-----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, AeRxKdpim9OZNqrtTjJcyQBaDjvuWm2Q9RLOyR2B3cMB4av/gZCMD611Tuqe6s6d H+YI98ycVv5e4rVFRk1JWQ== 0000711642-04-000371.txt : 20041112 0000711642-04-000371.hdr.sgml : 20041111 20041112101242 ACCESSION NUMBER: 0000711642-04-000371 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041112 DATE AS OF CHANGE: 20041112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JOHNSTOWN CONSOLIDATED INCOME PARTNERS CENTRAL INDEX KEY: 0000787621 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 943004963 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-16010 FILM NUMBER: 041135964 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: POST OFFICE BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8642391000 MAIL ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: POST OFFICE BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 FORMER COMPANY: FORMER CONFORMED NAME: CONSOLIDATED CAPITAL INCOME GROWTH PARTNERS DATE OF NAME CHANGE: 19860401 10QSB 1 jcip.txt JCIP UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2004 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from _________to _________ Commission file number 0-16010 JOHNSTOWN/CONSOLIDATED INCOME PARTNERS (Exact Name of Small Business Issuer as Specified in Its Charter) California 94-3004963 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 Beattie Place, PO Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (864) 239-1000 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS JOHNSTOWN/CONSOLIDATED INCOME PARTNERS BALANCE SHEET (Unaudited) (in thousands, except unit data) September 30, 2004
Assets Cash and cash equivalents $ 60 Receivables and deposits 79 Restricted escrow 8 Other assets 201 Investment property: Land $ 213 Buildings and related personal property 5,184 5,397 Less accumulated depreciation (4,118) 1,279 $ 1,627 Liabilities and Partners' Deficit Accounts payable $ 52 Tenant security deposit liabilities 31 Accrued property taxes 59 Other liabilities 107 Mortgage notes payable 5,418 Partners' Deficit General partner $ (288) Corporate limited partner on behalf of the Unitholders (128,810 units issued and Outstanding) (3,752) (4,040) $ 1,627 See Accompanying Notes to Financial Statements
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per unit data)
Three Months Ended Nine Months Ended September 30, September 30, 2004 2003 2004 2003 Revenues: Rental income $ 267 $ 283 $ 784 $ 839 Other income 25 36 77 99 Casualty gain (Note C) -- -- 92 -- Total revenues 292 319 953 938 Expenses: Operating 131 136 372 364 General and administrative 37 47 114 129 Depreciation 71 69 209 209 Interest 108 68 248 212 Property taxes 20 18 59 54 Total expenses 367 338 1,002 968 Net loss $ (75) $ (19) $ (49) $ (30) Net loss allocated to general partner (1%) $ (1) $ -- $ -- $ -- Net loss allocated to limited partners (99%) (74) (19) (49) (30) $ (75) $ (19) $ (49) $ (30) Net loss per Unit of Depositary Receipt $ (0.57) $ (0.14) $ (0.38) $ (0.23) Distributions per Unit of Depositary Receipt $ 12.22 $ 0.38 $ 12.22 $ 0.38 See Accompanying Notes to Financial Statements
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS STATEMENT OF CHANGES IN PARTNERS' DEFICIT (Unaudited) (in thousands, except unit data)
Unitholders Units of Units of Depositary Depositary General Receipt Receipt Partner (Note A) Total Original capital contributions 129,266 $ 1 $32,317 $32,318 Partners' deficit at December 31, 2003 128,810 $ (272) $(2,129) $(2,401) Distribution to partners (16) (1,574) (1,590) Net loss for the nine months ended September 30, 2004 -- -- (49) (49) Partners' deficit at September 30, 2004 128,810 $ (288) $(3,752) $(4,040) See Accompanying Notes to Financial Statements
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Nine Months Ended September 30, 2004 2003 Cash flows from operating activities: Net loss $ (49) $ (30) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 209 209 Amortization of loan costs 23 5 Casualty gain (92) -- Change in accounts: Receivables and deposits (68) (10) Other assets -- (25) Accounts payable 10 (8) Tenant security deposit liabilities (10) (1) Accrued property taxes 59 54 Other liabilities (55) 10 Net cash provided by operating activities 27 204 Cash flows from investing activities: Net deposits to restricted escrow (8) -- Property improvements and replacements (247) (58) Insurance proceeds received 99 -- Net cash used in investing activities (156) (58) Cash flows from financing activities: Proceeds from mortgage note payable 1,830 -- Payments on mortgage note payable (64) (72) Advances from affiliate 7 18 Payments on advances from affiliate (7) (18) Distributions to partners (1,590) (50) Loan costs paid (66) -- Net cash provided by (used in) financing activities 110 (122) Net (decrease) increase in cash and cash equivalents (19) 24 Cash and cash equivalents at beginning of period 79 35 Cash and cash equivalents at end of period $ 60 $ 59 Supplemental disclosure of cash flow information: Cash paid for interest $ 227 $ 208 See Accompanying Notes to Financial Statements
