-----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, AuH/3tj84uGvNCZjOVnyj+H4xC6PRy9B0yLYz5lZJK+MKiWzRkEqC4hoiN3K4Rup /SRat64wj6gyXYehB3jrtg== 0000928790-98-000028.txt : 19980304 0000928790-98-000028.hdr.sgml : 19980304 ACCESSION NUMBER: 0000928790-98-000028 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971130 FILED AS OF DATE: 19980302 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUTTON CONAM REALTY INVESTORS 5 CENTRAL INDEX KEY: 0000761310 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 112712111 STATE OF INCORPORATION: CA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14341 FILM NUMBER: 98554562 BUSINESS ADDRESS: STREET 1: 1764 SAN DIEGO AVE STREET 2: ATTN: ROBERT J SVATOS CITY: SAN DIEGO STATE: CA ZIP: 92110-1906 BUSINESS PHONE: 2125263237 MAIL ADDRESS: STREET 1: 3 WORLD FINANCIAL CENTER STREET 2: 29TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10285 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: November 30, 1997 OR [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission file number: 0-014341 CONAM REALTY INVESTORS 5 L.P. formerly known as HUTTON/CONAM REALTY INVESTORS 5 Exact name of Registrant as specified in its charter California 11-2712111 State or other jurisdiction of incorporation I.R.S. Employer Identification No. Attention: Robert J. Svatos 1764 San Diego Avenue, San Diego California 92110-1906 Address of principal executive offices zip code 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 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 fiscal year ended November 30, 1997. PART I Item 1. Business (a) 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 Section 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 5 L.P., formerly known as Hutton/ConAm Realty Investors 5, (the "Partnership") is a California limited partnership formed on June 28, 1984. ConAm Property Services IV, Ltd. ("CPS IV"), a California limited partnership, and RI 5 Real Estate Services, Inc., ("RI 5"), a Delaware corporation, were the original co-general partners of the Partnership. On January 27, 1998, CPS IV acquired RI 5's co-general partner interest in the Partnership, effective July 1, 1997, pursuant to a Purchase and Sale Agreement between CPS IV and RI 5 dated August 29, 1997. As a result, CPS IV 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 5 to ConAm Realty Investors 5 L.P. The Partnership was organized to engage in the business of acquiring, operating and holding for investment multifamily residential properties. The Partnership originally invested in one residential apartment property and two joint ventures, each of which owns a specified property. As discussed below, one property was sold in December 1996. Funds held as a working capital reserve are invested in bank certificates of deposit, 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 longer-term objectives. The attainment of the Partnership's investment 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 investments taking into consideration such factors as the amount of appreciation in value, if any, to be realized and the possible risks of continued ownership. In consideration of these factors and improving market conditions, the General Partner intends to sell the remaining two properties over the next few years. Proceeds from the 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 proceeds of its public offering to acquire three residential apartment complexes (collectively, the "Properties") either directly or through investments in joint ventures, as follows: (1) Lakeview Village at Ponte Vedra Lakes, a 240-unit apartment complex, located in Ponte Vedra Beach, Florida; (2) The Hamptons at Quail Hollow, a 232-unit apartment complex, located in Charlotte, North Carolina and (3) Canterbury Park Apartments, a 96-unit apartment complex, located in Raleigh, North Carolina. On December 10, 1996, Canterbury Park was sold to an unaffiliated buyer for $6,387,300. The General Partner intends to sell the remaining two properties over the next few years. 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 have an effect on the occupancy levels and revenues of the Properties. The occupancy levels at Lakeview Village in Ponte Vedra Beach, Florida reflect some seasonality, which is typical in that market. In some cases, the Partnership may compete with other properties owned by partnerships affiliated with the General Partner of the Partnership. For information with respect to market conditions in the areas where the Partnership's Properties are located, reference is made to the Partnership's annual report to Unitholders for the fiscal year ended November 30, 1997, which is filed as an exhibit under Item 14. Employees The Partnership has no employees. Services are provided by CPS IV, ConAm Management Corporation ("ConAm Management"), an affiliate of CPS IV, as well as Service Data Corporation and First Data Investor Services Group, both unaffiliated companies. The Partnership has entered into management agreements pursuant to which ConAm Management provides property management services with respect to the Properties. First Data Investor Services Group had been retained by the Partnership to provide all accounting and investor communication functions, while Service Data Corporation provides transfer agent services. Effective December 1, 1997, the accounting functions of the Partnership have been transferred to the firm of Brock, Tibbetts and 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, 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 fiscal year ended November 30, 1997, which is filed as an exhibit under Item 14. For information on the purchase of the Properties, reference is made to Note 4 to the Consolidated Financial Statements, included in the Partnership's Annual Report to Unitholders. Average occupancy rates at each property 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 fiscal year ended November 30, 1997, no matter was submitted to a vote of Unitholders through the solicitation of proxies or otherwise. PART II Item 5. Market for the Partnership's Limited Partnership Interests and Related Security Holder Matters As of November 30, 1997, the number of Unitholders of record was 2,602. No established public trading market exists for the Units, and it is not anticipated that such a market will develop in the future. Distributions of Net Cash From Operations are determined by the General Partner on a quarterly basis, with distributions generally occurring approximately 45 days after the end of each fiscal quarter. Such distributions to the Limited Partners have been made from net operating income with respect to the Partnership's investment in the Properties and from interest on short-term investments. Information on cash distributions paid by the Partnership for the past two