UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period _____ to _____
Commission file number: 0-10223
HUTTON/CONAM REALTY INVESTORS 81
Exact name of Registrant as specified in its charter
California 13-3069026
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
Attention: Andre Anderson
3 World Financial Center, 29th Floor, New York, New York 10285
Address of principal executive offices zip code
Registrant's telephone number, including area code: (212) 526-3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. (X)
Documents Incorporated by Reference:
Portions of Prospectus of the Registrant dated June 24, 1981 (included in
Amendment No. 2 to Registrant's Registration Statement No. 2-70331, filed June
24, 1981 and in Amendment No. 1 to Registrant's Registration Statement No.
2-73558, filed August 20, 1981) are incorporated by reference into Part III of
this report.
Portions of Parts I, II, III and IV are incorporated herein by reference to the
Partnership's Annual Report to Unitholders for the year ended December 31,
1996.
PART I
Item 1. Business
General Development of Business
Hutton/ConAm Realty Investors 81 (the "Registrant" or the "Partnership") is a
California limited partnership formed on April 30, 1981, of which RI 81 Real
Estate Services Inc. ("RI 81 Services", formerly Hutton Real Estate Services
III, Inc.) a Delaware corporation, and ConAm Property Services, Ltd., a
California limited partnership ("ConAm Services"), are the general partners
(together, the "General Partners").
Commencing June 24, 1981, the Registrant began offering through E.F. Hutton &
Company Inc., an affiliate of the Registrant ("Hutton"), up to a maximum of
55,000 units of limited partnership interest (the "Units") at $500 per Unit.
Investors who purchased the Units (the "Limited Partners") are not required to
make any additional capital contributions. The Units were registered under the
Securities Act of 1933, as amended (the "Act"), under Registration Statement
No. 2-70331, which Registration Statement was declared effective on June 24,
1981. On August 6, 1981, the Registrant filed under the Act its Registration
Statement No. 2-73558 covering an additional 25,000 Units. The offering of
Units was terminated on October 1, 1981. Upon termination of the offering, the
Registrant had accepted subscriptions for 78,290 Units, including 200 Units
purchased by the General Partners for an aggregate of $39,145,000. All unsold
Units, aggregating $855,000, were de-registered pursuant to Post-Effective
Amendment No. 1 to Registrant's Registration Statement No. 2-73558, filed
November 5, 1981.
Narrative Description of Business
The Registrant is engaged in the business of acquiring, operating and holding
for investment multi-family residential properties, which by virtue of their
location and design and the nature of the local real estate market have
potential for capital appreciation and generation of current income. All of
the proceeds available for investment in real estate were invested in two joint
ventures and three limited partnerships, each owning a single property. Funds
held as a working capital reserve are invested in unaffiliated money market
funds or other highly liquid short-term investments where there is appropriate
safety of principal in accordance with the Registrant's investment objectives
and policies.
The Registrant's principal investment objectives with respect to its interests
in real property are:
(1) capital appreciation;
(2) distributions of net cash from operations
attributable to rental income; and
(3) preservation and protection of capital.
Distributions of net cash from operations will be the Registrant's objective
during its operational phase, while preservation and appreciation of capital
continues to be the Registrant's longer term objectives. The attainment of the
Registrant's objectives will depend on many factors, including future economic
conditions in the United States as a whole and, in particular, in the
localities in which the Registrant's properties are located, especially with
regard to achievement of capital appreciation.
From time to time the Registrant expects to sell its real property interests
taking into consideration such factors as the amount of appreciation in value,
if any, to be realized and the possible risks of continued ownership. In
consideration of these factors and improving market conditions, the General
Partners intend to sell the remaining two properties over the next few years.
No property will be sold, financed or refinanced by the Registrant without the
agreement of both General Partners. Proceeds from any future sale, financing
or refinancing of properties will not be reinvested and may be distributed to
the General Partners and Limited Partners (sometimes referred to together
herein as the "Partners"), so that the Registrant will, in effect, be
self-liquidating. If deemed necessary, the Registrant may retain a portion of
the proceeds from any sale, financing or refinancing as capital reserves. As
partial payment for properties sold, the Registrant may receive purchase money
obligations secured by mortgages or deeds of trust. In such cases, the amount
of such obligations will not be included in Net Proceeds From Sale or
Refinancing (distributable to the Partners) until and only to the extent the
obligations are realized in cash, sold or otherwise liquidated.
Originally, the Registrant acquired five residential apartment complexes
(collectively, the "Properties") either directly or through investments in
joint ventures. Two of these, Cedar Bay Village and Kingston Village, were
sold on July 20, 1995. A third, Ridge Park Apartments ("Ridge Park") was sold
on November 27, 1996. Ridge Park sold for $3,385,000 to an institutional
buyer, which is unaffiliated with the Partnership. The selling price was
determined by arms length negotiations between the Partnership and the buyer.
Consequently, as of December 31, 1996, the Registrant had interests in the
Properties as follows: (1) Las Colinas Apartments I and II, a 300-unit
apartment complex located in Scottsdale, Arizona; and (2) Tierra Catalina, a
120-unit apartment complex located in Tucson, Arizona. For further information
on each of the Properties, see Item 2 of this report, and Note 4 to the
Consolidated Financial Statements incorporated herein by reference to the
Partnership's Annual Report to Unitholders for the year ended December 31,
1996, which is included as an exhibit under Item 14. Reference is made to Item
7 of this report for a more detailed discussion of the Ridge Park sale.
Competition
The Registrant's real property investments are subject to competition from
similar types of properties in the vicinities in which they are located and
such competition has increased since the Registrant's investment in the
Properties due principally to the addition of newly constructed apartment
complexes offering increased residential and recreational amenities. The
Properties have also been subject to competition from condominiums and
single-family properties, especially during periods of low mortgage interest
rates. The Registrant competes with other real estate owners and developers in
the rental and leasing of its Properties by offering competitive rental rates
and, if necessary, leasing incentives. Such competition may affect the
occupancy levels and revenues of the Properties. The occupancy levels at the
Properties in Arizona reflect some seasonality, which is also reflected in the
markets. In some cases, the Registrant may compete with other partnerships
affiliated with either General Partner of the Registrant.
For a discussion of current market conditions in each of the areas where the
Partnership's Properties are located, see Item 2 below.
Employees
The Registrant has no employees. General services are performed by RI 81
Services, ConAm Services, ConAm Management Corporation ("ConAm Management"), an
affiliate of ConAm Services, as well as Service Data Corporation and First Data
Investor Services Group, both unaffiliated companies. The Registrant has
entered into management agreements pursuant to which ConAm Management provides
management services with respect to the Properties. First Data Investor
Services Group has been retained by the Registrant to provide all accounting
and investor communication functions, while Service Data Corporation provides
transfer agent services. See Item 13 for a further description of the service
and management agreements between the Registrant and affiliated entities.
Item 2. Properties
Below is a description of the Properties and a discussion of current market
conditions in each of the areas where the Properties are located. For
information on the purchase and sale of the Properties, reference is made to
Note 4 to the Consolidated Financial Statements in the Partnership's Annual
Report to Unitholders for the year ended December 31, 1996, which is filed as
an exhibit under Item 14. Average occupancy rates and appraised values of the
Partnership's remaining real estate investments are incorporated by reference
to the Partnership's Annual Report to Unitholders, for the year ended December
31, 1996, which is included as an exhibit under Item 14.
Las Colinas I & II - Scottsdale, Arizona
This 300-unit apartment community is located in a suburban setting
approximately eight miles northwest of downtown Phoenix. The Scottsdale
apartment market experienced continued strong competition during 1996,
reflecting high levels of construction in the area and notable competition from
condominiums and single family houses as affordable prices and low mortgage
rates entice renters to buy. City-wide, 5,229 apartment units were permitted
during the first six months of 1996, 1,938 of these in the Scottsdale submarket
and 1,042 of these had been completed or were currently under construction.
Although vacancy rates in Phoenix and the Scottsdale submarket remained low in
1996, declining to 4.4% and 3.5% as of the second quarter, respectively,
vacancies are expected to increase with the new construction. While the area's
strong population and job growth are likely to absorb much of this new supply,
competition for tenants is expected to remain strong.
