<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
SCHEDULE 14A INFORMATION
CONSENT SOLICITATION STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
[_] CONFIDENTIAL, FOR USE OF
Check the appropriate box: COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(e)(2))
[_] Preliminary Consent Solicitation Statement
[X] Definitive Consent Solicitation Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CONAM REALTY INVESTORS 5, L.P.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAMES OF PERSONS FILING CONSENT SOLICITATION STATEMENT, IF OTHER THAN THE
REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: Units
of Limited Partnership Interest ("Units")
(2) Aggregate number of securities to which transaction applies: 57,490
Units
(3) Per Unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): The filing fee
of $3,885 has been calculated in accordance with Rule 0-11 under the
Exchange Act and is equal to 1/50 of 1% of $19,420,330 (the aggregate
amount of the cash to be distributed to security holders).
(4) Proposed maximum aggregate value of transaction: $19,420,330
(5) Total fee paid: $3,885
[X] Fee paid previously with preliminary materials: $3,900
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
CONAM REALTY INVESTORS 5, L.P.
1764 SAN DIEGO AVENUE
SAN DIEGO, CALIFORNIA 92110-1906
December 16, 1998
Dear Limited Partner,
We are writing to inform you of an opportunity to liquidate your investment
in ConAm Realty Investors 5, L.P. (the "Partnership") through the sale of the
remaining two properties (the "Properties") of the Partnership for $26,000,000
to a Delaware limited liability company (the "Purchaser") to be formed if the
sale is approved by the Limited Partners. Shortly after the sale of the
Properties, it is anticipated that the Partnership would be liquidated and net
proceeds from the sale, together with certain cash reserves, would be
distributed to the Limited Partners in accordance with their respective
interests in the Partnership. Two pension funds advised by Lend Lease Real
Estate Investments, Inc. ("Lend Lease"), which is unaffiliated with the
General Partner, will each own a 45.5% interest in the Purchaser, and ConAm
DOC Affiliates LLC, an affiliate of the General Partner, will own a 9%
interest in the Purchaser. In addition, ConAm Management Corporation, an
affiliate of the General Partner which will not be a member of the Purchaser,
will act as the initial property manager for the Purchaser if the sale is
approved. See "THE PROPOSALS--The Purchaser" in the enclosed Consent
Solicitation Statement.
The accompanying materials discuss the proposed sale and certain related
matters in detail, but we would like to summarize our reasons for recommending
that you consent to the sale.
. The General Partner believes that current market conditions are
favorable for the sale of the Properties.
. The Partnership has held the Properties substantially longer than the
originally anticipated holding period.
. If the sale is consummated, aggregate distributions to the Limited
Partners following the sale, including a distribution in respect of the
sale and a final distribution upon the anticipated liquidation of the
Partnership, are estimated to be $341.74 per Unit. This compares
favorably with an average price of $237 per Unit offered in two recent
tender offers made by parties unaffiliated with the General Partner. See
"MARKET FOR THE UNITS" in the enclosed Consent Solicitation Statement.
. The purchase price for the Properties is greater than the fair market
value of the Properties set forth in an independent, annual appraisal of
the Properties made in the ordinary course of the Partnership's business
and greater than that offered by two other prospective purchasers. See
"SPECIAL FACTORS--Independent Appraisal" and "THE PROPOSALS--Background
of the Sale" in the enclosed Consent Solicitation Statement.
. The sale of the Properties will permit the Partnership to liquidate,
thus eliminating (i) the fixed costs associated with maintaining a
public limited partnership and (ii) the annual filing and reporting of
Schedule K-1 tax information by the Limited Partners.
Following for your consideration are some potential disadvantages to the
sale of the Properties:
. An affiliate of the General Partner will own a 9% interest in the
Purchaser in consideration of a pro rata cash contribution to the
Purchaser, and the General Partner will have other relationships with
the Purchaser. See "THE PROPOSALS--The Purchaser."
. The General Partner negotiated the terms of the sale with Lend Lease,
including the consideration to be received.
. As with most sales of real estate, the Partnership expects to recognize
taxable gains from the sale of the Properties. The Partnership estimates
that these taxable gains will equal approximately $263.14 per Unit,
which will result in federal taxes payable of approximately $65.31 per
Unit for Limited Partners who acquired their Units in the public
offering. See "CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE
SALE."
<PAGE>
. The Partnership will not benefit from possible improvements in economic
and market conditions, if any, which might be expected to produce
increased cash flow and potentially enhance the sales price of the
Properties.
. The sale of the Properties together may not result in as high an
aggregate gross sales price as if each were sold individually.
. Limited Partners will not be afforded appraisal rights or dissenters'
rights in connection with the sale.
Under the terms of the Partnership Agreement, the sale at one time of all or
substantially all of the Partnership's assets except in the ordinary course of
the Partnership's business requires the approval of a majority in interest of
the Limited Partners. In addition, certain affiliated transactions between the
General Partner and the Partnership are prohibited. Because the Purchaser may
be deemed to be an "affiliate" of the General Partner (under the Partnership
Agreement), the General Partner is also seeking to amend the Partnership
Agreement to permit such a sale, which requires the approval of a majority in
interest of the Limited Partners.
The accompanying materials contain a complete discussion of the purchase
price under the heading "SPECIAL FACTORS--Fairness of the Sale," together with
a discussion of all of the disadvantages and conflicts of interest arising in
connection with the sale under the heading "THE PROPOSALS--Conflicts of
Interest of the General Partner."
We have considered several alternatives to this transaction. After carefully
weighing the facts and circumstances associated with the transaction as well
as with alternative courses of action, we have concluded that the proposed
sale of the Properties is the best alternative for the Limited Partners. Our
conclusions are set forth in the section of the Consent Solicitation Statement
entitled "SPECIAL FACTORS--Alternatives Considered to the Sale." It is
anticipated that distributions to the Limited Partners of net proceeds from
the sale, together with certain cash reserves, will occur within 30 days after
the closing date of the sale.
If the Limited Partners fail to approve the sale and the amendment, the
Partnership will attempt to refinance the existing loan secured by the
Lakeview Property and obtain financing for the unencumbered Hamptons Property
and utilize any loan proceeds to implement certain capital improvements,
establish reserves for future capital improvements and make a tax-deferred
distribution to the Limited Partners. This course of action would enable the
Partnership to take advantage of future appreciation, if any, in the value of
the Properties, but could also increase the risk of loss of the Properties
because of increased debt service and might adversely affect the timing and
amount of future distributions to Limited Partners. See "THE PROPOSALS--
Failure to Approve the Sale."
YOU ARE ENCOURAGED TO READ THE CONSENT SOLICITATION STATEMENT IN ITS
ENTIRETY. WE REQUEST THAT YOU APPROVE THE SALE AND THE AMENDMENT BY SIGNING
AND RETURNING THE ENCLOSED CONSENT CARD IN THE ACCOMPANYING POSTAGE-PAID
ENVELOPE PRIOR TO JANUARY 15, 1999. YOUR VOTE IS IMPORTANT. PLEASE SIGN AND
DATE THE ENCLOSED CONSENT AND RETURN IT IMMEDIATELY SO THAT YOUR VOTE CAN BE
COUNTED.
If you have questions regarding the proposed sale or need assistance in
completing and returning your consent card, you may call the Partnership's
Solicitation Agent, D.F. King & Co., Inc., at (800) 735-3591 (toll-free).
Sincerely,
CONAM PROPERTY SERVICES IV, LTD.,
General Partner
By: Continental American
Development, Inc.,
the General Partner
/s/ Daniel J. Epstein
By:
Daniel J. Epstein
President and Chief Executive
Officer
<PAGE>
CONAM REALTY INVESTORS 5, L.P.
1764 SAN DIEGO AVENUE
SAN DIEGO, CALIFORNIA 92110-1906
CONSENT SOLICITATION STATEMENT
This Consent Solicitation Statement ("Solicitation Statement") is being
furnished to limited partners ("Limited Partners") holding units of limited
partnership interest ("Units") in ConAm Realty Investors 5, L.P., a California
limited partnership (the "Partnership"), in connection with the solicitation
of written consents ("Consents") by ConAm Property Services IV, Ltd. (the
"General Partner") to proposals (the "Proposals") to (i) sell the remaining
two income-producing, multi-family residential real properties, and all
intangible and personal property relating thereto (collectively, the
"Properties"), of the Partnership to a Delaware limited liability company,
which will be named DOC Investors, L.L.C. and formed if the Proposals are
approved (the "Purchaser"), in the manner described under the section of this
Solicitation Statement entitled "THE PROPOSALS" (the "Sale") and (ii) enact an
amendment (the "Amendment") to the Partnership's Amended and Restated
Certificate and Agreement of Limited Partnership (the "Partnership Agreement")
to permit the Sale to an "affiliate" of the General Partner as presently
defined in the Partnership Agreement. The full text of the proposed Amendment
is set forth in Appendix A attached hereto. If the Sale is approved by the
Limited Partners but the Amendment is not, the General Partner will have no
authority to consummate the Sale, and the Sale will not occur.
There is no assurance that the Sale will be consummated. However, assuming
the Sale is consummated, it is anticipated that an initial distribution to
Limited Partners of net proceeds from the Sale, together with certain cash
from operations, will aggregate approximately $337.39 per Unit and will occur
within 30 days after the closing date of the Sale. A final distribution of
cash from contingent reserves of up to $4.35 per Unit will be made upon
liquidation of the Partnership, approximately six months after the
consummation of the Sale. See "THE PROPOSALS--Description of the Partnership."
As with most sales of real estate, the Partnership expects to recognize
taxable gains from the Sale of the Properties. The Partnership estimates that
these taxable gains will equal approximately $263.14 per Unit, which will
result in federal taxes payable of approximately $65.31 per Unit for Limited
Partners who acquired their Units in the public offering. See "CERTAIN FEDERAL
AND STATE INCOME TAX CONSEQUENCES OF THE SALE."
While the General Partner, an affiliate of which will own a 9% interest in
the Purchaser, negotiated the terms of the Sale, including the consideration
to be received, holders of a majority of the outstanding Units must consent to
the Proposals for the transaction to proceed. Limited Partners will not be
afforded appraisal rights or dissenters' rights in connection with the Sale.
This Solicitation Statement and the accompanying consent card are first
being mailed to Limited Partners on or about December 16, 1998.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE DATE OF THIS CONSENT SOLICITATION STATEMENT IS DECEMBER 16, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY.................................................................... 3
ACTION BY CONSENT.......................................................... 7
General.................................................................. 7
Matters to be Considered................................................. 7
Record Date.............................................................. 8
Action by Consent........................................................ 8
SPECIAL FACTORS............................................................ 9
Reasons for the Sale..................................................... 9
Alternatives Considered to the Sale...................................... 10
Effects of the Sale...................................................... 11
Fairness of the Sale..................................................... 12
Independent Appraisal.................................................... 14
THE PROPOSALS.............................................................. 16
Description of the Partnership........................................... 16
The Purchaser............................................................ 16
Description of the Properties to be Sold................................. 17
Indebtedness on the Properties........................................... 17
Purchaser's Valuation.................................................... 18
General Partner's Valuation.............................................. 18
Background of the Sale................................................... 18
Conflicts of Interest of the General Partner............................. 22
Failure to Approve the Sale.............................................. 22
Terms of the Purchase Agreements......................................... 23
The Amendment............................................................ 25
Indemnification.......................................................... 26
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE.............. 26
General.................................................................. 26
Capital Gains............................................................ 28
Passive Loss Limitations................................................. 29
Certain State Income Tax Considerations.................................. 29
Tax Conclusion........................................................... 29
DISTRIBUTIONS.............................................................. 29
NO APPRAISAL RIGHTS........................................................ 29
MARKET FOR THE UNITS....................................................... 30
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF............................ 30
YEAR 2000 INFORMATION...................................................... 30
VOTING PROCEDURES.......................................................... 30
AVAILABLE INFORMATION...................................................... 31
APPENDIX A--THE PROPOSED AMENDMENT......................................... A-1
APPENDIX B--FORM OF CONSENT OF LIMITED PARTNER............................. B-1
</TABLE>
ANNEX 1--FORM 10-K
ANNEX 2--FORM 10-Q
2
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS
SOLICITATION STATEMENT. REFERENCES ARE MADE TO, AND THIS SUMMARY IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED IN THIS
SOLICITATION STATEMENT. UNLESS OTHERWISE DEFINED HEREIN, TERMS USED IN THIS
SUMMARY HAVE THE RESPECTIVE MEANINGS ASCRIBED TO THEM ELSEWHERE IN THIS
SOLICITATION STATEMENT. LIMITED PARTNERS ARE URGED TO READ THIS SOLICITATION
STATEMENT IN ITS ENTIRETY.
THE PARTNERSHIP
CONAM REALTY INVESTORS 5, L.P.
The Partnership owns two residential properties: Lakeview Village Apartments
("Lakeview"), a 240-unit apartment complex located Ponte Vedra Beach, Florida,
and Hamptons at Quail Hollow ("Hamptons"), a 232-unit apartment complex located
in Charlotte, North Carolina. The principal offices of the Partnership are
located at 1764 San Diego Avenue, San Diego, California 92110-1906, and its
telephone number is (619) 297-6771.
The proposed transaction contemplates the Sale of the Partnership's remaining
real property assets, which are the only material assets currently owned by the
Partnership. The Partnership will retain no interests in any real property
following the Sale, and the General Partner anticipates liquidating the
Partnership within six months after consummation of the Sale.
THE PURCHASER
If the Proposals are approved, DOC Investors, L.L.C. ( the "Purchaser") will
be formed as a Delaware limited liability company in which two pension funds
(the "Pension Funds") advised by Lend Lease Real Estate Investments, Inc.
("Lend Lease"), which is unaffiliated with the General Partner, will each own a
45.5% interest and in which ConAm DOC Affiliates LLC, an affiliate of the
General Partner, will own a 9% interest. The principal offices of the Purchaser
will be located at 1764 San Diego Avenue, San Diego, CA 92110-1906.
THE PROPOSALS
THE SALE
Upon the approval of a majority in interest of the Limited Partners pursuant
to this Solicitation Statement, the Properties may be sold to the Purchaser for
an aggregate purchase price of $26,000,000 in cash, subject to certain
adjustments at closing (the "Purchase Price"), as described under "THE
PROPOSALS--Terms of the Purchase Agreements." After the payment of outstanding
indebtedness and expenses of the Sale, there will be approximately $19,420,330
of net proceeds from the Sale available for distribution.
THE AMENDMENT
The Partnership Agreement provides that the General Partner has no authority
to sell any Partnership property to the General Partner or an "affiliate" of
the General Partner. An affiliate of the General Partner will own a 9% interest
in the Purchaser, will have a right of first offer and certain buy/sell rights
with respect to the property of and interests in the Purchaser and will be
entitled to receive, under certain circumstances, a
3
<PAGE>
percentage of the Purchaser's profits in excess of such affiliate's percentage
ownership interest in the Purchaser. In addition, an affiliate of the General
Partner which will not be a member of the Purchaser, ConAm Management
Corporation ("ConAm Management"), will serve as the initial property manager
for the Purchaser. The following charts set forth the proposed relationship
among the General Partner, ConAm Management, and, when formed, the Purchaser.
- --------
* RI 5 Real Estate Services, Inc. sold its co-general partner interest in the
Partnership to the General Partner effective July 1, 1997. See "THE
PROPOSALS--Background of the Sale."
Taken together, these relationships might cause the Purchaser to be an
"affiliate" of the General Partner under the terms of the Partnership
Agreement. In order to permit the Sale, the General Partner proposes to amend
the Partnership Agreement to permit proposed sales of Partnership properties to
"affiliates" of the General Partner, if such proposed sales are approved by the
Limited Partners. See "THE PROPOSALS--The Amendment" and "SPECIAL FACTORS--
Effects of the Sale."
FAIRNESS OF THE SALE AND CERTAIN CONFLICTS OF INTEREST
The General Partner has carefully considered the Sale and has concluded that
the Sale is in the best interests of the Partnership and the Limited Partners.
This conclusion is supported by (i) an appraisal of the Properties rendered by
an independent real estate valuation advisory firm, Bach Realty Advisors, Inc.
(the "Appraiser"), as of November 30, 1997, (ii) an appraisal commissioned by
the prospective lender for the Purchaser in the course of obtaining financing
for the Sale and (iii) comparisons with other offers for the Properties
received by the General Partner within the last year. See "SPECIAL FACTORS--
Fairness of the Sale" and "THE PROPOSALS--Background of the Sale." There are
certain factors, including conflicts of interest, described in this
Solicitation Statement that Limited Partners should consider when determining
the fairness of the Sale. In particular, (i) the Purchase Price was negotiated
by the General Partner, an affiliate of which will have a 9% interest in the
Purchaser, without the benefit of an independent representative to negotiate on
behalf of the Limited Partners, (ii) the General Partner affiliate owning 9% of
the Purchaser may, under certain circumstances, be entitled to receive an
additional 18% of the profits of the Purchaser, and will have an option to
purchase
4
<PAGE>
additional interests in the Purchaser and a right of first offer with respect
to sales of the Purchaser's property, and (iii) another affiliate of the
General Partner will serve as the initial property manager for the Purchaser.
See "THE PROPOSALS--Conflicts of Interest of the General Partner," and "SPECIAL
FACTORS--Effects of the Sale."
SECURITY OWNERSHIP AND VOTING THEREOF
As of the Record Date, the General Partner and its affiliates owned no Units.
See "VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF."
CONSUMMATION OF THE SALE
The material terms of the Agreements for Purchase and Sale and Joint Escrow
Instructions (the "Purchase Agreements") have been negotiated between Lend
Lease and the General Partner. Consummation of the Sale is conditioned on the
approval of the Proposals by the Limited Partners. Assuming the requisite
approval of the Limited Partners is obtained promptly, the consummation of the
Sale is expected to occur during January 1999 and is required to occur no later
than February 1, 1999 with respect to Lakeview and February 1, 1999 with
respect to Hamptons, in each case unless extended by the mutual agreement of
the parties (each a "Closing Date"). See "THE PROPOSALS--Terms of the Purchase
Agreements."
NO APPRAISAL RIGHTS
If the Sale is approved by Limited Partners owning a majority in interest of
the outstanding Units, dissenting Limited Partners will not have appraisal
rights in connection with the Sale. See "NO APPRAISAL RIGHTS."
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES
The General Partner expects that the Limited Partners will recognize taxable
gains of approximately $263.14 per Unit from the Sale. The Sale proceeds
distributed to the Limited Partners, together with certain distributions from
cash reserves, are expected to exceed the Limited Partners' income tax
liability attributable thereto. The Partnership estimates that these taxable
gains will result in federal taxes payable of approximately $65.31 per Unit for
Limited Partners who acquired their Units in the public offering. See "CERTAIN
FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE."
DISTRIBUTION OF NET SALE PROCEEDS
Net proceeds from the Sale, together with certain cash reserves, aggregating
approximately $337.39 per Unit, are expected to be distributed to the Limited
Partners within 30 days of the consummation of the Sale. A final distribution
of cash from contingent reserves of up to $4.35 per Unit will be made upon
liquidation of the Partnership, approximately six months after the consummation
of the Sale.
5
<PAGE>
ACTION BY CONSENT
TERMINATION OF CONSENT SOLICITATION
Consents must be received by mail or facsimile before January 15, 1999, at
5:00 P.M., Pacific Standard Time, unless such date or time is extended for an
aggregate of up to an additional 40 days in the sole discretion of the General
Partner or unless the necessary vote to approve the Proposals is received
earlier.
RECORD DATE; UNITS ENTITLED TO CONSENT
Limited Partners of record at the close of business on December 10, 1998 (the
"Record Date") are entitled to approve the Proposals by written Consent. At
such date there were outstanding 57,490 Units, each of which will entitle the
record owner thereof to one vote.
PURPOSE OF THE ACTION
Written Consents are being solicited to approve the Proposals, which consist
of the Sale and the Amendment.
SOLICITATION AGENT
The Partnership has retained D.F. King & Co., Inc. (the "Solicitation Agent")
to assist in the solicitation of Consents. Completed, signed consent cards must
be returned to the Solicitation Agent by mail or facsimile before the
Expiration Date. If you have any questions, please call the Solicitation Agent
at (800) 735-3591 (toll-free).
VOTE REQUIRED
The Proposals must be approved by Limited Partners holding a majority of all
outstanding Units. If the Sale is approved but the Amendment is not, the
General Partner will have no authority to consummate the Sale, and the Sale
will not occur.
6
<PAGE>
ACTION BY CONSENT
GENERAL
This Solicitation Statement is being furnished on behalf of the Partnership
to the Limited Partners of the Partnership in connection with the solicitation
of Consents by ConAm Property Services IV, Ltd., as the General Partner.
This Solicitation Statement and accompanying consent card are first being
mailed to Limited Partners on or about December 16, 1998.
MATTERS TO BE CONSIDERED
Consents are being solicited to approve (i) the Sale of the Properties to
the Purchaser pursuant to the Purchase Agreements and (ii) since the Purchaser
may be an "affiliate" of the General Partner under the Partnership Agreement,
the Amendment of the Partnership Agreement to permit proposed sales of
Partnership properties to "affiliates" of the General Partner, if such
proposed sales are approved by the Limited Partners. As discussed more fully
under the section of this Solicitation Statement entitled "THE PROPOSALS--
Terms of the Purchase Agreements," the Partnership is a member of a joint
venture partnership which holds title to Hamptons. Pursuant to the joint
venture partnership agreement, the Partnership's co-joint venture partners
(the "Hamptons Co-Venturers"), none of which are affiliated with the
Partnership, the General Partner, Lend Lease or the Pension Funds, hold a
right of first refusal (the "Right of First Refusal") to acquire Hamptons on
the same terms and conditions as are contained in any bona fide written offer
for the purchase of Hamptons. The Partnership has given notice to the Hamptons
Co-Venturers of the Purchaser's bona fide written offer for the purchase of
Hamptons (see "THE PROPOSALS--Background of the Sale"), and the Hamptons Co-
Venturers have until December 15, 1998 to elect to acquire Hamptons on the
same terms and conditions as are contained in the Purchaser's bona fide
written offer and to mail notice to the Partnership of such election. A vote
"for" the Sale of the Properties constitutes approval of the sale of Hamptons
to either the Purchaser or, if the Right of First Refusal is exercised, the
Hamptons Co-Venturers.