fiscal years is incorporated by reference to the Partnership's Annual Report to Unitholders for the fiscal year ended November 30, 1997, which is filed as an exhibit under Item 14. The level of future cash distributions will be evaluated on a quarterly basis and will depend on the Partnership's operating results and future cash needs. Item 6. Selected Financial Data Incorporated by reference to the Partnership's Annual Report to Unitholders for the year ended November 30, 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 November 30, 1997, the Partnership had cash and cash equivalents of $1,424,876, which were invested in unaffiliated money market funds, compared with $2,121,544 at November 30, 1996. The decrease in cash and cash equivalents reflects mortgage principal payments and cash distributions to Partners exceeding cash provided by operating activities during the fiscal year ended November 30, 1997. The Partnership also maintains a restricted cash balance which totaled $224,210 at November 30, 1997, largely unchanged from $225,415 at November 30, 1996. The Partnership expects sufficient cash to be generated from operations to meet its current operating expenses. Accounts payable and accrued expenses totaled $388,948 at November 30, 1997, compared to $309,475 at November 30, 1996. The increase is primarily attributable to an increase in real estate taxes and state income tax withholding resulting from the sale of Canterbury Park. Distribution payable totaled $359,019 at November 30, 1997, compared to $439,974 at November 30, 1996. The decrease is primarily attributable to the sale of Canterbury Park in December 1996, which reduced the amount of quarterly cash distributions from operations. The sale of Canterbury Park is also the primary reason for the decrease in the Partnership's security deposits and due to affiliates balances at November 30, 1997, compared to the balances at November 30, 1996. On December 10, 1996, the Partnership closed on the sale of Canterbury Park. Canterbury Park sold for an adjusted sales price of $6,387,300 to Burcam Capital I, L.L.C., a North Carolina limited liability company (the "Buyer"). The transaction resulted in a gain on sale of Canterbury Park of $2,582,641, which was reflected in the Partnership's consolidated statement of operations for the first quarter ended February 28, 1997. On January 24, 1997, the Partnership paid a special cash distribution from the sales proceeds of $6,151,430 or $107 per Unit. The Partnership continues to perform various improvements at the Properties which include roof replacements at Lakeview Village. The majority of the roof replacements were completed in the fourth quarter of 1997. The approximate cost of replacing the roofs is $400,000 and has been or will be funded from the Partnership's operating cash flow and cash reserves. The Partnership will evaluate the need for additional improvement work at the Properties on an ongoing basis. The General Partner declared a regular cash distribution of $6.00 per Unit for the quarter ended November 30, 1997 which was paid to investors on January 15, 1997. 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 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 certain 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 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. Results of Operations 1997 versus 1996 Partnership operations for the fiscal year ended November 30, 1997 generated net income of $2,687,490, compared with net income of $1,017,032 in fiscal 1996. The increase in net income is primarily attributable to a $2,582,641 gain recognized on the sale of Canterbury Park. Excluding the gain, the Partnership generated income from operations of $104,849. Net cash provided by operating activities was $1,112,952 for the fiscal year ended November 30, 1997 compared to $2,022,547 in fiscal 1996. The decrease in cash provided by operating activities is primarily attributable to the sale of Canterbury Park. Rental income totaled $3,714,870 for the fiscal year ended November 30, 1997 compared with $4,695,358 in fiscal 1996. The decrease is primarily attributable to the sale of Canterbury Park, and to a lesser extent, a decline in rental income at Lakeview Village due to lower occupancy. Property operating expenses totaled $2,123,570 for the fiscal year ended November 30, 1997 compared with $2,120,789 in fiscal 1996. The increase is primarily due to higher rental administrative expenses and parking lot repairs at Lakeview Village. The increase is also attributable to higher maintenance expenses and asphalt repairs at the Hamptons at Quail Hollow. Depreciation and amortization declined from $1,027,524 for the fiscal year ended November 30, 1996 to $879,851 in fiscal 1997. The decrease is primarily due to the sale of Canterbury Park and to certain furniture, fixtures and equipment becoming fully depreciated. General and administrative expenses increased from $140,163 in fiscal 1996 to $167,485 in fiscal 1997. The increase is primarily attributable to an increase in costs associated with Partnership accounting, tax and administrative services. During the 1997 period, certain expenses incurred by RI 5, its affiliates, and an unaffiliated third party service provider in servicing the Partnership, which were voluntarily absorbed by affiliates of RI 5 in prior periods, were reimbursable to RI 5 and its affiliates. 1996 versus 1995 Partnership operations for the fiscal year ended November 30, 1996 generated net income of $1,017,032, compared with net income of $759,410 in fiscal 1995. Net cash provided by operating activities was $2,022,547 for the fiscal year ended November 30, 1996 compared to $1,902,751 in fiscal 1995. The increase in net income and cash flow was primarily attributable to higher rental income. Rental income totaled $4,695,358 for the fiscal year ended November 30, 1996 compared with $4,471,922 in fiscal 1995. The increase reflects higher rental income at all three Properties, and was primarily attributable to increases in rental rates at each property. Property operating expenses totaled $2,120,789 for the fiscal year ended November 30, 1996 compared with $2,061,086 in fiscal 1995. The increase was primarily due to higher repairs and maintenance expenses at Canterbury Park and Lakeview Village and an increase in utilities expense at Canterbury Park. These expenses included interior cleaning and painting at both properties, and parking lot and roof repairs at Lakeview Village. Depreciation and amortization declined from $1,142,011 for the fiscal year ended November 30, 1995 to $1,027,524 in fiscal 1996. The decrease was primarily due to fully depreciated furniture, fixtures and equipment. General and administrative expenses increased from $120,354 in fiscal 1995 to $140,163 in fiscal 1996. The