UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: November 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number: 0-13330
HUTTON/CONAM REALTY PENSION INVESTORS
Exact name of Registrant as specified in its charter
New York 11-2673854
State or other jurisdiction I.R.S. Employer Identification No.
of incorporation
Attention: Andre Anderson 10285
3 World Financial Center, 29th Floor, Zip Code
New York, New York
Address of principal executive offices
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 Registrant dated June 24, 1983 (included in
Amendment No. 3 to Registration Statement No. 2-79116 of Registrant filed
June 21, 1983) are incorporated herein by reference to Part III of this
report.
Portions of Parts I, II, III and IV are incorporated by reference to the
Partnership's Annual Report to Unitholders for the fiscal year ended
November 30, 1996.
PART I
Item 1. Business
(a) General Development of Business
Hutton/ConAm Realty Pension Investors (the "Registrant" or the "Partnership")
is a New York limited partnership organized pursuant to a Certificate and
Agreement of Limited Partnership dated January 23, 1984, as amended on January
26, 1984, of which RPI Real Estate Services, Inc. ("RPI Services," formerly
Hutton Real Estate Services VI, Inc.), a Delaware corporation, and ConAm
Property Services III, Ltd., a California limited partnership ("ConAm
Services"), are the general partners (together, the "General Partners").
Commencing June 24, 1983, the Registrant began offering through E. F. Hutton &
Company Inc., an affiliate of the Registrant, up to a maximum of 100,000 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. 2-79116, which Registration Statement was declared effective on June 24,
1983. The offering of Units was terminated on May 31, 1984. Upon termination
of the offering, the Registrant had accepted subscriptions for 96,490 Units for
an aggregate of $48,245,000.
(b) Narrative Description of Business
The Registrant is engaged in the business of owning and operating multifamily
residential real estate properties. In addition, the Registrant is engaged in
the business of investing in multifamily residential rental properties by
making equity participating loans secured by first mortgages or deeds of trust
on such properties. Of the Registrant's gross offering proceeds, uninvested
funds totaling $5,210,460 and $7,429,730 were returned in 1985 and 1986,
respectively, resulting in net offering proceeds of $35,604,810. The
Registrant invested all of the proceeds available in five equity participating
mortgage loans, one of which was repaid in December 1987. As of November 30,
1996, the Registrant held the following interests:
(1) On September 28, 1984, the Registrant funded an equity participating loan
in the amount of $4,475,250 to Southridge Partners I, L.P. ("Southridge"), a
privately offered New York limited partnership affiliated with the
Registrant, in connection with the purchase by Southridge of Oaktree Village
("Oaktree"), a 160-unit apartment complex located in Jacksonville, Florida.
One of the corporate general partners of each of the Registrant and
Southridge are affiliates of Lehman Brothers Inc. ("Lehman"). (See Item 10,
"Certain Matters Involving Affiliates of RPI Services"). On January 16,
1997, the Partnership delivered a notice of default to Southridge with
respect to the loan secured by Oaktree. (See Item 7 for more information on
the defaulted loan).
(2) On October 30, 1984, the Registrant funded an equity participating loan in
the amount of $5,850,000 to Southridge, in connection with the purchase by
Southridge of Chaparosa Apartments ("Chaparosa"), 170-unit apartment complex
located in Irving, Texas. On January 31, 1992, the Registrant obtained legal
title to Chaparosa through a deed in lieu of foreclosure. As a result,
Chaparosa is now recorded as a real estate investment rather than a mortgage
loan investment on the Registrant's balance sheet. In September 1996, the
Partnership signed a contract to sell Chaparosa, however, in November 1996,
the prospective buyer executed its right to terminate the purchase agreement
during the due diligence period. Subsequently, the Partnership signed a
contract dated January 24, 1997, to sell the property to another
institutional investor. This transaction is subject to the buyer's customary
due diligence review. Reference is made to Item 7 for additional information
regarding the contract.
(3) On December 21, 1984, the Registrant funded an equity participating loan in
the amount of $5,200,650 to Southridge, in connection with the purchase by
Southridge of Park View Village ("Park View"), a 184-unit apartment complex
located in Winter Park (a suburb of Orlando), Florida. On January 16, 1997,
the Partnership delivered a notice of default to Southridge with respect to
the loan secured by the Park View. (See Item 7 for more information on the
defaulted loan).
(4) On November 20, 1985, the Registrant funded an equity participating loan in
the amount of $5,900,000 to Bryn Athyn Investors, Ltd., a Texas limited
partnership unaffiliated with the Registrant, in connection with its purchase
of Bryn Athyn Apartments ("Bryn Athyn"), a 172-unit apartment complex located
in Raleigh, North Carolina. In July 1989, the Registrant obtained ownership
of the property through a foreclosure sale. As a result, Bryn Athyn is now
recorded as a real estate investment rather than a mortgage loan investment
on the Registrant's balance sheet.
The terms of the loans secured by Oaktree and Park View were modified during
1993. For information pertaining to the terms of the modifications and the
mortgage loans secured by the Southridge properties see Note 4 to the Financial
Statements incorporated herein by reference to the Partnership's Annual Report
to Unitholders for the fiscal year ended November 30, 1996, which is filed as
an exhibit under Item 14.
Approximately 3% of the gross proceeds of the offering were initially reserved
and have been maintained as working capital to meet costs and expenses of the
Registrant's operations, including ongoing administrative expenses. The
General Partners believe such reserves to be reasonable, although working
capital reserves may be increased or decreased from time to time in order to
meet anticipated costs and expenses and potential losses. The General Partners
may also at their discretion set aside a reserve for the purpose of augmenting
future distributions of cash. To the extent that funds held as a working
capital reserve have not been expended, the Registrant has invested such funds
in bank certificates of deposit, unaffiliated money market funds or other
highly liquid short-term investments where there is appropriate safety of
principal in accordance with the Registrant's investment objectives and
policies.
The Registrant's principal investment objectives with respect to its interests
in real property are:
(1) To participate in the capital appreciation of the various properties in
which it invests;
(2) To provide quarterly cash distributions;
(3) To preserve and protect the capital appreciation of the properties in
which it invests; and
(4) To provide increased cash distributions as the cash flow from the
properties increases.
Distributions of income is the Registrant's objective during its operational
phase, while preservation and appreciation of capital continues to be the
Registrant's longer term objectives. Future economic conditions in the United
States as a whole and, in particular, in the localities in which the
Registrant's investment properties are located, will be important factors to
attaining the Registrant's investment objectives, especially with regard to
achievement of capital appreciation.
The Registrant did not incur indebtedness in connection with the making of the
loans. The loans were funded entirely out of proceeds of the offering of
Units. However, the Registrant is not prohibited from incurring indebtedness
for working capital purposes. In addition, in the event that the Registrant
becomes the owner of a property through the foreclosure of a loan, the
Registrant may subject such property to mortgage indebtedness in an amount not
to exceed 80% of the then appraised value of the property. At November 30,
1996, the Partnership had no mortgage indebtedness against Bryn Athyn or
Chaparosa.
Competition
The Registrant's real property investments and the properties securing the
Registrant's outstanding mortgage loans are subject to competition from similar
types of properties in the vicinities in which they are located and such
competition has increased since the Partnership's inception due principally to
the addition of the newly constructed apartment complexes offering increased
residential and recreational amenities. The investment 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, developers and financiers in the rental
and leasing of its properties and the properties securing its outstanding
mortgage loans by offering competitive rental rates and, if necessary, leasing
incentives. In some cases, the Registrant may compete with other properties
owned by partnerships affiliated with either General Partner of the Registrant.
For information with respect to market conditions in each of the areas where
the Partnership's properties are located, please refer to Item 2 below.
Employees
The Registrant has no employees. Services are provided by RPI 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. ConAm Management provides
property management services with respect to the properties subject to the
Southridge loans pursuant to agreements with Southridge, as the property owner.
In addition, the Registrant has entered into a management agreement with ConAm
Management pursuant to which ConAm Management provides property management
services with respect to the Bryn Athyn and Chaparosa 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 of this report and Note 6 to
the Financial Statements on the Partnership's Annual Report to Unitholders for
the fiscal year ended November 30, 1996, which is filed as an exhibit under
Item 14, 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 Registrant's wholly-owned properties and those
which secure its two remaining mortgage loans, and a discussion of current
market conditions in each of the areas where the properties are located. For
information on the acquisition of the properties and terms of the mortgage
loans, reference is made to Note 4 to the Financial Statements on the
Partnership's Annual Report to Unitholders for the fiscal year ended November
30, 1996, which is filed as an exhibit under Item 14. Appraised values of the
Partnership's real estate investments are incorporated by reference to the
Partnership's Annual Report in Unitholders. Average occupancy rates at each
property are incorporated by reference to Item 7.
