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, 1997
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
CONAM REALTY INVESTORS 3 L.P.
formerly known as
HUTTON/CONAM REALTY INVESTORS 3
Exact name of Registrant as specified in its charter
California 13-3176625
State or other jurisdiction of incorporation I.R.S. Employer Identification No.
1764 San Diego Avenue
San Diego, CA 92110 Attn.: Robert J. Svatos 92110-1906
Address of principal executive offices Zip Code
Registrant's telephone number, including area code (619) 297-6771
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 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, 1997.
PART I
Item 1. Business
(a) General Description of Business and Objectives
This Form 10-K contains forward looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in or contemplated by the forward-looking statements as a result
of a number of factors, including those identified herein.
ConAm Realty Investors 3 L.P., formerly known as Hutton/ConAm Realty
Investors 3, (the "Partnership") is a California limited partnership formed
on July 14, 1983. ConAm Property Services IV, Ltd. ("CPS IV"), a
California limited partnership, and RI 3-4 Real Estate Services, Inc. ("RI
3-4"), a Delaware corporation, were the original co-general partners of the
Partnership. On January 27, 1998, CPS IV acquired RI 3-4's co-general
partner interest in the Partnership, effective July 1, 1997, pursuant to a
Purchase Agreement between CPS IV and RI 3-4 dated August 29, 1997. As a
result, CPS IV now serves as the sole general partner (the "General
Partner") of the Partnership. In conjunction with this transaction, the
name of the Partnership was changed from Hutton/ConAm Realty Investors 3 to
ConAm Realty Investors 3 L.P.
The Partnership was organized to engage in the business of acquiring,
operating and holding for investment multifamily residential properties.
The Partnership originally invested in three residential apartment
properties and two joint ventures, each of which owned a specified
property. As described below two properties have been sold. 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 Partnership's investment objectives and policies.
The Partnership'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 is the Partnership's objective
during its operational phase, while preservation and appreciation of
capital are the Partnership's long-term objectives. The attainment of the
Partnership'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 Partnership's properties are
located, especially with regard to achievement of capital appreciation.
From time to time the Partnership 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. Proceeds from any future sale, financing or
refinancing of properties will not be reinvested and may be distributed to
the Limited Partners and General Partner (sometimes referred to together
herein as the "Partners"), so that the Partnership will, in effect, be
self-liquidating. If deemed necessary, the Partnership may retain a
portion of the proceeds from any sale, financing or refinancing as capital
reserves. As partial payment for properties sold, the Partnership 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 Partnership utilized the net proceeds of its public
offering to acquire five residential apartment complexes (collectively, the
"Properties") either directly or through investments in joint ventures, 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; (3) Ponte Vedra Beach Village II, a
124-unit apartment complex, located in Ponte Vedra Beach, Florida; (4)
Country Place Village II, a 100-unit apartment complex, located in
Clearwater, Florida; and (5) Bernardo Point Apartments, a 200-unit
apartment complex, located in San Diego, California. On December 20, 1990,
Bernardo Point Apartments was sold to an unaffiliated institutional buyer
for $19,915,000, and on July 20, 1995, Country Place Village II was sold
for $3,890,000 to an unaffiliated institutional buyer.
The Partnership's mortgage loan secured by Autumn Heights was refinanced in
January 1994 and matures in January 2001. For information concerning the
Partnership's current mortgage indebtedness, see Note 5, "Mortgages
Payable," of the Notes to the Consolidated Financial Statements, included
herein by reference to the Partnership's Annual Report to Unitholders for
the fiscal year ended November 30, 1997, which is filed as an exhibit under
Item 14.
The Partnership considers itself to be engaged in only one industry
segment, real estate investment.
Competition
The Partnership'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 Partnership'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 Partnership 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 these markets. In some cases, the
Partnership may compete with properties owned by partnerships affiliated
with the General Partner.
For a discussion of current market conditions in the areas where the
Partnership's Properties are located, reference is made to the
Partnership's Annual Report to Unitholders for the fiscal year ended
November 30, 1997, which is filed as an exhibit under Item 14.
Employees
The Partnership has no employees. Services are provided by ConAm Services,
ConAm Management Corporation ("ConAm Management"), an affiliate of CPS IV,
as well as Service Data Corporation and First Data Investor Services Group,
both unaffiliated companies. The Partnership has entered into management
agreements pursuant to which ConAm Management provides management services
with respect to the Properties. First Data Investor Services Group had
been retained by the Partnership to provide all accounting and investor
communication functions, while Service Data Corporation provides transfer
agent services. Effective December 1, 1997, the accounting functions of
the Partnership have been transferred to the firm of Brock, Tibbetts, &
Snell, an unaffiliated company located in San Diego, California. See Item
13, "Certain Relationships and Related Transactions", for a further
description of the service and management agreements between the
Partnership and affiliated entities.
Item 2. Properties
For a description of the Partnership's Properties, a discussion of current
market conditions in 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, 1997, 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, included herein by reference to 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 Partnership 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, 1997, 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, 1997, the number of Unitholders of record was 3,767.
