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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, 1998
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.
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EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER
California 13-3176625
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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
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ADDRESS OF PRINCIPAL EXECUTIVE OFFICES ZIP CODE
Registrant's telephone number, including area code (619) 297-6771
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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
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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
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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, 1998.
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PART I
ITEM 1. BUSINESS
(a) GENERAL DESCRIPTION OF BUSINESS AND OBJECTIVES
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, as of
January 29,1999 all of the Partnership's investments in the properties have been
sold, and the General Partner anticipates that the final liquidation of the
Partnership will be completed in mid-1999.
The Partnership's principal investment objectives with respect to its interests
in real property were:
(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 was the Partnership's objective during
its operational phase, while preservation and appreciation of capital was the
Partnership's long-term objectives. The attainment of the Partnership's
investment objectives was dependent 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 were located, especially with regard to
achievement of capital appreciation.
The Partnership utilized the net proceeds of its public offering to acquire
five residential apartment complexes 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 to an
unaffiliated institutional buyer for $3,890,000.
During its fiscal year ended November 30, 1998, following consideration of
various alternatives available to the Partnership, the General Partner concluded
that a sale of the Partnership's three remaining properties, Autumn Heights,
Skyline Village, and Ponte Vedra Beach Village II (collectively, the
"Properties"), would be in the best interests of the Partnership and the
Unitholders. Throughout much of fiscal 1998, the General Partner, on behalf of
the Partnership, negotiated the terms of a sale of the Properties with Lend
Lease Real Estate Investments, Inc. ("Lend Lease"), on behalf of two pension
funds which are unaffiliated with the General Partner. Once the terms were
negotiated, as required by the Partnership's Amended and Restated Certificate
and Agreement of Limited Partnership, the General Partner solicited the consent
of a majority in interest of the Unitholders to the sale pursuant to a Consent
Solicitation Statement dated December 16, 1998. The requisite consent was
obtained on January 15, 1999, and on January 29, 1999, the Partnership
consummated the sale of the Properties to DOC Investors, L.L.C., a Delaware
limited liability company (the "Purchaser"), for a sales price of $25,200,000
(before selling costs and prorations). The members of the Purchaser are two
pension funds advised by Lend Lease, which own an aggregate 91% interest in the
Purchaser, and ConAm DOC Affiliates LLC, an affiliate of the General Partner
("ConAm DOC"), which owns a 9% interest in the Purchaser. ConAm DOC has the
potential to receive up to an additional 18% of the profits of the Purchaser
after certain priority returns to the members of the Purchaser.
The Partnership received approximately $16,624,444 of cash proceeds from the
sale, net of closing costs of approximately $42,000 and repayment of
indebtedness of approximately $8,533,556. All net cash proceeds from the
sale and previously undistributed cash from operations, less an amount the
General Partner determined to set aside for contingencies, were distributed
to the Limited Partners on February 26, 1999.
The Partnership considers itself to have been engaged in only one industry
segment, real estate investment.
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COMPETITION
The Partnership's real property investments were subject to competition from
similar types of properties in the vicinities in which they were located. Such
competition increased during the Partnership's period of ownership of the
Properties due principally to the addition of newly constructed apartment
complexes offering increased residential and recreational amenities. The
Properties were also subject to competition from condominiums and single-family
properties as potential renters chose to buy homes especially during periods of
low mortgage interest rates. The Partnership competed 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 affected the occupancy levels and revenues of the Properties. The
occupancy levels at the properties in Arizona and Florida reflected some
seasonality, which is typical in these markets. In some cases, the Properties
competed with properties owned by partnerships affiliated with the General
Partner.
For a discussion of market conditions in the areas where the Properties were
located, reference is made to the Partnership's Annual Report to Unitholders for
the fiscal year ended November 30, 1998, which is filed as an exhibit under Item
14.
EMPLOYEES
The Partnership has no employees. Services are provided by CPS IV and ConAm
Management Corporation ("ConAm Management"), an affiliate of CPS IV. Pursuant to
property management agreements with the Partnership, ConAm Management provided
property management services with respect to the Properties. In addition, the
Partnership retains Brock, Tibbitts & Snell, an unaffiliated company located in
San Diego, California, to provide all accounting and investor communication
functions. During fiscal 1998, Service Data Corporation, an unaffiliated
company, provided transfer agent services for the Partnership. During February
of 1999, pursuant to the terms of a sale of its contracts, Service Data
Corporation assigned the transfer agent functions of the Company to MAVRICC
Management Systems Inc., an unaffiliated company located in Troy, Michigan. 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 Properties owned and operated by the Partnership during
fiscal 1998 and a discussion of market conditions in the areas where the
Properties are located, reference is made to the Partnership's Annual Report to
Unitholders for the fiscal year ended November 30, 1998, which is filed as an
exhibit under Item 14. For information on the Partnership's 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. For information on the sale of the Properties by the Partnership
in January 1999, reference is made to Item 1 and to Note 10 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, 1998, no
matter was submitted to a vote of Unitholders through the solicitation of
proxies or otherwise. On December 16, 1998, the Unitholders were asked to
approve a sale of the Partnership's remaining properties. A majority in
interest of the Unitholders approved the sale and the sale was completed on
January 29, 1999.