If the Proposals are approved by the Limited Partners, and the Sale is
consummated, there will be approximately $19,420,330 of net proceeds from the
Sale, after the payment of outstanding indebtedness and expenses of the Sale.
The following table sets forth the calculations used in determining the
estimated initial distribution from the net proceeds from the Sale, together
with certain cash reserves, assuming a Sale as of November 30, 1998:
ESTIMATED NET CASH AVAILABLE BEFORE CONTINGENT RESERVES
<TABLE>
<CAPTION>
NET NET CASH
PROCEEDS FROM
FROM SALE OPERATIONS TOTAL
----------- ---------- -----------
<S> <C> <C> <C>
Gross Purchase Price..................... $26,000,000
Estimated Transaction Costs(1)........... (150,000)
-----------
Net Sale Proceeds........................ 25,850,000
Repayment of Secured Debt................ (6,072,451)
Prepayment Penalties(2).................. (357,219)
-----------
Net Distributable Proceeds from Sale..... 19,420,330 $19,420,330
Other Available Cash(3).................. $230,875 230,875
Less: General Partner Portion(2%)........ (4,617) (4,617)
----------- -------- -----------
Net Cash Available Before Contingent
Reserves................................ 19,420,330 226,258 19,646,588
=========== ======== ===========
Net Cash Available Before Contingent
Reserves, per Unit (57,490 Units)....... $ 341.74
===========
Net Asset Value Per Unit at 11/30/97..... $ 357.09
===========
</TABLE>
7
<PAGE>
ESTIMATED PROJECTED INITIAL DISTRIBUTION TO LIMITED PARTNERS
<TABLE>
<CAPTION>
PER
UNIT
-------
<S> <C> <C>
Net Cash Available Before Contingent Reserves
(from above)................................... $19,646,588 $341.74
Less: Contingent Reserves(4).................... (250,000) $ (4.35)
----------- -------
Net Initial Distribution to Limited Partners.... $19,396,588 $337.39
=========== =======
</TABLE>
- --------
(1) Includes estimated costs of consent solicitation and Sale which are
anticipated to be paid prior to the initial distribution.
(2) Calculated based on lender's loss of yield due to prepayment.
(3) Includes cash balance at 9/30/98, adjusted for projected cash flow from
10/01/98 through 11/30/98, refund of security deposits, projected third
quarter distributions to Limited Partners, and costs incurred in the final
administration and liquidation of the Partnership.
(4) Represents a reserve for costs related to the consent solicitation not
paid prior to the initial distribution and for unanticipated costs related
to the Sale and liquidation of the Partnership. Any unused portion of this
reserve will be distributed upon liquidation of the Partnership.
Of the $341.74 total potential distribution per Unit, approximately $337.39
will be distributed within 30 days of the consummation of the Sale, and the
remaining $4.35 will be retained to cover contingencies related to the Sale
and the expenses of the Partnership's winding-up and liquidation. This
additional reserve equal to $4.35 per Unit will be distributed to Limited
Partners, to the extent available, upon liquidation of the Partnership, which
is expected to occur within six months of the consummation of the Sale.
THE GENERAL PARTNER PROPOSES THAT THE LIMITED PARTNERS TAKE THE FOLLOWING
ACTIONS BY CONSENT:
APPROVE THE SALE OF THE PARTNERSHIP'S RESIDENTIAL PROPERTIES KNOWN AS
LAKEVIEW VILLAGE APARTMENTS AND HAMPTONS AT QUAIL HOLLOW, TOGETHER WITH ALL
INTANGIBLE AND PERSONAL PROPERTY NECESSARY TO THE OPERATION THEREOF, TO THE
PURCHASER, PURSUANT TO CERTAIN PURCHASE AGREEMENTS TO BE ENTERED INTO BETWEEN
THE PURCHASER AND CERTAIN TITLE-HOLDING ENTITIES WHICH THE PARTNERSHIP
CONTROLS, AND APPROVE THE AMENDMENT OF THE PARTNERSHIP AGREEMENT TO PERMIT
PROPOSED SALES OF PARTNERSHIP PROPERTIES TO "AFFILIATES" OF THE GENERAL
PARTNER, IF SUCH PROPOSED SALES ARE APPROVED BY THE LIMITED PARTNERS. (A VOTE
"FOR" THE SALE OF THE PROPERTIES CONSTITUTES APPROVAL OF THE SALE OF HAMPTONS
TO EITHER THE PURCHASER OR, IF THE RIGHT OF FIRST REFUSAL IS EXERCISED, THE
HAMPTONS CO-VENTURERS.)
WHILE THE GENERAL PARTNER, AN AFFILIATE OF WHICH WILL OWN A 9% INTEREST IN
THE PURCHASER, NEGOTIATED THE TERMS OF THE SALE, INCLUDING THE CONSIDERATION
TO BE RECEIVED, HOLDERS OF A MAJORITY OF THE OUTSTANDING UNITS MUST CONSENT TO
THE PROPOSALS FOR THE TRANSACTION TO PROCEED.
RECORD DATE
The close of business on December 10, 1998 has been fixed by the General
Partner as the Record Date for determining the Limited Partners entitled to
receive notice of the solicitation of Consents and to give their consent to
the Proposals. As of the Record Date, there were 57,490 issued and outstanding
Units entitled to vote held of record by 2,508 holders.
ACTION BY CONSENT
Under the terms of the Partnership Agreement the sale at one time of all or
substantially all of the Partnership's assets except in the ordinary course of
the Partnership's business requires the approval of a majority in interest of
the Limited Partners. In addition, the sale of Partnership properties to the
General Partner or its affiliates is prohibited, unless the Partnership
Agreement is amended with the approval of a majority in interest
8
<PAGE>
of the Limited Partners to permit such sales. Such approval will be obtained
through the solicitation of written Consents from Limited Partners, and no
meeting of Limited Partners will be held to vote on these matters. Consents
must be received by January 15, 1999, at 5:00 P.M., Pacific Standard Time,
unless such date or time is extended for an aggregate of up to an additional
40 days in the sole discretion of the General Partner or unless the necessary
vote to approve the Proposals is received earlier (the "Expiration Date"). A
vote "for" or "against" either of the Proposals may be revoked by the person
giving it at any time before the Expiration Date by sending a written notice
of revocation or a later-dated Consent containing different instructions to
the Solicitation Agent before such date. Any written notice of revocation or
subsequent Consent should be sent to the Solicitation Agent at the address
that appears on the back cover of this Solicitation Statement.
In addition to solicitation by use of the mails, officers, directors and
employees of the General Partner or its affiliates, or the Solicitation Agent,
may solicit Consents in person or by telephone, facsimile or other means of
communication. Such officers, directors and employees will not receive
additional compensation for such services but may be reimbursed for reasonable
out-of-pocket expenses in connection with such solicitation. Arrangements have
been made with custodians, nominees and fiduciaries for the forwarding of
Consent solicitation materials to beneficial owners of Units held of record by
such custodians, nominees and fiduciaries, and the Partnership will reimburse
such custodians, nominees and fiduciaries for reasonable expenses incurred in
connection therewith. In addition, the Partnership has hired the Solicitation
Agent to assist in the solicitation of the Consents, and will pay an estimated
fee of $1,750 plus the usual and customary fees and expenses associated with
such solicitation assistance. All costs and expenses of the solicitation of
Consents, including the costs of preparing and mailing this Solicitation
Statement, will be borne by the Partnership, whether or not the required
Consents are received and the Sale is consummated. The aggregate expenses
anticipated to be incurred by the Partnership relating to this solicitation
are expected to be approximately $94,465 and are detailed in the following
table:
<TABLE>
<S> <C>
Filing fees........................................................ $ 3,885
Legal fees......................................................... 65,000
Accounting fees.................................................... 3,000
Solicitation fees.................................................. 5,200
Printing fees...................................................... 17,380
-------
$94,465
=======
</TABLE>
SPECIAL FACTORS
REASONS FOR THE SALE
The General Partner's decision to proceed with the Sale at this time is
based upon the belief that current market conditions are favorable for the
Sale; that the Properties have been held substantially longer than the
originally anticipated holding period; that the Purchase Price is attractive;
and that the Pension Funds and Lend Lease are highly likely to consummate the
transaction. The General Partner has also considered: (a) the amount likely to
be distributed to the Limited Partners if the Sale were to occur; (b) the
business risks to which the Partnership would be exposed if the Sale were not
to occur; and (c) the elimination of (i) the fixed costs associated with
maintaining a public limited partnership and (ii) the annual filing and
reporting of Schedule K-1 tax information by the Limited Partners.
If the Sale is consummated, aggregate distributions to the Limited Partners
following the Sale, including a distribution in respect of the Sale and a
final distribution upon the anticipated liquidation of the Partnership, are
estimated to be $341.74 per Unit. This compares favorably with an average
price of $237 per Unit offered in two recent tender offers made by parties
unaffiliated with the General Partner. See "MARKET FOR THE UNITS."
If the Sale does not occur, the Partnership will attempt to refinance the
existing loan secured by Lakeview and obtain financing for Hamptons and
utilize any loan proceeds to implement certain capital improvements,
9
<PAGE>
establish reserves for future capital improvements and make a tax-deferred
distribution to the Limited Partners. The Partnership might then take
advantage of any future property appreciation through a future sale of one or
both of the Properties to the Purchaser or otherwise. However, such a course
of action could also increase the risk of loss of the Properties due to any
failure to make debt service payments and might also adversely affect the
timing and amount of future distributions to Limited Partners. See "THE
PROPOSALS--Failure to Approve the Sale."
As indicated in the Partnership's annual reports to Limited Partners and
Form 10-Ks, the annual third party cost of administration of the Partnership
was $120,354 for 1995, $140,163 for 1996 and $167,485 for 1997. These
administrative costs are incurred irrespective of the number of properties
owned by the Partnership and cover the annual audit, preparation of the
Partnership's tax return, transfer agent fees and investor services and public
reporting fees. In addition, the Limited Partners incur individual costs
associated with the preparation of appropriate schedules for their tax
returns.
The primary disadvantages of the Sale to Limited Partners include (i) a
potential loss of benefits resulting from any improvements in economic and
market conditions, (ii) a potentially lower aggregate gross sales price
resulting from sale of the Properties together as opposed to individually and
(iii) a lack of appraisal rights for dissenting Limited Partners. See "--
Fairness of the Sale."
ALTERNATIVES CONSIDERED TO THE SALE
Continued Ownership of the Properties. The decision to sell the Properties
at this time took into account the General Partner's opinion concerning the
limited prospects for capital appreciation of the Properties, unless
significant additional investments are made in the Properties. The General
Partner considered retaining one or both of the Properties for a longer period
with the expectation of achieving greater capital appreciation. However, due
to the fact that the Properties are aging, the General Partner believes that
the Partnership will need to expend significant funds for capital improvements
and maintenance costs in order for the Properties to compete in their
respective markets in the future. The improvements would involve ongoing
replacement of carpeting and appliances and ongoing exterior maintenance,
including painting, roof replacement, heating and air conditioning
refurbishment, repaving of common areas and access roads, and ongoing repairs
to plumbing, electrical systems and building exteriors. The General Partner
estimates that the average cost of these improvements in 1999, 2000 and 2001
would approximate $462,000 per year.
While the General Partner believes that the Partnership could borrow
additional funds in order to finance these improvements, the General Partner
does not believe that increasing the level of debt on the Properties would be
in the best interests of the Partnership, if another alternative such as the
Sale is feasible. Increasing indebtedness on the Properties would increase the
risk of loss and significantly decrease net cash flow, resulting in an
indefinite suspension of distributions to the Limited Partners. Such a plan of
action also would subject the Limited Partners to the continued risks of
ownership of the Properties and prolong the fixed costs associated with
maintaining a public limited partnership, including the administrative burden
of annual filing and reporting of Schedule K-1 tax information.
Tender Offer. From time to time, the Limited Partners have been approached
by investors seeking to acquire Units. Based on analyses of these proposals
and general market information as to other tender offers for real estate
limited partnership interests, the General Partner has concluded that such
tender offers are generally made at prices that reflect a significant discount
from the net asset value of the Units. For instance, those tender offers
during the past three years of which the General Partner is aware have been
made at prices that reflect approximately 41% to 76% of the net asset value of
the Units. The General Partner has consistently recommended that the Limited
Partners decline a tender offer on terms that reflect such a significant
discount from net asset value.
The General Partner has considered the possibility of making a tender offer
itself for all or a portion of the outstanding Units of the Partnership.
However, the General Partner determined that the purchase of less than a
10
<PAGE>
controlling interest in the Partnership would be difficult to finance at a
fair approximation of the net asset value of the Units. Accordingly, the
General Partner decided not to pursue a tender offer for the Units.
Consolidation. The General Partner also considered a consolidation of the
Partnership with certain other partnerships for which it or its affiliates act
as general partner. Such a consolidation would have involved the merger of the
Partnership into, or the sale of the Partnership's interests in the Properties
to, a newly-formed entity, pursuant to which the Limited Partners would
receive securities in the surviving entity. Although the General Partner did
not perform any specific financial analysis in the context of evaluating the
merits of this alternative, it rejected this alternative because it would not
necessarily provide the Limited Partners with improved liquidity and might
continue to subject the Limited Partners to the market and other risks
associated with the ownership of securities which might not have an active
trading market. In addition, there has been significant negative publicity
regarding such "roll-up" transactions, and recently enacted legislation on
both the federal and state levels as well as increased regulation of such
transactions have made this alternative expensive and time consuming.
Other Sales. See "THE PROPOSALS--Background of the Sale" for a discussion of
other proposals to purchase the Properties received by the General Partner.
Conclusion. After considering all of the foregoing alternatives, the General
Partner concluded that it is in the best interests of the Partnership and the
Limited Partners to proceed with the Sale to the Purchaser for the Purchase
Price. The primary disadvantages of the Sale to Limited Partners include (i) a
potential loss of benefits resulting from any improvements in economic and
market conditions, (ii) a potentially lower aggregate gross sales price
resulting from sale of the Properties together as opposed to individually and
(iii) a lack of appraisal rights for dissenting Limited Partners. See "--
Fairness of the Sale."
EFFECTS OF THE SALE
Partnership. The Sale, if consummated, would effect a dissolution of the
Partnership under the Partnership Agreement and California law. Accordingly,
an initial distribution to Limited Partners of net proceeds from the Sale,
together with certain cash reserves, would be followed by a liquidation
distribution of cash from contingent reserves approximately six months after
consummation of the Sale. Any taxable income realized by the Partnership in
connection with the Sale or liquidation will be passed through to the partners
of the Partnership, in accordance with federal and state tax law and the
Partnership Agreement. The Partnership will not incur any income taxes in
respect of such transactions. See "CERTAIN FEDERAL AND STATE INCOME TAX
CONSEQUENCES OF THE SALE."
Affiliates of the Partnership. Continental American Development, Inc.
("CADI") is the general partner of the General Partner. The shareholders of
CADI are substantially identical to the partners of Continental American
Properties, Ltd. ("CAPL"), which is the managing member of ConAm DOC
Affiliates LLC ("ConAm DOC"), the prospective owner of a 9% interest in the
Purchaser. In addition, the shareholders of CADI are identical to the
shareholders of ConAm Management, which will act as the initial property
manager for the Purchaser if the Proposals are approved. As a result, the Sale
is subject to various conflicts of interest.
The General Partner anticipates benefiting from the Sale to the Purchaser
because ConAm DOC, an affiliate of the General Partner, will own a 9% interest
in the Purchaser and will benefit on any returns the Purchaser receives from
its investment in the Properties. The Purchaser will buy the Properties with a
view to generating a positive return on its investment, whether from operating
the Properties, selling the Properties or ultimately selling interests in the
Purchaser. Achieving this investment objective is possible, because the
Pension Funds are willing to invest funds in capital improvements and other
items necessary to enhance the value of the Properties and potentially
increase the revenues generated by the Properties. In addition, the Purchaser
would likely be able to borrow on more favorable terms than the Partnership if
it purchases additional properties and is therefore able to cross-
collateralize any loans with all of such properties, something the Partnership
is not in a position to do.
11
<PAGE>
As further benefits of the Sale to the General Partner, ConAm DOC might
have, under certain circumstances and at certain times, an option to purchase
additional interests in the Purchaser and will have a right of first offer
with respect to the Purchaser's property. See "THE PROPOSALS--The Purchaser."
As a result of the Sale and subsequent liquidation of the Partnership, the
General Partner will recognize taxable income of $38,284. The General Partner
expects to receive $4,617 as its pro rata share of the cash reserves,
excluding net proceeds from the Sale.
As a result of the Sale, the General Partner will retain without
modification its current interest in the net book value and net earnings of
the Partnership. No affiliate of the General Partner will obtain any interest
in the net book value and net earnings of the Partnership as a result of the
Sale.
Limited Partners. It is anticipated that, shortly after the Sale, the net
proceeds from the Sale, together with certain cash reserves, would be
distributed to the Limited Partners in accordance with their respective
interests in the Partnership. This initial distribution to Limited Partners of
net proceeds from the Sale and certain cash reserves will aggregate
approximately $337.39 per Unit and will occur within 30 days after the Closing
Date. A final distribution of cash from contingent reserves of up to $4.35 per
Unit will be made upon the subsequent liquidation of the Partnership,
approximately six months after the consummation of the Sale. The Sale will
thus eliminate (a) the fixed costs associated with maintaining a public
limited partnership and (b) the annual filing and reporting of Schedule K-1
tax information by the Limited Partners. The Sale and liquidation will also
have certain income tax consequences to the Limited Partners. See "CERTAIN
FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE."
The primary disadvantages of the Sale to Limited Partners include (i) a
potential loss of benefits resulting from any improvements in economic and
market conditions, (ii) a potentially lower aggregate gross sales price
resulting from sale of the Properties together as opposed to individually and
(iii) a lack of appraisal rights for dissenting Limited Partners. See "--
Fairness of the Sale."
FAIRNESS OF THE SALE
The General Partner and its affiliates believe that the Sale is fair and
reasonable as to both price and structure and is in the best interests of the
Limited Partners and the Partnership and has, therefore, approved the Sale.
Because (i) the Purchase Price was negotiated by the General Partner, an
affiliate of which will have a 9% interest in the Purchaser, without the
benefit of an independent representative to negotiate on behalf of the Limited
Partners, (ii) the General Partner affiliate owning 9% of the Purchaser may,
under certain circumstances, be entitled to receive an additional 18% of the
profits of the Purchaser, and will have an option to purchase additional
interests in the Purchaser and a right of first offer with respect to sales of
the Purchaser's property, and (iii) another affiliate of the General Partner
will serve as the initial property manager for the Purchaser, the General
Partner has economic and other interests which are in conflict with the
interests of the Limited Partners. These interests of the General Partner may
conflict with its fiduciary obligations to the Limited Partners. The General
Partner believes, however, that it has fulfilled its fiduciary obligations to
the Partnership and that the Sale is fair to the Limited Partners. See "THE
PROPOSALS--Conflicts of Interest of the General Partner."
12
<PAGE>
IN REACHING ITS DETERMINATION THAT THE SALE IS SUBSTANTIVELY AND
PROCEDURALLY FAIR, THE GENERAL PARTNER CONSIDERED THE FOLLOWING FACTORS WITH
RESPECT TO THE SALE. NEITHER CONAM DOC NOR CAPL HAS PERFORMED OR INTENDS TO
PERFORM AN INDEPENDENT ANALYSIS OF THE SUBSTANTIVE AND/OR PROCEDURAL FAIRNESS
OF THE SALE TO LIMITED PARTNERS. BOTH CONAM DOC AND CAPL, IN PUBLICLY-
AVAILABLE FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, HAVE EXPLICITLY
ADOPTED THE FOLLOWING PROCEDURAL AND SUBSTANTIVE FAIRNESS ANALYSIS OF THE
GENERAL PARTNER:
(i) The General Partner believes that the Purchase Price represents a
fair price for the Properties. For the reasons described in "--Independent
Appraisal," the General Partner relied during initial negotiations with
Lend Lease on the Independent Appraisal (as defined below) as
representative of a fair price for the Properties. As negotiations for the
Sale continued, Lend Lease and the General Partner learned of higher values
which had been attributed to the Properties by the prospective lender for
the Purchaser. See "THE PROPOSALS--Background of the Sale." Upon learning
of these higher values, the General Partner was
able to negotiate an increase in the purchase offer from the value
indicated in the Independent Appraisal to the Purchase Price, which is
greater than the values set forth in the lender appraisal (after deduction
of a sales commission normally paid by the seller but not applicable to the
Sale) and greater than the values set forth in the Independent Appraisal.
See "THE PROPOSALS--Background of the Sale." In addition, the Purchase
Price exceeds two offers for the Properties which were made to the General
Partner prior to or during negotiations with Lend Lease. See "THE
PROPOSALS--Background of the Sale." Because the Purchase Price is in excess
of these market indicators of a fair market value for the Properties, the
General Partner believes that the Sale is fair and in the best interests of
the Limited Partners.
(ii) The General Partner believes that current market conditions are
favorable for the Sale, because fair market values have generally
appreciated over the last few years. However, recent volatility and
uncertainty in the global capital markets is having (and is likely to
continue to have) an adverse effect on the financing of real estate
acquisitions. Therefore, in the General Partner's opinion, future
appreciation is unlikely in the near term and there is increased risk in
holding real estate generally. In addition, retention of the Properties
will continue to subject the Partnership to the risks inherent in the
ownership of property, such as fluctuations in occupancy rates, operating
expenses and rental rates, which in turn may be affected by general and
local economic conditions, the supply and demand for properties of the type
owned by the Partnership and federal and local laws and regulations
affecting the ownership and operation of real estate. Therefore, the
General Partner has determined that the Sale is more advantageous to the
Limited Partners than retaining the Properties at the present time.
(iii) Due to the age and physical condition of the Properties, the
General Partner anticipates a need for expenditures averaging approximately
$462,000 per year in 1999, 2000 and 2001 if the Partnership continues to
hold the Properties. These improvements would involve the ongoing
replacement of carpeting and appliances and ongoing exterior maintenance,
including painting, roof replacement, heating and air conditioning
refurbishment, repaving of common areas and access roads, and ongoing
repairs to plumbing, electrical systems and building exteriors. While
higher rents might be obtained if such improvements are made, distributions
might need to be reduced because of the increased debt service. Given that
continued long-term investment in the Properties would thus subject the
Limited Partners to the risk of reduced distributions, in addition to the
increased risk of holding real estate generally, the General Partner
believes that the Sale is in the best interests of the Limited Partners.
