UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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: 0-13329
CONAM REALTY INVESTORS 4 L.P.
formerly known as
HUTTON/CONAM REALTY INVESTORS 4
Exact name of Registrant as specified in its charter
California 11-2685746
State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization
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 such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
Documents Incorporated by Reference:
Portions of Parts I, II, III and IV are incorporated herein by reference to the
Partnership's Annual Report to Unitholders for the year ended December 31,
1997.
PART I
Item 1. Business
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 4 L.P., formerly known as Hutton/ConAm Realty Investors
4 (the "Partnership") is a California limited partnership formed on January 13,
1984. 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
October 8, 1997, 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 4 to ConAm Realty Investors 4 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 three limited
partnerships, each of which was formed to own a specified property. As
described below, four 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) distributions 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 General Partner and Limited Partners
(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 six residential apartment complexes (collectively, the "Properties"),
either directly or through investments in limited partnerships or joint
ventures as follows: (1) Village at the Foothills II, a 120-unit apartment
complex located in Tucson, Arizona; (2) Shadowood Village, a 110-unit apartment
complex located in Jacksonville, Florida; (3) Pelican Landing, a 204-unit
apartment complex located in Clearwater, Florida; (4) River Hill, a 192-unit
apartment complex located in Tulsa, Oklahoma; (5) Cypress Lakes, a 176-unit
apartment complex located in Deerfield Beach, Florida; and (6) Trails at
Meadowlakes, a 189-unit apartment complex located in Fort Lauderdale, Florida.
On July 19, 1995, the Partnership sold Cypress Lakes and Trails at Meadowlakes
to an unaffiliated buyer for sales prices of $8,825,000 and $8,940,000,
respectively. On August 6, 1997, the Partnership sold River Hill to an
unaffiliated buyer for $7,275,000. On December 30, 1997, the Partnership sold
Pelican Landing to an unaffiliated buyer for $13,400,000. For further
information on each of the Properties, see Note 4 to the Consolidated Financial
Statements incorporated herein by reference to the Partnership's Annual Report
to Unitholders for the year ended December 31, 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 also
reflected in the markets. In some cases, Partnership properties may compete
with other properties owned by partnerships affiliated with the General Partner
of the Partnership.
For a discussion of current market conditions in each of the areas where the
Partnership's Properties are located, reference is made to the Partnership's
Annual Report to Unitholders for the year ended December 31, 1997, which is
filed as an exhibit under Item 14.
Employees
The Partnership has no employees. Services are provided by CPS IV, 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 property management
agreements pursuant to which ConAm Management provides management services with
respect to the Properties. First Data Investor Services Group has been
retained by the Partnership to provide all accounting and investor
communication functions, while Service Data Corporation provides transfer agent
services. Effective January 1, 1998, the accounting functions of the
Partnership have been transferred to the firm of Brock, Tibbetts and 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 and a discussion of current
market conditions in each of the areas where the Properties are located and
appraised values, reference is made to the Partnership's Annual Report to
Unitholders for the year ended January 1, 1998, which is filed as an exhibit
under Item 13. For information on the purchase of the Properties, reference is
made to Note 4 to the Consolidated Financial Statements, included in the
Partnership's Annual Report to Unitholders. Average occupancy rates 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 year ended December 31, 1997, no matter was
submitted to a vote of security holders through the solicitation of proxies or
otherwise.
PART II
Item 5. Market for the Partnership's Limited Partnership Units and Related
Security Holder Matters
As of December 31, 1997, the number of Unitholders of record was 6,753.
No established public trading market has developed for the Units, and it is not
anticipated that such a market will develop in the future. Distributions of Net
Cash Flow From Operations, are determined by the General Partner on a quarterly
basis, with distributions generally occurring approximately 45 days after the
end of each quarter. Such distributions have been made primarily from net
operating income with respect to the Partnership's investment in the Properties
and from interest on short-term investments, and partially from excess cash
reserves. Special distributions, as a result of net cash flow from sales
proceeds, are made as soon as administratively possible after a sale.
Information on cash distributions paid by the Partnership for the past two
years is incorporated by reference to the Partnership's Annual Report to
Unitholders for the year ended December 31, 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. Reference is made to Item 7 for a discussion of the General
Partners' expectations for future cash distributions.
Item 6. Selected Financial Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended December 31, 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 December 31, 1997, the Partnership had cash and cash equivalents of
$15,150,595, which were invested in unaffiliated money market funds, compared
with $2,314,876 at December 31, 1996. The increase is primarily attributable
to net proceeds received on the sale of Pelican Landing in December 1997 and
net cash provided by operating activities exceeding additions to real estate
and cash distributions. The Partnership expects sufficient cash to be
generated from operations to meet its current operating expenses.
Accounts payable and accrued expenses increased from $108,269 at December 31,
1996 to $144,530 at December 31, 1997. The increase is primarily attributable
to higher costs associated with Partnership administrative services and the
timing of payments for audit and appraisal fees.
Distribution payable increased from $533,792 at December 31, 1996, to
$13,729,122 at December 31, 1997. The increase is primarily attributable to
the undistributed net proceeds resulting from the sale of Pelican Landing in
December 1997.
Security deposits payable decreased from $144,220 at December 31, 1996 to
$35,573 at December 31, 1997, primarily due to the sale of River Hill
Apartments on August 6, 1997, and the sale of Pelican Landing on December 30,
1997.
On August 6, 1997 the Partnership sold River Hill Apartments to an unaffiliated
institutional buyer for a sales price of $7,275,000. The Partnership received
net proceeds from the sale totaling $7,108,356 and the transaction resulted in
a net loss of $249,944. On December 30, 1997, the Partnership sold Pelican
Landing to an unaffiliated institutional buyer for a sales price of
$13,400,000. The Partnership received net proceeds from the sale totaling
$13,171,373 and the transaction resulted in a net gain on sale of $5,157,383.