Tierra Catalina - Tucson, Arizona
This 120-unit apartment community is situated near the "foothills" section of
Tucson in the Catalina Foothill submarket. Tierra Catalina competes with a
number of apartment complexes and condominium developments within the Tucson
area. While Tucson's economy began to slow in 1995 and 1996, construction of
multifamily properties has increased significantly. The addition of new
properties is beginning to put downward pressure on occupancy rates and
limiting rental rate increases. The increased competition has also led to the
reemergence of rental incentives. In addition, the multifamily market has been
unfavorably impacted by relatively low interest rates which has made home
ownership a viable alternative for renters. A local survey of metropolitan
Tucson conducted in the second quarter of 1996 showed an average occupancy rate
of 88.9% among multifamily properties, down from 91.1% at the same period in
1995. In the Catalina Foothills submarket, where Tierra Catalina is located,
occupancy rates declined from 91% in the second quarter of 1995 to 84.5% in the
same period in 1996.
Both Las Colinas I & II and Tierra Catalina are encumbered by a mortgage loan.
See Note 5 to the Consolidated Financial Statements for a description of such
mortgage financing.
Item 3. Legal Proceedings
The registrant is not subject to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the year ended December 31, 1996, no matter was
submitted to a vote of security holders through the solicitation of proxies or
otherwise.
PART II
Item 5. Market for the Registrant's Limited Partnership Units and
Related Security Holder Matters
As of December 31, 1996, the number of Unitholders of record was 3,607.
No established public trading market exists for the Units and it is not
anticipated that a market will develop in the future.
Distributions of Net Cash Flow From Operations, when made, are paid on a
quarterly basis, with distributions generally occurring approximately 45 days
after the end of each quarter. Such distributions have been made primarily
from net operating income with respect to the Registrant's investment in the
Properties and from interest on short-term investments, and partially from
excess cash reserves. Information on cash distributions paid by the
Partnership for the past two years is incorporated by reference to the
Partnership's Annual Report to Unitholders for the year ended December 31,
1996, which is filed as an exhibit under Item 14. The level of future
distributions will be evaluated on a quarterly basis and will depend on the
Partnership's operating results and future cash needs. Reference is made to
Item 7 for a discussion of the General Partners' expectations for future cash
distributions.
Item 6. Selected Financial Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1996, which is filed as an exhibit under Item 14.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
At December 31, 1996, the Partnership had cash and cash equivalents of
$2,741,077, which were invested in unaffiliated money market funds, an increase
from $1,499,119 at December 31, 1995. The increase is attributable to net
proceeds from the sale of a property and cash provided by operating activities
exceeding cash used for distributions and mortgage principal payments. The
Partnership also maintains a restricted cash balance, which totaled $351,444 at
December 31, 1996, representing escrows for insurance, real estate taxes, and
property replacements and repairs, required under the terms of the current
mortgage loans. Pursuant to the terms of the loans, as costs are incurred for
property improvements or when real estate taxes and insurance are due,
reimbursements are made from the escrow accounts maintained by the lender to
the Partnership. The Partnership expects sufficient cash to be generated from
operations to meet its current operating expenses and debt service
requirements.
On November 27, 1996, the Partnership closed on the sale of Ridge Park. Ridge
Park sold for $3,385,000 to Ridge Park Limited Partnership, an Oklahoma limited
partnership (the "Buyer"), which is unaffiliated with the Partnership. The
selling price was determined by arm's length negotiations between the
Partnership and the Buyer. The Partnership received net proceeds of $3,196,264
from the transaction, of which $1,902,666, representing outstanding principal
and interest, was used to fully satisfy the Partnership's mortgage obligation
on Ridge Park. On February 27, 1997, the General Partners paid a special
distribution to the Limited Partners from the net sales proceeds in the amount
of $1,291,785 or $16.50 per Unit. RI 81 Services and ConAm Services received
$8,699 and $4,349, respectively, as their share of the sales proceeds from the
sale of Ridge Park.
The General Partners declared a cash distribution of $2.00 per Unit for the
quarter ended December 31, 1996 which was paid to investors on February 5,
1997. The level of future distributions will be evaluated on a quarterly basis
and will depend on the Partnership's operating results and future cash needs.
Commencing with the first quarter 1997 distribution, which will be paid on or
about May 15, 1997, cash distributions will be reduced to reflect the decline
in cash flow resulting from the sale of Ridge Park.
The General Partners continue to perform various improvements at the
properties. These improvements include roof repairs at Las Colinas I and II,
interior repairs at Tierra Catalina and Las Colinas I and II and other repairs
to prepare vacant units for reoccupancy. The General Partners will monitor the
need for property improvements on an ongoing basis to keep the properties
competitive in their respective markets.
Given the performance of the Partnership's properties, and the improvement in
the real estate capital markets which has increased demand by potential buyers,
the General Partners have determined that it is in the best interest of the
Partnership to attempt to sell the remaining two properties in an orderly
manner over the next few years. Assuming these efforts are successful, the
General Partners would expect to distribute the sales proceeds and subsequently
dissolve the Partnership in 1998 or 1999. However, meeting this objective will
be dependent upon a variety of factors, many of which are not within the
Partnership's control. Consequently, there can be no assurance that any
specific property or all the properties can be sold, that particular prices
will be achieved, or that all the properties can be sold within this time
frame.
Accounts payable and accrued expenses decreased from $225,751 at December 31,
1995 to $177,414 at December 31, 1996 primarily due to the timing of payments
and accruals for audit fees, and lower real estate taxes and legal fees.
On March 15, 1996, based upon, among other things, the advice of legal counsel,
Skadden, Arps, Slate, Meagher & Flom, the General Partners adopted a resolution
that states, among other things, if a Change of Control (as defined below)
occurs, the General Partners may distribute the Partnership's cash balances not
required for its ordinary course day-to-day operations. "Change of Control"
means any purchase or offer to purchase more than 10% of the Units that is not
approved in advance by the General Partners. In determining the amount of the
distribution, the General Partners may take into account all material factors.
In addition, the Partnership will not be obligated to make any distribution to
any partner and no partner will be entitled to receive any distribution until
the General Partners have declared the distribution and established a record
date and distribution date for the distribution.
Results of Operations
1996 versus 1995
Partnership operations for the year ended December 31, 1996 resulted in net
income of $1,285,707, compared with net income of $1,141,669 in 1995. The
increase in net income in 1996 is attributable to the decline in total expenses
resulting from the sale of Cedar Bay Village and Kingston Village in July 1995
more than offsetting the corresponding decline in rental income.
Rental income for the year ended December 31, 1996, was $3,622,403 compared
with $4,313,044 for 1995. The decrease reflects the sale of Cedar Bay Village
and Kingston Village in July 1995, the sale of Ridge Park in November 1996 and
lower rental income at Tierra Catalina resulting from a decline in occupancy.
Partially offsetting the decrease was an increase in rental income at Las
Colinas, due to an increase in rental rates and occupancy. Interest income
totaled $91,282 in 1996 compared with $102,535 in 1995. The decrease is
attributable to the Partnership maintaining a lower average cash balance in
1996.
Total expenses for the year ended December 31, 1996 were $3,838,600 compared
with $4,759,031 in 1995. Property operating expenses decreased from $2,261,179
in 1995 to $1,817,928 in 1996, reflecting the decline in operating expenses
primarily resulting from the sale of Cedar Bay Village and Kingston Village.
Interest expense and depreciation and amortization also decreased from 1995 to
1996 primarily due to the sale of Cedar Bay Village and Kingston Village.
General and administrative expenses decreased from 1995 to 1996 due primarily
to lower legal fees and audit fees in 1996.
1995 versus 1994
Partnership operations for the year ended December 31, 1995 resulted in net
income of $1,141,669, compared with a net loss of $252,627 in 1994. The change
from net loss in 1994 to net income in 1995 was primarily due to the gain on
the sale of Cedar Bay Village and Kingston Village, partially offset by the
resulting decrease in rental income. Excluding the gain recognized on the sale
of the properties, the loss from operations in 1995 increased from 1994 as a
result of the sale, higher repairs and maintenance expenses and legal expenses
associated with the offer for the limited partnership units.
Rental income for the year ended December 31, 1995, was $4,313,044 compared
with $4,702,059 for 1994. The decrease reflects the sale of Cedar Bay Village
and Kingston Village in July 1995, partially offset by increases in rental
income at the three remaining properties, particularly Las Colinas, due to
increased rental rates. Interest income totaled $102,535 in 1995 compared with
$58,009 in 1994. The increase was due to the Partnership's increased cash
balance and higher interest rates in 1995.