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S LIMITED PARTNERSHIP UNITS AND RELATED SECURITY
HOLDER MATTERS
As of November 30, 1998, the number of Unitholders of record was 3,649.
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
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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, 1998, which is filed as an
exhibit under Item 14. No distribution was made for the fourth quarter of
the fiscal year ended November 30, 1998 because the General Partner decided
to suspend distributions pending the outcome of the solicitation of the
consent of the Unitholders to the sale of the Properties.
Because of the sale of the Partnership's remaining Properties, no further
quarterly distributions of Net Cash from Operations will be made. The
Partnership distributed $16,600,000 to the Unitholders ($207.50 per Unit) and
$15,037 to the General Partner on February 26, 1999, which amounts were equal
to substantially all of the net proceeds from the sale of the Properties,
together with other available cash of the Partnership, less an amount for
costs associated with the sale and liquidation and other contingencies, net
of expected cash provided by operations through the date of sale, of
approximately $614,000. The final liquidation of the Partnership is expected
to occur in mid-1999, and the remaining funds, if any, will be distributed to
the Unitholders at that time.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended November 30, 1998, 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, 1998, the Partnership had cash and cash equivalents of $849,125
that were invested in unaffiliated money market funds, an increase from $796,824
at November 30, 1997. The increase is primarily attributable to an increase in
cash provided by operating activities. The Partnership also maintains a
restricted cash balance, which totaled $107,640 at November 30, 1998, a small
decrease from $109,843 at November 30, 1997.
Distribution payable decreased from $146,659 at November 30, 1997 to $0 at
November 30, 1998. The decrease is primarily due to the decision of the General
Partner to suspend distributions pending the outcome of the solicitation of the
consent of the Unitholders to the sale of the properties.
Accounts payable and accrued expenses totaled $302,618 at November 30, 1998, an
increase from $218,266 at November 30, 1997. The increase is primarily due to
the accrual of interest for one month for fiscal 1998.
The Partnership continued to perform various improvements at the Properties
during fiscal 1998. The roof replacements at Autumn Heights and Ponte Vedra
Beach Village II and exterior painting at Skyline Village that commenced in
fiscal 1997 were completed during the first quarter of fiscal 1998. Such work
was funded from the Partnership's operating cash flow and cash reserves.
Additional capital improvements made during fiscal 1998 included landscaping and
renovation of the clubhouse at Autumn Heights and were funded from operating
cash flow.
As a result of the Partnership's sale of the Properties on January 29, 1999,
all of the Partnership's assets have been converted to cash and cash
equivalents. Pending distribution to the Unitholders as described in Item 5
above, the Partnership's funds have been invested in the Pacific Horizon
Money Market Funds, Prime Fund. The General Partner retained from the
initial distribution an amount it believes is sufficient to provide for
contingencies, and to cover the expenses of operating the Partnership until
final liquidation of the Partnership, including legal and accounting fees.
RESULTS OF OPERATIONS
1998 VERSUS 1997
Partnership operations for the fiscal year ended November 30, 1998 resulted in a
net loss of $35,032 compared with net loss of $195,483 in fiscal 1997. The
improvement is primarily due to increased rental rates at all of the properties
with relatively stable occupancy in a soft rental market and lower write-off of
assets related to replacement of assets.
Rental income for the fiscal year ended November 30, 1998 was $3,671,959
compared with $3,593,135 in fiscal 1997. The increase is primarily due to
relatively stable occupancy and improved rental rates at all of the properties.
Interest income was $20,755 for the fiscal year ended November 30, 1998 compared
to $38,921 in fiscal 1997. The decrease is due to the Partnership maintaining
lower average cash balances in fiscal 1998 than in fiscal 1997.
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Property operating expenses remained stable at $1,820,339 for the fiscal year
ended November 30, 1998, as compared $1,838,576 for fiscal 1997.
General and administrative expenses remained stable at $177,538 for the fiscal
year ended November 30, 1998, as compared to $177,129 in fiscal 1997.
Write-off of assets was $87,759 for fiscal year end November 30, 1998, as
compared to $153,200 for fiscal 1997. The decrease is due to the lower
replacement of assets in 1998.
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 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.
The average occupancy levels at each of the properties owned during the years
ended November 30, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED NOVEMBER 30,
PROPERTY 1998 1997 1996
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<S> <C> <C> <C>
Autumn Heights 94% 92% 96%
Ponte Vedra Beach Village II 93% 95% 95%
Skyline Village 95% 97% 93%
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</TABLE>
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has 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.
YEAR 2000
Due to the consummation of the sale of the Properties in January 1999, the
Partnership is no longer engaged in the operation of real properties or any
other business. As a result of the foregoing, and in view of the General
Partner's plan to complete the full liquidation of the Partnership prior to
January 1, 2000, the Partnership has no exposure to Year 2000 issues.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since the Partnership sold its remaining properties on January 29, 1999 and its
mortgage indebtedness was repaid or assumed, the Partnership has no exposure to
interest rate risk. In addition, the Partnership is expected to be liquidated
during 1999.
