,500,000 Tierra Catalina 3/9/84 7,759,670 6,400,000 $21,086,283 20,900,000 Cash and cash equivalents (including restricted cash) 1,819,694 Other assets 7,162 ----------- 22,726,856 Less: Total liabilities (10,286,305) ----------- Partnership Net Asset Value (2) $12,440,551 ----------- Net Asset Value Allocated: Limited Partners $12,258,582 General Partners 181,969 ----------- $12,440,551 ----------- Net Asset Value Per Unit (78,290 units outstanding) $ 153.90 - ------------------------------------------------------------------------------ (1) This represents the Partnership's share of the December 31, 1997 Appraised Values which were determined by an independent property appraisal firm. (2) The Partnership Net Asset Value assumes a hypothetical sale at December 31, 1997 of all the Partnership's properties at a price based upon their value as a rental property as determined by an independent property appraisal firm, and the distribution of the proceeds of such sale, combined with the Partnership's cash after liquidation of the Partnership's liabilities, to the Partners. Limited Partners should note that appraisals are only estimates of current value and actual values realizable upon sale may be significantly different. A significant factor in establishing an appraised value is the actual selling price for properties which the appraiser believes are comparable. In addition, the appraised value does not reflect the actual costs which would be incurred in selling the properties. As a result of these factors and the illiquid nature of an investment in Units of the Partnership, the variation between the appraised value of the Partnership's properties and the price at which Units of the Partnership could be sold may be significant. Fiduciaries of Limited Partners which are subject to ERISA or other provisions of law requiring valuations of Units should consider all relevant factors, including, but not limited to Net Asset Value per Unit, in determining the fair market value of the investment in the Partnership for such purposes. Schedule III - Real Estate and Accumulated Depreciation December 31, 1997 Residential Property: Las Colinas Las Colinas Tierra Apts I Apts II Catalina Total - ------------------------------------------------------------------------------- Location Scottsdale, Scottsdale, Tucson, AZ na AZ AZ Construction date 1981 1982 1983, 1984 na Acquisition date 05-20-81 09-23-82 03-09-84 na Life on which depreciation in latest income statements is computed 25 years 25 years 25 years na Encumbrances $6,253,891 $ _ $3,576,370 $ 9,830,261 Initial cost to Partnership: Land $1,582,000 $514,564 $1,497,150 $ 3,593,714 Buildings and improvements $8,268,721 $3,268,996 $6,403,622 $17,941,339 Costs capitalized subsequent to acquisition: Land, buildings and improvements $ 29,123 $ 8,494 $ 32,772 $ 70,389 Gross amount at which carried at close of period: (1) Land $1,611,123 $ 515,719 $1,503,333 $ 3,630,175 Buildings and improvements 8,268,721 3,276,335 6,430,211 17,975,267 - ------------------------------------------------------------------------------- $9,879,844 $3,792,054 $7,933,544 $21,605,442 - ------------------------------------------------------------------------------- Accumulated depreciation (2) $5,457,315 $2,009,058 $3,556,020 $11,022,393 - ------------------------------------------------------------------------------- (1) Represents aggregate cost for both financial reporting and Federal income tax purposes. (2) The amount of accumulated depreciation for Federal income tax purposes is $17,595,293. A reconciliation of the carrying amount of real estate and accumulated depreciation for the years ended December 31, 1997, 1996, and 1995 follows: 1997 1996 1995 - ------------------------------------------------------------------------------- Investments in real estate: Beginning of period $21,605,442 $25,243,577 $33,729,297 Dispositions _ (3,638,135) (8,485,720) - ------------------------------------------------------------------------------- End of period $21,605,442 $21,605,442 $25,243,577 - ------------------------------------------------------------------------------- Accumulated depreciation: Beginning of period $10,303,382 $11,370,295 $13,875,550 Depreciation expense 719,011 818,734 1,011,400 Dispositions _ (1,885,647) (3,516,655) - ------------------------------------------------------------------------------- End of period $11,022,393 $10,303,382 $11,370,295 - ------------------------------------------------------------------------------- See accompanying independent auditors' report. Independent Auditors' Report The General Partner ConAm Realty Investors 81 L.P.: Under date of March 3, 1998, we reported on the consolidated balance sheet of ConAm Realty Investors 81 L.P. (a California limited partnership) (formerly Hutton/ConAm Realty Investors 81) and consolidated ventures (the "Partnership") as of December 31, 1997, and the related consolidated statements of operations, partners' capital (deficit), and cash flows for the year then ended, as contained in the 1997 annual report to Unitholders. These consolidated financial statements and our report thereon are incorporated by reference in the 1997 annual report on Form 10-K. In connection with our audit of the aforementioned consolidated financial statements, we also have audited the related consolidated financial statement schedule. This consolidated financial statement schedule is the responsibility of the Partnership's management. Our responsibility is to express an opinion on this consolidated financial statement schedule based on our audit. In our opinion, the consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP San Diego, California March 3, 1998 Report of Former Independent Accountants Our report on the consolidated financial statements of ConAm Realty Investors 81 L.P. (formerly Hutton/ConAm Realty Investors 81), a California Limited Partnership, and Consolidated Ventures has been incorporated by reference in this Form 10-K from the Annual Report to Unitholders of ConAm Realty Investors 81 for the year ended December 31, 1996. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the index of this Form 10- K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Hartford, Connecticut February 14, 1997 EX-27 3 FINANCIAL DATA SCHEDULE FOR 1997 FORM 10-K CONAM REALTY INVESTORS 81 L.P.
5 12-mos Dec-31-1997 Dec-31-1997 1,388,845 0 0 0 0 0 21,605,442 11,022,393 12,494,742 456,044 9,830,261 0 0 0 2,208,437 12,494,742 3,196,975 3,299,487 0 1,520,450 946,415 0 840,832 (8,210) 0 0 0 0 0 (8,210) (.10) (.10)
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