FORM 10-K ---ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[No Fee Required]
For the fiscal year ended December 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[No Fee Required]
For the transition period from _________to _________
Commission file number 0-11723
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
(Exact name of registrant as specified in its charter)
California 94-2883067
(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)
Issuer's telephone number
(864) 239-1000
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Limited Partnership Units
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Sec. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. (Amended by Exch.
Act Rel No. 28869, eff. 5/1/91). Yes ___ No X
State the aggregate market value of the Limited Partnership Units ("Units") held
by non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests as of December 31, 2000. No market exists for the limited partnership
interests of the Registrant, and, therefore, no aggregate market value can be
determined.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1. Description of Business
General
Consolidated Capital Institutional Properties/2 (the "Partnership" or
"Registrant") was organized on April 12, 1983, as a limited partnership under
the California Uniform Limited Partnership Act. On July 22, 1983, the
Partnership registered with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933 (File No. 2-83540) and commenced a public offering
for the sale of Units. The Units represent equity interests in the Partnership
and entitle the holders thereof to participate in certain allocations and
distributions of the Partnership. The sale of Units terminated on July 21, 1985,
with 912,182 Units sold at $250 each, or gross proceeds of approximately $227.8
million to the Partnership. As permitted under its Partnership Agreement (the
original partnership agreement of the Partnership with all amendments shall be
referred to as the "Partnership Agreement"), the Partnership has repurchased and
retired a total of 3,048 Units for a total of $611,000. During 1999, 10.4 units
were abandoned and accordingly retired by the Partnership. The Partnership may,
at its absolute discretion, repurchase Units, but is under no obligation to do
so. Since its initial offering, the Registrant has not received, nor are limited
partners required to make, additional capital contributions.
Upon the Partnership's formation in 1983, CCEC, a Colorado corporation, was the
corporate general partner. In 1988, through a series of transactions, Southmark
Corporation ("Southmark") acquired controlling interest in CCEC. In December
1988, CCEC filed for reorganization under Chapter 11 of the United States
Bankruptcy Code ("Chapter 11"). In 1990, as part of CCEC's reorganization plan,
ConCap Equities, Inc. ("CEI" or the "General Partner") acquired CCEC's general
partner interests in the Partnership and in 15 other affiliated public limited
partnerships (the "Affiliated Partnerships") and CEI replaced CCEC as managing
general partner in all 16 partnerships. The selection of CEI as the general
partner was approved by a majority of the limited partners in the Partnership
and in each of the Affiliated Partnerships pursuant to a solicitation of the
Limited Partners dated August 10, 1990. As part of this solicitation, the
Limited Partners also approved an amendment to the Partnership Agreement to
limit changes of control of the Partnership. The General Partner is a subsidiary
of Apartment Investment and Management Company ("AIMCO"). The Partnership
Agreement provides that the Partnership is to terminate on December 31, 2013
unless terminated prior to such date.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 421,739.60 limited partnership units
in the Partnership representing 46.39% of the outstanding units at December 31,
2000. 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 limited partnership interests in the Partnership for cash or
in exchange for units in the operating partnership of AIMCO either through
private purchases or tender offers. In this regard, on February 8, 2001, AIMCO
Properties, L.P., commenced a tender offer to acquire all of the Units not owned
by affiliates of AIMCO for a purchase price of $31.00 per Unit. Pursuant to this
offer, AIMCO acquired an additional 2,784.30 units resulting in its total
ownership being increased to 424,523.90 units or 46.70% of the total outstanding
units. Under the Partnership Agreement, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters, which
would include without limitation, voting on certain amendments to the
Partnership Agreement and voting to remove the General Partner. As a result of
its ownership of 46.70% of the outstanding units, AIMCO is in a position to
significantly influence all voting decisions with respect to the Registrant.
When voting on matters, AIMCO would in all likelihood vote the Units it acquired
in a manner favorable to the interest of the General Partner because of their
affiliation with the General Partner.
The Partnership's primary business and only industry segment is real estate
related operations. See "Item 8. Financial Statements - Note A" for detailed
disclosure of the Partnership's Segment Reporting. The Partnership was formed,
for the benefit of its Limited Partners (herein so called and together with the
General Partner shall be called the "Partners"), to lend funds to Equity
Partners/Two ("EP/2"), a California general partnership in which certain of the
partners were former shareholders and former management of CCEC, the former
corporate general partner of the Partnership. See "Status of Master Loan" for a
description of the loan and settlement of EP/2's bankruptcy. Through December
31, 2000, the Partnership had advanced a total of approximately $183,470,000 to
EP/2 and its successor under the Master Loan (as defined in "Status of Master
Loan"). As of December 31, 2000, the balance of the Master Loan, net of the
allowance for possible losses, was approximately $10,650,000. EP/2 used the
proceeds from these loans to acquire eleven (11) apartment buildings and ten
(10) office complexes, which collateralized the Master Loan. EP/2's successor in
bankruptcy (as more fully described in "Status of Master Loan") currently owns
three (3) apartment buildings and is currently rebuilding a fourth apartment
building which secure the Master Loan.
The Registrant has no employees. Management and administrative services are
performed by the General Partner and by agents of the General Partner.
Status of Master Loan
Prior to 1989, the Partnership had loaned funds totaling approximately
$176,000,000 to EP/2 subject to a nonrecourse note (the "Master Loan"), pursuant
to the Master Loan Agreement dated July 22, 1983, between the Partnership and
EP/2. The Partnership secured the Master Loan with deeds of trust or mortgages
on real property purchased with the funds advanced as well as by the assignment
and pledge of promissory notes from the partners of EP/2.
During 1989, EP/2 defaulted on certain interest payments that were due under the
Master Loan. Before the Partnership could exercise its remedies for such
defaults, EP/2 filed for bankruptcy protection in a Chapter 11 reorganization
proceeding. On October 18, 1990, the bankruptcy court approved EP/2's consensual
plan of reorganization (the "Plan"). In November 1990, EP/2 and the Partnership
consummated a closing under the Plan pursuant to which, among other things, the
Partnership and EP/2 executed an amended and restated loan agreement (the "New
Master Loan Agreement"), EP/2 was converted from a California general
partnership to a California limited partnership, Consolidated Capital Equity
Partners/Two, L.P., ("CCEP/2") and CCEP/2 renewed the deeds of trust and
mortgages on all the properties collaterally securing the New Master Loan
Agreement. ConCap Holdings, Inc. ("CHI"), a Texas corporation and wholly-owned
subsidiary of CEI, is the sole general partner of CCEP/2 and an affiliate of the
Partnership. The general partners of EP/2 became limited partners in CCEP/2. CHI
has full discretion with respect to conducting CCEP/2's business, including
managing CCEP/2's properties and initiating and approving capital expenditures
and asset dispositions and refinancings. Under the new partnership agreement,
CCEP/2 is managed by CHI primarily for the benefit of the Partnership. CCEP/2's
primary objective is to conduct its business to maximize the Partnership's
recovery under the New Master Loan Agreement.
Under the terms of the New Master Loan Agreement, interest accrues at 10% and
payments are due quarterly in an amount equal to Excess Cash Flow, generally
defined in the New Master Loan Agreement as net cash flow from operations after
third-party debt service and capital improvements. If such Excess Cash Flow
payments are less than the current accrued interest during the quarterly period,
the unpaid interest is added to principal, compounded annually, and is payable
at the loan's maturity. If such Excess Cash Flow payments are greater than the
current accrued interest, the excess amount is applied to the principal balance
of the loan. Any net proceeds from sale or refinancing of any of CCEP/2's
properties are paid to the Partnership under the terms of the New Master Loan
Agreement. The Master Loan matured in November 2000. The General Partner is
currently in negotiations with CCEP/2 with respect to its options which include
foreclosing on the properties that collateralize the Master Loan or extending
the terms of the Master Loan. If the Partnership forecloses on the properties
securing the Master Loan, title in the properties owned by CCEP/2 would be
vested in the Partnership, subject to the existing liens on such properties
including the first mortgage loans. As a result, the Partnership would become
responsible for the operations of such properties.
Effective January 1, 1993, the Partnership and CCEP/2 amended the New Master
Loan Agreement to stipulate that Excess Cash Flow would be computed net of
capital improvements. Such expenditures were formerly funded from advances on
the Master Loan from the Partnership to CCEP/2. This amendment and change in the
definition of Excess Cash Flow has the effect of reducing the Partnership's
interest income from the Master Loan by the amount of CCEP/2's capital
expenditures since such amounts were previously excluded from Excess Cash Flow.
Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into AIMCO, a publicly traded real estate investment trust, with AIMCO
being the surviving corporation (the "Insignia Merger"). As a result, AIMCO
acquired 100% ownership interest in the General Partner. The General Partner
does not believe that this transaction has had or will have a material effect on
the affairs and operations of the Partnership.
Segments
Segment data for the years ended December 31, 2000, 1999, and 1998 is included
in "Item 8. Financial Statements - Note A" and is an integral part of the Form
10-K.
Item 2. Property
As of December 31, 2000 and 1999, the Partnership has no real estate assets.
Item 3. 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 the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, its General Partner and several of their affiliated
partnerships and corporate entities. The action 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, among other things, the acquisition of interests in
certain general partner entities by Insignia Financial Group, Inc. ("Insignia")
and entities which were, at one time, affiliates of Insignia; past tender offers
by the Insignia affiliates to acquire limited partnership units; management of
the partnerships by the Insignia affiliates; and the Insignia Merger. The
plaintiffs seek monetary damages and equitable relief, including judicial
dissolution of the Partnership. On June 25, 1998, the General Partner filed a
motion seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs filed an amended complaint. The General Partner filed demurrers to
the amended complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the General Partner and its affiliates terminated the
proposed settlement. In February 2000, counsel for some of the named plaintiffs
filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated
the settlement. On June 27, 2000, the Court entered an order disqualifying them
from the case and an appeal was taken from the order on October 5, 2000. On
December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann &
Bernstein LLP as new lead counsel for plaintiffs and the putative class.
Plaintiffs filed a third amended complaint on January 19, 2001. On March 2,
2001, the General Partner and its affiliates filed a demurrer to the third
amended complaint. The General Partner does not anticipate that costs associated
with this case will be material to the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
Item 4. Submission of Matters to a Vote of Security Holders
During the quarter ended December 31, 2000, no matter was submitted to a vote of
the unit holders through the solicitation of proxies or otherwise.
PART II
Item 5. Market for Registrant's Units of Limited Partnership and Related
Security Holder Matters
The Partnership, a publicly-held limited partnership, offered and sold 912,182
limited partnership units aggregating $227,800,000. The Partnership currently
has 24,037 holders of record owning an aggregate of 909,123.60 Units. Affiliates
of the General Partner owned 421,739.60 units or approximately 46.39% at
December 31, 2000. No public trading market has developed for the Units, and it
is not anticipated that such a market will develop in the future.
The following table sets forth the distributions made by the Partnership for the
years ended December 31, 1998, 1999 and 2000 and subsequent to December 31,
2000.
Distributions
Per Limited
Aggregate Partnership Unit
01/01/98 - 12/31/98 $ 2,985,000 (1) $ 3.28
01/01/99 - 12/31/99 37,995,000 (2) 41.73
01/01/00 - 12/31/00 13,383,000 (3) 14.70
Subsequent to 12/31/00 1,300,000 (4) 1.43
(1) Distribution was made from surplus funds which was distributed 100% to
the limited partners.
(2) Consists of $323,000 from surplus funds and $32,000,000 from sale proceeds
of CCEP/2 commercial proceeds distributed 100% to the limited partners and
$5,672,000 from operations (approximately $5,616,000 to the limited
partners or $6.18 per limited partnership unit) distributed to all
partners.
(3) Consists of $2,000,000 (approximately $1,980,000 to the limited partners
or $2.18 per limited partnership unit) from operations which was
distributed to all partners and $4,200,000 all to the limited partners
(approximately $4.62 per limited partnership unit) from refinancing
proceeds of Windmere Apartments and Highcrest Townhomes in CCEP/2 and
$7,183,000 (approximately $7.90 per limited partnership unit) from surplus
funds distributed all to the limited partners.
(4) Consists of approximately $1,300,000 (approximately $1.43 per limited
partnership unit) from the refinancing proceeds of Canyon Crest Apartments
in CCEP/2 all to the limited partners.
The Partnership's distribution policy is reviewed on a quarterly basis. Future
cash distributions will depend on CCEP/2's ability to make payments on the
account of the Master Loan and the availability of cash reserves. There can be
no assurance, however, that the Partnership will generate sufficient funds from
operations to permit any additional distributions to its partners in 2001 or
subsequent periods.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 421,739.60 limited partnership units
in the Partnership representing 46.39% of the outstanding units at December 31,
2000. 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 limited partnership interests in the Partnership for cash or
in exchange for units in the operating partnership of AIMCO either through
private purchases or tender offers. In this regard, on February 8, 2001, AIMCO
Properties, L.P., commenced a tender offer to acquire all of the Units not owned
by affiliates of AIMCO for a purchase price of $31.00 per Unit. Pursuant to this
offer, AIMCO acquired an additional 2,784.30 units resulting in its total
ownership being increased to 424,523.90 units or 46.70% of the total outstanding
units. Under the Partnership Agreement, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters, which
would include without limitation, voting on certain amendments to the
Partnership Agreement and voting to remove the General Partner. As a result of
its ownership of 46.70% of the outstanding units, AIMCO is in a position to
significantly influence all voting decisions with respect to the Registrant.
When voting on matters, AIMCO would in all likelihood vote the Units it acquired
in a manner favorable to the interest of the General Partner because of their
affiliation with the General Partner.
Item 6. Selected Financial Data
The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in "Item 8. Financial
Statements and Supplementary Data".
FOR THE YEARS ENDED DECEMBER 31,
2000 1999 1998 1997 1996
STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Total Revenues $ 1,520 $ 1,328 $ 15,367 $ 6,755 $ 2,070
Total Expenses (644) (520) (820) (480) (2,649)
Net income (loss) $ 876 $ 808 $ 14,547 $ 6,275 $ (579)
Net income (loss) per
Limited Partnership Unit $ .95 $ .88 $ 15.84 $ 6.83 $ (.63)
Distributions per Limited
Partnership Unit $ 14.70 $ 41.73 $ 3.28 $ 10.98 $ --
Limited Partnership Units
outstanding 909,124 909,124 909,134 909,134 909,138
AS OF DECEMBER 31,
BALANCE SHEETS 2000 1999 1998 1997 1996
(in thousands)
Total assets $ 12,804 $ 25,323 $ 62,466 $ 50,906 $ 54,636
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The matters discussed in this Form 10-K contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the disclosure
contained in this Form 10-K and the other filings with the Securities and
Exchange Commission made by the Registrant from time to time. The discussion of
the Registrant's business and results of operations, including forward-looking
statements pertaining to such matters, does not take into account the effects of
any changes to the Registrant's business and results of operations. Accordingly,
actual results could differ materially from those projected in the
forward-looking statements as a result of a number of factors, including those
identified herein.
This item should be read in conjunction with the financial statements and other
items contained elsewhere in this report.
Results of Operations
The Partnership's net income for the years ended December 31, 2000 and 1999 was
approximately $876,000 and $808,000, respectively. The increase in net income is
due primarily to an increase in interest income on the net investment in the
Master Loan partially offset by an increase in total expenses. Interest income
on the investment in the Master Loan increased as a result of an increase in
excess cash flow payments received from CCEP/2. The increase in total expenses
is due to an increase in general and administrative expenses.
General and administrative expenses increased for the year ended December 31,
2000, primarily due to an increase in the costs of services included in the
management reimbursements to the General Partner as allowed under the
Partnership Agreement which were partially offset by a decrease in legal
expenses related to previous litigation and to a decrease in the costs of
communications with the investors.
1999 Compared with 1998
The Partnership realized net income of approximately $808,000 and $14,547,000
for the years ended December 31, 1999 and 1998, respectively. The decrease in
net income is due to a decrease in total revenues, which was slightly offset by
a decrease in total expenses. The decrease in total revenues is due to the
reduction of provision for impairment loss recognized during 1998 and to a
lesser extent a decrease in interest income on net investment in Master Loan to
an affiliate and interest income on investments. As discussed in "Item 8. Note C
- - Net Investment in Master Loan", the Partnership recorded interest income of
approximately $998,000 and $1,200,000 for the years ended December 31, 1999 and
1998, respectively. No reduction of allowance for impairment loss was recorded
for the year ended December 31, 1999. As the fair value of the remaining
collateral properties underlying the Master Loan did not significantly change
from their fair value at December 31, 1998, no change to the allowance was
deemed necessary during 1999. Interest income on investments decreased due to a
reduction in the cash balance in interest-bearing money market accounts as a
result of the distributions to partners made during 1999. The decrease in total
revenues was partially offset by a decrease in total expenses resulting from a
decrease in general and administrative expenses for the year ended December 31,
1999. General and administrative expenses decreased primarily due to a decrease
in reimbursements to the General Partner and a reduction in the amount of legal
fees incurred by the Partnership.