Bryn Athyn Apartments - Raleigh, North Carolina
This 172-unit apartment community is situated north of downtown Raleigh in a
suburban location composed primarily of townhouses and single family homes.
Conditions in the Raleigh apartment market remain strong, characterized by low
vacancy rates and increasing rental rates. As of the third quarter of 1996,
occupancy in Wake County, where Bryn Athyn is located, stood at approximately
96%, with rental rates increasing approximately 7.5% over the past year.
Occupancy in Bryn Athyn's submarket was approximately 96.5% as of September
1996 with rental rates increasing approximately 4.2% from the year earlier. The
strong market conditions have spurred new construction and, as of September
1996, three new projects were under construction in Bryn Athyn's submarket
containing a total of 784 units. Given the area's strong economy and healthy
absorption, it is not expected that the new construction will have a materially
adverse impact on the apartment market.
Chaparosa Apartments - Irving, Texas
Situated approximately 15 miles northwest of Dallas, this 170-unit apartment
complex is located in Las Colinas, a 12,220 acre master-planned community in
the city of Irving. Following a period of overbuilding during the 1980s,
limited new construction and sustained population growth have fueled a healthy
multifamily housing market in this area in recent years. The Las Colinas
submarket reported average occupancy of 95% as of the second quarter of 1996,
compared with 96% in third quarter of 1995. While average rental rates in the
overall Dallas market increased 5% from the second quarter of 1995 to the
second quarter of 1996, the Las Colinas submarket reported a 1% decrease during
the same period. Although approximately 1,020 units have been approved for
construction in the Las Colinas submarket, a two-year building moratorium
instituted in the market during 1995 remains in effect. Nonetheless,
competition for tenants remains strong as there are a number of competing
properties within Chaparosa's submarket.
Oaktree Village - Jacksonville, Florida
This 160-unit apartment complex is situated in southeast Jacksonville,
approximately 8 miles from the central business district, in the
Baymeadows/Deerwood community. The Southeast submarket, where Oaktree Village
is located, has experienced notable population growth and limited new
construction in recent years, resulting in strong occupancy for area apartment
complexes. A local survey of the Southeast submarket reported an average
apartment occupancy rate of 95.4% as of the second quarter of 1996. The use of
rental concessions in the market is minimal. Given the strong market
conditions, several apartment projects are in the planning or construction
phase. During 1995, 953 new units were permitted for construction with an
additional 1,597 units permitted through the second quarter of 1996. Despite
the rise in new units which could be added to the market, strong absorption in
the submarket due to the area's increasing popularity is expected to ameliorate
the adverse effects the new construction could have on the market.
Park View Village - Winter Park, Florida
This 184-unit apartment complex is located in metropolitan Orlando,
approximately 10 miles northeast of the central business district. The North
Orlando/Winter Park/Maitland submarket, where the property is located,
experienced average occupancy of approximately 92.8% as of September 1996,
slightly below levels seen in Metro Orlando. New construction in the submarket
continues at a healthy pace, with a net of 412 units added between September
1995 and September 1996, but population growth has kept pace with the new units
coming on line. Over the past five years, the submarket has shown moderate
growth and the average rent per square foot also has increased moderately.
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 fiscal year ended November 30, 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 Partnership's Limited Partnership Interests and
Related Security Holder Matters
As of November 30, 1996, the number of Unitholders of record was 5,517.
No established public trading market has developed for the Units, and it is
not anticipated that such a market will develop in the future.
Distributions of adjusted cash from operations are determined by the General
Partners on a quarterly basis, with distributions occurring approximately 45
days after the close of each fiscal quarter. The Partnership has paid
quarterly cash distributions since the initial closing of the offering in
February 1984. Information on cash distributions paid by the Partnership for
the past two fiscal years is incorporated by reference to the Partnership's
Annual Report to Unitholders for the fiscal year ended November 30, 1996, which
is filed as an exhibit under Item 14. 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 November 30, 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 November 30, 1996, the Partnership had cash and cash equivalents of
$1,818,059 that were invested in unaffiliated money market funds, compared with
$1,979,963 at November 30, 1995. The decrease reflects cash distributions to
Partners and additions to real estate exceeding cash provided by operating
activities during fiscal 1996.
The Partnership had signed a contract to sell Chaparosa Apartments, but on
November 11, 1996 the prospective buyer, after evaluating the results of its
due diligence, opted to exercise its right to terminate the purchase agreement.
Subsequently, the Partnership signed a contract dated January 24, 1997 to sell
the property to another unaffiliated institutional investor. The anticipated
sales price is approximately $6,011,200 and the transaction is subject to the
completion of a due diligence review by the buyer. While the General Partners
believe that the sale will be completed, as is customary, the buyer has several
opportunities to cancel the transaction during this due diligence period.
Furthermore, the sales price could be adjusted during the due diligence
process. Should the sale close, the General Partners intend to make a special
cash distribution from the net proceeds to the limited partners shortly
thereafter. As a result of the anticipated sale, Chaparosa Apartments was
reclassified on the consolidated balance sheet as of November 30, 1996 as
property held for disposition at its net book value.
The General Partners declared a cash distribution of $5.00 per Unit for the
quarter ended November 30, 1996 which was paid to investors on January 15,
1997. The level of future distributions will be evaluated on a quarterly basis
and will depend on the Partnership's operating results and future cash needs.
Given the anticipated sale of Chaparosa Apartments and the corresponding
reduction in the Partnership's cash flow, the General Partners expect that the
level of cash distributions will be reduced in the future.
Throughout 1996, the General Partners initiated improvement work and routine
repairs at Chaparosa Apartments and Bryn Athyn Apartments to upgrade the
properties and to prepare vacant apartments for reoccupancy. These repairs
included exterior painting and carpet replacement at Bryn Athyn. The General
Partners will evaluate the need for additional improvement work at the
properties on an ongoing basis.
On January 22, 1997, the Partnership delivered notice of defaults to Southridge
with respect to the two mortgage loans (the "Loans") secured by Park View and
Oaktree, respectively. The Partnership indicated that the Loans are in default
due to, without limitation, the failure of Southridge to make the payment of
minimum interest due on January 1, 1997 and due to its failure to make the
required monthly deferred minimum interest payments during 1996 and the
required contingent interest payments for the first three quarters of 1996
(collectively the "Current Amounts Due") as required by each of the loan
documents. Additionally, the Partnership indicated that the Loans are in
default due to Southridge's failure to adequately maintain, preserve and
protect the condition of Park View and Oaktree. Discussions with the
borrower continue regarding possible modifications of the Loans' terms. The
Partnership has demanded payment of the Current Amounts Due from Southridge
with respect to each of the Loans.
On February 21, 1997, the Partnership executed a Letter of Intent with
Southridge, whereby, Southridge's default on the Loans would be resolved. The
Letter of Intent includes the following provisions: (I) Oaktree will be
deeded over to the Partnership by Southridge; and (II) the Park View mortgage
will be modified to reflect additional terms and conditions, including but not
limited to, an extension of the maturity date, the deferral of debt service
until a Capital Improvement Reserve Account is fully funded, and a discount
payoff option during the term of the extension issued, whereby Southridge could
pay off the aggregate $5.2 million unpaid balance of the first mortgage and
accrued interest for $5,650,000 (the "Discount Payoff Amount"). The
Partnership has engaged an unaffiliated third party advisory firm to provide
the Partnership with a fairness opinion. There can be no assurance that the
provisions set forth in the Letter of Intent will ultimately be executed.
Given the improvement in the performance of multifamily real estate, 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 its properties in an orderly
manner over 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 the properties can be
sold, that particular prices will be achieved, or that all the properties can
be sold within this time frame.
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
in 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 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 November 30, 1996 generated net
income of $1,697,893 compared with net income of $1,188,552 for fiscal 1995.
The increase is primarily due to an increase in rental income, and a $550,000
recovery of valuation allowance in 1996 , partially offset by an increase in
the provision for losses on the Partnership's mortgage loan investments.
