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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2003
or
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________to _________
Commission file number 0-11002
CONSOLIDATED CAPITAL PROPERTIES IV
(Name of small business issuer in its charter)
California 94-2768742
(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)
Issuer's telephone number (864) 239-1000
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 Interests
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes ______ No __X__
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, 2003. 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 Properties IV (the "Partnership" or "Registrant") was
organized on September 22, 1981 as a limited partnership under the California
Uniform Limited Partnership Act. On December 18, 1981, the Partnership commenced
a public offering for the sale of 200,000 units (the "Units") with the general
partner's right to increase the offering to 400,000 units. 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 closed on December 14, 1983, with 343,106 Units sold at $500 each,
or gross proceeds of $171,553,000 to the Partnership. Since its initial
offering, the Partnership has not received, nor are limited partners required to
make, additional capital contributions.
By the end of fiscal year 1985, approximately 73% of the proceeds raised had
been invested in 48 properties. Of the remaining 27%, 11% was required for
organizational and offering expenses, sales commissions and acquisition fees,
and 16% was retained in Partnership reserves for project improvements and
working capital as required by the Partnership Agreement.
The general partner of the Partnership is ConCap Equities, Inc., a Delaware
corporation (the "General Partner" or "CEI"). The General Partner is a
subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust. The directors and officers of the General
Partner also serve as executive officers of AIMCO. The Partnership Agreement
provides that the Partnership is to terminate on December 31, 2011 unless
terminated prior to that date.
The Partnership's primary business and only industry segment is real estate
related operations. The Partnership is engaged in the business of operating and
holding real estate properties for investment. As of the close of fiscal year
1985, the Partnership had completed its property acquisition stage and had
acquired 48 properties. At December 31, 2003, the Partnership owned 13
income-producing properties (or interests therein) and one property which is
under development in Atlanta, Georgia, which range in age from 26 to 31 years
old and are principally located in the midwest, southeastern and southwestern
United States. Prior to 2003, the Partnership had disposed of 33 properties
originally owned by the Partnership. One property was sold in 2003. See "Item 2.
Description of Properties" for further information about the Partnership's
remaining properties.
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.
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.
The Partnership has no employees. Property management and administrative
services are provided by the General Partner and by agents of the General
Partner. The General Partner has also selected an affiliate to provide real
estate advisory and asset management services to the Partnership. As advisor,
such affiliate provides all Partnership accounting and administrative services,
investment management, and supervisory services over property management and
leasing.
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 7" of this Form 10-K.
Transfers of Control
Upon the Partnership's formation in 1981, Consolidated Capital Equities
Corporation ("CCEC"), a Colorado corporation, was the corporate general partner
and Consolidated Capital Management Company ("CCMC"), a California general
partnership, was the non-corporate general partner. In 1988, through a series of
transactions, Southmark Corporation ("Southmark") acquired a 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 its 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, and the conversion of CCMC from a general partner to a special
limited partner, thereby leaving CEI as the sole general partner of the
Partnership. On November 14, 1990, CCMC was dissolved and its special limited
partnership interest was divided among its former partners. All of CEI's
outstanding stock was owned by Insignia Properties Trust ("IPT") (See below).
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and IPT merged into AIMCO, a
publicly traded real estate investment trust, with AIMCO being the surviving
corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership
interest in the General Partner. The General Partner does not believe that this
transaction has had or will have a material effect on the affairs and operations
of the Partnership.
Item 2. Description of Properties
The Partnership originally acquired 48 properties of which fourteen (14) were
sold, ten (10) were conveyed to lenders in lieu of foreclosure, and ten (10)
were foreclosed upon by the lenders. As of December 31, 2003, the Partnership
owned thirteen (13) apartment complexes and one which is currently under
development. Additional information about the properties is found in "Item 8.
Financial Statements and Supplementary Data".
Date of
Property Purchase Type of Ownership Use
The Apartments (1) 04/84 Fee ownership, subject to Apartment
Omaha, Nebraska a first mortgage 204 units
Arbours of Hermitage Apts. (1) 09/83 Fee ownership subject to Apartment
Nashville, Tennessee a first mortgage 350 units
Belmont Place Apts. (2)(3) 08/82 Fee ownership subject to Land being
Marietta, Georgia a first mortgage developed
Briar Bay Racquet Club Apts. (2) 09/82 Fee ownership subject to Apartment
Miami, Florida a first mortgage 194 units
Citadel Apts. (1) 05/83 Fee ownership subject Apartment
El Paso, Texas to a first mortgage 261 units
Citadel Village Apts. (1) 12/82 Fee ownership subject Apartment
Colorado Springs, Colorado to a first mortgage 122 units
Foothill Place Apts. (2) 08/85 Fee ownership subject Apartment
Salt Lake City, Utah to a first mortgage 450 units
Knollwood Apts. (1) 07/82 Fee ownership subject Apartment
Nashville, Tennessee to a first mortgage 326 units
Lake Forest Apts. 04/84 Fee ownership subject Apartment
Omaha, Nebraska to a first mortgage 312 units
Nob Hill Villa Apts. (1) 04/83 Fee ownership subject Apartment
Nashville, Tennessee to a first mortgage 472 units
Point West Apts. (1) 11/85 Fee ownership subject to Apartment
Charleston, South Carolina a first mortgage 120 units
Post Ridge Apts. (2) 07/82 Fee ownership subject Apartment
Nashville, Tennessee to first and second 150 units
mortgages
Rivers Edge Apts. (2) 04/83 Fee ownership subject Apartment
Auburn, Washington to a first mortgage 120 units
Village East Apts. (1) 12/82 Fee ownership subject Apartment
Cimarron Hills, Colorado to a first mortgage 137 units
(1) Property is held by a limited partnership and/or limited liability
corporation in which the Partnership owns a 100% interest.
(2) Property is held by a limited partnership in which the Partnership owns a
99% interest.
(3) Property formerly known as Chimney Hill Apartments.
On March 28, 2003, the Partnership sold South Port Apartments to an unrelated
third party, for a gross sale price of $8,625,000. The net proceeds realized by
the Partnership were approximately $8,137,000 after payment of closing costs of
approximately $488,000. The Partnership used approximately $4,229,000 of the net
proceeds to repay the mortgage encumbering the property. The Partnership
realized a gain of approximately $6,232,000 for the year ended December 31,
2003, as a result of this sale. This amount is shown as gain from sale of
discontinued operations in the accompanying consolidated statements of
operations. The property's operations, income of approximately $8,000, $497,000,
and $536,000 for the years ended December 31, 2003, 2002, and 2001,
respectively, are included in income from discontinued operations and include
revenues of approximately $327,000, $1,571,000, and $1,625,000, respectively. In
addition, the Partnership recorded a loss on early extinguishment of debt of
approximately $13,000 for the year ended December 31, 2003 due to the write-off
of unamortized loan costs, which is also included in income from discontinued
operations in the accompanying consolidated statements of operations.