increase was primarily attributable to higher legal fees, audit fees and Partnership administrative expenses in the 1996 period. The average occupancy levels at each of the properties for the years ended November 30, 1997, 1996 and 1995 were as follows: Twelve Months Ended November 30, Property 1997 1996 1995 The Hamptons at Quail Hollow 94% 96% 96% Lakeview Village 88% 96% 95% Canterbury Park _ 96% 97% 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 fiscal 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 fiscal year ended November 30, 1997, which is filed as an exhibit under Item 14. Supplementary Data is incorporated by reference to page F-1 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 IV and RI 5, 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 IV, 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. ConAm Property Services IV, Ltd. ("CPS IV") is a California limited partnership organized on August 30, 1982. The sole general partner of CPS IV is Continental American Development, Inc. ("ConAm Development"). The names and positions held by the directors and executive officers of ConAm Development are set forth below. There are no family relationships between any 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 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 that time 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, 41, 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 Corporation. 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, 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. 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 below with respect to a description of certain costs of the General Partner and RI 5 reimbursed by the Partnership. Item 12. Security Ownership of Certain Beneficial Owners and Management As of November 30, 1997, no person was known by the Partnership to be the beneficial owner of more than five percent of the Units of the Partnership. Neither the General Partner nor any of its directors or executive officers owns any Units. Item 13. Certain Relationships and Related Transactions RI 5 and CPS IV received a total of $28,158 as the General Partners' allocable share of Net Cash from Operations with respect to the fiscal year ended November 30, 1997. Pursuant to the Certificate and Agreement of Limited Partnership of the Partnership, for the fiscal year ended November 30, 1997, $36,399 of the Partnership's net income was allocated to CPS IV and RI 5. For a description of the share of Net Cash from Operations and the allocation of income and loss to which the General Partners are entitled, reference is made to Note 3 to the Consolidated Financial Statements, included in the Partnership's Annual Report to Unitholders for the fiscal year ended November 30, 1997, which is filed as an exhibit under Item 14. Effective July 1, 1997, all General Partner allocations will be made solely to CPS IV. The Partnership has entered into property management agreements 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, where appropriate, 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 equal to 5% of gross revenues. A summary of property management fees earned by ConAm Management during the past three fiscal 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 November 30, 1997, which is filed as an exhibit under Item 14. Pursuant to Section 12(g) of the Partnership's 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 fiscal 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 November 30, 1997, which is filed as an exhibit under Item 14. PART IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K (a)(1) Financial Statements: Page Consolidated Balance Sheets - November 30, 1997 and 1996 (1) Consolidated Statements of Operations - For the years ended November 30, 1997, 1996 and 1995 (1) Consolidated Statements of Partners' Capital - For the years ended November 30, 1997, 1996 and 1995 (1) Consolidated Statements of Cash Flows - For the years ended November 30, 1997, 1996 and 1995 (1) Notes to the Consolidated Financial Statements (1) Independent Auditors' Report (1) Report of Former Independent Accountants (1) (a)(2) 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 fiscal year ended November 30, 1997, filed as an exhibit under Item 14. (a)(3) Exhibits: (4)(A) Second Amended and Restated Agreement of Limited Partnership (included as, and incorporated herein by reference to, Exhibit A to the Prospectus of Registrant dated March 27, 1985, contained in Amendment No. 1 to Registration Statement No. 2-95481 of Registrant, dated March 27, 1985 (the "Registration Statement")). (B) Subscription Agreement and Signature Page (included as, and incorporated herein by reference to, Exhibit 3.1 to Amendment No. 1 to the Registration Statement). (10)(A) Documents relating to Lakeview Village. (A.1) Purchase and Development Agreement, dated January 31, 1984 and exhibits thereto (included as, and incorporated herein by reference to, Exhibit 10.2 to Amendment No. 1 to the Registration Statement). (A.2) Amendments to Purchase and Development Agreement, dated May 31, 1985, July 31, 1985 and August 21, 1985 (included as, and incorporated herein by reference to, Exhibit (10)(A) to the Registrant's Annual Report on Form 10-K for the fiscal year ended November 30, 1985 (the "1985 Annual Report")). (A.3) Amended and Restated Agreement of General Partnership of Lakeview Village at Ponte Vedra Lakes Joint Venture, dated 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 August 31, 1992). (A.4) Loan Documents: Promissory Note and Assignment of Rents and Leases with respect to the refinancing of Lakeview Village, between Registrant and The Penn Mutual Life Insurance Company (included as, and incorporated herein by reference to, Exhibit A4 to the Registrant's 1993 Annual Report on Form 10-K filed on March 30, 1994). (A.5) Property Management Agreement between Lakeview Village at Ponte Vedra Lakes Joint Venture and Con Am Management Corporation for the Lakeview Village property (included as, and incorporated herein by reference to, Exhibit A5 to the Registrant's 1993 Annual Report on Form 10-K filed on March 30, 1994). (B) Documents relating to The Hamptons. (B.1) Purchase and Development Agreement, dated October 9, 1984 and exhibits thereto (included as, and incorporated herein by reference to, Exhibit 10.3 to Amendment No. 1 to the Registration Statement). (B.2) First Amendment to Purchase and Development Agreement, dated December 12, 1985 (included as, and incorporated herein by reference to, Exhibit (10)(B) to the Registrant's Annual Report on Form 10-K for the fiscal year ended November 30, 1986). (B.3) Real Estate Note, dated October 9, 1984 (filed as, and incorporated herein by reference to Exhibit (10)(B) to the 1985 Annual Report). (B.4) Property Management