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: 0-11769
HUTTON/CONAM REALTY INVESTORS 3
Exact name of Registrant as specified in its charter
California 13-3176625
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 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 March 31, 1983 (included in
Amendment No. 1 to Registration Statement No. 2-80991 of Registrant filed
March 29, 1983) are incorporated herein by reference into 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 Investors 3 (the "Registrant" or the "Partnership") is a
California limited partnership formed on July 14, 1983, of which RI 3-4 Real
Estate Services Inc. ("RI 3-4 Services," formerly Hutton Real Estate Services
VIII, Inc.), a Delaware corporation, and ConAm Property Services IV, Ltd., a
California limited partnership ("ConAm Services"), are the general partners
(together, the "General Partners").
Commencing March 31, 1983, the Registrant began offering through E.F. Hutton &
Company Inc., an affiliate of the Registrant, up to a maximum of 80,000 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, under Registration Statement No. 2-80991,
which Registration Statement was declared effective on March 31, 1983. The
offering of Units was terminated on July 14, 1983. Upon termination of the
offering, the Registrant had accepted subscriptions for 80,000 Units for an
aggregate of $40,000,000.
(b) Narrative Description of Business
The Registrant is engaged in the business of acquiring, operating and holding
for investment multifamily residential properties which by virtue of their
location and design and the nature of the local real estate market have the
potential for long-term capital appreciation and generation of current income.
All of the proceeds available for investment in real estate were originally
invested in three residential apartment properties and two joint ventures, each
of which owns a specified property. Funds held as a working capital reserve
are invested 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) capital appreciation;
(2) distribution of net cash from operations attributable to rental
income; and
(3) preservation and protection of capital.
Distribution of net cash from operations will be the Registrant's objective
during its operational phase, while preservation and appreciation of capital
continues to be the Registrant's longer term objectives. The attainment of the
Registrant's investment objectives will depend on many factors, including
future economic conditions in the United States as a whole and, in particular,
in the localities in which the Registrant's properties are located, especially
with regard to achievement of capital appreciation.
From time to time the Registrant expects to sell its real property interests
taking into consideration such factors as the amount of appreciation in value,
if any, to be realized and the possible risks of continued ownership. In
consideration of these factors and improving market conditions, the General
Partners intend to sell the remaining three properties over the next few years.
No property will be sold, financed or refinanced by the Registrant without the
agreement of both General Partners. Proceeds from any future sale, financing
or refinancing of properties will not be reinvested and may be distributed to
the Limited Partners and General Partners (sometimes referred to together
herein as the "Partners"), so that the Registrant will, in effect, be
self-liquidating. If deemed necessary, the Registrant may retain a portion of
the proceeds from any sale, financing or refinancing as capital reserves. As
partial payment for properties sold, the Registrant may receive purchase money
obligations secured by mortgages or deeds of trust. In such cases, the amount
of such obligations will not be included in Net Proceeds From Sale or
Refinancing (distributable to the Partners) until and only to the extent the
obligations are realized in cash, sold or otherwise liquidated.
Originally, the Registrant acquired five residential apartment complexes
(collectively, the "Properties") either directly or through investments in
joint ventures. As of November 30, 1996, the Registrant had interests in the
Properties as follows: (1) Autumn Heights, a 140-unit apartment complex,
located in Colorado Springs, Colorado; (2) Skyline Village, a 168-unit
apartment complex, located in Tucson, Arizona; and (3) Ponte Vedra Beach
Village II, a 124-unit apartment complex, located in Ponte Vedra Beach,
Florida. Country Place Village II was sold on July 20, 1995, for $3,890,000 to
an institutional buyer, which is unaffiliated with the Partnership. The
selling price was determined by arm's length negotiations between the
Partnership and the buyer. The Partnership received net proceeds of
$3,832,290. The fifth property in which the Registrant had an interest,
Bernardo Point Apartments in San Diego, California, was sold on December 20,
1990. See Item 2, "Properties," and Note 4, "Real Estate Investments," of the
Notes to the Consolidated Financial Statements incorporated herein 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, for further information
on each of the Properties.
The Registrant's mortgage loan secured by Autumn Heights was refinanced in
January 1994 and will mature in January 2001. See Note 5, "Mortgages Payable,"
of the Notes to the Consolidated Financial Statements for additional
information concerning the Registrant's current mortgage indebtedness.
Competition
The Registrant's real property investments are subject to competition from
similar types of properties in the vicinities in which they are located and
such competition has increased since the Registrant's investment in the
Properties due principally to the addition of newly constructed apartment
complexes offering increased residential and recreational amenities. The
Properties have also been subject to competition from condominiums and
single-family properties especially during periods of low mortgage interest
rates. The Registrant competes with other real estate owners and developers in
the rental and leasing of its Properties by offering competitive rental rates
and, if necessary, leasing incentives. Such competition may affect the
occupancy levels and revenues of the Properties. The occupancy levels at the
properties in Arizona and Florida reflect some seasonality, which is typical in
the markets. In some cases, the Registrant may compete with other properties
owned by partnerships affiliated with either General Partner of the Registrant.
For a discussion of current market conditions in each of the areas where the
Partnership's Properties are located, see Item 2 below.
Employees
The Registrant has no employees. Services are provided by RI 3-4 Services,
ConAm Services, ConAm Management Corporation ("ConAm Management"), an affiliate
of ConAm Services, as well as Service Data Corporation and First Data Investor
Services Group, both unaffiliated companies. The Registrant has entered into
management agreements pursuant to which ConAm Management provides management
services with respect to certain of the Properties. First Data Investor
Services Group has been retained by the Registrant to provide all accounting
and investor communication functions, while Service Data Corporation provides
transfer agent services. See Item 13, "Certain Relationships and Related
Transactions", for a further description of the service and management
agreements between the Registrant and affiliated entities.
Item 2. Properties
For a description of the Registrant's Properties, a discussion of current
market conditions in each of the areas where the Properties are located and
appraised values, reference is made 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. For information on the purchase of the Properties,
reference is made to Note 4 of the Consolidated Financial Statements in the
Partnership's Annual Report to Unitholders. Average occupancy rates at each
property are incorporated by reference to Item 7.
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 Unitholders through the solicitation of proxies or
otherwise.
PART II
Item 5. Market for Partnership's Limited Partnership Units and Related
Security Holder Matters
As of November 30, 1996, the number of Unitholders of record was 3,912.
No established public trading market exists for the Units, and it is not
anticipated that such a market will develop in the future.
Distributions of Net Cash From Operations, when made, are paid on a quarterly
basis, with distributions generally occurring approximately 45 days after the
end of each fiscal quarter. Such distributions have been made primarily from
net operating income with respect to the Registrant's investment in the
Properties and from interest on short-term investments, and partially from
excess cash reserves. Information on cash distributions paid by the
Partnership for the past two 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. 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.