(iv) The form of the Purchase Agreements, described under "THE
PROPOSALS--Terms of the Purchase Agreements," contains several favorable
provisions which are not customarily found in third party agreements,
including: limited representations and warranties; limited survivability of
representations and warranties; sale of the Properties on an "as is" basis;
and lack of any financing contingencies relating to the Sale. Because these
favorable provisions have the effect of limiting the prospective and other
risks inherent in a sale of real property, the General Partner has
determined that the Proposals are a fair opportunity to submit to the
Limited Partners for approval.
13
<PAGE>
(v) Experience in the multi-family housing market indicates that selling
the Properties together will result in lower aggregate transaction costs,
particularly lower legal and title insurance fees. Furthermore, the Sale
will not be subject to the protracted timelines, contingencies and
administrative costs associated with individual sales. For example, if one
of the Properties were sold, the remaining Property might not generate
sufficient revenues to service debt, pay Partnership administrative costs
and provide for distributions at the current level to Limited Partners.
(vi) As a result of changes in the federal capital gains tax rate which
became effective in 1997, the Limited Partners will receive more favorable
capital gains tax treatment on the distribution of Sale proceeds than they
would have received prior to such changes.
(vii) The Sale will accelerate distributions to the Limited Partners,
thereby permitting them to liquidate their investments. At present, there
is no established public trading market for the Units and liquidity is
limited to (a) sporadic sales which occur within an informal secondary
market or (b) tender offers for Units, both of which are generally at a
substantial discount to net asset value and often involve only a limited
number of Units.
(viii) The Sale will permit the Partnership to liquidate, thus
eliminating (a) the fixed costs associated with maintaining a public
limited partnership and (b) the annual filing and reporting of Schedule K-1
tax information by the Limited Partners.
(ix) Consummation of the Sale is subject to approval of the Proposals by
a majority in interest of the Limited Partners. Given this procedural
safeguard, the General Partner has determined that offering the Limited
Partners the option of liquidating their investment at or above current
appraised values is preferable to subjecting the Limited Partners to the
increased risk associated with making additional capital investments and
continuing to hold properties in an already competitive market.
THE PRIMARY DISADVANTAGES OF DISPOSING OF THE PROPERTIES PURSUANT TO THE
SALE ARE AS FOLLOWS:
(i) The Partnership will not benefit from improvements in economic and
market conditions, if any, which might be expected to produce increased
cash flow and potentially enhance the sales price of the Properties.
(ii) The sale of the Properties together may not result in as high an
aggregate gross sales price as if they were sold individually.
(iii) Limited Partners will not be afforded appraisal rights or
dissenters' rights in connection with the Sale. See "NO APPRAISAL RIGHTS."
(iv) The Purchase Price was negotiated by the General Partner, an
affiliate of which will have an interest in the Purchaser, without the
benefit of an independent committee or representative to negotiate the
terms of the Sale on behalf of the Limited Partners.
(v) The form of the Purchase Agreements contains provisions that may be
less advantageous to the Partnership than those found in many third party
agreements, in that (a) the purchase of the Properties by the Purchaser is
subject to the concurrent approval by the limited partners of five public
limited partnerships (the "Affiliated Partnerships") of which the General
Partner or affiliates of the General Partner are the general partners of
the sale of their respective properties to the Purchaser and (b) the
Purchaser may terminate the Purchase Agreements if, due to condemnation or
casualty, the Purchaser is entitled to terminate the purchase agreements
with respect to any two or more properties owned by the Affiliated
Partnerships.
INDEPENDENT APPRAISAL
Each year, in the ordinary course of Partnership business, the General
Partner commissions an appraisal of the fair market value of the Partnership's
properties. For the past four years, the Appraiser has rendered these
appraisals for properties of the Partnership, as well as those of the
Affiliated Partnerships. These appraisals have
14
<PAGE>
included appraisals of the Properties and 12 other properties (together with
the Properties, the "RI Portfolio") which are owned by the Affiliated
Partnerships and are currently proposed to be sold to the Purchaser. The
General Partner retains the Appraiser based upon its reputation as a real
estate valuation advisory firm with experience in the valuation of real
property assets similar to those comprising the RI Portfolio. The Appraiser
was originally selected by the former co-general partner of the Partnership
based upon the principal's 30 years of experience as an appraiser and real
estate executive with several national real estate appraisal and research
companies and the principal's familiarity with the markets where the
Properties are located. The Appraiser has received annual fees of $6,750
during each of the last two years for rendering appraisals to the Partnership
with respect to the Properties. Total fees paid to the Appraiser by the
Partnership and its affiliates during 1996 and 1997 were $44,150 and $47,900,
respectively.
In March 1998, the Appraiser delivered its independent appraisals to the
General Partner (the "Independent Appraisal") that, as of November 30, 1997,
based on the Appraiser's review and subject to the limitations described
below, the value of Lakeview was $11,700,000 and the value of Hamptons was
$14,200,000. The Independent Appraisal does not constitute a recommendation to
any Limited Partner as to whether such Limited Partner should approve the
Sale.
In appraising the Properties, the Appraiser obtained pertinent property data
regarding income and expense figures and tenant rent rolls and conducted
inspections of the Properties. Additionally, the Appraiser conducted research
either personally or through associates to obtain information concerning
current market rental rates, construction trends, the sale of comparable
improved properties, anticipated investor returns, appropriate operating
expenses and the supply and demand of competitive apartment projects in the
general and immediate area. The value of the Properties was determined by the
Appraiser using both the sales comparison approach and the income approach to
value.
For Lakeview, the Appraiser used an actual sales price for eight apartment
sales from May 1996 to August 1997 in order to implement the sales comparison
approach. The Appraiser implemented the income approach for Lakeview under the
direct capitalization model and the discounted cash flow model. The
Appraiser's assumptions under the direct capitalization model included: a
capitalization rate of 9.0%; current market rents; stabilized vacancy rate of
5%; other income based on historical collections; operating expenses based
upon historical actuals and comparable projects; a replacement reserve
allowance of $300 per unit per year; a reduction for deferred maintenance of
$198,000; and a reduction for rent loss due to lease-up of $340,605. The
Appraiser's assumptions under the discounted cash flow model included: a
terminal capitalization rate of 10.0%; a discount rate of 12.0%; a 3% cost of
sale; a 10-year holding period; income growth rate of 2% in 1998 and 4%
thereafter; a vacancy rate of 15% in 1998, 10% in 1999 and 5% thereafter;
operating expense growth rate of 4% per year; and a replacement reserve of
$300 per unit per year, increasing by 4% per year.
For Hamptons, the Appraiser used an actual sales price for seven apartment
sales from October 1996 to August 1997 in order to implement the sales
comparison approach. The Appraiser implemented the income approach for
Hamptons under the direct capitalization model and the discounted cash flow
model. The Appraiser's assumptions under the direct capitalization model
included: a capitalization rate of 9.25%; current market rents; stabilized
vacancy rate of 5%; other income based on historical collections; operating
expenses based upon historical actuals and comparable projects; a replacement
reserve allowance of $300 per unit per year; a reduction for deferred
maintenance of $250,000; and a reduction for rent loss due to lease-up of
$7,120. The Appraiser's assumptions under the discounted cash flow model
included: a terminal capitalization rate of 10.0%; a discount rate of 12.0%; a
4% cost of sale; a 10-year holding period; income growth rate of 0% in 1998
and 4% thereafter; a vacancy rate of 5% throughout the holding period;
operating expense growth rate of 4% per year; and a replacement reserve of
$300 per unit per year, increasing by 4% per year.
The Appraiser estimated the leased fee market value for Lakeview to be
$11,700,000 and for Hamptons to be $14,200,000, a total of $25,900,000 for
both Properties. These estimates were made after investigating the appropriate
real estate markets and applying the Appraiser's experience with and knowledge
of similar real estate properties. The estimated values assume an all cash,
"as is" basis and a minimum of six to twelve months to
15
<PAGE>
market and sell the Properties, but do not take into consideration any
potential costs which might be incurred in the course of the marketing and
sale of the Properties.
The Independent Appraisal was made in accordance with the accepted
techniques, standards, methods and procedures of the Appraisal Institute and
was certified by the Appraiser. LIMITED PARTNERS SHOULD NOTE, HOWEVER, THAT
APPRAISALS ARE ONLY ESTIMATES OF CURRENT VALUE AND ACTUAL VALUES REALIZABLE
UPON SALE MAY BE SIGNIFICANTLY DIFFERENT. While the Appraiser may have a
conflict of interest in that it has prepared appraisals of properties for the
Affiliated Partnerships, it has not rendered appraisals for any other
affiliates of the General Partner. The General Partner has not commissioned
any appraisals of the Properties other than the Independent Appraisal, because
the General Partner believes that appraisals by the Appraiser accurately
reflect the fair market value of the properties appraised. This determination
is supported by certain offers received for the Properties by the General
Partner. See "THE PROPOSALS-- Background of the Sale." While the General
Partner considered the Independent Appraisal in negotiating the terms of the
Sale, the Independent Appraisal was not determinative of the Purchase Price.
The Independent Appraisal is available for inspection and copying at the
principal executive offices of the General Partner during its regular business
hours by any interested Limited Partner or such Limited Partner's
representative who has been so designated in writing. In addition, the
Independent Appraisal has been filed as an exhibit to the Partnership's
Schedule 13E-3 in respect of the Sale, which is a publicly-available filing
with the Securities and Exchange Commission. See "AVAILABLE INFORMATION."
THE PROPOSALS
DESCRIPTION OF THE PARTNERSHIP
The Partnership was formed on June 28, 1984 for the primary purpose of
acquiring and operating multi-family, residential real properties. The
Partnership currently owns two apartment complexes: Lakeview, a 240-unit
apartment complex located in Ponte Vedra Beach, Florida, and Hamptons, a 232-
unit apartment complex located in Charlotte, North Carolina. The Partnership
sold one residential apartment complex in 1996. The Partnership will retain no
interests in real property after the Sale. See "--Description of the
Properties to be Sold."
The Partnership was structured as a self-liquidating partnership with a
finite life, which would distribute its cash flow during its operating stage
and its proceeds of sale during its liquidating stage, whereupon the
Partnership would be liquidated and dissolved. It was originally anticipated
that the Partnership's properties would be held for approximately five years
after their acquisition although, depending on economic and market factors,
they could have been held for shorter or longer periods in the complete
discretion of the General Partner. The interests in the Properties were
purchased between 1985 and 1986 and now have been held for substantially
longer than the originally anticipated holding period.
THE PURCHASER
Prior to the Sale, the Purchaser will be formed as a Delaware limited
liability company in which the Pension Funds will each own a 45.5% interest
and in which ConAm DOC, an affiliate of the General Partner, will own a 9%
interest.
Under the proposed limited liability company agreement of the Purchaser (the
"LLC Agreement"), ConAm DOC will be the administrative member of the Purchaser
and will have the obligation and responsibility to manage and conduct the day-
to-day business and affairs of the Purchaser. However, because significant
decisions (each, a "Major Decision") can be made only by or with the approval
of 66 2/3% of the membership interests in the Purchaser, Lend Lease and the
Pension Funds will effectively control the Purchaser. Major Decisions include:
the approval or amendment of property budgets; the sale, lease, refinancing,
or encumbrance of the Properties; the acquisition of any real property in
addition to the Properties; the making of capital improvements to the
16
<PAGE>
Properties; the admission of a new member of the Purchaser; entering into any
contract with an affiliate of any member; the issuance or sale of equity or
debt securities of the Purchaser; the consummation of any business combination
involving the Purchaser; the filing of any petition in bankruptcy with respect
to the Purchaser; the selection or replacement of a property manager; and the
distribution of net cash flow or capital proceeds.
Under the proposed LLC Agreement, the Purchaser will enter into a two-year
property management agreement with ConAm Management, an affiliate of the
General Partner. ConAm Management is required to manage the daily operations
of the Properties and will receive a management fee of 3.5% of each Property's
gross collected monthly revenues. If the Purchaser elects in its sole
discretion to retain ConAm Management beyond the initial two-year term, the
management fee will be reduced to 3% of each Property's gross collected
monthly revenues. If the Purchaser sells one or both of the Properties during
the year following the initial two-year term, ConAm Management will be
entitled to a termination fee equal to the management fee otherwise payable in
respect of such Property or Properties for the remainder of that year.
The proposed LLC Agreement provides that, following the two-year anniversary
of the effective date of the LLC Agreement (or at any prior time if the
members of the Purchaser are unable to reach a consensus on any Major Decision
within a 30-day period), any member of the Purchaser, including any affiliate
of the General Partner which is a member of the Purchaser, may make an offer
for the other members' interests in the Purchaser. Each other member may elect
to either sell its interests in the Purchaser for the stated price or make an
offer to purchase the other members' interests in the Purchaser for the stated
price. Accordingly, ConAm DOC might have, under certain circumstances and at
certain times, an option to purchase additional interests in the Purchaser.
At any time following the two-year anniversary of the effective date of the
LLC Agreement, the Pension Funds will be able to solicit offers for the sale
of either or both of the Properties. In such a case, the Pension Funds will
have to provide ConAm DOC with the exclusive opportunity to negotiate a
purchase of the applicable Property for a 30-day period. If the parties are
unable to reach an agreement as to such a purchase, the Pension Funds will
then be able, without the consent of ConAm DOC, to cause the Purchaser to sell
the applicable Property to a third party.
DESCRIPTION OF THE PROPERTIES TO BE SOLD
Lakeview. Lakeview is a 240-unit apartment community located in northeast
St. Johns County, approximately 18 miles from the Jacksonville, Florida
Central Business District. The property had an average occupancy rate of 93%
during the first six months of 1998 and 87.8% in 1997. The Jacksonville
apartment market has experienced strong competition lately, and future
expected development in the area near Lakeview may impact occupancy at
Lakeview due to increased competition. There is also concern that a proposed
shopping center adjacent to Lakeview may affect rental rates and/or occupancy.
Hamptons. Hamptons is a 232-unit apartment community located in the south
central region of Charlotte, North Carolina, approximately six miles south of
Charlotte's Central Business District. The property had an average occupancy
rate of 94% during the first six months of 1998 and 94.3% in 1997. The
community of Charlotte generally favors single-family detached housing over
multifamily development, although the outlook for Charlotte's apartment market
appears optimistic with significant new construction in the area.
INDEBTEDNESS ON THE PROPERTIES
The Lakeview property is currently encumbered by a loan which was originated
by the Penn Mutual Life Insurance Company and matures on December 1, 2000. The
loan was for an original term of seven years, amortized over 25 years, and has
an interest rate of 7.75%. Due to the interest rate on the loan and the short
remaining term to maturity, the Purchaser will not be assuming the existing
loan.
In connection with the repayment of the loan, the existing loan documents
provide for a standard prepayment penalty based upon the loss in yield
experienced by the lender in connection with the prepayment of the loan prior
to the maturity date. Based upon the fact that the interest rate on the loan
exceeds current interest
17
<PAGE>
rates and the total remaining indebtedness as of November 1, 1998 in the
approximate amount of $6,072,451, the Partnership will pay the lender
approximately $357,219 in order to repay the loan in connection with the Sale.
PURCHASER'S VALUATION
The Purchase Price for the Properties is $26,000,000, which is greater than
the aggregate appraised values of the Properties as of November 30, 1997. See
"SPECIAL FACTORS--Independent Appraisal." The Purchase Price was derived
through negotiations between Lend Lease and the General Partner. See "--
Background of the Sale." Lend Lease, acting on behalf of the Purchaser,
considered a number of factors, including the preceding twelve months of net
operating income of the Properties, the age, condition and location of the
Properties, and the significant costs necessary to appropriately manage
properties this age and undertake the capital improvements necessary to
position the Properties to meet competition from newer properties.
The Purchase Price is not subject to adjustment based on the results of Lend
Lease's due diligence investigation on behalf of the Pension Funds. In
addition, because the Properties are being sold on an "as is" basis, it is
more likely that the Partnership will receive and retain the full amount of
the Purchase Price without further adjustment. The Partnership has a high
degree of confidence in the Purchaser's ability to consummate the Sale,
because Lend Lease will have completed its due diligence investigation and
will have deposited $260,000 earnest money into escrow prior to consummation
of the Sale. Another advantage of the Sale is that, because the offer is for
multiple properties, the transaction costs are lower than they might otherwise
be if the Properties were listed with a broker and sold in separate sales, and
therefore the amount which can be distributed to the Limited Partners is
enhanced. However, for a discussion of certain disadvantages of the Sale, see
"SPECIAL FACTORS--Fairness of the Sale" and "--Terms of the Purchase
Agreements."
GENERAL PARTNER'S VALUATION
The General Partner has not prepared a formal valuation with respect to the
proposed Sale. The General Partner has relied on the Independent Appraisal,
prior offers for the Properties and its general familiarity with and
experience in the Properties' markets to establish that the Purchase Price is
a fair price for the Properties. See "SPECIAL FACTORS--Independent Appraisal"
and "--Background of the Sale."
BACKGROUND OF THE SALE
In 1994, the General Partner and RI 5 Real Estate Services, Inc., the then
co-general partners of the Partnership (the "General Partners"), determined,
in their business judgment, that it was an appropriate time to begin exploring
a means of converting the Partnership's interests in its properties to either
cash or marketable securities. This determination was based, in significant
part, upon their belief that the consummation of a sale or a "roll-up"
transaction would be consistent with (i) the Limited Partners' desire for
liquidity, (ii) the fact that a longer holding period could subject the
Limited Partners to risks associated with changing interest rates and property
valuations, and (iii) the aging nature of the properties, which would require
increasingly larger commitments of funds to address on-going capital
expenditures and keep the properties competitive in their respective markets.
Under the terms of the Partnership Agreement, the General Partner or General
Partners have the responsibility to determine when Partnership properties
should be sold. As discussed in the Partnership's original offering
prospectus, the decision to sell the Partnership's properties would depend on
a variety of factors. Accordingly, it was not possible at the outset of the
Partnership to determine precisely when the Partnership's properties would be
sold. Although the terms of the Partnership Agreement do not provide for
termination of the Partnership until December 31, 2010, it was never intended
that the Partnership would hold its properties for the entire term of the
Partnership. In fact, the Partnership's offering prospectus originally
anticipated a holding period of approximately five years for the properties.
However, primarily as a result of extremely unfavorable market conditions in
the late 1980's and early 1990's, the properties were held beyond their
originally anticipated holding periods in order to take advantage of
recovering real estate markets and to avoid adverse tax and cash
18
<PAGE>
flow consequences to the Limited Partners resulting from a sale of the
properties at significantly depressed values.
In 1994, the General Partners concluded that a "roll-up" of the Limited
Partners' interests with those of the Affiliated Partnerships was not in the
best interests of the Limited Partners. See "SPECIAL FACTORS--Alternatives
Considered to the Sale--Consolidation." Therefore, the decision was made to
begin marketing selected properties for sale. This decision was based upon the
General Partners' belief that the real estate capital markets were improving,
particularly in the multi-family sector. Pension funds, real estate investment
trusts and other institutional buyers had increased their purchasing activity
as compared to the early 1990's when these same institutional buyers were
largely out of the market. Lower interest rates had also improved the market
for selling properties, as entrepreneurial buyers who required debt financing
to purchase properties were able to borrow funds at more advantageous interest
rates. Further, with respect to the Partnership's properties, local real
estate market conditions were improving, resulting in improved operating
performances of certain properties and enhanced prospects for selling certain
properties at attractive prices.
Based upon the improvement in the real estate capital markets and certain of
the local real estate markets, the General Partners concluded that it would
then be easier to identify buyers for certain of the Partnership's properties
and that the offers might be at more favorable capitalization rates than were
previously available. Evaluating the effects to the Limited Partners of an
immediate sale and the prospects for near-term appreciation, the General
Partners made an assessment of each of the Partnership's properties and its
local market. In accordance with this assessment, a property was identified
for sale and subsequently sold. See "--Description of the Partnership."
From time to time, the General Partners have received unsolicited
indications of interest in one or more of the remaining properties owned by
the Partnership, including the Properties. The General Partners did not pursue
these indications of interest for a variety of reasons. For instance, in some
cases, the General Partners could not obtain adequate information regarding
the proposed buyer and its sources of financing. In other cases,
investigations as to the proposed buyer's purchase criteria, return
requirements, sources of capital, experience in the relevant real estate
markets, and timelines did not indicate that the proposed buyer was a
realistic potential purchaser. Finally, certain indications of interest were
not pursued because the General Partners believed that market conditions and,
therefore, prices, were likely to improve over the near-term.
In October 1997 and July 1998, respectively, an equity real estate
investment trust (the "REIT") and a real estate investment fund (the "Fund"),
parties unrelated to the General Partners, each expressed an interest in
acquiring the Properties and certain other properties owned by the Affiliated
Partnerships. The REIT and the Fund were familiar with these properties and
their respective locations within their respective trade areas. The REIT offer
included two properties which are no longer part of the RI Portfolio. Based on
the General Partner's understanding of the allocation of the REIT's offer, the
REIT offer for the RI Portfolio was $111,600,000, which was equal to the
appraised value of the RI Portfolio as of December 31, 1996. As to the
Partnership, this would have resulted in an aggregate purchase price for the
Properties of $25,400,000. The Fund offer indicated that the aggregate value
of the RI Portfolio was $115,650,000, which equaled the value set forth in the
Independent Appraisal, but, in consideration of the purported advantages to
the seller of a single transaction over an asset-by-asset sale, including the
avoidance of seller-paid brokerage commissions (estimated by the Fund to be 4%
or more of the purchase price) and reduced legal fees and related closing
costs, the Fund's offer for the RI Portfolio was $104,085,000. As to the
Partnership, this would have resulted in an aggregate purchase price for the
Properties of $23,310,000. In any event, these offers were not accepted
because, in the opinion of the General Partner and its affiliates, they either
did not reflect the value of the Properties at the time they were made and/or
they were subject to significant due diligence, underwriting and other
contingencies.
