| 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 June 30, 2009 |
|----------------------------------------------|

 

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 0-10273                         |
|                                                   |
|                                                   |
| CONSOLIDATED CAPITAL PROPERTIES III                    |
| (Exact name of registrant as specified in its charter) |

 

 
| California                      | 94-2653686          |
|---------------------------------|---------------------|
| (State or other jurisdiction of | (I.R.S. Employer    |
| incorporation or organization)  | Identification No.) |

 
| 55 Beattie Place, PO Box 1089                        |
|------------------------------------------------------|
| Greenville, South Carolina  29602               |
| (Address of principal executive offices)             |
|                                                 |
| (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.  

[X] Yes  [ ] No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes  [ ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 
| Large accelerated filer [ ]                                               | Accelerated filer [ ]         |
|---------------------------------------------------------------------------|-------------------------------|
| Non-accelerated filer [ ] 

(Do not check if a smaller reporting company) | Smaller reporting company [X] |

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes  [X] No   

 

### PART I – FINANCIAL INFORMATION

 

 

**Item 1.     Financial Statements.**

 

 

CONSOLIDATED CAPITAL PROPERTIES III 

 

CONSOLIDATED BALANCE SHEETS

 (in thousands, except unit data)

 
|                                       | June 30,                          | December 31,                      |
|--------------------------------------------|-----------------------------------|-----------------------------------|
|                                       | 2009                              | 2008                              |
|                                       | (Unaudited)                       | (Note)                            |
| Assets                                     |                              |                              |
| Cash and cash equivalents                  |  $    28      |  $    29      |
| Receivables and deposits                   |       63 |       69 |
| Other assets                               |      232      |      233      |
| Investment property:                       |                              |                              |
| Land                                       |      125      |      125      |
| Buildings and related personal property    |    5,813                |    5,653           |
|                                       |    5,938                |    5,778                |
| Less accumulated depreciation              |   (4,045)                    |   (3,885)                    |
|                                       |    1,893                |    1,893           |
|                                       |  $ 2,216                     |  $ 2,224                     |
| Liabilities and Partners' Deficit          |                              |                              |
| Liabilities                                |                              |                              |
| Accounts payable                           |  $    58      |  $    92      |
| Tenant security deposit liabilities        |       48 |       49 |
| Accrued property taxes                     |       47 |       -- |
| Other liabilities                          |      136      |      135      |
| Due to affiliates (Note B)                 |    1,016                |      746      |
| Mortgage notes payable                     |    6,551                |    6,590           |
|                                       |    7,856                |    7,612           |
| Partners' Deficit                          |                              |                              |
| General partners                           |   (1,593)                    |   (1,583)                    |
| Limited partners (158,572 units issued and |                              |                              |
| outstanding)                               |   (4,047)                    |   (3,805)               |
|                                       |   (5,640)                    |   (5,388)               |
|                                       |  $ 2,216                     |  $ 2,224                     |

 

Note: The consolidated balance sheet at December 31, 2008 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 Consolidated Financial Statements*

 

 

CONSOLIDATED CAPITAL PROPERTIES III 

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per unit data)

 

 

 

 