<PAGE>
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, 1998, 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 PricewaterhouseCoopers LLP
(formerly Coopers & Lybrand L.L.P.) that it was changing accounting firms and
engaged KPMG LLP.
PricewaterhouseCoopers LLP's report on the consolidated financial statements
for the year ended November 30, 1996 contained no adverse opinion or
disclaimer of opinion and was not qualified as to uncertainty, audit scope or
accounting principles. There had been no disagreements with
PricewaterhouseCoopers LLP 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 and RI 3-4, 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, as 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.
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.
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Name Office
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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
</TABLE>
DANIEL J. EPSTEIN, 59, 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, 48, 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, 40, 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.
<PAGE>
RALPH W. TILLEY, 44, 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 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, 41, 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 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, 1998, 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
CPS IV received $39,999 as the General Partner's allocable share of
distributions from Net Cash From Operations with respect to the fiscal year
ended November 30, 1998. For the fiscal year ended November 30, 1998, $350 of
the Partnership's net loss was allocated to CPS IV. For a description of the
share of distributions from 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, 1998, which is filed as an exhibit under item 14. Effective July
1, 1997, all General Partner allocations were made solely to CPS IV.
The Partnership entered into property management agreements with ConAm
Management pursuant to which ConAm Management assumed direct responsibility for
day-to-day management of the Properties. It was the responsibility of ConAm
Management to select resident managers and to monitor their performance. ConAm
Management's services also included 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 was 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, 1998, 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 the Notes to the Consolidated
Financial Statements, included in the Partnership's Annual Report to Unitholders
for the fiscal year ended November 30, 1998, which is filed as an exhibit under
Item 14.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
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(a)(1) Financial Statements:
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Page
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Consolidated Balance Sheets - November 30, 1998 and 1997........................................................(1)
Consolidated Statements of Operations - For the years ended November 30, 1998, 1997 and 1996....................(1)
Consolidated Statements of Partners' Capital - For the years ended November 30, 1998, 1997 and 1996.............(1)
Consolidated Statements of Cash Flows - For the years ended November 30, 1998, 1997 and 1996....................(1)
Notes to the Consolidated Financial Statements..................................................................(1)
Independent Auditors' Report....................................................................................(1)
Report of Former Independent Accountants........................................................................(1)
(a)(2) Financial Statement Schedule:
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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, 1998,
FILED AS AN EXHIBIT UNDER ITEM 14.
(a)(3) Exhibits:
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(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).
(C) Amendment, dated January 18, 1999 to Partnership's Certificate
and Agreement of Limited Partnership (included as, and
incorporated herein by reference to, Exhibit 4.1 to the
Partnership's Report on Form 8-K filed on February 16, 1999).
(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
<PAGE>
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).
(M) Agreement for Purchase and Sale and Joint Escrow Instructions
between ConAm Realty Investors 3 LP and Doc Investors, L.L.C.
dated January 26, 1999 with respect to the sale of Autumn Heights
Apartments (included as, and incorporated herein by reference to,
Exhibit 10.1 to the Partnership's Report on Form 8-K filed on
February 16, 1999).
(N) Agreement for Purchase and Sale and Joint Escrow Instructions
between ConAm Realty Investors 3 LP and Doc Investors, L.L.C.
dated January 26, 1999 with respect to the sale of Ponte Vedra
Beach Village II Apartments (included as, and incorporated herein
by reference to, Exhibit 10.2 to the Partnership's Report on Form
8-K filed on February 16, 1999).
(O) Agreement for Purchase and Sale and Joint Escrow Instructions
between Skyline Village Joint Venture Limited Partnership and
Doc Investors, L.L.C. dated January 26, 1999 with respect to
the sale of Skyline Village (included as, and incorporated
herein by reference to, Exhibit 10.3 to the Partnership's
Report on Form 8-K filed on February 16, 1999).
(13) Annual Report to Unitholders for the fiscal year ended November
30, 1998.
(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:
---------------------
No reports on Form 8-K were filed by the Partnership during the
fourth quarter of the fiscal year ended November 30, 1998.
<PAGE>
(c) Exhibits
--------
See Item 14(a)(3) above.
</TABLE>
<PAGE>
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, 1999
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<PAGE>
<PAGE>
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, 1999
BY: /s/ Daniel J. Epstein
----------------------------------------
Daniel J. Epstein
Director, President and
Principal Executive Officer
Date: February 28, 1999 BY: /s/ E. Scott Dupree
----------------------------------------
E. Scott Dupree
Vice President and Director
Date: February 28, 1999
BY: /s/ Robert J. Svatos
----------------------------------------
Robert J. Svatos
Vice President and Director
Date: February 28, 1999
BY: /s/ Ralph W. Tilley
----------------------------------------
Ralph W. Tilley
Vice President
Date: February 28, 1999
BY: /s/ J. Bradley Forrester
----------------------------------------
J. Bradley Forrester
Vice President
<PAGE>
EXHIBIT 13
CONAM REALTY INVESTORS 3 L.P.