Liquidity and Capital Resources
At December 31, 2000, the Partnership had cash and cash equivalents of
approximately $2,143,000 as compared to approximately $6,846,000 at December 31,
1999. The decrease in cash and cash equivalents of approximately $4,703,000 is
due to approximately $13,383,000 of cash used in financing activities, which was
partially offset by approximately $7,724,000 of cash provided by investing
activities and approximately $956,000 of cash provided by operating activities.
Cash provided by investing activities consisted of principal receipts on the
Master Loan. Cash used in financing activities consisted of distributions to
partners. The Partnership invests its working capital reserves in a money market
account.
At December 31, 1999, the Registrant had cash and cash equivalents of
approximately $6,846,000 as compared to approximately $10,969,000 at December
31, 1998. The net decrease of approximately $4,123,000 is due to approximately
$37,995,000 of cash used in financing activities, which was partially offset by
approximately $33,111,000 of cash provided by investing activities and
approximately $761,000 of cash provided by operating activities. Cash provided
by investing activities consisted of principal receipts on the Master Loan. Cash
used in financing activities consisted of distributions to partners.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required to meet the ongoing operating needs of the Partnership and
to comply with Federal, state and local, legal, and regulatory requirements.
Such assets are currently thought to be sufficient for any near-term needs of
the Partnership. See "CCEP/2 Property Operations" for discussion on CCEP/2's
ability to provide future cash flow as Master Loan debt service.
The Partnership distributed approximately $2,000,000 from operations
(approximately $1,980,000 to the limited partners, or approximately $2.18 per
limited partnership unit) and $4,200,000 all to the limited partners from the
refinancing proceeds of Windmere Apartments and Highcrest Townhomes in CCEP/2
(approximately $4.62 per limited partnership unit) and $7,183,000 all to the
limited partners from surplus cash (approximately $7.90 per limited partnership
unit) during the twelve months ended December 31, 2000.
Subsequent to the year ended December 31, 2000, the Partnership distributed
approximately $1,300,000 ($1.43 per limited partnership unit) from the
refinancing proceeds of Canyon Crest Apartments in CCEP/2 all to the limited
partners.
The Partnership made distributions totaling approximately $37,995,000 (of which
$37,939,000 was to the limited partners or approximately $41.73 per limited
partnership unit) during the twelve months ended December 31, 1999. Of this
approximately $323,000 was paid all to the limited partners from surplus funds
($.35 per limited partnership unit), approximately $32,000,000 was paid all to
the limited partners from sale proceeds of CCEP/2 commercial properties ($35.20
per limited partnership unit) and approximately $5,672,000 was paid from
operations (approximately $5,616,000 to the limited partners or $6.18 per
limited partnership unit). During the twelve months ended December 31, 1998, the
Partnership made distributions of approximately $2,985,000 (approximately $3.28
per limited partnership unit) from surplus funds all of which was distributed to
the limited partners.
Future cash distributions will depend on CCEP/2's ability to make payments on
account of the Master Loan and the availability of cash reserves. The
Partnership's distribution policy is reviewed on a quarterly basis. There can be
no assurance, however, that the Partnership will have sufficient funds from
operations to permit any additional distributions to its partners in 2001 or
subsequent periods.
Until October 17, 2000, the Partnership was 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. In the
event expenditures were made from this reserve, operating revenues were to be
allocated to such reserve to the extent necessary to maintain the foregoing
level. On September 16, 2000, the Partnership sought the vote of limited
partners to amend the Partnership Agreement to eliminate the requirement for the
Partnership to maintain reserves equal to at least 5% of the limited partner's
capital contributions less distributions to limited partners and instead permit
the General Partner to determine reasonable reserve requirements of the
Partnership. The vote was sought pursuant to a Consent Solicitation that expired
on October 16, 2000 at which time the amendment was approved by the requisite
percent of limited partnership interests. Upon expiration of the consent period,
a total number of 488,079.40 units had voted of which 469,876.40 units had voted
in favor of the amendment, 15,160.70 units voted against the amendment and
3,042.30 units abstained.
During the year ended December 31, 2000, the Partnership received approximately
$7,724,000 as principal payments on the Master Loan consisting of required cash
flow payments and proceeds from the refinancing of the property within CCEP/2.
These funds are required to be transferred to the Partnership under the terms of
the Master Loan.
CCEP/2 Property Operations
CCEP/2 had a net loss of approximately $24,620,000 for the year ended December
31, 2000, versus net income of approximately $1,797,000 for the year ended
December 31, 1999. The increase in net loss was primarily due to a gain on sale
of discontinued operations and, to a lesser extent, a casualty gain at Village
Brooke as discussed below for the year ended December 31, 1999 along with an
increase in the extraordinary loss recognized on early extinguishment of debt in
2000. Excluding the impact of discontinued operations, the casualty gain and
operations of Village Brooke, CCEP/2 had a net loss of approximately $25,109,000
for the year ended December 31, 2000 on revenues of approximately $4,940,000,
versus a net loss of approximately $24,467,000 for the year ended December 31,
1999 on revenues of approximately $4,909,000. CCEP/2 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 2000, CCEP/2's consolidated statement of
operations includes total interest expense attributable to the Master Loan of
approximately $24,920,000, of which $23,722,000 represents interest accrued in
excess of required payments. CCEP/2 is expected to continue to generate
operating losses as a result of such interest accruals and noncash charges for
depreciation.
An affiliate of the General Partner received reimbursement of accountable
administrative expense amounting to approximately $172,000, $237,000, and
$292,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
Included in these expenses for the years ended December 31, 2000, 1999 and 1998
is approximately $70,000, $29,000, and $16,000 respectively, of reimbursements
for construction oversight costs.
For services provided in connection with the refinancings of three of the
Partnership's residential properties during 2000, the General Partner was paid a
commissions related to the refinancings of approximately $165,000 during the
year ended December 31, 2000.
For acting as real estate broker in connection with the sales of six of the
Partnership's commercial properties during 1999, the General Partner was paid a
real estate commission of approximately $1,134,000 during the year ended
December 31, 1999. A commission of $447,000 was paid during the year ended
December 31, 2000 relating to the sale of Richmond Plaza which was accrued at
December 31, 1999.
In addition to the compensation and reimbursements described above, interest
payments are made to and loan advances are received from Consolidated Capital
Institutional Properties/2 ("CCIP/2") pursuant to the Master Loan Agreement.
Such interest payments totaled approximately $1,198,000, $998,000, and
$1,200,000 for the years ended December 31, 2000, 1999, and 1998, respectively.
These payments were based upon the results of operations for the Partnership's
properties. CCEP/2 made principal payments on the Master Loan of approximately
$7,724,000, $33,111,000, and $155,000, for the years ended December 31, 2000,
1999, and 1998, respectively. These funds were received from distributions from
three affiliated partnerships, excess cash from the Partnership's investment
properties, proceeds received from the sale of commercial properties, and
proceeds received from the refinance of three of the Partnership's residential
properties. These funds are required to be transferred to the Partnership under
the terms of the Master Loan.
During the year ended December 31, 2000, the General Partner of CCEP/2
determined that it was in the best interest of CCEP/2 to repay the mortgage note
on Village Brooke. Accordingly, funds which had previously been restricted to
rebuild the property were used to repay the mortgage note which had encumbered
the property of approximately $6,517,000. CCEP/2 will likely obtain a
construction loan when the re-construction of Village Brooke begins in mid 2001.
An extraordinary loss on early extinguishment of debt of approximately $35,000
was recognized as a result of unamortized loan costs associated with this
mortgage.
On October 3, 2000, CCEP/2 refinanced the mortgage note payable with GMAC on
Windmere Apartments. The refinancing replaced mortgage indebtedness of
$3,000,000 with a new mortgage of $6,075,000. The mortgage was refinanced at a
rate of 7.83% compared to the prior rate of 7.33%. Payments of approximately
$50,000 are due on the first day of each month until the loan matures on
November 1, 2010. A balloon payment of approximately $3,905,000 is due at
maturity. Capitalized loan costs incurred for the refinancing were approximately
$155,000. Prepayment penalties of approximately $95,000 and the write-off of
unamortized loan costs of approximately $50,000 resulted in an extraordinary
loss on early extinguishment of debt of approximately $145,000.