 
|                                  | Three Months                | Six Months                  |
|---------------------------------------|-----------------------------|-----------------------------|
|                                  | Ended June 30,              | Ended June 30,              |
|                                  | 2009                        | 2008                        | 2009 | 2008 |
| Revenues:                             |                        |                        |   |   |
| Rental income                         | $   324           | $   344           | $   642 | $   680 |
| Other income                          |      35 |      35 |      68 |      75 |
| Total revenues                        |     359      |     379      |     710 |     755 |
|                                  |                        |                        |   |   |
| Expenses:                             |                        |                        |   |   |
| Operating                             |     200      |     220      |     379 |     462 |
| General and administrative            |      43 |      52 |      96 |     108 |
| Depreciation                          |      81 |      69 |     160 |     136 |
| Interest                              |     157      |     117      |     292 |     234 |
| Property taxes                        |      17 |      27 |      47 |      53 |
| Total expenses                        |     498      |     485      |     974 |     993 |
|                                  |                        |                        |   |   |
| Casualty gain (Note C)                |      -- |      -- |      12 |      -- |
|                                  |                        |                        |   |   |
| Net loss                              | $  (139)               | $  (106)               | $  (252) | $  (238) |
|                                  |                        |                        |   |   |
| Net loss allocated to general         |                        |                        |   |   |
|   partners (4%)                  | $    (5)     | $    (5)     | $   (10) | $   (10) |
| Net loss allocated to limited         |                        |                        |   |   |
|   partners (96%)                 |    (134)          |    (101)          |    (242) |    (228) |
|                                  | $  (139)               | $  (106)               | $  (252) | $  (238) |
|                                  |                        |                        |   |   |
| Net loss per limited partnership unit | $ (0.85)                    | $ (0.64)                    | $ (1.53) | $ (1.44) |

 

*See Accompanying Notes to Consolidated Financial Statements*

 

 

CONSOLIDATED CAPITAL PROPERTIES III 

 

CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT

(Unaudited)

(in thousands, except unit data)

 

 
|                           | Limited               |                          |                           |                           |
|--------------------------------|-----------------------|-------------------------------|--------------------------------|--------------------------------|
|                           | Partnership           | General                       | Limited                        |                           |
|                           | Units                 | Partners                      | Partners                       | Total                          |
|                           |                  |                          |                           |                           |
|                           |                  |                          |                           |                           |
| Original capital contributions | 158,945               | $     1   | $  79,473                 | $ 79,474                       |
|                           |                  |                          |                           |                           |
| Partners' deficit              |                  |                          |                           |                           |
| at December 31, 2008           | 158,572               |  $(1,583)                | $  (3,805)                |  $ (5,388)                |
|                           |                  |                          |                           |                           |
| Net loss for the six months    |                  |                          |                           |                           |
| ended June 30, 2009            |     -- |      (10) |      (242) |      (252) |
|                           |                  |                          |                           |                           |
| Partners' deficit              |                  |                          |                           |                           |
| at June 30, 2009               | 158,572               |  $(1,593)                | $  (4,047)                |  $ (5,640)                |
|                           |                  |                          |                           |                           |

 

*See Accompanying Notes to Consolidated Financial Statements*

CONSOLIDATED CAPITAL PROPERTIES III 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 
|                                                   | Six Months Ended                   |
|--------------------------------------------------------|------------------------------------|
|                                                   | June 30,                           |
|                                                   | 2009                               | 2008 |
| Cash flows from operating activities:                  |                               |   |
| Net loss                                               | $   (252)                | $   (238) |
| Adjustments to reconcile net loss to net cash provided |                               |   |
| by (used in) operating activities:                     |                               |   |
| Depreciation                                           |     160             |     136 |
| Amortization of loan costs                             |      10        |      11 |
| Casualty gain                                          |      (12)      |      -- |
| Bad debt expense                                       |      13        |      12 |
| Change in accounts:                                    |                               |   |
| Receivables and deposits                               |       (7) |      (21) |
| Other assets                                           |       (9) |      (57) |
| Accounts payable                                       |      --        |      (10) |
| Tenant security deposit liabilities                    |       (1) |       5 |
| Due to affiliates                                      |      82        |      34 |
| Accrued property taxes                                 |      47        |      52 |
| Other liabilities                                      |       1   |       3 |
| Net cash provided by (used in) operating               |                               |   |
|   activities                                      |      32        |     (73) |
|                                                   |                               |   |
| Cash flows from investing activities:                  |                               |   |
| Insurance proceeds received                            |      12        |      -- |
| Property improvements and replacements                 |    (194)            |    (102) |
| Net cash used in investing activities                  |    (182)            |    (102) |
|                                                   |                               |   |
| Cash flows from financing activities:                  |                               |   |
| Payments on mortgage notes payable                     |      (39)      |      (36) |
| Advances from affiliate                                |     188             |      60 |
| Net cash provided by financing activities              |     149             |      24 |
|                                                   |                               |   |
| Net decrease in cash and cash equivalents              |       (1) |     (151) |
|                                                   |                               |   |
| Cash and cash equivalents at beginning of period       |      29        |     199 |
| Cash and cash equivalents at end of period             | $    28             | $    48 |
|                                                   |                               |   |
| Supplemental disclosure of cash flow information:      |                               |   |
| Cash paid for interest                                 | $   244                  | $   222 |
| Supplemental disclosure of non-cash activity:          |                               |   |
| Property improvements and replacements included in     |                               |   |
|   accounts payable                                |   $    11      | $    -- |