1998 ANNUAL REPORT
<PAGE>
- -------------------------------------------------------------------------------
CONAM REALTY INVESTORS 3 L.P.
- -------------------------------------------------------------------------------
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, 1998, the Partnership's
portfolio consisted of three apartment properties located in Colorado,
Arizona and Florida. On January 29, 1999, with the consent of the
Unitholders, all three of the remaining properties were sold for a
price of $25,200,000 (before closing costs). Substantially all of the
cash, less an amount for contingencies, was distributed to the
Unitholders.
<TABLE>
<CAPTION>
<S> <C>
CONTENTS
1 Message to Investors
2 Performance Summary
3 Financial Highlights
4 Consolidated Financial Statements
7 Notes to the Consolidated Financial Statements
12 Independent Auditors' Report
13 Report of Former Independent Accountants
14 Net Asset Valuation
</TABLE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
ADMINISTRATIVE INQUIRIES PERFORMANCE INQUIRIES/FORM 10-Ks
ADDRESS CHANGES/TRANSFERS Brock, Tibbitts and Snell
MAVRICC Management Systems, Inc. 625 Broadway, Suite 911
1845 Maxwell, Suite 101 San Diego, California 92101
Troy, MI 48084-4510 619-232-0365
Attn: Financial Communications
248-637-7897
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
MESSAGE TO INVESTORS
- --------------------------------------------------------------------------------
Presented for your review is the 1998 Annual Report for ConAm Realty
Investors 3 L.P. (the "Partnership"). In this report we have included a
performance summary which addresses operations at each of the properties
(the "Properties") and the financial highlights for the year.
We are pleased to announce that the proposed sale of the Partnership's
three remaining Properties to DOC Investors, L.L.C., a Delaware limited
liability company, was approved by the Limited Partners on January 15, 1999
and that the sale was completed on January 29, 1999. Within 30 days of the
close of the sale of the Properties, distributions of $207.50 per Unit,
representing the majority of the net proceeds from the sale and other cash
from operations, were distributed to Unitholders.
CASH DISTRIBUTIONS
The Partnership paid cash distributions totaling $4.50 per Unit for the
year ended November 30, 1998. The General Partner decided not to make a
fourth quarter distribution pending the outcome of the solicitation of the
consent of the Unitholders to the sale of the Partnership's Properties.
Including the distribution in February 1999, since inception the
Partnership has paid distributions totaling $620.50 per original $500 Unit.
These distributions include the net proceeds from the sale of the
Partnership's Properties in January of 1999 of $205.81 per Unit, and cash
from operations of $1.69 per Unit, both of which were distributed on
February 26, 1999.
OPERATIONS OVERVIEW
Operations at the Properties remained stable in 1998, 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 93% in 1998.
Several interior and exterior repairs were performed at each Property
during 1998, including carpet and flooring replacement and other routine
repairs. In addition, roof replacements at Ponte Vedra Beach Village II
that were begun in 1997 were completed in the first quarter of 1998.
Clubhouse renovations and landscaping repairs were completed at Autumn
Heights in 1998.
SUMMARY
The sale of the Properties on January 29, 1999 represents the first step
toward the liquidation of the Partnership that is expected to be completed
in August 1999. A final distribution of remaining Partnership cash, if any,
will be made shortly thereafter.
Very truly yours,
/s/ Daniel J. Epstein
Daniel J. Epstein, President
Continental American Development Inc.
General Partner of ConAm Property Services IV, Ltd.
February 28, 1999
1
<PAGE>
CONAM REALTY INVESTORS 3 L.P.
AND CONSOLIDATED VENTURES
- --------------------------------------------------------------------------------
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
1998, with average occupancy increasing to 94% in fiscal 1998, from 92% in
fiscal 1997. Strong market conditions over the last two years, however,
have prompted an increase in new construction of multifamily properties.
The recent addition of several new apartments to the market led to
increased competition and a decline in rental rates in 1998 in the market
area. While competition has been strong, rental income and average
occupancy at Autumn Heights have increased slightly from the prior year.
The needed roof replacements were completed in 1998 along with the
renovation of the clubhouse and needed landscaping. These improvements
enhanced the property's overall value and helped to increase rents and
occupancy levels in this competitive market in 1998.
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 93% in fiscal 1998, a small
decrease from 95% in fiscal 1997. Rental income was consistent with the
prior year. 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 adding
approximately 2,617 new apartment units throughout the year. Although
population and job growth in the Jacksonville area remain strong,
continuing construction at this pace and the affordable housing market has
lead to significant softness and increased market vacancy.
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
with a small decrease in its average occupancy rate from 97% during 1997 to
95% for 1998. Overall, 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. Rental income
remained steady as rental rate increases at the property offset the
decrease in occupancy. Property improvements in 1998 included painting,
carpet replacement and ceiling fan replacement in selected units.