Agreement between The Hamptons Joint Venture and ConAm Management Corporation for the Hamptons at Quail Hollow II property (included as, and incorporated herein by reference to, Exhibit B4 to the Registrant's 1993 Annual Report on Form 10-K filed on March 30, 1994). (C) Documents relating to Canterbury Park: (C.1) Purchase and Development Agreement, dated September 7, 1984 (included as, and incorporated herein by reference to, Exhibit 10.4 to Amendment No. 1 to the Registration Statement). (C.2) Amendments to Purchase and Development Agreement, dated April 30, 1985 and June 30, 1985 (included as, and incorporated herein by reference to, Exhibit (10)(C) to the 1985 Annual Report). (C.3) Property Management Agreement between Hutton/ConAm Realty Investors 5 and Con Am Management Corporation for the Canterbury Park II property (included as, and incorporated herein by reference to, Exhibit C3 to the Registrant's 1993 Annual Report on Form 10-K filed on March 30, 1994). (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 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended August 31, 1992). (13) Annual Report to Unitholders for the fiscal year ended November 30, 1997. (21) List of Subsidiaries - Joint Ventures (included as, and incorporated herein by reference to, Exhibit (22) to the Registrant's Annual Report on Form 10-K filed for the fiscal year ended November 30, 1991). (27) Financial Data Schedule (99) Portions of the Prospectus of the Registrant, dated March 27, 1985 (included as, and incorporated herein by reference to, Exhibit 28 to the Registrant's 1987 Annual Report on Form 10-K filed for the fiscal year ended November 30, 1987). (b) Reports on Form 8-K: On December 1, 1997, the Partnership filed a Form 8-K reporting the change in Registrant's Certifying Accountants. On February 3, 1998, the Partnership filed a Form 8-K disclosing the sale of RI 5's co-General Partner interest in the Partnership to CPS IV. 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: February 28, 1998 BY: ConAm Property Services IV, 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 capabilities and on the dates indicated. CONAM PROPERTY SERVICES IV, LTD. A General Partner By: Continental American Development, Inc. General Partner Date: February 28, 1998 BY: /s/ Daniel J. Epstein Daniel J. Epstein Director and President Date: February 28, 1998 BY: /s/ Scott Dupree Scott Dupree Vice President and Director Date: February 28, 1998 BY: /s/ Robert J. Svatos Robert J. Svatos Vice President and Director Date: February 28, 1998 BY: /s/ Ralph W. Tilley Ralph W. Tilley Vice President Date: February 28, 1998 BY: /s/ J. Bradley Forrester J. Bradley Forrester Vice President Exhibit 13 ConAm Realty Investors 5 L.P. 1997 Annual Report ConAm Realty Investors 5 L.P. is a California limited partnership formed in 1985 to acquire, operate and hold for investment multifamily residential properties. The Partnership's portfolio currently consists of two apartment properties located in Florida and North Carolina. Provided below is a comparison of average occupancy levels at the properties for the years ended November 30, 1997 and 1996. Average Occupancy Property Location 1997 1996 Lakeview Village Ponte Vedra Beach, Florida 88% 96% The Hamptons at Quail Hollow Charlotte, North Carolina 94% 96% 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 5 L.P. (the "Partnership"). Included in this report is an overview of general market conditions affecting the Partnership's remaining two properties, an update of operations at each of the properties and financial highlights for the year ended November 30, 1997. This annual report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and 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. Cash Distributions The Partnership paid quarterly cash distributions totaling $24.00 per Unit for the year ended November 30, 1997, including the fourth quarter distribution of $6.00 per Unit, which was credited to your brokerage account or sent directly to you on January 15, 1997. Since inception, the Partnership has paid distributions totaling $367.36 per original $500 Unit, including $107 per Unit in return of capital. The level of cash distributions will be evaluated on a quarterly basis and will depend on the Partnership's operating results and future cash needs. Operations Overview In 1997, operations at the Partnership's properties continued to be impacted to varying degrees by strong competition for tenants in the markets where the two properties are located. Although population and job growth escalated in both areas, the addition of several newly constructed complexes to both markets limited rental rate increases and caused overall vacancy rates to rise. As a result of new apartment construction in the Jacksonville area, several large apartment properties have begun to offer rental concessions to attract tenants. This competition, as well as the effects of extensive roof replacements at Lakeview Village, contributed to a decline in average occupancy at Lakeview Village to 88% in fiscal 1997, from 96% in fiscal 1996. In the Charlotte market, strong economic growth helped offset the effects of new construction. Average occupancy at The Hamptons at Quail Hollow declined only slightly to 94% in fiscal 1997 from 96% in fiscal 1996, and rental income increased for the year. It is expected that both markets will remain extremely competitive in the coming months, until a slowdown in new construction allows for the absorption of this new supply. Several interior and exterior repairs were performed at each property during 1997, including parking lot repairs at Lakeview Village, asphalt repairs at The Hamptons at Quail Hollow and other routine upgrades. In addition, ongoing roof replacements at Lakeview Village were substantially completed in the fourth quarter of 1997. The General Partner continues to evaluate the need for capital improvements to increase the appeal of the properties and position them for an eventual sale. 