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 Partnership'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, 1997, 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, 1997, 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, 1997, the Partnership had cash and cash equivalents of
$796,824 that were invested in unaffiliated money market funds, a decrease
from $1,084,483 at November 30, 1996. The decrease is primarily
attributable to additions to real estate, mortgage principal payments and
cash distributions, all of which in total exceeded cash provided by
operating activities. The Partnership also maintains a restricted cash
balance, which totaled $109,843 at November 30, 1997, an increase from
$84,934 at November 30, 1996. The Partnership expects sufficient cash to
be generated from operations to meet its current operating expenses.
Distribution payable decreased from $222,222 at November 30, 1996 to
$146,659 at November 30, 1997. The decrease is primarily due to the
decline in the quarterly distribution level as a result of lower rental
revenue projections and the use of cash for capital improvements in 1997.
Accounts payable and accrued expenses totaled $218,266 at November 30,
1997, an increase from $156,786 at November 30, 1996. The increase is
primarily due to real estate tax accruals for Skyline Village, and higher
partnership administrative expenses.
The Partnership continues to perform various improvements at the Properties
which include roof replacements at Autumn Heights and Ponte Vedra Beach
Village II and exterior painting at Skyline Village. The anticipated costs
of the roof replacements at Autumn Heights and Ponte Vedra Beach Village II
are $100,000, and $200,000, respectively, and will be funded from the
Partnership's operating cash flow and cash reserves. It is expected that
work at these Properties will be finished by the end of the first quarter
of 1998. The Partnership will evaluate the need for additional improvement
work at the Properties on an ongoing basis.
The Partnership declared a cash distribution of $1.50 per Unit for the
quarter ended November 30, 1997 which was paid to investors on January 21,
1998. 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.
The General Partner is continuing to evaluate the sale potential of the
remaining properties and other options with respect to the Partnership's
investments. One of these options includes refinancing certain loans
secured by the properties in order to return capital to the limited
partners on a tax-free basis and lock in favorable fixed interest rates.
This would also potentially enhance the marketability of the properties,
while enabling the Partnership to take advantage of possible future
property appreciation. The Partnership's ability to sell the properties is
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 the Properties can be sold within a specific time frame.
Results of Operations
1997 versus 1996
Partnership operations for the fiscal year ended November 30, 1997 resulted
in a net loss of $195,483 compared with net income $354,135 in fiscal 1996.
The change from net income in 1996 to a net loss in 1997 is due primarily
to a decline in rental income, an increase in property operating expenses
and the write-off of the remaining basis of the roofs replaced in fiscal
1997. Net cash provided by operating activities decreased to $921,300 for
the fiscal year ended November 30, 1997, from $1,205,239 in fiscal 1996.
The decrease is primarily due to the decline in net income, as discussed
above.
Rental income for the fiscal year ended November 30, 1997 was $3,593,135
compared with $3,688,364 in fiscal 1996. The decrease is primarily due to
lower occupancy and rental rates at Autumn Heights. Interest income
totaled $38,921 for the fiscal year ended November 30, 1997 compared to
$57,109 in fiscal 1996. The decrease is due to the Partnership maintaining
lower average cash balances in the 1997 period when compared to the 1996
period.
Property operating expenses increased to $1,838,576 for the fiscal year
ended November 30, 1997, from $1,581,543 for fiscal 1996. The increase is
primarily attributable to higher repairs and maintenance expenses at all
three properties for flooring and carpet replacement, and other interior
and exterior repairs. The increase is also due to higher rental
administration costs for each property.
General and administrative expenses increased from $152,783 for the fiscal
year ended November 30, 1996 to $177,129 in fiscal 1997. The increase is
primarily due to an increase in expenses for Partnership accounting, tax
and other administrative services. During the 1997 period, certain
expenses incurred by RI 3-4, its affiliates, and an unaffiliated third
party service provider in servicing the Partnership, which were voluntarily
absorbed by affiliates of RI 3-4 in prior periods, were reimbursable to RI
3-4 and its affiliates.
1996 versus 1995
Partnership operations for the fiscal 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 fiscal 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
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 average cash balances in the 1996 period compared to the
1995 period.
Property operating expenses declined to $1,581,543 for the fiscal 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.
The average occupancy levels at each of the properties owned for the full
year during the years ended November 30, 1997, 1996 and 1995 were as
follows:
Twelve Months Ended November 30,
Property 1997 1996 1995
Autumn Heights 92% 96% 96%
Ponte Vedra Beach Village II 95% 95% 93%
Skyline Village 97% 93% 94%
New Accounting Pronouncements
The Financial Accounting Standards Board also issued SFAS No. 129,
"Disclosure of Information about Capital Structure," SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information." These statements,
which are effective for fiscal years beginning after December 15, 1997,
expand or modify disclosures and, accordingly, will have no impact on the
Partnership's reported financial position, results of operations or cash
flows.