Both selling prices were determined by arm's length negotiations between the
Partnership and the respective buyers.
The Partnership declared distributions of net cash flow from Partnership
operations totaling $15.00 per Unit for the year ended December 31, 1997,
including a cash distribution of $3.75 per Unit for the quarter ended December
31, 1997, which was paid to investors on February 13, 1998. On January 21,
1998 the Partnership paid a special cash distribution of $103.00 per Unit,
representing the net proceeds received from the sale of Pelican Landing. 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. As a
result of the sale of River Hill Apartments and Pelican Landing, future
quarterly cash distributions will be reduced to reflect the corresponding
reduction in the Partnership's cash flow.
The General Partner continues to evaluate the sale potential of the remaining
properties and other options with respect to the Partnership's investments. One
of these options includes obtaining mortgage loans secured by certain of 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 both 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 year ended December 31, 1997 resulted in net
income of $6,019,161, compared with net income of $1,022,553 for the year ended
December 31, 1996. The increase in net income is primarily attributable to the
$4,907,439 gain on sale of properties, composed of a $5,157,383 gain from the
sale of Pelican Landing, and a $249,944 loss from the sale of River Hill.
Excluding the gain, the Partnership generated income from operations of
$1,111,722 for the year ended December 31, 1997. Net cash provided by operating
activities was $1,741,457 for the year ended December 31, 1997, compared to
$2,137,022 in 1996. The decrease is primarily due to the decrease in cash flow
from property operations resulting from the sale of River Hill Apartments in
August 1997.
Rental income for the year ended December 31, 1997 was $4,272,753, compared
with $4,778,238 for the year ended December 31, 1996. The decrease in 1997
reflects the sale of River Hill Apartments, partially offset by increased
rental income at Pelican Landing and Shadowood Village. Interest and other
income for the year ended December 31, 1997 was $212,589, compared with
$148,102 in 1996. The increase is primarily due to the Partnership maintaining
higher average cash balances in 1997.
Total expenses for the year ended December 31, 1997 were $3,373,620, compared
with $3,903,787 in 1996. The decrease reflects a decrease in depreciation and
property operating expenses primarily as a result of the sale of River Hill
Apartments. Property operating expenses for the year ended December 31, 1997
totaled $2,465,118, compared to $2,545,471 in 1996. The decrease reflects the
sale of River Hill Apartments, and was partially offset by an increase in
repairs and maintenance expenses at Pelican Landing, Shadowood Village and
Village at the Foothills II, primarily due to carpet and appliance replacement
at all three properties.
Depreciation expense for the year ended December 31, 1997 totaled $695,023,
compared to $1,184,781 for the year ended December 31, 1996. The decrease is
due to the reclassification of River Hill Apartments as Property held for
disposition effective October 1, 1996 and the reclassification of Pelican
Landing as property held for disposition effective October 1, 1997.
General and administrative expenses for the year ended December 31, 1997
totaled $213,479, compared to $173,535 in 1996. The increase is primarily
attributable 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 year ended December 31, 1996 resulted in net
income of $1,022,553, compared with net income of $3,259,624 for the year ended
December 31, 1995. The decline in net income was primarily attributable to the
$2,854,884 gain recognized on the sale of Trails at Meadowlakes and Cypress
Lakes. Excluding the gain, the Partnership generated income from operations of
$404,740 for the year ended December 31, 1995. Net cash provided by operating
activities was $2,137,022 for the year ended December 31, 1996, compared to
$2,363,323 in fiscal 1995. The decrease was primarily due to the decrease in
cash flow from property operations resulting from the sale of Trails at
Meadowlakes and Cypress Lakes in July 1995.
Rental income for the year ended December 31, 1996 was $4,778,238, compared
with $6,351,434 for the year ended December 31, 1995. The decrease in 1996
reflects lower revenues primarily due to the sale of Trails at Meadowlakes and
Cypress Lakes, partially offset by increased rental income at three of the four
remaining properties. Interest and other income for the year ended December
31, 1996 was $148,102, compared with $245,330 in 1995. The decrease was
primarily due to the Partnership maintaining lower average cash balances in
1996.
Total expenses for the year ended December 31, 1996 were $3,903,787, compared
with $6,192,024 for 1995. The decrease in 1996 reflects a decrease in
depreciation, interest and property operating expenses and the absence of a
loss on write-down of real estate. Depreciation and property operating
expenses declined primarily as a result of the sale of Trails at Meadowlakes
and Cypress Lakes. There was no interest expense in 1996 due to the July 1995
pre-payment of the mortgage loan secured by Trails at Meadowlakes. Total
expenses were also higher in the 1995 period due to a $477,170 loss on the
write-down of River Hill Apartments. General and administrative expenses for
1996 decreased from 1995 as a result of decreases in legal fees and appraisal
fees, partially offset by higher partnership administrative expenses.
The average occupancy levels at each of the remaining properties for the years
ended December 31, 1997, 1996 and 1995 were as follows:
Twelve Months Ended December 31,
----------------------------------------------------------
Property 1997 1996 1995
Village at the Foothills II 94% 95% 95%
Shadowood Village 93% 95% 95%
----------------------------------------------------------
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 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
The financial statements are incorporated by reference to the Partnership's
Annual Report to Unitholders for the year ended December 31, 1997, which is
filed as an exhibit under Item 14. Supplementary Data is incorporated by
reference to page F-1 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 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, 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.
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 in 1994, 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 for three years. 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 transactions of the General Partner and its affiliates
with the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 1, 1998, no person was known by the Partnership to be the
beneficial owner of more than five percent of the Units of the Partnership.