Rental income totaled $2,573,226 for the year ended November 30, 1996 compared
with $2,431,302 for fiscal 1995. This increase is attributable to higher
rental rates at both of the Partnership's wholly-owned properties and increased
occupancy at Bryn Athyn. Mortgage interest income during fiscal 1996 was
unchanged from fiscal 1995. The Partnership recognized a recovery of valuation
allowance of $550,000 on the Oaktree loan during 1996. This was attributable
to an increase in the fair market value of Oaktree, as determined by an
independent appraisal conducted in November 1996. Interest and other income
totaled $85,423 for the fiscal year ended November 30, 1996 compared to
$100,829 in fiscal 1995. The decrease is the result of a reduction in interest
rates and the Partnership maintaining lower cash balances in 1996 compared to
1995.
Total expenses for the year ended November 30, 1996 were $2,353,732 compared
with $2,186,555 for fiscal 1995. The provision for losses for the year ended
November 30, 1996 was $450,000 compared with $300,000 for the year ended
November 30, 1995. While the fair market value of Park View increased during
1996, as determined by an independent appraiser, the Partnership recorded a
$450,000 loss provision for the year ended December 31, 1996 to reflect the
carrying value of the Park View loan at the Discount Payoff Amount. The
provision for loss in 1995 relates to Park View loan.
Property operating expenses increased slightly to $1,388,362 for the year ended
November 30, 1996 compared with $1,375,079 for fiscal 1995. The increase is
attributable to higher repairs and maintenance expenses at Bryn Athyn,
partially offset by a decline in repairs and maintenance expenses and real
estate taxes at Chaparosa. General and administrative expenses increased from
$140,805 for the year ended November 30, 1995 to $160,625 for fiscal 1996. The
increase is primarily due to higher audit fees, engineering consulting fees,
and partnership administrative expenses in the 1996 period, partially offset by
lower legal fees.
1995 versus 1994
Partnership operations for the year ended November 30, 1995 generated net
income of $1,188,552 compared with net income of $452,116 for fiscal 1994. The
increase is primarily attributable to a reduction in provision for losses,
discussed below.
Rental income totaled $2,431,302 for the year ended November 30, 1995 compared
with $2,294,509 for fiscal 1994. This increase is mainly attributable to
higher rental rates at both of the Partnership's wholly-owned properties.
Mortgage interest income during fiscal 1995 was unchanged from fiscal 1994.
Interest and other income totaled $100,829 for the fiscal year ended November
30, 1995 compared to $66,385 in fiscal 1994. The increase is the result of the
Partnership earning higher interest rates on its invested cash in 1995 compared
to 1994.
Total expenses for the year ended November 30, 1995 were $2,186,555 compared
with $2,777,424 for fiscal 1994. The provision for losses was $300,000 for the
year ended November 30, 1995 compared with $937,593 for the year ended November
30, 1994. The provision for losses relates to the difference between the
carrying amount of the Partnership's loans, including deferred interest
receivable, and the fair market value of the properties, as determined by an
independent appraisal conducted in November 1995 and 1994.
Property operating expenses totaled $1,375,079 for the year ended November 30,
1995 compared with $1,314,991 for fiscal 1994. The increase is primarily due
to the expenses incurred at the Bryn Athyn property for additional plumbing
expenses as a result of the leaking plastic water pipes. These costs were
largely recovered through a settlement with the Plumbing Claims Group. See
Note 4 to the Financial Statements for additional information regarding the
settlement The increase can also be attributed to higher rental administration
expenses at Bryn Athyn and increased real estate taxes at Chaparosa due to a
higher assessment. Partially offsetting these increases was a reduction in
repairs and maintenance expenses at Chaparosa. In 1994, the Partnership
incurred higher expenses to repair breaks in Chaparosa's sewer lines.
For the years ended November 30, 1996, 1995 and 1994, average occupancy levels
at the Partnership's two properties and at the properties securing the
Partnership's equity participating loans were as follows:
Real Estate Investments 1996 1995 1994
- -------------------------------------------------------------
Bryn Athyn Apartments 97% 96% 97%
Chaparosa Apartments 97% 97% 95%
- -------------------------------------------------------------
Mortgage Loan Investments:
- -------------------------------------------------------------
Oaktree Village 96% 96% 95%
Park View Village 97% 95% 95%
- -------------------------------------------------------------
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the fiscal year ended November 30, 1996, which is filed as an exhibit under
Item 14. Supplementary Data is incorporated by reference to pages F- 1 to F-3
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. RPI 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.
RPI Services (formerly Hutton Real Estate Services VI, Inc.) is a Delaware
Corporation formed on August 2, 1982, and is an affiliate of Lehman Brothers,
Inc. ("Lehman"). See the section captioned "Certain Matters Involving
Affiliates of RPI Services" for a description of Hutton'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 resulted
in a change in the general partner's name.
Certain officers and directors of RPI 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 RPI Services who perform policy making functions for the
Partnership are set forth below. There are no family relationships between any
executive officers or directors.
Name Office
Paul L. Abbott Director, President, Chief
Executive Officer and Chief
Financial Officer
Donald E. Petrow Vice President
Dave Sclafani Vice President
Paul L. Abbott, 51, is a Managing Director of Lehman. Mr. Abbott joined Lehman
in August 1988, and is responsible for investment management of residential,
commercial and retail real estate. Prior to joining Lehman, 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 August 30,
1982. 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 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 is the Chief Financial
Officer of ConAm Management since 1988. His responsibilities include the
accounting, treasury and data processing functions of the organization. Prior
to joining ConAm Management in 1988, he was the Chief Financial Officer for
AmeriStar Financial Corporation, a nationwide mortgage banking firm. Mr.
Svatos holds an M.B.A. in Finance from the University of San Diego and a
Bachelor's of Science degree in Accounting from the University of Illinois. He
is a Certified Public Accountant.
Ralph W. Tilley, 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 RPI Services
On July 31, 1993, Shearson sold certain of its domestic retail brokerage and
asset management businesses to Smith Barney. 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 VI, Inc. general partner changed its name to "RPI 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 below with
respect to a description of certain costs of the General Partners and their
affiliates reimbursed by the Registrant.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of November 30, 1996, no person was known by the Registrant to be the
beneficial owner of more than five percent of the Units of the Registrant.
Neither of the General Partners nor any of their directors or executive
officers owns any Units.
Item 13. Certain Relationships and Related Transactions
RPI Services and ConAm Services each received $50,784 as its allocable share of
Net Cash from Operations with respect to the fiscal year ended November 30,
1996, pursuant to the Certificate and Agreement of Limited Partnership of
Registrant. Pursuant to the Certificate and Agreement of Limited Partnership
of Registrant, for the fiscal year ended November 30, 1996, $98,234 of the
Registrant's income was allocated to the General Partners ($49,117 to RPI
Services and $49,117 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 76
through 78 of the Prospectus of the Registrant dated June 24, 1983 (the
"Prospectus"), contained in Amendment No. 3 to Registrant's Registration
Statement No. 2-79116, 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 Bryn Athyn Apartments and Chaparosa
Apartments. The services include the supervision of leasing, rent collection,
maintenance, budgeting, employment of personnel, payment of operating expenses,
etc. For such services, ConAm Management is entitled to receive a property
management fee as described on page 33 of the Prospectus under the caption,
"Investment Objectives and Policies - Management of Properties," which
description is herein incorporated by reference. A summary of property
management fees earned by ConAm Management during the past three fiscal years
is incorporated herein by reference to Note 6 to the Financial Statements
included in the Partnership's Annual Report to Unitholders for the fiscal year
ended November 30, 1996, which is filed as an exhibit under Item 14.
Southridge, the owner of Oaktree and Park View 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 Southridge
properties subject to the Southridge loans and, prior to January 31, 1992, the
Chaparosa loan. For such services, during the twelve months ended November 30,
1996, ConAm Management earned property management fees aggregating $110,573
from Southridge.
Pursuant to Section 11(g) of Registrant's Certificate and Agreement of Limited
Partnership, the General Partners and affiliates may be reimbursed by the
Registrant for certain of their costs as described on page 14 of the
Prospectus, which description is incorporated herein by reference thereto.
First Data Investor Services Group provides partnership accounting and investor
relations services for the Registrant. 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 fiscal years is incorporated by
reference to Note 6 to the Financial Statements included in the Partnership's
Annual Report to Unitholders for the fiscal year ended November 30, 1996, which
is filed as an exhibit under Item 14.