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, 1997, 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
Effective December 1, 1997, the Partnership advised Coopers & Lybrand
L.L.P. that it was changing accounting firms and engaged KPMG Peat Marwick
LLP.
Coopers & Lybrand L.L.P.'s report on the financial statements for the years
ended December 31, 1996 and December 31, 1995 contained no adverse opinion
or disclaimer of opinion and was not qualified as to uncertainty, audit
scope or accounting principles. There have been no disagreements with
Coopers & Lybrand L.L.P. on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope procedure.
The decision to change accountants was approved by CPS IV, Ltd. and RI 3-4,
Inc., the General Partners of the Partnership at that time.
PART III
Item 10. Directors and Executive Officers of the Partnership
The Partnership has no officers or directors. CPS IV, the General Partner
of the Partnership, manages and controls the affairs of the Partnership and
has general responsibility and authority in all matters affecting its
business.
ConAm Property Services IV, Ltd. ("CPS IV") is a California limited
partnership organized on August 30, 1982. The sole general partner of CPS
IV 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 and Director
Robert J. Svatos Vice President and Director
Ralph W. Tilley Vice President
J. Bradley Forrester Vice President
Daniel J. Epstein, 58, has been the President and a Director of ConAm
Development. and a general partner of Continental American Properties, Ltd.
("ConAm"), an affiliate of ConAm Services, since their inception. He is
also Chairman and Chief Executive Officer of ConAm Management. Prior to
organizing ConAm, 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, 47, 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, 39, 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, 43, 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 LLP, 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, 40, is the President of ConAm Management. He is
currently responsible for overseeing all aspects of the operations of the
firm. His primary focus is on new business related activities including
property acquisitions, property development and rehabilitation, and the
acquisition of other property management companies. 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 LLP 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.
Item 11. Executive Compensation
Neither the General Partner nor any of its directors or executive officers
received any compensation from the Partnership. See Item 13 of this report
for a description of certain costs of the General Partner and its
affiliates reimbursed by the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of November 30, 1997, no person was known by the Partnership to be the
beneficial owner of more than five percent of the Units of the Partnership.
Neither the General Partner nor any of its executive officers or directors
own any Units.
Item 13. Certain Relationships and Related Transactions
RI 3-4 and CPS IV received a total $53,327 as the General Partners'
allocable share of Net Cash from Operations with respect to the fiscal year
ended November 30, 1997. Pursuant to the Certificate and Agreement of
Limited Partnership of the Partnership, for the fiscal year ended November
30, 1997, $1,955 of the Partnership's net loss was allocated to CPS IV and
RI 3-4. For a description of the share of Net Cash From Operations and the
allocation of income and loss to which the General Partner and former co-
General Partner are entitled, reference is made to Note 3 to the
Consolidated Financial Statements, included in the Partnership's Annual
Report to Unitholders for the year ended November 30, 1997, which is filed
as an exhibit under item 14. Effective July 1, 1997, all General Partner
allocations will be made solely to CPS IV.
The Partnership 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, strategic asset management and
related services. For such services, ConAm Management is entitled to
receive a management fee equal to five percent of gross revenues. A
summary of property management fees earned by ConAm Management during the
past three fiscal years is incorporated by reference to Note 7 to the
Consolidated Financial Statements, included in the Partnership's Annual
Report to Unitholders for the fiscal year ended November 30, 1997, which is
filed as an exhibit under Item 14.
Pursuant to Section 12(g) of the Partnership's Certificate and Agreement of
Limited Partnership, the General Partner may be reimbursed by the
Partnership for certain of its costs. A summary of amounts paid to the
General Partners or their affiliates during the past three years is
incorporated by reference to Note 7, "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, 1997, 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, 1997 and 1996 (1)
Consolidated Statements of Operations - For the years
ended November 30, 1997, 1996 and 1995 (1)
Consolidated Statements of Partners' Capital (Deficit)
- For the years ended November 30, 1997, 1996 and 1995 (1)
Consolidated Statements of Cash Flows - For the years
ended November 30, 1997, 1996 and 1995 (1)
Notes to the Consolidated Financial Statements (1)
Independent Auditors' Report (1)
Report of Former Independent Accountants (1)
(a)(2) Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation (F-1)
Independent Auditors' Report (F-2)
Report of Former Independent Accountants (F-3)
(1) Incorporated by reference to the Partnership's Annual Report to
Unitholders for the fiscal year ended November 30, 1997, 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 Partnership'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 Partnership'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
Partnership'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
Partnership'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 Partnership'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
Partnership'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
Partnership'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 Partnership'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
Partnership'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
Partnership'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, 1997.
(22) List of Subsidiaries - Joint Ventures (included as, and
incorporated herein by reference to, Exhibit 22 to the
Partnership'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 Partnership'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:
On December 1, 1997, the Partnership filed a Form 8-K reporting
the change in Partnership's Certifying Accountants.
On February 3, 1998, the Partnership filed a Form 8-K disclosing
the sale of RI 3-4's co-General Partner interest in the
Partnership to CPS IV.
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, 1998
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 capacities and on the dates indicated.
