FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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 March 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from.........to.........
Commission file number 0-14187
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3
(Exact name of registrant as specified in its charter)
California 94-2940208
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
(864) 239-1000
(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
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3
BALANCE SHEETS
(in thousands, except unit data)
March 31, December 31,
1998 1997
Assets (Unaudited) (Note)
Cash and cash equivalents $ 6,591 $ 5,054
Receivables and deposits 937 960
Investments 105 105
Restricted escrows 1,756 2,141
Other assets 915 974
Investment properties:
Land 12,371 12,371
Building and related personal property 51,181 50,955
63,552 63,326
Less accumulated depreciation (16,164) (15,474)
47,388 47,852
$ 57,692 $ 57,086
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 179 $ 172
Tenant security deposit liabilities 464 460
Accrued property taxes 282 264
Other liabilities 392 440
Mortgage notes payable 30,525 30,525
31,842 31,861
Partners' Capital (Deficit)
General partner's (583) (589)
Limited partners' (383,033 units outstanding) 26,433 25,814
25,850 25,225
$ 57,692 $ 57,086
Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all the information
and footnotes required by generally accepted accounting principles for
complete financial statements
See Accompanying Notes to Financial Statements
b)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
1998 1997
Revenues:
Rental income $ 3,571 $ 3,337
Other income 260 390
Gain on casualty event -- 21
Total revenues 3,831 3,748
Expenses:
Operating 1,548 1,569
General and administrative 160 121
Depreciation 703 691
Interest 579 579
Property taxes 216 232
Total expenses 3,206 3,192
Net income $ 625 $ 556
Net income allocated to general partner (1%) $ 6 $ 6
Net income allocated to limited partners (99%) 619 550
$ 625 $ 556
Net income per limited partnership unit $ 1.62 $ 1.44
See Accompanying Notes to Financial Statements
c)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner's Partners' Total
<S> <C> <C> <C> <C>
Original capital contributions 383,033 $ 1 $95,758 $95,759
Partners' capital (deficit) at
December 31, 1996 383,033 $ (443) $37,739 $37,296
Net income for the three months
ended March 31, 1997 -- 6 550 556
Partners' capital (deficit) at
March 31, 1997 383,033 $ (437) $38,289 $37,852
Partners' capital (deficit) at
December 31, 1997 383,033 $ (589) $25,814 $25,225
Net income for the three months
ended March 31, 1998 -- 6 619 625
Partners' capital (deficit) at
March 31, 1998 383,033 $ (583) $26,433 $25,850
<FN>
See Accompanying Notes to Financial Statements
</FN>
</TABLE>
d)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 625 $ 556
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 703 691
Amortization of lease commissions and
loan costs 39 34
Gain on casualty event -- (21)
Loss on disposal of property 58 41
Change in accounts:
Receivables and deposits 23 86
Other assets 20 (4)
Accounts payable 7 (291)
Tenant security deposit liabilities 4 12
Accrued property taxes 18 125
Other liabilities (48) (96)
Net cash provided by operating activities 1,449 1,133
Cash flows from investing activities:
Property improvements and replacements (297) (475)
Net receipts from restricted escrows 385 230
Net cash provided by (used in)
investing activities 88 (245)
Cash flows from financing activities:
Loan costs paid -- (8)
Net cash used in financing activities -- (8)
Net increase in cash and cash equivalents 1,537 880
Cash and cash equivalents at beginning of period 5,054 15,813
Cash and cash equivalents at end of period $6,591 $16,693
Supplemental disclosure of cash flow information:
Cash paid for interest $ 549 $ 549
<FN>
See Accompanying Notes to Financial Statements
</FN>
</TABLE>
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3
STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY
Casualty Event
During the first quarter of 1997, as a result of a fire at Hidden Cove by the
Lake Apartments, investment properties, accounts receivable and accounts payable
were adjusted $26,000, $135,000 and $140,000, respectively, for non-cash
activity.
See Accompanying Notes to Financial Statements
e)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Consolidated Capital
Institutional Properties/3 (the "Partnership") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of ConCap Equities, Inc. (the "General Partner"), all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended March 31, 1998, are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 1998. For further information,
refer to the financial statements and footnotes thereto included in the
Partnership's annual report on Form 10-K for the fiscal year ended December 31,
1997.
Certain reclassifications have been made to the 1997 information to conform to
the 1998 presentation.
NOTE B - RELATED PARTY TRANSACTIONS
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
The General Partner is wholly-owned by Insignia Properties Trust ("IPT"), which
is an affiliate of Insignia Financial Group, Inc. ("Insignia"). The Limited
Partnership Agreement ("Partnership Agreement") provides for payments to
affiliates for property management services based on a percentage of revenue.