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a)(1) Financial Statements: Page
------
Balance Sheets - November 30, 1996 and 1995 (1)
Statements of Operations - For the years ended
November 30, 1996, 1995 and 1994 (1)
Statements of Partners' Capital - For the years ended
November 30, 1996, 1995 and 1994 (1)
Statements of Cash Flows - For the years ended
November 30, 1996, 1995 and 1994 (1)
Notes to the Financial Statements (1)
Report of Independent Accountants (1)
(a)(2) Financial Statement Schedules:
Schedule III - Real Estate and Accumulated Depreciation F-1
Schedule IV - Mortgage Loans on Real Estate F-2
Report of Independent Accountants F-3
(1) Incorporated by reference to the Partnership's Annual Report to
Unitholders for the fiscal year ended November 30, 1996, filed as an
exhibit under Item 14.
(a)(3) Exhibits
(4)(A) Certificate and Agreement of Limited Partnership (included as, and
incorporated herein by reference to Exhibit A to the Prospectus of
Registrant dated June 24, 1983, contained in Amendment No. 3 to
Registration Statement No. 2-79116 of Registrant filed June 21, 1983).
(B) Subscription Agreement and Signature Page (included as, and
incorporated herein by reference to, Exhibit 3.1 to Amendment No. 2
to Registration Statement No. 2-79116 of Registrant filed
June 13, 1983).
(10)(A) Loan Documents (Loan Commitment; Promissory Note; and Mortgage,
Assignment of Rents and Security Agreement) relating to Oaktree
Village, between the Registrant and Southridge Partners I, and the
exhibits thereto (included as, and incorporated herein by reference
to, Exhibit (10)(A) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended November 30, 1984 (the "1984 Annual Report")).
(B) Loan Documents (Loan Commitment; Promissory Note; and Deed of Trust,
Assignment of Rents and Security Agreement) relating to Chaparosa
Apartments, between the Registrant and Southridge Partners I, and the
exhibits thereto (included as, and incorporated herein by reference
to, Exhibit (10)(B) to the 1984 Annual Report).
(C) Loan Documents (Loan Commitment; Promissory Note; and Mortgage,
Assignment of Rents and Security Agreement) relating to Park View
Village (formerly Park View Estates), between the Registrant and
Southridge Partners I, and the exhibits thereto (included as, and
incorporated herein by reference to, Exhibit(10)(C) to the 1984 Annual
Report).
(D) Conveyance Documents relating to Chaparosa Apartments dated January
31, 1992 (included as, and incorporated herein by reference to,
Exhibit (10)(F) to the Registrant's Annual Report on Form 10-K filed
on February 27, 1992 for the fiscal year ended November 30, 1991).
(E) Property Management Agreement between Hutton/ConAm Realty Pension
Investors and Con Am Management Corporation for the Bryn Athyn
property (included as, and incorporated herein by reference to,
Exhibit 10-E to the Registrant's 1993 Annual Report on Form 10-K filed
on February 28, 1994).
(F) Property Management Agreement between Hutton/ConAm Realty Pension
Investors and Con Am Management Corporation for the Chaparosa property
(included as, and incorporated herein by reference, to Exhibit 10-F to
the Registrant's 1993 Annual Report on Form 10-K filed on February 28,
1994).
(G) Note and Modification Agreement between Southridge Partners I and
Hutton/ConAm Realty Pension Investors dated November 23, 1993 for Park
View Village (included as, and incorporated herein by reference to,
Exhibit 10-G to the Registrant's 1993 Annual Report on Form 10-K filed
on February 28, 1994).
(H) Note and Modification Agreement between Southridge Partners I and
Hutton/ConAm Realty Pension Investors dated November 23, 1993 for
Oaktree Village (included as, and incorporated herein by reference to,
Exhibit 10-H to the Registrant's 1993 Annual Report on Form 10-K filed
on February 28, 1994).
(13) Annual Report to Unitholders for the fiscal year ended November 30,
1996.
(27) Financial Data Schedule
(99) Portions of the Prospectus of the Registrant dated June 24, 1983
(included as, and incorporated herein by reference to, Exhibit 28 to
the Registrant's 1987 Annual Report on Form 10-K for the fiscal year
ended November 30, 1987).
(b) Reports on Form 8-K
On November 26, 1996 the Partnership filed a Form 8-K regarding the
prospective buyer's execution of its right to terminate the purchase
agreement for Chaparosa Apartments.
On February 5, 1997 the Partnership filed a Form 8-K regarding
the delivery of notice of defaults with respect to the two mortgage
loans secured by Park View and Oaktree.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: February 28, 1997
HUTTON/CONAM REALTY PENSION INVESTORS
BY: RPI Real Estate Services, 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 III, 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.
RPI REAL ESTATE SERVICES, INC.
A General Partner
Date: February 28, 1997
BY: /S/ Paul L. Abbott
Paul L. Abbott
Director, President,
Chief Executive Officer
and Chief Financial Officer
Date: February 28, 1997
BY: /S/ Donald E. Petrow
Donald E. Petrow
Vice President
Date: February 28, 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 III, LTD.
A General Partner
By: Continental American Development, Inc.
General Partner
Date: February 28, 1997
BY: /S/ Daniel J. Epstein
Daniel J. Epstein
Director, President and
Principal Executive Officer
Date: February 28, 1997
BY: /S/ E. Scott Dupree
E. Scott Dupree
Vice President/Director
Date: February 28, 1997
BY: /S/ Robert J. Svatos
Robert J. Svatos
Vice President/Director
Date: February 28, 1997
BY: /S/ Ralph W, Tilley
Ralph W. Tilley
Vice President
Date: February 28, 1997
BY: /S/ J. Bradley Forrester
J. Bradley Forrester
Vice President
Hutton/ConAm Realty Pension Investors
1996 Annual Report
Exhibit 13
Hutton/ConAm Realty Pension Investors
Hutton/ConAm Realty Pension Investors is a New York
limited partnership formed in 1984 to finance
investments for certain types of residential real
estate by making equity participating loans and equity
convertible loans. At November 30, 1996, the
Partnership's portfolio consisted of two mortgage loans
secured by two apartment properties, Park View Village
and Oaktree Village, and two apartment complexes, Bryn
Athyn Apartments and Chaparosa Apartments, which were
acquired by the Partnership on July 4, 1989 and January
31, 1992, respectively. Provided below is a comparison
of average occupancy levels for the years ended
November 30, 1996 and 1995.
Average Occupancy
Property Location 1996 1995
-------------------------------------------------------------------------
Bryn Athyn Apartments Raleigh, North Carolina 97% 96%
Chaparosa Apartments Irving, Texas 97% 97%
Park View Village* Winter Park, FL 97% 95%
Oaktree Village* Jacksonville, FL 96% 96%
-------------------------------------------------------------------------
* The Partnership owns a mortgage interest in these properties.
Contents
1 Message to Investors
3 Financial Highlights
4 Financial Statements
7 Notes to the Financial Statements
14 Report of Independent Accountants
15 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
Pension Investors. In this report, we discuss general market conditions
affecting the Partnership's properties and provide information on the
Partnership's mortgage loan investments and future operating strategies. We
have also included financial highlights of the Partnership's operating results
for the year.
Cash Distributions
The Partnership paid cash distributions totaling $20 per Unit for the year
ended November 30, 1996, including the fourth quarter distribution of $5.00 per
Unit, which was credited to your brokerage account or sent directly to you on
January 15, 1997. Since inception, the Partnership has paid distributions
totaling $500.68 per original $500 Unit, including $206 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. Given the anticipated sale of Chaparosa Apartments, as
discussed below, and the corresponding decline in the Partnership's cash flow,
we expect that cash distributions will be reduced in the future to reflect cash
flow from the remaining investments.
Chaparosa Apartments
As previously reported, the Partnership had signed a contract to sell Chaparosa
Apartments, but the prospective buyer, after evaluating the results of its due
diligence, subsequently opted to exercise its right to terminate the purchase
agreement. We are pleased to report, however, that the Partnership has signed
a contract dated January 24, 1997 to sell the property to another unaffiliated
institutional investor. The anticipated sales price is approximately
$6,011,200 and the transaction is subject to the completion of a due diligence
review by the buyer. While the General Partners believe that the sale will be
completed, as is customary, the buyer has several opportunities to cancel the
transaction during this due diligence period. Furthermore, the sales price
could be adjusted during the due diligence process. Should the sale close, the
General Partners intend to make a special cash distribution from the net
proceeds to the limited partners shortly thereafter.