CONAM PROPERTY SERVICES IV, LTD.
A General Partner
By: Continental American Development, Inc.
General Partner
Date: February 28, 1998
BY: /s/ Daniel J. Epstein
Daniel J. Epstein
Director, President and
Principal Executive Officer
Date: February 28, 1998
BY: /s/ E. Scott Dupree
E. Scott Dupree
Vice President and Director
Date: February 28, 1998
BY: /s/ Robert J. Svatos
Robert J. Svatos
Vice President and Director
Date: February 28, 1998
BY: /s/ Ralph W. Tilley
Ralph W. Tilley
Vice President
Date: February 28, 1998
BY: /s/ J. Bradley Forrester
J. Bradley Forrester
Vice President
Exhibit 13
ConAm Realty Investors 3 L.P.
1997 ANNUAL REPORT
ConAm Realty Investors 3 L.P. is a California limited partnership formed
in 1983 to acquire, operate and hold for investment multifamily
residential properties. At November 30, 1997, 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, 1997 and 1996.
Average Occupancy
Property Location 1997 1996
Autumn Heights Colorado Springs, Colorado 92% 96%
Ponte Vedra Beach
Village II Ponte Vedra Beach, Florida 95% 95%
Skyline Village Tucson, Arizona 97% 93%
Contents
1 Message to Investors
3 Performance Summary
4 Financial Highlights
5 Consolidated Financial Statements
8 Notes to the Consolidated
Financial Statements
13 Independent Auditors' Report and
Report of Former 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 1997 Annual Report for ConAm
Realty Investors 3 L.P. (the "Partnership"). In this report we
discuss general market conditions affecting the Partnership's
three properties (the "Properties"). We have also included a
performance summary which addresses operations at each of the
properties and financial highlights for the year.
This annual report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Actual results could
differ materially from those projected in or contemplated by the
forward-looking statements as a result of a number of factors,
including those identified herein.
Cash Distributions
The Partnership paid cash distributions totaling $6.00 per Unit
for the year ended November 30, 1997, including the fourth
quarter distribution of $1.50 per Unit, which was credited to
your brokerage account or sent directly to you on January 21,
1998. Since inception, the Partnership has paid distributions
totaling $408.50 per original $500 Unit, including $250 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.
Operations Overview
Operations at the Properties remained stable in 1997, reflecting
healthy economic conditions, tempered by increased competition
for tenants in the markets where the properties are located. As a
result of new apartment construction in the Jacksonville and
Colorado Springs markets, several large apartment properties have
begun to offer rental concessions to attract tenants. In Tucson,
where Skyline Village is located, many high-end renters opted to
purchase homes due to low interest rates. Despite these trends,
strong economic growth in all three areas helped strengthen multi-
family housing, and the Properties sustained average occupancy
levels at or above 95% in 1997. In addition, the appraised
values of the Properties increased by 4.2% in total when compared
to the prior year.
Several interior and exterior repairs were performed at each
property during 1997, including carpet and flooring replacement
and other routine repairs. In addition, ongoing roof
replacements at Ponte Vedra Beach Village II were completed in
the fourth quarter of 1997, while roof replacements required on
five of the buildings at Autumn Heights commenced in July. These
replacements are anticipated to cost approximately $100,000 and
will be finished by the end of the year. The General Partner
will evaluate the need for capital improvements to increase the
appeal of the Properties and position them for an eventual sale.
The General Partner is continuing to evaluate the sale potential
of the remaining properties and other options with respect to the
Partnership's investments. One of these options includes
refinancing certain loans secured by the Properties in order to
return capital to the limited partners on a tax-free basis and
lock in favorable fixed interest rates. This would also
potentially enhance the future marketability of the Properties,
while enabling the Partnership to take advantage of possible
future property appreciation. The Partnership's ability to sell
the Properties is 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 the
Properties can be sold within a specific time frame. We will
keep you apprised of our sales efforts in future correspondence.
Summary
We will continue to monitor market conditions to determine the
opportune time to sell the Properties, and are also evaluating a
potential refinance of the Partnership's mortgage obligations.
In the interim, we intend to maximize the performance of the
Properties and further improve their appearance and condition.
We will keep you apprised of significant developments affecting
your investment in future reports.
Very truly yours,
/s/ Daniel J. Epstein
Daniel J. Epstein
President
Continental American Development Inc.
General Partner of ConAm Property Services IV, Ltd.
February 27, 1998
Performance Summary
Autumn Heights Colorado Springs, Colorado
Autumn Heights is a 140-unit apartment complex located in the
southwest section of Colorado Springs. The property reported
stable operations in 1997, although average occupancy declined to
92% in fiscal 1997, down from 96% in fiscal 1996. Due to a
growing population and healthy economy, Colorado Springs is
considered to be one of the fastest growing markets in the
country. Strong market conditions over the last two years,
however, have prompted a rise in new construction of multifamily
properties. The recent addition of several new apartments to the
market has led to increased competition and a decline in rental
rates. As a result, rental income and average occupancy at
Autumn Heights declined slightly from the prior year. The
property requires extensive roof replacements in 1998, which,
when completed, should enhance its overall value.