The Partnership Agreement also provides for reimbursement to the General Partner
and its affiliates for costs incurred in connection with administration of
Partnership activities. The following payments were paid to affiliates of the
General Partner during each of the three month periods ending March 31, 1998 and
1997 (in thousands):
1998 1997
Property management fees (included in operating expenses) $ 191 $ 177
Reimbursements for services of affiliates, including
$13,000 and $20,000 of construction services
reimbursements in 1998 and 1997, respectively
(included in investment properties, general and
administrative expenses and operating expenses) 103 108
Additionally, the Partnership paid $11,000 and $16,000 during the three months
ended March 31, 1998 and 1997, respectively, to an affiliate of the General
Partner for lease commissions at the Partnership's commercial properties. These
lease commissions are included in other assets and are amortized over the terms
of the respective leases.
From the period of January 1997 to August 1997, the Partnership insured its
properties under a master policy through an agency affiliated with the General
Partner with an insurer unaffiliated with the General Partner. An affiliate of
the General Partner acquired, in the acquisition of a business, certain
financial obligations from an insurance agency which was later acquired by the
agent who placed the master policy. The agent assumed the financial obligations
to the affiliate of the General Partner which received payments on these
obligations from the agent. The amount of the Partnership's insurance premiums
that accrued to the benefit of the affiliate of the General Partner by virtue of
the agent's obligations was not significant.
During December 1997, Insignia affiliates (the "Purchaser") commenced tender
offers for limited partnership interests in ten real estate limited partnerships
(including the Partnership) in which various Insignia affiliates act as general
partner. The Purchaser offered to purchase up to 145,000 of the outstanding
units of limited partnership interest in the Partnership, at $85 per Unit, net
to the seller in cash, upon the terms and subject to the conditions set forth in
the Offer to Purchase dated December 31, 1997 (the "Offer to Purchase") and the
related Assignment of Partnership Interest attached as Exhibits (a)(1) and
(a)(2), respectively, to the Tender Offer Statement on Schedule 14D-1 originally
filed with the Securities and Exchange Commission on December 31, 1997. Because
of the existing and potential future conflicts of interest (described in the
Partnership's Statements on Schedule 14D-9 filed with the Securities and
Exchange Commission), neither the Partnership nor the General Partner
expressed any opinion as to the Offer to Purchase and made no recommendation as
to whether unit holders should tender their units in response to the Offer to
Purchase. In addition, because of these conflicts of interest, the manner in
which the Purchaser votes its limited partner interest in the Partnership may
not always be consistent with the best interests of the other limited partners.
During the first quarter of 1998, Insignia Properties, L.P. acquired an
additional 47,865.5 units in the Partnership as a result of the aforementioned
tender offer.
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in IPT,
with Apartment Investment and Management Company ("AIMCO"), a publicly traded
real estate investment trust. The closing, which is anticipated to happen in
the third quarter of 1998, is subject to customary conditions, including
government approvals and the approval of Insignia's shareholders. If the
closing occurs, AIMCO will then control the General Partner of the Partnership.
NOTE C - COMMITMENT
The Partnership is required by the Partnership Agreement to maintain working
capital reserves for contingencies of not less than 5% of Net Invested Capital,
as defined in the Partnership Agreement. Reserves, including cash and
securities available for sale totaling approximately $6.7 million were greater
than the reserve requirement of approximately $3.4 million at March 31, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Partnership's investment properties consist of eight apartment complexes and
two commercial properties. The following table sets forth the average occupancy
of the properties for each of the three months ended March 31, 1998 and 1997:
Average
Occupancy
Property 1998 1997
Cedar Rim 98% 94%
New Castle, Washington
City Heights 93% 95%
Seattle, Washington
Corporate Center 97% 96%
Tampa, Florida
Hidden Cove by the Lake 92% 94%
Belleville, Michigan
Lamplighter Park 96% 93%
Bellevue, Washington
Park Capitol 92% 99%
Salt Lake City, Utah
Sandpiper I and II 96% 94%
St. Petersburg, Florida
South City Business Center 93% 89%
Chula Vista, California
Tamarac Village I, II, III, IV 96% 93%
Denver, Colorado
Williamsburg Manor 97% 97%
Cary, North Carolina
The General Partner attributes the increase in occupancy at Cedar Rim to the
property's improved appearance resulting from the painting of all the buildings
during 1997 and improved market conditions. The decrease in occupancy at Park
Capitol is due to increased local residential construction coupled with low
interest rates. The increase in occupancy at Tamarac Village is attributed
to property renovations performed in 1997. South City Business Center's
occupancy increase is due to a stronger local market in 1998 and efforts to
improve the tenant profile by enforcing appearance requirements in leases.
The Partnership realized net income of $625,000 for the three months ended March
31, 1998, compared to $556,000 for the three months ended March 31, 1997. The
increase in net income is primarily attributable to increased rental income
resulting from overall improved occupancy and increased rental rates. This
increase was offset by decreased interest and other income due to reduced
interest income on lower average cash balances in 1998 and decreased tenant
charges including deposit forfeitures, cleaning fees and application fees. Cash
balances declined as a result of distributions paid to the partners in 1997.