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
$1,084,483 that were invested in unaffiliated money market funds, an increase
of $24,135 from the balance at November 30, 1995. The Partnership also
maintains a restricted cash balance, which totaled $84,934 at November 30,
1996, representing real estate tax escrows required under the terms of the
Autumn Heights and Skyline Village loans. Accounts payable and accrued
expenses decreased from $174,724 at November 30, 1995 to $156,786 at fiscal
year-end 1996. The decrease is primarily due to a reduction in real estate
taxes as a result of a decrease in the assessed value of Autumn Heights. The
Partnership expects sufficient cash to be generated from operations to meet its
current operating expenses.
The General Partners continue to perform various improvements at the
properties. These repairs include exterior painting at Skyline Village and
other repairs to prepare vacant apartments for reoccupancy. The painting at
Skyline Village was nearly completed in the fourth quarter of 1996. The
General Partners will evaluate the need for additional improvement work at the
properties on an ongoing basis. Existing problems with the roofs at Ponte
Vedra Beach Village II were aggravated by severe tropical rain storms late in
1996. After evaluating the damages, the General Partners received several
competitive bids to repair the roofs, and subsequently selected a contractor.
The roof repairs are currently underway and are scheduled to be completed this
year. The anticipated cost of repairing the roofs is approximately $200,000.
The General Partners declared a cash distribution of $2.50 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 improvement in the performance of the Partnership's properties, and
the improvement in the real estate capital markets which has increased demand
by potential buyers, the General Partners have determined that it is in the
best interest of the Partnership to attempt to sell the remaining three
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
any specific property or all the properties can be sold, that particular prices
will be achieved, or that all the properties can be sold within this time
frame.
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 resulted in net
income of $354,135 compared with $85,405 in fiscal 1995. Excluding the $83,992
loss recognized on the July 1995 sale of Country Place Village II, income from
operations in fiscal 1995 was $169,397. The increases in net income and income
from operations for the fiscal year ended November 30, 1996 are due primarily
to reductions in property operating expenses and most other major expense
categories resulting from the sale of Country Place Village II. The decreases
were partially offset by a decline in rental income due to the sale of the
property. Net cash provided by operating activities increased slightly to
$1,205,239 for the fiscal year ended November 30, 1996, from $1,184,714 in
fiscal 1995.
Rental income for the year ended November 30, 1996 was $3,688,364 compared with
$4,027,970 in fiscal 1995. The decrease reflects the sale of Country Place
Village II in July 1995, partially offset by increases in rental income at
Autumn Heights and Ponte Vedra Beach Village II. Interest and other income
totaled $57,109 for the fiscal year ended November 30, 1996 compared to
$174,780 in fiscal 1995. The decrease is the result of the Partnership
maintaining lower cash balances in the 1996 period compared to the 1995 period.
Property operating expenses declined to $1,581,543 for the year ended November
30, 1996, from $1,912,816 for fiscal 1995. The decrease is attributable to the
sale of Country Place Village II and is partially offset by higher utilities
and property administrative expenses at Ponte Vedra Beach Village II.
Depreciation and amortization was lower in fiscal 1996 compared to fiscal 1995
due to the July 1995 sale of Country Place Village II. Interest expense also
declined due to the June 1995 repayment of the Country Place Village II
mortgage.
1995 versus 1994
Partnership operations for the year ended November 30, 1995 resulted in net
income of $85,405 compared with $17,509 in fiscal 1994. Excluding the $83,992
loss recognized on the sale of Country Place Village II, income from operations
for the fiscal year ended November 30, 1995 was $169,397 as compared to $17,509
in fiscal 1994. The increases in net income and income from operations for the
year ended November 30, 1995 are due primarily to reductions in interest
expense and depreciation and amortization attributable to the sale of Country
Place Village II. Net cash provided by operating activities was $1,184,714 for
the fiscal year ended November 30, 1995, virtually unchanged from $1,196,687 in
fiscal 1994.
Rental income for the year ended November 30, 1995 was $4,027,970 compared with
$4,146,674 in fiscal 1994. The decrease reflects the sale of Country Place
Village II in July 1995, partially offset by increases in rental income at the
three remaining properties, particularly Autumn Heights, due to increased
rental rates. Interest and other income totaled $174,780 for the fiscal year
ended November 30, 1995 compared to $151,152 in fiscal 1994. The increase was
the result of the Partnership earning higher interest rates on its invested
cash in 1995 compared to 1994.
Property operating expenses were $1,912,816 for the year ended November 30,
1995, virtually unchanged from $1,936,098 for fiscal 1994 as decreases in
operating expenses at Country Place Village II and Autumn Heights were offset
by higher repairs and maintenance expenses at Skyline Village. Depreciation and
amortization was lower in fiscal 1995 compared to fiscal 1994 due to the July
1995 sale of Country Place Village II. Interest expense also declined due to
the June 1995 repayment of the Country Place Village II mortgage.
The average occupancy levels at each of the properties for the years ended
November 30, 1996, 1995 and 1994 were as follows:
Twelve Months Ended November 30,
Property 1996 1995 1994
--------------------------------------------------------------
Autumn Heights 96% 96% 96%
Ponte Vedra Beach Village II 95% 93% 95%
Skyline Village 93% 94% 96%
--------------------------------------------------------------
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 F-1 and F-2 of
this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Registrant has no officers or directors. RI 3-4 Services and ConAm
Services, the co-General Partners of the Registrant, jointly manage and control
the affairs of the Registrant and have general responsibility and authority in
all matters affecting its business.
RI 3-4 Services
RI 3-4 Services (formerly Hutton Real Estate Services VIII, 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 RI 3-4 Services," below for a description of the Hutton Group's
acquisition by Shearson Lehman Brothers, Inc. ("Shearson") and the subsequent
sale of certain of Shearson's domestic retail brokerage and asset management
businesses to Smith Barney, Harris Upham & Co. Incorporated ("Smith Barney"),
which resulted in a change in the general partner's name.
Certain officers and directors of RI 3-4 Services are now serving (or in the
past have served) as officers or directors of entities which act as general
partners of a number of real estate limited partnerships which have sought
protection under the provisions of the Federal Bankruptcy Code. The
partnerships which have filed bankruptcy petitions own real estate which has
been adversely affected by the economic conditions in the markets in which the
real estate is located and, consequently, the partnerships sought the
protection of the bankruptcy laws to protect the partnerships' assets from loss
through foreclosure. The names and positions held by the directors and
executive officers of RI 3-4 Services are set forth below. There are no family
relationships between any officers or directors.
Name Office
Paul L. Abbott Director, President, Chief
Financial Officer and Chief
Executive Officer
Donald E. Petrow Vice President
David Sclafani Vice President
Paul L. Abbott, 51, is a Managing Director of Lehman. 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. 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 RI 3-4 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 general partner changed its name to "RI 3-4 Real Estate
Services Inc.", and the Hutton Group changed its name to "LB I Group Inc." to
delete any reference to "Hutton."