Total expenses for the year ended December 31, 1995 were $4,759,031 compared
with $5,012,695 for 1994. Property operating expenses decreased from $2,301,465
in 1994 to $2,261,179 in 1995, reflecting decreases in operating expenses at
Cedar Bay Village and Kingston Village due to their sales, offset by higher
repairs and maintenance expenses at Tierra Catalina and Las Colinas. Interest
expense and depreciation and amortization also decreased from 1994 to 1995 due
to the sales of Cedar Bay Village and Kingston Village. General and
administrative expenses increased from 1994 to 1995 reflecting legal expenses
due to the Partnership's response to the offer for the limited partnership
units in the third quarter of 1995.
The average occupancy levels at each of the remaining Properties for the years
ended December 31, 1996, 1995 and 1994 were as follows:
Twelve Months Ended December 31,
Property 1996 1995 1994
Las Colinas I & II 96% 93% 96%
Tierra Catalina 90% 93% 96%
Item 8. Financial Statements and Supplementary Data
The Financial Statements are incorporated by reference to the Partnership's
Annual Report to Unitholders for the year ended December 31, 1996, which is
filed as an exhibit under Item 14. Supplementary Data is incorporated by
reference to pages F-1 and F-2 of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Registrant has no officers or directors. RI 81 Services and ConAm
Services, the co-General Partners of the Registrant, jointly manage and control
the affairs of the Registrant and have general responsibility and authority in
all matters affecting its business.
RI 81 Services
RI 81 Services (formerly Hutton Real Estate Services III, Inc.) is a Delaware
corporation formed on October 30, 1980, an affiliate of Lehman Brothers Inc.
See the section captioned "Certain Matters Involving Affiliates of RI 81
Services" below for a description of the Hutton Group's acquisition by Shearson
Lehman Brothers, Inc. ("Shearson") and the subsequent sale of certain of
Shearson's domestic retail brokerage and asset management businesses to Smith
Barney, Harris Upham & Co. Incorporated ("Smith Barney"), which was followed by
a change in the general partner's name.
Certain officers and directors of RI 81 Services are now serving (or in the
past have served) as officers or directors of entities which act as general
partners of a number of real estate limited partnerships which have sought
protection under the provisions of the Federal Bankruptcy Code. The
partnerships which have filed bankruptcy petitions own real estate which has
been adversely affected by the economic conditions in the markets in which the
real estate is located and, consequently, the partnerships sought the
protection of the bankruptcy laws to protect the partnerships' assets from loss
through foreclosure.
The names and positions held by the directors and executive officers of RI 81
Services are set forth below. There are no family relationships between any
executive officers or directors.
Name Office
Paul L. Abbott Director, President, Chief Financial
Officer and Chief Executive Officer
Donald E. Petrow Vice President
David Sclafani Vice President
Paul L. Abbott, 51, is a Managing Director of Lehman Brothers. Mr. Abbott
joined Lehman Brothers in August 1988, and is responsible for investment
management of residential, commercial and retail real estate. Prior to joining
Lehman Brothers, Mr. Abbott was a real estate consultant and a senior officer
of a privately held company specializing in the syndication of private real
estate limited partnerships. From 1974 through 1983, Mr. Abbott was an officer
of two life insurance companies and a director of an insurance agency
subsidiary. Mr. Abbott received his formal education in the undergraduate and
graduate schools of Washington University in St. Louis.
Donald E. Petrow, 40, is a First Vice President of Lehman Brothers Inc. Since
March 1989, he has been responsible for the investment management and
restructuring of various investment portfolios, including but not limited to,
federal insured mortgages, tax exempt bonds, multifamily and commercial real
estate. From November 1981 to February 1989, Mr. Petrow, as Vice President of
Lehman, was involved in investment banking activities relating to partnership
finance and acquisitions. Prior to joining Lehman, Mr. Petrow was employed in
accounting and equipment leasing firms. Mr. Petrow holds a B.S. Degree in
accounting from Saint Peters College and an M.B.A in Finance from Pace
University.
David Sclafani, 24, is an Associate of Lehman Brothers Inc. Mr. Sclafani
joined Lehman Brothers in March 1996 and is responsible for the investment
management and restructuring of various limited partnerships holding
multi-family real estate. Prior to joining Lehman Brothers, Mr. Sclafani
worked in the real estate finance department of a major foreign bank managing
performing and non-performing loans. Mr. Sclafani holds a B.S. Degree in
Finance from Siena College in Loudonville, N.Y.
ConAm Services
ConAm Services is a California limited partnership organized on December 11,
1980. The sole general partner of ConAm Services is Continental American
Development, Inc. ("ConAm Development"). The names and positions held by the
directors and executive officers of ConAm Development are set forth below.
There are no family relationships between any executive officers or directors.
Name Office
Daniel J. Epstein President and Director
E. Scott Dupree Vice President/Director
Robert J. Svatos Vice President/Director
Ralph W. Tilley Vice President
J. Bradley Forrester Vice President
Daniel J. Epstein, 57, has been the President and a Director of ConAm
Development and ConAm Management (or its predecessor firm) and a general
partner of Continental American Properties, Ltd. ("ConAm"), an affiliate of
ConAm Services, since their inception. Prior to that time Mr. Epstein was Vice
President and a Director of American Housing Guild, which he joined in 1969. At
American Housing Guild, he was responsible for the formation of the
Multi-Family Division and directed its development and property management
activities. Mr. Epstein holds a Bachelor of Science degree in Engineering from
the University of Southern California.
E. Scott Dupree, 46, is a Senior Vice President and general counsel of ConAm
Management responsible for negotiation, documentation, review and closing of
acquisition, sale and financing proposals. Mr. Dupree also acts as principal
legal advisor on general legal matters ranging from issues and contracts
involving the management company to supervision of litigation and employment
issues. Prior to joining ConAm Management in 1985, he was corporate counsel to
Trusthouse Forte, Inc., a major international hotel and restaurant corporation.
Mr. Dupree holds a B.A. from United States International University and a Juris
Doctorate degree from the University of San Diego.
Robert J. Svatos, 38, is a Senior Vice President and Chief Financial Officer of
ConAm Management, and has been with the company since 1988. His
responsibilities include the accounting, treasury and data processing functions
of the organization. Mr. Svatos is part of the firm's due diligence team,
analyzing a broad range of projects for ConAm Management's fee client base.
Prior to joining ConAm Management, he was the Chief Financial Officer for
AmeriStar Financial Corporation, a nationwide mortgage banking firm. Mr.
Svatos holds an M.B.A. in Finance from the University of San Diego and a
Bachelor's of Science degree in Accounting from the University of Illinois. Mr.
Svatos is a Certified Public Accountant.
Ralph W. Tilley, 42, is a Senior Vice President and Treasurer of ConAm
Management. He is responsible for the financial aspects of syndications and
acquisitions, the company's asset management portfolio and risk management
activities. Prior to joining ConAm Management in 1980, he was a senior
accountant with KPMG Peat Marwick, specializing in real estate. He holds a
Bachelor's of Science degree in Accounting from San Diego State University and
is a Certified Public Accountant.
J. Bradley Forrester, 39, currently serves as an Executive Vice President of
ConAm Management Corporation. He is responsible for property acquisition and
disposition on a nationwide basis. Additionally, he is involved with the
company's real estate development activities. Prior to joining ConAm, Mr.
Forrester served as Senior Vice President - Commercial Real Estate for First
Nationwide Bank in San Francisco, where he was responsible for a $2 billion
problem asset portfolio including bank-owned real estate and non-performing
commercial real estate loans. His past experience includes significant
involvement in real estate development and finance, property acquisitions and
dispositions and owner's representation matters. Prior to entering the real
estate profession, he worked for KPMG Peat Marwick in Dallas, Texas. Mr.
Forrester holds a Bachelor of Science degree in Accounting from Louisiana State
University. He received his CPA certification in the State of Texas.
Certain Matters Involving Affiliates of RI 81 Services
On July 31, 1993, Shearson sold certain of its domestic retail brokerage and
asset management businesses to Smith Barney, Harris Upham and Co. Incorporated.
Subsequent to the sale, Shearson changed its name to "Lehman Brothers Inc." The
transaction did not affect the ownership of the Partnership's General Partners.
However, the assets acquired by Smith Barney included the name "Hutton."
Consequently, the Hutton Real Estate Services III, Inc. general partner changed
its name to "RI 81 Real Estate Services Inc.," and the Hutton Group changed its
name to "LB I Group Inc." to delete any reference to "Hutton."