2
<PAGE>
CONAM REALTY INVESTORS 3 L.P.
AND CONSOLIDATED VENTURES
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
For the periods ended November 30, 1998 1997 1996 1995 1994
-------------------------------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA
<S> <C> <C> <C> <C> <C>
Total Income $3,693 $3,632 $3,745 $4,203 $4,298
Loss on Sale of Property -- -- -- (84) --
Net Income (loss) (35) (195) 354 85 18
Net Cash Provided by Operating Activities 976 921 1,205 1,185 1,197
Long-term Obligations 8,152 8,293 8,435 8,565 11,599
Total Assets at Year End 17,432 18,075 18,977 19,650 27,614
Net Income (loss) per Limited Partnership (.43) (2.42) 3.98 .87 .20
Unit*
Distributions per Limited Partnership Unit* 4.50 6.00 10.00 10.00 14.00
Special Distributions per Limited -- -- -- 50.00 30.00
Partnership Unit*
</TABLE>
* 80,000 UNITS OUTSTANDING
<TABLE>
<CAPTION>
CASH DISTRIBUTIONS
PER LIMITED PARTNERSHIP UNIT 1998 1997
------------------------------------------------------------------- ---------------- ----------------
<S> <C> <C>
First Quarter $1.50 $1.50
Second Quarter $1.50 $1.50
Third Quarter $1.50 $1.50
Fourth Quarter $ -- $1.50
---------------- ----------------
TOTAL $4.50 $6.00
------------------------------------------------------------------- ---------------- ----------------
</TABLE>
Cash distributions were reduced in 1998 due to a suspension of
distributions pending the outcome of the solicitation of the consent the
Unitholders to the sale of the Properties.
3
<PAGE>
CONAM REALTY INVESTORS 3 L.P.
AND CONSOLIDATED VENTURES
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS AT NOVEMBER 30, AT NOVEMBER 30,
1998 1997
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments in real estate:
Land $ 5,817,668 $ 5,817,668
Buildings and improvements 22,534,407 22,465,678
---------------------------------------
28,352,075 28,283,346
Less accumulated depreciation (12,020,027) (11,223,921)
----------------------------------------
16,332,048 17,059,425
Cash and cash equivalents 849,125 796,824
Restricted cash 107,640 109,843
Other assets, net of accumulated amortization
of $249,225 in 1998 and $206,209 in 1997 143,646 109,293
-------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 17,432,459 $ 18,075,385
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
-------------------------------------------------------------------------------------------------------------------
Liabilities:
Mortgages payable $ 8,151,572 $ 8,292,972
Distribution payable -- 146,659
Accounts payable and accrued expenses 302,618 218,266
Due to general partner and affiliates 15,684 16,703
Security deposits 98,029 101,198
---------------------------------------
Total Liabilities 8,567,903 8,775,798
---------------------------------------
Partners' Capital (Deficit):
General Partner (995,408) (955,059)
Limited Partners (80,000 Units outstanding) 9,859,964 10,254,646
---------------------------------------
Total Partners' Capital 8,864,556 9,299,587
-------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 17,432,459 $ 18,075,385
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
CONAM REALTY INVESTORS 3 L.P.
AND CONSOLIDATED VENTURES
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED NOVEMBER 30, 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME
Rental $ 3,671,959 $ 3,593,135 $ 3,688,364
Interest and other 20,755 38,921 57,109
----------------------------------------------
Total Income 3,692,714 3,632,056 3,745,473
-------------------------------------------------------------------------------------------------------------------
EXPENSES
Property operating 1,820,339 1,838,576 1,581,543
Depreciation and amortization 918,690 922,261 908,783
Interest 723,420 736,373 748,229
General and administrative 177,538 177,129 152,783
Write-off of assets 87,759 153,200 --
----------------------------------------------
Total Expenses 3,727,746 3,827,539 3,391,338
-------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (35,032) (195,483) $ 354,135
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) ALLOCATED:
To the General Partner $ (350) (1,955) $ 35,413
To the Limited Partners (34,682) (193,528) 318,722
-------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (35,032) (195,483) $ 354,135
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
PER LIMITED PARTNERSHIP UNIT
(80,000 UNITS OUTSTANDING): $ (0.43) $ (2.42) $ 3.98
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED NOVEMBER 30, 1998, 1997, AND 1996 GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE (DEFICIT) 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 (DEFICIT) AT NOVEMBER 30, 1996 $ (899,777) $ 10,928,174 $ 10,028,397
Net loss (1,955) (193,528) (195,483)
Distributions ($6.00 per Unit) (53,327) (480,000) (533,327)
--------------------------------------------------------------------------------------------------------------------
BALANCE (DEFICIT) AT NOVEMBER 30, 1997 $ (955,059) $ 10,254,646 $ 9,299,587
Net loss (350) (34,682) (35,032)
Distributions ($4.50 per Unit) (39,999) (360,000) (399,999)
-------------------------------------------------------------------------------------------------------------------
BALANCE (DEFICIT) AT NOVEMBER 30, 1998 $ (995,408) $ 9,859,964 $ 8,864,556
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
CONAM REALTY INVESTORS 3 L.P.