On October 31, 2000, CCEP/2 refinanced the mortgage note payable on Highcrest
Townhomes. The refinancing replaced mortgage indebtedness of $4,000,000 with a
new mortgage of $6,760,000. The mortgage was refinanced at a rate of 7.72%
compared to the prior rate of 7.33%. Payments of approximately $55,000 are due
on the first day of each month until the loan matures on February 1, 2010. A
balloon payment of approximately $4,868,000 is due at maturity. Capitalized loan
costs incurred for the refinancing were approximately $141,000. Prepayment
penalties of approximately $142,000 and the write-off of unamortized loan costs
of approximately $52,000 resulted in an extraordinary loss on early
extinguishment of debt of approximately $194,000.
On December 21, 2000, CCEP/2 refinanced the mortgage note payable on Canyon
Crest Apartments. The refinancing replaced mortgage indebtedness of $2,000,000
with a new mortgage of $3,640,000. The mortgage was refinanced at a rate of
7.10% compared to the prior rate of 7.33%. Payments of approximately $28,000 are
due on the first day of each month until the loan matures on January 1, 2011. A
balloon payment of approximately $2,613,000 is due at maturity. Capitalized loan
costs incurred for the refinancing were approximately $100,000. Prepayment
penalties of approximately $98,000 and the write-off of unamortized loan costs
of approximately $38,000 resulted in an extraordinary loss on early
extinguishment of debt of approximately $136,000.
Lahser One, Lahser Two, Crescent Centre, Central Park Place, Central Park Plaza,
Town Center Plaza and Richmond Plaza were the only commercial properties owned
by CCEP/2 and represented one segment of CCEP/2's operations. All of these
properties were sold during 1999 and accordingly the results of the commercial
segment have been shown as gain on sale of and income from discontinued
operations as of December 31, 1999 and 1998. The consolidated statement of
operations for the year ended December 31, 1998 has been restated to reflect the
discontinued segment. Revenues of these properties were approximately $9,005,000
and $12,250,000 for the years ended December 31, 1999 and 1998, respectively. No
revenues from the properties were recorded during the year ended December 31,
2000. Income from and gain on sale of discontinued operations was approximately
$20,756,000 and $1,256,000 for the years ended December 31, 1999 and 1998,
respectively.
On September 10, 1999, the five commercial properties located in Michigan
(Lahser One, Lahser Two, Crescent Centre, Central Park Place, and Central Park
Plaza) were sold to an unaffiliated third party for $26,125,000. After closing
expenses of approximately $1,727,000 the net proceeds received by the
Partnership were approximately $24,398,000. The sale of the properties resulted
in a gain on sale of investment property of approximately $10,392,000.
On September 22, 1999, Town Center Plaza, located in Santa Ana, California, was
sold to an unaffiliated third party for $11,650,000. After closing expenses of
approximately $1,004,000, the net proceeds received by the Partnership were
approximately $10,646,000. The Partnership used some of the proceeds from the
sale of the property to pay off the debt encumbering the property of
approximately $2,316,000. The sale of the property resulted in a gain on sale of
investment property of approximately $4,862,000 and a loss on early
extinguishment of debt of approximately $7,000.
On December 23, 1999, Richmond Plaza, located in Richmond, Virginia, was sold to
an unaffiliated third party for $14,900,000. Closing expenses were approximately
$784,000. The debt encumbering the property of approximately $14,500,000 was
assumed by the buyer. The sale of the property resulted in a loss on early
extinguishment of debt of approximately $24,000 and a gain on sale of investment
property of approximately $5,499,000 at December 31, 1999.
In April 1999, one of CCEP/2's residential properties, Village Brooke, was
completely destroyed by a tornado. It is estimated that the property sustained
approximately $16,000,000 in damages. As of December 31, 2000, approximately
$11,302,000 in insurance proceeds have been received, which includes
approximately $1,302,000 received in 2000. The remaining insurance proceeds are
expected to be received once construction on the property is completed. All of
the property's fixed assets and related accumulated depreciation were written
off as a result of this casualty. Lost rents of approximately $417,000 and
$750,000 have been recorded as of December 31, 2000 and 1999, respectively. A
casualty gain of approximately $250,000 was recognized at December 31, 2000 as a
result of receiving additional insurance proceeds which were previously not
recognized net of approximately $577,000 of additional clean up and demolition
costs incurred. A casualty gain of approximately $5,473,000 was recognized at
December 31, 1999.
In April 1999, an electrical fire occurred at Town Center. The property
sustained approximately $181,000 in damages and realized a casualty loss of
approximately $33,000. This property was subsequently sold in September 1999
(see above) and the purchaser of the property assumed the remaining obligation
related to the fire.
Item 7a. Market Risk Factors
The Partnership is exposed to market risks associated with its Master Loan to
Affiliate ("Loan"). Receipts (interest income) on the Loan are based upon the
operations and cash flow of the underlying investment properties that
collateralize the Loan. Both the income and expenses of operating the investment
properties are subject to factors outside of the Partnership's control, such as
an oversupply of similar properties resulting from overbuilding, increases in
unemployment or population shifts, reduced availability of permanent mortgage
financing, changes in zoning laws, or changes in the patterns or needs of users.
The investment properties are also susceptible to the impact of economic and
other conditions outside of the control of the Partnership as well as being
affected by current trends in the market area which they operate. In this
regard, the General Partner of the Partnership closely monitors the performance
of the properties collateralizing the loans.
Based upon the fact that the loan is considered impaired under Statement of
Financial Accounting Standards No. 114, "Accounting by Creditor for Impairment
of a Loan", interest rate fluctuations do not affect the recognition of income,
as income is only recognized to the extent of cash flow. Therefore, market risk
factors do not affect the Partnership's results of operations as it relates to
the Loan. See "Item 8 - Financial Statements and Supplementary Data - Note C"
for further information.
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2, L.P.
LIST OF FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors
Balance Sheets as of December 31, 2000 and 1999
Statements of Operations for the Years ended December 31, 2000, 1999
and 1998
Statements of Changes in Partners' (Deficit) Capital for the Years ended
December 31, 2000, 1999 and 1998
Statements of Cash Flows for the Years ended December 31, 2000, 1999
and 1998
Notes to Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners
Consolidated Capital Institutional Properties/2
We have audited the accompanying balance sheet of Consolidated Capital
Institutional Properties/2 as of December 31, 2000 and 1999, and the related
statements of operations, changes in partners' (deficit) capital, and cash flows
for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the Partnership's management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Consolidated Capital
Institutional Properties/2 at December 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
March 15, 2001
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
BALANCE SHEETS
(in thousands, except unit data)
December 31,
2000 1999
Assets
Cash and cash equivalents $ 2,143 $ 6,846
Accounts receivable -- 92
Other assets 11 11
Investment in Master Loan to affiliate 39,779 47,503
Less: Allowance for impairment loss (29,129) (29,129)
10,650 18,374
$ 12,804 $ 25,323
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts Payable $ 1 $ --
Other liabilities 45 58
Distributions payable 141 141
187 199
Partners' (Deficit) Capital
General partner (421) (410)
Limited partners (909,123.60 units outstanding) 13,038 25,534
12,617 25,124
$ 12,804 $ 25,323
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Years Ended December 31,
2000 1999 1998
Revenues:
Interest income on net investment
in Master Loan to affiliate $ 1,198 $ 998 $ 1,200
Reduction of provision for impairment loss -- -- 13,586
Interest income on investments 322 330 581
Total revenues 1,520 1,328 15,367
Expenses:
General and administrative 644 520 820
Total expenses 644 520 820
Net income (Note I) $ 876 $ 808 $14,547
Net income allocated to general partner (1%) $ 9 $ 8 $ 145
Net income allocated to limited partners (99%) 867 800 14,402
$ 876 $ 808 $14,547
Net income per Limited Partnership Unit $ .95 $ .88 $ 15.84
Distribution per Limited Partnership Unit $ 14.70 $ 41.73 $ 3.28
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(in thousands, except unit data)
Total
Limited Partners
Partnership General Limited Capital
Units Partners Partners (Deficit)
Original capital contributions 912,182 $ 1 $228,046 $228,047
Partners' (deficit) capital at
December 31, 1997 909,134 $ (507) $ 51,256 $ 50,749
Distributions to partners -- -- (2,985) (2,985)
Net income for the year ended
December 31, 1998 -- 145 14,402 14,547
Partners' (deficit) capital at
December 31, 1998 909,134 (362) 62,673 62,311
Abandonment of units (10) -- -- --
Distributions to partners -- (56) (37,939) (37,995)
Net income for the year ended
December 31, 1999 -- 8 800 808
Partners' (deficit) capital
at December 31, 1999 909,124 (410) 25,534 25,124
Distributions to partners -- (20) (13,363) (13,383)
Net income for the year ended
December 31, 2000 -- 9 867 876
Partners' (deficit) capital at
December 31, 2000 909,124 $ (421) $ 13,038 $ 12,617
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
2000 1999 1998
Cash flows from operating activities:
Net income $ 876 $ 808 $ 14,547
Adjustments to reconcile net income to
net cash provided by operating activities:
Reduction of provision for impairment loss -- -- (13,586)
Change in accounts:
Interest receivable on Master Loan 92 (92) 634
Other assets -- 1 9
Accounts payable 1 -- (6)
Other liabilities (13) 44 4
Net cash provided by operating
activities 956 761 1,602
Cash flows from investing activities:
Advances on Master Loan -- -- (220)
Principal receipts on Master Loan 7,724 33,111 155
Net cash provided by (used in)
investing activities 7,724 33,111 (65)
Cash flows used in financing activities:
Distributions to partners (13,383) (37,995) (2,985)
Net decrease in cash and cash equivalents (4,703) (4,123) (1,448)
Cash and cash equivalents at beginning
of period 6,846 10,969 12,417
Cash and cash equivalents at end of period $ 2,143 $ 6,846 $ 10,969
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
NOTES TO FINANCIAL STATEMENTS
Note A - Organization and Summary of Significant Accounting Policies
Organization: Consolidated Capital Institutional Properties/2 (the "Partnership"
or "Registrant"), a California Limited Partnership, was formed on April 12,
1983, to lend funds through non-recourse notes with participation interests (the
"Master Loan"). The loans were made to, and the real properties that secure the
Master Loan were purchased and owned by, Equity Partners/Two ("EP/2"), a
California general partnership in which certain of the partners were former
shareholders and former management of Consolidated Capital Equities Corporation
("CCEC"), the former corporate general partner of the Partnership. Through
December 31, 2000, the Partnership had advanced approximately $183,470,000 under
the Master Loan.