Also offsetting the increase in rental revenue was a casualty gain of $21,000
relating to fire damage at Hidden Cove by the Lake Apartments that was recorded
in 1997. The fire damaged ten units in one building at the complex. The units
affected were primarily smoke and water damaged and the restoration was
completed in the second quarter of 1997.
Total expenses remained stable for the three months ended March 31, 1998
compared to the same period in 1997. Included in operating expense for the
three months ended March 31, 1998 was $65,000 in major repairs and maintenance
compared to $127,000 in 1997. The 1998 expenses include exterior building and
gutter repairs, exterior painting, and landscaping. The 1997 expenses were
comprised primarily of exterior renovations, exterior painting, and landscaping.
General and administrative expenses increased due to increased printing and
mailing costs related to the timing of the printing and mailing of the
Partnership's annual reports.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of each of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expenses. As part of
this plan, the General Partner attempts to protect the Partnership from the
burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
General Partner will be able to sustain such a plan.
At March 31, 1998, the Partnership held unrestricted cash of approximately
$6,591,000 compared to approximately $16,693,000 at March 31, 1997. The net
increase in cash and cash equivalents for the three months ended March 31, 1998
is $1,537,000 compared to a net increase of $880,000 for the three months ended
March 31, 1997. Net cash provided by operating activities increased primarily
due to decreased cash used for accounts payable in 1998 due to the timing of
payments and to increased total revenues, as discussed above. Net cash provided
by investing activities increased due to decreased property improvements and
replacements and increased withdrawals from restricted escrows in 1998.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the various properties to adequately maintain the
physical assets and other operating needs of the Partnership. Such assets are
currently thought to be sufficient for any near-term needs of the Partnership.
The notes payable of $30,525,000 have maturity dates ranging from 2003 to 2005,
at which time the individual properties will be refinanced or sold. The
mortgage notes payable are nonrecourse and are secured by pledges of the
respective properties. All notes require prepayment penalties if repaid prior to
maturity and prohibit resale of the properties subject to existing indebtedness.
There were no distributions paid during the first three months of 1998 or 1997.
Future cash distributions will depend on the levels of net cash generated from
operations, property sales, and the availability of cash reserves. Currently,
the General Partner anticipates that a distribution of cash flow from operations
will be made in the fourth quarter of 1998.
In the fourth quarter of 1997, the General Partner received a non-binding letter
of intent from an unaffiliated party interested in pursuing the purchase of
Lamplighter Park Apartments. The potential purchaser chose not to buy
Lamplighter Park and forfeited its $25,000 non-refundable deposit pursuant to
the terms and conditions of the letter of intent.
Year 2000
The Partnership is dependent upon the General Partner and Insignia for
management and administrative services. Insignia has completed an assessment
and will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter (the "Year 2000 Issue"). The project is estimated to be completed
not later than December 31, 1998, which is prior to any anticipated impact on
its operating systems. The General Partner believes that with modifications to
existing software and conversions to new software, the Year 2000 Issue will not
pose significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the
Partnership.
Other
Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date
of this quarterly report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates of revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
financial Group, Inc., et al. in Superior Court of the State of California for
the County of San Mateo. The Plaintiffs named as defendants, among others, the
Partnership, the General Partner and several of their affiliated partnerships
and corporate entities. The complaint purports to assert claims on behalf of a
class of limited partners and derivatively on behalf of a number of limited
partnerships (including the Partnership) which are named as nominal defendants,
challenging the acquisition by Insignia and its affiliates of interests in
certain general partner entities, past tender offers by Insignia affiliates to
acquire limited partnership units, the management of partnerships by Insignia
affiliates as well as a recently announced agreement between Insignia and AIMCO.
The complaint seeks monetary damages and equitable relief, including judicial
dissolution of the Partnership. The General Partner was only recently served
with the complaint which it believes to be without merit, and intends to
vigorously defend the action.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
(b) Reports on Form 8-K:
None filed during the quarter ended March 31, 1998.
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 thereunto duly authorized.
CONSOLIDATED CAPITAL INSTITUTIONAL
PROPERTIES/3
By:CONCAP EQUITIES, INC.
Its General Partner
By:/s/William H. Jarrard, Jr.
William H. Jarrard, Jr.
President and Director
By:/s/Ronald Uretta
Ronald Uretta
Vice President/Treasurer
Date: May 6, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Consolidated Capital Institutional Properties/3 1998 First Quarter 10-Q
and is qualified in its entirety by reference to such 10-Q filing.
</LEGEND>
<CIK> 0000768890
<NAME> CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/3
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,591
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 63,552
<DEPRECIATION> 16,164
<TOTAL-ASSETS> 57,692
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 30,525
0
0
<COMMON> 0
<OTHER-SE> 25,850
<TOTAL-LIABILITY-AND-EQUITY> 57,692
<SALES> 0
<TOTAL-REVENUES> 3,831
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,206
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 579
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 625
<EPS-PRIMARY> 1.62<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