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 Depreciable Method of Federal
Property Value Depreciation Life Depreciation Tax Basis
(in thousands) (in
thousands)
The Apartments $ 9,468 $ 8,260 5-30 yrs S/L $ 1,523
Arbours of Hermitage
Apartments 15,203 12,372 5-30 yrs S/L 3,255
Briar Bay Racquet Club
Apartments 8,313 6,814 5-30 yrs S/L 2,076
Belmont Place
Apartments 3,923 -- 5-30 yrs S/L 3,717
Citadel Apartments 8,241 7,081 5-30 yrs S/L 989
Citadel Village
Apartments 4,805 3,920 5-30 yrs S/L 1,438
Foothill Place
Apartments 17,279 12,388 5-30 yrs S/L 6,115
Knollwood Apartments 12,798 10,853 5-30 yrs S/L 2,467
Lake Forest Apartments 10,220 8,511 5-30 yrs S/L 1,798
Nob Hill Villa
Apartments 14,834 12,528 5-30 yrs S/L 2,277
Point West Apartments 3,418 2,834 5-30 yrs S/L 731
Post Ridge Apartments 5,743 4,596 5-30 yrs S/L 1,383
Rivers Edge Apartments 3,745 2,921 5-30 yrs S/L 997
Village East Apartments 4,380 3,469 5-30 yrs S/L 973
Total $122,370 $ 96,547 $ 29,739
See "Note A - Organization and Significant Accounting Policies" to the
consolidated financial statements included in "Item 8. Financial Statements and
Supplementary Data" 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 Principal
Balance At Balance At Stated Balance
December 31, December Interest Period Maturity Due At
31,
Property 2003 2002 Rate Amortized Date Maturity (3)
(in thousands) (in
thousands)
The Apartments $ 4,367 $ 4,489 8.37% 20 yrs 03/20 $ --
Arbours of Hermitage
Apartments 5,650 5,650 6.95% (1) 12/05 5,650
Belmont Place Apartments 5,400 5,400 6.95% (1) 12/05 5,400
Briar Bay Racquet Club
Apartments 3,500 3,500 6.95% (1) 12/05 3,500
Citadel Apartments 4,303 4,424 8.25% 20 yrs 03/20 --
Citadel Village 2,450 2,450 6.95% (1) 12/05 2,450
Apartments
Foothill Place 10,100 10,100 6.95% (1) 12/05 10,100
Apartments
Knollwood Apartments 6,780 6,780 6.95% (1) 12/05 6,780
Lake Forest Apartments 6,156 6,321 7.13% 20 yrs 10/21 --
Nob Hill Villa 6,476 6,640 9.20% 25 yrs 04/05 6,250
Apartments
Point West Apartments 2,221 2,288 7.86% 20 yrs 12/19 --
Post Ridge Apartments
1st mortgage 4,279 4,398 6.63% 20 yrs 01/22 --
2nd mortgage 375 -- 7.04% 18 yrs 01/22 173
Rivers Edge Apartments 3,693 3,796 7.82% 20 yrs 09/20 --
South Port Apartments -- 4,244 7.19% (2) (2) --
Village East Apartments 2,150 2,150 6.95% (1) 12/05 2,150
Totals $67,900 $72,630 $42,453
(1) Monthly payments of interest only at the stated rate until maturity. (2) The
Partnership sold South Port Apartments to an unrelated third party
in March 2003.
(3) See "Note C - Mortgage Notes Payable" to the consolidated financial
statements included in "Item 8. Financial Statements and Supplementary
Data" for information with respect to the Partnership's ability to prepay
these loans and other specific details about the loans.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" for information relating to the refinancing of the
mortgage encumbering Lake Forest Apartments in September 2001 and the
refinancing of the mortgage encumbering Post Ridge Apartments in December 2001.
On October 22, 2003, the Partnership entered into a second mortgage for Post
Ridge Apartments. The second mortgage is in the principal amount of $375,000 and
has a stated interest rate of 7.04% per annum. Payments of principal and
interest of approximately $3,000 are due on the first day of each month
commencing December 2003 until January 2022 at which time a balloon payment of
approximately $173,000 is required. The proceeds from the second mortgage will
be used as a cross collateralized loan to Belmont Place Apartments to establish
a capital escrow reserve as required by the mortgage lender. Belmont Place
Apartments will use these proceeds to continue the ongoing construction project
at the property (see "Note G - Redevelopment of Belmont Place Apartments"
included in "Item 8. Financial Statements and Supplementary Data").
Rental Rates and Occupancy
The following table sets forth the average annual rental rates and occupancy for
2003 and 2002 for each property.
Average Annual Average
Rental Rates Occupancy
(per unit)
Property 2003 2002 2003 2002
The Apartments $ 7,128 $ 7,159 94% 91%
Arbours of Hermitage Apartments 7,375 7,496 95% 94%
Belmont Place Apartments 5,637 8,501 2% 73%
Briar Bay Racquet Club Apartments 9,883 9,856 91% 94%
Citadel Apartments 6,569 6,616 95% 94%
Citadel Village Apartments 8,306 9,237 80% 87%
Foothill Place Apartments 7,910 8,303 91% 88%
Knollwood Apartments 7,853 8,049 95% 94%
Lake Forest Apartments 7,157 7,245 95% 94%
Nob Hill Villa Apartments 5,783 5,946 92% 91%
Point West Apartments 6,831 6,844 90% 93%
Post Ridge Apartments 9,049 9,339 95% 92%
Rivers Edge Apartments 8,331 8,402 93% 92%
Village East Apartments 7,505 7,866 68% 81%
The decreases in occupancy at Point West and Briar Bay Apartments is due to more
tenants purchasing houses due to lower mortgage interest rates and changing
economic conditions in their respective local markets. The decreases in
occupancy at Citadel Village and Village East Apartments is due to recent
military deployments as both properties are located near military bases and an
increase in competitive pricing strategies used by competition in their
respective markets. The increase in occupancy at Post Ridge, Foothill Place, and
The Apartments is attributable to a more aggressive marketing campaign and the
use of competitive pricing strategies in their respective markets.
The General Partner has determined that Belmont Place Apartments (formerly know
as Chimney Hills Apartments) suffered from severe structural defects in the
building's foundation and as such, has demolished the property. The General
Partner has designed and approved a redevelopment plan for the property that
requires the complete demolition and reconstruction of the apartment complex.
Site work on the redevelopment began during the fourth quarter of 2003. The
General Partner believes that the estimated fair value of the land exceeds this
property's recorded value at December 31, 2003.
Subsequent to year end, the Partnership entered into a construction contract
with Casden Builders, Inc. (a related party) to develop the new Belmont Place
Apartments at an estimated project cost of approximately $26.4 million. The
construction contract provides for a payment of the cost of work plus a fee
without a maximum guaranteed price. Belmont Place Apartments is expected to be
completed in 2005. The Partnership plans to fund these construction expenditures
from operating cash flow, proceeds from the cross collateralized loan,
partnership reserves and loans from the General Partner.
As noted under "Item 1. Description of Business", the real estate industry is
highly competitive. All of the 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. Each property is an apartment
complex which leases units for lease terms of one year or less. No residential
tenant leases 10% or more of the available rental space. All of the properties
are in good physical condition, with the exception of Belmont Place Apartments,
as described above, subject to normal depreciation and deterioration as is
typical for assets of this type and age.
Real Estate Taxes and Rates
Real estate taxes and rates in 2003 and 2002 for each property were:
2003 2003 2002 2002
Billing Rate Billing Rate
(in thousands) (in thousands)
The Apartments $127 2.2% $153 2.1%
Arbours of Hermitage Apartments 186 3.8% 192 3.8%
Belmont Place Apartments 152 3.0% 172 3.0%
Briar Bay Racquet Club Apartments 200 2.2% 159 2.1%
Citadel Apartments 184 3.0% 208 3.0%
Citadel Village Apartments 19 5.9% 22 5.7%
Foothill Place Apartments 175 1.5% 169 1.5%
Knollwood Apartments 183 3.8% 206 3.8%
Lake Forest Apartments 196 2.2% 200 2.1%
Nob Hill Villa Apartments 171 4.6% 238 4.6%
Point West Apartments 62 28.0% 61 28.0%
Post Ridge Apartments 98 3.8% 104 3.8%
Rivers Edge Apartments 70 1.4% 51 1.4%
Village East Apartments 22 6.0% 24 5.9%
Capital Improvements
The Apartments
During the year ended December 31, 2003, the Partnership completed approximately
$117,000 of capital improvements at the property, consisting primarily of
structural and building improvements, furniture and fixtures, water heater
replacements, major landscaping, and floor covering replacements. These
improvements were funded from operating cash flow and insurance proceeds. The
Partnership is currently evaluating the capital improvement needs of the
property for the upcoming year and currently expects to budget approximately
$112,000. Additional improvements may be considered during 2004 and will depend
on the physical condition of the property as well as anticipated cash flow
generated by the property.