Daniel J. Epstein, President and Director of ConAm Services, owned twenty Units
as of March 1, 1998. No other directors or executive officers of the General
Partners own any Units.
Item 13. Certain Relationships and Related Transactions
RI 3-4 Services and CPS IV received a total of $213,517 as its allocable share
of Net Cash From Operations with respect to the year ended December 31, 1997.
Pursuant to the Amended and Restated Certificate and Agreement of Limited
Partnership of the Partnership, for the year ended December 31, 1997, $213,517
of the Partnership's net income was allocated to RI 3-4 and CPS IV. For a
description of the share of Net Cash From Operations and the allocation of
income and loss to which the General Partners are entitled, reference is made
to the Partnership's Annual Report to Unitholders for the year ended December
31, 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 pursuant to
which ConAm Management has assumed direct responsibility for day-to-day
management of the Properties. It is the responsibility of ConAm Management to
select resident managers and monitor their performance. ConAm Management's
services also include the supervision of leasing, rent collection, maintenance,
budgeting, employment of personnel, payment of operating expenses, strategic
asset management and related services. For such services, ConAm Management is
entitled to receive a management fee equal to 5% 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 year ended December 31, 1997, which is filed as an exhibit under Item
14.
Pursuant to Section 12(g) of Partnership's Amended and Restated 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 year ended December 31, 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 - December 31, 1997 and 1996 (1)
Consolidated Statements of Operations - For the years ended
December 31, 1997, 1996 and 1995 (1)
Consolidated Statements of Partners' Capital - For the years ended
December 31, 1997, 1996 and 1995 (1)
Consolidated Statements of Cash Flows - For the years ended
December 31, 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 year ended December 31, 1997, filed as an exhibit
under Item 14.
(a)(3) Exhibits:
(3) Certificate and Agreement of Limited Partnership (included as, and
incorporated herein by reference to, Exhibit A to the Prospectus of
Registrant dated January 13, 1984 (the "Prospectus"), contained in
Amendment No. 1 to Registration Statement No. 2-84863 of Registrant,
filed January 13, 1984 (the "1984 Registration Statement")).
(4) Subscription Agreement and Signature Page (included as, and
incorporated herein by reference to, Exhibit 3.1 to the Prospectus).
(10)(A) Purchase Agreement relating to Pelican Landing (formerly Feather Sound
Apartments), between the Registrant and Feather Sound, Inc., and the
exhibits thereto (included as, and incorporated herein by reference
to, Exhibit (10)(B) to the 1984 Annual Report).
(B) Purchase Agreement relating to River Hill Apartments (formerly Oxbow
Ridge I), between the Registrant and Tres Titan Investors, and the
exhibits thereto (included as, and incorporated herein by reference to,
Exhibit (10)(D) to the 1984 Annual Report).
(C) Purchase Agreement relating to Village at the Foothills II (formerly
Ina Village Apartments), between the Registrant and Epoch
Properties, Inc. and the exhibits thereto (included as, and
incorporated herein by reference to, Exhibit (10)(E) to the 1984
Annual Report).
(D) Documents relating to Shadowood Village (included as, and incorporated
herein by reference to, Exhibit (10)(A) to Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1985 (the
"1985 Quarterly Report" (Commission File No. 0- 13329)).
(E) Settlement Agreement by and among the Managing Joint Venturers and the
Epoch Joint Venturers dated July 1, 1992 (included as, and
incorporated herein by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1992 (Commission File No. 0-13329)).
(F) Amended and Restated Agreement of Limited Partnership of Village at the
Foothills II Joint Venture Limited Partnership dated as of July 1,
1992 (included as, and incorporated herein by reference to Exhibit
10.2 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1992 (Commission File No. 0- 13329)).
(G) Certificate and Agreement of Limited Partnership of River Hill
Apartments, Ltd. (included as, and incorporated herein by reference
to Exhibit 10(I) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 (Commission File No.
0-13329)).
(H) Amended and Restated Agreement of Limited Partnership of Shadowood
Village, Ltd., dated as of July 1, 1992 (included as, and
incorporated herein by reference to Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1992 (Commission File No. 0-13329)).
(I) Property Management Agreement between Hutton/ConAm Realty Investors 4
and ConAm Management Corporation for the Pelican Landing property
(included as, and incorporated herein by reference to Exhibit 10-M
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993 (Commission File No. 0- 13329)).
(J) Property Management Agreement between Hutton/ConAm Realty Investors 4
and ConAm Management Corporation for the River Hill property (included
as, and incorporated herein by reference to Exhibit 10-N to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1993 (Commission File No. 0-13329)).
(K) Property Management Agreements between Hutton/ConAm Realty Investors 4
and ConAm Management Corporation for the Shadowood Village property
(included as, and incorporated herein by reference to Exhibit 10-O to
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1993 (Commission File No. 0- 13329)).
(L) Property Management Agreement between Hutton/ConAm Realty Investors 4
and ConAm Management Corporation for the Village at the Foothills II
property (included as, and incorporated herein by reference to Exhibit
10-Q to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993 (Commission File No. 0-13329)).
(13) Annual Report to Unitholders for the year ended December 31,1997.
(21) List of Subsidiaries, Joint Ventures or Limited Partnerships (included
as, and incorporated herein by reference to Exhibit 22 of the
Registrant's Annual Report on Form 10-K filed March 27, 1992
(Commission File No. 0-13329)).
(27) Financial Data Schedule.
(99) Portions of the Prospectus of Registrant dated January 13, 1984
(included as, and incorporated herein by reference to Exhibit 28 to the
Registrant's 1988 Annual Report on Form 10-K for the fiscal year ended
December 31, 1988 (Commission File No. 0-13329)).