Item 11. Executive Compensation
Neither of the General Partners nor any of their directors or executive
officers received any compensation from the Registrant. See Item 13 of this
report for a description of certain transactions of the General Partners or
their affiliates with the Registrant.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of December 31, 1996, no person was known by the Registrant to be the
beneficial owner of more than five percent of the Units of the Registrant. The
General Partners own 200 Units (134 owned by RI 81 Services and 66 owned by
ConAm Services), as required by the terms of the offering described in the
Prospectus of Registrant dated June 24, 1981 (the "Prospectus"), contained in
Amendment No. 2 to Registrant's Registration Statement No. 2-70331, filed June
24, 1981 and in Amendment No. 1 to Registrant's Registration Statement, No.
2-73558, filed August 20, 1981.
Daniel J. Epstein, President and Director of ConAm Services, owned twenty Units
as of December 31, 1996. No other directors or executive officers of the
General Partners own any Units.
Item 13. Certain Relationships and Related Transactions
RI 81 Services and ConAm Services received $43,495 and $39,144, respectively,
as its allocable share of Net Cash from Operations with respect to the year
ended December 31, 1996, pursuant to the Amended and Restated Certificate and
Agreement of Limited Partnership of the Registrant. Of those amounts, RI 81
Services and ConAm Services received $8,699 and $4,349, respectively, as their
share of the sales proceeds from the sale of Ridge Park Apartments in November
1996. Pursuant to the Amended and Restated Certificate and Agreement of
Limited Partnership of the Registrant, for the year ended December 31, 1996,
$69,591 of Registrant's net income was allocated to the General Partners
($34,795.50 to RI 81 Services and $34,795.50 to ConAm Services). For a
description of the share of net cash from operations and the allocation of
income and loss to which the General Partners are entitled, reference is made
to the material contained on pages 72-74 of the Prospectus, under the section
captioned "Profit and Losses and Cash Distributions," which section is
incorporated herein by reference thereto.
The Registrant has entered into property management agreements with ConAm
Management pursuant to which ConAm Management has assumed direct responsibility
for day-to-day management of the Properties. It is the responsibility of ConAm
Management to select resident managers and monitor their performance. ConAm
Management's services also include the supervision of leasing, rent collection,
maintenance, budgeting, employment of personnel, payment of operating expenses
and related services. For such services, ConAm Management is entitled to
receive a management fee as described under the sections captioned "Investment
Objectives and Policies--Management of Properties" on pages 32 through 33 of
the Prospectus, which section is incorporated herein by reference thereto. A
summary of property management fees earned by ConAm Management during the past
three years is incorporated by reference to Note 6 to the Consolidated
Financial Statements, incorporated herein by reference to the Partnership's
Annual Report to Unitholders for the year ended December 31, 1996, which is
filed as an exhibit under Item 14.
Pursuant to Section 12(g) of the Registrant's Amended and Restated Certificate
and Agreement of Limited Partnership, the General Partners and their affiliates
may be reimbursed by the Registrant for certain of their costs as described on
page 16 of the Prospectus, which description is incorporated herein by
reference. First Data Investor Services Group provides partnership accounting
and investor relations services for the Registrant. Prior to May 1993, these
services were provided by an affiliate of a general partner. The Registrant's
transfer agent and certain tax reporting services are provided by Service Data
Corporation. Both First Data Investor Services Group and Service Data
Corporation are unaffiliated companies. A summary of amounts paid to the
General Partners or their affiliates during the past three years is
incorporated by reference to Note 6 to the Consolidated Financial Statements,
included in the Partnership's Annual Report to Unitholders for the fiscal year
ended December 31, 1996, which is filed as an exhibit under Item 14.
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
Page
(a)(1) Financial Statements: Number
Consolidated Balance Sheets - December 31, 1996 and 1995 (1)
Consolidated Statements of Partners' Capital
(Deficit) - For the years ended December 31, 1996,
1995 and 1994 (1)
Consolidated Statements of Operations - For the
years ended December 31, 1996, 1995 and 1994 (1)
Consolidated Statements of Cash Flows - For the
years ended December 31, 1996, 1995 and 1994 (1)
Notes to the Consolidated Financial Statements (1)
Report of Independent Accountants (1)
(a)(3) Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation F-1
Report of Independent Accountants on Schedule III F-2
(1) Incorporated by reference to the Partnership's Annual Report to Unitholders
for the year ended December 31, 1996, filed as an exhibit under Item 14.
(a)(3) Exhibits:
(3) Amended and Restated Certificate and Agreement of Limited
Partnership (included as, and incorporated herein by reference to,
Exhibit A to the Prospectus of Registrant dated June 24, 1981 (the
"Prospectus"), contained in Amendment No. 2 to Registration
Statement, No. 2-70331, of Registrant filed June 24, 1981, (the
"Registration Statement"), and in Amendment No. 1 to Registration
Statement, No. 2-73558, of Registrant filed August 20, 1981).
(4) Subscription Agreement and Signature Page (included as, and
incorporated herein by reference to, Exhibit B to the Prospectus).
(10)(A) Financing Documents relating to Las Colinas I and II (Promissory
Note, Deed of Trust, Assignment of Rents and Leases) (included as,
and incorporated herein by reference to, Exhibit 10-I to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1992 (Commission file No. 0-10223)).
(B) Financing Documents relating to Ridge Park (Promissory Note, Deed
of Trust, Assignment of Rents and Leases) (included as, and
incorporated herein by reference to, Exhibit 10-J to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1992 (Commission file No. 0- 10223)).
(C) Financing Documents relating to Tierra Catalina (Promissory Note,
Deed of Trust, Assignment of Rents and Leases) (included as, and
incorporated herein by reference to, Exhibit 10-K to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1992 (Commission file No. 0- 10223)).
(D) Settlement Agreement by and among the Managing Joint Venturers and
the Epoch Joint Venturers dated July 1, 1992 (included as, and
incorporated herein by reference to, Exhibit 10.I to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1992 (Commission file No. 0- 10223)).
(E) Agreement of Limited Partnership of RI-81 Las Colinas Limited
Partnership dated as of July 1, 1992 (included as, and incorporated
herein by reference to, Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1992
(Commission file No. 0-10223)).
(F) Agreement of Limited Partnership of RI-81 Tierra Catalina Limited
Partnership dated as of July 1, 1992 (included as, and incorporated
herein by reference to, Exhibit 10.3 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1992
(Commission file No. 0- 10223)).
(G) Amended and Restated Agreement of Limited Partnership of Ridge Park
Associates Limited Partnership dated as of April 23, 1992 (included
as, and incorporated herein by reference to, Exhibit 10.4 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1992 (Commission file No. 0-10223)).
(H) Property Management Agreement between Hutton/ConAm Realty Investors
81 and ConAm Management Corp. for the Las Colinas I & II properties
(included as, and incorporated herein by reference to Exhibit 10-L
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993 (Commission file No. 0-10223)).
(I) Property Management Agreement between Hutton/ConAm Realty Investors
81 and ConAm Management Corp. for the Tierra Catalina property
(included as, and incorporated herein by reference to Exhibit 10-M
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993 (Commission file No. 0-10223)).
(13) Annual Report to Unitholders for the year ended December 31, 1996.
(21) List of Subsidiaries - Joint Ventures (included as, and
incorporated herein by reference to Exhibit 22 to the Registrant's
1991 Annual Report on Form 10-K for the year ended December 31,
1991(Commission file No. 0-10223)).
(27) Financial Data Schedule
(99) Portions of the Prospectus of Registrant dated June 24, 1981
(included as, and incorporated herein by reference to Exhibit 28 to
the Registrant's 1988 Annual Report on Form 10-K for the year ended
December 31, 1988 (Commission file No. 0-10223)).
(b) Reports on Form 8-K:
On December 12, 1996, the Partnership filed a Form 8-K on the closing
of the Ridge Park sale.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 26, 1997
HUTTON/CONAM REALTY INVESTORS 81
BY: RI 81 Real EstateServices Inc.
General Partner
BY: /S/ Paul L. Abbott
Name: Paul L. Abbott
Title: Director, President, Chief Executive
Officer and Chief Financial Officer
BY: ConAm Property Services, Ltd.
General Partner
BY: Continental American Development, Inc.
General Partner
BY: /S/ Daniel J. Epstein
Name: Daniel J. Epstein
Title: President, Director and Principal
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capabilities and on the dates indicated.
RI 81 REAL ESTATE SERVICES INC.