Bryn Athyn Apartments
Multi-family real estate continued to recover in 1996, with property values and
apartment rents increasing in many areas of the country. In particular, the
Raleigh market was one of the strongest multifamily housing markets in 1996. In
Bryn Athyn's submarket, occupancy averaged approximately 96.5% as of September
1996. The improving conditions prompted a rise in new construction, and the
addition of several new apartment properties to the market caused a slowdown in
leasing activity towards the end of the year. There are currently three new
apartment properties under construction in Bryn Athyn's submarket that will add
a total of 784 units to the area. Despite the increasing competition, Bryn
Athyn maintained an average occupancy level of 97% for the year and the
property's rental income increased by 5.4% from the previous year. It is
expected that the competitive market conditions will persist in 1997, but
further economic improvement and a slowdown in new construction should prevent
this area from becoming significantly overbuilt.
Mortgage Loan Investments
As discussed in previous reports, the Partnership had been in discussions with
the borrower of the two mortgage loans (the "Loans") secured by Oaktree Village
and Park View Village (the "Properties") regarding possible modifications of
the Loans. On February 21, 1997, the Partnership executed a Letter of Intent
with the borrower, whereby, the borrower's default on the Loans would be
resolved. The Letter of Intent includes provisions which would allow Oaktree
Village to be deeded over to the Partnership by the borrower and outlines
modifications to the Park View Village mortgage that would, among other things,
extend the maturity date, defer debt service payments until a capital
improvement reserve account is established for Park View Village and would
allow the borrower to payoff the aggregate $5.2 million unpaid balance of the
first mortgage and accrued interest for $5,650,000. The Partnership has
engaged an unaffiliated third party advisory firm to provide the Partnership
with a fairness opinion. There can be no assurance that the provisions set
forth in the Letter of Intent will ultimately be executed. We will update you
on the status of the defaulted Loans in future correspondence.
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 98% 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
We will continue our discussions with the borrower regarding the two defaulted
mortgage loans secured by Oaktree Village and Park View Village in an effort to
execute the terms proposed in the Letter of Intent. Additionally, we will
continue to monitor market conditions to determine an opportune time to sell
the Partnership's 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. There can be no assurance that all the
properties can be sold, that particular prices will be achieved, or that all
the properties can be sold within this time frame. In the interim, we will
also seek to maximize the performance of the properties and further 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
RPI Real Estate Services Inc. Continental American Development, Inc.
General Partner of ConAm Property
Services III, Ltd.
February 28, 1997
Financial Highlights
Selected Financial Data
For the periods ended November 30, 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
Dollars in thousands,
except for per unit data
Total Income $ 4,052 $ 3,375 $ 3,230 $ 3,272 $ 3,566
Net Income 1,698 1,189 452 1,157 1,458
Net Cash Provided by
Operating Activities 1,929 1,880 1,733 1,768 1,971
Total Assets at Year End 21,466 21,818 22,650 23,813 23,603
Net Income per
Limited Partnership Unit* 16.58 11.55 4.30 11.45 14.54
Distributions per
Limited Partnership Unit* 20.00 20.00 18.00 10.00 10.00
- -------------------------------------------------------------------------------
* 96,490 units outstanding
- - Total income increased from 1995 to 1996, primarily due to a $550,000
recovery of valuation allowance in 1996 related to the Oaktree Village
mortgage and to a lesser extent, higher rental income at the two
wholly-owned properties.
- - The increase in net income is primarily attributable to the recovery of
valuation allowance and the increase in rental income, partially offset by
an increase in the provision for losses in 1996.
- - The increase in net cash provided by operating activities is attributable to
the increase in rental income.
Cash Distributions
Per Limited Partnership Unit
1996 1995
- -----------------------------------------------------------------
First Quarter $ 5.00 $ 5.00
Second Quarter 5.00 5.00
Third Quarter 5.00 5.00
Fourth Quarter 5.00 5.00
------- -------
Total $ 20.00 $ 20.00
- -----------------------------------------------------------------
Balance Sheets At November 30, At November 30,
1996 1995
Assets
Investments in real estate:
Properties $5,844,128 $10,450,002
Less accumulated depreciation (1,567,164) (1,906,839)
Mortgage loan investments 9,675,900 9,675,900
13,952,864 18,219,063
Property held for disposition 3,971,304 _
Cash and cash equivalents 1,818,059 1,979,963
Interest receivable - deferred, net of
valuation allowance of $2,145,176 in 1996
and $2,245,176 in 1995 1,674,100 1,574,100
Other assets 49,827 45,360
Total Assets $21,466,154 $21,818,486
Liabilities and Partners' Capital
Liabilities:
Distribution payable $507,842 $507,842
Accounts payable and accrued expenses 263,985 269,537
Due to general partners and affiliates 11,094 10,443
Deferred income - loan modification fees 19,794 40,318
Security deposits 72,620 66,052
Total Liabilities 875,335 894,192
Partners' Capital:
General Partners 274,497 277,831
Limited Partners 20,316,322 20,646,463
Total Partners' Capital 20,590,819 20,924,294
Total Liabilities and Partners' Capital $21,466,154 $21,818,486
Statement of Partners' Capital
For the years ended November 30, 1996, 1995 and 1994
General Limited
Partners Partners Total
Balance at December 1, 1993 $359,470 $22,783,756 $23,143,226
Net Income 37,087 415,029 452,116
Cash distributions (91,412) (1,736,820) (1,828,232)
Balance at November 30, 1994 $305,145 $21,461,965 $21,767,110
Net Income 74,254 1,114,298 1,188,552
Cash distributions (101,568) (1,929,800) (2,031,368)
Balance at November 30, 1995 $277,831 $20,646,463 $20,924,294
Net Income 98,234 1,599,659 1,697,893
Cash distributions (101,568) (1,929,800) (2,031,368)
Balance at November 30, 1996 $274,497 $20,316,322 $20,590,819
Statements of Operations
For the years ended November 30, 1996 1995 1994
Income
Rental $2,573,226 $2,431,302 $2,294,509
Mortgage Interest 822,452 822,452 822,452
Recovery of valuation allowance 550,000 _ _
Interest and other income 85,423 100,829 66,385
Loan origination fees _ _ 25,670
Loan modification fees 20,524 20,524 20,524
Total Income 4,051,625 3,375,107 3,229,540
Expenses
Property operating 1,388,362 1,375,079 1,314,991
Provision for losses 450,000 300,000 937,593
Depreciation and amortization 354,745 370,671 390,271
General and administrative 160,625 140,805 134,569
Total Expenses 2,353,732 2,186,555 2,777,424
Net Income $1,697,893 $1,188,552 $452,116
Net Income Allocated:
To the General Partners $ 98,234 $ 74,254 $ 37,087
To the Limited Partners 1,599,659 1,114,298 415,029
$1,697,893 $1,188,552 $452,116
Per limited partnership unit
(96,490 outstanding) $16.58 $11.55 $4.30
Statements of Cash Flows
For the years ended November 30, 1996 1995 1994
Cash Flows From Operating Activities:
Net Income $1,697,893 $1,188,552 $452,116
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 354,745 370,671 390,271
Deferred income - loan origination fees _ _ (25,670)
Deferred income - loan modification fees (20,524) (20,524) (20,524)
Recovery of valuation allowance (550,000) _ _
Provision for losses 450,000 300,000 937,593
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Interest receivable- deferred, net _ _ 12,407
Other assets (4,467) 9,087 (18,716)
Accounts payable and accrued expenses (5,552) 25,033 (719)
Due to general partners and affiliates 651 610 (375)
Security deposits 6,568 6,182 6,633
Net cash provided by operating activities 1,929,314 1,879,611 1,733,016
Cash Flows From Investing Activities:
Additions to real estate (59,850) _ (400,803)
Net cash used for investing activities (59,850) _ (400,803)
Cash Flows From Financing Activities:
Distributions (2,031,368) (2,031,368) (1,574,311)
Net cash used for financing activities (2,031,368) (2,031,368) (1,574,311)
Net decrease in cash and cash equivalents (161,904) (151,757) (242,098)
Cash and cash equivalents,
beginning of period 1,979,963 2,131,720 2,373,818
Cash and cash equivalents, end of period $1,818,059 $1,979,963 $2,131,720
Notes to the Financial Statements
November 30, 1996, 1995 and 1994
1. Organization
Hutton/ConAm Realty Pension Investors (the "Partnership") was organized as a
limited partnership under the laws of the State of New York pursuant to a
Certificate and Agreement of Limited Partnership (the "Partnership Agreement")
dated January 23, 1984, as amended on January 26, 1984. The Partnership was
formed for the purpose of financing investments in certain types of residential
real estate by making equity participating loans and equity convertible loans.
