FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
(As last amended in Rel. No. 312905, eff. 04/26/93.)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
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 0-10831
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
(Exact name of registrant as specified in its charter)
California 94-2744492
(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)
Registrant's telephone number (864) 239-1000
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
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
September 30, December 31,
1996 1995
(Unaudited) (Note)
Assets
Cash and cash equivalents:
Unrestricted $ 14,205 $ 26,122
Restricted--tenant security deposits 322 335
Securities available for sale 7 5,264
Other assets 1,288 1,444
Net investment in Master Loan 92,914 95,246
Less: Provision for impairment loss (39,575) (41,478)
53,339 53,768
Investment properties:
Land 3,620 3,620
Building and related personal property 21,023 17,756
24,643 21,376
Less accumulated depreciation (2,799) (1,958)
21,844 19,418
$ 91,005 $106,351
Liabilities and Partners' Capital (Deficit)
Accounts payable and accrued expenses $ 666 $ 368
Tenant security deposits 305 323
Distributions payable 324 324
Mortgage note and interest payable 4,536 4,560
5,831 5,575
Partners' Capital (Deficit)
General partner (374) (358)
Limited partners (199,052 units
outstanding at September 30, 1996, and
December 31, 1995, respectively) 85,548 101,134
85,174 100,776
$ 91,005 $106,351
Note: The balance sheet at December 31, 1995, 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
b) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Revenues:
Rental income $ 1,872 $ 360 $ 5,763 $ 1,117
Interest income on investment
in Master Loan to affiliate -- 967 -- 2,503
Other income 157 146 773 373
Reduction of provision for
impairment losses 792 533 792 533
Total revenues 2,821 2,006 7,328 4,526
Expenses:
Operating 1,421 198 4,345 528
Depreciation and amortization 320 106 846 316
General and administrative 103 168 479 607
Interest 81 -- 244 --
Total expenses 1,925 472 5,914 1,451
Net income $ 896 $ 1,534 $ 1,414 $ 3,075
Net income allocated
to general partner (1%) $ 9 $ 15 $ 14 $ 31
Net income allocated
to limited partners (99%) 887 1,519 1,400 3,044
$ 896 $ 1,534 $ 1,414 $ 3,075
Net income per limited
partnership unit $ 4.45 $ 7.63 $ 7.03 $ 15.29
See Accompanying Notes to Consolidated Financial Statements
c) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 200,342 $ 1 $200,342 $200,343
Partners' capital (deficit) at
December 31, 1994 199,045 $ (294) $107,498 $107,204
Distributions to partners (30) (3,006) (3,036)
Net income for the nine months
ended September 30, 1995 31 3,044 3,075
Partners' capital (deficit) at
September 30, 1995 199,052 $ (293) $107,536 $107,243
Partners' capital (deficit) at
December 31, 1995 199,052 $ (358) $101,134 $100,776
Distributions to partners (30) (16,986) (17,016)
Net income for the nine months
ended September 30, 1996 14 1,400 1,414
Partners' capital (deficit) at
September 30, 1996 199,052 $ (374) $ 85,548 $ 85,174
<FN>
See Accompanying Notes to Consolidated Financial Statements
d) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1996 1995
Cash flows from operating activities:
Net income $ 1,414 $ 3,075
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 841 316
Amortization of loan costs and lease
commissions 14 --
Reduction of provision for impairment losses (792) (533)
Change in accounts:
Restricted cash 13 --
Other assets 142 88
Due from affiliates -- 935
Accounts payable and accrued expenses 309 17
Tenant security deposit liabilities (18) (14)
Net cash provided by
operating activities 1,923 3,884
Cash flows from investing activities:
Property improvements and replacements (3,267) (34)
Purchase of securities available for sale -- (2,115)
Proceeds from sale of securities available
for sale 5,257 5,180
Advances on Master Loan (367) --
Principal receipts on Master Loan 1,588 --
Net cash provided by
investing activities 3,211 3,031
Cash flows from financing activities:
Distributions to partners (17,016) (3,036)
Mortgage principal payments (35) --
Net cash used in financing activities (17,051) (3,036)
Net (decrease) increase in cash and cash equivalents (11,917) 3,879
Cash and cash equivalents at beginning of period 26,122 1,554
Cash and cash equivalents at end of period $ 14,205 $ 5,433
Supplemental disclosure of cash flow information:
Cash paid for interest $ 224 $ --
See Accompanying Notes to Consolidated Financial Statements
e) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Consolidated
Capital Institutional Properties ("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. ("General Partner"), all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three and nine
month periods ended September 30, 1996, are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 1996. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the annual report on Form 10-K for the year ended
December 31, 1995, for the Partnership.