 

At December 31, 2008 and 2007, approximately $45,000 and $13,000, respectively of property improvements and replacements were included in accounts payable, and are included in property improvements and replacements for the six months ended June 30, 2009 and 2008, respectively.

 

*See Accompanying Notes to Consolidated Financial Statements*

CONSOLIDATED CAPITAL PROPERTIES III 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

##### Note A – Basis of Presentation

 

The accompanying unaudited consolidated financial statements of Consolidated Capital Properties III (the "Partnership" or "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8-03 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 the general partner of the Partnership, 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 and six month periods ended June 30, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2009. For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 2008. The General Partner is wholly-owned by Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust.

 

The Partnership’s management evaluated for subsequent events through the time this Quarterly Report on Form 10-Q was filed on August 13, 2009.

 

# Recent Accounting Pronouncement

 

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 168,*The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162*, or SFAS No. 168, which is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  Upon the effective date of SFAS No. 168, the FASB Accounting Standards Codification, or the Codification, will become the single source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission, or SEC, under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative.  Following SFAS No. 168, the FASB will issue Accounting Standards Updates that serve to update the Codification. The Partnership does not anticipate that SFAS No. 168 will have a significant effect on its consolidated financial statements. 

 

###### Note B – Transactions with Affiliated Parties

 

The Partnership has no employees and depends on the General Partner and its affiliates for the management and administration of all Partnership activities.  The Partnership Agreement provides for payments to affiliates for services and reimbursement of certain expenses incurred by affiliates of the General Partner on behalf of the Partnership. 

 

Affiliates of the General Partner receive 5% of gross receipts from the Partnership's property as compensation for providing property management services. The Partnership paid to such affiliates approximately $35,000 and $37,000 for the six months ended June 30, 2009 and 2008, respectively, which are included in operating expenses.

 

Affiliates of the General Partner charged the Partnership for reimbursement of accountable administrative expenses amounting to approximately $49,000 and $79,000 for the six months ended June 30, 2009 and 2008, respectively.  These amounts are included in general and administrative expenses and investment property.  The portion of these reimbursements included in investment property for each of the sixmonths ended June 30, 2009 and 2008 are construction management services provided by an affiliate of the General Partner of approximately $13,000. At June 30, 2009 and December 31, 2008, approximately $140,000 and $100,000, respectively, of such reimbursements were unpaid and included in due to affiliates on the accompanying consolidated balance sheets. 

 

The Partnership Agreement provides for a special management fee equal to 9% of the total distributions made to the limited partners from cash flow from operations to be paid to the General Partner for executive and administrative management services.  During the six months ended June 30, 2009 and 2008, no special management fees were paid as no distributions from cash flow from operations were made.

 

Pursuant to the Partnership Agreement, the General Partner is entitled to receive a commission equal to 3% of the aggregate disposition price of sold properties. The Partnership paid a commission of $108,000 to the General Partner related to the sale of Professional Plaza in 1999.  This amount is subordinate to the limited partners receiving their original capital contributions plus a cumulative preferred return of 6% per annum of their adjusted capital investment, as defined in the Partnership Agreement. If the limited partners have not received these returns when the Partnership terminates, the General Partner will be required to return this amount to the Partnership.