Arbours of Hermitage Apartments
During the year ended December 31, 2003, the Partnership completed approximately
$115,000 of capital improvements at the property, consisting primarily of
structural improvements, air conditioning upgrades, water heater replacements,
and appliance and floor covering replacements. These improvements were funded
from operating cash flow. The Partnership is currently evaluating the capital
improvement needs of the property for the upcoming year and currently expects to
budget approximately $193,000. Additional improvements may be considered during
2004 and will depend on the physical condition of the property as well as
anticipated cash flow generated by the property.
Briar Bay Racquet Club Apartments
During the year ended December 31, 2003, the Partnership completed approximately
$90,000 of capital improvements at the property consisting primarily of roof
replacements, structural improvements, fire safety upgrades, major landscaping,
and appliance and floor covering replacements. These improvements were funded
from operating cash flow and replacement reserves. The Partnership is currently
evaluating the capital improvement needs of the property for the upcoming year
and currently expects to budget approximately $107,000. Additional improvements
may be considered during 2004 and will depend on the physical condition of the
property as well as replacement reserves and anticipated cash flow generated by
the property.
Belmont Place Apartments
During the year ended December 31, 2003, the Partnership capitalized
approximately $2,178,000 of costs at the property consisting primarily of
architects fees and capitalized construction period interest of approximately
$390,000, taxes and insurance of approximately $233,000 and other construction
period expenses of approximately $343,000. These improvements were funded from
operating cash flow and Partnership reserves. The Partnership is currently
reconstructing the property.
Subsequent to year end, the Partnership entered into a construction contract
with Casden Builders, Inc. (a related party) to develop the new Belmont Place
Apartments at an estimated project cost of approximately $26.4 million. The
construction contract provides for a payment of the cost of work plus a fee
without a maximum guaranteed price. Belmont Place Apartments is expected to be
completed in 2005. The Partnership plans to fund these construction expenditures
from operating cash flow, proceeds from the cross collateralized loan,
partnership reserves and loans from the General Partner.
Citadel Apartments
During the year ended December 31, 2003, the Partnership completed approximately
$69,000 of capital improvements at the property consisting primarily of water
and sewer upgrades, water heater replacements, plumbing improvements, air
conditioning replacements, floor covering and appliance replacements and
swimming pool improvements. These improvements were funded from operating cash
flow. The Partnership is currently evaluating the capital improvement needs of
the property for the upcoming year and currently expects to budget approximately
$144,000. Additional improvements may be considered during 2004 and will depend
on the physical condition of the property as well as cash flow generated by the
property.
Citadel Village Apartments
During the year ended December 31, 2003, the Partnership completed approximately
$135,000 of capital improvements at the property, consisting primarily of air
conditioning upgrades, gutter replacements, and appliance and floor covering
replacements. These improvements were funded from operating cash flow. The
Partnership is currently evaluating the capital improvement needs of the
property for the upcoming year and currently expects to budget approximately
$67,000. Additional improvements may be considered during 2004 and will depend
on the physical condition of the property as well as anticipated cash flow
generated by the property.
Foothill Place Apartments
During the year ended December 31, 2003, the Partnership completed approximately
$474,000 of capital improvements at the property, consisting primarily of floor
and wall covering and appliance replacements, plumbing fixture replacements,
installation of a sprinkler system, structural improvements, air conditioning
upgrades, door replacements, swimming pool improvements, structural
improvements, and water heater replacements. These improvements were funded from
operating cash flow. The Partnership is currently evaluating the capital
improvement needs of the property for the upcoming year and currently expects to
budget approximately $248,000. Additional improvements may be considered during
2004 and will depend on the physical condition of the property as well as
anticipated cash flow generated by the property.
Knollwood Apartments
During the year ended December 31, 2003, the Partnership completed approximately
$109,000 of capital improvements at the property, consisting primarily of
structural improvements, water heater replacements, roof replacements, air
conditioning replacements and floor covering and appliance replacements. These
improvements were funded from operating cash flow. The Partnership is currently
evaluating the capital improvement needs of the property for the upcoming year
and currently expects to budget approximately $179,000. Additional improvements
may be considered during 2004 and will depend on the physical condition of the
property as well as anticipated cash flow generated by the property.
Lake Forest Apartments
During the year ended December 31, 2003, the Partnership completed approximately
$116,000 of capital improvements at the property, consisting primarily of water
heater and air conditioning replacements, major landscaping, fitness equipment,
fire safety upgrades, structural improvements, and floor covering and appliance
replacements. These improvements were funded from replacement reserves and
operating cash flow. The Partnership is currently evaluating the capital
improvement needs of the property for the upcoming year and currently expects to
budget approximately $172,000. Additional improvements may be considered during
2004 and will depend on the physical condition of the property as well as
replacement reserves and anticipated cash flow generated by the property.
Nob Hill Villa Apartments
During the year ended December 31, 2003, the Partnership completed approximately
$503,000 of capital improvements at the property consisting primarily of
structural improvements, water heater replacements, water and sewer upgrades,
electrical upgrades, major landscaping, plumbing fixture upgrades, air
conditioning replacements, and floor covering and appliance replacements. These
improvements were funded from replacement reserves and operating cash flow. The
Partnership is currently evaluating the capital improvement needs of the
property for the upcoming year and currently expects to budget approximately
$260,000. Additional improvements may be considered during 2004 and will depend
on the physical condition of the property as well as replacement reserves and
anticipated cash flow generated by the property.
Point West Apartments
During the year ended December 31, 2003, the Partnership completed approximately
$43,000 of capital improvements at the property consisting primarily of floor
covering and appliance replacements. These improvements were funded from
operating cash flow. The Partnership is currently evaluating the capital
improvement needs of the property for the upcoming year and currently expects to
budget approximately $66,000. Additional capital improvements may be considered
during 2004 and will depend on the physical condition of the property as well as
anticipated cash flow generated by the property.
Post Ridge Apartments
During the year ended December 31, 2003, the Partnership completed approximately
$138,000 of capital improvements at the property, consisting primarily of floor
covering and appliance replacements, air conditioning upgrades, structural
improvements, and parking area improvements. These improvements were funded from
operating cash flow. The Partnership is currently evaluating the capital
improvement needs of the property for the upcoming year and currently expects to
budget approximately $83,000. Additional improvements may be considered during
2004 and will depend on the physical condition of the property as well as
anticipated cash flow generated by the property.
Rivers Edge Apartments
During the year ended December 31, 2003, the Partnership completed approximately
$61,000 of capital improvements at the property, consisting primarily of floor
covering and appliance replacements. These improvements were funded from
operating cash flow. The Partnership is currently evaluating the capital
improvement needs of the property for the upcoming year and currently expects to
budget approximately $66,000. Additional improvements may be considered during
2004 and will depend on the physical condition of the property as well as
anticipated cash flow generated by the property.
South Port Apartments
During the year ended December 31, 2003, the Partnership completed approximately
$21,000 of capital improvements at South Port Apartments, consisting primarily
of floor covering and appliance replacements. These improvements were funded
from operating cash flow. The property was sold on March 28, 2003.
Village East Apartments
During the year ended December 31, 2003, the Partnership completed approximately
$95,000 of capital improvements at the property, consisting primarily of
structural improvements, heating system improvements, exterior building
painting, and floor covering and appliance replacements. These improvements were
funded from operating cash flow. The Partnership is currently evaluating the
capital improvement needs of the property for the upcoming year and currently
expects to budget approximately $75,000. Additional improvements may be
considered during 2004 and 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 (the "Heller action") was filed against the same defendants that are
named in the Nuanes action, captioned Heller v. Insignia Financial Group. 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 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. On January 28, 2004, Objector filed his
opening brief in his pending appeal. The General Partner is currently scheduled
to file a brief in support of the order approving settlement and entering
judgment thereto by April 23, 2004.
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. 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 Complaint also attempts to certify a subclass for salaried
service directors who are challenging their classification as exempt from the
overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to
the Complaint denying the substantive allegations. Discovery is currently
underway.
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.
Item 4. Submission of Matters to a Vote of Security Holders
The unit holders of the Partnership did not vote on any matter during the
quarter ended December 31, 2003.