Item 11. Executive Compensation
Neither of the General Partners nor any of their directors or executive
officers received any compensation from the Registrant. See Item 13 of this
report for a description of certain 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 executive officers or
directors owns any Units.
Item 13. Certain Relationships and Related Transactions
RI 3-4 Services and ConAm Services each received $44,444 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 the
Registrant, for the fiscal year ended November 30, 1996, $35,413 of the
Registrant's net income was allocated to the General Partners ($17,706.50 to RI
3-4 Services and $17,706.50 to ConAm Services). For a description of the share
of Net Cash From Operations and the allocation of income and loss to which the
General Partners are entitled, reference is made to the material contained on
pages 43-45 of the Prospectus of the Registrant dated March 31, 1983 (the
"Prospectus"), contained in Registrant's Registration No. 2-80991, under the
section captioned "Profits and Losses and Cash Distributions," which section is
incorporated herein by reference thereto.
The Registrant has entered into property management agreements with ConAm
Management pursuant to which ConAm Management has assumed direct responsibility
for day-to-day management of the Properties. It is the responsibility of ConAm
Management to select resident managers and to monitor their performance. ConAm
Management's services also include the supervision of leasing, rent collection,
maintenance, budgeting, employment of personnel, payment of operating expenses,
and related services. For such services, ConAm Management is entitled to
receive a management fee as described on pages 33 and 34 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, "Transactions with
Related Parties," of Notes to the Consolidated 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.
Pursuant to Section 12(g) of the Registrant's Certificate and Agreement of
Limited Partnership, the General Partners may be reimbursed by the Registrant
for certain of their costs as described on page 16 of the Prospectus, which
description is incorporated herein by reference thereto. First Data Investor
Services Group provides partnership accounting and investor relations services
for the Registrant. Prior to May 1993, these services were provided by an
affiliate of a general partner. The Registrant's transfer agent and certain
tax reporting services are provided by Service Data Corporation. Both First
Data Investor Services Group and Service Data Corporation are unaffiliated
companies. A summary of amounts paid to the General Partners or their
affiliates during the past three years is incorporated by reference to Note 6,
"Transactions with Related Parties," of Notes to the Consolidated 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
------
Consolidated Balance Sheets - November 30, 1996 and 1995 (1)
Consolidated Statements of Operations - For the years ended
November 30, 1996, 1995 and 1994 (1)
Consolidated Statements of Partners' Capital (Deficit) - For the
years ended November 30, 1996, 1995 and 1994. (1)
Consolidated Statements of Cash Flows - For the years ended
November 30, 1996, 1995 and 1994 (1)
Notes to the Consolidated Financial Statements (1)
Report of Independent Accountants (1)
(a)(2) Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation (F-1)
Report of Independent Accountants (F-2)
(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 March 31, 1983, contained in Amendment No. 1
to Registration Statement No. 2-80991, of Registrant filed
March 29, 1983 (the "Registration Statement")).
(B) Subscription Agreement and Signature Page (included as, and
incorporated herein by reference to, Exhibit 3.1 to Amendment No. 1
to the Registration Statement).
(10)(A) Purchase Agreement relating to Autumn Heights, between the Registrant
and Highland Properties, Inc., 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 filed February 28, 1985
for the fiscal year ended November 30, 1984
(the "1984 Annual Report")).
(B) Purchase Agreement relating to Skyline Village, between the Registrant
and Epoch Properties, Inc., and the exhibits thereto (included as,
and incorporated herein by reference to, Exhibit (10)(C) to the
Registrant's Annual Report on Form 10-K filed February 28, 1984
for the fiscal year ended November 30, 1983).
(C) Purchase Agreement relating to Country Place Village II, between the
Registrant and Epoch Properties, Inc. and the exhibits thereto
(included as, and incorporated herein by reference to, Exhibit
(10)(C) to the 1984 Annual Report).
(D) Purchase Agreement relating to Ponte Vedra Beach Village II, between
the Registrant and Epoch Properties, Inc., and the exhibits thereto
(included as, and incorporated herein by reference to, Exhibit
(10)(A) to the Quarterly Report).
(E) Loan Documents: Promissory Note and Deed of Trust, Assignment of
Rents and Security Agreement with respect to the mortgaging of
Skyline Village dated December 20, 1991 (included as, and
incorporated herein by reference to, Exhibit 10(K) to the
Registrant's 1991 Annual Report on Form 10-K filed on
February 27, 1992).
(F) Settlement Agreement by and among the Managing Joint Venturers and
the Epoch Joint Venturers dated July 1, 1992 (included as, and
incorporated herein by reference to, Exhibit 10.1 to the Registrant's
Quarterly Report on From 10-Q filed on October 14, 1992).
(G) Amended and Restated Agreement of Limited Partnership of Skyline
Village Joint Venture Limited Partnership dated as of July 1, 1992
(included as, and incorporated herein by reference to, Exhibit
10.2 to the Registrant's Quarterly Report on Form 10-Q filed on
October 14, 1992).
(H) Amended and Restated Agreement of General Partnership of Country
Place Village II Joint Venture dated as of July 1, 1992 (included as,
and incorporated herein by reference to, Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q filed on October 14, 1992).
(I) Loan Documents: Promissory Note and Assignment of Rents and Leases
with respect to the refinancing of Autumn Heights, between
Registrant and John Hancock Life Insurance Company (included as,
and incorporated herein by reference to, Exhibit 10-J to the
Registrant's 1993 Annual Report on Form 10-K filed on March 30, 1994).
(J) Property Management Agreement between Registrant and Con Am
Management Corporation for the Ponte Vedra Beach Village II property
(included as, and incorporated herein by reference to, Exhibit
10(L) to the Registrant's 1993 Annual Report on Form 10-K filed
on March 30, 1994).
(K) Property Management Agreement between Registrant and Con Am
Management Corporation for the Skyline Village property (included
as, and incorporated herein by reference to, Exhibit 10(M) to the
Registrant's 1993 Annual Report on Form 10-K filed on
March 30, 1994).
(L) Property Management Agreement between Registrant and ConAm
Colorado, Inc. for the Autumn Heights property (included as, and
incorporated herein by reference to, Exhibit 10(N) to the
Registrant's 1993 Annual Report on Form 10-K filed on March 30, 1994).
(13) Annual Report to Unitholders for the fiscal year ended
November 30, 1996
(22) List of Subsidiaries - Joint Ventures (included as, and incorporated
herein by reference to, Exhibit 22 to the Registrant's 1991
Annual Report on Form 10-K filed on February 27, 1992 for the
fiscal year ended November 30, 1991).
(27) Financial Data Schedule.
(99) Portions of Prospectus of Registrant dated March 31, 1983 (included
as, and incorporated herein by reference to, Exhibit 28 to the
Registrant's Annual Report on Form 10-K filed on
February 28, 1988 for the fiscal year ended November 30, 1987).