Neither the General Partner, the Partnership nor any of their affiliates
have received any other offers for the RI Portfolio or the Partnership's
properties. Due to, among other things, the protracted timelines,
contingencies and administrative costs associated with sales of individual
properties, continued individual sales of RI Portfolio properties have not
been pursued by the General Partner and its affiliates subsequent to the REIT
and Fund offers.
19
<PAGE>
Effective July 1, 1997, the General Partner purchased the co-general partner
interest of RI 5 Real Estate Services, Inc. for $25,000 in cash. Subsequent to
this acquisition, the General Partner has considered alternative disposition
strategies for the Properties in light of the following:
(i) Due to previous sales of Partnership property, the Partnership
currently owns only two Properties, resulting in a disproportionate amount
of fixed costs associated with maintaining a public limited partnership;
and
(ii) The General Partner believes that the appropriate strategy for the
continued ownership of the Properties is the implementation of a physical
refurbishment program, which would result in capital expenditures that
would likely be unattractive to the Limited Partners, because they would
result in the suspension or reduction of cash distributions.
In mid-February 1998, ConAm Management, an affiliate of the General Partner,
acquired Alliance Residential Management, Inc., a Phoenix-based property
management company ("Alliance"). At the time of the acquisition, Alliance was
managing property in Phoenix on behalf of Lend Lease, advisor to the Pension
Funds. Shortly after the acquisition of Alliance, Steve Walker, a Pension Fund
senior portfolio manager at Lend Lease, telephoned Jim Krohn, the former owner
of Alliance, who was at that time a newly-appointed officer at ConAm
Management. During this telephone conversation, Mr. Walker asked to be
introduced to the principals of ConAm Management, for the purpose of
familiarizing himself with Lend Lease's new property manager and exploring
whether any further mutually beneficial business relationships could be
established between the two parties and/or their affiliates.
On March 13, 1998, Mr. Krohn and J. Bradley Forrester, President of ConAm
Management and Vice President of the general partner of the General Partner,
flew to Atlanta to meet with Messrs. Ray D'Ardenne, Don Miller, Ted Klinck,
and Walker of Lend Lease. During this meeting, Messrs. Forrester and Krohn
presented the Lend Lease principals with general information about ConAm
Management and the multi-family real estate holdings of its affiliates,
including the RI Portfolio. The Lend Lease principals responded to this
presentation by expressing Lend Lease's desire to acquire well-located multi-
family properties where there was the opportunity to add value through
physical refurbishment and repositioning. At that time, Mr. D'Ardenne
expressed a possible interest in acquiring a small portfolio of multi-family
residential housing properties from ConAm Management's affiliates. While, as
described above, the General Partner and its affiliates had been contemplating
a sale of the RI Portfolio for some time, no formal presentations, proposals
or solicitations for an offer relating to the RI Portfolio were made to the
Lend Lease principals on that date.
On March 16, Mr. Forrester sent Mr. Klinck at Lend Lease an informational
package relating to the RI Portfolio. The package included information
relating to the locations of the properties, the number of units at each
property, a brief financial overview, and lists of amenities. Over the next
few days, Mr. Forrester continued to send information concerning the RI
Portfolio to Mr. Klinck. Subsequently, Mr. Klinck called Mr. Forrester and
expressed Lend Lease's interest in pursuing the acquisition of the RI
Portfolio. The General Partner believes that, during this time, Lend Lease
representatives may have made site visits to certain of the properties
comprising the RI Portfolio. The General Partner and its affiliates did not
consider retaining an independent advisor to represent the interests of the
Limited Partners in any prospective sale of the Properties, because they
determined that that the Independent Appraisal would provide adequate
assurance that a fair offer would be presented to the Limited Partners for
approval.
In late March and early April, the parties continued to exchange information
relating to the RI Portfolio. At the request of Mr. Klinck, Mr. Forrester
began to deliver more detailed financial reports and other information to Mr.
Klinck, in order to assist Lend Lease in its development of an offer. During
this time, Mr. Klinck and
Mr. Forrester discussed the relative merits of having affiliates of the
General Partner contribute up to $5 million to the purchase price of the RI
Portfolio and provide property management services to the RI Portfolio after
the proposed sale.Through this alignment of interests, Lend Lease believed
that the underwriting risks inherent in the purchase of real estate properties
and the risks associated with the ongoing management of the Properties would
be reduced. The General Partner believes that this reduction of risk to Lend
Lease is reflected in the fact that the Purchase Price is greater than the
amounts offered by others.
20
<PAGE>
During the following weeks, Lend Lease performed its own financial analysis
of the RI Portfolio and made several visits to the RI Portfolio property
sites. Also during this time, numerous telephone conversations took place
between Mr. Klinck and Mr. Forrester. Mr. Forrester informed Mr. Klinck that
if Lend Lease was not prepared to pay at least the appraised value of the RI
Portfolio, then the General Partner would not be interested in making a sale.
In arriving at this determination, the General Partner considered the original
Unit price of $500 and concluded that a sale at the appraised value of the
Properties, when taken together with all prior distributions with respect to
the Units, would provide the Limited Partners with a return of capital in
excess of their original investment. Mr. Klinck made several counteroffers for
the RI Portfolio at prices below the appraised value, but the General Partner
refused to consider a sale at those prices. During the same period, Mr. Klinck
attempted to negotiate a break-up fee of $250,000, to become payable to Lend
Lease if the proposed sale of the RI Portfolio did not close due to a lack of
approval by the limited partners of the Partnership or any Affiliated
Partnership. The General Partner refused to make these concessions.
On May 22, 1998, Mr. Klinck sent a proposed term sheet to Mr. Forrester,
including a proposed purchase offer for the RI Portfolio. On June 10, 1998,
Messrs. Klinck, Walker and Joe Thomas from Lend Lease met with Messrs.
Epstein, Dupree, Svatos and Tilley to discuss the transaction in general. On
July 7 and 8, 1998, Mr. Forrester and Michael Johnson, a regional vice
president of ConAm Management, went to Jacksonville, Florida to present the RI
Portfolio properties in that area to Messrs. Walker, Thomas and Klinck and
representatives of the Pension Funds. On July 28 and 29, 1998, a similar
meeting took place in Phoenix, Arizona. Over the next few months, Mr.
Forrester continued to send information on the RI Portfolio to Mr. Klinck,
including city maps, rental brochures, market summaries, occupancy
information, floor and site plans, management report summaries, operating
statements, rent rolls, location maps, memos regarding capital improvements
and management biographies.
During late July, the parties continued to negotiate the Purchase Price. In
arriving at the purchase offer contained in the proposed term sheet, Lend
Lease had performed independent evaluations of the historical financial
performance of the properties, the current and anticipated local real estate
market conditions affecting the properties, and the existing physical
condition of the properties. Lend Lease's purchase offer was less than the
value set forth in the Independent Appraisal, and the proposed purchase
agreements contained provisions obligating the Partnership to make additional
expenditures for capital improvements prior to closing (or credit the purchase
price for any unexpended amounts). As a result of the late July telephonic
negotiations between Mr. Klinck and Mr. Forrester, the purchase offer was
increased to the value set forth in the Independent Appraisal. In late August
and early September, the parties agreed to eliminate the obligation to make
additional expenditures for capital improvements.
In the course of evaluating financing options for the proposed acquisition,
the prospective lender to the Purchaser had an independent appraisal of the RI
Portfolio prepared (the "Lender Appraisal"). The Lender Appraisal indicated
that the aggregate appraised value of the Properties was $26,300,000. After
deducting a sales commission of 2.5%, or $657,500, normally paid by the seller
but not applicable to the Sale, the Lender Appraisal indicated that the value
of the Properties was $25,642,500, or $257,500 less than the value of
$25,900,000 set forth in the Independent Appraisal. During late October 1998,
Mr. Forrester had numerous telephone conversations with Mr. Klinck in which
Mr. Klinck sought a reduction in the purchase offer and Mr. Forrester sought
to have the purchase offer increased above the Independent Appraisal. As a
result of these discussions, the purchase offer was increased from $25,900,000
to the Purchase Price of $26,000,000. This brought the aggregate amount
offered by the Purchaser for the RI Portfolio to $117,900,000.
Thereafter, the parties finalized the material terms of the proposed LLC
Agreement, the property management agreement for ConAm Management, and the
Purchase Agreements. In order to facilitate the Partnership's compliance with
its obligations under the Right of First Refusal, see "--Terms of the Purchase
Agreements," the parties agreed to modify the form of Purchase Agreement with
respect to Hamptons in certain respects so that the sale of Hamptons would be
independent of the sales of Lakeview and the properties of the Affiliated
Partnerships. Lend Lease, on behalf of two of its clients, and the
Partnership, on behalf of the joint venture partnership which owns Hamptons,
have entered into a letter of intent (the "LETTER OF INTENT") regarding
21
<PAGE>
the purchase of Hamptons by a joint venture between the two clients of Lend
Lease and an affiliate of CAPL. The parties have acknowledged that the
Purchaser, when formed, is the intended purchaser of Hamptons under the Letter
of Intent. The obligations of the parties under the Letter of Intent are
expressly non-binding unless and until a definitive purchase agreement
embodying the terms of the Letter of Intent is executed by all parties.
The definitive Purchase Agreement with respect to Lakeview will be executed
and delivered immediately after the Proposals are approved by the Limited
Partners, but the Purchaser's obligation to consummate the purchase of
Lakeview will be expressly conditioned on the approval of comparable
transactions by the limited partners of the Affiliated Partnerships. The
definitive Purchase Agreement with respect to Hamptons is anticipated to be
executed no later than December 31, 1998, but the Partnership's obligation to
consummate the sale of Hamptons will be expressly conditioned on approval of
the Proposals by the Limited Partners and will be subject to the Right of
First Refusal.
CONFLICTS OF INTEREST OF THE GENERAL PARTNER
The Sale contemplates that the properties will be sold to an entity in which
an affiliate of the General Partner will own a 9% interest. Because of this
ownership interest, the General Partner has a conflict with the interests of
the Limited Partners, and the interests of the General Partner may conflict
with its fiduciary obligation to the Limited Partners. The General Partner
believes, however, that the Sale is fair to the Limited Partners. The General
Partner believes that the fairness factors enumerated in "SPECIAL FACTORS--
Fairness of the Sale," and the fact that the Sale requires the approval of the
Limited Partners, provide sufficient procedural safeguards to minimize the
effects of the potential conflicts of interest inherent in any such
transaction.
Nevertheless, Limited Partners should consider the following factors when
examining the Sale:
(i) In consideration of a pro rata cash capital contribution to the
Purchaser, an affiliate of the General Partner, ConAm DOC, will own a 9%
interest in the Purchaser, and consequently, the General Partner faces
direct conflicts of interest in negotiating the Sale. Furthermore, ConAm
DOC has the potential to receive up to an additional 18% of the profits of
the Purchaser after pro rata distributions of profits to members of the
Purchaser have resulted in recoupment by such members of their aggregate
capital contributions and payment of cumulative returns of 15% per annum on
their previously unrecovered capital contributions.
(ii) No independent committee or representative has been appointed or
retained to negotiate the terms of the Sale on behalf of the Limited
Partners.
(iii) The Partnership has in the past and is currently being represented
by legal counsel who has also represented and is currently representing the
General Partner and certain of its affiliates in various matters, and the
Limited Partners will not be represented by separate legal counsel.
(iv) As an equity participant in the Purchaser, an affiliate of the
General Partner will benefit from any future cash flow attributable to, and
any future appreciation of, the Properties if the Sale is approved.
Furthermore, if the Sale is approved, ConAm Management, an affiliate of the
General Partner which will not be a member of the Purchaser, will be party
to a property management agreement relating to the Properties sold to the
Purchaser. ConAm Management might not have otherwise obtained this contract
if it were not an affiliate of the General Partner. Finally, the General
Partner and its affiliates will benefit from the Sale as discussed in
"SPECIAL FACTORS--Effects of the Sale."
FAILURE TO APPROVE THE SALE
The General Partner believes that consummation of the Sale is the preferable
course of action at this time. If the Limited Partners fail to approve the
Proposals, however, the Partnership will attempt to refinance the existing
loan secured by Lakeview and obtain financing for Hamptons and utilize any
loan proceeds to implement certain capital improvements. The Partnership might
then take advantage of any future property appreciation through a future sale
of one or both of the Properties to the Purchaser or otherwise (subject to any
necessary amendment to the Partnership Agreement to permit such sale or sales,
which might require the consent of the Limited Partners). There is no
assurance that the General Partner could arrange for an alternative sale of
the
22
<PAGE>
Properties at an appropriate price or on terms acceptable to the Partnership.
Such a course of action could also increase the risk of loss of the Properties
due to any failure to make debt service payments and might also adversely
affect the timing and amount of future distributions to Limited Partners.
The General Partner believes that a refinancing of the Properties at 75% of
the Lender Appraisal could generate $19,725,000 in new loan proceeds. After
deducting refinancing costs, repayment of the existing loan and related
prepayment penalties and reserves for capital expenditures required to
maintain the competitive position of the Properties, the General Partner
expects that the Partnership would make a tax-deferred distribution of
approximately $213.50 per Unit, as compared to an expected distribution of
$341.74 per Unit from net proceeds from the Sale and the subsequent
liquidation of the Partnership.
If the Properties were leveraged to the extent set forth above at a 7%
interest rate, the increased annual debt service of $976,547 related to the
refinancing might result in the suspension of distributions or might affect
the timing and amount of future distributions. Furthermore, under current
lending practices, the loans would include provisions that could result in
material prepayment penalties if the loans were repaid prior to their
maturity. Consequently, the General Partner believes that the Sale is the
preferable course of action at this time.
TERMS OF THE PURCHASE AGREEMENTS
The following is a summary of the material terms of the proposed Purchase
Agreements. THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE, AND REFERENCE IS
MADE TO THE FORMS OF PURCHASE AGREEMENTS, WHICH ARE AVAILABLE UPON REQUEST
PURSUANT TO THE PROCEDURES SET FORTH IN THE SECTION OF THIS SOLICITATION
STATEMENT ENTITLED "AVAILABLE INFORMATION." The Purchase Agreement with
respect to Lakeview (the "Lakeview Purchase Agreement") will not be executed
unless the Limited Partners approve the Proposals. The Purchase Agreement with
respect to Hamptons (the "Hamptons Purchase Agreement") is anticipated to be
executed on or before December 31, 1998, but the Partnership's obligation to
consummate the sale thereunder will be conditioned on approval of the
Proposals by the Limited Partners and will be subject to the Right of First
Refusal. Capitalized terms used but not defined in this summary of material
terms have the meaning ascribed to them in the form of the Purchase
Agreements.
Structure of the Sale. The Partnership holds majority interests in and
controls two joint venture partnerships which hold title to Lakeview and
Hamptons, respectively. In order to effectuate the Sale, these title-holding
entities will transfer title and deliver the deeds and other documents of
transfer to the Purchaser on the Closing Date. Pursuant to the joint venture
partnership agreement relating to Hamptons, the Partnership must give notice
to the Hamptons Co-Venturers if the Partnership receives a bona fide written
offer for the purchase of Hamptons. The notice must specify the exact terms of
the bona fide written offer, including the name of the offeror and the
proposed purchase price. The Hamptons Co-Venturers have 15 days from receipt
of this notice to elect to acquire Hamptons on the same terms and conditions
as are contained in the bona fide written offer. On November 25, 1998, the
Partnership mailed notice to the Hamptons Co-Venturers of the proposed sale of
Hamptons. Hamptons will be sold on the terms and conditions described herein
regardless of whether it is sold to the Purchaser or the Hamptons Co-
Venturers. Lend Lease has indicated that, should the Hamptons Co-Venturers
elect to purchase Hamptons pursuant to the terms of the bona fide written
offer, Lend Lease would remain interested in purchasing Lakeview.
Purchase Price. The Purchase Price for the Properties will be $26,000,000
($11,600,000 with respect to Lakeview and $14,400,000 with respect to
Hamptons), payable by the Purchaser on the respective Closing Dates and
subject to certain adjustments at closing. The Purchase Price will be paid in
cash and is expected to be paid out of proceeds from third party financing and
capital contributions made to the Purchaser. It is anticipated that the third
party financing will be provided by the Federal National Mortgage Association
("FNMA"). FNMA would be financing 65% of the aggregate purchase price for the
RI Portfolio under a $100,000,000 Master Credit Facility (the "Proposed
Facility") secured by the RI Portfolio. The Proposed Facility would have a
five-year term and a minimum borrowing base of $50,000,000. All loans under
the Proposed Facility would be cross-collateralized and cross-defaulted, and
the Proposed Facility would require a minimum of five properties in three
geographically distinct areas. For these reasons, a similar financing facility
is not available to the Partnership.
23
<PAGE>
It is expected that borrowings under the Proposed Facility will bear a
variable interest rate of 0.52% plus the effective interest rate at which FNMA
is able to sell mortgage-backed securities collateralized by outstanding
borrowings. The General Partner estimates that the effective interest rate
would be 5.74% if borrowings were outstanding at this time. The Pension Funds
intend to cause the Purchaser to enter into an interest rate swap agreement
with a commercial bank that will effectively fix the interest rate for five
years at approximately 6%.
The Proposed Facility will require the Purchaser to pay a prepayment penalty
if outstanding borrowings are repaid within the first three years. The
Purchaser has no plans to refinance or repay the Proposed Facility prior to
the earlier of its maturity date or the sale by it of any or all of the RI
Portfolio.
Condition of the Properties; Review of the Properties. The Purchaser will
purchase the Properties on an "As Is," "Where-Is" and "With All Faults" basis
with limited representations by the Partnership as to the condition of the
Properties or their fitness for any purpose. Lend Lease, on behalf of the
Pension Funds, has undertaken an extensive due diligence review of the
Properties. Unlike purchasers in many third party purchase agreements, Lend
Lease will complete its due diligence prior to execution of the Purchase
Agreements, and as such, satisfaction with the due diligence investigation
will not be a condition precedent to closing under the Lakeview Purchase
Agreement. Under the Hamptons Purchase Agreement, the Purchaser will have
until December 24, 1998 to complete its due diligence inspections and
terminate the agreement if the Purchaser is not satisfied with the results of
such inspections. In addition, during the due diligence period, the Purchaser
may terminate its obligations to purchase Hamptons if the transaction is not
approved by Lend Lease's investment committee or the investment committee of
either Pension Fund for any reason.
Conditions Precedent to Closing. The obligation of the Partnership to close
under the Hamptons Purchase Agreement will be subject to approval of the
Proposals by the Limited Partners. The obligation of the Purchaser to close
under the Lakeview Purchase Agreement will be subject to the approval by the
limited partners of the Affiliated Partnerships of the sale of their
respective properties to the Purchaser. In addition, both Purchase Agreements
will contain customary closing conditions for real estate transactions,
including issuance of appropriate title policies.
Casualty to or Condemnation of the Properties. If any Property or any
portion thereof is damaged by fire or other casualty on or before the Closing
Date for such Property, and the cost of repairing such damage equals or
exceeds the greater of $400,000 or 5% of that portion of the Purchase Price
allocable to the affected Property, then the Purchaser may elect to terminate
the Purchase Agreement with respect to such Property. Further, if all or any
material portion of any Property is taken by eminent domain (or is a subject
of a pending or contemplated taking which has not been consummated) before the
Closing Date, then the Purchaser will have the right to terminate the Purchase
Agreement as to the affected Property. In the event of a fire or other
casualty where the damage is less than $400,000 or 5% of that portion of the
Purchase Price allocable to the affected Property, or if the condemnation does
not affect a material portion of the affected Property, the Purchaser will be
required to proceed with the closing without adjustment to the Purchase Price
with respect to the affected Property and will be entitled to receive, as
applicable, an assignment of the proceeds of any insurance in the event of a
fire or other casualty or an assignment of any award for such taking in the
event of a condemnation.
The purchase agreements relating to the properties of the Affiliated
Partnerships will contain provisions substantially similar to those outlined
above with respect to the rights of the Purchaser to terminate such purchase
agreements as a result of condemnation or destruction of the applicable
properties. While, as a general rule, the Purchaser will be able to terminate
the Lakeview Purchase Agreement (but not the Hamptons Purchase Agreement) if
any one of the sales to the Purchaser by the Affiliated Partnerships is
terminated, the Lakeview Purchase Agreement will provide that the Purchaser
may terminate such agreement in the case of condemnation or destruction of the
properties of the Affiliated Partnerships only if two or more of such
properties are condemned or destroyed. For purposes of the foregoing
determination, properties which comprise an integrated apartment community
will be counted as a single property.
Representations and Warranties. Unlike many third party agreements, the
Purchase Agreements will not require the Partnership to make substantial
representations and warranties concerning the condition or operation
24
<PAGE>
of the Properties, or other similar matters, such as environmental studies or
engineering. Further, any representations and warranties made by the
Partnership pursuant to the Purchase Agreements will survive for a period of
only six months after the closing, which is a shorter period of time than that
found in many third party agreements.
Default and Damages. The Purchase Agreements will provide that the
Purchaser's recourse for any uncured breach ("Default") by the Partnership on
or prior to the Closing Date of any matter related to the Purchase Agreements
will be either to (i) seek from the escrow holder the return of the earnest
money deposits made on behalf of the Purchaser and any documents which have
been deposited with the escrow holder on behalf of the Purchaser and to seek
reimbursement from the Partnership for the reasonable and documented out-of-
pocket expenses incurred in connection with Lend Lease's due diligence
investigation (such as environmental and engineering studies) and other
transaction costs, but in no event an amount in excess of 1/4% of the Purchase
Price, or (ii) seek specific performance of the Partnership's obligations
under the Purchase Agreements.
In the event of the Purchaser's Default with respect to either of the
Purchase Agreements or the purchase agreements relating to the properties of
the Affiliated Partnerships, the Partnership's sole remedy will be to retain,
as liquidated damages, the earnest money deposits for the Properties. Further,
in the event the Purchaser objects or fails to cooperate with the release of
such earnest money deposit held by the escrow holder, the Partnership will
also have all of the remedies otherwise available to the Partnership at law or
in equity.
Pro-rations and Costs. All items of income and expense for the Properties,
such as collected rents and real estate taxes, will be apportioned and
adjusted between the Partnership and the Purchaser to the respective Closing
Date. The Partnership and the Purchaser will each pay one-half of any third
party escrow fees from the transaction, with the Partnership paying any
documentary transfer and stamp taxes in connection with the recordation of the
applicable deed and the Purchaser paying the premiums and other costs for
title insurance, including any endorsements requested by the Purchaser or its
lender.