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 1997, unchanged from fiscal 1996.
Property improvements for the year included roof replacements,
carpet replacement and other improvements to increase the
appearance of the property. Favorable market conditions in the
Jacksonville area have led to an increase in new multifamily
construction, with new construction permits issued for
approximately 3,831 new apartment units throughout the year.
Although population and job growth in the Jacksonville area
remains high, continuing construction at this pace could lead to
softness in the market in the future.
Skyline Village Tucson, Arizona
Skyline Village contains 168 units and is located in the
northwest area of Tucson. The property continued to perform well
despite strong competition, and maintained an average occupancy
rate of 97% during 1997, compared to 93% for 1996. Apartment
vacancy rates remain high in this market, but significant
population growth in Tucson over the last few years is slowly
reducing the number of available units. Low interest rates and
affordable home prices have also increased competition by luring
many renters to purchase homes. This competition has led to the
reemergence of rental incentives and other concessions to attract
tenants. Property improvements in 1997 included painting, carpet
replacement and ceiling fan replacement in selected units.
Financial Highlights
Selected Financial Data
For the periods ended November 30, 1997 1996 1995 1994 1993
Dollars in thousands,
except for per unit data
Total Income $ 3,632 $ 3,745 $ 4,203 $ 4,298 $ 4,033
Loss on Sale of Property _ _ (84) _ _
Net Income (loss) (195) 354 85 18 3
Net Cash Provided by
Operating Activities 921 1,205 1,185 1,197 1,154
Long-term Obligations 8,293 8,435 8,565 11,599 10,636
Total Assets at Year End 18,075 18,977 19,650 27,614 30,184
Net Income (loss) per
Limited Partnership Unit* (2.42) 3.98 .87 .20 .03
Distributions per
Limited Partnership Unit* 6.00 10.00 10.00 14.00 8.00
Special Distributions per
Limited Partnership Unit* _ _ 50.00 30.00 -
* 80,000 Units outstanding
Cash Distributions
Per Limited Partnership Unit
1997 1996 1995
Special Distributions* $ _ $ _ $ 50.00
First Quarter 1.50 2.50 2.50
Second Quarter 1.50 2.50 2.50
Third Quarter 1.50 2.50 2.50
Fourth Quarter 1.50 2.50 2.50
Total $ 6.00 $ 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.
Cash Distributions were reduced in 1997 due to the decrease in net
cash provided by operating activities, primarily due to the roof
replacements at Autumn Heights and Ponte Vedra Beach Village II.
Consolidated Balance Sheets At November 30, At November 30,
1997 1996
Assets
Investments in real estate:
Land $ 5,817,668 $ 5,817,668
Buildings and improvements 22,465,678 22,326,780
28,283,346 28,144,448
Less accumulated depreciation (11,223,921) (10,510,777)
17,059,425 17,633,671
Cash and cash equivalents 796,824 1,084,483
Restricted cash 109,843 84,934
Other assets, net of accumulated amortization
of $206,209 in 1997 and $163,192 in 1996 109,293 173,569
Total Assets $18,075,385 $18,976,657
Liabilities and Partners' Capital
Liabilities:
Mortgages payable $ 8,292,972 $ 8,434,843
Distribution payable 146,659 222,222
Accounts payable and accrued expenses 218,266 156,786
Due to general partners and affiliates 16,703 15,808
Security deposits 101,198 118,601
Total Liabilities 8,775,798 8,948,260
Partners' Capital (Deficit):
General Partners (955,059) (899,777)
Limited Partners (80,000 Units outstanding) 10,254,646 10,928,174
Total Partners' Capital 9,299,587 10,028,397
Total Liabilities and Partners' Capital $18,075,385 $18,976,657
Consolidated Statements of Operations
For the years ended November 30, 1997 1996 1995
Income
Rental $ 3,593,135 $ 3,688,364 $ 4,027,970
Interest and other 38,921 57,109 174,780
Total Income 3,632,056 3,745,473 4,202,750
Expenses
Property operating 1,838,576 1,581,543 1,912,816
Depreciation and amortization 922,261 908,783 1,047,513
Interest 736,373 748,229 929,646
General and administrative 177,129 152,783 143,378
Write-off of assets 153,200 _ _
Total Expenses 3,827,539 3,391,338 4,033,353
Income (loss) from operations (195,483) 354,135 169,397
Loss on sale of property _ _ (83,992)
Net Income (Loss) $ (195,483) $ 354,135 $ 85,405
Net Income (Loss) Allocated:
To the General Partners $ (1,955) $ 35,413 $ 16,100
To the Limited Partners (193,528) 318,722 69,305
$ (195,483) $ 354,135 $ 85,405
Per limited partnership unit
(80,000 Units outstanding):
Income (loss) from operations $(2.42) $3.98 $1.91
Loss on sale of property _ _ (1.04)
Net Income (Loss) $(2.42) $3.98 $ .87
Consolidated Statements of Partners' Capital (Deficit)
For the years ended November 30, 1997, 1996, and 1995
General Limited
Partners Partners Total
Balance at November 30, 1994 $ (773,514) $16,140,147 $15,366,633
Net income 16,100 69,305 85,405
Distributions ($60.00 per Unit) (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
Distributions ($10.00 per Unit) (88,888) (800,000) (888,888)