A General Partner
Date: March 26, 1997
BY: /S/ Paul L. Abbott
Paul L. Abbott
Director, President, Chief Executive
Officer and Chief Financial Officer
Date: March 26, 1997
BY: /S/ Donald Petrow
Donald Petrow
Vice President
Date: March 26, 1997
BY: /S/ David Sclafani
David Sclafani
Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
CONAM PROPERTY SERVICES, LTD.
A General Partner
By: Continental American Development, Inc.
General Partner
Date: March 26, 1997
BY: /S/ Daniel J. Epstein
Daniel J. Epstein
Director and President
Date: March 26, 1997
BY: /S/ E. Scott Dupree
E. Scott Dupree
Vice President/Director
Date: March 26, 1997
BY: /S/ Robert J. Svatos
Robert J. Svatos
Vice President/Director
Date: March 26, 1997
BY: /S/ Ralph W. Tilley
Ralph W. Tilley
Vice President
Date: March 26, 1997
BY: /S/ J. Bradley Forrester
J. Bradley Forrester
Vice President
</TEXT
Hutton/ConAm Realty Investors 81
1996 Annual Report
Exhibit 13
Hutton/ConAm Realty Investors 81
Hutton/ConAm Realty Investors 81 is a California limited partnership
formed in 1981 to acquire, operate and hold for investment multifamily
housing properties. At December 31, 1996, the Partnership's portfolio
consisted of two apartment properties located in Arizona. Provided below
is a comparison of average occupancy levels for the years ended December
31, 1996 and 1995.
Average Occupancy
Property Location 1996 1995
Las Colinas I & II Scottsdale, Arizona 96% 93%
Tierra Catalina Tucson, Arizona 90% 93%
Contents
1 Message to Investors
3 Financial Highlights
4 Consolidated Financial Statements
7 Notes to the Consolidated Financial Statements
13 Report of Independent Accountants
14 Net Asset Valuation
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers First Data Investor Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts 02104-1527
Omaha, Nebraska 68144-2596 Attn: Financial Communications
800-223-3464 800-223-3464
Message to Investors
Presented for your review is the 1996 Annual Report for Hutton/ConAm Realty
Investors 81. In this report, we review Partnership operations and discuss
general market conditions affecting the Partnership's two remaining properties.
Property Sale
The most significant event during 1996 was the sale of Ridge Park Apartments on
November 27, 1996, to an unaffiliated institutional buyer for an adjusted sales
price of $3,385,000. The Partnership received net sales proceeds of
$3,196,264, of which $1,902,666, representing outstanding principal and
interest, was used to fully satisfy the Partnership's mortgage obligation on
Ridge Park. The transaction resulted in a gain on the sale of approximately
$1,410,622 which was reflected in the Partnership's consolidated statements of
operations for the period ending, December 31, 1996. The General Partners paid
a special cash distribution of $16.50 per Unit from the sales proceeds on
February 27, 1997.
Cash Distributions
The Partnership paid cash distributions totaling $8.00 per Unit for the year
ended December 31, 1996, including the fourth quarter distribution of $2.00 per
Unit, which was credited to your brokerage account or sent directly to you on
February 5, 1997. Since inception, the Partnership has paid distributions
totaling $442.15 per original $500 Unit, including $254.50 per Unit in return
of capital payments. The level of future distributions will be evaluated on a
quarterly basis and will depend on the Partnership's operating results and
future cash needs. Commencing with the first quarter 1997 distribution, which
will be paid on or about May 15, 1997, cash distributions will be reduced to
reflect the decline in cash flow resulting from the sale of Ridge Park.
Operations Overview
Multi-family real estate continued to perform well during 1996, with property
values and apartment rents increasing in many areas of the country. The
improving conditions, as well as positive job and population growth forecasts,
prompted a rise in new construction in the markets where the Partnership owns
properties. The addition of these new apartment properties caused a slowdown
in leasing activity towards the end of the year, particularly in Tucson. In
that market, conditions were also impacted by the decision of many renters to
purchase homes. This increased the use of rent specials at many large apartment
properties, including Tierra Catalina, to attract new tenants. The Scottsdale
market also experienced slow growth during the year as a result of increased
construction, even though Metro Phoenix was ranked as the nation's strongest
labor market in 1996. Nonetheless, both of the Partnership's properties
maintained average occupancy levels for the year of at least 90%, and the
Partnership's rental income for these two properties increased by 2.8% from the
previous year. It is expected that the competitive conditions will persist in
each market in 1997, but continued economic growth and a slowdown in
construction should prevent these areas from becoming significantly overbuilt.
Property Review
Las Colinas I & II
This 300-unit apartment community is located eight miles northeast of Phoenix
in southwest Scottsdale, and is comprised of two complexes. Las Colinas I and
II reported average occupancy of 96% in 1996 compared to 93% in 1995. In
addition, the property reported an increase in rental income of 5.7% from the
prior year. The Scottsdale apartment market experienced continued strong
competition during 1996, reflecting high levels of construction and notable
competition from condominiums and single family houses, as affordable prices
and low mortgage rates enticed renters to buy. City-wide, 5,229 apartment units
were permitted during the first six months of 1996, 1,938 of these in the
Scottsdale submarket and 1,042 of these had been completed or were currently
under construction. Although vacancy rates in Phoenix and the Scottsdale
submarket remained low in 1996, declining to 4.4% and 3.5%, respectively, as of
the second quarter, vacancies are expected to increase with the new
construction. While the area's strong population and job growth are likely to
absorb much of this new supply, competition for tenants is expected to remain
strong.
Tierra Catalina
Tierra Catalina contains 120 units and is located near the Foothills region of
Tucson. The property maintained an average occupancy rate of 90% during 1996
compared to 93% for 1995. The slight decline in occupancy caused a similar
decrease in the property's rental income. These operating results are
indicative of the increasing competition in the Tucson market. While Tucson's
economy began to slow in 1995 and 1996, construction of multifamily properties
has increased significantly. The addition of new properties is beginning to
put downward pressure on occupancy rates and is limiting rental rate increases.
The increased competition has also led to the reemergence of rental incentives.
In addition, the multifamily market has been unfavorably impacted by relatively
low interest rates which has made home ownership a viable alternative for
renters. A local survey of metropolitan Tucson conducted in the second quarter
of 1996 showed an average occupancy rate of 88.9% among multifamily properties,
down from 91.1% in the same period in 1995. In the Catalina Foothills
submarket, where Tierra Catalina is located, occupancy rates declined from 91%
in the second quarter of 1995 to 84.5% in the same period in 1996.
General Information
As you are probably aware, several third parties have commenced partial tender
offers to purchase Units of the Partnership at grossly inadequate prices which
are substantially below the Partnership's Net Asset Value. In response, we
recommended that limited partners reject these offers because they do not
reflect the underlying value of the Partnership's assets. To date, holders of
over 93% of the outstanding Units agreed that these offers were inadequate,
rejected the offer and did not tender their Units. Please be assured that if
any additional tender offers are made for your Units, we will make every effort
to provide you with our position regarding such offer on a timely basis.
Summary
During 1997, we intend to monitor market conditions in an effort to sell the
Partnership's two remaining properties within the next few years. Assuming
these efforts are successful, we would expect to distribute the sales proceeds
and subsequently dissolve the Partnership in 1998 or 1999. However, meeting
this objective will be dependent upon a variety of factors, many of which are
not within the Partnership's control. Consequently, there can be no assurance
that any specific property or all the properties can be sold, that certain
prices will be achieved, or that both of the properties can be sold within this
time frame. In the interim, we will continue to manage and maintain the
properties to maximize their performance and improve their marketability and
appeal. We will keep you apprised of significant developments affecting your
investment in future reports.
Very truly yours,
/s/ Paul L. Abbott /s/ Daniel J. Epstein
Paul L. Abbott Daniel J. Epstein
President President
RI 81 Real Estate Services Inc. Continental American Development, Inc.
General Partner of ConAm Property
Services, Ltd.
March 26, 1997
Financial Highlights
Selected Financial Data
For the periods ended December 31, 1996 1995 1994 1993 1992
Dollars in thousands,
except for per unit data
Total Income $ 3,714 $ 4,416 $ 4,760 $ 4,485 $ 4,284
Gain on Sale of Properties 1,411 1,485 -- -- --
Net Income (Loss) 1,286 1,142 (253) (618) (465)
Net Cash Provided by (Used for)
Operating Activities 753 974 949 1,020 (362)
Long-term Obligations at Year End 9,943 11,954 15,601 15,736 15,861
Total Assets at Year End 14,545 16,022 22,497 23,565 24,518
Net Income (Loss) per
Limited Partnership Unit* 15.53 (1.38) (3.19) (7.81) (5.88)
Distributions per
Limited Partnership Unit* 8.00 8.00 8.00 3.50 --
Special Distributions per
Limited Partnership Unit* 16.50 40.50 -- -- --
* 78,290 units outstanding
- Total income decreased in 1996, reflecting the sale of Cedar Bay
Village and Kingston Village in July 1995 and lower rental income from
Tierra Catalina resulting from the decline in occupancy. This was
partially offset by increased rental income at Las Colinas I and II.