(b) Reports on Form 8-K:
On October 8, 1997, 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.
On December 1, 1997, the Partnership filed a Form 8-K reporting the
change in Partnership's Certifying Accountants.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 25, 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: March 25, 1998
BY: /s/ Daniel J. Epstein
Daniel J. Epstein
Director, President and
Principal Executive Officer
Date: March 25, 1998
BY: /s/ E. Scott Dupree
E. Scott Dupree
Vice President and Director
Date: March 25, 1998
BY: /s/ Robert J. Svatos
Robert J. Svatos
Vice President and Director
Date: March 25, 1998
BY: /s/ Ralph W. Tilley
Ralph W. Tilley
Vice President
Date: March 25, 1998
BY: /s/ J. Bradley Forrester
J. Bradley Forrester
Vice President
ConAm Realty Investors 4 L.P.
Annual Report 1997
Exhibit 13
ConAm Realty Investors 4 L.P.
ConAm Realty Investors 4 L.P. is a California limited
partnership formed in 1984 to acquire, operate and hold
for investment multifamily residential properties. At
December 31, 1997, the Partnership's portfolio
consisted of two apartment properties located in
Florida and Arizona. Provided below is a comparison of
average occupancy levels for the years ended
December 31, 1997 and 1996.
Average Occupancy
Property Location 1997 1996
---------------------------------------------------------------------
Shadowood Village Jacksonville, Florida 93% 95%
Village at the Foothills II Tucson, Arizona 94% 95%
---------------------------------------------------------------------
Contents
1 Message to Investors
3 Financial Highlights
4 Consolidated Financial Statements
7 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
4 L.P. In this report, we review property sales and discuss general market
conditions affecting the Partnership's two remaining properties (the
"Properties"). We have also included an update on operations at 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 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 declared cash distributions totaling $173.00 per Unit for the
year ended December 31, 1997, including the fourth quarter distribution of
$3.75 per Unit, which was credited to your brokerage account or sent directly
to you on February 13, 1998. Since inception, the Partnership has paid
distributions totaling $506.01 per original $500 Unit, including $252.00 per
Unit in return of capital payments. The level of future distributions will be
reduced to reflect the decline in the Partnership's cash flow resulting from
the sales of River Hill Apartments and Pelican Landing.
Property Sales
- --------------
The Partnership completed the sales of River Hill Apartments and Pelican
Landing in 1997. The Partnership sold River Hill Apartments on August 6, 1997,
and Pelican Landing on December 30, 1997, resulting in net sales proceeds of
$7,108,356 and $13,171,373, respectively. The Partnership paid special cash
distributions of $55.00 per Unit from the net proceeds of the sale of River
Hill on October 31, 1997, and $103.00 per Unit from the net proceeds of the
sale of Pelican Landing on January 21, 1998.
Operations Overview
- -------------------
In 1997, operations at the Partnership's properties continued to be impacted to
varying degrees by strong competition for tenants in the markets where the
Properties are located. Although population and job growth remained strong in
Arizona and Florida, the addition of newly constructed complexes, especially in
the Jacksonville market, limited rental rate increases and caused overall
vacancy rates to rise. In Tucson, where Village at the Foothills II is
located, many high-end renters opted to purchase homes due to low interest
rates. Strong economic growth in both areas helped strengthen multi-family
housing, and average occupancy at both Properties declined only slightly in
1997 when compared to 1996. In addition, the appraised values of the
Properties increased by 3.9% in total when compared to the prior year.
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 obtaining mortgage loans secured by
certain of 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.
Property Review
- ---------------
Shadowood Village
Shadowood Village is a 110-unit luxury apartment complex located in a
residential area in Jacksonville. The property's average occupancy level
declined slightly to 93% in 1997, down from 95% in 1996, while rental income
increased 2% from the prior year. 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. This was partially due to the city's 1996 ranking as one
of the fastest growing labor markets in the country. 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. While vacancy
rates remained low in 1997, the use of rental concessions has recently
increased in the marketplace to attract and retain tenants in anticipation of
the new competition.
Village at the Foothills II
Village at the Foothills II is a 120 unit apartment community located in the
northwest area of Tucson. The property maintained an average occupancy rate of
94% during 1997, down slightly from 95% in 1996. Apartment vacancy rates
remain high in this market, but significant population and job growth in Tucson
over the last few years is slowly reducing the number of available units, and
should favorably impact the market in 1998. 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 in the marketplace to attract tenants. Strong competition
for tenants is likely to continue as the addition of new properties to the
market puts further pressure on occupancies.
Summary
- -------
We will continue to monitor market conditions to determine the opportune time
to sell the Properties, and are also evaluating a potential financing of the
Partnership's two properties. 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.
March 25, 1998
Financial Highlights
Selected Financial Data
For the periods ended December 31, 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------
Dollars in thousands, except
for per unit data
Total Income $4,485 $4,926 $6,597 $7,633 $7,299
Gain on Sale of Properties 4,907 _ 2,855 _ _
Net Income 6,019 1,023 3,260 985 724
Net Cash Provided by
Operating Activities 1,741 2,137 2,363 3,034 2,778
Long-term Obligations at Year End _ _ _ 5,051 5,091
Total Assets at Year End 22,770 26,010 27,247 44,686 45,646
Net Income per
Limited Partnership Unit* 45.32 6.32 22.28 2.12 2.30
Distributions per
Limited Partnership Unit* 15.00 15.00 11.25 9.00 18.00
Special Distributions per
Limited Partnership Unit* 158.00 _ 111.25 _ _
- -------------------------------------------------------------------------------
* 128,110 Units outstanding
Cash Distributions
Per Limited Partnership Unit 1997 1996
- -------------------------------------------------------------------------------
Special Distributions* $ 158.00 $ _
First Quarter 3.75 3.75
Second Quarter 3.75 3.75
Third Quarter 3.75 3.75
Fourth Quarter 3.75 3.75
-------- -------
Total $ 173.00 $ 15.00
- -------------------------------------------------------------------------------
* On October 31, 1997, the Partnership paid a special cash distribution of
$55.00 per Unit, representing net proceeds from the sale of River Hill
Apartments on August 6, 1997.