(b) Reports on Form 8-K:
No reports on Form 8-K were filed in the fourth quarter of fiscal
1996.
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 INVESTORS 3
BY: RI 3-4 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 IV, Ltd.
General Partner
BY: Continental American Development, Inc.
General Partner
BY: /S/ Daniel J. Epstein
Name: Daniel J. Epstein
Title: President, Director and
Principal Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capabilities and on the dates indicated.
RI 3-4 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 IV, 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 Investors 3
1996 ANNUAL REPORT
Exhibit 13
Hutton/ConAm Realty Investors 3
Hutton/ConAm Realty Investors 3 is a California limited
partnership formed in 1983 to acquire, operate and hold
for investment multifamily housing properties. At
November 30, 1996, the Partnership's portfolio
consisted of three apartment properties located in
Colorado, Arizona and Florida. Provided below is a
comparison of average occupancy levels for the years
ended November 30, 1996 and 1995.
Average Occupancy
Property Location 1996 1995
Autumn Heights Colorado Springs, Colorado 96% 96%
Ponte Vedra Beach Village II Ponte Vedra Beach, Florida 95% 93%
Skyline Village Tucson, Arizona 93% 94%
Contents
1 Message to Investors
3 Performance Summary
4 Financial Highlights
5 Consolidated Financial Statements
8 Notes to the Consolidated 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
Investors 3 (the "Partnership"). In this report we discuss general market
conditions affecting the Partnership's three properties and provide information
on the Partnership's future operating strategies. We have also included a
performance summary which addresses operations at each of the properties and
financial highlights for the year.
Cash Distributions
The Partnership paid cash distributions totaling $10.00 per Unit for the year
ended November 30, 1996, including the fourth quarter distribution of $2.50 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 $402.50 per original $500 Unit, including $250 per Unit in return of
capital payments. The General Partners will determine the amount of future
distributions based on the Partnership's available cash from operations each
quarter.
Existing problems with the roofs at Ponte Vedra Beach Village II were
aggravated by severe tropical rain storms late in 1996. After evaluating the
damages, the General Partners received several competitive bids to repair the
roofs, and subsequently selected a contractor. The roof repairs are currently
underway and are scheduled to be completed this year. The anticipated cost of
repairing the roofs is approximately $200,000.
Operations Overview
Multi-family real estate continued to perform well during 1996, with property
values and apartment rents increasing in many areas of the country. In
particular, Jacksonville and Colorado Springs were among the strongest
multifamily housing markets in the country in 1996. The improving conditions
prompted a rise in new construction in the markets where the Partnership owns
properties, causing a slowdown in leasing activity towards the end of the year.
In Tucson, market conditions were also impacted by the decision of many renters
to purchase homes. This increased the use of rent specials at many large
apartment properties, including Skyline Village, to attract new tenants.
Nonetheless, the Partnership's properties maintained average occupancy levels
for the year of at least 93%, and the Partnership's rental income for the three
properties increased by 3.9% from the previous year. It is expected that the
competitive conditions will persist in all three markets in 1997, but continued
economic improvement and a slowdown in construction should prevent these areas
from becoming significantly overbuilt.
The General Partners continually monitor the operations of the Partnership's
properties, the status of the real estate markets, and other factors to
determine the optimum time to sell the Partnership's properties to maximize
value. Those efforts resulted in the sale of Bernardo Point Apartments in
1990, and Country Place Village II in 1995, and special distributions from the
sales, aggregating $177 per Unit were paid to the limited partners. Given the
improvement in the performance of the Partnership's properties, and the
improvement in the real estate capital markets which has increased demand by
potential buyers, the General Partners have determined that it is in the best
interest of the Partnership to attempt to sell the remaining three 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. There can be no assurance that any specific property or
all the properties can be sold, that particular prices will be achieved, or
that all the properties can be sold within this time frame. We will keep you
apprised of our sales efforts 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
During 1997, we intend to monitor market conditions in an effort to sell the
three remaining properties within the next few years. 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
RI 3-4 Real Estate Services, Inc. Continental American
Development Inc. General Partner of ConAm Property
Services IV, Ltd.
February 28, 1997
Performance Summary
Autumn Heights Colorado Springs, Colorado
Autumn Heights, a 140-unit apartment complex located in the southwest section
of Colorado Springs, posted strong operations during 1996. Average occupancy
at the property during the year was 96%, unchanged from 1995. Additionally,
the property's rental income increased by 5.9% from 1995 to 1996. Strong
market conditions in Colorado Springs have resulted in a surge in new
construction of multifamily properties. This new supply is expected to have a
minimal impact on the multifamily market given the area's growing population
and strong economy. However, continuing construction at this pace or a
downturn in the area's economy could lead to a softening of the market in the
future.
Ponte Vedra Beach Village II Ponte Vedra Beach, Florida
Ponte Vedra Beach Village II is a 124-unit luxury apartment complex located in
an oceanside residential area to the southeast of Jacksonville. The property
reported an average occupancy level of 95% in fiscal 1996 and an increase in
rental income of 8.6% from the prior year. Property improvements for the year
included roof and asphalt repairs, carpet replacement and other improvements to
maintain the property's competitive position. Favorable market conditions in
the Jacksonville area have led to an increase in new multifamily construction.
Three new apartment complexes were recently completed in the Ponte Vedra Beach
submarket near Ponte Vedra Beach Village II containing approximately 631 units.
Despite the new units becoming available for rent, it is expected that the
market will remain stable in 1997. This is partially due to Jacksonville's
1996 ranking as one of the fastest growing labor markets in the country.
Skyline Village Tucson, Arizona
Skyline Village contains 168 units and is located in the northwest area of
Tucson. The property maintained an average occupancy rate of 93% during 1996
compared to 94% for 1995. The slight decline in occupancy caused a similar
decrease in the property's rental income. These operating results are
indicative of the increasing competition in the Tucson market. While Tucson's
economy began to slow in 1995 and 1996, construction of multifamily properties
has increased significantly. The addition of new properties is beginning to
put downward pressure on occupancy rates and is limiting rental rate increases.
The increased competition has also led to the reemergence of rental incentives.
In addition, the multifamily market has been unfavorably impacted by relatively
low interest rates which has made home ownership a viable alternative for
renters. A local survey of metropolitan Tucson conducted in the second quarter
of 1996 showed an average occupancy rate of 88.9% among multifamily properties,
down from 91.1% at the same period in 1995. In the Catalina Foothills
submarket, where Skyline Village is located, occupancy rates declined from 91%
in the second quarter of 1995 to 84.5% in the same period in 1996.