Balance at November 30, 1996 $ (899,777) $10,928,174 $10,028,397
Net income (loss) (1,955) (193,528) (195,483)
Distributions ($6.00 per Unit) (53,327) (480,000) (533,327)
Balance at November 30, 1997 $ (955,059) $10,254,646 $ 9,299,587
Consolidated Statements of Cash Flows
For the years ended November 30, 1997 1996 1995
Cash Flows From Operating Activities:
Net income (loss) $ (195,483) $ 354,135 $ 85,405
Adjustments to reconcile net income to
netcash provided by operating activities:
Depreciation and amortization 922,261 908,783 1,047,513
Write-off of assets 153,200 _ _
Loss on sale of property _ _ 83,992
Increase (decrease) in cash arising from
changes in operating assets and
liabilities:
Fundings to restricted cash (128,748) (156,654) (152,988)
Release of restricted cash to property
operations 103,839 132,861 149,827
Other assets 21,259 (25,471) 8,738
Accounts payable and accrued expenses 61,480 (17,938) 16,885
Due to general partners and affiliates 895 798 (2,867)
Security deposits (17,403) 8,725 (51,791)
Net cash provided by operating activities 921,300 1,205,239 1,184,714
Cash Flows From Investing Activities:
Net proceeds from sale of property _ _ 3,832,290
Additions to real estate (458,198) (162,200) (158,367)
Net cash provided by (used for) investing
activities (458,198) (162,200) 3,673,923
Cash Flows From Financing Activities:
Mortgage principal payments (141,871) (130,016) (3,033,660)
Distributions (608,890) (888,888) (4,977,777)
Net cash used for financing activities (750,761) (1,018,904) (8,011,437)
Net increase (decrease) in cash and cash
equivalents (287,659) 24,135 (3,152,800)
Cash and cash equivalents,
beginning of period 1,084,483 1,060,348 4,213,148
Cash and cash equivalents, end of period $ 796,824 $1,084,483 $ 1,060,348
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 736,373 $ 748,229 $ 929,646
Supplemental Disclosure of Non-Cash
Investing Activities:
Write-off of buildings and improvements $ (319,300) $ _ $ _
Write-off of accumulated depreciation $ 166,100 $ _ $ _
Notes to the Consolidated Financial Statements
November 30, 1997, 1996 and 1995
1. Organization
ConAm Realty Investors 3 L.P., (formerly 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 multi-
family residential real estate. The general partners of the
Partnership were RI 3-4 Real Estate Services, Inc. ("RI 3-4"), an
affiliate of Lehman Brothers, Inc. (see below), and ConAm
Property Services IV, Ltd. ("CPS IV"), an affiliate of
Continental American Properties, Ltd. (the "General Partners").
On January 27, 1998, CPS IV acquired RI 3-4's co general partner
interest in the Partnership pursuant to a purchase agreement
between CPS IV and RI 3-4 dated August 29, 1997. As a result,
CPS IV now serves as the sole general partner (the "General
Partner") of the Partnership. In conjunction with this
transaction, the name of the Partnership changed from
Hutton/ConAm Realty Investors 3 to ConAm Realty Investors 3 L.P.
The Partnership will continue until December 31, 2010 unless
sooner terminated pursuant to the terms of the Partnership
Agreement.
2. Significant Accounting Policies and Practices
Financial Statements - The consolidated financial statements are
prepared on the accrual basis of accounting and include the
accounts of the Partnership and its affiliated ventures when the
Partnership has a controlling interest in the ventures. The
effect of transactions between the Partnership and its ventures
have been eliminated in consolidation.
Investments in Real Estate - Investments in real estate are
recorded at cost less accumulated depreciation and include the
initial purchase price of the property, legal fees, acquisition
and closing costs.
Revenue is recognized when earned and expenses (including
depreciation) are recognized when incurred in accordance with
generally accepted accounting principles. 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 (25 years).
Maintenance and repairs are charged to operations as incurred.
Costs incurred for 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 net income for the period.
Impairment of Long-Lived Assets - 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"), requires the Partnership to assess its real estate
investments for impairment whenever events or changes in
circumstances indicate that the carrying amount of the real
estate may not be recoverable. Recoverability of real estate to
be held and used is measured by a comparison of the carrying
amount of the real estate to future net cash flows (undiscounted
and without interest) expected to be generated by the real
estate. If the real estate is considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the real estate exceeds the fair value of
the real estate.
Other Assets - Included in other assets are costs incurred in
connection with obtaining financing for the Partnership's
properties. Such costs are amortized over the initial term of
the loan on a method which approximates the effective-interest
method.