On January 21, 1998, the Partnership paid a special cash distribution of
$103.00 per Unit, representing net proceeds from the sale of Pelican
Landing on December 30, 1997.
Consolidated Balance Sheets At December 31, At December 31,
1997 1996
- -------------------------------------------------------------------------------
Assets
Investments in real estate:
Land $ 2,153,239 $ 5,627,763
Building and improvements 11,015,879 20,448,021
----------------------------
13,169,118 26,075,784
Less accumulated depreciation (5,552,827) (9,754,730)
----------------------------
7,616,291 16,321,054
Property held for disposition _ 7,358,300
Cash and cash equivalents 15,150,595 2,314,876
Other assets 3,300 15,370
- -------------------------------------------------------------------------------
Total Assets $22,770,186 $26,009,600
- -------------------------------------------------------------------------------
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $144,530 $108,269
Distribution payable 13,729,122 533,792
Due to affiliates 15,471 20,443
Security deposits payable 35,573 144,220
----------------------------
Total Liabilities 13,924,696 806,724
----------------------------
Partners' Capital:
General Partners _ _
Limited Partners (128,110 Units outstanding) 8,845,490 25,202,876
----------------------------
Total Partners' Capital 8,845,490 25,202,876
----------------------------
Total Liabilities and Partners' Capital $22,770,186 $26,009,600
- -------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Operations
For the years ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
Income
Rental $4,272,753 $4,778,238 $6,351,434
Interest and other 212,589 148,102 245,330
------------------------------------
Total Income 4,485,342 4,926,340 6,596,764
- -------------------------------------------------------------------------------
Expenses
Property operating 2,465,118 2,545,471 3,630,788
Loss on write-down of real estate _ _ 477,170
Depreciation 695,023 1,184,781 1,610,725
Interest _ _ 283,556
General and administrative 213,479 173,535 189,785
------------------------------------
Total Expenses 3,373,620 3,903,787 6,192,024
- -------------------------------------------------------------------------------
Income from operations 1,111,722 1,022,553 404,740
Gain on sale of properties, net 4,907,439 _ 2,854,884
- -------------------------------------------------------------------------------
Net Income $6,019,161 $1,022,553 $3,259,624
- -------------------------------------------------------------------------------
Net Income Allocated:
To the General Partners $ 213,517 $ 213,517 $ 405,680
To the Limited Partners 5,805,644 809,036 2,853,944
- -------------------------------------------------------------------------------
$6,019,161 $1,022,553 $3,259,624
- -------------------------------------------------------------------------------
Per limited partnership Unit
(128,110 Units outstanding):
Income from operations $ 7.32 $ 6.32 $ 2.00
Gain on sale of properties 38.00 _ 20.28
- -------------------------------------------------------------------------------
Net Income $45.32 $ 6.32 $22.28
- -------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Consolidated Statement of Partners' Capital
For the years ended December 31, 1997, 1996 and 1995
General Limited
Partners Partners Total
- -------------------------------------------------------------------------------
Balance at December 31, 1994 $ _ $39,155,021 $39,155,021
Net Income 405,680 2,853,944 3,259,624
Distributions ($122.50 per Unit) (405,680) (15,693,475) (16,099,155)
- -------------------------------------------------------------------------------
Balance at December 31, 1995 _ 26,315,490 26,315,490
Net Income 213,517 809,036 1,022,553
Distributions ($15.00 per Unit) (213,517) (1,921,650) (2,135,167)
- -------------------------------------------------------------------------------
Balance at December 31, 1996 _ 25,202,876 25,202,876
Net Income 213,517 5,805,644 6,019,161
Distributions ($173.00 per Unit) (213,517) (22,163,030) (22,376,547)
- -------------------------------------------------------------------------------
Balance at December 31, 1997 $ _ $8,845,490 $8,845,490
- -------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Cash Flows
For the years ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net Income $6,019,161 $1,022,553 $3,259,624
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 695,023 1,184,781 1,610,725
Loss on write-down of real estate _ _ 477,170
Gain on sale of properties, net (4,907,439) _ (2,854,884)
Increase (decrease) in cash arising
from changes in operating assets
and liabilities:
Other assets 12,070 836 6,321
Accounts payable and accrued expenses 36,261 (73,169) 21,651
Due to affiliates (4,972) 841 (11,989)
Security deposits payable (108,647) 1,180 (145,295)
------------------------------------
Net cash provided by operating activities 1,741,457 2,137,022 2,363,323
- -------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Net proceeds from sale of properties 20,279,729 _ 17,551,351
Additions to real estate (4,250) (69,956) (149,631)
------------------------------------
Net cash provided by (used for)
investing activities 20,275,479 (69,956) 17,401,720
- -------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Mortgage principal payments _ _ (5,051,086)
Distributions (9,181,217) (2,188,546) (15,511,984)
------------------------------------
Net cash used for financing activities (9,181,217) (2,188,546) (20,563,070)
- -------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 12,835,719 (121,480) (798,027)
Cash and cash equivalents,
beginning of period 2,314,876 2,436,356 3,234,383
-------------------------------------
Cash and cash equivalents,
end of period $15,150,595 $2,314,876 $2,436,356
- -------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ _ $ _ $ 283,556
- -------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Notes to the Consolidated Financial Statements
December 31, 1997, 1996 and 1995
1. Organization
ConAm Realty Investors 4 L.P., (formerly Hutton/ConAm Realty Investors 4) (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 May 10, 1984. The Partnership
was formed for the purpose of acquiring and operating certain types of
residential real estate. The original co-general partners of the Partnership
were RI 3-4 Real Estate Services, Inc. ("RI 3- 4"), an affiliate of Lehman
Brothers Inc., and ConAm Property Services IV, Ltd. ("CPS IV"), an affiliate of
Continental American Properties, Ltd. (the "General Partners"). On October 8,
1997, 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 4 to ConAm Realty Investors 4 L.P.