Certain reclassifications have been made to the 1995 information to conform to
the 1996 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 Partnership paid property management fees based upon collected gross rental
revenues for property management services as noted below for the nine month
periods ended September 30, 1996 and 1995. Such fees are included in operating
expenses on the consolidated statements of operations and are reflected in the
following table. The Partnership Agreement ("Agreement") also provides for
reimbursement to the General Partner and its affiliates for costs incurred in
connection with the administration of Partnership activities. The General
Partner and its current affiliates received reimbursements as reflected in the
following table:
For the Nine Months
September 30,
1996 1995
(in thousands)
Property management fees $287 $ 51
Reimbursement for services of affiliates (1) 334 253
(1) Included in "reimbursements for services of affiliates" for 1996 is
approximately $140,000 in reimbursements for construction oversight costs.
At September 30, 1995, the Partnership had accrued approximately $15,000 of
reimbursements to Insignia Mortgage & Investment Company related to refinancing
costs which are included in "reimbursements for services of affiliated" above.
No such costs have been accrued or paid during the nine months ended September
30, 1996.
Property management fees increased during the nine months ended September 30,
1996, compared to the nine months ended September 30, 1995, due to the addition
of The Sterling on November 30, 1995. Reimbursements for services of affiliates
increased during the nine months ended September 30, 1996, due to the
construction oversight cost incurred in 1996 related to The Sterling renovation.
This was partially offset by a decrease in the reimbursements to the general
partner. Higher reimbursements were paid in 1995 as a result of the combined
efforts of the Dallas and Greenville offices during the transition period that
ended June 30, 1996.
On July 1, 1995, the Partnership began insuring its properties under a master
policy through an agency and 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 current year's master policy. The agent assumed the
financial obligations to the affiliate of the General Partner who receives
payments on these obligations from the agent. The amount of the partnership's
insurance premiums accruing to the benefit of the affiliate of the General
Partner by virtue of the agent's obligations is not significant.
NOTE C - NET INVESTMENT IN MASTER LOAN
At September 30, 1996 and 1995, the recorded investment in the Master Loan was
considered to be impaired under "FASB 114." The Partnership measured the
impairment of the loan based upon the fair value of the collateral due to the
fact that repayment of the loan is expected to be provided solely by the
collateral. For the nine months ended September 30, 1996 and 1995, the
Partnership recorded income of approximately $792,000 and $533,000,
respectively, based upon an increase in the fair value of the collateral.
Interest due to the Partnership pursuant to the terms of the Master Loan
Agreement, but not recognized in the income statements, totaled approximately
$22.2 million and $20.2 million for the nine months ended September 30, 1996 and
1995, respectively. At September 30, 1996, and December 31, 1995, such
cumulative unrecognized interest totaling approximately $160.4 million and
$138.2 million was not included in the balance of the investment in Master Loan.
During the nine months ended September 30, 1996, the Partnership advanced
approximately $367,000 to Consolidated Capital Equity Partners, L.P. ("CCEP") as
an advance on the Master Loan. CCEP used the funds to pay for deferred
maintenance and capital improvements on certain properties which collateralize
the Master Loan. A portion of the advance was used to pay additional expenses
related to the December 1995 financing of six of CCEP's investment properties.
Also, a portion of the advance was used to pay taxes on behalf of a wholly owned
subsidiary of CCEP.
During the nine months ended September 30, 1996, the Partnership received
approximately $1,588,000 as principal payments on the Master Loan.
Approximately $101,000 was due to the return of a real estate tax escrow set up
at the time of the December 1995 financing of a certain CCEP investment
property. This escrow was held until CCEP was able to provide proof of payment
to the mortgage lender. Cash received on certain investments by CCEP, which are
required to be transferred to the Partnership per the Master Loan Agreement,
accounted for approximately $124,000. Approximately $1,363,000 received was due
to an excess cash flow payment received from CCEP as stipulated by the master
loan agreement. On September 13, 1996, CCEP sold Lakeview Office Tower to an
unaffiliated third party. The net cash proceeds of approximately $587,000 were
remitted to the Partnership subsequent to September 30, 1996, to pay down the
Master Loan.