 

During the six months ended June 30, 2009 and 2008, AIMCO Properties, L.P., an affiliate of the General Partner, advanced the Partnership approximately $188,000 and $60,000, respectively, to fund operations at Village Green Apartments and Partnership expenses.  AIMCO Properties, L.P. charges interest on advances under the terms permitted by the Partnership Agreement. The interest rates charged on the outstanding advances made to the Partnership range from the prime rate plus 2% to a variable rate based on the prime rate plus a market rate adjustment for similar type loans. Affiliates of the General Partner review the market rate adjustment quarterly. The interest rates on outstanding advances at June 30, 2009 ranged from 5.77% to 12.81%. Interest expense on advances was approximately $42,000 and $1,000 for the six months ended June 30, 2009 and 2008, respectively. At June 30, 2009 and December 31, 2008, the total amount of outstanding advances and associated accrued interest owed to AIMCO Properties, L.P. was approximately $876,000 and $646,000, respectively, and is included in due to affiliates on the accompanying consolidated balance sheets. Subsequent to June 30, 2009, the Partnership was advanced approximately $53,000 to fund operations at Village Green Apartments. The Partnership may receive additional advances of funds from AIMCO Properties, L.P. although AIMCO Properties, L.P. is not obligated to provide such advances. For more information on AIMCO Properties, L.P., including copies of its audited balance sheet, please see its reports filed with the Securities and Exchange Commission.

 

The Partnership insures its property up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers’ compensation, property casualty, general liability and vehicle liability.  The Partnership insures its property above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the General Partner. During the six months ended June 30, 2009, the Partnership was charged by AIMCO and its affiliates approximately $31,000 for insurance coverage and fees associated with policy claims administration. Additional charges will be incurred by the Partnership during 2009 as other insurance policies renew later in the year.  The Partnership was charged by AIMCO and its affiliates approximately $43,000 for insurance coverage and fees associated with policy claims administration during the year ended December 31, 2008.

 

###### Note C – Casualty Event

 

In July 2008, Village Green Apartments sustained damages of approximately $22,000 to a concrete wall. No apartment units were damaged.  During the six months ended June 30, 2009, the Partnership recognized a casualty gain of approximately $12,000 as a result of the receipt of insurance proceeds of approximately $12,000. The damaged assets were fully depreciated.

 

During May 2009, Village Green Apartments sustained damages of approximately $25,000 from a storm. No apartment units were damaged. The Partnership anticipates insurance proceeds to be received and that no loss will result from this event.  The damaged assets were fully depreciated.

 

**Note D – Investment Property**

 

On March 20, 2009, the Partnership entered into a sale contract with a third party relating to the sale of Village Green Apartments. The contract was subsequently terminated on June 30, 2009. The Partnership determined that certain criteria of Statement of Financial Accounting Standards ("SFAS") No. 144 have not been met and therefore continues to report the assets and liabilities of the investment property as held for investment and its operations as continuing operations.

 

**Note E – Fair Value of Financial Instruments**

 

SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value is defined in the SFAS as the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short-term maturity of these instruments. The Partnership estimates the fair value of its long-term debt by discounting future cash flows using a discount rate commensurate with that currently believed to be available to the Partnership for similar term, long-term debt.  At June 30, 2009, the fair value of the Partnership's long-term debt at the Partnership's incremental borrowing rate was approximately $6,848,000.

 

###### Note F – Contingencies

 