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 certain 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 Lakeview Village Lakeview Village is a 240-unit luxury apartment complex located in an oceanside residential area of Ponte Vedra Beach, Florida southeast of Jacksonville. The property reported an average occupancy level of 88% in fiscal 1997, down from 96% in 1996. Strong economic growth in the Jacksonville area has led to an increase in new multifamily construction, with construction permits issued for approximately 3,831 new apartment units throughout the year. Continued construction at this pace could further soften the market, as population and job growth may not keep pace with the number of new apartment units entering the market. Property improvements for the year included extensive roof replacements, which temporarily affected the property's occupancy level, asphalt repairs, carpet replacement and other improvements to retain the property's competitive position. The Hamptons at Quail Hollow The Hamptons at Quail Hollow is a 232-unit apartment community located in southeastern Charlotte, North Carolina. The property's average occupancy declined slightly to 94% in 1997, from 96% in fiscal 1996, and rental income increased marginally from the prior year. The general strength of the Charlotte market has prompted a surge in new construction over the last two years. As a result, competition for tenants is intensifying, and has induced some large apartment properties to offer rental concessions to increase occupancy rates. While new construction could impact the rate of rental activity in the short term, continued job and population growth should keep this market from becoming significantly overbuilt. Property improvements performed in 1997 included asphalt repairs and exterior painting. Summary We will continue to monitor market conditions to determine the opportune time to sell the Properties, and are also evaluating 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. General Partner of ConAm Property Services IV, Ltd. February 28, 1998 Financial Highlights Selected Financial Data For the yearss ended November 30, 1997 1996 1995 1994 1993 Dollars in thousands, except for per unit data Total Income $ 3,845 $ 4,798 $ 4,583 $ 4,337 $ 4,201 Income from Operations 105 1,017 759 623 382 Net Income 2,687 1,017 759 623 382 Net Cash Provided by Operating Activities 1,113 2,023 1,903 1,799 1,316 Long-term Obligations 6,185 6,299 6,405 6,502 6,593 Total Assets at Year End 17,021 22,053 22,912 23,946 26,007 Income from Operations per Limited Partnership Unit* 1.19 17.21 12.77 10.46 6.33 Net Income per Limited Partnership Unit* 46.11 17.21 12.77 10.46 6.33 Distributions per Limited Partnership Unit* 131.00 30.00 30.00 26.00 25.00 * 57,490 Units outstanding Cash Distributions Per Limited Partnership Unit Through November 30, 1997 1997 1996 Special Distributions* $107.00 $ _ First Quarter 6.00 7.50 Second Quarter 6.00 7.50 Third Quarter 6.00 7.50 Fourth Quarter 6.00 7.50 Total $131.00 $30.00 * On January 24, 1997, the Partnership paid a special cash distribution totaling $107 per Unit, reflecting a return of capital from the net proceeds of the December 1996 sale of Canterbury Park. Quarterly cash distributions were reduced in 1997 due to the decrease in net cash provided by operating activities, primarily due to the sale of Canterbury Park. Consolidated Balance Sheets At November 30, At November 30, 1997 1996 Assets Investments in real estate: Land $ 3,780,687 $ 3,780,687 Buildings and improvements 22,271,530 22,125,028 26,052,217 25,905,715 Less accumulated depreciation (10,808,639) (10,055,068) 15,243,578 15,850,647 Property held for disposition _ 3,687,584 Cash and cash equivalents 1,424,876 2,121,544 Restricted cash 224,210 225,415 Other assets, net of accumulated amortization of $131,808 in 1997 and $99,528 in 1996 128,814 167,504 Total Assets $17,021,478 $22,052,694 Liabilities and Partners' Capital Liabilities: Mortgage payable $ 6,185,012 $ 6,299,052 Distribution payable 359,019 439,974 Accounts payable and accrued expenses 388,948 309,475 Due to general partners and affiliates 15,811 19,613 Security deposits 89,448 129,482 Total Liabilities 7,038,238 7,197,596 Partners' Capital: General Partners 190,878 182,637 Limited Partners (57,490 units outstanding) 9,792,362 14,672,461 Total Partners' Capital 9,983,240 14,855,098 Total Liabilities and Partners' Capital $17,021,478 $22,052,694 Consolidated Statements of Operations For the years ended November 30, 1997 1996 1995 Income Rental $3,714,870 $4,695,358 $4,471,922 Interest 130,067 102,810 111,447 Total Income 3,844,937 4,798,168 4,583,369 Expenses Property operating 2,123,570 2,120,789 2,061,086 Depreciation and amortization 879,851 1,027,524 1,142,011 Interest 484,182 492,660 500,508 General and administrative 167,485 140,163 120,354 Write-off of assets 85,000 _ _ Total Expenses 3,740,088 3,781,136 3,823,959 Income from operations 104,849 1,017,032 759,410 Gain on sale of property 2,582,641 _ _ Net Income $2,687,490 $1,017,032 $ 759,410 Net Income Allocated: To the General Partners $ 36,399 $ 27,769 $ 25,193 To the Limited Partners 2,651,091 989,263 734,217 $2,687,490 $1,017,032 $ 759,410 Per limited partnership unit (57,490 Units outstanding): Income from operations $ 1.19 $17.21 $12.77 Gain on sale of property 44.92 _ _ Net Income $46.11 $17.21 $12.77 Consolidated Statements of Partners' Capital For the years ended November 30, 1997, 1996 and 1995 General Limited Partners Partners Total Balance at November 30, 1994 $ 200,071 $16,398,381 $16,598,452 Net income 25,193 734,217 759,410 Distributions ($30.00 per Unit) (35,198) (1,724,700) (1,759,898) Balance at November 30, 1995 190,066 15,407,898 15,597,964 Net income 27,769 989,263 1,017,032 Distributions ($30.00 per Unit) (35,198) (1,724,700) (1,759,898) Balance at November 30, 1996 182,637 14,672,461 14,855,098 Net income 36,399 2,651,091 2,687,490 Distributions ($131.00 per Unit) (28,158) (7,531,190) (7,559,348) Balance at November 30, 1997 $ 190,878 $ 9,792,362 $ 9,983,240 Consolidated Statements of Cash Flows For the years ended November 30, 1997 1996 1995 Cash Flows From Operating Activities: Net Income $ 2,687,490 $ 1,017,032 $ 759,410 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 879,851 1,027,524 1,142,011 Write-off of assets 85,000 _ _ Gain on sale of property (2,582,641) _ _ Increase (decrease) in cash arising from changes in operating assets and liabilities: Fundings to restricted cash (180,710) (169,425) (163,568) Release of restricted cash 181,915 163,446 167,460 Other assets 6,410 (4,968) (8,577) Accounts payable and accrued expenses 79,473 (5,063) 197 Due to general partners and affiliates (3,802) 764 762 Security deposits (40,034) (6,763) 5,056 Net cash provided by operating activities 1,112,952 2,022,547 1,902,751 Cash Flows From Investing Activities: Net proceeds from sale of property 6,270,225 _ _ Additions to real estate (325,502) (288,766) (69,977) Net cash provided by (used for) investing activities 5,944,723 (288,766) (69,977) Cash Flows From Financing Activities: Distributions (7,640,303) (1,759,898) (1,701,235) Mortgage principal payments (114,040) (105,560) (97,713) Net cash used for financing activities (7,754,343) (1,865,458) (1,798,948) Net increase (decrease) in cash and cash equivalents (696,668) (131,677) 33,826 Cash and cash equivalents, beginning of period 2,121,544 2,253,221 2,219,395 Cash and cash equivalents, end of period $1,424,876 $2,121,544 $ 2,253,221 Supplemental Disclosure of Cash Flow Information: Cash paid during the period for interest $ 484,182 $ 492,660 $ 