NOTE D - COMMITMENT
The Partnership is required by the Agreement to maintain working capital
reserves for contingencies of not less than 5% of Net Invested Capital, as
defined in the Agreement. In the event expenditures are made from this reserve,
operating revenue shall be allocated to such reserves to the extent necessary to
maintain the foregoing level. Reserves, including cash and cash equivalents and
securities available for sale (at market), totaling approximately $14.5 million,
were greater than the reserve requirement of approximately $7.3 million at
September 30, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Partnership's investment properties consist of two properties, The Loft and
The Sterling Apartment Homes and Commerce Center ("The Sterling") (formerly
known as The Carlton House Apartment and Office Building). The Sterling is a
multiple-use facility which consists of an apartment complex and commercial
space. This property was transferred from Consolidated Capital Equity Partners,
L.P. ("CCEP") to a wholly owned subsidiary of the Partnership on November 30,
1995. The operations of The Sterling had a significant impact on the results of
operations of the Partnership for the nine months ended September 30, 1996, with
revenues of approximately $4,708,000 and expenses of approximately $4,282,000.
The following table sets forth the average occupancies of the properties for the
nine months ended September 30, 1996 and 1995:
Average
Occupancy
Property 1996 1995
The Loft Apartments 95% 91%
Raleigh, North Carolina
The Sterling Apartment Homes 84% 82%
The Sterling Commerce Center 68% 64%
Philadelphia, Pennsylvania
The General Partner attributes the increase in occupancy at The Loft to
increased marketing strategies resulting in an increase in prospective tenant
traffic. Also, the General Partner attributes the increase in occupancy at The
Sterling Apartment Homes to increased marketing strategies and concessions
offered to the residential tenants. The increased occupancy at The Sterling
Commerce Center is attributable to the major ongoing capital improvements
including exterior renovations, elevator rehabilitation, and common area
renovations.
Results of Operations
The Partnership's net income for the nine months ended September 30, 1996, was
approximately $1,414,000 compared to net income of approximately $3,075,000 for
the nine months ended September 30, 1995. The Partnership recorded net income
of approximately $896,000 for the three months ended September 30, 1996,
compared to net income of approximately $1,534,000 for the three months ended
September 30, 1995. Net income decreased for the three and nine months ended
September 30, 1996, due to a decrease in interest income recorded on the
investment in Master Loan to affiliate. This decrease is the result of decreased
operations at the underlying collateral properties. Offsetting this decrease in
net income was the transfer of The Sterling from CCEP to the Partnership which
resulted in an increase in net income for the Partnership of approximately
$52,000 and $426,000 for the three and nine month periods ended September 30,
1996, respectively. The transfer resulted in significant increases in rental
income, operating expenses and depreciation for the three and nine month
periods ended September 30, 1996. Also contributing to the increase in
operating expenses during the nine month period ended September 30, 1996, was
major landscaping work and a wood replacement project done at The Loft. In
addition, the decrease in net income was offset by an increase in the reduction
of the provision for impairment losses of the Master Loan as determined under
"SFAS 114". General and administrative expenses decreased during the three and
nine months ended September 30, 1996. For the three months ended September 30,
1996, this decrease was the result of increased printing costs incurred in 1995,
related to the printing of additional 10-K's for investors. The decrease for
the nine months ended September 30, 1996, is the result of the additional costs
associated with the combined efforts of the Dallas and Greenville offices during
the transition period that ended June 30, 1995. The increased costs related to
the transition efforts were incurred to minimize any disruption in the 1994
year-end reporting function including K-1 preparation and distribution.
Interest expense increased for the three and nine month periods ended September
30, 1996, as a result of the financing of The Loft in December 1995. This
property did not have a mortgage balance prior to December 1995 and as a result
had no interest expense during the three and nine month periods ended September
30, 1995. Other income increased during the three and nine month periods ended
September 30, 1996, due to the increase in cash balances from the proceeds
received from the December 1995 financing of The Loft and the principal payments
received on the Master Loan in December 1995.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of its investment properties to assess
the feasibility of increasing rents, maintaining or increasing occupancy levels
and protecting the Partnership from increases in expense. 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.
Liquidity and Capital Resources
At September 30, 1996, the Partnership had unrestricted cash of approximately
$14,205,000 versus approximately $5,433,000 at September 30, 1995. Net cash
provided by operating activities decreased primarily due to the decrease in net
income as explained above. Also, due from affiliates decreased during the nine
months ended September 30, 1995. No such activity occurred during the nine
months ended September 30, 1996. Cash provided by investing activities increased
primarily due to increased principal receipts on the Master Loan during the nine
months ended September 30, 1996. Offsetting the increase in net cash provided
by investing activities was an increase in property improvements and
replacements during the nine months ended September 30, 1996, and additional
advances under the Master Loan to CCEP. Net cash used in financing activities
increased due to an increase in distributions paid to the partners as well as
principal payments on the mortgage note for The Loft.