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. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell.
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 in excess of the financial institution's federally insured
limits. The Partnership invests its cash and cash equivalents with high credit
quality federally insured financial institutions.
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 and all depreciation for any fiscal year is to be allocated 99% to the
limited partners and 1% to the General Partners.
Net income before depreciation is to be allocated as follows:
(a) To the extent that net income from operations before depreciation does
not exceed the amount of net cash from operations distributable to the
partners with respect to such fiscal year, net income from operations
before depreciation is to be allocated among the partners, pro rata in
accordance with the amount of net cash from operations distributable to
each partner with respect to such fiscal year to the extent thereof; and
(b) To the extent that net income from operations before depreciation exceeds
the amount of net cash from operations distributable to the partners with
respect to such fiscal year, such excess is to be allocated (1) first,
100% to the General Partners, pro rata, in an amount equal to the excess,
if any, of the General Partners' deficits, if any, in their capital
accounts, over an amount equal to 1% of the aggregate capital
contributions to the Partnership as reduced by the amount of the General
Partners' capital contributions, and (2) second, 99% to the limited
partners and 1% to the General Partners.
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, cumulative 7% return
thereon. The balance, if any, is to be distributed 85% to the limited partners
and 15% to the General Partners.
4. Investments in Real Estate
The Partnership owns two residential apartment complexes acquired through
investments in joint ventures and limited partnerships as follows:
Apartment Date Purchase
Property Name Units Location Acquired Price
- -----------------------------------------------------------------------------
Village at the Foothills II 120 Tucson, AZ 5/30/85 $7,216,400
Shadowood Village 110 Jacksonville, FL 7/3/86 5,400,000
- -----------------------------------------------------------------------------
Village at the Foothills II was acquired through a joint venture with an
unaffiliated developer and Shadowood Village was acquired through a limited
partnership with an unaffiliated developer. To each limited partnership and
joint venture, the Partnership assigned its rights to acquire the above
properties and contributed cash equal to the purchase price of the properties.
The Partnership's partners did not make initial capital contributions to these
entities.
On July 20, 1995, the Partnership sold Trails at Meadowlakes and Cypress Lakes.
Trails at Meadowlakes and Cypress Lakes sold for $8,940,000 and $8,825,000,
respectively, to an institutional buyer (the "Buyer"), which is unaffiliated
with the Partnership. The selling price was determined by arm's length
negotiations between the Partnership and the Buyer. The Partnership received
net proceeds of $17,551,351 from the transaction of which $5,057,952,
representing outstanding principal and interest, was used to fully satisfy the
Partnership's mortgage obligation on Trails at Meadowlakes. The transaction
resulted in a gain on sale of $2,854,884, which is reflected in the
Partnership's consolidated statements of operations for the year ended December
31, 1995.
On August 22, 1995, the Partnership paid a special distribution of $14,252,238
to the limited partners. The special distribution was comprised of net
proceeds from the sale of Trails at Meadowlakes and Cypress Lakes and from
Partnership cash reserves.
In 1995, the Partnership recorded a write-down of $477,170 in 1995 to reduce
the carrying value of River Hill Apartments to its estimated fair value. The
impairment was caused by the need for necessary property improvements and
changing market conditions.
On August 6,1997, the Partnership sold River Hill Apartments to an unaffiliated
institutional buyer for a sales price of $7,275,000. The Partnership received
net proceeds from the sale totaling $7,108,356 and the transaction resulted in
a loss of $249,944, which is reflected in the Partnership's consolidated
statements of operations for the year ended December 31, 1997. On October 31,
1997, the General Partners paid a special distribution to Limited Partners
representing the net proceeds from the sale.
On December 30, 1997, the Partnership sold Pelican Landing to an unaffiliated
institutional buyer for a sales price of $13,400,000. The Partnership received
net proceeds from the sale totaling $13,171,373 and the transaction resulted in
a net gain of $5,157,383, which is reflected in the Partnership's consolidated
statements of operations for the year ended December 31, 1997. A distribution
in the amount of $103 per Unit was paid to limited partners on January 21,
1998, and is reflected on the Partnership's Balance Sheet as "Distribution
payable" at December 31, 1997. Distribution payable was $13,195,330 at
December 31, 1997.
The limited partnership agreement of River Hill Apartments substantially
provides that:
a. Net cash from operations of River Hill Apartments is to be distributed
100% to the Partnership until it has received an annual, noncumulative
return of 10% on its adjusted capital contribution. Any remaining
balance is to be distributed 60% to the Partnership and 40% to the
co-venturer.
b. Net income of the limited partnership is to be allocated to the
Partnership and the co-venturers basically in accordance with the
distribution of net cash from operations. All net losses and
depreciation are to be allocated to the Partnership.
c. Net proceeds from a sale or refinancing of River Hill Apartments are to
be distributed 100% to the Part Partnership, until it has received an
amount equal to 110% of its adjusted capital contribution.