500,508 Supplemental Disclosure of Non-cash Investing Activities: Write-off of buildings & improvements $ (179,000) $ _ $ _ Write-off of accumulated depreciation $ 94,000 $ _ $ _ Notes to the Consolidated Financial Statements November 30, 1997, 1996 and 1995 1. Organization ConAm Realty Investors 5 L.P., formerly Hutton/ConAm Realty Investors 5, (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 June 28, 1984 and amended and restated August 20, 1985. The Partnership was formed for the purpose of acquiring and operating multi-family residential real estate. The original General Partners of the Partnership were RI 5 Real Estate Services, Inc. ("RI 5"), an affiliate of Lehman Brothers Inc., and ConAm Property Services IV, Ltd. ("CPS IV"), an affiliate of Continental American Properties, Ltd (the "General Partners"). On January 27, 1998, CPS IV acquired RI 5's co-general partner interest in the Partnership pursuant to a purchase agreement between CPS IV and RI 5 dated August 29, 1997. As a result, CPS IV now serves as the sole general partner of the Partnership. The Partnership will continue until December 31, 2010 unless sooner terminated pursuant to the terms of the Partnership Agreement. 2. Significant Accounting Policies and Practices Financial Statements - The consolidated financial statements are prepared on the accrual basis of accounting and include the accounts of the Partnership and its affiliated ventures when the Partnership has a controlling interest in the ventures. The effect of transactions between the Partnership and its ventures have been eliminated in consolidation. Investments in Real Estate - Investments in real estate are recorded at cost less accumulated depreciation and include the initial purchase price of the property, legal fees, acquisition and closing costs. Revenue is recognized when earned and expenses (including depreciation) are recognized when incurred in accordance with generally accepted accounting principles. Leases are generally for terms of one year or less. Depreciation is computed using the straight-line method based costs incurred for upon the estimated useful lives (25 years) of the properties. 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 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. Other Assets - Included in other assets are deferred mortgage costs incurred in connection with obtaining financing on one of the Partnership's properties. Such costs are amortized over the term of the loan on a method which approximates the effective- interest method. Income Taxes - No provision for income taxes has been made in the financial statements as the liability for such taxes is that of the partners rather than the Partnership. Cash and Cash Equivalents - Cash and cash equivalents consist of highly liquid, short-term investments with original maturities of three months or less. Concentration of Credit Risk - Financial instruments which potentially subject the Partnership to a concentration of credit risk principally consist of cash and cash equivalents and restricted cash in excess of the financial institutions' federally insured limits. The Partnership invests its available cash and cash equivalents, and restricted cash with high credit quality, federally insured financial institutions. Restricted Cash - Restricted cash consists of escrow deposits for real estate taxes and casualty insurance as required by the first mortgage lender on the Lakeview Village property. 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, 98% to the limited partners and 2% to the General Partners until each limited partner has received an amount equal to an annual 7% return for such year. Thereafter, net cash from operations is to be distributed 100% to the General Partners until the General Partners have received distributions for the year (including the 2% distribution described above) equal to 10% of the aggregate net cash from operations distributed to the partners for such fiscal year to that point. Any remaining net cash from operations is to be distributed 90% to the limited partners and 10% to the General Partners. Net loss and all depreciation is to be allocated 99% to the limited partners and 1% to the General Partners. Net income is to be allocated as follows: a. To the extent that net income before depreciation does not exceed the amount of net cash from operations distributable to the partners with respect to such fiscal year, net income before depreciation is to be allocated among the partners, pro rata in accordance with the amount of net cash from operations distributable to each partner with respect to such fiscal year to the extent thereof; and b. To the extent that net income before depreciation exceeds the amount of net cash from operations distributable to the partners with respect to such fiscal year, such excess is to be allocated (1) first, 100% to the General Partners, pro rata, in an amount equal to the excess, if any, of the General Partners' deficit, if any, in their capital accounts, over an amount equal to 1% of the aggregate capital contributions to the Partnership as reduced by the amount of the General Partners' capital contributions, and (2) second, 99% to the limited partners and 1% to the General Partners. For the years ended November 30, 1996 and 1995, net income before depreciation exceeded net cash from operations distributable to the partners by $252,378, and $109,243 respectively. Pursuant to the Partnership Agreement and as described in (b)(2) above, this excess was allocated 99% to the limited partners and 1% to the General Partners. For the year ended November 30, 1997, net income before depreciation did not exceed the amount of net cash from operations distributable to the partners. Net proceeds from sales or refinancing is to be distributed 100% to the limited partners until each limited partner has received an amount equal to his adjusted capital investment (as defined in the Partnership Agreement) and an annual, cumulative 7% return thereon. The balance, if any, is to be distributed 85% to the limited partners and 15% to the General Partners. Generally, all gain from sales will be allocated 99% to the limited partners and 1% to the General Partners until each limited partner has received an amount equal to his adjusted capital investment and an annual, non-compounded cumulative 7% return thereon. Thereafter, gain will be allocated pro rata to the limited and General Partners' capital accounts, as reduced by the amount of the net proceeds distributed from sale or refinancing with respect to such transactions, until the limited and general partner capital accounts are in a ratio of 85 to 15. The balance, if any, is to be distributed 85% to the limited partners and 15% to the General Partners. Effective July 1, 1997, all General Partner allocations