Comparison to Third Party Agreements. The Purchase Agreements relating to
the Sale will contain several provisions which are not customarily found in
combination with each other in many third party agreements.
Provisions which may be more advantageous to the Partnership than those
found in many third party agreements include the following: lack of a
financing contingency; limited representations and warranties; limited
survivability of representations and warranties; and sale of the Properties on
an "as is" basis.
Provisions which may be less advantageous to the Partnership than those
found in many third party agreements include, in the case of the Lakeview
Purchase Agreement only, the condition precedent to closing of approval by the
limited partners of the Affiliated Partnerships of the sale of their
respective properties to the Purchaser and the ability of the Purchaser to
terminate the Purchase Agreements if, due to condemnation or casualty, the
Purchaser is entitled to terminate the purchase agreements with respect to any
two or more properties owned by the Affiliated Partnerships.
THE AMENDMENT
The Partnership Agreement prohibits sales of property to the General Partner
or an "affiliate" of the General Partner. "Affiliate" is defined in relevant
part as any person "that, directly or indirectly, is the beneficial owner of
10% or more of any class of equity securities of, or otherwise has a
substantial beneficial interest in," another person. While the Pension Funds
will own 91% of the Purchaser and will effectively control the Purchaser, an
affiliate of the General Partner will (i) own a 9% interest in the Purchaser,
(ii) have a right of first offer and certain buy/sell rights under the
proposed LLC Agreement and (iii) have the potential to receive up to an
additional 18% of the profits of the Purchaser after pro rata distributions of
profits to members of the Purchaser have resulted in recoupment by such
members of their aggregate capital contributions and payment of cumulative
returns of 15% per annum on their previously unrecovered capital
contributions. An affiliate of the General Partner which will not be a member
of the Purchaser will serve as the initial property manager for the Purchaser.
The foregoing factors might cause the Purchaser to be an "affiliate" of the
General Partner under the
25
<PAGE>
terms of the Partnership Agreement. In order to permit the Sale, the General
Partner proposes to amend the Partnership Agreement to permit proposed sales
of Partnership properties to "affiliates" of the General Partner, if such
proposed sales are approved by the Limited Partners. The proposed Amendment
requires the approval of a majority in interest of the Limited Partners. The
full text of the proposed Amendment is set forth in Appendix A hereto.
INDEMNIFICATION
If a claim is made against the General Partner in connection with its
actions on behalf of the Partnership with respect to the Sale, the General
Partner expects that it will seek to be indemnified by the Partnership with
respect to such claim. The Partnership Agreement provides that, except in the
case of fraud, negligence, misconduct or other breach of fiduciary duty to the
Partnership or any Partner, the General Partner will not be liable,
responsible or accountable in damages or otherwise to the Partnership or any
of the Limited Partners for any liabilities or other obligations imposed on,
incurred by or asserted against the General Partner or the Partnership in any
way relating to or arising out of, or alleged to relate to or arise out of,
any action or inaction on the part of the Partnership or on the part of the
General Partner as a general partner of the Partnership. However, the General
Partner will not be indemnified from any liability, loss, or damage incurred
by it in connection with any claim or settlement involving allegations that
any state securities law or the Securities Act of 1933, as amended, was
violated by the General Partner unless the General Partner is successful in
defending such action and such indemnification is specifically approved by a
court of law which has been advised as to the current position of both the
Securities Exchange Commission and the California Commissioner of Corporations
regarding indemnification for violations of securities laws.
As a result of these indemnification rights, a Limited Partner's remedy with
respect to claims against the General Partner relating to its involvement in
the Sale could be more limited than the remedy which might have been available
absent the existence of these rights in the Partnership Agreement. A
successful claim for indemnification would reduce the amount of Partnership
cash available for distributions to the Limited Partners by an amount
equivalent to that paid to the General Partner under such a claim.
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE SALE
GENERAL
The Sale, if approved, will have certain tax implications to the Limited
Partners that must be considered. The following summarizes the material
estimated federal income tax consequences to Limited Partners arising from the
Sale and provides a general overview of certain state income tax
considerations. This summary is based upon the Internal Revenue Code of 1986,
as amended (the "Code"), Treasury regulations, court decisions and published
positions of the Internal Revenue Service (the "Service"), each as in effect
on the date of this Solicitation Statement. There can be no assurance that the
Service will agree with the conclusions stated herein or that future
legislation or administrative changes or court decisions will not
significantly modify the federal or state income tax law regarding the matters
described herein, potentially with retroactive effect. This summary is not
intended to, and should not, be considered an opinion respecting the federal
or state income tax consequences of the Sale.
A partnership is not a taxable entity and incurs no federal income tax
liability. Instead, each partner is required to take into account in computing
his or her income tax liability, his or her allocable share of the
partnership's items of income, gain, loss, deduction and credit (hereinafter
referred to as "income or loss") in accordance with the partnership agreement.
If the allocation of income or loss in the partnership agreement does not have
"substantial economic effect" as defined in Code Section 704(b), the law
requires the partnership's income or loss to be allocated in accordance with
the partners' economic interests in the partnership. The distribution of cash
attributable to partnership income is generally not a separate taxable event.
For tax purposes, the Partnership will realize and recognize gain or loss
separately for each Property (and in some cases, for each building which is
part of a Property). The amount of gain for tax purposes recognized with
26
<PAGE>
respect to an asset, if any, will be an amount equal to the excess of the
amount realized (i.e., cash or consideration received reduced by the expenses
of the Sale) over the Partnership's adjusted tax basis for such asset.
Conversely, the amount of loss recognized with respect to an asset, if any,
will be an amount equal to the excess of the Partnership's adjusted tax basis
over the amount realized by the Partnership for such asset. The "adjusted tax
basis" of an asset is its cost (including nondeductible capital expenditures
made by the Partnership at the time of purchase) or other basis with certain
additions or subtractions, including (i) additions for the cost of capital
expenditures such as improvements, betterments, commissions and other
nondeductible charges and (ii) subtractions for depreciation and amortization.
Each Limited Partner must report his or her allocable share of these gains
and losses in the Limited Partner's taxable year in which or with which the
Partnership's fiscal year in which the Properties are sold ends. Each Limited
Partner's allocable share of any Section 1245 gain, Section 1231 gain, Section
1250 gain or loss and Partnership net taxable income or loss from operations
will be reflected on his or her applicable Schedule K-1 (as determined in
accordance with the allocation provisions contained in the Partnership
Agreement discussed below).
Under Section 702(a)(3) of the Code, a partnership is required to separately
state, and partners are required to account separately for, their distributive
share of all gains and losses. Accordingly, each Limited Partner's allocable
share of any Section 1231 gain or loss and depreciation recapture realized by
the Partnership as a result of the Sale would be reportable by such Limited
Partner on his or her individual tax return. Section 1231 gains are those
gains arising from the sale or exchange of "Section 1231 Property" which means
(i) depreciable assets used in a trade or business or (ii) real property used
in a trade or business and held for more than one year. Conversely, Section
1231 losses are those losses arising from the sale or exchange of Section 1231
Property. If Section 1231 losses exceed Section 1231 gains, such losses would
be treated as ordinary losses by the Partners.
To the extent that Section 1231 gains for any taxable year exceed certain
Section 1231 losses for the year, subject to certain exceptions (such as
depreciation recapture, as discussed below), such gains and losses will be
treated as long-term capital gains. However, Section 1231 gains will be
treated as ordinary income to the extent of prior Section 1231 losses from any
source that were treated as ordinary in any of the previous five years.
Under Sections 1245 and 1250 of the Code, a portion of the amount allowed as
depreciation expense with respect to Section 1231 Property may be "recaptured"
as ordinary income upon sale or other disposition rather than as long-term
capital gains ("Section 1245 gains" and "Section 1250 gains," respectively).
The Partnership does not anticipate that it would have material amounts of
Section 1245 or Section 1250 gains as a result of the Sale. Therefore, it is
anticipated that the Sale will result in capital gain without the re-capture
of any significant gain to be reported at ordinary income tax rates. (It is
not anticipated that any Property will be sold at a tax loss.)
The Partnership Agreement provides that distributions from the Sale will be
made:
(i) First, 100% to the Limited Partners until each Limited Partner has
received an amount equal to his Adjusted Capital Investment (as defined in
the Partnership Agreement);
(ii) Second, and subject to certain reductions, 100% to the Limited
Partners until each Limited Partner has received an amount equal to a 7%
cumulative annual return with respect to his Adjusted Capital Investment,
which amount shall be calculated commencing with the first anniversary date
of the last Additional Closing Date (as defined in the Partnership
Agreement) (but in no event less than a 6% cumulative annual return with
respect to the Limited Partner's Adjusted Capital Investment calculated
from the date of the Limited Partner's admission to the Partnership); and
(iii) Third, the balance 85% to the Limited Partners and 15% to the
General Partner.
The General Partner expects that the Limited Partners will recognize taxable
gain from the Sale of approximately $263.14 per Unit. Actual gain will be
allocated among the General Partner and the Limited Partners (the "Partners")
as follows: (i) first, 99% to the Limited Partners and 1% to the General
Partner, until each Limited Partner's deficit, if any, in its capital account
is restored to zero; (ii) second, 100% to the General
27
<PAGE>
Partner, until the General Partner's deficit, if any, in its capital account
is restored to zero; (iii) third, 99% to the Limited Partners and 1% to the
General Partner, until each Limited Partner's capital account is equal to the
sum of (A) the Limited Partner's Adjusted Capital Investment and (B) an amount
equal to the excess of a 7% cumulative annual return, from the first
anniversary date of the last Additional Closing Date, with respect to the
Limited Partner's Adjusted Capital Investment (or, if greater, a 6% cumulative
annual return, from the date of the Limited Partner's admission to the
Partnership with respect to the Limited Partner's Adjusted Capital
Investment), subject to certain reductions; (iv) fourth, to each Partner, pro
rata, until the ratios of the Partners' capital accounts (as reduced pursuant
to the Partnership Agreement) are, for each Limited Partner, a number equal to
85 multiplied by a fraction, the numerator of which is the number of Units
held by such Limited Partner and the denominator of which is the total number
of outstanding Units, and for the General Partner, 15, subject to certain
reductions; and (v) fifth, 85% to the Limited Partners and 15% to the General
Partner. Any passive losses which have been suspended from this or other
passive investments may be available to reduce this gain. The Partnership's
accountants have estimated that approximately $0.00 per Unit in suspended
passive losses will be available from the Partnership. Furthermore,
unamortized syndication costs in the amount of $67 per Unit will reduce the
amount of gain reportable by the Limited Partners. The expected distribution
to the Limited Partners from net proceeds from the Sale and certain cash
reserves, together with the planned distribution upon liquidation, is
anticipated to be approximately $341.74 per Unit and is expected to exceed the
Limited Partners' income tax liability attributable thereto of Limited
Partners who acquired their Units in the public offering.
The Partnership anticipates that approximately $65.31 per Unit in federal
income taxes may be incurred as a result of the Sale and liquidation by
Limited Partners who acquired their Units in the public offering, as reflected
in the following table, which assumes that a Limited Partner has a marginal
federal income tax rate of 39.6%.
<TABLE>
<CAPTION>
GAIN EST.
PER FEDERAL
UNIT TAX
------- -------
<S> <C> <C>
Taxed at a 39.6% federal rate.............................. $ 11.17 $ 4.42
Taxed at a 25% federal rate................................ $209.82 $52.46
Taxed at a 20% federal rate................................ $ 42.15 $ 8.43
------- ------
Total (without regard to suspended passive losses)......... $263.14 $65.31
=======
Potential suspended passive losses of $0 at 39.6%.......... $(0.00)
------
Total potential taxes (including suspended passive loss-
es)....................................................... $65.31
======
</TABLE>
After allocating income or loss to the Partners, with the concomitant tax
basis adjustments, the distribution of proceeds from the Sale will reduce each
Limited Partner's federal income tax basis in its Unit. To the extent that the
amount of the distribution is in excess of that basis, such excess will be
taxed as a long-term or short-term capital gain depending on a Limited
Partner's holding period. To the extent that the distribution received is less
than that basis, the remaining basis, representing a Partner's share of the
Partnership syndication cost incurred at the inception of the Partnership, may
represent a tax benefit in connection with the termination of such Partner's
partnership interest. Limited Partners are encouraged to consult their
respective tax advisors with respect to the foregoing.
CAPITAL GAINS
Net long-term capital gains allocated to individuals, trusts and estates
from the Sale will be taxed at a maximum rate of 20% (except that the rate
will be 25% on that portion of the gain which is equal to the amount of real
estate depreciation not recaptured as ordinary income under Section 1250),
while ordinary income will be taxed at a maximum rate of up to 39.6%. The
amount of net capital loss that can be utilized to offset income will be
limited to the sum of net capital gains from other sources recognized by the
Limited Partner during the tax year, plus $3,000 ($1,500 in the case of a
married individual filing a separate return). The excess amount of such net
long-term capital loss may be carried forward and utilized in subsequent years
subject to the same limitations.
28
<PAGE>
PASSIVE LOSS LIMITATIONS
Limited Partners who are individuals, trusts, estates, or personal service
corporations are subject to the passive activity loss limitations rules. A
Limited Partner's allocable share of Partnership income or loss is treated as
derived from a passive activity, except to the extent of the Partnership's
portfolio income. Portfolio income includes such items as interest and
dividends. A Limited Partner's allocable share of any Partnership gain
realized on the Sale will be characterized as passive activity income, and the
liquidation of the Partnership will permit the deduction of any previously
deferred passive losses, if any, allocated to the Limited Partners.
CERTAIN STATE INCOME TAX CONSIDERATIONS
Because each state's tax law varies, it is impossible to predict the tax
consequences to the Limited Partners in all the state tax jurisdictions in
which they are subject to tax. Accordingly, the following is a general summary
of certain common (but not necessarily uniform) principles of state income
taxation. State income tax consequences to each Limited Partner will depend
upon the provisions of the state tax laws to which the Limited Partner is
subject. The Partnership will generally be treated as engaged in business in
each of the states in which the Properties are located, and the Limited
Partners would generally be treated as doing business in such states and
therefore subject to tax in such states. Most states modify or adjust the
taxpayer's federal taxable income to arrive at the amount of income
potentially subject to state tax. Resident individuals generally pay state tax
on 100% of such state-modified income, while corporations and other taxpayers
generally pay state tax only on that portion of state-modified income assigned
to the taxing state under the state's own apportionment and allocation rules.
TAX CONCLUSION
The discussion set forth above is only a summary of the material federal
income tax consequences to the Limited Partners of the Sale and of certain
state income tax considerations. It does not address all potential tax
consequences that may be applicable to the Limited Partners and to certain
other categories of Limited Partners, such as non-United States persons,
corporations, insurance companies, subchapter S corporations, partnerships or
financial institutions. It also does not address local or foreign tax
consequences of the Sale. ACCORDINGLY, LIMITED PARTNERS SHOULD CONSULT THEIR
OWN TAX ADVISORS REGARDING THE SPECIFIC INCOME TAX CONSEQUENCES OF THE SALE TO
THEM, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND
FOREIGN TAX LAWS.
DISTRIBUTIONS
Since its inception on June 28, 1984, the Partnership has made quarterly
distributions aggregating $278.36 per Unit and returns of capital of $107.00
per Unit. The Partnership has made distributions averaging $6.19 per Unit
during each of the last eight fiscal quarters. With the projected distribution
of $341.74 per Unit upon liquidation of the Partnership, Limited Partners will
have received aggregate distributions of approximately $227.10 per Unit and a
full return of their initial investment of $500.
NO APPRAISAL RIGHTS
If Limited Partners owning a majority of the outstanding Units on the Record
Date consent to the Proposals, such approval will bind all Limited Partners.
The Partnership Agreement and the California Uniform Limited Partnership Act,
under which the Partnership is governed, do not give rights of appraisal or
similar rights to Limited Partners who dissent from the consent of the
majority in approving or disapproving the Proposals. Accordingly, dissenting
Limited Partners do not have the right to have their Units appraised or to
have the value of their Units paid to them if they disapprove of the action of
a majority in interest of the Limited Partners.
29
<PAGE>
MARKET FOR THE UNITS
The General Partner has no knowledge of a formal, established public trading
market for the Units and believes that secondary sales activity for the Units
is limited and sporadic. Due to the fact that the Units are not listed on any
exchange or quoted on NASDAQ, privately negotiated sales and sales through
intermediaries are the primary means available to a Limited Partner to
liquidate an investment in the Units. While some information is available
through private publications regarding the prices at which such secondary
sales transactions in the Units have been made, these publications expressly
disclaim the accuracy and reliability of the information regarding such
trades. Accordingly, the General Partner does not believe that such
information is of comparative value in analyzing the distributions to be made
in connection with the Sale. No sales of Units were made by or to affiliates
of the Partnership during the last two years.
In addition to informal secondary market sales, investors have periodically
sought to acquire Units by means of a tender offer for outstanding Units.
However, such tender offers generally involve only a limited number of Units,
are held open only for a limited time, and are available only on a limited
basis. Furthermore, those tender offers during the past three years of which
the General Partner is aware have been made at approximately 41% to 76% of the
net asset value of the Units. In particular, during the last six months, two
tender offers for outstanding Units were made by parties unaffiliated with the
General Partner for prices of $273 and $200 per Unit. The estimated aggregate
distribution to the Limited Partners following consummation of the Sale and
the anticipated liquidation of the Partnership, equal to $341.74 per Unit,
compares favorably with the average price of $237 per Unit represented by
these recent tender offers.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
On the Record Date, there were 57,490 Units issued and outstanding and
entitled to vote held of record by 2,508 Limited Partners. At the Record Date,
the General Partner and its affiliates owned no Units. No person is known by
the Partnership to be the beneficial owner of more than 5% of the Units.
YEAR 2000 INFORMATION
The Partnership has assessed the potential impact of the "Year 2000"
computer systems issue on its operations. If the Sale is consummated, the
Partnership will liquidate prior to January 1, 2000, and no Year 2000 issues
will be presented.
In the event that the Sale is not consummated, the Partnership has relied on
the efforts of ConAm Management, which has been retained by the Partnership to
manage the business and financial operations of the Properties, to resolve any
potential Year 2000 issues. In the course of providing property management
services for the Partnership, ConAm Management retained a third party
consultant to modify all applicable software to provide for 4-digit year
fields. The General Partner believes that the modifications undertaken by
ConAm Management are sufficient to address any potential Year 2000 problems
and that the impact of the Year 2000 issue will not materially affect the
Partnership's operating results or financial condition if the Sale is not
consummated. Accordingly, neither ConAm Management nor the Partnership has
taken any further actions with respect to the Year 2000 issue.
VOTING PROCEDURES
Each Limited Partner is entitled to one (1) vote for each Unit owned of
record by such Limited Partner on the Record Date. Approval of the Proposals
requires the affirmative consent of Limited Partners holding a majority in
interest of the Units. A duly executed consent card on which a consent or an
indication of withholding consent is not indicated will be deemed a consent to
the Proposals. A vote "for" or "against" either of the Proposals may be
revoked by written notice of revocation or by a later-dated consent containing
different instructions at any time on or before the Expiration Date.
30
<PAGE>
This Solicitation Statement is accompanied by a separate consent card.
Consent cards should be completed, signed and returned by the Expiration Date
to the Solicitation Agent at the address specified below or by facsimile
transmission of the front and back of the card to the number specified below.
A self-addressed, prepaid envelope for return of the consent card is included
with this Solicitation Statement.
By Mail: By Facsimile:
D.F. King & Co., Inc. (212) 809-8839
77 Water Street
20th Floor
New York, NY 10005
For Information Call:
(800) 735-3591
(TOLL-FREE)
AVAILABLE INFORMATION
The Partnership is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports,
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and should be available at the Commission's regional
offices at 500 West Madison, 14th Floor, Chicago, Illinois 60661-2511 and 7
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such
material may also be accessed on the World Wide Web through the Commission's
Internet address at "http://www.sec.gov."
The following documents, which have been filed with the Commission, contain
important information about the Partnership and its financial condition and
are annexed hereto as Annex 1 and Annex 2, respectively:
(i) The Partnership's Annual Report on Form 10-K, as amended and restated
for the year ended November 30, 1997 (Commission File No. 0-014341) (the
"Form 10-K").
(ii) The Partnership's Quarterly Report on Form 10-Q for the fiscal
quarter ended August 31, 1998 (Commission File No. 0-014341) (the "Form 10-
Q").
The Commission permits the Partnership to "incorporate by reference"
information into this Solicitation Statement, which means that the Partnership
can disclose important information to Limited Partners by referring them to
another document filed separately with the Commission. The information
incorporated by reference is deemed to be a part of this Solicitation
Statement, except for any information superseded by information in this
Solicitation Statement.
The Partnership hereby incorporates by reference the Form 10-K, all reports
filed pursuant to Section 13(a) or 15(d) of the Exchange Act that it may file
or has already filed with the Commission between November 30, 1997 and the
date of action by Consent, other than those delivered in connection herewith,
and the financial information contained in Part I of the Form 10-Q.
A Limited Partner of the Partnership may obtain from the Partnership or the
Commission any of the documents incorporated by reference. Documents
incorporated by reference are available from the Partnership without charge,
excluding all exhibits unless such exhibits have been specifically
incorporated by reference in the document incorporated by reference in this
Solicitation Statement. Limited Partners may obtain documents incorporated by
reference in this Solicitation Statement, or a copy of the Partnership
Agreement or the form of Purchase Agreements, by written or oral request, by
first class mail or other equally prompt means within one business day of
receipt of such request, from ConAm Property Services IV, Ltd., 1764 San Diego
Avenue, San Diego, California 92110-1906, telephone number (619) 297-6771.
31
<PAGE>
If you would like to request documents from the Partnership, please do so by
January 8, 1999 in order to ensure receipt before action by Consent.
San Diego, California
December 16, 1998 CONAM PROPERTY SERVICES IV, LTD.,
General Partner
By: Continental American
Development, Inc., the General
Partner
By: /s/ Daniel J. Epstein
---------------------------------
Daniel J. Epstein
President and Chief Executive
Officer
32
<PAGE>
APPENDIX A
THE PROPOSED AMENDMENT
Set forth below is the provision of the Partnership Agreement that would be
modified by the proposed Amendment. The following is qualified in its entirety
by reference to the form of Amendment, a copy of which can be obtained without
charge from the Solicitation Agent.
