-----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, CEavHNMfz1roiVJlgr+Y5NuoIt6oqZf4lq3ba9jlEQFbuaOMwHMFnXCKDxQQ66Zd 4G5h+jq2A2tmY6K4c+XCZw== 0000711642-05-000051.txt : 20050329 0000711642-05-000051.hdr.sgml : 20050329 20050329081150 ACCESSION NUMBER: 0000711642-05-000051 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050329 DATE AS OF CHANGE: 20050329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES 3 CENTRAL INDEX KEY: 0000768890 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 942940208 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-14187 FILM NUMBER: 05707990 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: POST OFFICE BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 10KSB 1 ccip3.txt CCIP3 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-KSB (Mark one) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period _________to _________ Commission file number 0-14187 CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3 (Name of small business issuer in its charter) California 94-2940208 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 Beattie Place, PO Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (864) 239-1000 Issuer's telephone number Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Units of Limited Partnership Interest (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. [X] State issuer's revenues for its most recent fiscal year. $11,817,000 State the aggregate market value of the voting partnership interests held by non-affiliates computed by reference to the price at which the partnership interests were sold, or the average bid and asked prices of such partnership interests as of December 31, 2004. No market exists for the limited partnership interests of the Registrant, and, therefore, no aggregate market value can be determined. DOCUMENTS INCORPORATED BY REFERENCE None The matters discussed in this report contain certain forward-looking statements, including, without limitation, statements regarding future financial performance and the effect of government regulations. Actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors including, without limitation: national and local economic conditions; the terms of governmental regulations that affect the Registrant and interpretations of those regulations; the competitive environment in which the Registrant operates; financing risks, including the risk that cash flows from operations may be insufficient to meet required payments of principal and interest; real estate risks, including variations of real estate values and the general economic climate in local markets and competition for tenants in such markets; litigation, including costs associated with prosecuting and defending claims and any adverse outcomes, and possible environmental liabilities. Readers should carefully review the Registrant's financial statements and the notes thereto, as well as the risk factors described in the documents the Registrant files from time to time with the Securities and Exchange Commission. PART I Item 1. Description of Business Consolidated Capital Institutional Properties/3 (the "Registrant" or "Partnership") was organized on May 23, 1984, as a limited partnership under the California Uniform Limited Partnership Act. Commencing July 23, 1985, the Partnership offered 800,000 Units of Limited Partnership Interests (the "Units") at a purchase price of $250 per unit pursuant to a Registration Statement filed with the Securities and Exchange Commission. The Units represent equity interests in the Partnership and entitle the holders thereof to participate in certain allocations and distributions of the Partnership. The sale of Units terminated on May 15, 1987, with 383,033 units sold for an aggregate of approximately $95,758,000. Since its initial offering, the Partnership has not received, nor are limited partners required to make, additional capital contributions. The general partner of the Partnership is ConCap Equities, Inc. ("CEI" or the "General Partner"), a Delaware corporation. The General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The Partnership Agreement provides that the Partnership is to terminate on December 31, 2015 unless terminated prior to such date. The Partnership is engaged in the business of operating and holding real estate properties for investment. The Partnership was formed for the benefit of its Limited Partners (herein so called and together with the General Partner shall be called the "Partners") to lend funds to ConCap Equity Partners/3, ConCap Equity Partners/4, and ConCap Equity Partners/5 ("EP/3", "EP/4" and "EP/5", respectively). EP/3, EP/4 and EP/5 represent California limited partnerships in which certain of the partners were former shareholders and former management of Consolidated Capital Equities Corporation ("CCEC"), the former corporate general partner of the Partnership. Through December 31, 1994, the Partnership had made twelve specific loans against a Master Loan agreement and advanced a total of $67,300,000 (the "Master Loan"). EP/3 used $17,300,000 of the loaned funds to purchase two apartment complexes and one office building. EP/4 used $34,700,000 of the loaned funds to purchase four apartment complexes and one office building, which was subsequently sold in 1989. EP/5 used $15,300,000 of the loaned funds to purchase two apartment complexes and two office buildings. Through a series of transactions, the Partnership has acquired all of EP/3, EP/4 and EP/5's properties in full settlement of their liability under the Master Loan. For a brief description of the properties owned by the Partnership refer to "Item 2. Description of Properties". Upon the Partnership's formation in 1984, CCEC, a Colorado corporation, was the corporate general partner. In 1988, through a series of transactions, Southmark Corporation ("Southmark") acquired controlling interest in CCEC. In December 1988, CCEC filed for reorganization under Chapter 11 of the United States Bankruptcy Code. In 1990, as part of CCEC's reorganization plan, CEI acquired CCEC's general partner interests in the Partnership and in 15 other affiliated public limited partnerships (the "Affiliated Partnerships") and CEI replaced CCEC as managing general partner in all 16 partnerships. The selection of CEI as the sole managing general partner was approved by a majority of the limited partners in the Partnership and in each of the Affiliated Partnerships pursuant to a solicitation of the Limited Partners dated August 10, 1990. As part of this solicitation, the Limited Partners also approved an amendment to the Partnership Agreement to limit changes of control of the Partnership. As of December 31, 2004, AIMCO IPLP, L.P. an affiliate of AIMCO, owned 100% of the outstanding stock of CEI. At December 31, 2004, the Partnership owned seven apartment complexes located in Florida, North Carolina, Washington, Michigan, Utah and Colorado, which range in age from 19 to 36 years old. The Partnership has no employees. Management and administrative services are provided by the General Partner and by agents retained by the General Partner. An affiliate of the General Partner provides such property management services. Risk Factors The real estate business in which the Partnership is engaged is highly competitive. There are other residential properties within the market area of the Partnership's properties. The number and quality of competitive properties, including those which may be managed by an affiliate of the General Partner, in such market area could have a material effect on the rental market for the apartments at the Partnership's properties and the rents that may be charged for such apartments. While the General Partner and its affiliates own and/or control a significant number of apartment units in the United States, such units represent an insignificant percentage of total apartment units in the United States and competition for the apartments is local. Laws benefiting disabled persons may result in the Partnership's incurrence of unanticipated expenses. Under the Americans with Disabilities Act of 1990, or ADA, all places intended to be used by the public are required to meet certain Federal requirements related to access and use by disabled persons. Likewise, the Fair Housing Amendments Act of 1988, or FHAA, requires apartment properties first occupied after March 13, 1990 to be accessible to the handicapped. These and other Federal, state and local laws may require modifications to the Partnership's properties, or restrict renovations of the properties. Noncompliance with these laws could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature, which could result in substantial capital expenditures. Although the General Partner believes that the Partnership's properties are substantially in compliance with present requirements, the Partnership may incur unanticipated expenses to comply with the ADA and the FHAA. Both the income and expenses of operating the properties owned by the Partnership are subject to factors outside of the Partnership's control, such as changes in the supply and demand for similar properties resulting from various market conditions, increases/decreases in unemployment or population shifts, changes in the availability of permanent mortgage financing, changes in zoning laws, or changes in patterns or needs of users. In addition, there are risks inherent in owning and operating residential properties because such properties are susceptible to the impact of economic and other conditions outside of the control of the Partnership. There have been, and it is possible there may be other, Federal, state, and local legislation and regulations enacted relating to the protection of the environment. The Partnership is unable to predict the extent, if any, to which such new legislation or regulations might occur and the degree to which such existing or new legislation or regulations might adversely affect the properties owned by the Partnership. From time to time, the Federal Bureau of Investigation, or FBI, and the United States Department of Homeland Security issue alerts regarding potential terrorist threats involving apartment buildings. Threats of future terrorist attacks, such as those announced by the FBI and the Department of Homeland Security, could have a negative effect on rent and occupancy levels at the Partnership's properties. The effect that future terrorist activities or threats of such activities could have on the Partnership's operations is uncertain and unpredictable. If the Partnership were to incur a loss at a property as a result of an act of terrorism, the Partnership could lose all or a portion of the capital invested in the property, as well as the future revenue from the property. In this regard, the Partnership has purchased insurance to cover acts of terrorism. The General Partner does not anticipate that these costs will have a negative effect on the Partnership's financial condition or results of operations. The Partnership monitors its properties for evidence of pollutants, toxins and other dangerous substances, including the presence of asbestos. In certain cases environmental testing has been performed which resulted in no material adverse conditions or liabilities. In no case has the Partnership received notice that it is a potentially responsible party with respect to an environmental clean up site. A further description of the Partnership's business is included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in "Item 6." of this Form 10-KSB. Item 2. Description of Properties The following table sets forth the Partnership's investment in properties:
Date of Property Acquisition Type of Ownership Use Cedar Rim 4/12/91 Fee ownership subject to Apartment New Castle, Washington first mortgage. 104 units Hidden Cove by the Lake 3/23/90 Fee ownership subject to Apartment Belleville, Michigan first mortgage. 120 units Lamplighter Park 4/12/91 Fee ownership subject to Apartment Bellevue, Washington first mortgage. 174 units Park Capital 4/13/90 Fee ownership subject to Apartment Salt Lake City, Utah first mortgage. 135 units Tamarac Village 6/10/92 Fee ownership subject to Apartment I,II,III and IV first mortgage. 564 units Denver, Colorado Williamsburg Manor 11/30/94 Fee ownership subject to Apartment Cary, North Carolina first mortgage. 183 units Sandpiper I & II 11/30/94 Fee ownership subject to Apartment St. Petersburg, Florida first mortgage. 276 units Schedule of Properties
Set forth below for each of the Partnership's properties is the gross carrying value, accumulated depreciation, depreciable life, method of depreciation and Federal tax basis.