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 $3,745 $4,203 $4,298 $4,033 $3,864
Loss on Sale of Property _ (84) _ _ _
Net Income (Loss) 354 85 18 3 (454)
Net Cash Provided by
Operating Activities 1,205 1,185 1,197 1,154 943
Long-term Obligations 8,435 8,565 11,599 10,636 10,733
Total Assets at Year End 18,977 19,650 27,614 30,184 30,888
Net Income (Loss) per
Limited Partnership Unit* $3.98 .87 .20 .03 (5.61)
Distributions per
Limited Partnership Unit* 10.00 10.00 14.00 8.00 6.00
Special Distributions per
Limited Partnership Unit* _ 50.00 30.00 0.00 10.00
* 80,000 units outstanding
- - Total income decreased from fiscal 1995 to fiscal 1996, primarily due to
the July 1995 sale of Country Place Village II. Interest income also
declined from the 1995 period due to lower cash balances held by the
Partnership in 1996. This decrease was partially offset by increased
rental income at Autumn Heights and Ponte Vedra Beach Village II.
- - The increase in net income is due primarily to reductions in property
operating expenses and most other major expense categories resulting from
the sale of Country Place Village II. Also contributing to lower net
income in the 1995 period was the recognition of a loss on the sale of
Country Place Village II.
Cash Distributions
Per Limited Partnership Unit
1996 1995
Special Distributions* $ _ $ 50.00
First Quarter 2.50 2.50
Second Quarter 2.50 2.50
Third Quarter 2.50 2.50
Fourth Quarter 2.50 2.50
Total $ 10.00 $ 60.00
* On August 22, 1995, the Partnership paid a special cash distribution
totaling $50 per Unit, reflecting a return of capital from the net
proceeds of the July 1995 sale of Country Place Village II and the
remaining proceeds from the sale of Bernardo Point in 1990.
Consolidated Balance Sheets At November 30, At November 30,
1996 1995
Assets
Investments in real estate:
Land $5,817,668 $5,817,668
Buildings and improvements 22,326,780 22,164,580
28,144,448 27,982,248
Less accumulated depreciation (10,510,777) (9,645,010)
17,633,671 18,337,238
Cash and cash equivalents 1,084,483 1,060,348
Restricted cash 84,934 61,141
Other assets, net of accumulated amortization
of $163,192 in 1996 and $120,176 in 1995 173,569 191,114
Total Assets $18,976,657 $19,649,841
Liabilities and Partners' Capital
Liabilities:
Mortgages payable $8,434,843 $8,564,859
Distribution payable 222,222 222,222
Accounts payable and accrued expenses 156,786 174,724
Due to general partners and affiliates 15,808 15,010
Security deposits 118,601 109,876
Total Liabilities 8,948,260 9,086,691
Partners' Capital (Deficit):
General Partners (899,777) (846,302)
Limited Partners 10,928,174 11,409,452
Total Partners' Capital 10,028,397 10,563,150
Total Liabilities and Partners' Capital $18,976,657 $19,649,841
Consolidated Statements of Partners' Capital (Deficit)
For the years ended November 30, 1996, 1995 and 1994
General Limited
Partners Partners Total
Balance at November 30, 1993 $(650,821) $19,644,389 $18,993,568
Net income 1,751 15,758 17,509
Cash distributions (124,444) (3,520,000) (3,644,444)
Balance at November 30, 1994 (773,514) 16,140,147 15,366,633
Net income 16,100 69,305 85,405
Cash distributions (88,888) (4,800,000) (4,888,888)
Balance at November 30, 1995 (846,302) 11,409,452 10,563,150
Net income 35,413 318,722 354,135
Cash distributions (88,888) (800,000) (888,888)
Balance at November 30, 1996 $(899,777) $10,928,174 $10,028,397
Consolidated Statements of Operations
For the years ended November 30, 1996 1995 1994
Income
Rental $3,688,364 $4,027,970 $4,146,674
Interest and other 57,109 174,780 151,152
Total Income 3,745,473 4,202,750 4,297,826
Expenses
Property operating 1,581,543 1,912,816 1,936,098
Depreciation and amortization 908,783 1,047,513 1,137,125
Interest 748,229 929,646 1,066,185
General and administrative 152,783 143,378 140,909
Total Expenses 3,391,338 4,033,353 4,280,317
Income from operations 354,135 169,397 17,509
Loss on sale of property _ (83,992) _
Net Income $354,135 $ 85,405 $ 17,509
Net Income Allocated:
To the General Partners $ 35,413 $ 16,100 $ 1,751
To the Limited Partners 318,722 69,305 15,758
$354,135 $ 85,405 $ 17,509
Per limited partnership unit
(80,000 outstanding)
Income from operations $3.98 $1.91 $.20
Loss on sale of property _ (1.04) _
Net Income $3.98 $ .87 $.20
Consolidated Statements of Cash Flows
For the years ended November 30, 1996 1995 1994
Cash Flows From Operating Activities:
Net income $354,135 $85,405 $17,509
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 908,783 1,047,513 1,137,125
Loss on sale of property _ 83,992 _
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Fundings to restricted cash (156,654) (152,988) (143,834)
Release of restricted cash to property
operations 132,861 149,827 140,968
Other assets (25,471) 8,738 39,838
Accounts payable and accrued expenses (17,938) 16,885 (14,430)
Due to general partners and affiliates 798 (2,867) 1,450
Security deposits 8,725 (51,791) 18,061
Net cash provided by operating activities 1,205,239 1,184,714 1,196,687
Cash Flows From Investing Activities:
Net proceeds from sale of property _ 3,832,290 _
Additions to real estate (162,200) (158,367) (146,029)
Net cash provided by (used for)
investing activities (162,20) 3,673,923 (146,029)
Cash Flows From Financing Activities:
Mortgage borrowings _ _ 5,500,000
Mortgage principal payments (130,016) (3,033,660) (4,537,574)
Distributions (888,888) (4,977,777) (3,555,555)
Mortgage fees _ _ (74,496)
Refund of deposit on mortgage refinancing _ _ 55,000
Net cash used for financing activities (1,018,904) (8,011,437) (2,612,625)
Net increase (decrease) in cash and cash
equivalents 24,135 (3,152,800) (1,561,967)
Cash and cash equivalents, beginning
of period 1,060,348 4,213,148 5,775,115
Cash and cash equivalents, end of period $1,084,483 $1,060,348 $4,213,148
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the period for interest $748,229 $929,646 $1,066,185
Notes to the Consolidated Financial Statements
November 30, 1996, 1995 and 1994
1. Organization
Hutton/ConAm Realty Investors 3 (the "Partnership") was organized as a limited
partnership under the laws of the State of California pursuant to a Certificate
and Agreement of Limited Partnership (the "Partnership Agreement") dated July
14, 1983. The Partnership was formed for the purpose of acquiring and operating
certain types of residential real estate. The general partners of the
Partnership are RI 3-4 Real Estate Services, Inc., an affiliate of Lehman
Brothers, Inc. (see below), and ConAm Property Services IV, Ltd., an affiliate
of Continental American Properties, Ltd. (the "General Partners"). The
Partnership will continue until December 31, 2010 unless sooner terminated
pursuant to the terms of the Partnership Agreement.