During 1989, EP/2 defaulted on certain interest payments that were due under the
Master Loan. Before the Partnership could exercise its remedies for such
defaults, EP/2 filed for bankruptcy protection under Chapter 11 of the United
States Bankruptcy Code ("Chapter 11"). On October 18, 1990, the bankruptcy court
approved EP/2's consensual plan of reorganization (the "Plan"). In November
1990, EP/2 and the Partnership consummated a closing under the Plan pursuant to
which, among other things, the Partnership and EP/2 executed an amended and
restated loan agreement (the "New Master Loan Agreement"). EP/2 was converted
from a California general partnership to a California limited partnership,
Consolidated Capital Equity Partners/Two, L.P. ("CCEP/2"), and CCEP/2 renewed
the deeds of trust and mortgages on all the properties collaterally securing the
New Master Loan Agreement. ConCap Holdings, Inc. ("CHI"), a Texas corporation
and wholly-owned subsidiary of CEI, is the sole general partner of CCEP/2 and an
affiliate of the Partnership. The general partners of EP/2 became limited
partners in CCEP/2. CHI has full discretion with respect to conducting CCEP/2's
business, including managing CCEP/2's properties and initiating and approving
capital expenditures and asset dispositions and refinancings. See "Note C" for
further discussion of EP/2's bankruptcy settlement.
Upon the Partnership's formation in 1983, CCEC, a Colorado corporation, was the
corporate general partner. In December 1988, CCEC filed for reorganization under
Chapter 11. In 1990, as part of CCEC's reorganization plan, ConCap Equities,
Inc., a Delaware corporation (the "General Partner" or "CEI") acquired CCEC's
general partner interests in the Partnership and in 15 other affiliated public
limited partnerships and replaced CCEC as managing general partner in all 16
partnerships. The General Partner is a subsidiary of Apartment Investment and
Management Company ("AIMCO"). See "Note B - Transfer of Control." The directors
and officers of the General Partner also serve as executive officers of AIMCO.
The Partnership Agreement provides that the Partnership is to terminate on
December 31, 2013 unless terminated prior to such date. The Partnership
commenced operations on July 22, 1983. The Partnership was formed for the
benefit of its Limited Partners to lend funds to EP/2.
The Partnership is the holder of a note receivable which is collateralized by
three existing apartment properties and one apartment property which is
currently being rebuilt located throughout the United States.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents: Includes cash on hand and in banks and money market
accounts. At certain times, the amount of cash deposited at a bank may exceed
the limit on insured deposits.
Investment in Master Loan: The Partnership has adopted Financial Accounting
Standards Board Statement No. 114, "Accounting by Creditors for Impairment of a
Loan"("Statement 114"). Under the standard, the allowance for credit losses
related to loans that are identified for evaluation in accordance with
"Statement 114" is based on discounted cash flows using the loan's initial
effective interest rate or the fair value of the collateral for certain
collateral dependent loans.
Investments: Investments, stated at cost of approximately $11,000, consist of
Southmark Corporation Redeemable Series A Preferred Stock. These investments are
classified as available for sale and are included in other assets.
Income Taxes: No provision has been made in the financial statements for Federal
income taxes because, under current law, no Federal income taxes are paid
directly by the Partnership. The Unit holders are responsible for their
respective shares of Partnership net income or loss. The Partnership reports
certain transactions differently for tax than for financial statement purposes.
Partners' (Deficit) Capital: The Partnership Agreement provides for net income
and net losses for both financial and tax reporting purposes to be allocated 99%
to the Limited Partners and 1% to the General Partner. "Distributable Cash from
Operations", as defined in the Partnership Agreement, is to be allocated 99% to
the Limited Partners and 1% to the General Partner. Distributions of surplus
funds are to be allocated 100% to the Limited Partners.
Net Income Per Limited Partnership Unit: Net income per Limited Partnership Unit
("Unit") is computed by dividing net income allocated to the Limited Partners by
the number of Units outstanding. Per Unit information has been computed based on
909,123.60 Units outstanding in 2000 and 1999 and 909,133.80 units outstanding
in 1998.
Fair Value of Financial Instruments: Statement of Financial Accounting Standards
("SFAS") No. 107, "Disclosures about Fair Value of Financial Instruments", as
amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and
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 approximates their fair value due to the short term
maturity of these instruments. The carrying amount of the Partnership's net
investment in the Master Loan approximates fair value due to the fact that it
has been valued based on the fair value of the underlying collateral.
Allowance for Impairment Loss: Allowances to reduce the carrying cost of the
Master Loan are provided when it is probable that reasonably estimable net
realizable values are less than the recorded carrying cost of such investment.
Gains or losses that result from the ongoing periodic evaluation of the net
realizable value of the Master Loan are credited or charged, as appropriate, to
operations in the period in which they are identified. If a collateral party is
sold, CCEP/2 remains liable for any outstanding debt under the Master Loan
Agreement, however, the value of the net investment in Master Loan on the
Partnership's books would be written down to the appropriate level.
Segment Reporting: SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information" ("Statement 131") established standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. As defined in SFAS No. 131, the
Partnership has only one reportable segment. Moreover, due to the very nature of
the Partnership's operations, the General Partner believes that segment-based
disclosures will not result in a more meaningful presentation than the financial
statements as presently presented.
Note B - Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into AIMCO, a publicly traded real estate investment trust, with AIMCO
being the surviving corporation (the "Insignia Merger"). As a result, AIMCO
acquired 100% ownership interest in the General Partner. The General Partner
does not believe that this transaction has had or will have a material effect on
the affairs and operations of the Partnership.
Note C - Net Investment in Master Loan
At December 31, 2000, the recorded investment in the Master Loan is considered
to be impaired under SFAS No. 114. The Partnership measures 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 year ended December 31, 1998, the Partnership recorded approximately
$13,586,000 in income based upon an increase in the fair value of the
collateral. No such income was recorded in 2000 and 1999 as the recorded value
of the Master Loan approximated the fair value of the collateral at December 31,
2000 and 1999.
The principal balance of the Master Loan due to the Partnership totaled
approximately $39,779,000 and $47,503,000 at December 31, 2000 and 1999,
respectively. Interest due to the Partnership pursuant to the terms of the
Master Loan Agreement, but not recognized in the income statements, totaled
approximately $23,722,000, $23,964,000 and $22,609,000 for the years ended
December 31, 2000, 1999 and 1998, respectively.