Gross Carrying Accumulated Federal Property Value Depreciation Rate Method Tax Basis (in thousands) (in thousands) Cedar Rim $ 5,849 $ 3,544 3-30 yrs S/L $ 3,973 Hidden Cove 6,426 4,493 3-30 yrs S/L 3,375 Lamplighter Park 9,708 4,169 3-30 yrs S/L 6,400 Park Capital 3,934 2,627 5-30 yrs S/L 2,013 Tamarac Village 18,204 9,518 5-30 yrs S/L 10,861 Williamsburg Manor 7,918 3,330 5-30 yrs S/L 5,151 Sandpiper I & II 9,925 3,968 5-30 yrs S/L 6,527 $61,964 $31,649 $38,300
See "Note A" of the Notes to Financial Statements included in "Item 7. Financial Statements" for a description of the Partnership's capitalization and depreciation policies. Schedule of Property Indebtedness The following table sets forth certain information relating to the loans encumbering the Partnership's properties.
Principal Principal Balance At Stated Balance December 31, Interest Maturity Due At Property 2004 Rate Date Maturity (1) (in thousands) (in thousands) Cedar Rim $ 4,591 7.49% 08/01/21 $ -- Hidden Cove 2,622 6.81% 10/01/21 -- Lamplighter Park 7,326 7.48% 07/01/21 -- Park Capital 2,725 6.95% 12/01/05 2,725 Tamarac Village 19,225 7.45% 07/01/21 -- Williamsburg Manor 4,150 6.95% 12/01/05 4,150 Sandpiper I & II 3,950 6.95% 12/01/05 3,950 $44,589 $10,825
(1) See "Item 7. Financial Statements - Note C" for information with respect to the Partnership's ability to prepay the loans and other specific details about the loans. The mortgage notes payable are fixed rate mortgages that are non-recourse and are secured by a pledge of the Partnership's rental properties and by a pledge of revenues from the respective rental properties. The mortgage notes payable include a prepayment penalty if repaid prior to maturity. Further, the properties may not be sold subject to existing indebtedness. Schedule of Rental Rates and Occupancy Average annual rental rates and occupancy for 2004 and 2003 for each property were as follows: Average Annual Rental Rates Average Annual (per unit) Occupancy Property 2004 2003 2004 2003 Cedar Rim (1) $ 9,664 $ 9,798 91% 87% Hidden Cove (2) 8,132 7,758 90% 94% Lamplighter Park 8,970 9,154 91% 90% Park Capital (1) 7,627 7,729 96% 93% Tamarac Village 6,392 7,096 82% 84% Williamsburg Manor 8,360 8,525 93% 93% Sandpiper I & II 8,067 7,906 92% 94% (1) The General Partner attributes the increase in occupancy at Cedar Rim and Park Capital Apartments to an improved economy in the local market and increased marketing efforts. (2) The General Partner attributes the decrease in occupancy at Hidden Cove Apartments to stricter applicant acceptance standards. As noted under "Item 1. Description of Business", the real estate industry is highly competitive. All of the Partnership's properties are subject to competition from other residential apartment complexes in the area. The General Partner believes that all of the properties are adequately insured. The properties are apartment complexes which lease units for terms of one year or less. No tenant leases 10% or more of the available rental space. All of the properties are in good physical condition, subject to normal depreciation and deterioration as is typical for assets of this type and age. Schedule of Real Estate Taxes and Rates Real estate taxes and rates for each property were as follows: 2004 2004 Taxes Rates (in thousands) Cedar Rim $112 1.16% Hidden Cove 77 4.87% Lamplighter Park 110 0.87% Park Capital 53 1.52% Tamarac Village 165 6.44% Williamsburg Manor 98 1.06% Sandpiper I & II* 258 2.33% *The Partnership is currently appealing the assessed values of these properties. Capital Improvements Cedar Rim Apartments During the year ended December 31, 2004, the Partnership completed approximately $109,000 of capital improvements at Cedar Rim Apartments, consisting primarily of floor covering and appliance replacements and structural improvements. The improvements were funded from operating cash flow and advances from the General Partner. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2005. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property. Hidden Cove by the Lake Apartments During the year ended December 31, 2004, the Partnership completed approximately $122,000 of capital improvements at Hidden Cove by the Lake Apartments, consisting primarily of air conditioning unit, water heater and floor covering replacements, major landscaping, asphalt upgrades, water and sewer improvements and exterior painting. The improvements were funded from operating cash flow and advances from the General Partner. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2005. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property. Lamplighter Park Apartments During the year ended December 31, 2004, the Partnership completed approximately $192,000 of capital improvements at Lamplighter Park Apartments, consisting primarily of heating and swimming pool upgrades, appliance and floor covering replacements and building upgrades. The improvements were funded from operating cash flow, advances from the General Partner and insurance proceeds. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2005. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property. Park Capital Apartments During the year ended December 31, 2004, the Partnership completed approximately $111,000 of capital improvements at Park Capital Apartments, consisting primarily of floor covering, stairway upgrades, major landscaping and swimming pool upgrades. The improvements were funded from operating cash flow. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2005. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property. Tamarac Village Apartments During the year ended December 31, 2004, the Partnership completed approximately $635,000 of capital improvements at Tamarac Village Apartments, consisting primarily of floor covering, water heater and appliance replacements, heating, plumbing fixture and air conditioning unit upgrades, ground lighting and swimming pool improvements, landscaping, interior decoration, painting, and other structural improvements. The improvements were funded from operating cash flow and advances from the General Partner. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2005. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property. Williamsburg Manor Apartments During the year ended December 31, 2004, the Partnership completed approximately $223,000 of capital improvements at Williamsburg Manor Apartments, consisting primarily of floor covering and roof replacements, fitness equipment, furniture and fixtures and structural upgrades. The improvements were funded from operating cash flow and replacement reserves. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2005. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property. Sandpiper I and II Apartments During the year ended December 31, 2004, the Partnership completed approximately $373,000 of capital improvements at Sandpiper I and II Apartments, consisting primarily of floor covering and cabinet replacements, roof replacement, retaining walls and swimming pool decking. The improvements were funded from operating cash flow and advances from the General Partner. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2005. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property. Item 3. Legal Proceedings In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its General Partner and several of their affiliated partnerships and corporate entities. The action purported to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) that are named as nominal defendants, challenging, among other things, the acquisition of interests in certain General Partner entities by Insignia Financial Group, Inc. ("Insignia") and entities that were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; management of the partnerships by the Insignia affiliates; and the series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs sought monetary damages and equitable relief, including judicial dissolution of the Partnership. In addition, during the third quarter of 2001, a complaint captioned Heller v. Insignia Financial Group (the "Heller action") was filed against the same defendants that are named in the Nuanes action. On or about August 6, 2001, plaintiffs filed a first amended complaint. The Heller action was brought as a purported derivative action, and asserted claims for, among other things, breach of fiduciary duty, unfair competition, conversion, unjust enrichment, and judicial dissolution. On January 8, 2003, the parties filed a Stipulation of Settlement in proposed settlement of the Nuanes action and the Heller action. In general terms, the proposed settlement provides for certification for settlement purposes of a settlement class consisting of all limited partners in this Partnership and others (the "Partnerships") as of December 20, 2002, the dismissal with prejudice and release of claims in the Nuanes and Heller litigation, payment by AIMCO of $9.9 million (which shall be distributed to settlement class members after deduction of attorney fees and costs of class counsel and certain costs of settlement) and up to $1 million toward the cost of independent appraisals of the Partnerships' properties by a court appointed appraiser. An affiliate of the General Partner has also agreed to make at least one round of tender offers to purchase all of the partnership interests in the Partnerships within one year of final approval, if it is granted, and to provide partners with the independent appraisals at the time of these tenders. The proposed settlement also provided for the limitation of the allowable costs which the General Partner or its affiliates will charge the Partnerships in connection with this litigation and imposes limits on the class counsel fees and costs in this litigation. On April 11, 2003, notice was distributed to limited partners providing the details of the proposed settlement. On June 13, 2003, the court granted final approval of the settlement and entered judgment in both the Nuanes and Heller actions. On August 12, 2003, an objector ("Objector") filed an appeal (the "Appeal") seeking to vacate and/or reverse the order approving the settlement and entering judgment thereto. On November 24, 2003, the Objector filed an application requesting the court order AIMCO to withdraw settlement tender offers it had commenced, refrain from making further offers pending the appeal and auction any units tendered to third parties, contending that the offers did not conform with the terms of the settlement. Counsel for the Objector (on behalf of another investor) had alternatively requested the court take certain action purportedly to enforce the terms of the settlement agreement. On December 18, 2003, the court heard oral argument on the motions and denied them both in their entirety. The Objector filed a second appeal challenging the court's use of a referee and its order