On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its domestic
retail brokerage and asset management businesses to Smith Barney, Harris Upham
& Co. Incorporated ("Smith Barney"). Subsequent to the sale, Shearson Lehman
Brothers Inc. changed its name to Lehman Brothers Inc. ("Lehman Brothers"). The
transaction did not affect the ownership of the General Partners. However, the
assets acquired by Smith Barney included the name "Hutton." Consequently,
effective October 8, 1993, the Hutton Real Estate Services VIII, Inc. General
Partner changed its name to "RI 3-4 Real Estate Services, Inc."
On March 15, 1996, based upon, among other things, the advice of legal counsel,
Skadden, Arps, Slate, Meagher & Flom, the General Partners adopted a resolution
that states, among other things, if a Change of Control (as defined below)
occurs, the General Partners may distribute the Partnership's cash balances not
required for its ordinary course day-to-day operations. "Change of Control"
means any purchase or offer to purchase more than 10% of the Units that is not
approved in advance by the General Partners. In determining the amount of the
distribution, the General Partners may take into account all material factors.
In addition, the Partnership will not be obligated to make any distribution to
any partner and no partner will be entitled to receive any distribution until
the General Partners have declared the distribution and established a record
date and distribution date for the distribution.
2. Significant Accounting Policies
Financial Statements The consolidated financial statements include the accounts
of the Partnership and its affiliated ventures. The effect of transactions
between the Partnership and its ventures have been eliminated in consolidation.
Real Estate Investments Real estate investments are recorded at cost less
accumulated depreciation and include the initial purchase price of the
property, legal fees, acquisition and closing costs.
Leases are accounted for under the operating method. Under this method,
revenue is recognized as rentals are earned and expenses (including
depreciation) are charged to operations when incurred. Leases are generally for
terms of one year or less.
Depreciation is computed using the straight-line method based upon the
estimated useful lives of the properties. Maintenance and repairs are charged
to operations as incurred. Significant betterments and improvements are
capitalized and depreciated over their estimated useful lives.
For assets sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
reflected in income for the period.
Accounting for Impairment In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" ("FAS" 121"), which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. FAS 121 also addresses the accounting
for long-lived assets that are expected to be disposed of. The Partnership
adopted FAS 121 in the fourth fiscal quarter of 1995.
Fair Value of Financial Instruments Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments"
("FAS 107"), requires that the Partnership disclose the estimated fair values
of its financial instruments. Fair values generally represent estimates of
amounts at which a financial instrument could be exchanged between willing
parties in a current transaction other than in forced liquidation. However, in
many instances current exchange prices are not available for certain of the
Partnership's financial instruments, since no active market generally exists
for such financial instruments.
Fair value estimates are subjective and are dependent on a number of
significant assumptions based on management's judgment regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. In addition, FAS 107 allows
a wide range of valuation techniques, therefore, comparisons between entities,
however similar, may be difficult.
Other Assets Included in other assets are mortgage costs incurred in connection
with obtaining financing on the Partnership's properties. Such costs are
amortized over the initial term of the applicable loan.
Offering Costs Costs relating to the sale of limited partnership units were
deferred during the offering period and charged to the limited partners'
capital accounts upon the consummation of the public offering.
Income Taxes No provision for income taxes has been made in the financial
statements since income, losses and tax credits are passed through to the
individual partners.
Cash and Cash Equivalents Cash and cash equivalents consist of highly liquid
short-term investments with maturities of three months or less from date of
issuance. Cash and cash equivalents include security deposits of $34,316 and
$32,096 at November 30, 1996 and 1995, respectively, the use of which is
restricted under certain 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 institution's insurance limits.
The Partnership invests available cash with high credit quality financial
institutions.
Restricted Cash Restricted cash consists of escrows for real estate taxes as
required by the first mortgage lender in the amount of $84,934 and $61,141 at
November 30, 1996 and 1995, respectively.
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications Certain prior year amounts have been reclassified in order
to conform to the current year's presentation.
3. The Partnership Agreement
The Partnership Agreement provides that net cash from operations, as defined,
will be distributed quarterly, 90% to the limited partners and 10% to the
General Partners.
Net loss for any fiscal year will be allocated 99% to the limited partners and
1% to the General Partners. Net income for any fiscal year will generally be
allocated 90% to the limited partners and 10% to the General Partners.
Net proceeds from sales or refinancing will be distributed 100% to the limited
partners until each limited partner has received an amount equal to his
adjusted capital value (as defined) and an annual, cumulative 7% return
thereon. The balance, if any, will be distributed 85% to the limited partners
and 15% to the general partners. Generally, all gain from sales will be
allocated in the same manner as net proceeds from sales or refinancing.
4. Real Estate Investments
The Partnership has three residential apartment complexes acquired either
directly or through investments in joint ventures as follows:
Apartment Date Purchase
Property Name Units Location Acquired Price
- -------------------------------------------------------------------------------
Autumn Heights 140 Colorado Springs, CO 1/25/85 $9,234,438
Skyline Village 168 Tucson, AZ 3/20/85 10,388,068
Ponte Vedra Beach Village II 124 Jacksonville, FL 8/22/85 6,547,829
- -------------------------------------------------------------------------------
On December 20, 1990, Bernardo Point was sold to an unaffiliated party. The
gross sales price of $19,915,000, paid in cash, was determined based upon
current market values of comparable properties in the region. After paying off
the first mortgage loan of $7,400,000 and related closing costs, the
Partnership received net cash proceeds of $12,275,200. Gain on sale for
financial statement purposes in the fiscal year ended November 30, 1991 was
$8,450,578 and was allocated to the limited partners in accordance with the
Partnership Agreement. The General Partners distributed $7,760,000 of the net
sales proceeds amount while the remaining balance of approximately $4,515,000
was utilized to repay the Skyline Village mortgage loan in June 1991.
On July 20, 1995, the Partnership sold Country Place Village II (the
"Property") for $3,890,000 to an institutional buyer (the "Buyer"), which was
unaffiliated with the Partnership. The selling price was determined by arm's
length negotiations between the Partnership and the Buyer. The Partnership
received net proceeds of $3,832,290. The transaction resulted in a loss on
sale for the Property of $83,992 which was allocated in accordance with the
Partnership Agreement. On August 22, 1995, the General Partners paid a special
distribution of $4,000,000 to the limited partners. The special distribution
was comprised of a portion of the net proceeds from the sale of the Property
and Partnership cash reserves.
Skyline Village and Country Place Village II were acquired through joint
ventures with an unaffiliated developer. To each venture, the Partnership
assigned its rights to acquire the above properties and contributed cash equal
to the purchase price of the properties. The developer did not make an initial
capital contribution to these ventures.
In the case of Country Place Village II, the Joint Venture form was retained.