As previously disclosed, AIMCO Properties, L.P. and NHP Management Company, both affiliates of the General Partner, were defendants in a lawsuit, filed as a collective action in August 2003 in the United States District Court for the District of Columbia, alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for time worked in excess of 40 hours per week (“overtime claims”). The plaintiffs also contended that AIMCO Properties, L.P. and NHP Management Company failed to compensate maintenance workers for time that they were required to be "on-call" (“on-call claims”).  In March 2007, the court in the District of Columbia decertified the collective action. In July 2007, plaintiffs’ counsel filed individual cases in Federal court in 22 jurisdictions. In the second quarter of 2008, AIMCO Properties, L.P. settled the overtime cases involving 652 plaintiffs and established a framework for resolving the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel. As a result, the lawsuits asserted in the 22 Federal courts have been dismissed.  During the fourth quarter of 2008, the settlement amounts for alleged unpaid overtime to employees were paid by those partnerships where the respective employees had worked. The Partnership was not required to pay any settlement amounts. At this time, the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel are not resolved. The parties have selected six “on-call” claims that will proceed forward through the arbitration process and have selected arbitrators. The arbitrations have not yet been scheduled. The General Partner is uncertain as to the amount of any additional loss that may be allocable to the Partnership. Therefore, the Partnership cannot estimate whether any additional loss will occur or a potential range of loss.

 

The Partnership is unaware of any other pending or outstanding litigation matters involving it or its investment property that are not of a routine nature arising in the ordinary course of business.

 

Environmental

 

Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property, including lead-based paint. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, and potential fines or penalties imposed by such agencies in connection therewith, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of its property, the Partnership could potentially be liable for environmental liabilities or costs associated with its property.  

 

Mold

 

The Partnership is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements.  The Partnership has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure.  Affiliates of the General Partner have implemented policies, procedures, third-party audits and training and the General Partner believes that these measures will prevent or eliminate mold exposure and will minimize the effects that mold may have on residents.  To date, the Partnership has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions.  Because the law regarding mold is unsettled and subject to change the General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Partnership’s consolidated financial condition or results of operations.

**Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations.**

 

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements in certain circumstances. Certain information included in this Quarterly Report contains or may contain information that is forward-looking, including, without limitation, statements regarding the effect of redevelopments, the Partnership’s future financial performance, including the Partnership’s ability to maintain current or meet projected occupancy and rent levels, and the effect of government regulations. Actual results may differ materially from those described in these forward-looking statements and, in addition, will be affected by a variety of risks and factors some of which are beyond the Partnership’s control including, without limitation: financing risks, including the availability and cost of financing and the risk that the Partnership’s cash flows from operations may be insufficient to meet required payments of principal and interest; natural disasters and severe weather such as hurricanes; national and local economic conditions; the general level of interest rates; energy costs; the terms of governmental regulations that affect the Partnership’s property and interpretations of those regulations; the competitive environment in which the Partnership operates; real estate risks, including fluctuations inreal estate values and the general economic climate in local markets and competition for tenants in such markets; insurance risk; development risks; litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by the Partnership. Readers should carefully review the Partnership’s consolidated financial statements and the notes thereto, as well as the other documents the Partnership files from time to time with the Securities and Exchange Commission.

 

The Partnership's investment property consists of one apartment complex.  The following table sets forth the average occupancy of the property for each of the six month periods ended June 30, 2009 and 2008:

 
|                              | Average Occupancy |
|-----------------------------------|-------------------|
| Property                          | 2009              | 2008 |
|                              |              |   |
| Village Green Apartments          | 93%               | 94% |
|   Altamonte Springs, Florida |              |   |

 

The Partnership’s financial results depend upon a number of factors including the ability to attract and maintain tenants at the investment property, interest rates on mortgage loans, costs incurred to operate the investment property, general economic conditions and weather. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of its investment property 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, the General Partner may use rental concessions and rental rate reductions to offset softening market conditions; accordingly, there is no guarantee that the General Partner will be able to sustain such a plan. Further, a number of factors that are outside the control of the Partnership, such as the local economic climate and weather can adversely or positively affect the Partnership’s financial results.

 

Results of Operations

 

The Partnership’s net loss for the three and six months ended June 30, 2009 was approximately $139,000 and $252,000, respectively, compared to a net loss of approximately $106,000 and $238,000 for the three and six months ended June 30, 2008, respectively. The increase in net loss for the three months ended June 30,2009 is due to a decrease in total revenues and an increase in total expenses. The increase in net loss for the six months ended June 30, 2009 is due to a decrease in total revenues, partially offset by a decrease in total expenses and the recognition of a casualty gain during the six months ended June 30, 2009.