The general partners of the Partnership are RPI Real Estate Services Inc., an
affiliate of Lehman Brothers Inc. (see below), and ConAm Property Services III,
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 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 8,
1993, the Hutton Real Estate Services VI, Inc. General Partner changed its name
to "RPI 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 occurs, the General
Partners may distribute the Partnership's cash balances not required for its
ordinary course day-to-day operations.
2. Significant Accounting Policies
Mortgage Loan Investments and Interest Receivable The Partnership reviews, on
a periodic basis, each of the loans in its portfolio. An allowance for losses
is established when the carrying value of the loan, including deferred
interest, exceeds fair value (see Note 5). The fair value of the Partnership's
loans are determined by independent appraisals which are performed annually and
include a discounting of estimated future cash flows.
Accounting for Mortgage Loan Receivable In May 1993, the Financial Accounting
Standards Board issued Statement of Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan"("FAS 114"), amended by FAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures," which states that a loan is considered impaired and a provision
for credit losses is required if it is probable that all amounts of principal
and interest due will not be collected. The measurement of impaired loans is
generally based on the present value of expected future cash flows discounted
at the loan's effective interest rate, except that collateral dependent loans
are measured for impairment based on the observable market value or fair value
of the collateral less estimated selling costs. The Partnership considers its
mortgage loan investments collateral dependent. Effective December 1, 1995,
the Partnership adopted FAS 114.
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. Assets held for
disposition are recorded at the lessor of carrying value or fair market value
less costs to sell. The Partnership adopted FAS 121 in the fourth fiscal
quarter of 1995.
Real Estate Investments Real estate investments consist of properties acquired
through foreclosure proceedings or acceptance of a deed in lieu of foreclosure,
and troubled loans, accounted for as in-substance foreclosures. Such
properties are recorded at cost less accumulated depreciation. For the year
ended November 30, 1996 real estate investments consisted of the Bryn Athyn
Apartment complex located in Raleigh, North Carolina ("Bryn Athyn"). For the
year ended November 30, 1995 real estate investments consisted of Bryn Athyn
and the Chaparosa Apartment complex located in Irving, Texas ("Chaparosa").
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 life of the property. 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.
Property Held For Disposition During the fourth fiscal quarter of 1996
Chaparosa was reclassified to "Property held for disposition" at its net book
value. Accordingly, Chaparosa will no longer be depreciated.
Loan Placement Costs Costs incurred in connection with investments are
recorded as assets and amortized over the applicable loan periods. These costs
have been fully amortized.
Loan Origination Fees Loan origination fees are deferred and recognized over
the applicable loan periods. These costs have been fully amortized.
Loan Modification Fees Loan modification fees are deferred and recognized over
the applicable extended loan periods, pursuant to the terms of the loan
modification (see Note 4).
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.
Interest Income The Partnership recognizes interest income based upon terms of
the respective mortgages. The mortgages require a current pay rate and had
provided for the deferral of interest through the effective date of the
modification (see Note 4). The continued income recognition of deferred
interest is contingent upon the fair value of the underlying property exceeding
the aggregate carrying value of the mortgage and applicable deferred interest.
Income Taxes No provision for income taxes has been made in the financial
statements since income, losses and tax benefits 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 date of
issuance. Cash and cash equivalents include security deposits of $33,070 and
$33,052 at November 30, 1996 and 1995, respectively, restricted under state
statutes.
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 the
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 to conform
to the current year's presentation.
3. The Partnership Agreement
The Partnership Agreement provides that net distributable cash, as defined,
will be distributed, 95% to the limited partners and 5% to the General Partners
until each limited partner has received an amount equal to a 12% non-cumulative
annual return on his adjusted capital value (as defined). The balance, if any,
will be distributed 90% to the limited partners and 10% to the General
Partners.
Net loss and all depreciation for any fiscal year will be allocated 99% to the
limited partners and 1% to the General Partners.
Net income before depreciation will be allocated as follows:
(a) To the extent that net income before depreciation does not exceed the
amount of net distributable cash distributable to the partners with respect
to such fiscal year, net income before depreciation shall be allocated
among the partners, pro rata in accordance with the amount of net
distributable cash distributable to each partner with respect to such
fiscal year to the extent thereof; and
(b) To the extent that net income before depreciation exceeds the amount of net
distributable cash distributable to the partners with respect to such
fiscal year, such excess shall be allocated (1) first, 100% to the General
Partners, pro rata, in an amount equal to the excess, if any, of the
General Partners' deficits, if any, in their capital accounts, over an
amount equal to 1% of the aggregate capital contributions to the
Partnership as reduced by the amount of the General Partners' capital
contributions, and (2) second, 99% to the limited partners and 1% to the
General Partners.
For the year ended November 30, 1996, net income before depreciation exceeded
the amount of net distributable cash by $21,270. For the years ended November
30, 1995 and 1994, net income before depreciation did not exceed the amount of
net distributable cash. Pursuant to the Partnership Agreement and as described
in (a) above, net income before depreciation was allocated among the partners
pro rata in accordance with the amount of net distributable cash distributable
to each partner.
All residual proceeds 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 and a 12% cumulative annual return on his adjusted
capital value. The balance, if any, will be distributed 85% to the limited
partners and 15% to the General Partners.
Generally, all gain from sales of investments will be allocated 99% to the
limited partners and 1% to the General Partners until any negative capital
account balances have been eliminated and each limited partner has received an
amount equal to his adjusted capital value and an amount equal to the excess of
a 12% cumulative annual return on his adjusted capital value over the amount of
any net distributable cash and residual proceeds distributed to such limited
partner. The balance, if any, will be allocated 85% to the limited partners
and 15% to the General Partners.
4. Mortgage Loans and Investments in Real Estate
Three loans which totaled $15,525,900 were funded to an affiliate Southridge
Partners I ("Southridge"), a New York limited partnership. The RPI Real Estate
Services Inc. general partner in the Partnership and the GP Real Estate
Services II Inc. general partner in Southridge are both wholly-owned
subsidiaries of Lehman Brothers.
The first loan was funded on September 28, 1984 in the amount of $4,475,250 in
connection with the purchase of Oaktree Village, a 160-unit apartment complex
located in Jacksonville, Florida. The second loan was funded on October 30,
1984 in the amount of $5,850,000 in connection with the purchase of Chaparosa
Apartments, a 170-unit apartment complex located in Irving, Texas. The third
loan was funded on December 21, 1984 in the amount of $5,200,650 in connection
with the purchase of Park View Village, a 184-unit apartment complex located in
Winter Park, Florida.
On November 20, 1985, the Partnership funded an equity participating loan in
the amount of $5,900,000 to Bryn Athyn Investors, Ltd., a Texas limited
partnership unaffiliated with the Partnership, in connection with its purchase
of Bryn Athyn, a 172-unit apartment complex located in Raleigh, North Carolina.
In July 1989, the Partnership obtained ownership of the property through a
foreclosure sale. As a result, Bryn Athyn is now recorded as a real estate
investment rather than a mortgage loan investment on the Partnership's balance
sheet.
Originally, each loan was evidenced by a promissory note bearing interest at a
stated rate of 14% per annum collateralized by a first mortgage or trust deed
on the property, due at the earlier of (i) 10 years from the date of funding or
(ii) sale of the property. Each of the loans was payable in fixed monthly
installments of interest only at the rate of 11% per annum with the
differential of 3% paid monthly out of net cash flow, if available. Any
differential interest not paid monthly was to itself bear interest at the rate
of 14%, compounded semi-annually and became due together with the outstanding
principal upon maturity of the loan. In addition to stated interest, the
Partnership would receive contingent interest on each of the Southridge loans
equal to 25% of net cash flow, payable quarterly, and 30% of any appreciation
in value upon the sale of the project.
In connection with the three investments in equity participating first mortgage
loans, the Partnership earned loan origination fees of $465,777, representing
3% of the principal amounts loaned to Southridge. The Partnership incurred loan
placement costs of $504,185 of which $465,777 was paid to the General Partners
for loan placement fees.
During the first quarter of the fiscal year ended November 30, 1988, the
General Partners accepted a request for modification of each of the Southridge
loans submitted by the borrower. Effective April 1, 1988, stated interest was
lowered from 14% to 12% and current interest was lowered from 11% to 8.5%. The
additional interest of 3.5% was payable monthly from any excess cash flow
calculated on a monthly basis. To the extent that stated interest exceeded
monthly installments, such amounts were deferred until the maturity of the
principal and accrued interest at 12% compounded semi-annually. As
consideration for reducing the stated and current interest, final additional
interest, as defined, was increased from 30% to 35% of appreciation in value,
as defined, upon the sale of the project. All other terms and conditions
remained as originally stated.