- The increase in net income from 1995 to 1996 is primarily attributable
to the decline in operating expenses resulting from the sale of Cedar
Bay Village and Kingston Village which more than offset the
corresponding decline in rental income.
- Net cash provided by operating activities declined in 1996 reflecting
decreases in the release of restricted cash resulting from the sale of
Cedar Bay Village and Kingston Village in July 1995.
Cash Distributions
Per Limited Partnership Unit
1996 1995
Special Distributions* $16.50 $40.50
First Quarter 2.00 2.00
Second Quarter 2.00 2.00
Third Quarter 2.00 2.00
Fourth Quarter 2.00 2.00
Total $24.50 $48.50
*On August 17, 1995, the Partnership paid a special cash distribution totaling
$40.50 per Unit, reflecting net proceeds received from the sale of Cedar Bay
Village and Kingston Village and excess cash reserves. On February 27, 1997,
the Partnership paid a special cash distribution totaling $16.50 per Unit,
reflecting a return of capital from the net proceeds of the November 1996 sale
of Ridge Park.
Consolidated Balance Sheets At December 31, At December 31,
1996 1995
Assets
Investments in real estate:
Land $ 3,630,175 $ 3,944,195
Buildings and improvements 17,975,267 21,299,382
21,605,442 25,243,577
Less accumulated depreciation (10,303,382) (11,370,295)
11,302,060 13,873,282
Cash and cash equivalents 2,741,077 1,499,119
Restricted cash 351,444 394,147
Mortgage fees, net of accumulated
amortization of $220,063 in 1996
and $209,153 in 1995 135,654 230,519
Other assets 14,292 24,946
Total Assets $ 14,544,527 $ 16,022,013
Liabilities and Partners' Capital
Liabilities:
Mortgages payable $ 9,943,036 $ 11,954,188
Distribution payable 1,478,811 173,978
Accounts payable and accrued expenses 177,414 225,751
Security deposits 71,858 77,433
Due to general partners and affiliates 13,045 15,263
Total Liabilities 11,684,164 12,446,613
Partners' Capital (Deficit):
General Partners (201,261) (188,213)
Limited Partners 3,061,624 3,763,613
Total Partners' Capital 2,860,363 3,575,400
Total Liabilities and Partners' Capital $ 14,544,527 $ 16,022,013
Consolidated Statements of Partners' Capital (Deficit)
For the years ended December 31, 1996, 1995 and 1994
General Limited
Partners Partners Total
Balance at December 31, 1993 $ (1,244,798) $ 8,545,519 $ 7,300,721
Net loss (2,526) (250,101) (252,627)
Cash distributions (69,591) (626,320) (695,911)
Balance at December 31, 1994 (1,316,915) 7,669,098 6,352,183
Net income (loss) 1,250,091 (108,422) 1,141,669
Cash distributions (121,389) (3,797,063) (3,918,452)
Balance at December 31, 1995 (188,213) 3,763,613 3,575,400
Net income 69,591 1,216,116 1,285,707
Cash distributions (82,639) (1,918,105) (2,000,744)
Balance at December 31, 1996 $ (201,261) $ 3,061,624 $ 2,860,363
Consolidated Statements of Operations
For the years ended December 31, 1996 1995 1994
Income
Rental $ 3,622,403 $ 4,313,044 $ 4,702,059
Interest and other 91,282 102,535 58,009
Total Income 3,713,685 4,415,579 4,760,068
Expenses
Property operating 1,817,928 2,261,179 2,301,465
Interest 992,745 1,191,397 1,327,560
Depreciation and amortization 880,445 1,087,749 1,227,183
General and administrative 147,482 218,706 156,487
Total Expenses 3,838,600 4,759,031 5,012,695
Loss from operations (124,915) (343,452) (252,627)
Gain on sale of properties 1,410,622 1,485,121 --
Net Income (Loss) $ 1,285,707 $ 1,141,669 $ (252,627)
Net Income (Loss) Allocated:
To the General Partners $ 69,591 $ 1,250,091 $ (2,526)
To the Limited Partners 1,216,116 (108,422) (250,101)
$ 1,285,707 $ 1,141,669 $ (252,627)
Per limited partnership unit
(78,290 outstanding)
Loss from operations $ (1.58) $ (4.34) $ (3.19)
Gain on sale of properties 17.11 2.96 --
Net Income (Loss) $ 15.53 $ (1.38) $ (3.19)
Consolidated Statements of Cash Flows
For the years ended December 31, 1996 1995 1994
Cash Flows From Operating Activities:
Net income (loss) $ 1,285,707 $ 1,141,669 $ (252,627)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization 880,445 1,087,749 1,227,183
Gain on sale of properties (1,410,622) (1,485,121) --
Increase (decrease) in cash
arising from changes in operating
assets and liabilities:
Fundings to restricted cash (450,460) (536,471) (581,675)
Release of restricted cash to
property operations 493,163 801,400 543,194
Other assets 10,654 16,109 (3,609)
Accounts payable and accrued expenses (48,337) 16,898 3,501
Security deposits (5,575) (63,975) 11,700
Due to general partners and affiliates (2,218) (4,567) 946
Net cash provided by operating activities 752,757 973,691 948,613
Cash Flows From Investing Activities:
Net proceeds from sale of properties 3,196,264 6,555,332 --
Net cash provided by investing activities 3,196,264 6,555,332 --
Cash Flows From Financing Activities:
Distributions (695,911) (3,918,452) (695,911)
Mortgage principal payments (2,011,152) (3,646,843) (135,365)
Net cash used for financing activities (2,707,063) (7,565,295) (831,276)
Net increase (decrease) in cash and
cash equivalents 1,241,958 (36,272) 117,337
Cash and cash equivalents,
beginning of period 1,499,119 1,535,391 1,418,054
Cash and cash equivalents,
end of period $ 2,741,077 $ 1,499,119 $ 1,535,391
Supplemental Disclosure of Cash
Flow Information:
Cash paid during the period
for interest $ 992,745 $ 1,191,397 $ 1,327,560
Notes to the Consolidated Financial Statements
December 31, 1996, 1995 and 1994
1. Organization
Hutton/ConAm Realty Investors 81 (the "Partnership") was organized as a limited
partnership under the laws of the State of California pursuant to a Certificate
and Agreement of Limited Partnership (the "Partnership Agreement") dated April
30, 1981, as amended and restated August 31, 1981. The Partnership was formed
for the purpose of acquiring and operating certain types of residential real
estate. The general partners of the Partnership are RI 81 Real Estate Services
Inc., an affiliate of Lehman Brothers (see below), and ConAm Property Services,
Ltd., an affiliate of Continental American Properties, Ltd (the "General
Partners"). The Partnership will continue until December 31, 2010 unless
sooner terminated pursuant to the terms of the Partnership Agreement.
On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its domestic
retail brokerage and asset management businesses to Smith Barney, Harris Upham
& Co. Incorporated ("Smith Barney"). Subsequent to the sale, Shearson Lehman
Brothers Inc. changed its name to Lehman Brothers Inc. ("Lehman Brothers"). The
transaction did not affect the ownership of the General Partners. However, the
assets acquired by Smith Barney included the name "Hutton." Consequently,
effective October 29, 1993, the Hutton Real Estate Services III, Inc. General
Partner changed its name to RI 81 Real Estate Services Inc.
On March 15, 1996, based upon, among other things, the advice of legal counsel,
Skadden, Arps, Slate, Meagher & Flom, the General Partners adopted a resolution
that states, among other things, if a Change of Control (as defined below)
occurs, the General Partners may distribute the Partnership's cash balances not
required for its ordinary course day-to-day operations. "Change of Control"
means any purchase or offer to purchase more than 10% of the Units that is not
approved in advance by the General Partners. In determining the amount of the
distribution, the General Partners may take into account all material factors.