 

The decrease in total revenues for both the three and six months ended June 30, 2009 is primarily due to a decrease in rental income. The decrease in total revenues for the six months ended June 30, 2009 is also due to a decrease in other income. Other income remained relatively constant for the three months ended June 30, 2009. The decrease in rental income for both periods is primarily due to a decrease in the average rental rate and occupancy at Village Green Apartments. The decrease in other income for the six month period is due to a decrease in lease cancellation fees and other administrative fees at the Partnership’s investment property. 

 

The increase in total expenses for the three months ended June 30, 2009 is due to increases in depreciation and interest expenses, partially offset by decreases in operating, general and administrative and property tax expenses. The decrease in total expenses for the six months ended June 30, 2009 is due to decreases in operating, general and administrative and property tax expenses, partially offset by increases in depreciation and interest expenses. The increase in depreciation expense for both periods is due to property improvements and replacements placed into service at the Partnership’s investment property during the past twelve months. The increase in interest expense for both periods is due to an increase in interest on advances from affiliates and the payment of interest incurred in connection with the escheatment of unclaimed distributions during 2009. The decrease in property tax expense for both periods is due to an anticipated decrease in the assessed value of the property. The decrease in operating expenses for both periods is due to decreases in advertising expenses, insurance expense as a result of decreased hazard premiums, routine repair and maintenance expenses and clean up costs associated with minor water damage at the Partnership’s investment property. The decrease in operating expenses for the six month period is also due to decreases in salaries and related benefits and contract services at the Partnership’s investment property. 

 

In July 2008, Village Green Apartments sustained damages of approximately $22,000 to a concrete wall. No apartment units were damaged.  During the six months ended June 30, 2009, the Partnership recognized a casualty gain of approximately $12,000 as a result of the receipt of insurance proceeds of approximately $12,000. The damaged assets were fully depreciated.

 

During May 2009, Village Green Apartments sustained damages of approximately $25,000 from a storm. No apartment units were damaged. The Partnership anticipates insurance proceeds to be received and that no loss will result from this event.  The damaged assets were fully depreciated.

 

The decrease in general and administrative expenses for both the three and six months ended June 30, 2009 is due to a decrease in management reimbursements to the General Partner as allowed under the Partnership Agreement, partially offset by an increase in professional expenses associated with the administration of the Partnership. Also included in general and administrative expenses for the three and six months ended June 30, 2009 and 2008 are costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement.

  

Liquidity and Capital Resources

 

At June 30, 2009, the Partnership had cash and cash equivalents of approximately $28,000, compared to approximately $48,000 at June 30, 2008.  The decrease in cash and cash equivalents of approximately $1,000 from December 31, 2008 is due to approximately $182,000 of cash used in investing activities, partially offset by approximately $149,000 and $32,000 of cash provided by financing and operating activities, respectively. Cash used in investing activities consisted of property improvements and replacements, partially offset by insurance proceeds received. Cash provided by financing activities consisted of advances received from an affiliate of the General Partner, partially offset by payments of principal made on the mortgagesencumbering Village Green Apartments. The Partnership invests its working capital reserves in interest bearing accounts.

 

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 investment property to adequately maintain the physical assets and other operating needs of the Partnership and to comply with Federal, state, and local legal and regulatory requirements.  The General Partner monitors developments in the area of legal and regulatory compliance.  Capital improvements planned for the Partnership's property are detailed below.

 

During the six months ended June 30, 2009, the Partnership completed approximately $160,000 of capital improvements at Village Green Apartments, consisting primarily of parking area improvements, kitchen and bath upgrades, floor covering replacement and construction related to the casualty discussed above. These improvements were funded from operations, insurance proceeds and advances from AIMCO Properties, L.P. although AIMCO Properties, L.P. is not obligated to fund such advances. The Partnership regularly evaluates the capital improvement needs of the property.  While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during the remainder of 2009. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property.