Income Taxes - No provision for income taxes has been made in the
financial statements as the liability for such taxes is that of
the partners rather than the Partnership.
Cash and Cash Equivalents - Cash and cash equivalents consist of
highly liquid short-term investments with original maturities of
three months or less.
Concentration of Credit Risk - Financial instruments which
potentially subject the Partnership to a concentration of credit
risk principally consist of cash and cash equivalents and
restricted cash in excess of the financial institution's
federally insured limits. The Partnership invests its cash and
cash equivalents and restricted cash with high credit quality
federally insured financial institutions.
Restricted Cash - Restricted cash consists of escrows for real
estate taxes as required by the first mortgage lender.
Use of Estimates - Management of the Partnership has made a number
of estimates and assumptions relating to the reporting of assets
and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could
differ from those estimates.
3. The Partnership Agreement
The Partnership Agreement provides that net cash from operations,
as defined, is to be distributed quarterly, 90% to the limited
partners and 10% to the General Partners.
Net loss for any fiscal year is to be allocated 99% to the
limited partners and 1% to 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 are to 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, non-compounded cumulative 7% return thereon. The
balance, if any, is to be distributed 85% to the limited partners
and 15% to the General Partners. Generally, all gain from sales
is to be allocated in the same manner as net proceeds from sales
or refinancing.
Effective July 1, 1997, all general partner allocations are to be
made solely to CPS IV.
4. Investments in Real Estate
The Partnership owns three residential apartment complexes that
were 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 July 20, 1995, the Partnership sold its former property,
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 was 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
was 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 is to be distributed 100% to
the Partnership until it has received an annual, non-cumulative
preferred return for Skyline Village and Country Place Village of
$675,000 and $450,000, respectively. Any remaining balance is to
be distributed 99% to the Partnership and 1% to the corporate
General Partners.
b. Net income is to 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 are to
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 is to 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 is to be allocated 99%
to the Partnership and 1% to the corporate General Partners. Net
proceeds from a sale or refinancing are to 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 payable are comprised as
follows:
Autumn Heights - On January 6, 1994, the Partnership obtained a
first mortgage loan 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 loan matures on January 1, 2001,
upon which time a balloon payment of $4,736,587 and any accrued
interest are due.
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 on the land and the improvements, and an assignment of
rents. 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. The loan matures on December 31, 1998,
upon which time a balloon payment of $3,054,594 and any accrued
interest are due. Management intends to pursue refinancing
options for this property.
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 principal at November 30 1997, for
the next four fiscal years are as follows:
Year Amount
1998 $ 154,825
1999 3,161,160
2000 115,411
2001 4,861,576
$8,292,972
6. Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments", requires that the
fair values be disclosed for the Partnership's financial
instruments. The carrying amount of cash and cash equivalents,
distributions payable, accounts payable and accrued expenses, due
to general partners and affiliates and security deposits are
reasonable estimates of their fair values due to the short-term
nature of those instruments.
The carrying amount of the mortgages payable is a reasonable
estimate of fair value based on management's belief that the
interest rates and terms of the debt are comparable to those
commercially available to the Partnership in the marketplace for
similar instruments.
7. 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, 1997, 1996 and 1995, and the unpaid portion at
November 30, 1997:
Earned and
Unpaid at
November 30, Earned
Year 1997 1997 1996 1995
RI 3-4 Real Estate Services,
Inc. and affiliates:
Out-of-pocket expenses $ _ $ 2,216 $ 1,125 $ 3,105
ConAm and affiliates:
Property operating salaries _ 258,808 233,653 258,010
Property management fees 16,703 180,111 184,685 203,107
Total $ 16,703 $441,135 $419,463 $464,222
8. Reconciliation of Financial Statement and Tax Information
The following is a reconciliation of consolidated net income for
financial statement purposes to net income (loss) for federal
income tax purposes for the years ended November 30, 1997, 1996
and 1995:
1997 1996 1995
Net income (loss) per financial statements $ (195,483) $ 354,135 $ 85,405
Depreciation deducted for tax purposes
less than (in excess) of depreciation
expense per financial statements 17,787 (143,654) (117,445)
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 (72,635) (72,634) (74,889)
Other 13,854 (11,175) 3,951
Taxable net income (loss) (unaudited) $ (236,477) $ 126,672 $749,586
The following is a reconciliation of partners' capital for
financial statement purposes to partners' capital for federal
income tax purposes as of November 30, 1997, 1996 and 1995:
1997 1996 1995
Partners' capital per
financial statements $9,299,587 $10,028,397 $10,563,150
Adjustment for cumulative difference
between tax basis net income (loss) and
net income per financial statements (3,493,754) (3,452,760) (3,225,297)
Partners' capital per income tax
return (unaudited) $5,805,833 $ 6,575,637 $ 7,337,853
At November 30, 1997, the tax basis of the Partnership's assets
was $14,532,746 and the tax basis of the Partnership's
liabilities was $8,726,913.