At December 31, 2000 and 1999, such cumulative unrecognized interest totaling
approximately $223,972,000 and $200,250,000 was not included in the balance of
the investment in Master Loan as it is not expected to be collected. The
allowance for possible losses totaled approximately $29,129,000 at December 31,
2000 and 1999.
No advances were made to CCEP/2 during the year ended December 31, 2000 or 1999
as an advance on the Master Loan. During the year ended December 31, 1998, an
advance of $220,000 was made to CCEP/2 as an advance on the Master Loan. CCEP/2
has approximately $16,452,000 in liens on the collateral that are superior to
the Master Loan.
The investment in Master Loan consists of the following:
As of December 31,
2000 1999
(in thousands)
Master Loan funds advanced, at
beginning of year $ 47,503 $ 80,614
Principal receipts on Master Loan (7,724) (33,111)
Master Loan funds advanced, at
end of year $ 39,779 $ 47,503
The allowance for impairment loss on Master Loan to affiliates consists of the
following:
As of December 31,
2000 1999 1998
(in thousands)
Allowance for impairment loss on Master
Loan to affiliates, beginning of year $ 29,129 $ 29,129 $ 42,715
Reduction of provision for impairment loss -- -- (13,586)
Allowance for impairment loss on Master
Loan to affiliates, end of year $ 29,129 $ 29,129 $ 29,129
The fair value of the collateral properties was determined using the net
operating income of the collateral properties capitalized at a rate deemed
reasonable for the type of property adjusted for market conditions, physical
condition of the property and other factors, or by obtaining an appraisal by an
independent third party. This methodology has not changed from that used in
prior calculations performed by the General Partner in determining the fair
value of the collateral properties. The approximate $13,586,000 net reduction in
the provision for impairment loss that was recognized during the year ended
December 31, 1998 is attributed to an increase in the net realizable value of
the collateral properties. The General Partner evaluates the net realizable
value on a semi-annual basis. The General Partner had seen a consistent increase
in the net realizable value of the collateral properties, taken as a whole
during 1998 and 1997. The increase was deemed to be attributable to major
capital improvement projects and the strong effort to complete deferred
maintenance items that have been ongoing over the past few years at the various
properties. This enabled the properties to increase their respective occupancy
levels or in some cases to maintain the properties' high occupancy levels. The
vast majority of this work was funded by cash flow from the collateral
properties themselves as the total amount borrowed on the master loan or from
other sources in the past few years for this purpose totals $1,150,000. Based
upon the consistent increase in net realizable value of the collateral
properties, the General Partner determined the increase to be permanent in
nature and accordingly reduced the allowance for impairment loss on the master
loan during the year ended December 31, 1998. There has not been any change in
the net realizable value of the remaining collateral properties for the years
ended December 31, 2000 and 1999 and accordingly, there has not been any change
in the allowance for impairment loss during the years ended December 31, 2000
and 1999. If the Partnership forecloses on the properties securing the Master
Loan, title in the properties owned by CCEP/2 would be vested in the
Partnership, subject to the existing liens on such properties including the
first mortgage loans. As a result, the Partnership would become responsible for
the operations of such properties.
Approximately $1,198,000, $998,000 and $1,200,000 for the years ended December
31, 2000, 1999, and 1998, respectively was recorded as interest income on
investment in the Master Loan to an affiliate based upon cash generated as a
result of improved operations of the properties which secure the loan. Of the
$1,198,000 received during 2000, $853,000 was received from Village Brooke as a
result of its receipt of a portion of the insurance proceeds due from the
destruction of the property (see the Financial Statements of Consolidated
Capital Equity Partners/Two, L.P. ("CCEP/2") Note C - Casualty Event, included
in these financial statements). In addition, a cash payment of $345,000 was
received from CCEP/2 as an excess cash payment during 2000. Cash payments of
$575,000 and $423,000 were received from CCEP/2 during the second and fourth
quarters, respectively of 1999. Cash payments of $564,000, $505,000 and
$131,000, respectively, were received from CCEP/2 during its second, third and
fourth quarters of 1998. In accordance with the terms of the Master Loan
Agreement the Partnership received approximately $5,500,000 of net proceeds from
the refinance of three of CCEP/2's properties during 2000, approximately
$2,090,000 of funds previously reserved associated with the destruction of
Village Brooke which were released during 2000 and approximately $32,034,000 of
net proceeds from the sale of seven of CCEP/2's properties during 1999.
Terms of the New Master Loan Agreement
Under the terms of the New Master Loan Agreement, interest accrues at 10% and
payments are due quarterly in an amount equal to Excess Cash Flow, generally
defined in the New Master Loan Agreement as net cash flow after third party debt
service and capital improvements. If such Excess Cash Flow payments are less
than the current accrued interest during the quarterly period, the unpaid
interest is added to principal, compounded annually, and is payable at maturity.
If such Excess Cash Flow payments are greater than the current accrued interest,
the excess amount is applied to the principal balance of the loan. Any net
proceeds from the sale or refinancing of any of CCEP/2's properties are paid to
the Partnership under the terms of the New Master Loan Agreement. The New Master
Loan Agreement matured in November 2000. The Partnership is currently evaluating
its options and is in negotiations with CCEP/2. The options include foreclosing
on the remaining properties that collateralize the Master Loan or extending the
terms of the loan. If the Partnership forecloses on the properties securing the
Master Loan, title in the properties owned by CCEP/2 would be vested in the
Partnership, subject to the existing liens on such properties including the
first mortgage loans. As a result, the Partnership would become responsible for
the operations of such properties.
Effective January 1, 1993, the Partnership and CCEP/2 amended the New Master
Loan Agreement to stipulate that Excess Cash Flow would be computed net of
capital improvements. Such expenditures were formerly funded from advances on
the Master Loan from the Partnership to CCEP/2. This amendment and change in the
definition of Excess Cash Flow has the effect of reducing income on the
investment in Master Loan by the amount of CCEP/2's capital expenditures, since
such amounts were previously excluded from Excess Cash Flow.
EP/2's Bankruptcy Settlement: In November 1990, pursuant to EP/2's
reorganization plan described in "Note A", the Partnership and EP/2 consummated
a closing pursuant to which: (1) the Partnership and EP/2 executed the New
Master Loan Agreement more fully described below; (2) CCEP/2 renewed the deeds
of trust on all the collateral securing the Master Loan; (3) the Partnership
received cash of approximately $2,500,000, including $1,800,000 from the general
partners of EP/2 related to their promissory notes; (4) the Partnership accepted
assignment of certain partnership interests in affiliated partnerships (the
"Affiliated Partnership Interests"), which were valued by management of the
Partnership at approximately $2,500,000, as additional collateral securing the
Master Loan; and (5) all claims between the Partnership and EP/2's general
partners were released.
EP/2 was the holder of a note receivable secured by North Park Plaza which had
not been performing according to the note terms since 1989. In the process of
negotiating the final bankruptcy settlement discussed above, EP/2 assigned its
interest in the note receivable to the Partnership. The Partnership foreclosed
upon and acquired North Park Plaza in July 1990, CCEP/2 is still obligated for
$6,600,000 under the Master Loan attributable to North Park Plaza not
extinguished in the foreclosure proceeding.
Note D - Transaction with Affiliated Parties
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 Agreement (the "Agreement") provides for reimbursement to the
General Partner and its affiliates for costs incurred in connection with the
administration of Partnership activities. The following payments were made to
the General Partner and affiliates during the years ended December 31, 2000,
1999, and 1998:
For the years ended December 31,
2000 1999 1998
(in thousands)
Reimbursements for services of affiliates
(included in general and administrative
expenses) $ 444 $ 217 $ 303
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $444,000, $217,000 and
$303,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 421,739.60 limited partnership units
in the Partnership representing 46.39% of the outstanding units at December 31,
2000. 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 limited partnership interests in the Partnership for cash or
in exchange for units in the operating partnership of AIMCO either through
private purchases or tender offers. In this regard, on February 8, 2001, AIMCO
Properties, L.P., commenced a tender offer to acquire all of the Units not owned
by affiliates of AIMCO for a purchase price of $31.00 per Unit. Pursuant to this
offer, AIMCO acquired an additional 2,784.30 units resulting in its total
ownership being increased to 424,523.90 units or 46.70% of the total outstanding
units. Under the Partnership Agreement, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters, which
would include without limitation, voting on certain amendments to the
Partnership Agreement and voting to remove the General Partner. As a result of
its ownership of 46.70% of the outstanding units, AIMCO is in a position to
significantly influence all voting decisions with respect to the Registrant.