In addition, the Partnership will not be obligated to make any distribution to
any partner and no partner will be entitled to receive any distribution until
the General Partners have declared the distribution and established a record
date and distribution date for the distribution.
2. Significant Accounting Policies
Financial Statements - The consolidated financial statements include the
accounts of the Partnership and its affiliated ventures. The effect of
transactions between the Partnership and its ventures has been eliminated in
consolidation.
Real Estate Investments - Real estate investments are recorded at cost less
accumulated depreciation which includes the initial purchase price of the
property, legal fees, capitalized interest, acquisition and closing costs.
Leases are accounted for under the operating method. Under this method,
revenue is recognized as rentals are earned and expenses (including
depreciation) are charged to operations when incurred. Leases are generally for
terms of one year or less.
Depreciation is computed using the straight-line method based upon the
estimated useful lives of the properties. Maintenance and repairs are charged
to operations as incurred. Significant betterments and improvements are
capitalized and depreciated over their estimated useful lives.
For assets sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
reflected in income for the period.
Accounting for Impairment - In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" ("FAS 121"), which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. FAS 121 also addresses the accounting
for long- lived assets that are expected to be disposed of. The Partnership
adopted FAS 121 in the fourth quarter of 1995.
Fair Value of Financial Instruments - Statements of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments"
("FAS 107"), requires that the Partnership disclose the estimated fair values
of its financial instruments. Fair values generally represent estimates of
amounts at which a financial instrument could be exchanged between willing
parties in a current transaction other than in forced liquidation.
Fair value estimates are subjective and are dependent on a number of
significant assumptions based on management's judgment regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. In addition, FAS 107 allows
a wide range of valuation techniques, therefore, comparisons between entities,
however similar, may be difficult.
Mortgage Fees - Included in mortgage fees are deferred mortgage costs incurred
in connection with obtaining financing on the Partnership's properties. Such
costs are amortized over the 7-year term of the applicable loans.
Offering Costs - Costs relating to the sale of limited partnership units were
deferred during the offering period and charged to the limited partners'
capital accounts upon the consummation of the public offering.
Income Taxes - No provision for income taxes has been made in the financial
statements since income, losses and tax credits are passed through to the
individual partners.
Cash and Cash Equivalents - Cash equivalents consist of short-term highly
liquid investments which have maturities of three months or less from the date
of issuance. The carrying amount approximates fair value because of the short
maturity of these instruments. Cash and cash equivalents include security
deposits of $0 and $17,670 for December 31, 1996 and 1995, respectively,
restricted under certain state statutes.
Restricted Cash - Restricted cash consists of escrows for betterments and
improvements, real estate taxes, and casualty insurance as required by the
first mortgage lender.
Concentration of Credit Risk - Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash
and cash equivalents in excess of the financial institutions' insurance limits.
The Partnership invests available cash with high credit quality financial
institutions.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications - Certain prior year amounts have been reclassified in order
to conform to the current year's presentation.
3. The Partnership Agreement
The Partnership Agreement provides that net cash from operations, as defined,
will be distributed quarterly, 90% to the limited partners and 10% to the
General Partners.
Net loss for any year will be allocated 99% to the limited partners and 1% to
the General Partners. Net income will generally be allocated in accordance
with the distribution of net cash from operations.
Net proceeds from sales or refinancing will be distributed 99% to the limited
partners and 1% to the General Partners until each limited partner has received
an amount equal to his adjusted capital value (as defined) and an annual,
cumulative 7% return thereon, and until the General Partners have received 15%
of the aggregate distributions of net proceeds. The balance, if any, will be
distributed 85% to the limited partners and 15% to the General Partners. Gain
from sales will be allocated to each partner having a negative capital account
balance, pro rata, to the extent of such negative balance. Thereafter, such
gain will be allocated in accordance with the distribution of net proceeds from
sale or refinancing, with the balance allocated to the limited partners.
4. Real Estate Investments
Real estate investments consist of three residential apartment complexes
acquired either directly or through investments in joint ventures as follows:
Apartment Date Purchase
Property Name Units Location Acquired Price
Las Colinas I 226 Scottsdale, AZ 5/20/81 $9,266,864
Las Colinas II 74 Scottsdale, AZ 9/23/82 3,564,919
Tierra Catalina 120 Tucson, AZ 3/9/84 7,012,650
Cedar Bay Village, Ridge Park, Kingston Village and Tierra Catalina were
originally acquired through joint ventures with unaffiliated developers. On
March 30, 1984, the co-venturer's interest with respect to Tierra Catalina was
acquired for $400,000. To each venture, the Partnership contributed the
apartment projects as its initial capital contribution.
On November 27, 1996, the Partnership sold Ridge Park (the "Property") to Ridge
Park Limited Partnership, an Oklahoma limited partnership ("Ridge Park L.P."),
which is unaffiliated with the Partnership. The selling price was determined
by arm's length negotiations between the Partnership and Ridge Park L.P. Ridge
Park was sold for $3,385,000. The Partnership received net proceeds of
$3,196,264 from the transaction of which $1,902,666, representing outstanding
principal and interest, was used to fully satisfy the Partnership's mortgage
obligation on the Property. The transaction resulted in a gain on sale of
$1,410,622 which included the recognition of mortgage prepayment penalties of
$36,843, and a $33,154 write-off of the unamortized portion of mortgage fees.
The gain was allocated in accordance with the Partnership Agreement. On
February 27, 1997, the General Partners paid a special distribution of
$1,291,785 ($16.50 per unit) to the Limited Partners, representing the net
proceeds from the sale of the Property.
On July 20, 1995, the Partnership sold Kingston Village and Cedar Bay Village
(the "Properties") to an institutional buyer (the "Buyer"), which was
unaffiliated with the Partnership. The selling price was determined by arm's
length negotiations between the Partnership and the Buyer. Kingston Village
and Cedar Bay Village were sold for $5,370,000 and $1,410,000, respectively.
The Partnership received net proceeds of $6,555,332 from the transaction of
which $3,541,400, representing outstanding principal and interest, was used to
fully satisfy the Partnership's mortgage obligations on the Properties. The
transaction resulted in a gain on sale of $1,485,121 which included the
recognition of mortgage prepayment penalties of $120,926 and a $101,146
write-off of the unamortized portion of mortgage fees. The gain was allocated
in accordance with the Partnership Agreement.
On August 17, 1995, the Partnership paid a special distribution of $3,170,745
or $40.50 per Unit to the limited partners. The special distribution was
comprised of the net proceeds from the sale of the Properties and Partnership
cash reserves.
The joint venture and limited partnership agreements for Cedar Bay Village,
Kingston Village, Ridge Park Associates, Tierra Catalina and Las Colinas
substantially provide that:
a. Available cash from operations will be distributed 100% to the Partnership
until it has received an annual, non-cumulative preferred return, as defined.
Any remaining balance will be distributed 99% to the Partnership and 1% to the
corporate General Partners.
b. Net income will be allocated first, proportionately to partners with
negative capital accounts, as defined, until such capital accounts, as defined,
have been increased to zero. Then, to the Partnership up to the amount of any
payments made on account of its preferred return; thereafter, 99% to the
Partnership and 1% to the corporate General Partners. All losses will be
allocated first, to the partners with positive capital accounts, as defined,
until such accounts have been reduced to zero. Then, 99% to the Partnership
and 1% to the corporate General Partners.
c. Income from a sale will be allocated first, to the Partnership until the
Partnership's capital accounts, as defined, are equal to the fair market value
of the ventures' assets at the date of the amendments. Then, any remaining
balance will be allocated 99% to the Partnership and 1% to the corporate
General Partners. Net proceeds from a sale or refinancing will be distributed
first to the partners with the positive capital account balance, as defined;
thereafter, 99% to the Partnership and 1% to the corporate General Partners.
5. Mortgages Payable
Mortgages payable, at December 31, 1996, consist of the following first
mortgage loans:
Interest Date of
Property Name Principal Rate Loan Term
Las Colinas I and II $6,325,637 8.50% 9/1/92 7 years
Tierra Catalina 3,617,399 8.50% 9/1/92 7 years
On August 27, 1992, the Partnership obtained new first mortgage loans on all of
its properties from Washington Mortgage Financial Group, an unaffiliated party.
Total proceeds of $15,900,000 were received and collateralized by deeds of
trust and assignments of rents as security encumbering the properties.
Additionally, these mortgages contain provisions for prepayment penalties if
the mortgages are repaid prior to their maturity date of September 1, 1999.