IF THE PROPOSED AMENDMENT IS ADOPTED, THE FOLLOWING SECTION WILL BE MODIFIED
AS FOLLOWS (underlines indicate where text has been added):
12. RIGHTS, DUTIES AND LIABILITY OF GENERAL PARTNERS.
....
d. Limitations on General Partners' Authority. The General Partners shall
have no authority to do any act prohibited by law, nor shall the General
Partners have any authority to:
....
(xi) Except as provided in Subsection 12f.(vi), permit the Partnership to
purchase or lease property in which a General Partner or any Affiliate has an
interest or sell or lease any Property to a General Partner or any Affiliate,
-
unless such transaction is specifically approved by Limited Partners owning a
- -----------------------------------------------------------------------------
majority of the Units outstanding at that time.
- ----------------------------------------------
[The remainder of Section 12 is unaffected.]
A-1
<PAGE>
APPENDIX B
FORM OF CONSENT OF LIMITED PARTNER
CONAM REALTY INVESTORS 5, L.P.
CONSENT OF LIMITED PARTNER
THIS CONSENT IS SOLICITED BY AND ON BEHALF OF CONAM REALTY INVESTORS 5, L.P.
(THE "PARTNERSHIP") BY CONAM PROPERTY SERVICES IV, LTD., THE GENERAL PARTNER
OF THE PARTNERSHIP. The General Partner recommends a vote "FOR" the Proposals,
as defined in the accompanying Consent Solicitation Statement. A vote "FOR"
the Proposals also will constitute your consent to all actions necessary to
consummate all transactions with respect to the Proposals contemplated by the
Consent Solicitation Statement. All capitalized terms used herein without
definition have the meanings assigned to them in the Consent Solicitation
Statement.
THIS CONSENT WILL BE RECORDED IN ACCORDANCE WITH THE INSTRUCTIONS BELOW. IF
NO INSTRUCTIONS ARE INDICATED, YOU WILL BE DEEMED BY YOUR SIGNATURE BELOW TO
HAVE CONSENTED TO THE PROPOSALS AS RECOMMENDED BY THE GENERAL PARTNER.
PLEASE MARK THE APPROPRIATE BOX WITH RESPECT TO EACH PROPOSAL:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C>
With the General Partner's recommendation to
approve the Sale of the Property (as set
forth in "ACTION BY CONSENT--Matters to be
Considered), the undersigned votes all of the
undersigned's Units: [_] [_] [_]
With the General Partner's recommendation to
amend the Partnership Agreement to permit
sales of Partnership property to affiliates
of the General Partner, including the Sale
(as set forth in Appendix A to the Consent
Solicitation Statement), the undersigned
votes all of the undersigned's Units: [_] [_] [_]
</TABLE>
IF THE SALE IS APPROVED BUT THE AMENDMENT OF THE PARTNERSHIP AGREEMENT IS
NOT, THE GENERAL PARTNER WILL HAVE NO AUTHORITY TO CONSUMMATE THE SALE, AND
THE SALE WILL NOT OCCUR. If the Amendment of the Partnership Agreement is
approved but the Sale is not, the General Partner anticipates amending the
Partnership Agreement in accordance with Appendix A to the Consent
Solicitation Statement.
The undersigned acknowledges receipt from the General Partner of the Consent
Solicitation Statement dated December 16, 1998 pertaining to the Proposals.
Dated: ____________, 199_ -------------------------------
Signature
-------------------------------
Print Name
-------------------------------
Signature (if held jointly)
-------------------------------
Print Name
-------------------------------
Title
B-1
<PAGE>
Please sign exactly as name appears hereon. When Units are held by joint
tenants, both should sign. When signing as an attorney, executor,
administrator, trustee or guardian, please give full title. If a corporation,
please sign in full corporate name by President or other authorized officer.
If a partnership, please sign in partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS CONSENT, PRIOR TO 5:00 P.M. PACIFIC
STANDARD TIME ON JANUARY 15, 1999 (UNLESS SUCH TIME IS EXTENDED PURSUANT TO
THE CONSENT SOLICITATION STATEMENT), BY FACSIMILE TO (212) 809-8839 OR BY
MAIL, USING THE ENCLOSED PRE-PAID ENVELOPE, TO D.F. KING & CO., INC., WALL
STREET STATION, P.O. BOX 411, NEW YORK, NY 10269-0069. IF YOU NEED ASSISTANCE
IN FILLING OUT THIS CONSENT, PLEASE CALL THE SOLICITATION AGENT AT (800) 735-
3591.
B-2
<PAGE>
Annex 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: November 30, 1997
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number: 0-014341
CONAM REALTY INVESTORS 5 L.P.
formerly known as
HUTTON/CONAM REALTY INVESTORS 5
Exact name of Registrant as specified in its charter
<TABLE>
<S> <C>
California 11-2712111
State or other jurisdiction of incorporation I.R.S. Employer Identification No.
</TABLE>
Attention: Robert J. Svatos
1764 San Diego Avenue, San Diego California 92110-1906
Address of principal executive offices zip code
Registrant's telephone number, including area code: (619) 297-6771
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. (X)
Documents Incorporated by Reference:
Portions of Parts I, II, III and IV are incorporated by reference to the
Partnership's Annual Report to Unitholders for the fiscal year ended
November 30, 1997.
<PAGE>
PART I
Item 1. Business
(a) General Description of Business and Objectives
ConAm Realty Investors 5 L.P., formerly known as Hutton/ConAm Realty
Investors 5, (the "Partnership") is a California limited partnership formed
on June 28, 1984. ConAm Property Services IV, Ltd. ("CPS IV"), a
California limited partnership, and RI 5 Real Estate Services, Inc., ("RI
5"), a Delaware corporation, were the original co-general partners of the
Partnership. On January 27, 1998, CPS IV acquired RI 5's co-general
partner interest in the Partnership, effective July 1, 1997, pursuant to a
Purchase and Sale Agreement between CPS IV and RI 5 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 5 to
ConAm Realty Investors 5 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 one residential apartment property
and two joint ventures, each of which owns a specified property. As
discussed below, one property was sold in December 1996. 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.
<PAGE>
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 longer-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
investments taking into consideration such factors as the amount of
appreciation in value, if any, to be realized and the possible risks of
continued ownership. In consideration of these factors and improving
market conditions, the General Partner intends to sell the remaining two
properties over the next few years. Proceeds from the sale, financing or
refinancing of properties will not be reinvested and may be distributed to
the Limited Partners and General Partner (sometimes referred to together
herein as the "Partners"), so that the Partnership will, in effect, be
self-liquidating. If deemed necessary, the Partnership may retain a
portion of the proceeds from any sale, financing or refinancing as capital
reserves. As partial payment for properties sold, the Partnership may
receive purchase money obligations secured by mortgages or deeds of trust.
In such cases, the amount of such obligations will not be included in Net
Proceeds From Sale or Refinancing (distributable to the Partners) until and
only to the extent the obligations are realized in cash, sold or otherwise
liquidated.
Originally, the Partnership utilized the proceeds of its public offering to
acquire three residential apartment complexes (collectively, the
"Properties") either directly or through investments in joint ventures, as
follows: (1) Lakeview Village at Ponte Vedra Lakes, a 240-unit apartment
complex, located in Ponte Vedra Beach, Florida; (2) The Hamptons at Quail
Hollow, a 232-unit apartment complex, located in Charlotte, North Carolina
and (3) Canterbury Park Apartments, a 96-unit apartment complex, located
in Raleigh, North Carolina. On December 10, 1996, Canterbury Park was sold
to an unaffiliated buyer for $6,387,300. The General Partner intends to
sell the remaining two properties over the next few years.
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
<PAGE>
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 have an effect on the occupancy levels and revenues of the
Properties. The occupancy levels at Lakeview Village in Ponte Vedra Beach,
Florida reflect some seasonality, which is typical in that market. In some
cases, the Partnership may compete with other properties owned by
partnerships affiliated with the General Partner of the Partnership.
For information with respect to market conditions in the areas where the
Partnership's Properties are located, reference is made to the
Partnership's annual report to Unitholders for the fiscal year ended
November 30, 1997, which is filed as an exhibit under Item 14.
Employees
The Partnership has no employees. Services are provided by 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 management
agreements pursuant to which ConAm Management provides property management
services with respect to the Properties. First Data Investor Services
Group had been retained by the Partnership to provide all accounting and
investor communication functions, while Service Data Corporation provides
transfer agent services. Effective December 1, 1997, the accounting
functions of the Partnership have been transferred to the firm of Brock,
Tibbetts 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, a discussion of current
market conditions in the areas where the Properties are located and
appraised values, reference is made to the Partnership's Annual Report to
Unitholders for the fiscal year ended November 30, 1997, which is filed as
an exhibit under Item 14. For information on the purchase of the
Properties, reference is made to Note 4 to the Consolidated Financial
Statements, included in the Partnership's Annual Report to Unitholders.
Average occupancy rates at each property are incorporated by reference to
Item 7.
Item 3. Legal Proceedings
The Partnership is not subject to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the fiscal year ended November 30, 1997, no
matter was submitted to a vote of Unitholders through the solicitation of
proxies or otherwise.
PART II
Item 5. Market for the Partnership's Limited Partnership Interests and
Related Security Holder Matters
As of November 30, 1997, the number of Unitholders of record was 2,602.
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 are determined by the General
Partner on a quarterly basis, with distributions generally occurring
approximately 45 days after the end of each fiscal quarter. Such
distributions to the Limited Partners have been made from net operating
<PAGE>
income with respect to the Partnership's investment in the Properties and
from interest on short-term investments. Information on cash distributions
paid by the Partnership for the past two fiscal years is incorporated by
reference to the Partnership's Annual Report to Unitholders for the fiscal
year ended November 30, 1997, which is filed as an exhibit under Item 14.
The level of future cash distributions will be evaluated on a quarterly
basis and will depend on the Partnership's operating results and future
cash needs.
Item 6. Selected Financial Data
Incorporated by reference to the Partnership's Annual Report to Unitholders
for the year ended November 30, 1997, which is filed as an exhibit under
Item 14.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
At November 30, 1997, the Partnership had cash and cash equivalents of
$1,424,876, which were invested in unaffiliated money market funds,
compared with $2,121,544 at November 30, 1996. The decrease in cash and
cash equivalents reflects mortgage principal payments and cash
distributions to Partners exceeding cash provided by operating activities
during the fiscal year ended November 30, 1997. The Partnership also
maintains a restricted cash balance which totaled $224,210 at November 30,
1997, largely unchanged from $225,415 at November 30, 1996. The
Partnership expects sufficient cash to be generated from operations to meet
its current operating expenses.
Accounts payable and accrued expenses totaled $388,948 at November 30,
1997, compared to $309,475 at November 30, 1996. The increase is primarily
attributable to an increase in real estate taxes and state income tax
withholding resulting from the sale of Canterbury Park.
Distribution payable totaled $359,019 at November 30, 1997, compared to
$439,974 at November 30, 1996. The decrease is primarily attributable to
the sale of Canterbury Park in December 1996, which reduced the amount of
quarterly cash distributions from operations.
The sale of Canterbury Park is also the primary reason for the decrease in
the Partnership's security deposits and due to affiliates balances at
November 30, 1997, compared to the balances at November 30, 1996.
On December 10, 1996, the Partnership closed on the sale of Canterbury
Park. Canterbury Park sold for an adjusted sales price of $6,387,300 to
Burcam Capital I, L.L.C., a North Carolina limited liability company (the
"Buyer"). The transaction resulted in a gain on sale of Canterbury Park of
$2,582,641, which was reflected in the Partnership's consolidated statement
of operations for the first quarter ended February 28, 1997. On January
24, 1997, the Partnership paid a special cash distribution from the sales
proceeds of $6,151,430 or $107 per Unit.
The Partnership continues to perform various improvements at the Properties
which include roof replacements at Lakeview Village. The majority of the
roof replacements were completed in the fourth quarter of 1997. The
approximate cost of replacing the roofs is $400,000 and has been or will be
funded from the Partnership's operating cash flow and cash reserves. The
Partnership will evaluate the need for additional improvement work at the
Properties on an ongoing basis.
The General Partner declared a regular cash distribution of $6.00 per Unit
for the quarter ended November 30, 1997 which was paid to investors on
January 15, 1997. The level of future distributions will be evaluated on a
quarterly basis and will depend on the Partnership's operating results and
future cash needs.
The General Partner is continuing to evaluate the sale potential of the
remaining properties and other options with respect to the Partnership's
<PAGE>
investments. One of these options includes refinancing certain loans
secured by the properties in order to return capital to the limited
partners on a tax-free basis and lock in favorable fixed interest rates.
This would also potentially enhance the marketability of the properties,
while enabling the Partnership to take advantage of possible future
property appreciation. The Partnership's ability to sell the properties is
dependent upon a variety of factors, many of which are not within the
Partnership's control. There can be no assurance that any specific
property or all the properties can be sold, that particular prices will be
achieved, or that the Properties can be sold within a specific time frame.
Results of Operations
1997 versus 1996
Partnership operations for the fiscal year ended November 30, 1997
generated net income of $2,687,490, compared with net income of $1,017,032
in fiscal 1996. The increase in net income is primarily attributable to a
$2,582,641 gain recognized on the sale of Canterbury Park. Excluding the
gain, the Partnership generated income from operations of $104,849. Net
cash provided by operating activities was $1,112,952 for the fiscal year
ended November 30, 1997 compared to $2,022,547 in fiscal 1996. The
decrease in cash provided by operating activities is primarily attributable
to the sale of Canterbury Park.
Rental income totaled $3,714,870 for the fiscal year ended November 30,
1997 compared with $4,695,358 in fiscal 1996. The decrease is primarily
attributable to the sale of Canterbury Park, and to a lesser extent, a
decline in rental income at Lakeview Village due to lower occupancy.
Property operating expenses totaled $2,123,570 for the fiscal year ended
November 30, 1997 compared with $2,120,789 in fiscal 1996. The increase is
primarily due to higher rental administrative expenses and parking lot
repairs at Lakeview Village. The increase is also attributable to higher
maintenance expenses and asphalt repairs at the Hamptons at Quail Hollow.
Depreciation and amortization declined from $1,027,524 for the fiscal year
ended November 30, 1996 to $879,851 in fiscal 1997. The decrease is
primarily due to the sale of Canterbury Park and to certain furniture,
fixtures and equipment becoming fully depreciated.
General and administrative expenses increased from $140,163 in fiscal 1996
to $167,485 in fiscal 1997. The increase is primarily attributable to an
increase in costs associated with Partnership accounting, tax and
administrative services. During the 1997 period, certain expenses incurred
by RI 5, its affiliates, and an unaffiliated third party service provider
in servicing the Partnership, which were voluntarily absorbed by affiliates
of RI 5 in prior periods, were reimbursable to RI 5 and its affiliates.
1996 versus 1995
Partnership operations for the fiscal year ended November 30, 1996
generated net income of $1,017,032, compared with net income of $759,410 in
fiscal 1995. Net cash provided by operating activities was $2,022,547 for
the fiscal year ended November 30, 1996 compared to $1,902,751 in fiscal
1995. The increase in net income and cash flow was primarily attributable
to higher rental income.
Rental income totaled $4,695,358 for the fiscal year ended November 30,
1996 compared with $4,471,922 in fiscal 1995. The increase reflects higher
rental income at all three Properties, and was primarily attributable to
increases in rental rates at each property.
Property operating expenses totaled $2,120,789 for the fiscal year ended
November 30, 1996 compared with $2,061,086 in fiscal 1995. The increase
was primarily due to higher repairs and maintenance expenses at Canterbury
Park and Lakeview Village and an increase in utilities expense at
Canterbury Park. These expenses included interior cleaning and painting at
both properties, and parking lot and roof repairs at Lakeview Village.
Depreciation and amortization declined from $1,142,011 for the fiscal year
ended November 30, 1995 to $1,027,524 in fiscal 1996. The decrease was
primarily due to fully depreciated furniture, fixtures and equipment.
<PAGE>
General and administrative expenses increased from $120,354 in fiscal 1995
to $140,163 in fiscal 1996. The increase was primarily attributable to
higher legal fees, audit fees and Partnership administrative expenses in
the 1996 period.
The average occupancy levels at each of the properties for the years ended
November 30, 1997, 1996 and 1995 were as follows:
Twelve Months Ended November 30,
Property 1997 1996 1995
The Hamptons at Quail Hollow 94% 96% 96%
Lakeview Village 88% 96% 95%
Canterbury Park _ 96% 97%
New Accounting Pronouncements
The Financial Accounting Standards Board also issued SFAS No. 129,
"Disclosure of Information about Capital Structure," SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information." These statements,
which are effective for fiscal years beginning after December 15, 1997,
expand or modify disclosures and, accordingly, will have no impact on the
Partnership's reported financial position, results of operations or cash
flows.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to Unitholders
for the fiscal year ended November 30, 1997, which is filed as an exhibit
under Item 14. Supplementary Data is incorporated by reference to page F-1
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 5, the
General Partners of the Partnership at that time.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no officers or directors. CPS IV, the General Partner
of the Partnership, manages and controls the affairs of the Partnership and
has general responsibility and authority in all matters affecting its
business.
ConAm Property Services IV, Ltd. ("CPS IV") is a California limited
partnership organized on August 30, 1982. The sole general partner of CPS
IV is Continental American Development, Inc. ("ConAm Development"). The
names and positions held by the directors and executive officers of ConAm
Development are set forth below. There are no family relationships between
any officers or directors.
Name Office
Daniel J. Epstein President and Director
E. Scott Dupree Vice President and Director
Robert J. Svatos Vice President and Director
Ralph W. Tilley Vice President
J. Bradley Forrester Vice President
Daniel J. Epstein, 58, has been the President and a Director of ConAm
Development and a general partner of Continental American Properties, Ltd.
("ConAm"), an affiliate of ConAm Services, since their inception. He is
also Chairman and Chief Executive Officer of ConAm Management. Prior to
that time Mr. Epstein was Vice President and a Director of American Housing
Guild, which he joined in 1969. At American Housing Guild, he was
responsible for the formation of the Multi-Family Division and directed its
development and property management activities. Mr. Epstein holds a
Bachelor of Science degree in Engineering from the University of Southern
California.
E. Scott Dupree, 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, 41, 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 Corporation.
He is currently responsible for overseeing all aspects of the operations of
the firm. His primary focus is on new business related activities
including property acquisitions, property development and rehabilitation,
and the acquisition of other property management companies. Prior to
joining ConAm, Mr. Forrester served as Senior Vice President - Commercial
Real Estate for First Nationwide Bank in San Francisco, where he was
responsible for a $2 billion problem asset portfolio including bank-owned
real estate and non-performing commercial real estate loans. His past
experience includes significant involvement in real estate development and
finance, property acquisitions and dispositions and owner's representation
matters. Prior to entering the real estate profession, he worked for KPMG
Peat Marwick LLP in Dallas, Texas. Mr. Forrester holds a Bachelor of
Science degree in Accounting from Louisiana State University. He received
his CPA certification in the State of Texas.
<PAGE>
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 below with
respect to a description of certain costs of the General Partner and RI 5
reimbursed by the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of November 30, 1997, no person was known by the Partnership to be the
beneficial owner of more than five percent of the Units of the Partnership.
Neither the General Partner nor any of its directors or executive officers
owns any Units.
Item 13. Certain Relationships and Related Transactions
RI 5 and CPS IV received a total of $28,158 as the General Partners'
allocable share of Net Cash from Operations with respect to the fiscal year
ended November 30, 1997. Pursuant to the Certificate and Agreement of
Limited Partnership of the Partnership, for the fiscal year ended November
30, 1997, $36,399 of the Partnership's net income was allocated to CPS IV
and RI 5. 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 Note 3 to the Consolidated Financial
Statements, included in the Partnership's Annual Report to Unitholders for
the fiscal year ended November 30, 1997, which is filed as an exhibit under
Item 14. 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, where appropriate, 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 fiscal year ended November 30, 1997, which is filed as an exhibit under
Item 14.
Pursuant to Section 12(g) of the Partnership's Certificate and Agreement of
Limited Partnership, the General Partner may be reimbursed by the
Partnership for certain of its costs. A summary of amounts paid to the
General Partners or their affiliates during the past three fiscal years is
incorporated by reference to Note 7 to the Consolidated Financial
Statements, included in the Partnership's Annual Report to Unitholders for
the fiscal year ended November 30, 1997, which is filed as an exhibit under
Item 14.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a)(1) Financial Statements: Page
Consolidated Balance Sheets - November 30, 1997 and 1996 (1)
Consolidated Statements of Operations - For the years
ended November 30, 1997, 1996 and 1995 (1)
Consolidated Statements of Partners' Capital - For the
years ended November 30, 1997, 1996 and 1995 (1)
Consolidated Statements of Cash Flows - For the years
ended November 30, 1997, 1996 and 1995 (1)
Notes to the Consolidated Financial Statements (1)
Independent Auditors' Report (1)
Report of Former Independent Accountants (1)
(a)(2) Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation (F-1)
Independent Auditors' Report (F-2)
Report of Former Independent Accountants (F-3)
(1) Incorporated by reference to the Partnership's Annual Report to
Unitholders for the fiscal year ended November 30, 1997, filed as an
exhibit under Item 14.
(a)(3) Exhibits:
(4)(A) Second Amended and Restated Agreement of Limited Partnership
(included as, and incorporated herein by reference to, Exhibit
A to the Prospectus of Registrant dated March 27, 1985, contained
in Amendment No. 1 to Registration Statement No. 2-95481 of
Registrant, dated March 27, 1985 (the "Registration Statement")).
(B) Subscription Agreement and Signature Page (included as, and
incorporated herein by reference to, Exhibit 3.1 to Amendment
No. 1 to the Registration Statement).
(10)(A) Documents relating to Lakeview Village.
(A.1) Purchase and Development Agreement, dated January 31, 1984 and
exhibits thereto (included as, and incorporated herein by
reference to, Exhibit 10.2 to Amendment No. 1 to the Registration
Statement).
(A.2) Amendments to Purchase and Development Agreement, dated May 31,
1985, July 31, 1985 and August 21, 1985 (included as, and
incorporated herein by reference to, Exhibit (10)(A) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
November 30, 1985 (the "1985 Annual Report")).