As of November 30, 1991, the Partnership reclassified its Chaparosa loan
investment into an in-substance real estate investment, at its book value of
approximately $4,169,017. On January 31, 1992, the Partnership obtained legal
title to Chaparosa through a deed in lieu of foreclosure. As of such date, the
Chaparosa real estate investment was recorded in the amount of $3,645,728 and
reflects all final adjustments regarding its acquisition.
With respect to the Chaparosa mortgage loan, in November 1990, Southridge
settled their litigation with the developer, general contractor and other
parties associated with the project with respect to original construction
defects covered under the Purchase and Development Agreement. Pursuant to the
settlement agreement, the defendants were required to pay Southridge three
installments aggregating $1,566,000. The first and second installments were
received in November 1990 and 1991 in the amounts of $750,000 and $408,000,
respectively. The final installment was received in the amount of $398,000 in
1992. The Partnership was assigned $398,000 of these proceeds from the
litigation settlement as part of a deed in lieu of foreclosure transaction.
On January 24, 1997, the Partnership executed an agreement for the purchase and
sale of Chaparosa with Lincoln Property Company (the "Buyer"). The estimated
sales price of Chaparosa is $6,011,200 and was determined by arms length
negotiations between the Partnership and the Buyer. The sale is expected to
close during the second fiscal quarter of 1997. Accordingly, Chaparosa has
been reclassified on the balance sheet as "Property held for disposition" at
its net book value.
During the second quarter of the fiscal year ended November 30, 1993, the
General Partners agreed to modify the two remaining mortgage loans (the
"Loans") with Southridge retroactive to March 1, 1993. The terms of the
modification provided for a three-year extension of the maturity dates through
September 30, 1997 and December 31, 1997 for Oaktree Village and Park View
Village, respectively. The stated interest rate on the Loans was reduced to
8.5%, with excess cash flow generated by the properties on a monthly basis
through 1993 to be applied first to accrued and unpaid interest and then to
principal. Beginning in 1994, excess cash flow is calculated on an annual
basis. In addition, interest ceased to accrue on the cumulative deferred
interest. In consideration the Partnership earned a loan modification fee equal
to 2% of the original loan balance. One half of the fee, $96,759 was paid at
the closing, and the other half will be due upon either the sale or refinancing
of the properties to the extent there are net proceeds available after
repayment of the outstanding debt balance and selling costs.
Summarized financial information pertaining to the Partnership's Mortgage Loan
Investments in Oaktree Village and Park View Village for the calendar years
ended December 31, 1996 and 1995 is as follows:
1996 1995
Operating property, net of
accumulated depreciation $ 8,406,473 $ 8,828,028
Total Assets 10,050,987 10,327,994
Total Liabilities 15,773,084 15,495,206
Rental Income 2,208,530 2,101,888
Net loss (554,884) (661,464)
Minimum debt service payments on the Partnership's loans have been paid
entirely from cash flow from property operations as of November 30, 1996.
On January 22, 1997, the Partnership delivered notice of default to Southridge
with respect to the Partnership's Loans on Park View Village and Oaktree
Village, respectively. The Partnership indicated, among other things, that
the Loans are in default due to, without limitation, the failure of Southridge
to make the payment of minimum interest due on January 1, 1997 and due to it's
failure to make the required monthly deferred minimum interest payments during
1996 and the required contingent interest payments for the first three quarters
of 1996 (collectively the "Current Amounts Due") as required by each of the
loan documents. The Partnership has demanded payment of the Current Amounts
Due from Southridge with respect to each of the Loans, however, the Partnership
has not accelerated payment of the outstanding balance of the Loans.
On February 21, 1997, the General Partners executed a Letter of Intent ("LOI")
with Southridge, whereby, Southridge's default status on the Loans would be
resolved. The resolutions contemplated in the LOI include: (i) Southridge
deeding over Oaktree Village to the Partnership; and (ii) modifying the Park
View Village mortgage to reflect additional terms and conditions, including but
not limited to, an extension of the maturity date of the loan, the deferral of
debt service payments until a capital improvement reserve account is fully
funded with an agreed upon amount, and the inclusion of a discount payoff
option for Southridge during the extension period, whereby, Southridge could
payoff the aggregate of the $5,200,650 face amount of the Park View Village
loan and any unpaid accrued interest for $5,650,000 (the "Discount Payoff
Amount"). The Partnership has engaged an unaffiliated third party advisory
firm to provide the Partnership with a fairness opinion on the terms outlined
in the LOI. The General Partners anticipate to finalize the terms in the LOI
with a binding agreement with Southridge in the second fiscal quarter of 1997.
The General Partners pursued a settlement agreement with the Plumbing Claims
Group regarding the polybutelene water pipes used in the construction of the
Bryn Athyn property. The pipes, which were determined to be defective,
resulted in significant leaks and required a replumbing of the entire property.
The General Partners signed a settlement agreement during the third quarter of
1995 which required the Plumbing Claims Group to reimburse the Partnership for
the cost of replumbing the property's interior units, up to a limit of
$379,000, as well as 40% of the expense in replumbing the exterior which cost a
total of $25,480. To date, the Partnership has incurred expenses totaling
$396,781 for plumbing repairs and associated costs at the property of which
$386,927 was reimbursed pursuant to the settlement agreement. The replumbing
was completed in June of 1996.
5. Interest Receivable and Valuation Allowance
For the years ended November 30, 1995 and 1994, the Partnership provided for
potential losses of $300,000 and $937,593, respectively, relating to the
collection of principal and deferred interest with respect to the Oaktree
Village and Park View Village loans. The above provisions were based on the
fair value of the underlying properties as determined by independent
appraisals.
The fair values of the Oaktree and Park View mortgage loan investments as of
November 30, 1996 were $5,700,000 and $6,600,000, respectively. As a result of
an increase in the fair value of Oaktree, as determined by an independent
appraiser, the Partnership recorded a $550,000 recovery of valuation allowance
during 1996. Additionally, the fair value of Park View increased during 1996,
as determined by an independent appraiser, but the Partnership recorded a
$450,000 loss provision to reflect the carrying value of the Park View loan at
the Discount Payoff Amount.
The following summarizes the (recovery) provision for valuation allowance for
the fiscal years ending November 30, 1996, 1995 and 1994:
1996 1995 1994
Oaktree Village: Jacksonville, Fl.
(Recovery) provision for interest $ (550,000) $ _ $ 544,767
Park View Village: Winter Park, Fl.
Provision for interest $ 450,000 $ 300,000 $ 392,826
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 November 30, 1996, 1995 and
1994, and the unpaid portion at November 30, 1996:
Unpaid at
November 30, Earned
------------------------
1996 1996 1995 1994
RPI Real Estate Inc. and affiliates:
Out-of-pocket expenses $ _ $ 3,520 $ 1,331 $ 1,642
ConAm and affiliates:
Property operating salaries _ 240,930 249,649 238,610
Property management fees 11,094 128,970 121,781 114,884
Total $ 11,094 $373,420 $ 372,761 $ 355,136
Total mortgage interest income consists of $822,452 in 1996, 1995, and 1994
earned from mortgages to Southridge.