PART II
Item 5. Market for the Registrant's Units of Limited Partnership and
Related Security Holder Matters
(A) No established trading market for the Partnership's Units exists, nor is
one expected to develop.
(B) Title of Class Number of Unitholders of Record
Limited Partnership Units 7,047 as of December 31, 2003
There were 342,773 Units outstanding at December 31, 2003, of which affiliates
of the General Partner owned 202,351.50 Units or approximately 59.03%.
The following table sets forth the distributions declared by the Partnership for
the years ended December 31, 2003, 2002 and 2001 (in thousands except per unit
data) (see "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" for more details):
Per Per Per
Year Ended Limited Year Ended Limited Year Ended Limited
December 31, Partnership December 31, Partnership December 31, Partnership
2003 Unit 2002 Unit 2001 Unit
Operations $1,827 $ 5.12 $5,515 $15.45 $4,981 $13.95
Refinance (1) -- -- 76 0.21 1,548 4.33
Sale (2) 3,743 10.50 -- -- 2,610 7.31
$5,570 $15.62 $5,591 $15.66 $9,139 $25.59
(1) From refinance proceeds of Post Ridge Apartments distributed in 2002 and
refinance proceeds of Lake Forest Apartments distributed in 2001.
(2) From sale proceeds of Southport Apartments distributed in 2003 and sale
proceeds of Stratford Place Apartments distributed in 2001.
In conjunction with the transfer of funds from their certain majority-owned
sub-tier limited partnerships to the Partnership, approximately $9,000, $29,000
and $66,000 was distributed to the general partner of the majority owned
sub-tier limited partnerships during the years ended December 31, 2003, 2002,
and 2001, respectively.
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves and the timing of the debt
maturities, refinancings and/or property sales. 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 2004 or subsequent periods. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" 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 202,351.50 limited partnership units
(the "Units") in the Partnership representing 59.03% of the outstanding Units at
December 31, 2003. 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 59.03% 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.
Item 6. Selected Financial Data
The following table sets forth a summary of certain financial data for the
Partnership. Certain 1999, 2000, 2001 and 2002 amounts have been restated due to
property sales to conform to the 2003 presentation in accordance with accounting
principles generally accepted in the United States. This summary should be read
in conjunction with the Partnership's consolidated financial statements and
notes thereto appearing in "Item 8. Financial Statements and Supplementary
Data."
Years Ended December 31,
(in thousands, except per unit data)
Consolidated Statements
of Operations 2003 2002 2001 2000 1999
(Restated) (Restated) (Restated) (Restated)
Total revenues $23,094 $25,896 $ 27,310 $ 26,823 $ 28,004
Total expenses (21,134) (22,129) (23,772) (22,334) (22,707)
Income before
discontinued operations 1,960 3,767 3,538 4,489 5,297
Gain from sale of discontinued
operations 6,232 -- -- 3,440 638
Income from discontinued
operations 8 497 620 545 183
Net income $ 8,200 $ 4,264 $ 4,158 $ 8,474 $ 6,118
Per Limited Partnership Unit:
Income before
discontinued operations $ 5.50 $ 10.55 $ 9.91 $ 12.57 $ 14.84
Gain from sale of discontinued
operations 17.45 -- -- 9.63 1.78
Income from discontinued
operations .02 1.39 1.74 1.53 .51
Net income $ 22.97 $ 11.94 $ 11.65 $ 23.73 $ 17.13
Distributions per Limited
Partnership Unit $ 15.62 $ 15.66 $ 25.59 $ 31.32 $ 49.29
Limited Partnership Units
outstanding 342,773 342,773 342,773 342,773 342,773
Consolidated Balance Sheets
Total assets $ 30,775 $ 32,287 $ 34,180 $ 38,870 $ 44,464
Mortgage notes payable $ 67,900 $ 72,630 $ 73,475 $ 71,791 $ 70,997
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
INTRODUCTION
The operations of the Partnership primarily include operating and holding
income-producing real estate properties for the benefit of its partners.
Therefore, the following discussion of operations, liquidity and capital
resources will focus on these activities and should be read in conjunction with
"Item 8. Financial Statements and Supplementary Data" and the notes related
thereto included elsewhere in this report.
Results of Operations
The Partnership's net income was approximately $8,200,000 for the year ended
December 31, 2003, compared to approximately $4,264,000 for the year ended
December 31, 2002 and net income of approximately $4,158,000 for the year ended
December 31, 2001.
Effective January 1, 2002, the Partnership adopted Statement of Financial
Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which established standards for the way that
public business enterprises report information about long-lived assets that are
either being held for sale or have already been disposed of by sale or other
means. The standard requires that results of operations for a long-lived asset
that is being held for sale or has already been disposed of be reported as
discontinued operations on the statement of operations. As a result, the
accompanying consolidated statements of operations have been restated as of
January 1, 2001 to reflect the operations of Stratford Place and South Port
Apartments as income from discontinued operations due to their sales in December
2000 and March 2003, respectively. The Partnership recognized income from
discontinued operations of approximately $8,000, $497,000 and $620,000 during
the years ended December 31, 2003, 2002 and 2001, respectively.
On March 28, 2003, the Partnership sold South Port Apartments to an unrelated
third party, for a gross sale price of $8,625,000. The net proceeds realized by
the Partnership were approximately $8,137,000 after payment of closing costs of
approximately $488,000. The Partnership used approximately $4,229,000 of the net
proceeds to repay the mortgage encumbering the property. The Partnership
realized a gain of approximately $6,232,000 for the year ended December 31,
2003, as a result of this sale. This amount is shown as gain from sale of
discontinued operations in the accompanying consolidated statements of
operations. The property's operations, income of approximately $8,000, $497,000,
and $536,000 for the years ended December 31, 2003, 2002, and 2001,
respectively, are included in income from discontinued operations and include
revenues of approximately $327,000, $1,571,000, and $1,625,000, respectively. In
addition, the Partnership recorded a loss on early extinguishment of debt of
approximately $13,000 for the year ended December 31, 2003 due to the write-off
of unamortized loan costs, which is also included in income from discontinued
operations in the accompanying consolidated statements of operations.
Excluding the impact of discontinued operations and the gain on sale of
discontinued operations, the Partnership's income from continuing operations was
approximately $1,960,000 for the year ended December 31, 2003, compared to
approximately $3,767,000 for the year ended December 31, 2002 and approximately
$3,538,000 for the year ended December 31, 2001.
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.
2003 Compared to 2002
Income from continuing operations decreased due to a decrease in total revenues
partially offset by a decrease in total expenses. The decrease in total revenues
is due to a decrease in rental income partially offset by the casualty gain
recognized in 2003. The decrease in rental income is due to decreased average
rental rates at eleven of the Partnership's fourteen properties, a decrease in
occupancy levels at five of the investment properties and an increase in
concessions at nine of the investment properties partially offset by an increase
in occupancy at nine of the investment properties.
In January 2003, The Apartments had a fire, which damaged five apartment units
and a hallway. Insurance proceeds of approximately $23,000 were received as of
December 31, 2003. The Partnership recognized a casualty gain of approximately
$23,000 for the year ended December 31, 2003. The damaged assets were fully
depreciated at the time of the fire.
Total expenses decreased due to decreases in general and administrative,
depreciation, interest and property tax expenses partially offset by an increase
in operating expenses. Depreciation expense decreased due to fixed assets
becoming fully depreciated at The Apartments, Lake Forest Apartments and
Foothill Place Apartments during 2003. Interest expense decreased due to the
capitalization of interest at Belmont Place Apartments related to the
construction project during 2003. The decrease in property tax expense is due to
the increased capitalization of property taxes at Belmont Place Apartments and
decreases in the assessed values of nine of the Partnership's investment
properties.
General and administrative expense decreased due to a decrease in the 9%
management fee on distributions from operating cash flows. In addition,
management reimbursements to the General Partner as allowed under the
Partnership Agreement and costs associated with the quarterly and annual
communications with investors and regulatory agencies and the annual audit
required by the Partnership Agreement are also included in general and
administrative expenses.