requiring Objector to pay those fees. On January 28, 2004, the Objector filed his opening brief in the Appeal. On April 23, 2004, the General Partner and its affiliates filed a response brief in support of the settlement and the judgment thereto. The plaintiffs have also filed a brief in support of the settlement. On June 4, 2004, Objector filed a reply to the briefs submitted by the General Partner and Plaintiffs. In addition both the Objector and plaintiffs filed briefs in connection with the second appeal. On March 21, 2005, the Court of Appeals issued opinions in both pending appeals. With regard to the settlement and judgment entered thereto, the Court of Appeals vacated the trial court's order and remanded to the trial court for further findings on the basis that the "state of the record is insufficient to permit meaningful appellate review". With regard to the second appeal, the Court of Appeals reversed the order requiring the Objector to pay referee fees. The General Partner does not anticipate that any costs to the Partnership, whether legal or settlement costs, associated with these cases will be material to the Partnership's overall operations. As previously disclosed, AIMCO Properties L.P. and NHP Management Company, both affiliates of the General Partner, are defendants in an action in the United States District Court, District of Columbia. The plaintiffs have styled their complaint as a collective action under the Fair Labor Standards Act ("FLSA") and seek to certify state subclasses in California, Maryland, and the District of Columbia. Specifically, the plaintiffs contend that AIMCO Properties L.P. failed to compensate maintenance workers for time that they were required to be "on-call." Additionally, plaintiffs allege AIMCO Properties L.P. failed to comply with the FLSA in compensating maintenance workers for time that they worked in responding to a call while "on-call." The defendants have filed an answer to the amended complaint denying the substantive allegations. Discovery relating to the certification of the collective action has concluded and briefing on the matter is underway. Although the outcome of any litigation is uncertain, AIMCO Properties, L.P. does not believe that the ultimate outcome will have a material adverse effect on its financial condition or results of operations. Similarly, the General Partner does not believe that the ultimate outcome will have a material adverse effect on the Partnership's financial condition or results of operations. Item 4. Submission of Matters to a Vote of Security Holders During the quarter ended December 31, 2004, no matter was submitted to a vote of the Unit holders through the solicitation of proxies or otherwise. PART II Item 5. Market for the Registrant's Common Equity and Related Security Holder Matters The Partnership, a publicly held limited partnership, sold 383,033 Limited Partnership Units (the "Units") aggregating approximately $95,758,000. The Partnership currently has 9,108 holders of record owning an aggregate of 383,033 Units. Affiliates of the General Partner owned 215,112.9 units or 56.16% at December 31, 2004. No public trading market has developed for the Units, and it is not anticipated that such a market will develop in the future. The Partnership distributed the following amounts during the years ended December 31, 2004 and 2003 (in thousands, except per unit data):
Per Limited Per Limited Year Ended Partnership Year Ended Partnership December 31, 2004 Unit December 31, 2003 Unit Operations $ -- $ -- $ 255 $ 0.66
Future cash distributions will depend on the levels of cash generated from operations, timing of debt maturities, property sales and/or refinancings. The Partnership's cash available for distribution is reviewed on a monthly basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations, after required capital expenditures, to permit any distributions to its partners in 2005 or subsequent periods. See "Item 2. Description of Properties - Capital Improvements" for information relating to anticipated capital expenditures at the properties. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 215,112.9 limited partnership units (the "Units") in the Partnership representing 56.16% of the outstanding Units at December 31, 2004. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. In this regard, on March 15, 2005, a tender offer by AIMCO Properties, L.P., to acquire all of the Units not owned by affiliates of AIMCO for a purchase price of $22.80 per Unit expired. Pursuant to this offer AIMCO acquired 19,284.9 (5.03%) Units. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 56.16% of the outstanding Units, AIMCO and its affiliates are in a position to control all such voting decisions with respect to the Partnership. Although the General Partner owes fiduciary duties to the limited partners of the Partnership, the General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the General Partner, as general partner, to the Partnership and its limited partners may come into conflict with the duties of the General Partner to AIMCO as its sole stockholder. Item 6. Management's Discussion and Analysis or Plan of Operation This item should be read in conjunction with the financial statements and other items contained elsewhere in this report. Results of Operations The Partnership realized a net loss of approximately $2,230,000 as compared to a net loss of approximately $1,312,000 for the year ended December 31, 2003. The increase in net loss is due to an increase in total expenses and a decrease in total revenues. Total expenses increased for the year ended December 30, 2004 due to increases in operating and depreciation expenses, partially offset by a decrease in general and administrative expense. Operating expenses increased primarily due to increases in property and maintenance expenses. Property expense increased primarily due to increases in salaries and related benefits at each of the Partnership's properties and increased utility expense at Tamarac Village and Williamsburg Manor Apartments. Maintenance expense increased due to increases in contract services primarily at Lamplighter Park and Tamarac Village Apartments and an increase in snow removal costs at Tamarac Village Apartments and increased payroll costs at Tamarac Village, Park Capital, Lamplighter Park and Cedar Rim Apartments. Depreciation expense increased due to improvements completed during the last twelve months that are now being depreciated primarily at Sandpiper I & II, Tamarac Village, Lamplighter Park and Cedar Rim Apartments. General and administrative expenses decreased primarily due to decreases in the costs of services included in the management reimbursements paid to the General Partner as allowed under the Partnership Agreement and audit fees. Also included in general and administrative expenses at both December 31, 2004 and 2003 are costs associated with the quarterly and annual communications with investors and regulatory agencies. Total revenues decreased for the year ended December 31, 2004 due to decreases in rental income and casualty gain (as discussed below), partially offset by an increase in other income. Rental income decreased due to decreases in occupancy at Hidden Cove by the Lake, Sandpiper I & II and Tamarac Village Apartments and decreases in average rental rates at Williamsburg Manor, Tamarac Village, Park Capital, Lamplighter Park and Cedar Rim Apartments, and increases in bad debts at Lamplighter Park and Hidden Cove by the Lake Apartments, partially offset by increases in occupancy at Park Capital, Lamplighter Park and Cedar Rim Apartments, and an increase in average rental rates at Hidden Cove by the Lake and Sandpiper I & II Apartments, and decreases in bad debts at Tamarac Village, Cedar Rim and Sandpiper I and II Apartments. Other income increased primarily due to an increase in utility reimbursements at Cedar Rim and Tamarac Village Apartments, partially offset by reduced washer/dryer income at Park Capital Apartments and reduced late charges at Tamarac Village Apartments. In October 2001, a fire occurred at Lamplighter Park Apartments which caused damage to thirty units of the complex. During the year ended December 31, 2002 insurance proceeds of approximately $482,000 were received of which $237,000 was included in accounts receivable at December 31, 2001. Assets and related accumulated depreciation with a net book value of approximately $237,000 were written off during the year ended December 31, 2001. A casualty gain of approximately $245,000 was recognized during the year ended December 31, 2002. During the year ended December 31, 2003 additional insurance proceeds of approximately $239,000 were received and assets and related accumulated depreciation with a net book value of approximately $54,000 were written off. This resulted in an additional casualty gain of approximately $185,000 being recognized during the year ended December 31, 2003. During the year ended December 31, 2004, additional insurance proceeds of approximately $92,000 were received. The damaged assets were written off in 2002 and 2003 so an additional casualty gain of approximately $92,000 was recognized during the year ended December 31, 2004. The Partnership's financial results depend upon a number of factors including the ability to attract and maintain tenants at the investment properties, interest rates on mortgage loans, costs incurred to operate the investment properties, general economic conditions and weather. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of each of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, the General Partner may use rental concessions and rental rate reductions to offset softening market conditions, accordingly, there is no guarantee that the General Partner will be able to sustain such a plan. Further, a number of factors that are outside the control of the Partnership, such as the local economic climate and weather, can adversely or positively affect the Partnership's financial results. Liquidity and Capital Resources At December 31, 2004, the Partnership had cash and cash equivalents of approximately $490,000 compared to approximately $599,000 at December 31, 2003. The decrease in cash and cash equivalents of approximately $109,000 is due to approximately $1,681,000 of cash used in investing activities partially offset by approximately $346,000 and $1,226,000 of cash provided by financing and operating activities, respectively. Cash used in investing activities consisted of property improvements and replacements and net deposits to restricted escrow accounts maintained by the mortgage lender, partially offset by insurance proceeds received. Cash provided by financing activities consisted of advances from affiliates partially offset by principal payments made on the mortgages encumbering the Partnership's properties. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the properties to adequately maintain the physical assets and other operating needs of the Partnership and to comply with Federal, state, and local legal and regulatory requirements. The General Partner monitors developments in the area of legal and regulatory compliance. For example, the Sarbanes-Oxley Act of 2002 mandates or suggests additional compliance measures with regard to governance, disclosure, audit and other areas. In light of these changes, the Partnership expects that it will incur higher expenses related to compliance, including increased legal and audit fees. The Partnership regularly evaluates the capital improvement needs of the properties. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2005. Such capital expenditures will depend on the physical condition of the properties as well as anticipated cash flow generated by the properties. Capital expenditures will be incurred only if cash is available from operations or from Partnership reserves. To the extent that capital improvements are completed, the Partnership's distributable cash flow, if any, may be adversely affected at least in the short term. Due to short-term operating cash short falls at Tamarac Village Apartments, the Partnership obtained advances of approximately $196,000 subsequent to December 31, 2004, as discussed in "Item 7. Financial Statements - Note H". Except as discussed above, the Partnership's assets are thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Partnership. The mortgage indebtedness encumbering the Partnership's properties of approximately $44,589,000 has maturity dates ranging from December 2005 to October 2021. The mortgage indebtedness encumbering Tamarac Village, Hidden Cove by the Lake, Lamplighter Park and Cedar Rim Apartments of approximately $33,764,000 requires monthly payments until the loans mature between July 2021 and October 2021 at which time the loans are scheduled to be fully amortized. The mortgage indebtedness encumbering Williamsburg Manor, Sandpiper I and II, and Park Capital Apartments of approximately $10,825,000 requires interest only payments, matures in December 2005 and has balloon payments totaling approximately $10,825,000 due at maturity. The General Partner will attempt to refinance such indebtedness and/or sell the investment properties prior to such maturity dates. If the investment properties cannot be refinanced or sold for a sufficient amount, the Partnership may risk losing such properties through foreclosure. The Partnership distributed the following amounts during the years ended December 31, 2004 and 2003 (in thousands, except per unit data):
Per Limited Per Limited Year Ended Partnership Year Ended Partnership December 31, 2004 Unit December 31, 2003 Unit Operations $ -- $ -- $ 255 $ 0.66
Future cash distributions will depend on the levels of cash generated from operations, the timing of debt maturities, property sales and/or refinancings. The Partnership's cash available for distribution is reviewed on a monthly basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations, after required capital expenditures, to permit any distributions to its partners in the year 2005 or subsequent periods. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 215,112.9 limited partnership units (the "Units") in the Partnership representing 56.16% of the outstanding Units at December 31, 2004. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. In this regard, on March 15, 2005, a tender offer by AIMCO Properties, L.P., to acquire all of the Units not owned by affiliates of AIMCO for a purchase price of $22.80 per Unit expired. Pursuant to this offer AIMCO acquired 19,284.9 (5.03%) Units. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 56.16% of the outstanding Units, AIMCO and its affiliates are in a position to control all such voting decisions with respect to the Partnership. Although the General Partner owes fiduciary duties to the limited partners of the Partnership, the General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the General Partner, as general partner, to the Partnership and its limited partners may come into conflict with the duties of the General Partner to AIMCO as its sole stockholder. Critical Accounting Policies and Estimates A summary of the Partnership's significant accounting policies is included in "Note A - Organization and Significant Accounting Policies" which is included in the financial statements in "Item 7. Financial Statements". The General Partner believes that the consistent application of these policies enables the Partnership to provide readers of the financial statements with useful and reliable information about the Partnership's operating results and financial condition. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Partnership to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Judgments and assessments of uncertainties are required in applying the Partnership's accounting policies in many areas. The Partnership believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity. Impairment of Long-Lived Assets Investment properties are recorded at cost, less accumulated depreciation, unless considered impaired. If events or circumstances indicate that the carrying amount of a property may be impaired, the Partnership will make an assessment of its recoverability by estimating the undiscounted future cash flows, excluding interest charges, of the property. If the carrying amount exceeds the aggregate future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the fair value of the property. Real property investments are subject to varying degrees of risk. Several factors may adversely affect the economic performance and value of the Partnership's investment properties. These factors include, but are not limited to, changes in national, regional and local economic climate; local conditions, such as an oversupply of multifamily properties; competition from other available multifamily property owners and changes in market rental rates. Any adverse changes in these factors could cause impairment of the Partnership's assets. Revenue Recognition The Partnership generally leases apartment units for twelve-month terms or less. The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Rental income attributable to leases, net of any concessions, is recognized on a straight-line basis over the term of the lease. The Partnership evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants. Item 7. Financial Statements CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3 LIST OF FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm Balance Sheet - December 31, 2004 Statements of Operations - Years ended December 31, 2004 and 2003 Statements of Changes in Partners' Deficit - Years ended December 31, 2004 and 2003 Statements of Cash Flows - Years ended December 31, 2004 and 2003 Notes to Financial Statements Report of Independent Registered Public Accounting Firm The Partners Consolidated Capital Institutional Properties/3 We have audited the accompanying balance sheet of Consolidated Capital Institutional Properties/3 as of December 31, 2004, and the related statements of operations, changes in partners' deficit, and cash flows for each of the two years in the period ended December 31, 2004. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Partnership's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Consolidated Capital Institutional Properties/3 as of December 31, 2004, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States. /s/ERNST & YOUNG LLP Greenville, South Carolina March 21, 2005 CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3 BALANCE SHEET (in thousands, except unit data) December 31, 2004
Assets Cash and cash equivalents $ 490 Receivables and deposits 423 Restricted escrows 221 Other assets 1,244 Investment properties (Notes C and D) Land $ 8,641 Buildings and related personal property 53,323 61,964 Less accumulated depreciation (31,649) 30,315 $ 32,693 Liabilities and Partners' Deficit Liabilities Accounts payable $ 194 Tenant security deposit liabilities 262 Accrued property taxes 212 Other liabilities 720 Due to affiliates (Note B) 2,381 Mortgage notes payable (Note C) 44,589 Partners' Deficit General partner $ (998) Limited partners (383,033 units outstanding) (14,667) (15,665) $ 32,693 See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3 STATEMENTS OF OPERATIONS (in thousands, except per unit data)
Years Ended December 31, 2004 2003 Revenues: Rental income $10,270 $10,584 Other income 1,455 1,351 Casualty gain (Note F) 92 185 Total revenues 11,817 12,120 Expenses: Operating 6,024 5,344 General and administrative 593 721 Depreciation 3,079 3,016 Interest 3,473 3,478 Property taxes 878 873 Total expenses 14,047 13,432 Net loss (Note E) $(2,230) $(1,312) Net loss allocated to general partner (1%) $ (22) $ (13) Net loss allocated to limited partners (99%) (2,208) (1,299) $(2,230) $(1,312) Net loss per limited partnership unit $ (5.76) $ (3.39) Distributions per limited partnership unit $ -- $ 0.66 See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3 STATEMENTS OF CHANGES IN PARTNERS' DEFICIT (in thousands, except unit data)
Limited Partnership General Limited Units Partner Partners Total Original capital contributions 383,033 $ 1 $ 95,758 $ 95,759 Partners' deficit at December 31, 2002 383,033 $ (960) $(10,908) $(11,868) Net loss for the year ended December 31, 2003 -- (13) (1,299) (1,312) Distributions to partners -- (3) (252) (255) Partners' deficit at December 31, 2003 383,033 (976) (12,459) (13,435) Net loss for the year ended December 31, 2004 -- (22) (2,208) (2,230) Partners' deficit at December 31, 2004 383,033 $ (998) $(14,667) $(15,665) See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3 STATEMENTS OF CASH FLOWS (in thousands)