(A.3) Amended and Restated Agreement of General Partnership of Lakeview
Village at Ponte Vedra Lakes Joint Venture, dated 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 August 31, 1992).
(A.4) Loan Documents: Promissory Note and Assignment of Rents and
Leases with respect to the refinancing of Lakeview Village,
between Registrant and The Penn Mutual Life Insurance
Company (included as, and incorporated herein by reference
to, Exhibit A4 to the Registrant's 1993 Annual Report on
Form 10-K filed on March 30, 1994).
(A.5) Property Management Agreement between Lakeview Village at Ponte
Vedra Lakes Joint Venture and Con Am Management Corporation for the
Lakeview Village property (included as, and incorporated herein
by reference to, Exhibit A5 to the Registrant's 1993 Annual
Report on Form 10-K filed on March 30, 1994).
<PAGE>
(B) Documents relating to The Hamptons.
(B.1) Purchase and Development Agreement, dated October 9, 1984 and
exhibits thereto (included as, and incorporated herein by
reference to, Exhibit 10.3 to Amendment No. 1 to the Registration
Statement).
(B.2) First Amendment to Purchase and Development Agreement, dated
December 12, 1985 (included as, and incorporated herein by
reference to, Exhibit (10)(B) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended November 30, 1986).
(B.3) Real Estate Note, dated October 9, 1984 (filed as, and incorporated
herein by reference to Exhibit (10)(B) to the 1985 Annual Report).
(B.4) Property Management Agreement between The Hamptons Joint Venture
and ConAm Management Corporation for the Hamptons at Quail Hollow
II property (included as, and incorporated herein by reference to,
Exhibit B4 to the Registrant's 1993 Annual Report on Form 10-K
filed on March 30, 1994).
(C) Documents relating to Canterbury Park:
(C.1) Purchase and Development Agreement, dated September 7, 1984
(included as, and incorporated herein by reference to, Exhibit
10.4 to Amendment No. 1 to the Registration Statement).
(C.2) Amendments to Purchase and Development Agreement, dated April 30,
1985 and June 30, 1985 (included as, and incorporated herein by
reference to, Exhibit (10)(C) to the 1985 Annual Report).
(C.3) Property Management Agreement between Hutton/ConAm Realty
Investors 5 and Con Am Management Corporation for the Canterbury
Park II property (included as, and incorporated herein by
reference to, Exhibit C3 to the Registrant's 1993 Annual Report
on Form 10-K filed on March 30, 1994).
(D) 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
August 31, 1992).
(13) Annual Report to Unitholders for the fiscal year ended
November 30, 1997.
(21) List of Subsidiaries - Joint Ventures (included as, and
incorporated herein by reference to, Exhibit (22) to the
Registrant's Annual Report on Form 10-K filed for the
fiscal year ended November 30, 1991).
(27) Financial Data Schedule
(99) Portions of the Prospectus of the Registrant, dated March 27,
1985 (included as, and incorporated herein by reference to,
Exhibit 28 to the Registrant's 1987 Annual Report on Form 10-K
filed for the fiscal year ended November 30, 1987).
(b) Reports on Form 8-K:
On December 1, 1997, the Partnership filed a Form 8-K reporting
the change in Registrant's Certifying Accountants.
On February 3, 1998, the Partnership filed a Form 8-K disclosing
the sale of RI 5's co-General Partner interest in the
Partnership to CPS IV.
<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, 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 capabilities and on the dates indicated.
CONAM PROPERTY SERVICES IV, LTD.
A General Partner
By: Continental American Development, Inc.
General Partner
Date: February 28, 1998
BY: /s/ Daniel J. Epstein
Daniel J. Epstein
Director and President
Date: February 28, 1998
BY: /s/ Scott Dupree
Scott Dupree
Vice President and Director
Date: February 28, 1998
BY: /s/ Robert J. Svatos
Robert J. Svatos
Vice President and Director
Date: February 28, 1998
BY: /s/ Ralph W. Tilley
Ralph W. Tilley
Vice President
Date: February 28, 1998
BY: /s/ J. Bradley Forrester
J. Bradley Forrester
Vice President
<PAGE>
Exhibit 13
ConAm Realty Investors 5 L.P.
1997 Annual Report
ConAm Realty Investors 5 L.P. is a California limited
partnership formed in 1985 to acquire, operate and hold
for investment multifamily residential properties. The
Partnership's portfolio currently consists of two
apartment properties located in Florida and North
Carolina. Provided below is a comparison of average
occupancy levels at the properties for the years ended
November 30, 1997 and 1996.
Average Occupancy
Property Location 1997 1996
Lakeview Village Ponte Vedra Beach, Florida 88% 96%
The Hamptons at
Quail Hollow Charlotte, North Carolina 94% 96%
Contents
1 Message to Investors
3 Financial Highlights
4 Consolidated Financial Statements
7 Notes to the Consolidated
Financial Statements
12 Independent Auditors' Report and
Report of Former Independent Accountants
14 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
<PAGE>
Message to Investors
Presented for your review is the 1997 Annual Report for ConAm
Realty Investors 5 L.P. (the "Partnership"). Included in this
report is an overview of general market conditions affecting the
Partnership's remaining two properties, an update of operations
at each of the properties and financial highlights for the year
ended November 30, 1997.
Cash Distributions
The Partnership paid quarterly cash distributions totaling $24.00
per Unit for the year ended November 30, 1997, including the
fourth quarter distribution of $6.00 per Unit, which was credited
to your brokerage account or sent directly to you on January 15,
1997. Since inception, the Partnership has paid distributions
totaling $367.36 per original $500 Unit, including $107 per Unit
in return of capital. The level of cash distributions will be
evaluated on a quarterly basis and will depend on the
Partnership's operating results and future cash needs.
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 two properties are located. Although
population and job growth escalated in both areas, the addition
of several newly constructed complexes to both markets limited
rental rate increases and caused overall vacancy rates to rise.
As a result of new apartment construction in the Jacksonville
area, several large apartment properties have begun to offer
rental concessions to attract tenants. This competition, as well
as the effects of extensive roof replacements at Lakeview
Village, contributed to a decline in average occupancy at
Lakeview Village to 88% in fiscal 1997, from 96% in fiscal 1996.
In the Charlotte market, strong economic growth helped offset the
effects of new construction. Average occupancy at The Hamptons
at Quail Hollow declined only slightly to 94% in fiscal 1997 from
96% in fiscal 1996, and rental income increased for the year. It
is expected that both markets will remain extremely competitive
in the coming months, until a slowdown in new construction allows
for the absorption of this new supply.
Several interior and exterior repairs were performed at each
property during 1997, including parking lot repairs at Lakeview
Village, asphalt repairs at The Hamptons at Quail Hollow and
other routine upgrades. In addition, ongoing roof replacements at
<PAGE>
Lakeview Village were substantially completed in the fourth
quarter of 1997. The General Partner continues to evaluate the
need for capital improvements to increase the appeal of the
properties and position them for an eventual sale.
The General Partner is continuing to evaluate the sale potential
of the remaining properties and other options with respect to the
Partnership's investments. One of these options includes
refinancing certain loans secured by the Properties in order to
return capital to the limited partners on a tax-free basis and
lock in favorable fixed interest rates. This would also
potentially enhance the future marketability of the Properties,
while enabling the Partnership to take advantage of possible
future property appreciation. The Partnership's ability to sell
the Properties is dependent upon a variety of factors, many of
which are not within the Partnership's control. There can be no
assurance that any specific property or all the properties can be
sold, that particular prices will be achieved, or that the
Properties can be sold within a specific time frame. We will
keep you apprised of our sales efforts in future correspondence.
Property Review
Lakeview Village
Lakeview Village is a 240-unit luxury apartment complex located
in an oceanside residential area of Ponte Vedra Beach, Florida
southeast of Jacksonville. The property reported an average
occupancy level of 88% in fiscal 1997, down from 96% in 1996.
Strong economic growth in the Jacksonville area has led to an
increase in new multifamily construction, with construction
permits issued for approximately 3,831 new apartment units
throughout the year. Continued construction at this pace could
further soften the market, as population and job growth may not
keep pace with the number of new apartment units entering the
market. Property improvements for the year included extensive
roof replacements, which temporarily affected the property's
occupancy level, asphalt repairs, carpet replacement and other
improvements to retain the property's competitive position.
The Hamptons at Quail Hollow
The Hamptons at Quail Hollow is a 232-unit apartment community
located in southeastern Charlotte, North Carolina. The
property's average occupancy declined slightly to 94% in 1997,
from 96% in fiscal 1996, and rental income increased marginally
from the prior year. The general strength of the Charlotte
market has prompted a surge in new construction over the last two
years. As a result, competition for tenants is intensifying, and
has induced some large apartment properties to offer rental
concessions to increase occupancy rates. While new construction
could impact the rate of rental activity in the short term,
continued job and population growth should keep this market from
becoming significantly overbuilt. Property improvements
performed in 1997 included asphalt repairs and exterior painting.
Summary
We will continue to monitor market conditions to determine the
opportune time to sell the Properties, and are also evaluating a
potential refinance of the Partnership's mortgage obligations.
In the interim, we intend to maximize the performance of the
properties and further improve their appearance and condition.
We will keep you apprised of significant developments affecting
your investment in future reports.
Very truly yours,
/s/ Daniel J. Epstein
Daniel J. Epstein
President
Continental American Development, Inc.
General Partner of ConAm Property Services IV, Ltd.
February 28, 1998
<PAGE>
Financial Highlights
Selected Financial Data
<TABLE>
<CAPTION>
For the years ended November 30, 1997 1996 1995 1994 1993
Dollars in thousands,
except for per unit data
<S> <C> <C> <C> <C> <C>
Total Income $ 3,845 $ 4,798 $ 4,583 $ 4,337 $ 4,201
Income from Operations 105 1,017 759 623 382
Net Income 2,687 1,017 759 623 382
Net Cash Provided by
Operating Activities 1,113 2,023 1,903 1,799 1,316
Long-term Obligations 6,185 6,299 6,405 6,502 6,593
Total Assets at Year End 17,021 22,053 22,912 23,946 26,007
Income from Operations per
Limited Partnership Unit* 1.19 17.21 12.77 10.46 6.33
Net Income per
Limited Partnership Unit* 46.11 17.21 12.77 10.46 6.33
Distributions per
Limited Partnership Unit* 131.00 30.00 30.00 26.00 25.00
* 57,490 Units outstanding
Cash Distributions
Per Limited Partnership Unit
Through November 30, 1997 1997 1996
Special Distributions* $107.00 $ -
First Quarter 6.00 7.50
Second Quarter 6.00 7.50
Third Quarter 6.00 7.50
Fourth Quarter 6.00 7.50
Total $131.00 $30.00
</TABLE>
* On January 24, 1997, the Partnership paid a special cash
distribution totaling $107 per Unit, reflecting a return of
capital from the net proceeds of the December 1996 sale of
Canterbury Park.
Quarterly cash distributions were reduced in 1997 due to the decrease
in net cash provided by operating activities, primarily due to the
sale of Canterbury Park.
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
At November 30, At November 30,
1997 1996
<S> <C> <C>
Assets
Investments in real estate:
Land $ 3,780,687 $ 3,780,687
Buildings and improvements 22,271,530 22,125,028
26,052,217 25,905,715
Less accumulated depreciation (10,808,639) (10,055,068)
15,243,578 15,850,647
Property held for disposition - 3,687,584
Cash and cash equivalents 1,424,876 2,121,544
Restricted cash 224,210 225,415
Other assets, net of
accumulated amortization of $131,808
in 1997 and $99,528 in 1996 128,814 167,504
Total Assets $17,021,478 $22,052,694
Liabilities and Partners' Capital
Liabilities:
Mortgage payable $ 6,185,012 $ 6,299,052
Distribution payable 359,019 439,974
Accounts payable and accrued expenses 388,948 309,475
Due to general partners and affiliates 15,811 19,613
Security deposits 89,448 129,482
Total Liabilities 7,038,238 7,197,596
Partners' Capital:
General Partners 190,878 182,637
Limited Partners (57,490 units
outstanding) 9,792,362 14,672,461
Total Partners' Capital 9,983,240 14,855,098
Total Liabilities and Partners' Capital $17,021,478 $22,052,694
Consolidated Statements of Operations
For the years ended November 30, 1997 1996 1995
Income
Rental $3,714,870 $4,695,358 $4,471,922
Interest 130,067 102,810 111,447
Total Income 3,844,937 4,798,168 4,583,369
Expenses
Property operating 2,123,570 2,120,789 2,061,086
Depreciation and amortization 879,851 1,027,524 1,142,011
Interest 484,182 492,660 500,508
General and administrative 167,485 140,163 120,354
Write-off of assets 85,000 - -
Total Expenses 3,740,088 3,781,136 3,823,959
Income from operations 104,849 1,017,032 759,410
Gain on sale of property 2,582,641 - -
Net Income $2,687,490 $1,017,032 $ 759,410
Net Income Allocated:
To the General Partners $ 36,399 $ 27,769 $ 25,193
To the Limited Partners 2,651,091 989,263 734,217
$2,687,490 $1,017,032 $ 759,410
Per limited partnership unit
(57,490 Units outstanding):
Income from operations $ 1.19 $17.21 $12.77
Gain on sale of property 44.92 - -
Net Income $46.11 $17.21 $12.77
</TABLE>
<PAGE>
Consolidated Statements of Partners' Capital
For the years ended November 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
<S> <C> <C> <C>
Balance at November 30, 1994 $ 200,071 $16,398,381 $16,598,452
Net income 25,193 734,217 759,410
Distributions ($30.00 per Unit) (35,198) (1,724,700) (1,759,898)
Balance at November 30, 1995 190,066 15,407,898 15,597,964
Net income 27,769 989,263 1,017,032
Distributions ($30.00 per Unit) (35,198) (1,724,700) (1,759,898)
Balance at November 30, 1996 182,637 14,672,461 14,855,098
Net income 36,399 2,651,091 2,687,490
Distributions ($131.00 per Unit) (28,158) (7,531,190) (7,559,348)
Balance at November 30, 1997 $ 190,878 $ 9,792,362 $ 9,983,240
</TABLE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the years ended November 30, 1997 1996 1995
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Net Income $ 2,687,490 $ 1,017,032 $ 759,410
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 879,851 1,027,524 1,142,011
Write-off of assets 85,000 - -
Gain on sale of property (2,582,641) - -
Increase (decrease) in cash arising
from changes in operating assets
and liabilities:
Fundings to restricted cash (180,710) (169,425) (163,568)
Release of restricted cash 181,915 163,446 167,460
Other assets 6,410 (4,968) (8,577)
Accounts payable and accrued expenses 79,473 (5,063) 197
Due to general partners and affiliates (3,802) 764 762
Security deposits (40,034) (6,763) 5,056
Net cash provided by operating
activities 1,112,952 2,022,547 1,902,751
Cash Flows From Investing Activities:
Net proceeds from sale of property 6,270,225 - -
Additions to real estate (325,502) (288,766) (69,977)
Net cash provided by (used for)
investing activities 5,944,723 (288,766) (69,977)
Cash Flows From Financing Activities:
Distributions (7,640,303) (1,759,898) (1,701,235)
Mortgage principal payments (114,040) (105,560) (97,713)
Net cash used for financing activities (7,754,343) (1,865,458) (1,798,948)
Net increase (decrease) in cash
and cash equivalents (696,668) (131,677) 33,826
Cash and cash equivalents, beginning
of period 2,121,544 2,253,221 2,219,395
Cash and cash equivalents, end
of period $1,424,876 $2,121,544 $ 2,253,221
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the period for interest $ 484,182 $ 492,660 $ 500,508
Supplemental Disclosure of Non-cash
Investing Activities:
Write-off of buildings & improvements $ (179,000) $ - $ -
Write-off of accumulated depreciation $ 94,000 $ - $ -
</TABLE>
<PAGE>
Notes to the Consolidated Financial Statements
November 30, 1997, 1996 and 1995
1. Organization
ConAm Realty Investors 5 L.P., formerly Hutton/ConAm Realty
Investors 5, (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 June 28, 1984 and amended and
restated August 20, 1985. The Partnership was formed for the
purpose of acquiring and operating multi-family residential real
estate. The original General Partners of the Partnership were RI
5 Real Estate Services, Inc. ("RI 5"), 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 January 27, 1998, CPS IV acquired RI 5's
co-general partner interest in the Partnership pursuant to a
purchase agreement between CPS IV and RI 5 dated August 29, 1997.
As a result, CPS IV now serves as the sole general partner of the
Partnership. The Partnership will continue until December 31,
2010 unless sooner terminated pursuant to the terms of the
Partnership Agreement.
2. Significant Accounting Policies and Practices
Financial Statements - The consolidated financial statements are
prepared on the accrual basis of accounting and include the
accounts of the Partnership and its affiliated ventures when the
Partnership has a controlling interest in the ventures. The
effect of transactions between the Partnership and its ventures
have been eliminated in consolidation.
Investments in Real Estate - Investments in real estate are
recorded at cost less accumulated depreciation and include the
initial purchase price of the property, legal fees, acquisition
and closing costs.
Revenue is recognized when earned and expenses (including
depreciation) are recognized when incurred in accordance with
generally accepted accounting principles. Leases are generally
for terms of one year or less.
Depreciation is computed using the straight-line method based
costs incurred for upon the estimated useful lives (25 years) of
the properties. 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 income for the period.
Impairment of Long-Lived Assets - Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("FAS 121"), requires the Partnership to assess its real estate
investments for impairment whenever events or changes in
circumstances indicate that the carrying amount of the real
estate may not be recoverable. Recoverability of real estate to
be held and used is measured by a comparison of the carrying
amount of the real estate to future net cash flows (undiscounted
and without interest) expected to be generated by the real
estate. If the real estate is considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the real estate exceeds the fair value of
the real estate.
Other Assets - Included in other assets are deferred mortgage
costs incurred in connection with obtaining financing on one of
the Partnership's properties. Such costs are amortized over the
term of the loan on a method which approximates the effective-
interest method.
Income Taxes - No provision for income taxes has been made in the
financial statements as the liability for such taxes is that of
the partners rather than the Partnership.
Cash and Cash Equivalents - Cash and cash equivalents consist of
highly liquid, short-term investments with original maturities
of three months or less.
Concentration of Credit Risk - Financial instruments which
potentially subject the Partnership to a concentration of credit
risk principally consist of cash and cash equivalents and
restricted cash in excess of the financial institutions'
federally insured limits. The Partnership invests its available
cash and cash equivalents, and restricted cash with high credit
quality, federally insured financial institutions.
Restricted Cash - Restricted cash consists of escrow deposits for
real estate taxes and casualty insurance as required by the first
mortgage lender on the Lakeview Village property.
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
<PAGE>
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, 98% to the limited
partners and 2% to the General Partners until each limited
partner has received an amount equal to an annual 7% return for
such year. Thereafter, net cash from operations is to be
distributed 100% to the General Partners until the General
Partners have received distributions for the year (including the
2% distribution described above) equal to 10% of the aggregate
net cash from operations distributed to the partners for such
fiscal year to that point. Any remaining net cash from
operations is to be distributed 90% to the limited partners and
10% to the General Partners.
Net loss and all depreciation is to be allocated 99% to the
limited partners and 1% to the General Partners.
Net income is to be allocated as follows:
a. To the extent that net income before depreciation does not
exceed the amount of net cash from operations distributable
to the partners with respect to such fiscal year, net income
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 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' deficit, if any, in their capital accounts,
over an amount equal to 1% of the aggregate capital
contributions to the Partnership as reduced by the amount of
the General Partners' capital contributions, and (2) second,
99% to the limited partners and 1% to the General Partners.
For the years ended November 30, 1996 and 1995, net income before
depreciation exceeded net cash from operations distributable to
the partners by $252,378, and $109,243 respectively. Pursuant to
the Partnership Agreement and as described in (b)(2) above, this
excess was allocated 99% to the limited partners and 1% to the
General Partners. For the year ended November 30, 1997, net
income before depreciation did not exceed the amount of net cash
from operations distributable to the partners.
Net proceeds from sales or refinancing is to be distributed 100%
to the limited partners until each limited partner has received
an amount equal to his adjusted capital investment (as defined in
the Partnership Agreement) 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. Generally, all
gain from sales will be allocated 99% to the limited partners and
1% to the General Partners until each limited partner has
received an amount equal to his adjusted capital investment and
an annual, non-compounded cumulative 7% return thereon.
Thereafter, gain will be allocated pro rata to the limited and
General Partners' capital accounts, as reduced by the amount of
the net proceeds distributed from sale or refinancing with
respect to such transactions, until the limited and general
partner capital accounts are in a ratio of 85 to 15. The
balance, if any, is to be distributed 85% to the limited partners
and 15% to the General Partners.
<PAGE>
Effective July 1, 1997, all General Partner allocations are to be
made solely to CPS IV.
4. Investments in Real Estate
Since inception, the Partnership acquired three residential
apartment complexes either directly or through investments in
joint ventures as follows:
Date Purchase
Property Name Units Location Acquired Price
Lakeview Village 240 Ponte Vedra Beach,FL 8/22/85 $12,266,187
Canterbury Park Apts. 96 Raleigh,NC 11/21/85 5,467,661
The Hamptons 232 Charlotte,NC 5/30/86 11,694,137
On December 10, 1996, the Partnership closed on the sale of
Canterbury Park Apartments ("Canterbury Park"). Canterbury Park
sold for $6,387,300 to Burcam Capital I, L.L.C., a North Carolina
limited liability company (the "Buyer"), which is unaffiliated
with the Partnership. The transaction resulted in a gain on sale
of Canterbury Park of $2,582,641, which is reflected in the
Partnership's consolidated statements of operations for the year
ended November 30, 1997. On January 24, 1997, the General
Partners paid a special distribution of $6,151,430, representing
the net proceeds from the sale of Canterbury Park, to the limited
partners.
Lakeview Village and The Hamptons were acquired through joint
ventures with unaffiliated developers. To each venture, the
Partnership assigned its rights to acquire the above properties
and contributed cash equal to the purchase price of the
properties. The developers did not make an initial capital
contribution to these ventures.