Distributions are to then be made 75% to the Partnership and 25% to
the co-venturer, until the Partnership has received an additional 110%
of the Partnership's adjusted capital contribution. Any remaining
balance is to be distributed 50% to the Partnership and 50% to the
co-venturer. In 1997, 100% of the net proceeds from sale were
distributed to the Partnership.
The joint venture and limited partnership agreements of Village at the
Foothills II and Shadowood Village substantially provide that:
a. Available cash from operations is to be distributed 100% to the
Partnership until it has received its annual, noncumulative preferred
return, as defined. Any remaining balance is to be distr ibuted 99% to
the Partnership and 1% to the General Partners.
b. Net income is to be allocated first, proportionately to partners with
negative capital accounts, as defined, until such capital accounts, as
defined, have been increased to zero; then, to the Partnership up to
the amount of any payments made on account of its preferred return;
thereafter, 99% to the Partnership and 1% to the General Partners. All
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 General Partners.
c. Income from a sale is to be allocated to the Partnership until the
Partnership's capital accounts, as defined, are equal to the fair
market value of the venture's assets at the date of the amendments;
then, any remaining balance is to be allocated 99% to the Partnership
and 1% to the General Partners. Net proceeds from a sale or
refinancing are to be distributed first to the partners with a positive
capital account balance, as defined; thereafter, 99% to the Partnership
and 1% to the General Partners.
5. Mortgage Payable
On July 19, 1985, the Partnership obtained financing of $5,200,000,
collateralized by a first mortgage encumbering Trails at Meadowlakes. The loan
had an initial term of five years bearing interest at an annual rate of 12.50%
with monthly payments of interest only. The loan was extended in 1990 for an
additional five years bearing interest at a rate of 10.125% with monthly
principal and interest payments. On July 20, 1995 the Partnership closed on the
sale of Trails at Meadowlakes and used a portion of the sales proceeds to
satisfy the Partnership's outstanding mortgage obligation of $5,029,661.
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, accounts payable and accrued expenses, distribution payable, due
to affiliates and security deposits are reasonable estimates of their fair
values due to the short-term nature of those instruments.
7. Transactions with Related Parties
The following is a summary of fees earned and reimbursable expenses paid to the
General Partners and affiliates for the years ended December 31, 1997, 1996 and
1995, and the unpaid portion at December 31, 1997:
Earned and
Unpaid at
December 31, Earned
1997 1997 1996 1995
- -------------------------------------------------------------------------------
RI 3-4 Real Estate Services, Inc.
and affiliates:
Out-of-pocket expenses $ _ $ 1,236 $ 724 $ 3,541
ConAm and affiliates:
Property operating salaries _ 298,398 307,565 411,731
Property management fees 15,471 220,820 239,560 322,934
- -------------------------------------------------------------------------------
Total $ 15,471 $520,454 $547,849 $738,206
- -------------------------------------------------------------------------------
8. Reconciliation of Financial Statement and Tax Information - The following
is a reconciliation of the net income for financial statement purposes to net
income (loss) for federal income tax purposes for the years ended December 31,
1997, 1996 and 1995:
1997 1996 1995
- -------------------------------------------------------------------------------
Net income per financial statements $ 6,019,161 $ 1,022,553 $ 3,259,624
Depreciation deducted for tax
purposes in excess of
depreciation expense per
financial statements (unaudited) (144,847) (92,628) (105,426)
Tax basis joint venture net income
(loss) in excess of GAAP basis
joint venture net income (unaudited) 1,916,863 (104,176) (103,451)
Financial statements loss on
write-down of real estate over
tax basis loss on write-down of
real estate (unaudited) _ _ 477,170
Gain on sale of properties
for tax purposes in excess of
gain per financial
statements (unaudited) 3,487,244 _ 5,305,729
Other (unaudited) 10,820 (2,213) 470
- -------------------------------------------------------------------------------
Taxable net income (loss) (unaudited) $11,289,241 $ (823,536) $ 8,834,116
- -------------------------------------------------------------------------------
The following is a reconciliation of partners' capital for financial statement
purposes to partners' capital for federal income tax purposes as of December
31, 1997, 1996 and 1995:
1997 1996 1995
- -------------------------------------------------------------------------------
Partners' capital per
financial statements $ 8,845,490 $25,202,876 $26,315,490
Accrued distribution from sale
of Pelican Landing (unaudited) 13,195,330 _ _
Adjustment for cumulative difference
between tax basis net income
and net income per financial
statements (unaudited) 3,435,914 (1,834,166) (1,635,149)
- -------------------------------------------------------------------------------
Partners' capital per income
tax return (unaudited) $25,476,734 $23,368,710 $24,680,341
- -------------------------------------------------------------------------------
At December 31, 1997, the tax basis of the Partnership's assets was $26,168,869
and the tax basis of the Partnership's liabilities was $692,135.
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 calendar year. The consolidated
statements of cash flows recognize actual cash distributions paid during the
calendar year. The following table discloses the annual amounts as presented on
the consolidated financial statements:
Distributions Distributions
Payable Distributions Distributions Payable
Beginning of Year Declared Paid December 31,
- -------------------------------------------------------------------------------
1997 $ 533,792 $22,376,547 $9,181,217 $13,729,122
1996 587,171 2,135,167 2,188,546 533,792
1995 _ 16,099,155 15,511,984 587,171
- -------------------------------------------------------------------------------
Independent Auditors' Report
The General Partner
ConAm Realty Investors 4 L.P.:
We have audited the accompanying consolidated balance sheet of ConAm Realty
Investors 4 L.P. (a California limited partnership) (formerly Hutton/ConAm
Realty Investors 4) and consolidated ventures (the "Partnership"), as of
December 31, 1997, and the related consolidated statements of operations,
partners' capital, 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 4 L.P. and consolidated ventures as of December 31, 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
March 4, 1998
Report of Former Independent Accountants
To the Partners of
ConAm Realty Investors 4 L.P.:
We have audited the consolidated balance sheet of ConAm Realty Investors 4 L.P.