Years Ended December 31, 2004 2003 Cash flows from operating activities: Net loss $ (2,230) $ (1,312) Adjustments to reconcile net loss to net cash provided by operating activities: Casualty gain (92) (185) Depreciation 3,079 3,016 Amortization of loan costs 111 116 Change in accounts: Receivables and deposits (64) 134 Other assets (136) (101) Accounts payable (64) 70 Tenant security deposit liabilities (47) 15 Accrued property taxes 24 (16) Due to affiliates 534 222 Other liabilities 111 112 Net cash provided by operating activities 1,226 2,071 Cash flows from investing activities: Property improvements and replacements (1,769) (1,544) Net (deposits to) withdrawals from restricted escrows (4) 18 Insurance proceeds received 92 239 Net cash used in investing activities (1,681) (1,287) Cash flows from financing activities: Payments on mortgage notes payable (996) (926) Distributions to partners -- (255) Advances from affiliate 1,342 283 Net cash provided by (used in) financing activities 346 (898) Net decrease in cash and cash equivalents (109) (114) Cash and cash equivalents at beginning of year 599 713 Cash and cash equivalents at end of year $ 490 $ 599 Supplemental disclosure of cash flow information: Cash paid for interest $ 3,301 $ 3,366 Supplemental disclosure of non-cash activity: Property improvements and replacements in accounts payable $ 54 $ 58 See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3 NOTES TO FINANCIAL STATEMENTS December 31, 2004 Note A - Organization and Significant Accounting Policies Organization: Consolidated Capital Institutional Properties/3 (the "Partnership" or the "Registrant"), a California limited partnership, was formed on May 23, 1984, to lend funds through non-recourse notes with participation interests (the "Master Loan"). The loans were made to, and the real properties that secure the Master Loan were purchased and owned by, ConCap Equity Partners/3, ConCap Equity Partners/4, and ConCap Equity Partners/5, ("EP/3", "EP/4", and "EP/5", respectively), California limited partnerships, in which certain of the partners were former shareholders and former management of Consolidated Capital Equities Corporation ("CCEC"). The Partnership entered into a Master Loan Agreement with EP/3, EP/4, and EP/5, pursuant to which the aggregate principal would not exceed the net amount raised by the Partnership's offering of approximately $96,000,000. Through a series of transactions, the Partnership has acquired all of EP/3, EP/4 and EP/5's properties in full settlement of their liability under the Master Loan. Upon the Partnership's formation in 1984, CCEC, a Colorado corporation, was the corporate general partner. In December 1988, CCEC filed for reorganization under Chapter 11 of the United States Bankruptcy Code ("Chapter 11"). In 1990, as part of CCEC's reorganization plan, ConCap Equities, Inc., a Delaware corporation (the "General Partner" or "CEI") acquired CCEC's general partner interests in the Partnership and in 15 other affiliated public limited partnerships and replaced CCEC as managing general partner in all 16 partnerships. The General Partner is an affiliate of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The Partnership Agreement provides that the Partnership is to terminate on December 31, 2015 unless terminated prior to such date. The Partnership operates seven apartment properties located throughout the United States. Cash and Cash Equivalents: Cash and cash equivalents include cash on hand and in banks. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Cash balances include approximately $319,000 at December 31, 2004 that is maintained by an affiliated management company on behalf of affiliated entities in cash concentration accounts. Tenant Security Deposits: The Partnership requires security deposits from lessees for the duration of the lease, and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Restricted Escrows: As a result of the refinancing of Williamsburg Manor Apartments and Sandpiper I & II Apartments in 1995, a replacement reserve was established. Each property makes monthly deposits to establish and maintain a Replacement Reserve designated for repairs and replacements at the properties. At December 31, 2004, this reserve totaled approximately $221,000. Investment Properties: Investment properties consist of seven apartment complexes and are stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership capitalizes all expenditures in excess of $250 that clearly relate to the acquisition and installation of real and personal property components. These expenditures include costs incurred to replace existing property components, costs incurred to add a material new feature to a property, and costs that increase the useful life or service potential of a property component. These capitalized costs are depreciated over the useful life of the asset. Expenditures for ordinary repairs, maintenance and apartment turnover costs are expensed as incurred. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were recorded in the years ended December 31, 2004 or 2003. Depreciation: Depreciation is provided by the straight-line method over the estimated lives of the apartment properties and related personal property. For Federal income tax purposes, the accelerated cost recovery method is used for real property over 19 years for additions after May 8, 1985, and before January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the modified accelerated cost recovery method is used for depreciation of (1) real property over 27 1/2 years and (2) personal property additions over 5 years. Leases: The Partnership generally leases apartment units for twelve-month terms or less. The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Rental income attributable to leases, net of any concessions, is recognized on a straight-line basis over the term of the lease. The Partnership evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants. Deferred Costs: At December 31, 2004, loan costs of approximately $1,493,000, less accumulated amortization of approximately $605,000 are included in other assets. The loan costs are amortized over the terms of the related loan agreements. Amortization expense for the year ended December 31, 2004 is approximately $111,000 and is included in interest expense. Amortization expense is expected to be approximately $110,000 for 2005, $73,000 for 2006, $71,000 for 2007, $68,000 for 2008 and $66,000 for 2009. Leasing commissions and other direct costs incurred in connection with successful leasing efforts are deferred and amortized over the terms of the related leases. Amortization of these costs is included in operating expenses. Allocation of Net Income and Net Loss: The Partnership Agreement provides for net income and net losses for both financial and tax reporting purposes to be allocated 99% to the Limited Partners and 1% to the General Partner. Fair Value of Financial Instruments: SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", as amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments", requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value is defined in the SFAS as the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes that the carrying amounts of its financial instruments (except for long term debt) approximate their fair values due to the short term maturity of these instruments. The Partnership estimates the fair value of its long term debt by discounting future cash flows using a discount rate commensurate with that currently believed to be available to the Partnership for similar term, fully amortizing long-term debt. The fair value of the Partnership's long term debt at the Partnership's incremental borrowing rate is approximately $47,252,000. Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Segment Reporting: SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" established standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also established standards for related disclosures about products and services, geographic areas, and major customers. As defined in SFAS No. 131, the Partnership has only one reportable segment. Advertising: The Partnership expenses the costs of advertising as incurred. Advertising expense of approximately $374,000 and $365,000 for the years ended December 31, 2004 and 2003, respectively, were charged to operating expense. Note B - Transactions with Affiliated Parties The Partnership has no employees and depends on the General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for (i) certain payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Affiliates of the General Partner receive 5% of gross receipts from all of the Partnership's properties as compensation for providing property management services. The Partnership was charged by such affiliates approximately $576,000 and $581,000 for the years ended December 31, 2004 and 2005, respectively, which is included in operating expense. Affiliates of the General Partner charged the Partnership reimbursement of accountable administrative expenses amounting to approximately $641,000 and $653,000 for the years ended December 31, 2004 and 2003, respectively, which is included in general and administrative expenses and investment properties. For the year ended December 31, 2003, the first three quarters were based on estimated amounts and in the fourth quarter of 2003 the reimbursements of accountable reimbursement expenses were adjusted based on actual costs (see "Note G"). The adjustment to management reimbursements was included in general and administrative expenses. The portion of these reimbursements included in investment properties for the years ended December 31, 2004 and 2003 are fees related to construction management services provided by an affiliate of the General Partner of approximately $102,000 and $69,000, respectively. The construction management service fees are calculated based on a percentage of current additions to investment properties. At December 31, 2004, approximately $709,000 of these expenses are payable to the General Partner and are included in due to affiliates. During the year ended December 31, 2004, the General Partner advanced the Partnership funds to cover expenses related to operations and capital improvements at Cedar Rim, Tamarac Village, Hidden Cove by the Lake, Sandpiper I & II, and Lamplighter Park Apartments totaling approximately $1,342,000. Interest is charged at prime plus 2% (approximately 7.25% at December 31, 2004). Interest accrued for the year ended December 31, 2004, was approximately $48,000. During the year ended December 31, 2003, the General Partner advanced the Partnership funds to cover expenses related to operations at Tamarac Village and Lamplighter Park Apartments totaling approximately $283,000. Interest was charged at prime plus 2% and was approximately $1,000 for the year ended December 31, 2003. Total advances and accrued interest of approximately $1,672,000 remain unpaid at December 31, 2004 and are included in due to affiliates. The Partnership insures its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the General Partner. During the years ended December 31, 2004 and 2003, the Partnership was charged by AIMCO and its affiliates approximately $154,000 and $146,000, respectively, for insurance coverage and fees associated with policy claims administration. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 215,112.9 limited partnership units (the "Units") in the Partnership representing 56.16% of the outstanding Units at December 31, 2004. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. In this regard, on March 15, 2005, a tender offer by AIMCO Properties, L.P., to acquire all of the Units not owned by affiliates of AIMCO for a purchase price of $22.80 per Unit expired. Pursuant to this offer AIMCO acquired 19,284.9 (5.03%) Units. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 56.16% of the outstanding Units, AIMCO and its affiliates are in a position to control all such voting decisions with respect to the Partnership. Although the General Partner owes fiduciary duties to the limited partners of the Partnership, the General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the General Partner, as general partner, to the Partnership and its limited partners may come into conflict with the duties of the General Partner to AIMCO as its sole stockholder. Note C - Mortgage Notes Payable Mortgage notes payable at December 31, 2004 consist of the following:
Principal Monthly Principal Balance At Payment Stated Balance December 31, Including Interest Maturity Due At 2004 Interest Rate Date Maturity Property (in thousands) (in thousands) Cedar Rim $ 4,591 $ 40 7.49% 08/01/21 $ -- Hidden Cove 2,622 22 6.81% 10/01/21 -- Lamplighter Park 7,326 64 7.48% 07/01/21 -- Park Capital 2,725 16 (1) 6.95% 12/01/05 2,725 Tamarac Village 19,225 169 7.45% 07/01/21 -- Williamsburg Manor 4,150 24 (1) 6.95% 12/01/05 4,150 Sandpiper I & II 3,950 23 (1) 6.95% 12/01/05 3,950 $44,589 $358 $10,825
(1) Interest only payments. The General Partner will attempt to refinance such indebtedness and/or sell the investment properties prior to such maturity dates. If the investment properties cannot be refinanced or sold for a sufficient amount, the Partnership may risk losing such properties through foreclosure. The mortgage notes payable are fixed rate mortgages that are non-recourse and are secured by a pledge of the Partnership's rental properties and by a pledge of revenues from the respective rental properties. The mortgage notes payable include a prepayment penalty if repaid prior to maturity. Further, the properties may not be sold subject to existing indebtedness. Scheduled principal payments of mortgage notes payable subsequent to December 31, 2004 are as follows (in thousands): 2005 $11,895 2006 1,152 2007 1,240 2008 1,335 2009 1,438 Thereafter 27,529 $44,589 Note D - Investment Properties and Accumulated Depreciation Initial Cost To Partnership (in thousands)
Buildings Cost and Related Capitalized Personal Subsequent to Description Encumbrances Land Property Acquisition (in thousands) (in thousands) Cedar Rim $ 4,591 $ 778 $ 4,322 $ 749 Hidden Cove 2,622 184 4,416 1,826 Lamplighter Park 7,326 2,458 5,167 2,083 Park Capital 2,725 280 2,100 1,554 Tamarac Village 19,225 2,464 10,536 5,204 Williamsburg Manor 4,150 1,281 5,124 1,513 Sandpiper I & II 3,950 1,463 5,851 2,611 Totals $44,589 $ 8,908 $37,516 $15,540
Gross Amount At Which Carried At December 31, 2004 (in thousands)
Buildings And Related Date of Personal Accumulated Construc- Date Depreciable Description Land Property Total Depreciation tion Acquired Life-Years (in thousands) Cedar Rim $ 618 $ 5,231 $ 5,849 $ 3,544 1980 04/12/91 3-30 Hidden Cove 184 6,242 6,426 4,493 1972 03/23/90 3-30 Lamplighter Park 2,351 7,357 9,708 4,169 1968 04/12/91 3-30 Park Capital 280 3,654 3,934 2,627 1974 04/13/90 5-30 Tamarac Village 2,464 15,740 18,204 9,518 1978 06/10/92 5-30 Williamsburg Manor 1,281 6,637 7,918 3,330 1970 11/30/94 5-30 Sandpiper I & II 1,463 8,462 9,925 3,968 1976/1985 11/30/94 5-30 $ 8,641 $53,323 $61,964 $31,649
Reconciliation of "Investment Properties and Accumulated Depreciation": For the Years Ended December 31, 2004 2003 (in thousands) Investment Properties: Balance at beginning of year $60,199 $58,710 Additions 1,765 1,602 Property disposal -- (113) Balance at end of year $61,964 $60,199 Accumulated Depreciation: Balance at beginning of year $28,570 $25,613 Additions charged to expense 3,079 3,016 Property disposal -- (59) Balance at end of year $31,649 $28,570 The aggregate cost of the real estate for Federal income tax purposes at December 31, 2004 and 2003 is approximately $64,220,000 and $62,604,000, respectively. The accumulated depreciation taken for Federal income tax purposes at December 31, 2004 and 2003 is approximately $25,920,000 and $23,222,000, respectively. Note E - Income Taxes The Partnership has received a ruling from the Internal Revenue Service that it will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss of the Partnership is reported in the income tax returns of its partners. The following is a reconciliation of reported net loss and Federal taxable loss (in thousands, except per unit data): 2004 2003 Net loss as reported $(2,230) $(1,312) Add (deduct): Fixed asset write-offs and casualty gain (115) (162) Depreciation differences 381 334 Change in prepaid rental income 22 (84) Other (16) 55 Federal taxable loss $(1,958) $(1,169) Federal taxable loss per limited partnership unit $ (5.06) $ (3.02) The following is a reconciliation at December 31, 2004, between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): Net liabilities as reported $(15,665) Land and buildings 2,256 Accumulated depreciation 5,729 Syndication fees 11,298 Other 193 Net assets - Federal tax basis $ 3,811 Note F - Casualty Event In October 2001, a fire occurred at Lamplighter Park Apartments which caused damage to thirty units of the complex. During the year ended December 31, 2002 insurance proceeds of approximately $482,000 were received of which $237,000 was included in accounts receivable at December 31, 2001. Assets and related accumulated depreciation with a net book value of approximately $237,000 were written off during the year ended December 31, 2001. A casualty gain of approximately $245,000 was recognized during the year ended December 31, 2002. During the year ended December 31, 2003 additional insurance proceeds of approximately $239,000 were received and assets and related accumulated depreciation with a net book value of approximately $54,000 were written off. This resulted in an additional casualty gain of approximately $185,000 being recognized during the year ended December 31, 2003. During the year ended December 31, 2004, additional insurance proceeds of approximately $92,000 were received. The damaged assets were written off in 2002 and 2003 so an additional casualty gain of approximately $92,000 was recognized during the year ended December 31, 2004. Note G - Fourth-Quarter Adjustment The Partnership's policy is to record management reimbursements to the General Partner as allowed under the Partnership Agreement on a quarterly basis, using estimated financial information furnished by an affiliate of the General Partner. For the first three quarters of 2003, these reimbursements of accountable administrative expenses were based on estimated amounts. During the fourth quarter of 2003, the Partnership recorded an adjustment to management reimbursements to the General Partner of approximately $184,000 due to a difference in the estimated costs and the actual costs incurred. The actual management reimbursements to the General Partner for the year ended December 31, 2003 were approximately $584,000, as compared to the estimated management reimbursements to the General Partner for the nine months ended September 30, 2003 of approximately $299,000. The adjustment to management reimbursements was included in general and administrative expenses. Note H - Subsequent Event Subsequent to December 31, 2004, the General Partner advanced to the Partnership approximately $196,000 to cover expenses related to operations at Tamarac Village Apartments. Interest will be charged at prime plus 2%. Note I - Contingencies In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its General Partner and several of their affiliated partnerships and corporate entities. The action purported to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) that are named as nominal defendants, challenging, among other things, the acquisition of interests in certain General Partner entities by Insignia Financial Group, Inc. ("Insignia") and entities that were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; management of the partnerships by the Insignia affiliates; and the series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs sought monetary damages and equitable relief, including judicial dissolution of the Partnership. In addition, during the third quarter of 2001, a complaint captioned Heller v. Insignia Financial Group (the "Heller action") was filed against the same defendants that are named in the Nuanes action. On or about August 6, 2001, plaintiffs filed a first amended complaint. The Heller action was brought as a purported derivative action, and asserted claims for, among other things, breach of fiduciary duty, unfair competition, conversion, unjust enrichment, and judicial dissolution. On January 8, 2003, the parties filed a Stipulation of Settlement in proposed settlement of the Nuanes action and the Heller action. In general terms, the proposed settlement provides for certification for settlement purposes of a settlement class consisting of all limited partners in this Partnership and others (the "Partnerships") as of December 20, 2002, the dismissal with prejudice and release of claims in the Nuanes and Heller litigation, payment by AIMCO of $9.9 million (which shall be distributed to settlement class members after deduction of attorney fees and costs of class counsel and certain costs of settlement) and up to $1 million toward the cost of independent appraisals of the Partnerships' properties by a court appointed appraiser. An affiliate of the General Partner has also agreed to make at least one round of tender offers to purchase all of the partnership interests in the Partnerships within one year of final approval, if it is granted, and to provide partners with the independent appraisals at the time of these tenders. The proposed settlement also provided for the limitation of the allowable costs which the General Partner or its affiliates will charge the Partnerships in connection with this litigation and imposes limits on the class counsel fees and costs in this litigation. On April 11, 2003, notice was distributed to limited partners providing the details of the proposed settlement. On June 13, 2003, the court granted final approval of the settlement and entered judgment in both the Nuanes and Heller actions. On August 12, 2003, an objector ("Objector") filed an appeal (the "Appeal") seeking to vacate and/or reverse the order approving the settlement and entering judgment thereto. On November 24, 2003, the Objector filed an application requesting the court order AIMCO to withdraw settlement tender offers it had commenced, refrain from making further offers pending the appeal and auction any units tendered to third parties, contending that the offers did not conform with the terms of the settlement. Counsel for the Objector (on behalf of another investor) had alternatively requested the court take certain action purportedly to enforce the terms of the settlement agreement. On December 18, 2003, the court heard oral argument on the motions and denied them both in their entirety. The Objector filed a