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS NOTES TO FINANCIAL STATEMENTS (Unaudited) Note A - Basis of Presentation The accompanying unaudited financial statements of Johnstown/Consolidated Income Partners (the "Partnership" or "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The Partnership's general partner is ConCap Equities, Inc. (the "General Partner"). In the opinion of the General Partner, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2004 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2004. For further information, refer to the financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003. The General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. Units of Depositary Receipt Johnstown/Consolidated Depositary Corporation (the "Corporate Limited Partner"), an affiliate of the General Partner, serves as a depositary of certain units of depositary receipt ("Units"). The Units represent economic rights attributable to the limited partnership interests in the Partnership and entitle the unitholders thereof ("Unitholders") to certain economic benefits, allocations and distributions of the Partnership. For this reason, partners' deficit is herein represented as an interest of the Unitholders. 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, as provided for in the Partnership Agreement. The Partnership Agreement provides for certain payments to affiliates for services and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The Partnership Agreement provides that the Partnership shall pay in monthly installments to the General Partner, or an affiliate, a yearly asset management fee equal to: (i) 3/8 of 1% of the original principal balance of mortgage loans outstanding at the end of the month preceding the installment payment; (ii) 1/8 of 1% of the market value of guaranteed mortgage-backed securities as of the end of the Partnership quarter immediately preceding the installment payment; and (iii) 5/8 of 1% of the purchase price of the properties plus improvements for managing the Partnership's assets. In the event the property was not owned at the beginning or end of the year, such fee shall be pro-rated for the short-year period of ownership. Under this provision, fees of approximately $35,000 were incurred to the General Partner and its affiliates for both the nine months ended September 30, 2004 and 2003, which are included in general and administrative expenses. Affiliates of the General Partner are entitled to receive 5% of gross receipts from the Partnership's investment property as compensation for providing property management services. The Partnership paid to such affiliates approximately $42,000 and $46,000 for the nine months ended September 30, 2004 and 2003, respectively, which are included in operating expenses. Affiliates of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $72,000 and $58,000 for the nine months ended September 30, 2004 and 2003, respectively. Included in these amounts are fees related to construction management services provided by an affiliate of the General Partner of approximately $21,000 and $2,000 for the nine months ended September 30, 2004 and 2003, respectively. The construction management service fees are calculated based on a percentage of current additions to investment property. These reimbursements of accountable administrative expenses are included in general and administrative expenses and investment property. In accordance with the Partnership Agreement, during the nine months ended September 30, 2004, the General Partner loaned the Partnership approximately $7,000 to fund a Partnership audit invoice. Interest accrued at the prime rate plus 2%. Interest expense was less than $1,000 for the nine months ended September 30, 2004. Principal and interest were repaid in full during the nine months ended September 30, 2004. During the nine months ended September 30, 2003, the General Partner loaned the Partnership approximately $18,000 to fund a real estate tax bill at Cedar Brooke Apartments. Interest accrued at the prime rate plus 2%. Interest expense was less than $1,000 for the nine months ended September 30, 2003. During the nine months ended September 30, 2003, the Partnership repaid the loan plus the related accrued interest with cash from operations. In connection with the second mortgage obtained on Cedar Brooke Apartments, the Partnership paid a fee of approximately $18,000 to the General Partner during the nine months ended September 30, 2004. This fee has been capitalized and is included in other assets. The Partnership insures its property 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 property above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the General Partner. During the nine months ended September 30, 2004 and 2003, the Partnership was charged by AIMCO and its affiliates approximately $16,000 and $14,000, respectively, for insurance coverage and fees associated with policy claims administration. Note C - Casualty Event On February 25, 2004, a fire occurred at Cedar Brooke Apartments, causing damage to four apartment units. The property incurred damages of approximately $122,000. During the nine months ended September 30, 2004, insurance proceeds of approximately $99,000 have been received to cover the damage to the property. After writing off the undepreciated cost of the damaged asset, the Partnership recognized a casualty gain of approximately $92,000 for the nine months ended September 30, 2004. Note D - Additional Financing On June 25, 2004, the Partnership obtained a second mortgage, in the amount of $1,830,000, on Cedar Brooke Apartments. The second mortgage requires monthly payments of interest beginning on August 1, 2004 until the loan matures July 1, 2007, with interest being equal to the one month LIBOR rate plus 300 basis points (4.84% at September 