Operating expense increased due to increases in property, administrative,
insurance and advertising expenses partially offset by a decrease in property
management fees. Property expense increased due to increases in payroll and
related benefits. Administrative expenses increased due to increases in contract
common area cleaning and legal expenses. Insurance expense increased due to an
increase in hazard insurance premiums at many of the Partnership's investment
properties. Advertising expense increased due to an increase in periodical and
web advertising at many of the Partnership's investment properties. Property
management fees are based on a percentage of revenues and decreased as a result
of decreases in revenues at most of the investment properties.
2002 Compared to 2001
Income from continuing operations increased due to a decrease in total expenses
partially offset by a decrease in total revenues. The decrease in total revenues
is due to a decrease in rental income and casualty gain partially offset by an
increase in other income. The decrease in rental income is due to decreases in
average rental rates at eleven of the Partnership's fourteen properties and in
occupancy levels at eight of the investment properties. The decrease in casualty
gain was the result of fire damage at two of the properties recognized in 2001.
The increase in other income is primarily attributable to an increase in utility
reimbursements and lease cancellation fees partially offset by a decrease in
miscellaneous income and interest income as a result of lower average cash
balances being maintained in interest bearing accounts.
In April 2001, The Arbours of Hermitage had a fire, which damaged one apartment
building. Insurance proceeds of approximately $83,000 were received during the
year ended December 31, 2001. The Partnership recognized a casualty gain of
approximately $83,000 for the year ended December 31, 2001. The damaged assets
were fully depreciated at the time of the fire.
In May 2000, Nob Hill Villa Apartments had a fire, which damaged two apartment
units. Insurance proceeds of approximately $33,000 were received during the year
ended December 31, 2001. The Partnership recognized a casualty gain of
approximately $25,000 for the year ended December 31, 2001, which represents the
excess of the proceeds received over the write-off of the undepreciated damaged
assets.
Total expenses decreased due to a decrease in operating, general and
administrative, depreciation and interest expenses and loss on early
extinguishment of debt partially offset by an increase in property tax expense.
Operating expense decreased due to a decrease in property and maintenance
expenses and property management fees partially offset by an increase in
advertising expense and insurance expense. Property expense decreased due to a
decrease in employee salaries, gas utility bills and commissions and bonuses
partially offset by an increase in utility processing fees and leasing payroll.
Maintenance expense decreased during 2002 due to an increase in the
capitalization of certain direct and indirect project costs, primarily payroll
related costs (see "Item 8. Financial Statements - Note A"). Property management
fees are based on a percentage of revenues and decreased as a result of
decreases in rental income at many of the investment properties. Advertising
expense increased due to an increase in resident relations at Belmont Place
Apartments and web advertising partially offset by a decrease in newspaper
advertising. General and administrative expenses decreased due to a decrease in
professional fees and management reimbursements to the General Partner as
allowed under the Partnership Agreement partially offset by an increase in the
9% management fee on distributions from operating cash flows. Depreciation
decreased due to fixed assets becoming fully depreciated at The Apartments and
Lake Forest Apartments during 2002 partially offset by an increase in capital
improvements completed and placed into service during the past twelve months.
Interest expense decreased due to the capitalization of approximately $107,000
of interest expense at Belmont Place Apartments related to the renovation
project during 2002. The increase in property tax expense is due to an increase
in the assessed value of several of the Partnership's properties and a decrease
in refunds from overpayment of prior year taxes.
LIQUIDITY AND CAPITAL RESOURCES
2003 Compared to 2002
At December 31, 2003, the Partnership held cash and cash equivalents of
approximately $1,537,000 compared to approximately $2,127,000 at December 31,
2002. The decrease in cash and cash equivalents of approximately $590,000 for
the year ended December 31, 2003 is due to approximately $10,165,000 of cash
used in financing activities partially offset by approximately $5,528,000 of
cash provided by operating activities and approximately $4,047,000 of cash
provided by investing activities. Cash used in financing activities consisted of
distributions to partners, repayment of the mortgage encumbering South Port
Apartments and payments of principal on the mortgage indebtedness encumbering
the Partnership's properties partially offset by the proceeds received from the
second mortgage at Post Ridge Apartments. Cash provided by investing activities
consisted of proceeds from the sale of South Port Apartments and net insurance
proceeds received from the casualty at The Apartments partially offset by
property improvements and replacements and net deposits to restricted escrow
accounts. The Partnership invests its working capital reserves in interest
bearing accounts.
In January 2003, The Apartments had a fire which damaged five apartment units
and a hallway. Insurance proceeds of approximately $23,000 were received during
the year ended December 31, 2003. The Partnership recognized a casualty gain of
approximately $23,000 for the year ended December 31, 2003. The damaged assets
were fully depreciated at the time of the fire.
In March 2000, South Port Apartments had hail and wind damage, which affected
all 240 units and damaged 100% of the roof, which was replaced. Insurance
proceeds of approximately $168,000 and $182,000 were received during the years
ended December 31, 2002 and 2001, respectively. The Partnership recognized a
casualty gain of approximately $120,000 and $128,000 during the years ended
December 31, 2002 and 2001, respectively, which represents the excess of the
proceeds received over the write-off of undepreciated damaged assets. These
amounts are included in income from discontinued operations in the accompanying
consolidated statement of operations.
In April 2001, The Arbours of Hermitage had a fire, which damaged one apartment
building. Insurance proceeds of approximately $83,000 were received during the
year ended December 31, 2001. The Partnership recognized a casualty gain of
approximately $83,000 for the year ended December 31, 2001. The damaged assets
were fully depreciated at the time of the fire.
In May 2000, Nob Hill Villa Apartments had a fire, which damaged two apartment
units. Insurance proceeds of approximately $33,000 were received during the year
ended December 31, 2001. The Partnership recognized a casualty gain of
approximately $25,000 for the year ended December 31, 2001, which represents the
excess of the proceeds received over the write-off of the undepreciated damaged
assets.
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 and is studying new
federal laws, including the Sarbanes-Oxley Act of 2002. 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 is currently
evaluating the capital improvement needs of the properties for the upcoming year
and currently expects to budget approximately $1,772,000, not including Belmont
Place Apartments. Subsequent to year end, the Partnership entered into a
construction contract with Casden Builders, Inc. (a related party) to develop
the new Belmont Place Apartments at an estimated project cost of approximately
$26.4 million. The construction contract provides for a payment of the cost of
work plus a fee without a maximum guaranteed price. Belmont Place Apartments is
expected to be completed in 2005. The Partnership plans to fund these
construction expenditures from operating cash flow, proceeds from the cross
collateralized loan, partnership reserves and loans from the General Partner.
Additional improvements may be considered during 2004 and will depend on the
physical condition of the properties as well as replacement reserves and
anticipated cash flow generated by the properties. The additional capital
expenditures will be incurred only if cash is available from operations or from
replacement 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. The mortgage
indebtedness encumbering the Partnership's investment properties of
approximately $67,900,000 matures at various dates between 2005 and 2022 with
balloon payments of approximately $42,280,000 and $173,000 due in 2005 and 2022,
respectively. The General Partner will attempt to refinance such indebtedness
and/or sell the properties prior to such maturity dates. If a property cannot be
refinanced or sold for a sufficient amount, the Partnership will risk losing
such property through foreclosure.
On October 22, 2003, the Partnership entered into a second mortgage for Post
Ridge Apartments. The second mortgage is in the principal amount of $375,000 and
has a stated interest rate of 7.04% per annum. Payments of principal and
interest of approximately $3,000 are due on the first day of each month
commencing December 2003 until January 2022 at which time a balloon payment of
approximately $173,000 is required. The proceeds from the second mortgage will
be used as a cross collateralized loan to Belmont Place Apartments to establish
a capital escrow reserve as required by the mortgage lender. Belmont Place
Apartments will use these proceeds to continue the ongoing construction project
at the property.