AND CONSOLIDATED VENTURES
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 1998 1997 1996
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (35,032) (195,483) $ 354,135
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 918,690 922,261 908,783
Write-off of assets 87,759 153,200 --
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Fundings to restricted cash (220,235) (128,748) (156,654)
Release of restricted cash to property operations 222,438 103,839 132,861
Other assets (77,369) 21,259 (25,471)
Accounts payable and accrued expenses 84,352 61,480 (17,938)
Due to general partners and affiliates (1,019) 895 798
Security deposits (3,169) (17,403) 8,725
----------------------------------------------
Net cash provided by operating activities 976,415 921,300 1,205,239
-------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Insurance recovery of real estate additions 54,191 -- --
Additions to real estate (290,247) (458,198) (162,200)
-----------------------------------------------
Net cash used in investing activities (236,056) (458,198) (162,200)
-------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Mortgage principal payments (141,400) (141,871) (130,016)
Distributions (546,658) (608,890) (888,888)
-----------------------------------------------
Net cash used in financing activities (688,058) (750,761) (1,018,904)
-------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 52,301 (287,659) 24,135
Cash and cash equivalents, beginning of period 796,824 1,084,483 1,060,348
-------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 849,125 796,824 $ 1,084,483
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 663,658 736,373 $ 748,229
-------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITIES:
Write-off of buildings and improvements $ (167,327) (319,300) $ --
Write-off of accumulated depreciation $ 79,568 166,100 $ --
-------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
CONAM REALTY INVESTORS 3 L.P.
AND CONSOLIDATED VENTURES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998, 1997 AND 1996
1. ORGANIZATION
ConAm Realty Investors 3 L.P. (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 (as subsequently amended
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, 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 changed from Hutton/ConAm Realty Investors 3 to ConAm Realty
Investors 3 L.P. On January 15, 1999, a majority in interest of
Unitholders agreed to the sell the Partnership's remaining properties and
liquidate the Partnership (Note 10). The Partnership sold its properties on
January 29,1999 and expects to liquidate during fiscal year 1999.
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 effects 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 The Partnership assesses 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 as the amount by which the carrying
amount of the real estate exceeds the fair value of the real estate.
As of November 30, 1998, the Partnership's properties were assets to be
held and used as the Partnership did not have the ability to sell the
properties without the approval of a majority of the Unitholders.
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 that 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.
7
<PAGE>
CONAM REALTY INVESTORS 3 L.P.
AND CONSOLIDATED VENTURES
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 or treasury based money market
funds.
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 were made solely to
CPS IV.
4. INVESTMENTS IN REAL ESTATE
The Partnership owns three residential apartment complexes that were
acquired either directly or through an investment in a joint venture as
follows:
<TABLE>
<CAPTION>
APARTMENT DATE PURCHASE
PROPERTY NAME UNITS LOCATION ACQUIRED PRICE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
-------------------------------------------------------------------------------------------------------------------
</TABLE>
Skyline Village was acquired through a joint venture with an unaffiliated
developer. The Partnership assigned its rights to acquire Skyline Village
and contributed cash equal to the purchase price of the property to the
joint venture. The developer did not make an initial capital contribution
to these ventures.
Skyline Village's 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.
The amended limited partnership agreement of Skyline Village substantially
provides 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 of $675,000. Any remaining balance is to be
distributed 99% to the Partnership and 1% to the corporate General Partner.
8
<PAGE>
CONAM REALTY INVESTORS 3 L.P.
AND CONSOLIDATED VENTURES
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 Partner. 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 Partner.
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.
("GE") 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 obtained GE's approval to a six-month extension.
In conjunction with the sale of the Properties on January 29, 1999, the
mortgage loan with respect to Skyline Village was repaid in full and the
Partnership's obligations under the loan with respect to Autumn Heights
were assumed by the Purchaser of that property (Note 10).
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.
9
<PAGE>
CONAM REALTY INVESTORS 3 L.P.
AND CONSOLIDATED VENTURES
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, 1998, 1997
and 1996, and the unpaid portion at November 30, 1998:
<TABLE>
<CAPTION>
EARNED AND
UNPAID AT
NOVEMBER 30, EARNED
---------------------------------------------------
YEAR 1998 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RI 3-4 Real Estate Services, Inc.