30, 2004). Loan costs of approximately $66,000 that were paid in connection with the second mortgage have been capitalized during the nine months ended September 30, 2004 and are included in other assets. In connection with the new financing, the Partnership agreed to certain modifications on the existing mortgage loan encumbering Cedar Brooke Apartments. The modification of terms consisted of an interest rate of 7.74%, monthly payments of approximately $26,000, commencing August 1, 2004 through its maturity of July 1, 2014, with a balloon payment of approximately $3,088,000 due at maturity. The previous terms consisted of monthly payments of approximately $31,000 with a stated interest rate of 7.44% through its maturity of July 1, 2021, at which time the loan was scheduled to be fully amortized. Note E - 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. The Court of Appeals heard oral argument on both appeals on September 22, 2004 and took the matters under submission. 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. On August 8, 2003 AIMCO Properties L.P., an affiliate of the General Partner, was served with a complaint in the United States District Court, District of Columbia alleging that AIMCO Properties L.P. willfully violated the Fair Labor Standards Act ("FLSA") by failing to pay maintenance workers overtime for all hours worked in excess of forty per week. On March 5, 2004, the plaintiffs filed an amended complaint also naming NHP Management Company, which is also an affiliate of the General Partner. The complaint is styled as a Collective Action under the FLSA and seeks 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, the complaint alleges 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. Some discovery has taken place and settlement negotiations continue. 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 property that are not of a routine nature arising in the ordinary course of business. 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 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 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. The Partnership's investment property consists of one apartment complex. The following table sets forth the average occupancy of the property for each of the nine month periods ended September 30, 2004 and 2003. Average Occupancy Property 2004 2003 Cedar Brooke Apartments 91% 98% Independence, Missouri The General Partner attributes the decrease in occupancy at Cedar Brooke Apartments to an increase in home purchases in the Independence area and a change in credit standards for acceptance of new residents. The Partnership's financial results depend upon a number of factors including the ability to attract and maintain tenants at the investment property, interest rates on mortgage loans, costs incurred to operate the investment property, general economic conditions and weather. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of its investment property 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. Results of Operations The Partnership's net loss for the three and nine months ended September 30, 2004 was approximately $75,000 and $49,000, respectively, as compared to net loss of approximately $19,000 and $30,000, respectively, for the three and nine months ended September 30, 2003. The increase in net loss for the three months ended September 30, 2004 is due to a decrease in total revenues and an increase in total expenses. The increase in net loss for the nine months ended September 30, 2004 is due to an increase in total expenses, partially offset by an increase in total revenues. The decrease in total revenues for the three months ended September 30, 2004 is due to decreases in both rental and other income. The increase in total revenues for the nine months ended September 30, 2004 is due to the recognition during 2004 of a casualty gain (as discussed below), partially offset by decreases in both rental and other income. The decrease in rental income for both periods is due to decreases in occupancy and the average rental rate at Cedar Brooke Apartments, partially offset by a decrease in bad debt expense. The decrease in other income for both periods is due to decreases in lease cancellation fees and late charges at the Partnership's investment property. On February 25, 2004, a fire occurred at Cedar Brooke Apartments, causing damage to four apartment units. The property incurred damages of approximately $122,000. During the nine months ended September 30, 2004, insurance proceeds of approximately $99,000 have been received to cover the damages to the property. After writing off the undepreciated cost of the damaged asset, the Partnership recognized a casualty gain of approximately $92,000 for the nine months ended September 30, 2004. The increase in total expenses for the three months ended September 30, 2004 is due to an increase in interest expense, partially offset by decreases in both operating and general and administrative expenses. Both depreciation and property tax expense remained relatively constant for the three months ended September 30, 2004. The increase in total expenses for the nine months ended September 30, 2004 is due to increases in operating, interest, and property tax expenses, partially offset by a decrease in general and administrative expenses. Depreciation expense remained relatively constant for the nine months ended September 30, 2004. The increase in interest