are to be made solely to CPS IV. 4. Investments in Real Estate Since inception, the Partnership acquired three residential apartment complexes either directly or through investments in joint ventures as follows: Date Purchase Property Name Units Location Acquired Price Lakeview Village 240 Ponte Vedra Beach,FL 8/22/85 $12,266,187 Canterbury Park Apts. 96 Raleigh,NC 11/21/85 5,467,661 The Hamptons 232 Charlotte,NC 5/30/86 11,694,137 On December 10, 1996, the Partnership closed on the sale of Canterbury Park Apartments ("Canterbury Park"). Canterbury Park sold for $6,387,300 to Burcam Capital I, L.L.C., a North Carolina limited liability company (the "Buyer"), which is unaffiliated with the Partnership. The transaction resulted in a gain on sale of Canterbury Park of $2,582,641, which is reflected in the Partnership's consolidated statements of operations for the year ended November 30, 1997. On January 24, 1997, the General Partners paid a special distribution of $6,151,430, representing the net proceeds from the sale of Canterbury Park, to the limited partners. Lakeview Village and The Hamptons were acquired through joint ventures with unaffiliated developers. To each venture, the Partnership assigned its rights to acquire the above properties and contributed cash equal to the purchase price of the properties. The developers did not make an initial capital contribution to these ventures. The initial joint venture agreement of The Hamptons substantially provides that: a. Net cash from operations of The Hamptons is to be distributed 100% to the Partnership until it has received an annual, noncumulative return of 8% on 118% of its adjusted capital contribution. Any remaining balance is to be distributed 80% to the Partnership and 20% to the co- venturer. b. Net income of the joint venture is to be allocated to the Partnership and the co-venturer basically in accordance with the distribution of net cash from operations. All losses and depreciation are to be allocated to the Partnership. c. Net proceeds from a sale or refinancing of The Hamptons will be distributed 100% to the Partnership until it has received an amount equal to an annual, cumulative 8% return on 118% of its adjusted capital contribution and an amount equal to 118% of its adjusted capital contribution. Distributions are to then be made to the co-venturer until it has received an annual, cumulative 8% return on $928,000 as reduced by all prior distributions of net cash from operations and an amount equal to $928,000 as reduced by all prior distributions of net proceeds from refinancing. Any remaining net proceeds are to be distributed 80% to the Partnership and 20% to the co-venturer. The joint venture agreement of Lakeview Village substantially provides that: a. Available cash from operations of Lakeview Village is to be distributed 100% to the Partnership until it has received its annual, noncumulative preferred return, of $650,000. Any remaining balance is to be distributed 99% to the Partnership and 1% to the corporate General Partners. b. Net income of Lakeview Village is to be allocated first, proportionately to partners with negative capital accounts, as defined, until such capital accounts, as defined, have been increased to zero. Then, to the Partnership up to the amount of any payments made on account of its preferred return; thereafter, 99% to the Partnership and 1% to the corporate General Partners. All net losses are to be allocated first to the partners with positive capital accounts, as defined, until such accounts have been reduced to zero, then 99% to the Partnership and 1% to the corporate General Partners. c. Income from a sale of Lakeview Village is to be allocated to the Partnership until the Partnership's capital account, as defined, is equal to the fair market value of the ventures' assets at the date of the amendment. Any remaining balance is then 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 a positive capital account balance, as defined; thereafter, 99% to the Partnership and 1% to the corporate General Partners. 5. Mortgage Payable On October 27, 1993, the maturity date, the Partnership obtained replacement financing on its Lakeview Village property from The Penn Mutual Life Insurance Company ("Penn Mutual"), an unaffiliated party. During 1996, Penn Mutual transferred the mortgage loan to Midland Loan Services, Inc. under the existing terms. Total proceeds of $6,600,000 were received and are collateralized by a Mortgage and Security Agreement and an Assignment of Rents and Leases Agreement encumbering the property. The loan is for a term of seven years and bears interest at an annual rate of 7.75% requiring monthly installments of principal and interest based on a 25 year amortization schedule. The proceeds of this financing along with Partnership cash reserves were used to repay the outstanding amounts due Aetna Life Insurance Company on the Partnership's prior mortgage. Partnership cash reserves were also used to pay refinancing expenses of $184,825 and fund escrows of $355,664. The escrowed funds are applied to the property for real estate taxes and insurance. The loan matures on October 27, 2000, upon which time a balloon payment of $5,797,356 and any accrued interest are due. Annual maturities of mortgage note principal over the next five years are as follows: Year Amount 1998 $ 123,197 1999 133,091 2000 5,928,724 $6,185,012 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, distribution payable, accounts payable and accrued expenses, due to general partner and affiliates, and security deposits are reasonable estimates of their fair values due to the short-term nature of those instruments. The carrying amount of the mortgage payable is a reasonable estimate of fair value based on management's belief that the interest rates and terms of the debt are comparable to those commercially available to the Partnership in the marketplace for similar instruments. 