The initial joint venture agreement of The Hamptons substantially
provides that:
a. Net cash from operations of The Hamptons is to be
distributed 100% to the Partnership until it has received an
annual, noncumulative return of 8% on 118% of its adjusted
capital contribution. Any remaining balance is to be
distributed 80% to the Partnership and 20% to the co-
venturer.
b. Net income of the joint venture is to be allocated to the
Partnership and the co-venturer basically in accordance with
the distribution of net cash from operations. All losses
and depreciation are to be allocated to the Partnership.
c. Net proceeds from a sale or refinancing of The Hamptons will
be distributed 100% to the Partnership until it has received
an amount equal to an annual, cumulative 8% return on 118%
of its adjusted capital contribution and an amount equal to
118% of its adjusted capital contribution. Distributions are
to then be made to the co-venturer until it has received an
annual, cumulative 8% return on $928,000 as reduced by all
prior distributions of net cash from operations and an
amount equal to $928,000 as reduced by all prior
distributions of net proceeds from refinancing. Any
remaining net proceeds are to be distributed 80% to the
Partnership and 20% to the co-venturer.
The joint venture agreement of Lakeview Village substantially
provides that:
a. Available cash from operations of Lakeview Village is to be
distributed 100% to the Partnership until it has received
its annual, noncumulative preferred return, of $650,000.
Any remaining balance is to be distributed 99% to the
Partnership and 1% to the corporate General Partners.
b. Net income of Lakeview Village is to be allocated first,
<PAGE>
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
corporate General Partners. All net losses are to be
allocated first to the partners with positive capital
accounts, as defined, until such accounts have been reduced
to zero, then 99% to the Partnership and 1% to the corporate
General Partners.
c. Income from a sale of Lakeview Village is to be allocated to
the Partnership until the Partnership's capital account, as
defined, is equal to the fair market value of the ventures'
assets at the date of the amendment. Any remaining balance
is then 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
a positive capital account balance, as defined; thereafter,
99% to the Partnership and 1% to the corporate General
Partners.
5. Mortgage Payable
On October 27, 1993, the maturity date, the Partnership obtained
replacement financing on its Lakeview Village property from The
Penn Mutual Life Insurance Company ("Penn Mutual"), an
unaffiliated party. During 1996, Penn Mutual transferred the
mortgage loan to Midland Loan Services, Inc. under the existing
terms. Total proceeds of $6,600,000 were received and are
collateralized by a Mortgage and Security Agreement and an
Assignment of Rents and Leases Agreement encumbering the
property. The loan is for a term of seven years and bears
interest at an annual rate of 7.75% requiring monthly
installments of principal and interest based on a 25 year
amortization schedule. The proceeds of this financing along with
Partnership cash reserves were used to repay the outstanding
amounts due Aetna Life Insurance Company on the Partnership's
prior mortgage. Partnership cash reserves were also used to pay
refinancing expenses of $184,825 and fund escrows of $355,664.
The escrowed funds are applied to the property for real estate
taxes and insurance. The loan matures on October 27, 2000, upon
which time a balloon payment of $5,797,356 and any accrued
interest are due.
Annual maturities of mortgage note principal over the next five
years are as follows:
Year Amount
1998 $ 123,197
1999 133,091
2000 5,928,724
$6,185,012
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,
distribution payable, accounts payable and accrued expenses, due
to general partner 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 mortgage payable is a reasonable
estimate of fair value based on management's belief that the
interest rates and terms of the debt are comparable to those
commercially available to the Partnership in the marketplace for
similar instruments.
7. Transactions with Related Parties
The following is a summary of fees earned and reimbursable
<PAGE>
expenses to the General Partners and affiliates for the years
ended November 30, 1997, 1996 and 1995, and the unpaid portion at
November 30, 1997:
<TABLE>
<CAPTION>
Earned and
Unpaid at
November 30, Earned
1997 1997 1996 1995
<S> <C> <C> <C> <C>
RI5 Real Estate Services,
Inc. and affiliates:
Out-of-pocket expenses $ - $ 2,393 $ 1,462 $ 2,319
ConAm and affiliates:
Property operating salaries - 366,685 342,575 336,666
Property management fees 15,811 187,757 234,958 223,720
Total $ 15,811 $556,835 $ 578,995 $ 562,705
</TABLE>
8. Reconciliation of Financial Statement and Tax Information
The following is a reconciliation of the net income for financial
statement purposes to net income for federal income tax purposes
for the years ended November 30, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net income per financial statements $ 2,687,490 $1,017,032 $ 759,410
Depreciation deducted for tax purposes
in excess of depreciation expense per
financial statements (7,153) (63,543) (3,589)
Capital improvement costs capitalized
for tax purposes not recorded per
financial statements 204,932 - -
Tax basis joint venture net income in
excess of GAAP basis joint venture
net income/(loss) (84,482) (54,848) 8,238
Gain on sale of property for tax
purposes in excess of gain per
financial statements 894,357 - -
Other 22 6,434 1,656
Taxable net income (unaudited) $ 3,695,166 $ 905,075 $ 765,715
</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, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Partners' capital per financial
statements $ 9,983,240 $14,855,098 $15,597,964
Adjustment for cumulative difference
between tax basis net income and net
income per financial statements 52,555 (955,121) (843,162)
Partners' capital per income tax
return (unaudited) $10,035,795 $13,899,977 $14,754,802
</TABLE>
At November 30, 1997, the tax basis of the Partnership's assets
was $18,696,093 and tax basis of the Partnership's liabilities
was $8,660,298.
9. Distributions Paid
Cash 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 amounts 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>
1997 $439,974 $7,559,348 $7,640,303 $359,019
1996 439,974 1,759,898 1,759,898 439,974
1995 381,311 1,759,898 1,701,235 439,974
</TABLE>
<PAGE>
Independent Auditors' Report
The General Partner
ConAm Realty Investors 5 L.P.:
We have audited the accompanying consolidated balance sheet of
ConAm Realty Investors 5 L.P. (a California limited partnership)
(formerly Hutton/ConAm Realty Investors 5) and consolidated
ventures (the "Partnership"), as of November 30, 1997, and the
related consolidated statements of operations, partners'
capital (deficit), and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the 1997 consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of ConAm Realty Investors 5 L.P. and
consolidated ventures as of November 30, 1997, and the results of
their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
San Diego, California
February 5, 1998
<PAGE>
Report of Former Independent Accountants
To the Partners of
ConAm Realty Investors 5 L.P.:
We have audited the consolidated balance sheet of ConAm Realty
Investors 5 L.P. (formerly Hutton/ConAm Realty Investors 5), a
California limited partnership, and Consolidated Ventures as of
November 30, 1996 and the related consolidated statements of
operations, partners' capital (deficit) and cash flows for each
of the two years in the period ended November 30, 1996. These
consolidated financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of ConAm Realty Investors 5 L.P., a California
limited partnership, and Consolidated Ventures as of November 30,
1996 and 1995, and the consolidated results of their operations
and their cash flows for each of the two years in the period
ended November 30, 1996, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 14, 1997
<PAGE>
Net Asset Valuation
Comparison of Acquisition Costs to Appraised Value and
Determination of Net Asset Value Per Unit at November 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Acquisition Cost
(Purchase Price Partnership's
Plus General Share of
Partners' November 30,
Acquisition 1997 Appraised
Property Date of Acquisition Fees) Value (1)
<S> <C> <C> <C>
Lakeview Village
at Ponte Vedra Lakes 08-22-85 $12,805,899 $11,700,000(1)
The Hamptons at
Quail Hollow 05-30-86 12,208,679 14,200,000(1)
$25,014,578 $25,900,000
Cash and cash equivalents
(including restricted cash) 1,649,086
Other assets 34,665
27,583,751
Less:
Total liabilities (7,038,238)
Partnership Net Asset Value (2) $20,545,513
Net Asset Value Allocated:
Limited Partners 20,528,902
General Partner 16,611
$20,545,513
Net Asset Value Per Unit
(57,490 Units outstanding) $357.09
</TABLE>
(1) This represents the Partnership's share of the November 30,
1997 Appraised Values which were determined by an independent
property appraisal firm.
(2) The Partnership Net Asset Value assumes a hypothetical sale
at November 30, 1997 of all the Partnership's properties at a
price based upon their value as a rental property as
determined by an independent property appraisal firm, and the
distribution of the proceeds of such sale, combined with the
Partnership's cash after liquidation of the Partnership's
liabilities, to the Partners.
Limited Partners should note that appraisals are only estimates
of current value and actual values realizable upon sale may be
significantly different. A significant factor in establishing an
appraised value is the actual selling price for properties which
the appraiser believes are comparable. In addition, the
appraised value does not reflect the actual costs which would be
incurred in selling the properties. As a result of these factors
and the illiquid nature of an investment in Units of the
Partnership, the variation between the appraised value of the
Partnership's properties and the price at which Units of the
Partnership could be sold may be significant. Fiduciaries of
Limited Partners which are subject to ERISA or other provisions
of law requiring valuations of Units should consider all relevant
factors, including, but not limited to Net Asset Value per Unit,
in determining the fair market value of the investment in the
Partnership for such purposes.
<PAGE>
Schedule III - Real Estate and Accumulated Depreciation
November 30, 1997
<TABLE>
<CAPTION>
Consolidated Ventures
Lakeview
Village The
Residential Property: Apartments Hamptons Total
<S> <C> <C> <C>
Location Ponte Vedra Charlotte, na
Beach, FL NC
Construction date 1984-1985 1985-1986 na
Acquisition date 08-22-85 05-30-86 na
Life on which depreciation
in latest income statements is
computed 25 years 25 years na
Encumbrances $ 6,185,012 $ _ $ 6,185,012
Initial cost to Partnership:
Land $ 1,543,406 $ 2,208,781 $ 3,752,187
Buildings and improvements $11,321,843 $ 10,085,246 $21,407,089
Costs capitalized subsequent
to acquisition:
Land, buildings
and improvements $ 908,988 $ 162,953 $ 1,071,941
Write off of buildings and
improvements $ (179,000) $ _ $ (179,000)
Gross amount at which
carried at close of period: (1)
Land $ 1,571,906 $ 2,208,781 $ 3,780,687
Buildings and improvements 12,023,331 10,248,199 22,271,530
$13,595,237 $ 12,456,980 $26,052,217
Accumulated depreciation (2) $ 5,854,754 $ 4,953,885 $10,808,639
</TABLE>
(1) Aggregate cost for Federal income tax purposes is $26,436,149.
(2) The amount of accumulated depreciation for Federal income tax
purposes is $15,028,881.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended
November 30, 1997, 1996, and 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Investments in real estate:
Beginning of period $31,693,216 $31,404,450 $31,334,473
Additions 325,502 288,766 69,977
Dispositions and disposals (5,966,501) _ _
End of period $26,052,217 $31,693,216 $31,404,450
Accumulated depreciation:
Beginning of period $12,154,985 $11,159,740 $10,050,009
Depreciation expense 847,571 995,245 1,109,731
Dispositions and disposals (2,193,917) _ _
End of period $10,808,639 $12,154,985 $11,159,740
</TABLE>
<PAGE>
Independent Auditors' Report
The General Partner
ConAm Realty Investors 5 L.P.:
Under date of February 5, 1998, we reported on the
consolidated balance sheet of ConAm Realty Investors 5 L.P. (a
California limited partnership) (formerly Hutton/ConAm Realty
Investors 5) and consolidated ventures (the "Partnership") as
of November 30, 1997, and the related consolidated statements
of operations, partnersO capital (deficit), and cash flows for
the year then ended, as contained in the 1997 annual report to
Unitholders. These consolidated financial statements and our
report thereon are incorporated by reference in the 1997
annual report on Form 10-K. In connection with our audit of
the aforementioned consolidated financial statements, we also
have audited the related consolidated financial statement
schedule. This consolidated financial statement schedule is
the responsibility of the Partnership's management. Our
responsibility is to express an opinion on this consolidated
financial statement schedule based on our audit.
In our opinion, the consolidated financial statement schedule,
when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
San Diego, California
February 5, 1998
<PAGE>
Report of Former Independent Accountants
Our report on the consolidated financial statements of ConAm
Realty Investors 5 L.P. (formerly Hutton/ConAm Realty Investors
5), 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 5 for the
year ended November 30, 1996. In connection with our audits of
such financial statements, we have also audited the related
financial statement schedule listed in the index of this Form 10-K.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 14, 1997
<PAGE>
Annex 2
United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
----- Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 1998
or
----- Transition Report Pursuant to Section 13 of 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____ to ____
COMMISSION FILE NUMBER: 0-014341
CONAM REALTY INVESTORS 5 L.P.
-----------------------------
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER
California 11-2712111
---------- ----------
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
(619) 297-6771
--------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
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
------- -------
<PAGE>
CONAM REALTY INVESTORS 5 L.P.
AND CONSOLIDATED VENTURES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS AT AUGUST 31, AT NOVEMBER 30,
1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments in real estate:
Land $ 3,780,687 $ 3,780,687
Buildings and improvements 22,414,640 22,271,530
-----------------------------
26,195,327 26,052,217
Less accumulated depreciation (11,299,129) (10,808,639)
-----------------------------
14,896,198 15,243,578
Cash and cash equivalents 496,046 1,424,876
Restricted cash 363,408 224,210
Other assets, net of accumulated amortization
of $156,017 in 1998 and $131,808 in 1997 315,268 128,814
- ---------------------------------------------------------------------------------
TOTAL ASSETS $ 16,070,920 $ 17,021,478
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage payable 6,103,944 6,185,012
Distribution payable 351,980 359,019
Accounts payable and accrued expenses 439,922 388,948
Due to general partner and affiliates 17,151 15,811
Security deposits 82,135 89,448
-----------------------------
Total Liabilities 6,995,132 7,038,238
-----------------------------
Partners' Capital:
General Partner 179,360 190,878
Limited Partners (57,490 Units outstanding) 8,896,428 9,792,362
-----------------------------
Total Partners' Capital 9,075,788 9,983,240
- ---------------------------------------------------------------------------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 16,070,920 $ 17,021,478
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONAM REALTY INVESTORS 5 L.P.
AND CONSOLIDATED VENTURES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
AUGUST 31, AUGUST 31,
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME
Rental $1,052,937 $ 930,876 $2,972,041 $2,767,817
Interest and other 7,136 28,981 30,601 112,664
----------------------------------------------------------
Total Income 1,060,073 959,857 3,002,642 2,880,481
- --------------------------------------------------------------------------------------------------------------
EXPENSES
Property operating 523,974 685,518 1,546,029 1,700,215
Depreciation and amortization 222,052 218,900 663,077 656,702
Interest 118,465 120,776 357,166 363,968
General and administrative 48,337 32,914 130,896 126,093
Write-off of assets 10,148 - 156,987 -
----------------------------------------------------------
Total Expenses 922,976 1,058,108 2,854,155 2,846,978
- --------------------------------------------------------------------------------------------------------------
Income (Loss) from operations 137,097 (98,251) 148,487 33,503
Gain on sale of property - - - 2,582,641
- --------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 137,097 $ (98,251) $ 148,487 $2,616,144
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) ALLOCATED:
To the General Partner $ 4,963 $ 143 $ 9,601 $ 6,995
To the Limited Partners 132,134 (98,394) 138,886 2,609,149
- --------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 137,097 $ (98,251) $ 148,487 $2,616,144
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
PER LIMITED PARTNERSHIP UNIT
(57,490 UNITS OUTSTANDING)
Income (Loss) from operations $ 2.30 $ (1.71) $ 2.42 $ 0.46
Gain on sale of property - - - 44.92
- --------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 2.30 $ (1.71) $ 2.42 $ 45.38
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED AUGUST 31,
GENERAL LIMITED
PARTNER PARTNERS TOTAL
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AT NOVEMBER 30, 1997 $190,878 $ 9,792,362 $ 9,983,240
Net income 9,601 138,886 148,487
Distributions ($18.00 per Unit) (21,119) (1,034,820) (1,055,939)
- -----------------------------------------------------------------------------------------------
BALANCE AT AUGUST 31, 1998 $179,360 $ 8,896,428 $ 9,075,788
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONAM REALTY INVESTORS 5 L.P.
AND CONSOLIDATED VENTURES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED AUGUST 31, 1998 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 148,487 $ 2,616,144
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 663,077 656,702
Write-off of assets 156,987 -
Gain on sale of property - (2,582,641)
Increase (decrease) in cash arising from changes in
operating assets and liabilities:
Fundings to restricted cash (139,198) (137,646)
Other assets (210,663) 6,410
Accounts payable and accrued expenses 50,974 195,124
Due to general partner and affiliates 1,340 (3,581)
Security deposits (7,313) (35,536)
--------------------------
Net cash provided by operating activities 663,691 714,976
- ------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of property - 6,270,225
Additions to real estate (703,420) -
Insurance recovery from fire damage 254,945 -
--------------------------
Net cash provided by (used for) investing activities (448,475) 6,270,225
- ------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (1,062,978) (7,295,362)
Mortgage principal payments (81,068) (84,699)
--------------------------
Net cash used for financing activities (1,144,046) (7,380,061)
- ------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (928,830) (394,860)
Cash and cash equivalents, beginning of period 1,424,876 2,121,544
- ------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 496,046 $ 1,726,684
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 317,745 $ 363,968
- ------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Write-off of buildings and improvements $ (305,365) $ -
Write-off of accumulated depreciation $ 148,378 $ -
- -------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONAM REALTY INVESTORS 5 L.P.
AND CONSOLIDATED VENTURES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The unaudited interim consolidated financial statements should be read in
conjunction with the Partnership's 1997 annual report.
The unaudited interim consolidated financial statements include all normal and
recurring adjustments which are, in the opinion of management, necessary to
present a fair statement of financial position as of August 31, 1998 and the
results of operations for the three and nine months ended August 31, 1998 and
1997 and the consolidated statement of partners' capital and cash flows for the
nine months ended August 31, 1998. Results of operations for the period are not
necessarily indicative of the results to be expected for the full year.
No significant events have occurred subsequent to fiscal year 1997, and no
material contingencies exist, which would require disclosure in this interim
report per Regulation S-X, Rule 10-01, Paragraph (a)(5).
<PAGE>
CONAM REALTY INVESTORS 5 L.P.
AND CONSOLIDATED VENTURES
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 1998, the Partnership had cash and cash equivalents of $496,046
which were invested in money market funds, compared with $1,424,876 at November
30, 1997. The decrease reflects mortgage principal payments, additions to real
estate, tax payments and cash distributions to Partners exceeding cash provided
by operating activities during the first nine months of fiscal 1998. The
increase in other assets is primarily attributable to amounts due from the state
of North Carolina regarding an overpayment of non-resident withholdings and to
an increase in a deposit required by the Internal Revenue Service. The
Partnership expects sufficient cash to be generated from operations to meet its
current operating expenses.
The Partnership's restricted cash balance totaled $363,408 at August 31, 1998
compared to $224,210 at November 30, 1997. The increase is primarily
attributable to contributions made to an escrow account for the purpose of
funding real estate taxes as required under the terms of the Lakeview Village
mortgage.
The Partnership received insurance proceeds of $254,945 resulting from fire
damage to eight units at Lakeview Village. The insurance proceeds were
sufficient to cover the cost of the restoration work.
The General Partner declared a regular cash distribution of $6.00 per Unit for
the quarter ended August 31, 1998 which is to be paid in October, 1998. The
General Partner will determine the amount of future quarterly distributions
based on the Partnership's available cash flow and future cash needs.
RESULTS OF OPERATIONS
The Partnership generated net income of $137,097 and $148,487, for the three and
nine months ended August 31,1998 respectively. This compares with a net loss of
($98,251) and net income of $2,616,144 for the corresponding periods in fiscal
1997. The decrease for the nine-month period is primarily attributable to the
gain on the sale of Canterbury Park on December 10, 1996. Income from
operations for the three and nine months ended August 31, 1998 was $137,097 and
$148,487, respectively, compared with the (loss) income from operations of
($98,251) and $33,503, respectively, for the corresponding period in fiscal
1997. The increase for the three and nine-month periods is primarily due to an
increase in rental income and a decrease in property operating expenses,
somewhat offset by an increase in write-off of assets as they are replaced.
Rental income totaled $1,052,937 and $2,972,041, respectively, for the three and
nine months ended August 31,1998 compared with $930,876 and $2,767,817,
respectively, for the corresponding periods in fiscal 1997. The increase is due
to stable occupancy with increased base rents at The Hamptons at Quail Hollow
and increased occupancy at Lakeview Village.
Interest and other income totaled $7,136 and $30,601, respectively, for the
three and nine months ended August 31,1998 compared with $28,981 and $112,664,
respectively, for the corresponding period in fiscal 1997. The decrease for the
three and nine-month periods is primarily due to a decrease in the
Partnership's average cash balance due to distributions resulting from the sale
of Canterbury Park.
Property operating expenses for the three and nine months ended August 31,1998
totaled $523,974 and $1,546,029, respectively, compared with $685,518 and
$1,700,215, respectively, for the corresponding periods in fiscal 1997. The
decrease for the three and nine-month periods is primarily attributable to
decreased repairs and maintenance at Lakeview Village and The Hamptons at Quail
Hollow and by the sale of Canterbury Park.
During the first nine months of fiscal 1998 and 1997, average occupancy levels
at the Partnership's properties were as follows:
<TABLE>
<CAPTION>
PROPERTY 1998 1997
-------------------------------------------------
<S> <C> <C>
The Hamptons at Quail Hollow 96% 96%
Lakeview Village 94% 89%
-------------------------------------------------
</TABLE>
The occupancy at The Hamptons at Quail Hollow has remained constant in a highly
competitive environment. The increase in occupancy at Lakeview Village is
primarily attributable to increased marketing efforts and continued upgrading of
units.
<PAGE>
CONAM REALTY INVESTORS 5 L.P.
AND CONSOLIDATED VENTURES
OTHER INFORMATION
PART II Not applicable
ITEMS 1-5 Exhibits
ITEMS 6 (a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K were filed
during the quarter ended August 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CONAM PROPERTY SERVICES IV, LTD.
General Partner of ConAm Realty Investors 5 L.P.
BY: CONTINENTAL AMERICAN DEVELOPMENT, INC.
GENERAL PARTNER
Date: October 13, 1998 BY:/s/ DANIEL J. EPSTEIN
---------------------
Daniel J. Epstein
Director, President, and Principal
Executive Officer
Date: October 13, 1998 BY:/s/ ROBERT J. SVATOS
--------------------
Robert J. Svatos
Vice President and Director