expense for both periods is primarily due to the additional financing obtained on Cedar Brooke Apartments, resulting in a higher debt balance, the modification of the terms of the existing mortgage encumbering the property at a higher interest rate (as discussed in "Liquidity and Capital Resources"), and increased loan cost amortization expense. The decrease in operating expenses for the three months ended September 30, 2004 is primarily due to a routine lead-based paint assessment conducted during the three months ended September 30, 2003. The increase in operating expenses for the nine months ended September 30, 2004 is primarily due to an increase in advertising expense at the property. The increase in property tax expense for the nine months ended September 30, 2004 is due to an increase in the assessed value and tax rate at Cedar Brooke Apartments. The decrease in general and administrative expenses for both periods is due to decreases in management reimbursements to the General Partner as allowed under the Partnership Agreement and professional expenses associated with the administration of the Partnership. Also included in general and administrative expenses for the three and nine months ended September 30, 2004 and 2003 are costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement. Liquidity and Capital Resources At September 30, 2004, the Partnership had cash and cash equivalents of approximately $60,000, compared to approximately $59,000 at September 30, 2003. The decrease in cash and cash equivalents of approximately $19,000 for the nine months ended September 30, 2004, from December 31, 2003, is due to approximately $156,000 of cash used in investing activities, partially offset by approximately $110,000 of cash provided by financing activities and approximately $27,000 of cash provided by operating activities. Cash used in investing activities consisted of property improvement and replacements and net deposits to an escrow account maintained by the mortgage lender, partially offset by insurance proceeds received related to the fire at Cedar Brooke Apartments. Cash provided by financing activities consisted of loan proceeds received as a result of the second mortgage obtained on Cedar Brooke Apartments and an advance from an affiliate of the General Partner, partially offset by a distribution to partners, payments of principal made on the mortgage encumbering Cedar Brooke Apartments, loan costs paid, and the repayment of an advance from an affiliate. The Partnership invests its working capital reserves in interest bearing accounts. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the investment property 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. Capital improvements planned for the Partnership's property are discussed below. During the nine months ended September 30, 2004, the Partnership completed approximately $247,000 of capital improvements at Cedar Brooke Apartments, consisting primarily of swimming pool upgrades, floor covering replacement and construction related to the fire that occurred at the property in February 2004 (as discussed in "Results of Operations"). These improvements were funded from operations and insurance proceeds. The Partnership evaluates the capital improvement needs of the property during the year and currently expects to complete an additional $19,000 in capital improvements during the remainder of 2004. Additional capital improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. The additional capital expenditures will be incurred only if cash is available from operations or from Partnership reserves. To the extent that such budgeted capital improvements are completed, the Partnership's distributable cash flow, if any, may be adversely affected at least in the short term. The Partnership's assets are thought to be sufficient for any near-term needs, exclusive of capital improvements, of the Partnership. On June 25, 2004, the Partnership obtained a second mortgage, in the amount of $1,830,000, on Cedar Brooke Apartments. The second mortgage requires monthly payments of interest beginning on August 1, 2004 until the loan matures July 1, 2007, with interest being equal to the one month LIBOR rate plus 300 basis points (4.84% at September 30, 2004). Loan costs of approximately $66,000 that were paid in connection with the second mortgage have been capitalized during the nine months ended September 30, 2004 and are included in other assets. In connection with the new financing, the Partnership agreed to certain modifications on the existing mortgage loan encumbering Cedar Brooke Apartments. The modification of terms consisted of an interest rate of 7.74%, monthly payments of approximately $26,000, commencing August 1, 2004 through its maturity of July 1, 2014, with a balloon payment of approximately $3,088,000 due at maturity. The previous terms consisted of monthly payments of approximately $31,000 with a stated interest rate of 7.44% through its maturity of July 1, 2021, at which time the loan was scheduled to be fully amortized. The Partnership distributed the following amounts during the nine months ended September 30, 2004 and 2003 (in thousands, except per unit data):
Nine Months Ended Per Unit of Nine Months Ended Per Unit of September 30, Depositary September 30, Depositary 2004 Receipt 2003 Receipt Financing Proceeds (1) $1,590 $12.22 $ -- $ -- Operations -- -- 50 0.38 $1,590 $12.22 $ 50 $ 0.38