On December 21, 2001, the Partnership refinanced the mortgage encumbering Post
Ridge Apartments. The refinancing replaced mortgage indebtedness of
approximately $4,050,000 with a new mortgage of $4,500,000. The mortgage was
refinanced at a rate of 6.63% compared to the prior rate of 7.33% and matures on
January 1, 2022. Capitalized loan costs incurred for the refinancing were
approximately $254,000. The Partnership wrote off approximately $32,000 in
unamortized loan costs and paid prepayment penalties of approximately $110,000
resulting in a loss on early extinguishment of debt of approximately $142,000,
which is included in interest expense.
On September 27, 2001, the Partnership refinanced the mortgage encumbering Lake
Forest Apartments. The refinancing replaced mortgage indebtedness of
approximately $4,700,00 with a new mortgage of $6,500,000. The mortgage was
refinanced at a rate of 7.13% compared to the prior rate of 7.33% and matures on
October 1, 2021. Capitalized loan costs incurred for the refinancing were
approximately $217,000. The Partnership wrote off unamortized loan costs, which
resulted in a loss on early extinguishment of debt of approximately $40,000
which is included in interest expense.
The Partnership declared the following distributions during the years ended
December 31, 2003, 2002 and 2001 (in thousands except per unit data):
Per Per Per
Year Ended Limited Year Ended Limited Year Ended Limited
December, 31 Partnership December 31, Partnership December 31, Partnership
2003 Unit 2002 Unit 2001 Unit
Operations $1,827 $ 5.12 $5,515 $15.45 $4,981 $13.95
Refinance (1) -- -- 76 0.21 1,548 4.33
Sale (2) 3,743 10.50 -- -- 2,610 7.31
$5,570 $15.62 $5,591 $15.66 $9,139 $25.59
(1) From refinance proceeds of Post Ridge Apartments distributed in 2002 and
refinance proceeds of Lake Forest Apartments distributed in 2001.
(2) From sale proceeds of Southport Apartments distributed in 2003 and sale
proceeds of Stratford Place Apartments distributed in 2001.
In conjunction with the transfer of funds from their certain majority-owned
sub-tier limited partnerships to the Partnership, approximately $9,000, $29,000
and $66,000 was distributed to the general partner of the majority owned
sub-tier limited partnerships during the years ended December 31, 2003, 2002,
and 2001, respectively.
The Partnership's cash available for distribution is reviewed on a monthly
basis. Future cash distributions will depend on the levels of net cash generated
from operations, the availability of cash reserves, and the timing of debt
maturities, refinancings and/or property sales. There can be no assurance,
however, that the Partnership will generate sufficient funds from operations,
after planned capital improvement expenditures, to permit any distributions to
its partners in 2004 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 202,351.50 limited partnership units
(the "Units") in the Partnership representing 59.03% of the outstanding Units at
December 31, 2003. 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 59.03% 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
A summary of the Partnership's significant accounting policies is included in
"Note A - Organization and Significant Accounting Policies" to the consolidated
financial statements included in "Item 8. Financial Statements and Supplementary
Data." 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 consolidated 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 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 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 an impairment of the
Partnership's assets.
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 7a. Market Risk Factors
The Partnership is exposed to market risks from adverse changes in interest
rates. In this regard, changes in U.S. interest rates affect the interest earned
on the Partnership's cash and cash equivalents as well as interest paid on its
indebtedness. As a policy, the Partnership does not engage in speculative or
leveraged transactions, nor does it hold or issue financial instruments for
trading purposes. The Partnership is exposed to changes in interest rates
primarily as a result of its borrowing activities used to maintain liquidity and
fund business operations. To mitigate the impact of fluctuations in U.S.
interest rates, the Partnership maintains its debt as fixed rate in nature by
borrowing on a long-term basis. Based on interest rates at December 31, 2003, a
100 basis point increase or decrease in market interest rates would have an
annual impact of approximately $679,000 on the Partnership.
The following table summarizes the Partnership's debt obligations at December
31, 2003. The interest rates represent the weighted-average rates. The fair
value of the debt obligations after discounting the scheduled loan payments to
maturity, at the Partnership's incremental borrowing rate was approximately
$70,714,000 at December 31, 2003.
Long-term Debt
Principal amount by expected maturity: Fixed Rate Debt Average Interest Rate
(in thousands)
2004 $ 936 7.79%
2005 43,144 7.41%
2006 882 7.59%
2007 952 7.59%
2008 1,027 7.59%
Thereafter 20,959 7.59%
Total $67,900
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED CAPITAL PROPERTIES IV
LIST OF FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets - December 31, 2003 and 2002
Consolidated Statements of Operations - Years ended December 31, 2003,
2002 and 2001
Consolidated Statements of Changes in Partners' Deficit - Years ended
December 31, 2003, 2002, and 2001
Consolidated Statements of Cash Flows - Years ended December 31, 2003,
2002 and 2001
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners
Consolidated Capital Properties IV
We have audited the accompanying consolidated balance sheets of Consolidated
Capital Properties IV as of December 31, 2003 and 2002, and the related
consolidated statements of operations, changes in partners' deficit, and cash
flows for each of the three years in the period ended December 31, 2003. 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 auditing standards generally accepted
in the 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. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the Partnership's management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Consolidated
Capital Properties IV at December 31, 2003 and 2002, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States.
/s/ERNST & YOUNG LLP
Greenville, South Carolina
February 27, 2004
CONSOLIDATED CAPITAL PROPERTIES IV
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
December 31,
2003 2002
Assets
Cash and cash equivalents $ 1,537 $ 2,127
Receivables and deposits 1,163 1,166
Restricted escrows 748 656
Other assets 1,504 1,449
Due from affiliates (Note B) -- 149
Investment properties (Notes C and F):
Land 12,996 10,907
Buildings and related personal property 109,374 126,750
122,370 137,657
Less accumulated depreciation (96,547) (110,917)
25,823 26,740
$ 30,775 $ 32,287
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 731 $ 407
Tenant security deposit liabilities 510 523
Accrued property taxes 1,247 1,392
Other liabilities 1,107 820
Distribution payable (Note E) 715 571
Mortgage notes payable (Note C) 67,900 72,630
72,210 76,343
Partners' Deficit
General partners (Note E) (7,044) (7,146)
Limited partners (342,773 units issued and
outstanding) (34,391) (36,910)
(41,435) (44,056)
$ 30,775 $ 32,287
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL PROPERTIES IV
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
Years Ended December 31,
2003 2002 2001
(Restated) (Restated)
Revenues:
Rental income $20,436 $23,247 $25,103
Other income 2,635 2,649 2,099
Casualty gain (Note H) 23 -- 108
Total revenues 23,094 25,896 27,310
Expenses:
Operating 10,128 9,778 10,710
General and administrative 1,334 1,565 1,929
Depreciation 3,237 3,550 3,880
Interest 4,860 5,197 5,474
Property taxes 1,575 2,039 1,779
Total expenses 21,134 22,129 23,772
Income before discontinued operations 1,960 3,767 3,538
Income from discontinued operations 8 497 620
Gain on sale of discontinued operations
(Note D) 6,232 -- --
Net income (Note I) $ 8,200 $ 4,264 $ 4,158
Net income allocated to general partners (4%) $ 328 $ 171 $ 166
Net income allocated to limited partners (96%) 7,872 4,093 3,992
Net income $ 8,200 $ 4,264 $ 4,158
Per limited partnership unit:
Income before discontinued operations $ 5.50 $ 10.55 $ 9.91
Income from discontinued operations .02 1.39 1.74
Gain on sale of discontinued operations 17.45 -- --
Net income $ 22.97 $ 11.94 $ 11.65
Distributions per limited partnership unit $ 15.62 $ 15.66 $ 25.59
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL PROPERTIES IV
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 343,106 $ 1 $171,553 $171,554
Partners' deficit at
December 31, 2000 342,773 $ (6,798) $(30,855) $(37,653)
Net income for the year ended
December 31, 2001 -- 166 3,992 4,158
Distributions to partners -- (432) (8,773) (9,205)
Partners' deficit at
December 31, 2001 342,773 (7,064) (35,636) (42,700)
Net income for the year ended
December 31, 2002 -- 171 4,093 4,264