When voting on matters, AIMCO would in all likelihood vote the Units it acquired
in a manner favorable to the interest of the General Partner because of their
affiliation with the General Partner.
Note E - Contingencies
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 the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, its General Partner and several of their affiliated
partnerships and corporate entities. The action 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, among other things, the acquisition of interests in
certain general partner entities by Insignia Financial Group, Inc. ("Insignia")
and entities which were, at one time, affiliates of Insignia; past tender offers
by the Insignia affiliates to acquire limited partnership units; management of
the partnerships by the Insignia affiliates; and the Insignia Merger. The
plaintiffs seek monetary damages and equitable relief, including judicial
dissolution of the Partnership. On June 25, 1998, the General Partner filed a
motion seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs filed an amended complaint. The General Partner filed demurrers to
the amended complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the General Partner and its affiliates terminated the
proposed settlement. In February 2000, counsel for some of the named plaintiffs
filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated
the settlement. On June 27, 2000, the Court entered an order disqualifying them
from the case and an appeal was taken from the order on October 5, 2000. On
December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann &
Bernstein LLP as new lead counsel for plaintiffs and the putative class.
Plaintiffs filed a third amended complaint on January 19, 2001. On March 2,
2001, the General Partner and its affiliates filed a demurrer to the third
amended complaint. The General Partner does not anticipate that costs associated
with this case will be material to the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
Note F - Commitment
Until October 17, 2000, the Partnership was 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. In the
event expenditures were made from this reserve, operating revenues were to be
allocated to such reserve to the extent necessary to maintain the foregoing
level. On September 16, 2000, the Partnership sought the vote of limited
partners to amend the Partnership Agreement to eliminate the requirement for the
Partnership to maintain reserves equal to at least 5% of the limited partners'
capital contributions less distributions to limited partners and instead permit
the General Partner to determine reasonable reserve requirements of the
Partnership. The vote was sought pursuant to a Consent Solicitation that expired
on October 16, 2000 at which time the amendment was approved by the requisite
percent of limited partnership interests. Upon expiration of the consent period,
a total number of 488,079.40 units had voted of which 469,876.40 units had voted
in favor of the amendment, 15,160.70 units voted against the amendment and
3,042.30 units abstained.
Note G - Distribution
The following table sets forth the distributions made by the Partnership for the
years ended December 31, 1998, 1999 and 2000 and subsequent to December 31,
2000.
Distributions
Per Limited
Aggregate Partnership Unit
01/01/98 - 12/31/98 $ 2,985,000 (1) $ 3.28
01/01/99 - 12/31/99 37,995,000 (2) 41.73
01/01/00 - 12/31/00 13,383,000 (3) 14.70
Subsequent to 12/31/01 1,300,000 (4) 1.43
(1) Distribution was made from surplus funds which was distributed 100% to
the limited partners.
(2) Consists of $323,000 from surplus funds and $32,000,000 from sale proceeds
of CCEP/2 commercial proceeds distributed 100% to the limited partners and
$5,672,000 from operations (approximately $5,616,000 to the limited
partners or $6.18 per limited partnership unit) distributed to all
partners.
(3) Consists of $2,000,000 (approximately $1,980,000 to the limited partners
or $2.18 per limited partnership unit) from operations which was
distributed to all partners and $4,200,000 all to the limited partners
(approximately $4.62 per limited partnership unit) from refinancing
proceeds of Windmere Apartments and Highcrest Townhomes in CCEP/2 and
$7,183,000 (approximately $7.90 per limited partnership unit) from surplus
funds distributed all to the limited partners.
(4) Consists of approximately $1,300,000 (approximately $1.43 per limited
partnership unit) from the refinancing proceeds of Canyon Crest Apartments
in CCEP/2 all to the limited partners.
Note H - Abandonment of Units
In 1999, the number of limited partnership units decreased by 10 due to limited
partners abandoning their units. In abandoning his or her Limited Partnership
Units, a limited partner relinquished all right, title and interest in the
Partnership as of the date of abandonment. However, during the year of
abandonment, the limited partner is allocated his or her share of the income or
loss for that year. The net income (loss) per limited partnership unit is
calculated based on the number of units outstanding at the beginning of the
year.
Note I - Partner Tax Information
The following is a reconciliation between net income as reported in the
financial statements and federal taxable loss allocated to the partners in the
Partnership's information return for the years ended December 31, 2000, 1999 and
1998 (in thousands, except per unit data):
2000 1999 1998
Net income as reported $ 876 $ 808 $ 14,547
Add (deduct):
Accrued expenses 11 44 4
Interest income (1,198) (1,129) (1,200)
Valuation allowances -- -- (13,586)
Other -- 35 36
Federal taxable loss $ (311) $ (312) $ (199)
Federal taxable loss per limited
partnership unit $ (.34) $ (.34) $ (.22)
The tax basis of the Partnership's assets and liabilities is approximately
$77,703,000 and $78,891,000 greater than the assets and liabilities as reported
in the financial statements at December 31, 2000 and 1999, respectively.
Note J - Selected Quarterly Financial Data (unaudited)
The following is a summary of the unaudited quarterly results of operations for
the Partnership (in thousands, except per unit data):
Year Ended December 31, 2000
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
Total revenues $ 75 $ 1,283 $ 82 $ 80 $ 1,520
Total expenses 87 179 242 136 644
Net (loss) income $ (12) $ 1,104 $ (160) $ (56) $ 876
Net (loss) income per
Limited Partnership Unit $ (.01) $ 1.20 $ (.17) $ (.07) $ .95
Distribution per Limited
Partnership Unit $ -- $ 2.18 $ .64 $ 11.88 $ 14.70
Year Ended December 31, 1999
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
Total revenues $ 40 $ 647 $ 50 $ 591 $ 1,328
Total expenses 125 180 122 93 520
Net (loss) income $ (85) $ 467 $ (72) $ 498 $ 808
Net (loss) income per
Limited Partnership Unit $ (.09) $ .51 $ (.08) $ .54 $ .88
Distribution per Limited
Partnership Unit $ 4.90 $ -- $ -- $ 36.83 $ 41.73
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
AS OF DECEMBER 31, 2000
LIST OF CONSOLIDATED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998
Consolidated Statements of Partners' Deficit for the Years Ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners
Consolidated Capital Equity Partners/Two, L.P.