(1) Proceeds from the additional financing obtained on Cedar Brooke Apartments in June 2004. Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves, the timing of the debt maturities, refinancing and/or property sale. 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 additional distributions to its partners during the remainder of 2004 or subsequent periods. Other In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 72,794 units of depositary receipt (the "Units") in the Partnership representing 56.51% of the outstanding Units at September 30, 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. 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 56.51% of the outstanding Units, AIMCO and its affiliates are in a position to control all 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 The financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the Partnership to make estimates and assumptions. The Partnership believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity. Impairment of Long-Lived Assets The Partnership's investment property is recorded at cost, less accumulated depreciation, unless considered impaired. If events or circumstances indicate that the carrying amount of the 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 property. These factors include, but are not limited to, changes in the national, regional and local economic climate; local conditions, such as an oversupply of multifamily properties; competition from other available multifamily property owners and changes in market rental rates. Any adverse changes in these factors could cause impairment of the Partnership's asset. Revenue Recognition The Partnership generally leases apartment units for twelve-month terms or less. Rental income attributable to leases is recognized monthly as it is earned. The Partnership 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. The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Any concessions given at the inception of the lease are amortized over the life of the lease. Item 3. 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 fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Partnership's internal control over financial reporting. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its General Partner and several of their affiliated partnerships and corporate entities. The action 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. The Court of Appeals heard oral argument on both appeals on September 22, 2004 and took the matters under submission. 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. On August 8, 2003 AIMCO Properties L.P., an affiliate of the General Partner, was served with a complaint in the United States District Court, District of Columbia alleging that AIMCO Properties L.P. willfully violated the Fair Labor Standards Act ("FLSA") by failing to pay maintenance workers overtime for all hours worked in excess of forty per week. On March 5, 2004, the plaintiffs filed an amended complaint also naming NHP Management Company, which is also an affiliate of the General Partner. The complaint is styled as a Collective Action under the FLSA and seeks 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, the complaint alleges 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. Some discovery has taken place and settlement negotiations continue. 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 6. EXHIBITS See Exhibit Index. 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. JOHNSTOWN/CONSOLIDATED INCOME PARTNERS 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: November 12, 2004 JOHNSTOWN CONSOLIDATED INCOME PARTNERS INDEX OF EXHIBITS EXHIBIT NO. DOCUMENT DESCRIPTION 3 Certificates of Limited Partnership, as amended to date (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991) 10.40 Multifamily Note dated June 27, 2001, by and between Johnstown/Consolidated Income Partners, a California limited partnership, and GMAC Commercial Mortgage Corporation relating to Cedar Brooke Apartments. (Incorporated by reference to the Quarterly Report on Form 10-QSB for the quarter ended June 30, 2001). 10.41 Allonge and Amendment to Multifamily Note dated June 25, 2004, by and among Johnstown/Consolidated Income Partners, a California limited partnership, GMAC Commercial Mortgage Corporation, and Federal Home Loan Mortgage Corporation. (Incorporated by reference to the Current Report on Form 8-K dated June 25, 2004) 10.42 Multifamily Note dated June 25, 2004, by and between Johnstown/Consolidated Income Partners, a California limited partnership, and GMAC Commercial Mortgage Bank. (Incorporated by reference to the Current Report on Form 8-K dated June 25, 2004) 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 quarterly report on Form 10-QSB of Johnstown/Consolidated Income Partners; 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: November 12, 2004 /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 quarterly report on Form 10-QSB of Johnstown/Consolidated Income Partners; 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: November 12, 2004 /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 Quarterly Report on Form 10-QSB of Johnstown/Consolidated Income Partners (the "Partnership"), for the quarterly period ended September 30, 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: November 12, 2004 /s/Stephen B. Waters Name: Stephen B. Waters Date: November 12, 2004 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-----