7. Transactions with Related Parties The following is a summary of fees earned and reimbursable expenses to the General Partners and affiliates for the years ended November 30, 1997, 1996 and 1995, and the unpaid portion at November 30, 1997: Earned and Unpaid at November 30, Earned 1997 1997 1996 1995 RI5 Real Estate Services, Inc. and affiliates: Out-of-pocket expenses $ _ $ 2,393 $ 1,462 $ 2,319 ConAm and affiliates: Property operating salaries _ 366,685 342,575 336,666 Property management fees 15,811 187,757 234,958 223,720 Total $ 15,811 $556,835 $ 578,995 $ 562,705 8. Reconciliation of Financial Statement and Tax Information The following is a reconciliation of the net income for financial statement purposes to net income for federal income tax purposes for the years ended November 30, 1997, 1996 and 1995: 1997 1996 1995 Net income per financial statements $ 2,687,490 $1,017,032 $ 759,410 Depreciation deducted for tax purposes in excess of depreciation expense per financial statements (7,153) (63,543) (3,589) Capital improvement costs capitalized for tax purposes not recorded per financial statements 204,932 _ _ Tax basis joint venture net income in excess of GAAP basis joint venture net income/(loss) (84,482) (54,848) 8,238 Gain on sale of property for tax purposes in excess of gain per financial statements 894,357 _ _ Other 22 6,434 1,656 Taxable net income (unaudited) $ 3,695,166 $ 905,075 $ 765,715 The following is a reconciliation of partners' capital for financial statement purposes to partners' capital for federal income tax purposes as of November 30, 1997, 1996 and 1995: 1997 1996 1995 Partners' capital per financial statements $ 9,983,240 $14,855,098 $15,597,964 Adjustment for cumulative difference between tax basis net income and net income per financial statements 52,555 (955,121) (843,162) Partners' capital per income tax return (unaudited) $10,035,795 $13,899,977 $14,754,802 At November 30, 1997, the tax basis of the Partnership's assets was $18,696,093 and tax basis of the Partnership's liabilities was $8,660,298. 9. Distributions Paid Cash distributions, per the consolidated statements of partners' capital, are recorded on the accrual basis, which recognizes specific record dates for payments within each fiscal year. The consolidated statements of cash flows recognize actual cash distributions paid during the fiscal year. The following table discloses the annual amounts as presented on the consolidated financial statements: Distributions Distributions Payable Distributions Distributions Payable Beginning of Year Declared Paid November 30 1997 $439,974 $7,559,348 $7,640,303 $359,019 1996 439,974 1,759,898 1,759,898 439,974 1995 381,311 1,759,898 1,701,235 439,974 Independent Auditors' Report The General Partner ConAm Realty Investors 5 L.P.: We have audited the accompanying consolidated balance sheet of ConAm Realty Investors 5 L.P. (a California limited partnership) (formerly Hutton/ConAm Realty Investors 5) and consolidated ventures (the "Partnership"), as of November 30, 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 5 L.P. and consolidated ventures as of November 30, 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 February 5, 1998 Report of Former Independent Accountants To the Partners of ConAm Realty Investors 5 L.P.: We have audited the consolidated balance sheet of ConAm Realty Investors 5 L.P. (formerly Hutton/ConAm Realty Investors 5), a California limited partnership, and Consolidated Ventures as of November 30, 1996 and the related consolidated statements of operations, partners' capital (deficit) and cash flows for each of the two years in the period ended November 30, 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 5 L.P., a California limited partnership, and Consolidated Ventures as of November 30, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the two years in the period ended November 30, 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 November 30, 1997 (Unaudited) Acquisition Cost (Purchase Price Partnership's Plus General Share of Partners' November 30, Acquisition 1997 Appraised Property Date of Acquisition Fees) Value (1) Lakeview Village at Ponte Vedra Lakes 08-22-85 $12,805,899 $11,700,000(1) The Hamptons at Quail Hollow 05-30-86 12,208,679 14,200,000(1) $25,014,578 $25,900,000 Cash and cash equivalents (including restricted cash) 1,649,086 Other assets 34,665 27,583,751 Less: Total liabilities (7,038,238) Partnership Net Asset Value (2) $20,545,513 Net Asset Value Allocated: Limited Partners 20,528,902 General Partner 16,611 $20,545,513 Net Asset Value Per Unit (57,490 Units outstanding) $357.09 (1) This represents the Partnership's share of the November 30, 1997 Appraised Values which were determined by an independent property appraisal firm. (2) The Partnership Net Asset Value assumes a hypothetical sale at November 30, 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 November 30, 1997 Consolidated Ventures Lakeview Village The Residential Property: Apartments Hamptons Total Location Ponte Vedra Charlotte, na Beach, FL NC Construction date 1984-1985 1985-1986 na Acquisition date 08-22-85 05-30-86 na Life on which depreciation in latest income statements is computed 25 years 25 years na Encumbrances $ 6,185,012 $ _ $ 6,185,012 Initial cost to Partnership: Land $ 1,543,406 $ 2,208,781 $ 3,752,187 Buildings and improvements $11,321,843 $ 10,085,246 $21,407,089 Costs capitalized subsequent to acquisition: Land, buildings and improvements $ 908,988 $ 162,953 $ 1,071,941 Write off of buildings and improvements $ (179,000) $ _ $ (179,000) Gross amount at which carried at close of period: (1) Land $ 1,571,906 $ 2,208,781 $ 3,780,687 Buildings and improvements 12,023,331 10,248,199 22,271,530 $13,595,237 $ 12,456,980 $26,052,217 Accumulated depreciation (2) $ 5,854,754 $ 4,953,885 $10,808,639 (1) Aggregate cost for Federal income tax purposes is $26,436,149. (2) The amount of accumulated depreciation for Federal income tax purposes is $15,028,881. A reconciliation of the carrying amount of real estate and accumulated depreciation for the years ended November 30, 1997, 1996, and 1995 follows: 1997 1996 1995 Investments in real estate: Beginning of period $31,693,216 $31,404,450 $31,334,473 Additions 325,502 288,766 69,977 Dispositions and disposals (5,966,501) _ _ End of period $26,052,217 $31,693,216 $31,404,450 Accumulated depreciation: Beginning of period $12,154,985 $11,159,740 $10,050,009 Depreciation expense 847,571 995,245 1,109,731 Dispositions and disposals (2,193,917) _ _ End of period $10,808,639 $12,154,985 $11,159,740 Independent Auditors' Report The General Partner ConAm Realty Investors 5 L.P.: Under date of February 5, 1998, we reported on the consolidated balance sheet of ConAm Realty Investors 5 L.P. (a California limited partnership) (formerly Hutton/ConAm Realty Investors 5) and consolidated ventures (the "Partnership") as of November 30, 1997, and the related consolidated statements of operations, partnersO 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 February 5, 1998 Report of Former Independent Accountants Our report on the consolidated financial statements of ConAm Realty Investors 5 L.P. (formerly Hutton/ConAm Realty Investors 5), 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 5 for the year ended November 30, 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 2 RI 5 FINANCIAL DATA SCHEDULE FOR 1997 FORM 10-K
5 12-MOS NOV-30-1997 NOV-30-1997 1,649,086 0 0 0 0 0 26,052,217 10,808,639 17,021,478 853,226 6,185,012 0 0 0 9,983,240 17,021,478 3,714,870 3,844,937 0 0 3,255,906 0 484,182 0 0 0 0 2,582,641 0 2,687,490 46.11 46.11
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