7. Reconciliation of Financial Statement and Tax Information The following is a
reconciliation of the net income for financial statement purposes to net income
for federal income tax purposes for the years ended November 30, 1996, 1995 and
1994:
1996 1995 1994
- -------------------------------------------------------------------------------
Net income per financial statements $ 1,697,893 $ 1,188,552 $ 452,116
Depreciation deducted for tax purposes
(in excess of) less than depreciation
expense per financial statements 4,040 4,691 (2,816)
(Recovery) provision for loan losses not
deductible for tax purposes (100,000) 300,000 937,593
Loan origination fees, recognized
when received for tax purposes _ _ (25,670)
Loan modification fees, recognized
when received for tax purposes (20,524) (20,524) (20,524)
Taxable net income $ 1,581,409 $ 1,472,719 $ 1,340,699
- -------------------------------------------------------------------------------
The following is a reconciliation of partners' capital for financial statement
purposes to partners' capital for federal income tax purposes as of November
30, 1996, 1995 and 1994:
1996 1995 1994
- -------------------------------------------------------------------------------
Partners' capital per financial statements $20,590,819 $20,924,294 $21,767,110
Adjustment for cumulative difference
between tax basis net income and net
income per financial statements 7,163,107 7,279,591 6,995,424
Partners' capital per tax return $27,753,926 $28,203,885 $28,762,534
- -------------------------------------------------------------------------------
8. Distributions Paid
Cash distributions, per the statements of partners' capital, are recorded on
the accrual basis, which recognize specific record dates for payments within
each fiscal year. The statements of cash flows recognize actual cash
distributions paid during the fiscal year. The following table discloses the
annual differences as presented in the financial statements:
Distributions Distributions
Payable Distributions Distributions Payable
Beginning of Year Declared Paid November 30
- -------------------------------------------------------------------------------
1996 $ 507,842 $ 2,031,368 $ 2,031,368 $ 507,842
1995 507,842 2,031,368 2,031,368 507,842
1994 253,921 1,828,232 1,574,311 507,842
- -------------------------------------------------------------------------------
Report of Independent Accountants
To the Partners of
Hutton/ConAm Realty Pension Investors:
We have audited the balance sheets of Hutton/ConAm Realty Pension Investors, a
New York limited partnership, as of November 30, 1996 and 1995, and the related
statements of operations, partners' capital and cash flows for each of the
three years in the period ended November 30, 1996. 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 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 financial statements referred to above present fairly, in
all material respects, the financial position of Hutton/ConAm Realty Pension
Investors, a New York limited partnership, as of November 30, 1996 and 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended November 30, 1996, in conformity with generally
accepted accounting principles.
As discussed in Note 2 to the financial statements, the Partnership adopted the
provisions of Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan", in 1996.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 21, 1997
Net Asset Valuation
Comparison of Acquisition Costs to Appraised Value and Determination of Net
Asset Value Per $294 Unit at November 30, 1996 (Unaudited)
Partnership's
Share of
November 30,
1996 Appraised
Property Date of Acquisition Value (1)
- -------------------------------------------------------------------------------
Bryn Athyn Apartments 07-03-89 8,100,000
Chaparosa Apartments 01-31-92 6,000,000
Mortgage Loan Investments:
Oaktree Village 4,475,250
Park View Village 5,200,650
-----------
23,775,900
-----------
Cash and cash equivalents 1,818,059
Interest receivable, net of valuation allowance 1,674,100
Other assets 49,827
-----------
27,317,886
Less:
Total liabilities net of deferred income
on loan and modification fees of $19,794 (855,541)
-----------
Partnership Net Asset Value (2) 26,462,345
Net Asset Value Allocated:
Limited Partners 26,197,722
General Partners 264,623
-----------
26,462,345
-----------
Net Asset Value Per Unit
(96,490 units outstanding) $ 271.51
- -------------------------------------------------------------------------------
(1) This represents the Partnership's share of the November 30, 1996 Appraised
Values which were determined by an independent property appraisal firm.
(2) The Net Asset Value assumes a hypothetical sale of the properties
underlying the Partnership's first mortgage loan investments, and the
subsequent repayment of these loans by the respective borrowers, and a
hypothetical sale of the Bryn Athyn Apartments and Chaparosa Apartments
based upon their value as rental properties 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.
The Partnership's mortgage loan investments are valued at the outstanding
mortgage loan balance (principal plus accrued interest), unless the loan
balance exceeds the appraised value, in which case the loan would be valued at
the appraised value. As of November 30, 1996, independent appraisals of the
properties underlying the Partnership's mortgage loan investments were as
follows: Oaktree Village - $5,700,000 and Park View Village - $6,600,000. The
mortgage loan investments of Oaktree Village and Park View Village and interest
receivable, net of valuation allowance, are currently less than or equal to the
current fair market values as determined by the independent appraisal firm.
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 is likely to be significant. Fiduciaries of
Limited Partners which are subject to ERISA or other provisions of law
requiring valuations of Units should consider all relevant factors, including,
but not limited to Net Asset Value per Unit, in determining the fair market
value of the investment in the Partnership for such purposes.
Schedule III - Real Estate and Accumulated Depreciation
November 30, 1996
Residential Property: Bryn Athyn Chaparosa
Property Owned: Apartments Apartments Total
- -------------------------------------------------------------------------------
Location Raleigh, NC Irving, TX na
Construction date 1985 1984 na
Acquisition date 07-14-89 11-30-91 na
Life on which depreciation
in latest income statements
is computed (3) (3) na
Encumbrances $ _ $ _ $ _
Initial cost to Partnership:
Land 857,669 729,145 1,586,814
Buildings and
improvements 4,926,609 2,916,582 7,843,191
Costs capitalized
subsequent to acquisition:
Land, buildings
and improvements 59,850 1,019,997 1,079,847
Gross amount at which
carried at close of period:
Land $ 857,669 $ 729,145 $ 1,586,814
Buildings and
improvements 4,986,459 3,936,579 8,923,038
5,844,128 4,665,724 10,509,852
Accumulated depreciation 1,567,164 694,420 2,261,584
- -------------------------------------------------------------------------------
(1) Aggregate cost for Federal income tax purposes is $9,325,709.
(2) The amount of accumulated depreciation for Federal income tax
purposes is $2,336,009.
(3) Buildings and improvements - 27.5 years; personal property - 7 years.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended November 30, 1996, 1995, and 1994 follows:
1996 1995 1994
- -------------------------------------------------------------------------------
Real estate investments:
Beginning of year $10,450,002 $10,450,002 $10,049,199
Additions 59,850 _ 400,803
End of year $10,509,852 $10,450,002 $10,450,002
Accumulated depreciation:
Beginning of year $1,906,839 $1,536,168 $1,174,141
Dispositions 354,745 370,671 362,027
End of year $2,261,584 $1,906,839 $1,536,168
Schedule IV - Mortgage Loans on Real Estate
November 30, 1996
Maturity Periodic
Classification Interest Rate Date Payment Terms Prior Liens
- -------------------------------------------------------------------------------
Oaktree Village
(Southridge)
Residential, Florida 8.5 % 09/30/97 Interest only _
Park View Village
(Southridge)
Residential, Florida 8.5 % 12/31/97 Interest only _
Principal Amount of
Loans Subject to
Face Amount Carrying Amount Delinquent Principal
Classification of Mortgage of Mortgage or Interest
- -------------------------------------------------------------------------------
Oaktree Village
(Southridge)
Residential, Florida $ 4,475,250 $ 4,475,250 $ _
Park View Village
(Southridge)
Residential, Florida $ 5,200,650 $ 5,200,650 $ _
- -------------------------------------------------------------------------------
$ 9,675,900 $ 9,675,900 $ _
- -------------------------------------------------------------------------------
The aggregate cost for Federal income tax purposes of the mortgage loans at
November 30, 1996 is $9,675,900.
Following is a reconciliation of the carrying amount of the mortgage loans for
the years ended November 30, 1996, 1995 and 1994:
1996 1995 1994
Balance at beginning of period $ 9,675,900 $ 9,675,900 $ 9,675,900
_ _ _
Balance at end of period $ 9,675,900 $ 9,675,900 $ 9,675,900
Report of Independent Accountants
Our report on the financial statements of Hutton/ConAm Realty Pension
Investors, a New York limited partnership, has been incorporated by reference
in this Form 10-K from the Annual Report to Unitholders of Hutton/ConAm Realty
Pension Investors for the year ended November 30, 1996. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedules listed in the index of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND
Hartford, Connecticut
February 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Nov-30-1996
<PERIOD-END> Nov-30-1996
<CASH> 1,818,059
<SECURITIES> 000
<RECEIVABLES> 3,819,276
<ALLOWANCES> 2,145,176
<INVENTORY> 000
<CURRENT-ASSETS> 49,827
<PP&E> 10,509,852
<DEPRECIATION> 2,261,584
<TOTAL-ASSETS> 21,466,154
<CURRENT-LIABILITIES> 875,335
<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> 20,590,819
<TOTAL-LIABILITY-AND-EQUITY> 21,466,154
<SALES> 2,573,226
<TOTAL-REVENUES> 4,051,625
<CGS> 000
<TOTAL-COSTS> 1,388,362
<OTHER-EXPENSES> 515,370
<LOSS-PROVISION> 450,000
<INTEREST-EXPENSE> 000
<INCOME-PRETAX> 1,697,893
<INCOME-TAX> 000
<INCOME-CONTINUING> 1,697,893
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 1,697,893
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