9. Distributions Paid
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,
1997 $222,222 $533,327 $608,890 $146,659
1996 222,222 888,888 888,888 222,222
1995 311,111 4,888,888 4,977,777 222,222
Independent Auditors' Report
The General Partner
ConAm Realty Investors 3 L.P.:
We have audited the accompanying consolidated balance sheet of
ConAm Realty Investors 3 L.P. (a California limited partnership)
(formerly Hutton/ConAm Realty Investors 3) and consolidated
ventures (the "Partnership"), as of November 30, 1997, and the
related consolidated statements of operations, partners'
capital(deficit), and cash flows for the year then ended. 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
audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1997 consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of ConAm Realty Investors 3 L.P. and
consolidated ventures as of November 30, 1997, and the results of
their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
San Diego, California
February 5, 1998
Report of Former Independent Accountants
To the Partners of
ConAm Realty Investors 3 L.P.:
We have audited the consolidated balance sheet of ConAm Realty
Investors 3 L.P. (formerly Hutton/ConAm Realty Investors 3), a
California limited partnership, and Consolidated Ventures as of
November 30, 1996 and the related consolidated statements of
operations, partners' capital (deficit) and cash flows for each
of the two 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 ConAm Realty Investors 3 L.P., 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 two 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 Unit at November 30, 1997
(Unaudited)
Acquisition Cost
(Purchase Price Partnership's
Plus General Share of
Partners' November 30,
Acquisition 1997 Appraised
Property Date of Acquisition Fees) Value (1)
Autumn Heights 01-25-85 $ 9,687,174 $ 11,500,000
Skyline Village 03-20-85 10,838,195 7,500,000
Ponte Vedra Beach Village II 08-22-85 6,869,917 6,000,000
$27,395,286 $ 25,000,000
Cash and cash equivalents
(including restricted cash) 906,667
Other assets 14,387
25,921,054
Less:
Total liabilities (8,775,798)
Partnership Net Asset Value (2) 17,145,256
Net Asset Value Allocated:
Limited Partners 17,101,433
General Partner 42,823
17,145,256
Net Asset Value Per Unit
(80,000 units outstanding) $ 213.77
(1) This represents the Partnership's share of the November 30,
1997 Appraised Values which were determined by an independent
property appraisal firm.
(2) The Partnership Net Asset Value assumes a hypothetical sale
at November 30, 1997 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
assets and 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, 1997
Ponte Vedra Consolidated Venture
Autumn Beach Skyline
Residential Property: Heights Village II Village Total
Location Colorado Jacksonville
Springs,CO FL Tucson,AZ na
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 25 years 25 years 25 years na
Encumbrances $ 5,181,951 $ _ $3,111,021 $8,292,972
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 $ 513,166 $ 433,416 $ 104,972 $ 1,051,554
Write-off of buildings
and improvements $ (163,000) $ (156,300) $ _ $ (319,300)
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 8,464,924 6,413,523 7,587,231 22,465,678
$10,054,764 $7,203,405 $11,025,177 $28,283,346
Accumulated
depreciation(2) $ 4,228,236 $3,043,130 $ 3,952,555 $11,223,921
(1) Represents aggregate cost for both financial reporting for Federal income
tax purposes.
(2) The amount of accumulated depreciation for Federal income tax purposes
is $18,666,499.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended November 30, 1997, 1996, and 1995 follows:
1997 1996 1995
Investments in real estate:
Beginning of period $28,144,448 $27,982,248 $33,729,426
Additions 458,198 162,200 158,367
Dispositions and disposals (319,300) _ (5,905,545)
End of period $28,283,346 $28,144,448 $27,982,248
Accumulated depreciation:
Beginning of period $10,510,777 $ 9,645,010 $10,629,776
Depreciation expense 879,244 865,767 1,004,497
Dispositions and disposals (166,100) _ (1,989,263)
End of period $11,223,921 $10,510,777 $9,645,010
Independent Auditors' Report
The General Partner
ConAm Realty Investors 3 L.P.:
Under date of February 5, 1998, we reported on the
consolidated balance sheet of ConAm Realty Investors 3 L.P. (a
California limited partnership) (formerly Hutton/ConAm Realty
Investors 3) and consolidated ventures (the "Partnership") as
of November 30, 1997, and the related consolidated statements
of operations, partnersO capital (deficit), and cash flows for
the year then ended, as contained in the 1997 annual report to
Unitholders. These consolidated financial statements and our
report thereon are incorporated by reference in the 1997
annual report on Form 10-K. In connection with our audit of
the aforementioned consolidated financial statements, we also
have audited the related consolidated financial statement
schedule. This consolidated financial statement schedule is
the responsibility of the Partnership's management. Our
responsibility is to express an opinion on this consolidated
financial statement schedule based on our audit.
In our opinion, the consolidated financial statement schedule,
when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG Peat Marwick LLP
San Diego, California
February 5, 1998
Report of Former Independent Accountants
Our report on the consolidated financial statements of ConAm
Realty Investors 3 L.P. (formerly 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 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
respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 14, 1997
</TEXT
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