On November 27, 1996, Ridge Park was sold. A portion of the sales proceeds, in
the amount of $1,939,509 representing outstanding principal, interest and
pre-payment penalties, was used to fully satisfy the Partnership's mortgage
obligation on the Property.
On July 20, 1995, Kingston Village and Cedar Bay Village were sold. A portion
of the sales proceeds, in the amount of $3,662,325, representing outstanding
principal, interest and pre- payment penalties, was used to fully satisfy the
Partnership's mortgage obligations on the Properties.
Annual maturities of mortgage notes principal over the next three years are as
follows:
Year Amount
1997 $ 112,775
1998 122,743
1999 9,707,518
$ 9,943,036
Based on borrowing rates currently available to the Partnership for mortgage
loans with similar terms and average maturities, the fair value of long-term
debt approximates carrying value.
6. Transactions with Related Parties
The following is a summary of fees earned and reimbursable expenses to the
General Partners and affiliates for the years ended December 31, 1996, 1995 and
1994, and the unpaid portion at December 31, 1996:
Unpaid at
December 31, Earned
1996 1996 1995 1994
RI 81 Real Estate
Services, Inc. and
affiliates:
Out-of-pocket expenses $ -- $ 3,968 $ 2,244 $ 1,132
ConAm and affiliates:
Property operating
salaries -- 296,558 394,663 418,143
Property management
fees 13,045 181,291 217,706 234,723
Total $ 13,045 $481,817 $614,613 $653,998
7. Reconciliation of Financial Statement and Tax Information
The following is a reconciliation of the net income (loss) for financial
statement purposes to net income (loss) for federal income tax purposes for the
years ended December 31, 1996, 1995 and 1994:
1996 1995 1994
Net income (loss) per
financial statements $ 1,285,707 $ 1,141,669 $ (252,627)
Tax basis joint venture net
loss in excess of GAAP basis
joint venture net income (loss) (74,666) (443,083) (253,640)
Gain on sale of property for tax
purposes in excess of gain per
financial statements 1,357,592 2,755,883 --
Other (700) 1,000 1,050
Taxable net income (loss) $ 2,567,933 $ 3,455,469 $ (505,217)
The following is a reconciliation of partners' capital for financial statement
purposes to partners' capital (deficit) for federal income tax purposes as of
December 31, 1996, 1995 and 1994:
1996 1995 1994
Partners' capital per
financial statements $ 2,860,363 $ 3,575,400 $ 6,352,183
Accrued distribution from sale
of property 1,304,833 -- --
Adjustment for cumulative difference
between tax basis loss and
net income (loss) per
financial statements (2,994,721) (4,276,947) (6,590,747)
Partners' capital (deficit) per
tax return $ 1,170,475 $ (701,547) $ (238,564)
8. Distributions Paid
Cash distributions, per the consolidated statements of partners' capital
(deficit), are recorded on the accrual basis, which recognizes specific record
dates for payments within each calendar year. The consolidated statements of
cash flows recognize actual cash distributions paid during the calendar year.
The following table discloses the annual differences as presented on the
consolidated financial statements:
Distributions Distributions
Payable Distributions Distributions Payable
Beginning of Year Declared Paid December 31
1996 $173,978 $2,000,744 $ 695,911 $1,478,811
1995 173,978 3,918,452 3,918,452 173,978
1994 173,978 695,911 695,911 173,978
Report of Independent Accountants
To the Partners of
Hutton/ConAm Realty Investors 81:
We have audited the consolidated balance sheets of Hutton/ConAm Realty
Investors 81, a California limited partnership, and Consolidated Ventures as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, partners' capital (deficit) and cash flows for each of the three
years in the period ended December 31, 1996. These consolidated financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Hutton/ConAm Realty Investors 81, a California limited partnership, and
Consolidated Ventures as of December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 14, 1997
Net Asset Valuation
Comparison of Acquisition Costs to Appraised Value and
Determination of Net Asset Value Per $262 Unit
at December 31, 1996 (Unaudited)
Acquisition Cost
(Purchase Price Partnership's
Plus General Share of
Partners' December 31,
Acquisition 1996 Appraised
Property Date of Acquisition Fees) Value (1)
Las Colinas I & II 5/20/81 & 9/23/82 $ 13,326,613 $ 14,100,000
Tierra Catalina 3/9/84 7,759,670 6,000,000
$ 21,086,283 20,100,000
Cash and cash equivalents 3,092,521
Other assets 14,292
23,206,813
Less:
Total liabilities (10,379,331)
Partnership Net Asset Value (2) $ 12,827,482
Net Asset Value Allocated:
Limited Partners $ 12,458,860
General Partners 368,622
$ 12,827,482
Net Asset Value Per Unit
(78,290 units outstanding) $ 159.14
(1) This represents the Partnership's share of the December 31, 1996 Appraised
Values which were determined by an independent property appraisal firm.
(2) The Net Asset Value assumes a hypothetical sale at December 31, 1996 of
all the Partnership's properties at a price based upon their value as a
rental property as determined by an independent property appraisal firm,
and the distribution of the proceeds of such sale, combined with the
Partnership's cash after liquidation of the Partnership's liabilities, to
the Partners.
Limited Partners should note that appraisals are only estimates of current
value and actual values realizable upon sale may be significantly different. A
significant factor in establishing an appraised value is the actual selling
price for properties which the appraiser believes are comparable. In addition,
the appraised value does not reflect the actual costs which would be incurred
in selling the properties. As a result of these factors and the illiquid
nature of an investment in Units of the Partnership, the variation between the
appraised value of the Partnership's properties and the price at which Units of
the Partnership could be sold may be significant. Fiduciaries of Limited
Partners which are subject to ERISA or other provisions of law requiring
valuations of Units should consider all relevant factors, including, but not
limited to Net Asset Value per Unit, in determining the fair market value of
the investment in the Partnership for such purposes.
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1996
Residential Property: Las Colinas Las Colinas
Consolidated Ventures: Apts I Apts II Tierra Catalina Total
Location Scottsdale, AZ Scottsdale, AZ Tucson, AZ na
Construction date 1981 1982 1983, 1984 na
Acquisition date 05-20-81 09-23-82 03-09-84 na
Life on which depreciation
in latest income statements
is computed (3) (3) (3) na
Encumbrances $ 6,325,637 $ -- $ 3,617,399 $ 9,943,036
Initial cost to
Partnership:
Land $ 1,582,000 $ 514,564 $ 1,497,150 $ 3,593,714
Buildings and
improvements $ 8,268,721 $3,268,996 $ 6,403,622 $17,941,339
Costs capitalized
subsequent to acquisition:
Land, buildings
and improvements $ 29,123 $ 8,494 $ 32,772 $ 70,389
Gross amount at which
carried at close of period: (1)
Land $ 1,611,123 $ 515,719 $ 1,503,333 $ 3,630,175
Buildings and
improvements 8,268,721 3,276,335 6,430,211 17,975,267
$ 9,879,844 $3,792,054 $ 7,933,544 $21,605,442
Accumulated
depreciation (2) $ 5,126,566 $1,878,005 $ 3,298,811 $10,303,382
(1) Represents aggregate cost for both financial reporting and Federal income
tax purposes.
(2) The amount of accumulated depreciation for Federal income tax purposes is
$17,151,014.
(3) Buildings and improvements - 25 years; personal property - 10 years.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1996, 1995, and 1994 follows:
1996 1995 1994
Real estate investments:
Beginning of year $ 25,243,577 $ 33,729,297 $ 33,729,297
Dispositions (3,638,135) (8,485,720) --
End of year $ 21,605,442 $ 25,243,577 $ 33,729,297
Accumulated depreciation:
Beginning of year $ 11,370,295 $ 13,875,550 $ 12,735,626
Depreciation expense 818,734 1,011,400 1,139,924
Dispositions (1,885,647) (3,516,655) --
End of year $ 10,303,382 $ 11,370,295 $ 13,875,550
Report of Independent Accountants
Our report on the consolidated financial statements of Hutton/ConAm Realty
Investors 81, a California Limited Partnership, and Consolidated Ventures has
been incorporated by reference in this Form 10-K from the Annual Report to
unitholders of Hutton/ConAm Realty Investors 81 for the year ended December 31,
1996. In connection with our audits of such financial statements, we have also
audited the related financial statement schedule listed in the index of this
Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 14, 1997
</TEXT
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,092,521
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<RECEIVABLES> 000
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<OTHER-SE> 2,860,363
<TOTAL-LIABILITY-AND-EQUITY> 14,544,527
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