Distributions to partners -- (253) (5,367) (5,620)
Partners' deficit at
December 31, 2002 342,773 (7,146) (36,910) (44,056)
Net income for the year ended
December 31, 2003 -- 328 7,872 8,200
Distributions to partners -- (226) (5,353) (5,579)
Partners' deficit at
December 31, 2003 342,773 $ (7,044) $(34,391) $(41,435)
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL PROPERTIES IV
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
2003 2002 2001
Cash flows from operating activities:
Net income $ 8,200 $ 4,264 $ 4,158
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 3,293 3,770 4,082
Amortization of loan costs 211 208 221
Gain from sale of discontinued operations (6,232) -- --
Casualty gain (23) (120) (236)
Loss on early extinguishment of debt 13 -- 182
Change in accounts:
Receivables and deposits 3 20 668
Due from affiliates 149 (149) --
Other assets (279) (29) 47
Accounts payable 64 203 (817)
Tenant security deposit liabilities (13) 26 9
Accrued property taxes (145) 203 (122)
Other liabilities 287 (127) (563)
Net cash provided by operating activities 5,528 8,269 7,629
Cash flows from investing activities:
Property improvements and replacements (4,021) (2,565) (3,895)
Net proceeds from sale of discontinued operations 8,137 -- --
Net (deposits to) withdrawals from restricted
escrows (92) (12) 256
Insurance proceeds received 23 168 298
Net cash provided by (used in)
investing activities 4,047 (2,409) (3,341)
Cash flows from financing activities:
Payments on mortgage notes payable (876) (845) (566)
Repayment of mortgage notes payable (4,229) -- (8,750)
Proceeds from mortgage notes payable 375 -- 11,000
Prepayment penalties -- -- (110)
Loan costs paid -- -- (471)
Distributions to partners (5,435) (5,617) (9,039)
Net cash used in financing activities (10,165) (6,462) (7,936)
Net decrease in cash and cash equivalents (590) (602) (3,648)
Cash and cash equivalents at beginning of the year 2,127 2,729 6,377
Cash and cash equivalents at end of year $ 1,537 $ 2,127 $ 2,729
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL PROPERTIES IV
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Supplemental Disclosures of Cash Flow Information and Non-Cash Activities:
At December 31, 2003, 2002 and 2001, distributions payable to partners were each
adjusted by approximately $144,000, $3,000 and $166,000 for non-cash activity,
respectively.
Cash paid for interest was approximately $5,251,000, $5,401,000 and $5,408,000
for the years ended December 31, 2003, 2002 and 2001, respectively.
At December 31, 2003, property improvements and replacements of approximately
$243,000 were included in accounts payable.
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL PROPERTIES IV
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003
Note A - Organization and Significant Accounting Policies
Organization: Consolidated Capital Properties IV (the "Partnership" or
"Registrant"), a California limited partnership, was formed on September 22,
1981, to operate and hold real estate properties. The general partner of the
Partnership is ConCap Equities, Inc. (the "General Partner" or "CEI"), a
Delaware corporation. Additionally, 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, 2011 unless terminated prior to that date. As of
December 31, 2003, the Partnership operates 13 residential properties in or near
major urban areas in the United States and is constructing one residential
property.
Upon the Partnership's formation in 1981, Consolidated Capital Equities
Corporation ("CCEC"), a Colorado corporation, was the corporate general partner
and Consolidated Capital Management Company ("CCMC"), a California general
partnership, was the non-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 the solicitation, the Limited Partners also approved an amendment to the
Partnership Agreement to limit changes of control of the Partnership, and the
conversion of CCMC from a general partner to a Special Limited Partner, thereby
leaving CEI as the sole general partner of the Partnership. On November 14,
1990, CCMC was dissolved and its Special Limited Partnership interest was
divided among its former partners.
All of CEI's outstanding stock is owned by Insignia Properties Trust ("IPT"),
which is an affiliate of AIMCO. In December 1994, the parent of GII Realty,
Inc., entered into a transaction (the "Insignia Transaction") in which an
affiliate of Insignia acquired an option (exercisable in whole or in part from
time to time) to purchase all of the stock of GII Realty, Inc. and, pursuant to
a partial exercise of such option, acquired 50.5% of that stock. As part of the
Insignia Transaction, the Insignia affiliate also acquired all of the
outstanding stock of Partnership Services, Inc., an asset management entity, and
a subsidiary of Insignia acquired all of the outstanding stock of Coventry
Properties, Inc., a property management entity. In addition, confidentiality,
non-competition, and standstill arrangements were entered into between certain
of the parties. Those arrangements, among other things, prohibit GII Realty's
former sole shareholder from purchasing Partnership Units for a period of three
years. On October 24, 1995, the Insignia affiliate exercised the remaining
portion of its option to purchase all of the remaining outstanding capital stock
of GII Realty, Inc.
Basis of Presentation: Effective January 1, 2002, the Partnership adopted
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets", which established standards
for the way that public business enterprises report information about long-lived
assets that are either being held for sale or have already been disposed of by
sale or other means. The standard requires that results of operations for a
long-lived asset that is being held for sale or has already been disposed of be
reported as a discontinued operation on the statement of operations. As a
result, the accompanying consolidated statements of operations have been
restated as of January 1, 2001 to reflect the operations of Stratford Place and
South Port Apartments as income from discontinued operations due to their sales
in December 2000 and March 31, 2003, respectively. The gain on sale of
discontinued operations recognized during the year ended December 31, 2003 was
approximately $6,232,000. The income from discontinued operations recognized
during the years ended December 31, 2003, 2002 and 2001 was approximately
$8,000, $497,000 and $620,000, respectively.
Consolidation: The consolidated financial statements include the Partnership's
majority interest in a joint venture which owns South Port Apartments. The
Partnership has the ability to control the major operating and financial
policies of the joint venture. No minority interest has been reflected for the
joint venture because minority interests are limited to the extent of their
equity capital, and losses in excess of the minority interest equity capital are
charged against the Partnership's interest. Should the losses reverse, the
Partnership would be credited with the amount of minority interest losses
previously absorbed. The other partner of this joint venture is AIMCO
Properties, LP, an affiliate of the General Partner. South Port Apartments was
sold in March 2003.
The Partnership's consolidated financial statements also include the accounts of
the Partnership, its wholly-owned partnerships, and its 99% limited partnership
interest in Briar Bay Apartments Associates, Ltd., Post Ridge Associates, Ltd.,
Concap River's Edge Associates, Ltd., Foothill Chimney Associates, L.P., and
ConCap Stratford Associates, Ltd. The Partnership may remove the general partner
of its 99% owned partnerships; therefore, the partnerships are deemed controlled
and therefore consolidated by the Partnership. All significant interpartnership
balances have been eliminated.
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 $1,358,000 and
$1,916,000 at December 31, 2003 and 2002, respectively, that are maintained by
the affiliated management company on behalf of affiliated entities in a cash
concentration account.
Security Deposits: The Partnership requires security deposits from lessees for
the duration of the lease and such deposits are included in receivables and
deposits. Deposits are refunded when the tenant vacates, provided the tenant has
not damaged its space and is current on its rental payments.
Restricted Escrows:
Capital Improvement Reserves - At the time of the refinancings of the
mortgage notes payable encumbering Nob Hill Villa Apartments, the Arbours
of Hermitage Apartments, Briar Bay Apartments, Belmont Place Apartments
(formerly known as Chimney Hill Apartments), Citadel Village Apartments,
Foothill Place Apartments, Knollwood Apartments, Village East Apartments,
Lake Forest Apartments and South Port Apartments, approximately $1,638,000
was designated for certain capital improvements. At December 31, 2002, the
total remaining escrow balance was approximately $36,000 and $230,000 for
Lake Forest Apartments and South Port Apartments, respectively. As of
December 31, 2003, the capital improvement reserves for all of these
properties had been fully utilized.