The Partnership has budgeted for approximately $14 million of deferred
maintenance and capital improvements to be made to The Sterling during 1996 and
1997. These programs will be paid by existing cash and investments and from
cash generated by property operations and debt service on the Master Loan. The
major capital improvements are for exterior renovation, elevator rehabilitation,
residential and commercial common area renovations. As of September 30, 1996,
approximately $2.5 million had been spent on these programs.
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 property 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 mortgage
indebtedness of approximately $4,510,000 requires monthly principal and
interest payments and requires a balloon payment on December 1, 2005, at which
time the property will either be refinanced or sold. Distributions of
approximately $16,986,000 were made to the limited partners during the nine
months ended September 30, 1996. A matching distribution of approximately
$30,000 was made to the General Partner. Included in these amounts are payments
to the North Carolina Department of Revenue for withholding taxes related to
income generated by the Partnership's investment property located in that state.
Distributions of approximately $3 million were made to the limited partners
during the nine months ended September 30, 1995. Approximately $30,000 was
distributed to the General Partner during that same period. Included in these
amounts are payments to the North Carolina Department of Revenue for withholding
taxes related to income generated by the Partnership's investment property
located in that state. Future cash distributions will depend on the levels of
cash generated from operations, Master Loan interest income, capital expenditure
requirements, property sales, and the availability of cash reserves.
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 by the Partnership Agreement. Reserves, including cash and cash
equivalents and securities available for sale totaling approximately $14.5
million, were greater than the reserve requirement of $7.3 million as of
September 30, 1996.
CCEP Property Operations
The Partnership invested approximately $367,000 in CCEP during the nine months
ended September 30, 1996, as additional advances under the Master Loan. CCEP
used the funds to pay for deferred maintenance and capital improvements on
certain properties which collateralize the Master Loan. A portion of the
advance was used to pay additional expenses related to the December 1995
financing of six of CCEP's investment properties. Also, a portion of the advance
was used to pay taxes on behalf of a wholly owned subsidiary of CCEP.
For the nine months ended September 30, 1996, CCEP's net loss totaled
approximately $21.3 million on total revenues of approximately $15.1 million.
CCEP recognizes interest expense on the New Master Loan Agreement obligation
according to the note terms, although payments to the Partnership are required
only to the extent of Excess Cash Flow, as defined therein. During the nine
months ended September 30, 1996, CCEP's statement of operations includes total
interest expense attributable to the Master Loan of approximately $22.2 million,
all of which represents interest accrued in excess of required payments. During
the nine months ended September 30, 1996, CCEP made an "Excess Cash Flow"
principal payment of approximately $1,363,000 to the Partnership. Subsequent to
September 30, 1996, CCEP made an additional "Excess Cash Flow" principal payment
of approximately $69,000 to the Partnership. CCEP is expected to continue to
generate operating losses as a result of such interest accruals and noncash
charges for depreciation.
During the nine months ended September 30, 1996, the Partnership received
approximately $1,588,000 as principal payments on the Master Loan.
Approximately $101,000 was due to the return of a real estate tax escrow set up
at the time of the December 1995 financing of a certain CCEP investment
property. This escrow was held until CCEP was able to provide proof of payment
to the mortgage lender. Cash received on certain investments by CCEP, which are
required to be transferred to the Partnership per the Master Loan Agreement,
accounted for approximately $124,000. Approximately $1,363,000 received was due
to an "Excess Cash Flow" payment from CCEP, as described above. On September
13, 1996, CCEP sold Lakeview Office Tower to an unaffiliated third party. The
net cash proceeds of approximately $587,000 were remitted to the Partnership
subsequent to September 30, 1996, to pay down the Master Loan.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
S-K Reference
Number Description
27 Financial Data Schedule is filed as an exhibit to
this report.
99.1 Consolidated Capital Equity Partners, L.P.,
unaudited financial statements for the three and
nine months ended September 30, 1996 and 1995.
(b) Reports on Form 8-K:
None filed during the quarter ended September 30, 1996.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CONSOLIDATED CAPITAL INSTITUTIONAL
PROPERTIES
By: CONCAP EQUITIES, INC.
General Partner
By:/s/ Carroll D. Vinson
Carroll D. Vinson
President
By:/s/ Robert D. Long, Jr.
Robert D. Long, Jr.
Vice President/CAO
Date: November 6, 1996