 

Capital expenditures will be incurred only if cash is available from operations, Partnership reserves or advances from AIMCO Properties, L.P. although AIMCO Properties, L.P. is not obligated to fund such advances.  To the extent that capital improvements are completed, the Partnership’s distributable cash flow, if any, may be adversely affected at least in the short term.

 

The Partnership's assets are thought to be generally sufficient for any near-term needs (exclusive of capital improvements and repayment of amounts due to affiliates) of the Partnership.  The first mortgage indebtedness encumbering the Partnership’s property of approximately $2,933,000 requires monthly payments of principal and interest and a balloon payment of approximately $2,343,000 due at maturity in 2021. The second mortgage indebtedness encumbering the Partnership’s property of approximately $3,618,000 requires monthly payments of principal and interest and a balloon payment of approximately $2,934,000 due at maturity in 2019.  The General Partner will attempt to refinance such indebtedness and/or sell the property prior to such maturity dates.  If the property cannot be refinanced or sold for a sufficient amount, the Partnership will risk losing such property through foreclosure.

 

There were no distributions made to the partners during the six months ended June 30, 2009 or 2008.  Future cash distributions will depend on the levels of net cash generated from operations, the timing of the debt maturities, property sale and/or refinancings.  The Partnership's cash available for distribution is reviewed on a monthly basis. In light of the amounts accrued and payable to AIMCO Properties, L.P. at June 30, 2009, there can be no assurance that the Partnership will generate sufficient funds from operations after capital expenditures to permit any distributions to its partners during 2009 or subsequent periods.

 

Other

 

In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 88,477.50 limited partnership units (the "Units") in the Partnership representing 55.80% of the outstanding Units at June 30, 2009.  A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates.  It is possible that AIMCO or its affiliates will acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers.  Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 55.80% of the outstanding Units, AIMCO and its affiliates are in a position to control all voting decisions with respect to the Partnership.  Although the General Partner owes fiduciary duties to the limited partners of the Partnership, the General Partner also owes fiduciary duties to AIMCO as its sole stockholder.   As a result, the duties of the General Partner, as general partner, to the Partnership and its limited partners may come into conflict with the duties of the General Partner to AIMCO as its sole stockholder.

 

Critical Accounting Policies and Estimates

 

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the Partnership to make estimates and assumptions. The Partnership believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity.

 

Impairment of Long-Lived Asset

 

Investment property is recorded at cost, less accumulated depreciation, unless the carrying amount of the asset is not recoverable.  If events or circumstances indicate that the carrying amount of the property may not be recoverable, the Partnership will make an assessment of its recoverability by comparing the carrying amount to the Partnership’s estimate of the undiscounted future cash flows, excluding interest charges, of the property.   If the carrying amount exceeds the aggregate undiscounted future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property.

 

Real property investment is subject to varying degrees of risk.  Several factors may adversely affect the economic performance and value of the Partnership’s investment property.  These factors include, but are not limited to, general economic climate; competition from other apartment communities and other housing options; local conditions, such as loss of jobs or an increase in the supply of apartments that might adversely affect apartment occupancy or rental rates; changes in governmental regulations and the related cost of compliance; increases in operating costs (including real estate taxes) due to inflation and other factors, which may not be offset by increased rents; and changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multi-family housing.  Any adverse changes in these factors could cause impairment of the Partnership’s asset.

 

Revenue Recognition

 

The Partnership generally leases apartment units for twelve-month terms or less.  The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area.  Rental income attributable to leases, net of any concessions, is recognized on a straight-line basis over the term of the lease.  The Partnership evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants.

 

**Item 4T.**   **Controls and Procedures.**

 

**(a)   Disclosure Controls and Procedures.**

 

The Partnership’s management, with the participation of the principal executive officer and principal financial officer of the General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the principal executive officer and principal financial officer of the General Partner, who are the equivalent of the Partnership’s principal executive officer andprincipal financial officer, respectively, have concluded that, as of the end of such period, the Partnership’s disclosure controls and procedures are effective.