The Partnership entered into an amended and restated Agreement of General
Partnership, dated as of July 1, 1992 with its two corporate General Partners,
RI 3-4 Real Estate Services, Inc. and ConAm Property Services IV, Ltd. In the
case of Skyline Village, the joint venture has been converted to a limited
partnership. The Partnership entered into an amended and restated Agreement of
Limited Partnership, dated as of July 1, 1992 with its two corporate General
Partners, RI 3-4 Real Estate Services, Inc. and ConAm Property Services IV,
Ltd., as General Partners, and the Partnership as the sole limited partner.
There has been no interruption in either management or operating activities of
the Partnership as a result of the settlement. The amended limited partnership
and general partnership agreements of Skyline Village and Country Place Village
II substantially provide that:
a. Available cash from operations will be distributed 100% to the Partnership
until it has received an annual, non-cumulative preferred return of $675,000
and $450,000, respectively. Any remaining balance will be distributed 99% to
the Partnership and 1% to the corporate General Partners.
b. Net income will be allocated first, proportionately to partners with
negative capital accounts, as defined, until such capital accounts have been
increased to zero then, to the Partnership up to the amount of any payments
made on account of its preferred return and thereafter, 99% to the Partnership
and 1% to the corporate General Partners. All net losses will be allocated
first, to the partners with positive capital accounts, as defined, until such
accounts have been reduced to zero and then, 99% to the Partnership and 1% to
the corporate General Partners.
c. Income from a sale will be allocated first, to the Partnership until the
Partnership's capital accounts, as defined, are equal to the fair market value
of the ventures' assets at the date of the amendment. Then, any remaining
balance will be allocated 99% to the Partnership and 1% to the corporate
General Partners. Net proceeds from a sale or refinancing will be distributed
first, to the partners with the positive capital account balance, as defined;
thereafter, 99% to the Partnership and 1% to the corporate General Partners.
5. Mortgages Payable The Partnership's first mortgage loans are comprised as
follows:
Autumn Heights On October 9, 1985, the Partnership obtained a first mortgage
loan of $4,600,000 collateralized by a deed of trust encumbering Autumn
Heights. The loan had an initial term of five years and bore interest at an
annual rate of 11% with monthly payments of interest only for the first two
years. The loan was extended in 1990 for an additional three years bearing
interest at an annual rate of 10.00%. The remaining balance of $4,422,269
matured November 1, 1993. A regular monthly mortgage payment was made on
November 30, 1993 resulting in a principal balance of $4,411,215 at November
30, 1993. The General Partners submitted a financing application to the
existing lender, John Hancock Life Insurance Company ("John Hancock"), along
with a refundable good faith deposit equal to 2% of the new loan balance of
$5.5 million; 1% of the deposit was refundable and 1% represented John
Hancock's financing fee. John Hancock issued a loan commitment dated May 28,
1993.
On January 6, 1994, the Partnership obtained replacement financing from John
Hancock. Total proceeds of $5,500,000 were received and are collateralized by
a Deed of Trust, Security Agreement and Fixture Filing with Assignment of Rents
Agreement encumbering the property. The loan is for a term of seven years and
bears interest at an annual rate of 8% requiring monthly installments of
principal and interest based on a 25 year amortization schedule. The loan
requires monthly real estate tax escrow fundings. The proceeds in excess of
the maturing loan balance, approximately $1 million, were added to the
Partnership's cash reserve. Annual maturities for principal will be $90,857 in
fiscal year 1997, $98,399 in fiscal year 1998, $106,566 in fiscal year 1999,
$115,411 in fiscal year 2000 and $4,861,576 in fiscal year 2001.
Skyline Village On December 20, 1991, the venture obtained a first mortgage
loan of $3,350,000 from the Penn Mutual Life Insurance Company ("Penn Mutual")
collateralized by a deed of trust, the land and the improvements, and an
assignment of rents and security encumbering Skyline Village. During 1996,
Penn Mutual transferred the first mortgage loan to GE Capital Asset Management
Corp. under the existing terms. The loan is for a term of seven years and
bears interest at an annual rate of 10.125% requiring monthly installments of
principal and interest. Annual maturities for principal will be $51,014 in
fiscal year 1997, $56,426 in fiscal year 1998 and $3,054,594 in fiscal year
1999.
On May 27, 1992, the General Partners made a special cash distribution to the
limited partners with a portion of the mortgage loan proceeds. On January 27,
1994, the General Partners made an additional special cash distribution to the
limited partners from the remaining mortgage loan proceeds.
Country Place Village II On July 15, 1985, the venture obtained a first
mortgage loan of $3,000,000 collateralized by a mortgage encumbering Country
Place Village II. The loan had an initial term of five years and bore interest
at an annual rate of 12.5% with monthly interest payments only. The loan was
extended in 1990 for an additional five years bearing interest at an annual
rate of 10.15% with monthly principal and interest payments. The mortgage
matured in July 1995, with the remaining principal of $2,900,075 due. On June
29, 1995, the Partnership paid $2,925,099, representing principal and interest,
from cash reserves to fully satisfy its mortgage obligation on Country Place
Village II.
Annual maturities of mortgage notes principal at November 30, over the next
five fiscal years are as follows:
Year Amount
------------------------------
1997 $ 141,871
1998 154,825
1999 3,161,160
2000 115,411
2001 4,861,576
------------------------------
$8,434,843
Based on borrowing rates currently available to the Partnership for mortgage
loans with similar terms and average maturities, the fair value of long-term
debt approximates carrying value.
6. Transactions with Related Parties
The following is a summary of fees earned and reimbursable expenses to the
General Partners and affiliates for the years ended November 30, 1996, 1995 and
1994, and the unpaid portion at November 30, 1996:
Unpaid at
November 30, Earned
------------------------
1996 1996 1995 1994
RI 3-4 Real Estate Services, Inc.