And affiliates:
Out-of-pocket expenses $ -- $ -- $ 2,216 $ 1,125
ConAm and affiliates:
Property operating salaries -- 282,599 258,808 233,653
Property management fees 15,684 184,337 180,111 184,685
--------------------------------------------------------------------
TOTAL $15,684 $466,936 $441,135 $419,463
----------------------------------------------------------------------------------------------------------------------
</TABLE>
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, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) per financial statements $ (35,032) $ (195,483) $ 354,135
Depreciation deducted for tax
purposes less than (in excess) of depreciation
expense per financial statements (24,516) 17,787 (143,654)
Tax basis joint venture net
income (loss) in excess of GAAP
basis joint venture net loss (75,097) (72,635) (72,634)
Other (16,385) 13,854 (11,175)
-------------------------------------------------------------------------------------------------------------------
TAXABLE NET INCOME (LOSS) (UNAUDITED) $ (151,030) $ (236,477) $ 126,672
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>
The following is a reconciliation of partners' capital for financial
statement purposes to partners' capital for federal income tax purposes as
of November 30, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' capital per financial statements $ 8,864,556 $ 9,299,587 $ 10,028,397
Adjustment for cumulative difference
between tax basis net income (loss) and
net income (loss) per financial statements (3,609,752) (3,493,754) (3,452,760)
-------------------------------------------------------------------------------------------------------------------
PARTNERS' CAPITAL PER INCOME TAX RETURN (UNAUDITED) $ 5,254,804 $ 5,805,833 $ 6,575,637
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
</TABLE>
At November 30, 1998, the tax basis of the Partnership's assets was
$10,681,981 and the tax basis of the Partnership's liabilities was
$5,427,177. The Partnership does not consolidate its investment in the
joint ventures for income tax purposes.
10
<PAGE>
CONAM REALTY INVESTORS 3 L.P.
AND CONSOLIDATED VENTURES
9. DISTRIBUTIONS PAID
Distributions, per the consolidated statements of partners' capital, 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:
<TABLE>
<CAPTION>
DISTRIBUTIONS DISTRIBUTIONS
PAYABLE DISTRIBUTIONS DISTRIBUTIONS PAYABLE
BEGINNING OF YEAR DECLARED PAID NOVEMBER 30,
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 $ 146,659 $ 399,999 $ 546,658 $ --
1997 222,222 533,327 608,890 146,659
1996 222,222 888,888 888,888 222,222
-------------------------------------------------------------------------------------------------------------------
</TABLE>
10. SALE OF PROPERTIES
On January 29, 1999, the Partnership consummated the sale of the Properties
to DOC Investors, L.L.C., a Delaware limited liability company, for a sales
price of $25,200,000 (before selling costs and prorations). As required by
the Partnership's Partnership Agreement, the General Partner solicited the
consent of a majority in interest of the Unitholders to the sale pursuant
to a Consent Solicitation Statement dated December 16, 1998. The requisite
consent was obtained on January 15, 1999. The Partnership received
$16,624,444 of cash proceeds from the sale, net of closing costs of
approximately $42,000 and repayment or assumption of indebtedness of
approximately $8,533,556.
On February 26, 1999, the Partnership distributed $16,600,000 ($207.50
per Unit) to the Unitholders and $15,037 to the General Partner, out of
cash proceeds from the sale and Net Cash From Operations, as defined.
11
<PAGE>
CONAM REALTY INVESTORS 3 L.P.
AND CONSOLIDATED VENTURES
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The General Partner
ConAm Realty Investors 3 L.P.:
We have audited the accompanying consolidated balance sheets of ConAm
Realty Investors 3 L.P. (a California limited partnership) and
consolidated ventures (the "Partnership"), as of November 30, 1998 and
1997, and the related consolidated statements of operations, partners'
capital, and cash flows for the years 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 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.
As further discussed in Note 10 to the consolidated financial statements,
the Partnership sold substantially all of its assets on January 29, 1999.
In our opinion, the 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, 1998
and 1997, and the results of their operations and their cash flows for the
years then ended, in conformity with generally accepted accounting
principles.
KPMG LLP
San Diego, California
January 29, 1999, except for the second paragraph
of Note 10 to the consolidated financial
statements, as to which the date is
February 26, 1999
12
<PAGE>
- --------------------------------------------------------------------------------
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 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 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 the
consolidated results of their operations and their cash flows for the
year then ended in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 14, 1997
13
<PAGE>
- --------------------------------------------------------------------------------
NET ASSET VALUATION
- --------------------------------------------------------------------------------
COMPARISON OF ACQUISITION COSTS TO NOVEMBER 30, 1998 PROPERTY VALUES AND
DETERMINATION OF NET ASSET VALUE PER UNIT AT NOVEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
ACQUISITION COST
(PURCHASE PRICE
PLUS GENERAL PARTNERSHIP'S
DATE OF PARTNERS' SHARE OF PROPERTY NET ASSET VALUE
PROPERTY ACQUISITION ACQUISITION FEES) VALUE (1) DETERMINATION
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Autumn Heights 01-25-85 $ 9,687,174 $11,300,000
Skyline Village 03-20-85 10,838,195 8,100,000
Ponte Vedra Beach Village II 08-22-85 6,869,917 5,800,000
Aggregate Property Value at 11-30-98 $25,200,000
Less estimated transaction costs in escrow (42,000)
------------------
Sales proceeds (before repayment or buyer assumption of secured debt) 25,158,000
Cash and cash equivalents (including previously restricted cash) 956,765
Other assets 33,070
------------------
Total assets 26,147,835
------------------
Less:
Secured debt 8,151,572
Prepayment penalty 350,406
Other liabilities 416,331
Contingency amounts (2) 614,489
------------------
Total liabilities 9,532,798
------------------
Partnership Net Asset Value (3) 16,615,037
------------------
Net Asset Value Allocated:
Limited Partners 16,600,000
General Partner 15,037
------------------
16,615,037
------------------
NET ASSET VALUE PER UNIT
(80,000 UNITS OUTSTANDING) $207.50
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents the Partnership's share of the fair market value of the
properties as reflected in the purchase and sale agreements pursuant
to which the properties were sold on January 29, 1999. The purchase
prices contained in such agreements were negotiated and agreed to
within approximately 30 days of November 30, 1998.