second appeal challenging the court's use of a referee and its order requiring Objector to pay those fees. On January 28, 2004, the Objector filed his opening brief in the Appeal. On April 23, 2004, the General Partner and its affiliates filed a response brief in support of the settlement and the judgment thereto. The plaintiffs have also filed a brief in support of the settlement. On June 4, 2004, Objector filed a reply to the briefs submitted by the General Partner and Plaintiffs. In addition both the Objector and plaintiffs filed briefs in connection with the second appeal. On March 21, 2005, the Court of Appeals issued opinions in both pending appeals. With regard to the settlement and judgment entered thereto, the Court of Appeals vacated the trial court's order and remanded to the trial court for further findings on the basis that the "state of the record is insufficient to permit meaningful appellate review". With regard to the second appeal, the Court of Appeals reversed the order requiring the Objector to pay referee fees. The General Partner does not anticipate that any costs to the Partnership, whether legal or settlement costs, associated with these cases will be material to the Partnership's overall operations. As previously disclosed, AIMCO Properties L.P. and NHP Management Company, both affiliates of the General Partner, are defendants in an action in the United States District Court, District of Columbia. The plaintiffs have styled their complaint as a collective action under the Fair Labor Standards Act ("FLSA") and seek to certify state subclasses in California, Maryland, and the District of Columbia. Specifically, the plaintiffs contend that AIMCO Properties L.P. failed to compensate maintenance workers for time that they were required to be "on-call." Additionally, plaintiffs allege AIMCO Properties L.P. failed to comply with the FLSA in compensating maintenance workers for time that they worked in responding to a call while "on-call." The defendants have filed an answer to the amended complaint denying the substantive allegations. Discovery relating to the certification of the collective action has concluded and briefing on the matter is underway. Although the outcome of any litigation is uncertain, AIMCO Properties, L.P. does not believe that the ultimate outcome will have a material adverse effect on its financial condition or results of operations. Similarly, the General Partner does not believe that the ultimate outcome will have a material adverse effect on the Partnership's financial condition or results of operations. The Partnership is unaware of any other pending or outstanding litigation matters involving it or its investment properties that are not of a routine nature arising in the ordinary course of business. Environmental Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership and operation of its properties, the Partnership could potentially be liable for environmental liabilities or costs associated with its properties. Mold The Partnership is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements. The Partnership has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure. Affiliates of the General Partner have implemented a national policy and procedures to prevent or eliminate mold from its properties and the General Partner believes that these measures will eliminate, or at least minimize, the effects that mold could have on residents. To date, the Partnership has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. Because the law regarding mold is unsettled and subject to change the General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Partnership's financial condition or results of operations. SEC Investigation As previously disclosed, the Central Regional Office of the United States Securities and Exchange Commission (the "SEC") is conducting a formal investigation relating to certain matters. Although the staff of the SEC is not limited in the areas that it may investigate, AIMCO believes the areas of investigation include AIMCO's miscalculated monthly net rental income figures in third quarter 2003, forecasted guidance, accounts payable, rent concessions, vendor rebates, capitalization of payroll and certain other costs, and tax credit transactions. AIMCO is cooperating fully. AIMCO is not able to predict when the matter will be resolved. AIMCO does not believe that the ultimate outcome will have a material adverse effect on its consolidated financial condition or results of operations. Similarly, the General Partner does not believe that the ultimate outcome will have a material adverse effect on the Partnership's financial condition or results of operations. Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None. Item 8a. Controls and Procedures (a) Disclosure Controls and Procedures. The Partnership's management, with the participation of the principal executive officer and principal financial officer of the General Partner, who are the equivalent of the Partnership's principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnership's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, the principal executive officer and principal financial officer of the General Partner, who are the equivalent of the Partnership's principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period, the Partnership's disclosure controls and procedures are effective. (b) Internal Control Over Financial Reporting. There have not been any changes in the Partnership's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2004 that have materially affected, or are reasonably likely to materially affect, the Partnership's internal control over financial reporting. Item 8b. Other Information None. PART III Item 9. Directors and Executive Officers of the Registrant Consolidated Capital Institutional Properties/3 (the "Partnership" or the "Registrant") has no directors or officers. ConCap Equities, Inc. ("CEI" or the "General Partner") manages and controls the Partnership and has general responsibility and authority in all matters affecting its business. The names of the directors and officers of the General Partner, their ages and the nature of all positions with CEI presently held by them are set forth below. There are no family relationships between or among any officers or directors. Name Age Position Martha L. Long 45 Director and Senior Vice President Harry G. Alcock 42 Director and Executive Vice President Miles Cortez 61 Executive Vice President, General Counsel and Secretary Patti K. Fielding 41 Executive Vice President Paul J. McAuliffe 48 Executive Vice President and Chief Financial Officer Thomas M. Herzog 42 Senior Vice President and Chief Accounting Officer Stephen B. Waters 43 Vice President Martha L. Long has been a Director and Senior Vice President of the General Partner since February 2004. Ms. Long has been with AIMCO since October 1998 and has served in various capacities. From 1998 to 2001, Ms. Long served as Senior Vice President and Controller of AIMCO and the General Partner. During 2002 and 2003, Ms. Long served as Senior Vice President of Continuous Improvement for AIMCO. Harry G. Alcock was appointed as a Director of the General Partner in October 2004 and was appointed Executive Vice President of the General Partner in February 2004 and has been Executive Vice President and Chief Investment Officer of AIMCO since October 1999. Prior to October 1999 Mr. Alcock served as a Vice President of AIMCO from July 1996 to October 1997, when he was promoted to Senior Vice President Acquisitions where he served until October 1999. Mr. Alcock has had responsibility for acquisition and financing activities of AIMCO since July 1994. Miles Cortez was appointed Executive Vice President, General Counsel and Secretary of the General Partner in February 2004 and of AIMCO in August 2001. Prior to joining AIMCO, Mr. Cortez was the senior partner of Cortez Macaulay Bernhardt & Schuetze LLC, a Denver law firm, from December 1997 through September 2001. Patti K. Fielding was appointed Executive Vice President - Securities and Debt of the General Partner in February 2004 and of AIMCO in February 2003. Ms. Fielding was appointed Treasurer of AIMCO in January 2005. Ms. Fielding is responsible for debt financing and the treasury department. Ms. Fielding previously served as Senior Vice President - Securities and Debt of AIMCO from January 2000 to February 2003. Ms. Fielding joined AIMCO in February 1997 as a Vice President. Paul J. McAuliffe has been Executive Vice President and Chief Financial Officer of the General Partner since April 2002. Mr. McAuliffe has served as Executive Vice President of AIMCO since February 1999 and was appointed Chief Financial Officer of AIMCO in October 1999. From May 1996 until he joined AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp. Thomas M. Herzog was appointed Senior Vice President and Chief Accounting Officer of the General Partner in February 2004 and of AIMCO in January 2004. Prior to joining AIMCO in January 2004, Mr. Herzog was at GE Real Estate, serving as Chief Accounting Officer & Global Controller from April 2002 to January 2004 and as Chief Technical Advisor from March 2000 to April 2002. Prior to joining GE Real Estate, Mr. Herzog was at Deloitte & Touche LLP from 1990 until 2000. Stephen B. Waters was appointed Vice President of the General Partner in April 2004. Mr. Waters previously served as a Director of Real Estate Accounting since joining AIMCO in September 1999. Mr. Waters has responsibilities for real estate and partnership accounting with AIMCO. One or more of the above persons are also directors and/or officers of a general partner (or general partner of a general partner) of limited partnerships which either have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15(d) of such Act. Further, one or more of the above persons are also directors and/or officers of Apartment Investment and Management Company and the general partner of AIMCO Properties, L.P., entities that have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15 (d) of such Act. The board of directors of the General Partner does not have a separate audit committee. As such, the board of directors of the General Partner fulfills the functions of an audit committee. The board of directors has determined that Martha L. Long meets the requirement of an "audit committee financial expert". The directors and officers of the General Partner with authority over the Partnership are all employees of subsidiaries of AIMCO. AIMCO has adopted a code of ethics that applies to such directors and officers that is posted on AIMCO's website (www.AIMCO.com). AIMCO's website is not incorporated by reference to this filing. Item 10. Executive Compensation None of the directors or officers of the General Partner received any remuneration from the Partnership. Item 11. Security Ownership of