and affiliates:
Out-of-pocket expenses $ _ $1,125 $3,105 $1,434
ConAm and affiliates:
Property operating salaries _ 233,653 258,010 280,845
Property management fees 15,808 184,685 203,107 207,193
Total $15,808 $419,463 $464,222 $489,472
7. Reconciliation of Financial Statement and Tax Information The following is a
reconciliation of the net income for financial statement purposes to net income
(loss) for federal income tax purposes for the years ended November 30, 1996,
1995 and 1994:
1996 1995 1994
- -------------------------------------------------------------------------------
Net income per financial statements $354,135 $85,405 $ 17,509
Depreciation deducted for tax
purposes in excess of depreciation
expense per financial statements (143,654) (117,445) (182,687)
Tax basis gain on sale in
excess of GAAP loss on sale _ 852,564 _
Tax basis joint venture net
income (loss) in excess of GAAP
basis joint venture net loss (72,634) (74,889) (172,232)
Other (11,175) 3,951 (949)
- -------------------------------------------------------------------------------
Taxable net income (loss) $126,672 $749,586 $(338,359)
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 $10,028,397 $10,563,150 $15,366,633
Adjustment for cumulative difference
between tax basis net income (loss) and
net income per financial statements (3,452,760) (3,225,297) (3,889,478)
- -------------------------------------------------------------------------------
Partners' capital per tax return $6,575,637 $7,337,853 $11,477,155
8. Distributions Paid Cash distributions, per the consolidated statements of
partners' capital (deficit), are recorded on the accrual basis, which
recognizes specific record dates for payments within each fiscal year. The
consolidated statements of cash flows recognize actual cash distributions paid
during the fiscal year. The following table discloses the annual differences
as presented on the consolidated financial statements:
Distributions Distributions
Payable Distributions Distributions Payable
Beginning of Year Declared Paid November 30
- -------------------------------------------------------------------------------
1996 $ 222,222 $ 888,888 $ 888,888 $ 222,222
1995 311,111 4,888,888 4,977,777 222,222
1994 222,222 3,644,444 3,555,555 311,111
- -------------------------------------------------------------------------------
Report of Independent Accountants
To the Partners of
Hutton/ConAm Realty Investors 3:
We have audited the consolidated balance sheets of Hutton/ConAm Realty
Investors 3, a California limited partnership, and Consolidated Ventures as of
November 30, 1996 and 1995, and the related consolidated statements of
operations, partners' capital (deficit) and cash flows for each of the three
years in the period ended November 30, 1996. These consolidated financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Hutton/ConAm Realty Investors 3, a California limited partnership, and
Consolidated Ventures as of November 30, 1996 and 1995, and the consolidated
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.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 14, 1997
Net Asset Valuation
Comparison of Acquisition Costs to Appraised Value and
Determination of Net Asset Value Per $250 Unit at November 30, 1996 (Unaudited)
Acquisition Cost
(Purchase Price Partnership's
Plus General Share of
Partners' November 30,
Acquisition 1996 Appraised
Property Date of Acquisition Fees) Value (1)
- ------------------------------------------------------------------------------
Autumn Heights 01-25-85 $ 9,687,174 $ 11,200,000 (1)
Skyline Village 03-20-85 10,838,195 7,200,000 (1)
Ponte Vedra Beach Village II 08-22-85 6,869,917 5,600,000 (1)
----------- ------------
$27,395,286 24,000,000
Cash and cash equivalents 1,169,417
Other assets 35,647
------------
25,205,064
Less:
Total liabilities (8,948,260)
------------
Partnership Net Asset Value (2) $16,256,804
Net Asset Value Allocated:
Limited Partners $16,187,639
General Partners 69,165
------------
$16,256,804
Net Asset Value Per Unit
(80,000 outstanding) $202.35 (2)
- -------------------------------------------------------------------------------
(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 at November 30, 1996 of
all the Partnership's properties at a price based upon their value as a
rental property as determined by an independent property appraisal firm,
and the distribution of the proceeds of such sale, combined with the
Partnership's cash after liquidation of the Partnership's liabilities,
to the Partners.
Limited Partners should note that appraisals are only estimates of current
value and actual values realizable upon sale may be significantly different.
A significant factor in establishing an appraised value is the actual selling
price for properties which the appraiser believes are comparable. In addition,
the appraised value does not reflect the actual costs which would be incurred
in selling the properties. As a result of these factors and the illiquid
nature of an investment in Units of the Partnership, the variation between the
appraised value of the Partnership's properties and the price at which Units of
the Partnership could be sold may be significant. Fiduciaries of Limited
Partners which are subject to ERISA or other provisions of law requiring
valuations of Units should consider all relevant factors, including, but not
limited to Net Asset Value per Unit, in determining the fair market value of
the investment in the Partnership for such purposes.
Schedule III - Real Estate and Accumulated Depreciation
November 30, 1996
Consolidated
Residential Property: Venture
Autumn Ponte Vedra Skyline
Heights Beach Village II Village Total
- -------------------------------------------------------------------------------
Location Colorado Jacksonville, FL Tucson, AZ na
Springs, CO
Construction date 1983-1985 1984-1985 1984-1985 na
Acquisition date 01-25-85 08-22-85 03-20-85 na
Life on which
depreciation
in latest income
statements is computed (3) (3) (3) na
Encumbrances $5,272,809 $ _ $3,162,034 $8,434,843
Initial cost to
Partnership:
Land $1,581,000 $788,000 $3,410,000 $5,779,000
Buildings and
improvements $8,123,598 $6,138,289 $7,510,205 $21,772,092
Costs capitalized
subsequent to
acquisition:
Land, buildings
and improvements $287,159 $201,225 $104,972 $593,356
Gross amount at which
carried at close of
period: (1)
Land $1,589,840 $789,882 $3,437,946 $5,817,668
Buildings and
improvements 8,401,917 6,337,632 7,587,231 22,326,780
- -------------------------------------------------------------------------------
$9,991,757 $7,127,514 $11,025,177 $28,144,448
- -------------------------------------------------------------------------------
Accumulated
depreciation (2) $3,979,610 $2,873,296 $3,657,871 $10,510,777
- -------------------------------------------------------------------------------
(1) Represents aggregate cost for both financial reporting and Federal income
tax purposes.
(2) The amount of accumulated depreciation for Federal income tax purposes is
$17,898,507.
(3) Buildings and improvements - 25 years; personal property - 10 years.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended November 30, 1996, 1995, and 1994 follows:
1996 1995 1994
- -------------------------------------------------------------------------------
Real estate investments:
Beginning of year $27,982,248 $33,729,426 $33,583,397
Additions 162,200 158,367 146,029
Dispositions _ (5,905,545) _
- -------------------------------------------------------------------------------
End of year $28,144,448 $27,982,248 $33,729,426
- -------------------------------------------------------------------------------
Accumulated depreciation:
Beginning of year $9,645,010 $10,629,776 $9,533,654
Depreciation expense 865,767 1,004,497 1,096,122
Dispositions _ (1,989,263) _
- -------------------------------------------------------------------------------
End of year $10,510,777 $9,645,010 $10,629,776
- -------------------------------------------------------------------------------
Report of Independent Accountants
Our report on the consolidated financial statements of Hutton/ConAm Realty
Investors 3, a California Limited Partnership, and Consolidated Ventures has
been incorporated by reference in this Form 10-K from the Annual Report to
Unitholders of Hutton/ConAm Realty Investors 3 for the year ended November 30,
1996. In connection with our audits of such financial statements, we have also
audited the related financial statement schedule listed in the index of this
Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material aspects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 14, 1997
</TEXT
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> NOV-30-1996
<CASH> 1,169,417
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 28,144,448
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<TOTAL-ASSETS> 18,976,657
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<BONDS> 8,434,843
<COMMON> 0
0
0
<OTHER-SE> 10,028,397
<TOTAL-LIABILITY-AND-EQUITY> 18,976,657
<SALES> 0
<TOTAL-REVENUES> 3,745,473
<CGS> 0
<TOTAL-COSTS> 1,581,543
<OTHER-EXPENSES> 1,061,566
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 748,229
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<INCOME-CONTINUING> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 354,135
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