Replacement Reserve Account - At the time of the refinancings of the
mortgage notes payable encumbering the Arbours of Hermitage Apartments,
Briar Bay Racquet Club Apartments, Nob Hill Villa Apartments, South Port
Apartments, Belmont Place Apartments, Citadel Village Apartments, Foothill
Place Apartments, Knollwood Apartments, and Village East Apartments,
$507,000 of the proceeds, ranging from $191 to $325 per unit, were
designated for replacement reserves. These funds were established to cover
necessary repairs and replacements of existing improvements. At December
31, 2003 and 2002, the total reserve balance was approximately $373,000
and $390,000, respectively.
Repair Reserve Account - As part of the redevelopment of Belmont Place
Apartments, the mortgage lender required a repair escrow account to be set
by the Partnership. In order to fulfill this requirement, the Partnership
entered into a second mortgage of approximately $375,000 on Post Ridge
Apartments. The proceeds from the second mortgage were transferred to
Belmont Place Apartments as a cross-collateralized loan to fund the repair
escrow required by the mortgage lender. The repair escrow balance at
Belmont Place Apartments was approximately $375,000 at December 31, 2003.
Investments in Real Estate: Investment properties consist of thirteen apartment
complexes and one property under construction, which are stated at cost.
Expenditures in excess of $250 that maintain an existing asset which has a
useful life of more than one year are capitalized as capital replacement
expenditures and depreciated over the estimated useful life of the asset.
Expenditures for ordinary repairs, maintenance and apartment turnover costs are
expensed as incurred. The Partnership capitalized interest costs of
approximately $390,000, tax and insurance expenses of approximately $233,000 and
other construction period expenses of approximately $343,000 during the year
ended December 31, 2003 with respect to the construction project that is
currently in process at Belmont Place Apartments.
In accordance with 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. The impairment
loss is measured by comparing the fair value of the assets to its carrying
amount. Costs of apartment properties that have been permanently impaired have
been written down to appraised value. No adjustments for impairment of value
were recorded in any of the years ended December 31, 2003, 2002 or 2001.
During 2001, AIMCO, an affiliate of the General Partner, commissioned a project
to study process improvement ideas to reduce operating costs. The result of the
study led to a re-engineering of business processes and eventual redeployment of
personnel and related capital spending. The implementation of these plans during
2002, accounted for as a change in accounting estimate, resulted in a refinement
of the Partnership's process for capitalizing certain direct and indirect
project costs (principally payroll related costs) and increased capitalization
of such costs by approximately $316,000 in 2002 compared to 2001.
Depreciation: Depreciation is provided by the straight-line method over the
estimated lives of the investment properties and related personal property. For
Federal income tax purposes, the accelerated cost recovery method is used (1)
for real property over 18 years for additions after March 15, 1984, and before
May 9, 1985, and 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 recognizes income as earned on its leases. 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.
In addition, the General Partner's policy is to 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.
Loan Costs: Loan costs of approximately $2,330,000 and $2,345,000, net of
accumulated amortization of approximately $1,270,000 and $1,198,000, are
included in other assets at December 31, 2003 and 2002, respectively. The loan
costs are amortized using the straight-line method over the lives of the related
mortgage notes. Amortization of loan costs is included in interest expense.
Amortization expense is expected to be approximately $209,000 in 2004,
approximately $189,000 in 2005, approximately $77,000 in 2006, approximately
$76,000 in 2007, and approximately $67,000 in 2008.
Fair Value of Financial Statements: 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 amount of its financial instruments (except for long term
debt) approximates their fair value due to the short term maturity of these
instruments. The fair value of the Partnership's long term debt, after
discounting the scheduled loan payments to maturity, at the Partnership's
incremental borrowing rate was approximately $70,714,000 at December 31, 2003.
Allocation of Net Income and Net Loss: The Partnership Agreement provides for
net income (losses) and distributions of distributable cash from operations to
be allocated generally 96% to the Limited Partners and 4% to the General
Partner.
Net Income (Loss) Per Limited Partnership Unit: Net income (loss) per Limited
Partnership Unit is computed by dividing net income (loss) allocated to the
Limited Partners by the number of Units outstanding. Per Unit information has
been computed based on the number of Units outstanding at the beginning of each
year.
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 Costs: Advertising costs of approximately $553,000, $542,000 and
$469,000 in 2003, 2002 and 2001, respectively, are charged to operating expense
as incurred.
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.
Reclassification: Certain reclassifications have been made to the 2001 and 2002
balances to conform to the 2003 presentation.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for certain payments to affiliates for
services and for reimbursements of certain expenses incurred by affiliates on
behalf of the Partnership.
Affiliates of the General Partner are entitled to receive 5% of gross receipts
from all of the Partnership's properties as compensation for providing property
management services. The Partnership paid to such affiliates approximately
$1,161,000, $1,382,000 and $1,569,000 for the years ended December 31, 2003,
2002 and 2001, respectively, which is included in operating expense and income
from discontinued operations.
Affiliates of the General Partner received reimbursement of accountable expenses
amounting to approximately $955,000, $906,000 and $2,172,000, for the years
ended December 31, 2003, 2002 and 2001, respectively. Included in these amounts
are fees related to construction management services provided by an affiliate of
the General Partner of approximately $104,000, $55,000 and $1,208,000 for the
years ended December 31, 2003, 2002 and 2001, respectively. The construction
management service fees are calculated based on a percentage of current
additions to investment properties. The first three quarters of 2002 were based
on estimated amounts and in the fourth quarter of 2002 the reimbursements were
adjusted by $111,000 to actual costs. At December 31, 2002, an affiliate of the
General Partner owed the Partnership approximately $111,000 for overpayment of
management reimbursements during 2002. This amount was refunded to the
Partnership in 2003.
Subsequent to December 31, 2003, an affiliate of the General Partner advanced
the Partnership approximately $900,000 to assist in the construction of Belmont
Place Apartments.
The Limited Partnership Agreement ("Partnership Agreement") provides for a
special management fee equal to 9% of the total distributions made to the
limited partners from cash flow provided by operations to be paid to the General
Partner for executive and administrative management services. Affiliates of the
General Partner paid approximately $158,000, $477,000 and $430,000 under this
provision of the Partnership Agreement to the General Partner during the years
ended December 31, 2003, 2002 and 2001, respectively.
In addition to reimbursement for services of affiliates, the Partnership paid an
affiliate of the General Partner approximately $110,000 in 2001 for loan costs
which are capitalized and included with other assets on the consolidated balance
sheets. These loan costs were associated with the refinancing of two of the
Partnership's properties in 2001.
For acting as a real estate broker in connection with the sale of South Port
Apartments in March 2003, the General Partner was paid a real estate commission
of approximately $295,000 during the year ended December 31, 2003. For acting as
real estate broker in connection with the sale of Stratford Place Apartments in
December 2000, a real estate commission of approximately $228,000 was accrued in
December 2000 and paid to the General Partner during the year ended December 31,
2001. For acting as real estate broker in connection with the sale of Overlook
Apartments in December 1999, the General Partner was paid a real estate
commission of approximately $40,000 during the year ended December 31, 2000.
When the Partnership terminates, the General Partner will have to return these
commissions if the limited partners do not receive their original invested
capital plus a 6% per annum cumulative return.
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, 2003, 2002, and 2001, respectively,
the Partnership paid AIMCO and its affiliates approximately $350,000, $423,000
and $313,000 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 202,351.50 limited partnership units
(the "Units") in the Partnership representing 59.03% of the outstanding Units at
December 31, 2003. 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 59.03% 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.
Note C - Mortgage Notes Payable
The principle terms of mortgage notes payable are as follows:
Principal Principal Monthly Principal
Balance At Balance At Payment Stated Balance
December 31, December 31, Including Interest Maturity Due At
Property 2003 2002 Interest Rate Date Maturity
(in thousands) (in thousands)
The Apartments $ 4,367 $ 4,489 $ 41 8.37% 03/20 $ --
Arbours of Hermitage