Certain Beneficial Owners and Management Security Ownership of Certain Beneficial Owners Except as provided below, as of December 31, 2004, no person was known to CEI to own of record or beneficially more than 5 percent of the Units of the Partnership: Name and address Number of Units Percent of Total AIMCO IPLP, L.P. 44,867.7 11.71% (an affiliate of AIMCO) Madison River Properties, LLC 46,747.4 12.21% (an affiliate of AIMCO) Cooper River Properties, LLC 28,039.3 7.32% (an affiliate of AIMCO) AIMCO Properties, L.P. 95,458.5 24.92% (an affiliate of AIMCO) AIMCO IPLP, L.P., Cooper River Properties, LLC and Madison River Properties, LLC are indirectly ultimately owned by AIMCO. Their business address is 55 Beattie Place, Greenville, South Carolina 29602. AIMCO Properties, L.P., is also indirectly ultimately controlled by AIMCO. Its business address is 4582 S. Ulster St. Parkway, Suite 1100, Denver, Colorado 80237. Beneficial Owners of Management Except as described above, neither CEI nor any of the directors or officers of CEI own any Units of the Partnership of record or beneficially. Changes in Control Beneficial Owners of CEI As of December 31, 2004, the following persons were known to CEI to be the beneficial owners of more than 5 percent of its common stock: Name and address Number of CEI Shares Percent of Total AIMCO IPLP, L.P. 100,000 100% 55 Beattie Place Greenville, SC 29602 AIMCO IPLP, L.P. is an affiliate of AIMCO (see "Item 1. Description of Business"). Item 12. Certain Relationships and Related Transactions The Partnership has no employees and depends on the General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for (i) certain payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Affiliates of the General Partner receive 5% of gross receipts from all of the Partnership's properties as compensation for providing property management services. The Partnership was charged by such affiliates approximately $576,000 and $581,000 for the years ended December 31, 2004 and 2005, respectively, which is included in operating expense. Affiliates of the General Partner charged the Partnership reimbursement of accountable administrative expenses amounting to approximately $641,000 and $653,000 for the years ended December 31, 2004 and 2003, respectively, which is included in general and administrative expenses and investment properties. For the year ended December 31, 2003, the first three quarters were based on estimated amounts and in the fourth quarter of 2003 the reimbursements of accountable reimbursement expenses were adjusted based on actual costs (see "Note G"). The adjustment to management reimbursements was included in general and administrative expenses. The portion of these reimbursements included in investment properties for the years ended December 31, 2004 and 2003 are fees related to construction management services provided by an affiliate of the General Partner of approximately $102,000 and $69,000, respectively. The construction management service fees are calculated based on a percentage of current additions to investment properties. At December 31, 2004, approximately $709,000 of these expenses are payable to the General Partner and are included in due to affiliates. During the year ended December 31, 2004, the General Partner advanced the Partnership funds to cover expenses related to operations and capital improvements at Cedar Rim, Tamarac Village, Hidden Cove by the Lake, Sandpiper I & II, and Lamplighter Park Apartments totaling approximately $1,342,000. Interest is charged at prime plus 2% (approximately 7.25% at December 31, 2004). Interest accrued for the year ended December 31, 2004, was approximately $48,000. During the year ended December 31, 2003, the General Partner advanced the Partnership funds to cover expenses related to operations at Tamarac Village and Lamplighter Park Apartments totaling approximately $283,000. Interest was charged at prime plus 2% and was approximately $1,000 for the year ended December 31, 2003. Total advances and accrued interest of approximately $1,672,000 remain unpaid at December 31, 2004 and are included in due to affiliates. The Partnership insures its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the General Partner. During the years ended December 31, 2004 and 2003, the Partnership was charged by AIMCO and its affiliates approximately $154,000 and $146,000, respectively, for insurance coverage and fees associated with policy claims administration. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 215,112.9 limited partnership units (the "Units") in the Partnership representing 56.16% of the outstanding Units at December 31, 2004. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. In this regard, on March 15, 2005, a tender offer by AIMCO Properties, L.P., to acquire all of the Units not owned by affiliates of AIMCO for a purchase price of $22.80 per Unit expired. Pursuant to this offer AIMCO acquired 19,284.9 (5.03%) Units. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 56.16% of the outstanding Units, AIMCO and its affiliates are in a position to control all such voting decisions with respect to the Partnership. Although the General Partner owes fiduciary duties to the limited partners of the Partnership, the General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the General Partner, as general partner, to the Partnership and its limited partners may come into conflict with the duties of the General Partner to AIMCO as its sole stockholder. Item 13. Exhibits See attached Exhibit Index. Item 14. Principal Accountant Fees and Services The General Partner has reappointed Ernst & Young LLP as independent auditors to audit the financial statements of the Partnership for 2005. The aggregate fees billed for services rendered by Ernst & Young LLP for 2004 and 2003 are described below. Audit Fees. Fees for audit services totaled approximately $66,000 for both 2004 and 2003. Fees for audit services also include fees for the reviews of the Partnership's Quarterly Reports on Form 10-QSB. Tax Fees. Fees for tax services totaled approximately $20,000 and $25,000 for 2004 and 2003, respectively. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3 By: CONCAP EQUITIES, INC. General Partner By: /s/Martha L. Long Martha L. Long Senior Vice President By: /s/Stephen B. Waters Stephen B. Waters Vice President Date: March 28, 2005 In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. /s/Harry G. Alcock Director and Executive Date: March 28, 2005 Harry G. Alcock Vice President /s/Martha L. Long Director and Senior Vice Date: March 28, 2005 Martha L. Long President /s/Stephen B. Waters Vice President Date: March 28, 2005 Stephen B. Waters CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3 EXHIBIT INDEX Exhibit Number Description of Exhibit 3.1 Certificate of Limited Partnership, as amended to date (Exhibit 3 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2002, is incorporated herein by reference). 10.34 Multifamily Note dated November 30, 1995 between CCIP/3, a California limited partnership, and Lehman Brothers Holdings Inc. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc., related to Park Capital Apartments. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1995). 10.35 Multifamily Note dated November 30, 1995 between CCIP/3, a California limited partnership, and Lehman Brothers Holdings Inc. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc., related to Williamsburg Manor Apartments. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1995). 10.36 Multifamily Note dated November 30, 1995 between CCIP/3, a California limited partnership, and Lehman Brothers Holdings Inc. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc., related to Sandpiper I & II Apartments. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1995). 10.48 Multifamily Note dated June 27, 2001, by and between Consolidated Capital Institutional Properties/3, a California limited partnership, and GMAC Commercial Mortgage Corporation, related to Tamarac Village Apartments. (Incorporated by reference to the Quarterly Report on Form 10-QSB for the quarter ended June 30, 2001.) 10.49 Multifamily Note dated June 29, 2001, by and between Consolidated Capital Institutional Properties/3, a California limited partnership, and GMAC Commercial Mortgage Corporation, related to Lamplighter Park Apartments. (Incorporated by reference to the Quarterly Report on Form 10-QSB for the quarter ended June 30, 2001.) 10.50 Multifamily Note dated July 23, 2001, by and between Consolidated Capital Institutional Properties/3, a California limited partnership, and GMAC Commercial Mortgage Corporation, related to Cedar Rim Apartments. (Incorporated by reference to the Quarterly Report on Form 10-QSB for the quarter ended June 30, 2001.) 10.51 Multifamily Note dated September 19, 2001, by and between Consolidated Capital Institutional Properties/3, a California limited partnership, and GMAC Commercial Mortgage Corporation, related to Hidden Cove Apartments. (Incorporated by reference to the Quarterly Report on Form 10-QSB for the quarter ended September 30, 2001.) 28.1 Fee Owner's General Partnership Agreement (Incorporated by reference to Registration Statement of Partnership (File No. 2-97664) filed July 23, 1985). 28.2 Fee Owner's Certificate of Partnership (Incorporated by reference to Registration Statement of Partnership (File No. 2-97664) filed July 23, 1985). 31.1 Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 31.1 CERTIFICATION I, Martha L. Long, certify that: 1. I have reviewed this annual report on Form 10-KSB of Consolidated Capital Institutional Properties/3; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: March 28, 2005 /s/Martha L. Long Martha L. Long Senior Vice President of ConCap Equities, Inc., equivalent of the chief executive officer of the Partnership Exhibit 31.2 CERTIFICATION I, Stephen B. Waters, certify that: 1. I have reviewed this annual report on Form 10-KSB of Consolidated Capital Institutional Properties/3; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: March 28, 2005 /s/Stephen B. Waters Stephen B. Waters Vice President of ConCap Equities, Inc., equivalent of the chief financial officer of the Partnership Exhibit 32.1 Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report on Form 10-KSB of Consolidated Capital Institutional Properties/3 (the "Partnership"), for the year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Martha L. Long, as the equivalent of the Chief Executive Officer of the Partnership, and Stephen B. Waters, as the equivalent of the Chief Financial Officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. /s/Martha L. Long Name: Martha L. Long Date: March 28, 2005 /s/Stephen B. Waters Name: Stephen B. Waters Date: March 28, 2005 This certification is furnished with this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----