 

**(b)   Changes in Internal Control Over Financial Reporting.**

 

There has been no change in the Partnership’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that has materially affected, or is reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

 

**PART II - OTHER INFORMATION**

** **

**Item 1.     Legal Proceedings.**

 

As previously disclosed, AIMCO Properties, L.P. and NHP Management Company, both affiliates of the General Partner, were defendants in a lawsuit, filed as a collective action in August 2003 in the United States District Court for the District of Columbia, alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for time worked in excess of 40 hours per week (“overtime claims”). The plaintiffs also contended that AIMCO Properties, L.P. and NHP Management Company failed to compensate maintenance workers for time that they were required to be "on-call" (“on-call claims”).  In March 2007, the court in the District of Columbia decertified the collective action. In July 2007, plaintiffs’ counsel filed individual cases in Federal court in 22 jurisdictions. In the second quarter of 2008, AIMCO Properties, L.P. settled the overtime cases involving 652 plaintiffs and established a framework for resolving the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel. As a result, the lawsuits asserted in the 22 Federal courts have been dismissed.  During the fourth quarter of 2008, the settlement amounts for alleged unpaid overtime to employees were paid by those partnerships where the respective employees had worked. The Partnership was not required to pay any settlement amounts. At this time, the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel are not resolved. The parties have selected six “on-call” claims that will proceed forward through the arbitration process and have selected arbitrators. The arbitrations have not yet been scheduled. The General Partner is uncertain as to the amount of any additional loss that may be allocable to the Partnership. Therefore, the Partnership cannot estimate whether any additional loss will occur or a potential range of loss.

 

**Item 6.     Exhibits.**

 

See Exhibit Index.

 

The agreements included as exhibits to this Form 10-Q contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:

 
    - should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; 

 
    - have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; 

 
    - may apply standards of materiality in a way that is different from what may be viewed as material to an investor; and 

 
    - were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. 

 

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. The Partnership acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this Form 10-Q not misleading. Additional information about the Partnership may be found elsewhere in this Form 10-Q and the Partnership’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.  

**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 PROPERTIES III                  |
|-----------------------|------------------------------------------------------|
|                  |                                                 |
|                  | By:   CONCAP EQUITIES, INC.                |
|                  |       General Partner       |
|                  |                                                 |
| Date: August 13, 2009 | By:   /s/Steven D. Cordes                  |
|                  |       Steven D. Cordes      |
|                  |       Senior Vice President |
|                  |                                                 |
| Date: August 13, 2009 | By:   /s/Stephen B. Waters                 |
|                  |       Stephen B. Waters     |
|                  |       Senior Director       |
|                  |                                                 |
|                  |                                                 |

 

 

**CONSOLIDATED CAPITAL PARTNERS III**

** **

**EXHIBIT INDEX**

 

**Exhibit Number****   Description of Exhibit**

**** 

3.1         Certificate of Limited Partnership, as amended to date (Exhibit 3 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1991, is incorporated herein by reference).

 

3.2         Partnership Agreement dated May 22, 1980 is incorporated by reference to Exhibit A to the Prospectus of the Registration dated August 17, 1981 as filed with the Commission pursuant to Rule 424(b) under the Act.

 

10.55       Multifamily Note, dated August 31, 2007 between Concap Village Green Associates, Ltd., a Texas limited partnership, and Capmark Bank, a Utah industrial bank, incorporated by reference to the Registrant’s Current Report on Form 8-K dated August 31, 2007.

 

10.56       Amended and Restated Multifamily Note, dated August 31, 2007 between Concap Village Green Associates, Ltd., a Texas limited partnership, and Federal Home Loan Mortgage Corporation, incorporated by reference to the Registrant’s Current Report on Form 8-K dated August 31, 2007.

 

31.1        Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2        Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1        Certification of the equivalent of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.