(formerly Hutton/ConAm Realty Investors 4), a California limited partnership,
and Consolidated Ventures as of December 31, 1996 and the related consolidated
statements of operations, partners' capital (deficit) and cash flows for each
of the two years in the period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ConAm
Realty Investors 4 L.P., a California limited partnership, and Consolidated
Ventures as of December 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 14, 1997
Net Asset Valuation
Comparison of Acquisition Costs to Appraised Value and
Determination of Net Asset Value Per Unit at December 31, 1997 (Unaudited)
Acquisition Cost
(Purchase Price
Plus General
Partners' December 31,
Date of Acquisition 1997 Appraised
Property Acquisition Fees) Value (1)
- -------------------------------------------------------------------------------
Village at the Foothills II 05-30-85 $ 7,376,000 $ 4,700,000
Shadowood Village 07-03-86 5,649,540 4,650,000
----------- -----------
$13,025,540 $ 9,350,000
Cash and cash equivalents 15,150,595
Other assets 3,300
-----------
24,503,895
Less:
Total liabilities (13,924,696)
-----------
Partnership Net Asset Value (2) $10,579,199
-----------
Net Asset Value Allocated:
Limited Partners 10,456,279
General Partner 122,920
-----------
$10,579,199
-----------
Net Asset Value Per Unit (128,110 Units outstanding) $81.62
- -----------------------------------------------------------------------------
(1) This represents the December 31, 1997 Appraised Values which were
determined by an independent property appraisal firm.
(2) The Partnership Net Asset Value assumes a hypothetical sale at December
31, 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 is likely to be significant. Fiduciaries of
Limited Partners which are subject to ERISA or other provisions of law
requiring valuations of Units should consider all relevant factors, including,
but not limited to Net Asset Value per Unit, in determining the fair market
value of the investment in the Partnership for such purposes.
Schedule III - Real Estate and Accumulated Depreciation:
December 31, 1997
Residential Property: Village at the Shadowood
Foothills II Village Total
- -------------------------------------------------------------------------------
Location Tucson, AZ Jacksonville, FL na
Construction date 1984-1985 1985-1986 na
Acquisition date 05-30-85 07-03-86 na
Life on which depreciation
in latest income statements
is computed 25 years 25 years na
Initial cost to Partnership:
Land $ 1,584,049 $ 566,000 $ 2,150,049
Buildings and
improvements 5,838,595 5,125,065 10,963,660
Costs capitalized
subsequent to acquisition:
Land, buildings
and improvements 11,135 44,274 55,409
Gross amount at which
carried at close of period: (1)
Land 1,583,965 569,274 2,153,239
Buildings and
improvements 5,849,814 5,166,065 11,015,879
7,433,779 5,735,339 13,169,118
- -------------------------------------------------------------------------------
Accumulated depreciation (2) $ 3,052,632 $ 2,500,195 $ 5,552,827
- -------------------------------------------------------------------------------
(1) Represents aggregate cost for both financial reporting and Federal
income tax purposes.
(2) The amount of accumulated depreciation for Federal income tax purposes
is $8,757,690.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1997, 1996, and 1995 follows:
1997 1996 1995
- -------------------------------------------------------------------------------
Investments in real estate and
property held for disposition:
Beginning of period $33,434,084 $33,752,728 $60,325,756
Additions 4,250 69,956 149,631
Write-down _ _ (4,498,633)
Dispositions (20,269,216) _ (22,224,026)
Reclassification to held
for disposition _ (388,600) _
- -------------------------------------------------------------------------------
End of period $13,169,118 $33,434,084 $33,752,728
- -------------------------------------------------------------------------------
Accumulated depreciation:
Beginning of period $ 9,754,730 $ 8,958,549 $18,896,846
Depreciation expense 695,023 1,184,781 1,610,725
Elimination of accumulated depreciation _ (388,600) _
Write-down _ _ (4,021,463)
Dispositions (4,896,926) _ (7,527,559)
- -------------------------------------------------------------------------------
End of period $ 5,552,827 $ 9,754,730 $ 8,958,549
- -------------------------------------------------------------------------------
See accompanying independent auditors' report.
Independent Auditors' Report
The General Partner
ConAm Realty Investors 4 L.P.:
Under date of March 4, 1998, we reported on the consolidated balance sheet
of ConAm Realty Investors 4 L.P. (a California limited partnership) (formerly
Hutton/ConAm Realty Investors 4) and consolidated ventures (the
"Partnership") as of December 31, 1997, and the related consolidated
statements of operations, partners' capital, 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
March 4, 1998
Report of Former Independent Accountants
Our report on the consolidated financial statements of ConAm Realty Investors 4
L.P. (formerly Hutton/ConAm Realty Investors 4), 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
4 for the year ended December 31, 1996. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule listed in the index of this Form 10- K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 14, 1997
</TEXT
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 15,150,595
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 13,169,118
<DEPRECIATION> 5,552,827
<TOTAL-ASSETS> 22,770,186
<CURRENT-LIABILITIES> 13,924,696
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<COMMON> 0
0
0
<OTHER-SE> 8,845,490
<TOTAL-LIABILITY-AND-EQUITY> 22,770,186
<SALES> 4,272,753
<TOTAL-REVENUES> 4,485,342
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,373,620
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<INCOME-CONTINUING> 0
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<EXTRAORDINARY> 4,907,439
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<NET-INCOME> 6,019,161
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