(2) Includes a provision for estimated future costs related to the sale
and liquidation and an amount the General Partner determined to set
aside for contingencies, net of expected cash provided by operations
through the date of sale.
(3) The Partnership Net Asset Value assumes a sale at November 30, 1998
of all the Partnership's properties at prices equal to the sales
prices set forth in the purchase and sale agreements described in
Note (1), payment of all Partnership liabilities, and the
distribution of the net proceeds of such sale and other Partnership
cash, to the Partners.
Since the Partnership sold all of its real property assets in January 1999,
is in dissolution, and is in the process of winding up and liquidating, the
foregoing Partnership Net Asset Value is intended to approximate the
liquidation value of the Partnership and the Net Asset Value Per Unit is
intended to approximate the per Unit amount which is expected to be
distributed to the Limited Partners in connection with the Partnership's
liquidation. The Net Asset Valuation does not take into account the
illiquid nature of an investment in the Units or the fact that at November
30, 1998 a holder of Units would likely not have been able to sell their
Units for the Net Asset Value Per Unit set forth above. Fiduciaries of
Limited Partners which are subject to ERISA or other provisions of law
requiring valuation 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.
14
<PAGE>
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
CONSOLIDATED
PONTE VEDRA VENTURE
RESIDENTIAL PROPERTY: AUTUMN HEIGHTS BEACH VILLAGE II SKYLINE VILLAGE TOTAL
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Location Colorado Springs, CO Jacksonville, 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 $ 5,092,055 $ -- $ 3,059,517 $ 8,151,572
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 $ 688,584 $ 466,896 $ 132,130 $ 1,287,610
Write-off of buildings
and improvements $ (330,327) $ (156,300) $ -- $ (486,627)
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 8,473,015 6,447,003 7,614,389 22,534,407
-------------------------------------------------------------------------------------------------------------------
$ 10,062,855 $ 7,236,885 $ 11,052,335 $ 28,352,075
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
Accumulated depreciation (2) $ 4,477,994 $ 3,293,997 $ 4,248,036 $ 12,020,027
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(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 $12,447,272.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended November 30, 1998, 1997, and 1996 follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENTS IN REAL ESTATE:
Beginning of period $ 28,283,346 $ 28,144,448 $ 27,982,248
Additions 236,056 458,198 162,200
Dispositions (167,327) (319,300) --
-------------------------------------------------------------------------------------------------------------------
End of period $ 28,352,075 $ 28,283,346 $ 28,144,448
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
ACCUMULATED DEPRECIATION:
Beginning of period $ 11,223,921 $ 10,510,777 $ 9,645,010
Depreciation 875,674 879,244 865,767
Dispositions (79,568) (166,100) --
-------------------------------------------------------------------------------------------------------------------
End of period $ 12,020,027 $ 11,223,921 $ 10,510,777
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
F-1
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The General Partner
ConAm Realty Investors 3 L.P.:
Under date of January 29, 1999, we reported on the consolidated balance
sheets of ConAm Realty Investors 3 L.P. (a California limited partnership)
and consolidated ventures (the "Partnership"), as of November 30, 1998 and
1997, and the related consolidated statements of operations, partners'
capital, and cash flows for the years then ended, as contained in the 1998
annual report to Unitholders. These consolidated financial statements
and our report thereon are incorporated by reference in the 1998 annual
report on Form 10-K. In connection with our audits 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 audits.
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 LLP
San Diego, California
January 29, 1999
F-2
<PAGE>
- -------------------------------------------------------------------------------
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 L.P. for the year ended November 30, 1996. In connection
with our audit 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
F-3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> NOV-30-1998
<CASH> 956,765
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 143,646
<PP&E> 28,352,075
<DEPRECIATION> 12,020,027
<TOTAL-ASSETS> 17,432,459
<CURRENT-LIABILITIES> 416,331
<BONDS> 8,151,572
0
0
<COMMON> 0
<OTHER-SE> 8,864,556
<TOTAL-LIABILITY-AND-EQUITY> 17,432,459
<SALES> 3,671,959
<TOTAL-REVENUES> 3,692,714
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,004,326
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 723,420
<INCOME-PRETAX> (35,032)
<INCOME-TAX> 0
<INCOME-CONTINUING> (35,032)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35,032)
<EPS-PRIMARY> (.43)
<EPS-DILUTED> (.43)
</TABLE>