We have audited the accompanying consolidated balance sheets of Consolidated
Capital Equity Partners/Two, L.P. as of December 31, 2000 and 1999, and the
related consolidated statements of operations, changes in partners' deficit, and
cash flows for each of the three years in the period ended December 31, 2000.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the Partnership's management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Consolidated
Capital Equity Partners/Two, L.P. at December 31, 2000 and 1999, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Partnership will continue as a going concern. As discussed in Note A to
the consolidated financial statements, the Partnership has incurred operating
losses, suffers from inadequate liquidity, has an accumulated deficit and is
unable to repay the Master Loan balance, which matured in 2000. These conditions
raise substantial doubt about the Partnership's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note A. The consolidated financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
March 15, 2001
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31,
2000 1999
Assets
Cash and cash equivalents $ 2,972 $ 3,747
Restricted cash -- 7,750
Receivables and deposits (net of allowance of $259) 433 853
Restricted escrows 406 139
Other assets 426 260
Investment properties: (Notes E, F and H)
Land 2,731 2,731
Buildings and related personal property 18,296 17,228
21,027 19,959
Less accumulated depreciation (12,434) (11,317)
8,593 8,642
$ 12,830 $ 21,391
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 143 $ 323
Tenant security deposit liabilities 115 194
Accrued property taxes 533 546
Other liabilities 250 812
Mortgage notes (Note F) 16,452 15,557
Master loan and interest payable (Note E) 263,751 247,753
281,244 265,185
Partners' Deficit
General Partner (2,670) (2,424)
Limited Partners (265,744) (241,370)
(268,414) (243,794)
$ 12,830 $ 21,391
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
FOR THE YEARS ENDED DECEMBER 31,
2000 1999 1998
Revenues: (restated)
Rental income $ 4,788 $ 5,597 $ 6,322
Other income 820 610 663
Casualty gain 250 5,473 --
Total revenues 5,858 11,680 6,985
Expenses:
Operating 1,976 2,173 2,805
General and administrative 430 510 991
Depreciation 1,117 1,145 1,438
Interest 25,912 26,210 25,061
Property taxes 533 570 559
Total expenses 29,968 30,608 30,854
Loss before discontinued operations and
extraordinary item (24,110) (18,928) (23,869)
Income from discontinued operations -- 3 1,204
Gain on sale of discontinued operations -- 20,753 52
(Loss) income before extraordinary item (24,110) 1,828 (22,613)
Extraordinary loss on early extinguishment
of debt (Note F) (510) (31) --
Net (loss) income $(24,620) $ 1,797 $(22,613)
Net (loss) income allocated to general
partner (1%) $ (246) $ 18 $ (226)
Net (loss) income allocated to limited
partners (99%) (24,374) 1,779 (22,387)
$(24,620) $ 1,797 $(22,613)
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
(in thousands)
General Limited
Partner Partners Total
Partners' deficit
at December 31, 1997 $ (2,216) $(220,762) $ (222,978)
Net loss for the year ended
December 31, 1998 (226) (22,387) (22,613)
Partners' deficit at
December 31, 1998 (2,442) (243,149) (245,591)
Net income for the year ended
December 31, 1999 18 1,779 1,797
Partners' deficit at
December 31, 1999 (2,424) (241,370) (243,794)
Net loss for the year ended
December 31, 2000 (246) (24,374) (24,620)
Partners' deficit at
December 31, 2000 $ (2,670) $(265,744) $ (268,414)
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
FOR THE YEARS ENDED DECEMBER 31,
2000 1999 1998
Cash flows from operating activities:
Net (loss) income $(24,620) $ 1,797 $ (22,613)
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation 1,117 3,843 4,975
Amortization of loan costs, lease commissions
and ground lease 52 60 605
Gain on sale of discontinued operations -- (20,753) (52)
Extraordinary loss on early extinguishment of debt 510 31 --
Casualty gain (250) (5,473) --
Change in accounts:
Restricted cash 7,750 (7,750) --
Receivables and deposits 420 1,218 (178)
Other assets 3 337 (48)
Accounts payable (180) 56 (429)
Tenant security deposit liabilities (79) (387) 17
Accrued property taxes (13) (199) (25)
Other liabilities (562) (123) (94)
Interest on Master Loan 23,722 23,963 21,975
Net cash provided by (used in) operating
activities 7,870 (3,380) 4,133
Cash flows from investing activities:
Insurance proceeds received 308 8,406 --
Property improvements and replacements (1,126) (2,431) (2,591)
Proceeds from sale of discontinued operations -- 35,180 52
Net deposits to restricted escrows (267) (550) (454)
Lease commissions paid -- -- (527)
Net cash (used in) provided by investing
activities (1,085) 40,605 (3,520)
Cash flows from financing activities:
Prepayment penalty (335) (4) --
Advances on Master Loan -- -- 220
Loan costs paid (396) -- --
Principal payments on mortgage notes payable (63) (247) (286)
Principal payments on Master Loan (7,724) (33,111) (155)
Proceeds from mortgage notes payable 16,475 -- --
Repayment of mortgage notes payable (15,517) (2,315) --
Net cash used in financing activities (7,560) (35,677) (221)
Net (decrease) increase in cash and cash
equivalents (775) 1,548 392
Cash and cash equivalents at beginning of period 3,747 2,199 1,807
Cash and cash equivalents at end of period $ 2,972 $ 3,747 $ 2,199
Supplemental disclosure of cash flow information:
Cash paid for interest $ 2,155 $ 3,630 $ 4,306
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Organization and Summary of Significant Accounting Policies
The Partnership's financial statements have been prepared assuming that the
Partnership will continue as a going concern. The Partnership continues to incur
operating losses, suffers from inadequate liquidity, has an accumulated deficit,
and is unable to repay the Master Loan balance which matured in 2000. The
Partnership realized a net loss of approximately $24,620,000 for the year ended
December 31, 2000. The General Partner expects the Partnership to continue to
incur such losses from operations.
The Partnership's indebtedness to CCIP/2 under the Master Loan of approximately
$263,751,000, including accrued interest, matured in November 2000. The General
Partner is currently in negotiations with CCIP/2 with respect to its options
which include CCIP/2 foreclosing on the properties in CCEP/2 which
collateralized the Master Loan or extending the terms of the Master Loan. The
Partnership does not have the means with which to satisfy this obligation. No
other sources of additional financing have been identified by the Partnership,
nor does the General Partner have any other plans to remedy the liquidity
problems the Partnership is currently experiencing. At December 31, 2000,
partners' deficit was approximately $268,414,000.
The General Partner expects revenues from the four investment properties will be
sufficient over the next twelve months to meet all property operating expenses,
mortgage debt service requirements and capital expenditure requirements.
However, these cash flows will be insufficient to repay to CCIP/2 the Master
Loan balance, including accrued interest, in the event it is not renegotiated.
As a result of the above, there is substantial doubt about the Partnership's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or amounts and classifications of liabilities that may
result from these uncertainties.
Organization: Equity Partners/Two ("EP/2"), a California Corporate General
Partnership, was formed on April 28, 1983, to engage in the business of
acquiring, operating and holding equity investments in income-producing real
estate properties. Certain of the general partners of EP/2 were former
shareholders and former management of Consolidated Capital Equities Corporation
("CCEC"), the former corporate general partner of CCIP/2 (as defined below). On
November 16, 1990, pursuant to the bankruptcy settlement discussed below, EP/2's
general partners executed a new partnership agreement (the "New Partnership
Agreement") whereby EP/2 converted from a general partnership to a California
limited partnership, Consolidated Capital Equity Partners/Two, L.P. ("CCEP/2").
The general partners of EP/2 became limited partners of CCEP/2. ConCap Holdings,
Inc. ("CHI"), a Texas corporation, is CCEP/2's General Partner.
The operations of EP/2 were financed substantially through nonrecourse notes
with participation interests (the "Master Loan") from Consolidated Capital
Institutional Properties/2 ("CCIP/2"), a California limited partnership. These
notes are secured by the real properties owned by and notes receivable on sold
properties owed to CCEP/2. The Partnership Agreement provides that the
Partnership is to terminate on June 24, 2011 unless terminated prior to such
date. The Partnership commenced operations on April 28, 1983. The Partnership
currently owns three apartment properties one each located in Colorado,
Illinois, and Texas and is currently rebuilding a fourth apartment building
which is located in Ohio. Six commercial properties were sold in September, 1999
and one commercial property was sold in December 1999.
Principles of Consolidation: The financial statements include all the amounts of
the Partnership and its 99.00% owned partnership. The General Partner of the
consolidated partnerships is ConCap Holdings, Inc. ConCap Holdings Inc. may be
removed as the general partner of the consolidated partnership by the
Registrant; therefore, the consolidated partnerships are controlled and
consolidated by the Registrant. All significant interpartnership balances have
been eliminated.
EP/2 Bankruptcy and Reorganization: During 1989, EP/2 defaulted on certain
interest payments that were due to CCIP/2 under the Master Loan and, before
CCIP/2 was able to exercise its remedies for such default, EP/2 filed for
bankruptcy protection in a Chapter 11 reorganization proceeding ("Chapter 11").
On October 18, 1990, the bankruptcy court approved EP/2's consensual plan of
reorganization (the "Plan"). On November 16, 1990, CCIP/2 consummated a closing
under the Plan pursuant to which: (1) CCIP/2 and EP/2 executed an amended and
restated loan agreement ("New Master Loan Agreement"); (2) CCEP/2 renewed the
deeds of trust on all collateral securing the Master Loan; (3) EP/2 paid CCIP/2
cash of approximately $2.5 million, including $1.8 million contributed by the
Corporate General Partners of EP/2 related to their promissory notes; (4) the
general partners of EP/2 contributed certain partnership interests in affiliated
partnerships ("General Partnership Interests"), which were valued by management
of CCIP/2 at approximately $2.5 million, that were assigned to CCIP/2 as
additional collateral securing the Master Loan and (5) all liabilities and
claims between EP/2's general partners and CCIP/2 were released. See "Note E"
for a description of the terms of the New Master Loan Agreement.
The Corporate Managing General Partner of EP/2 was Consolidated Capital
Enterprises, Inc. ("CCEI"), a Georgia corporation. In December 1988, CCEC filed
for Chapter 11 protection. In October 1990, as part of CCEC's reorganization
plan, CCEC sold its general partner interest in CCIP/2 to ConCap Equities, Inc.
("CEI"), a Delaware corporation. Pursuant to the New Partnership Agreement as
discussed above, CHI, a wholly-owned subsidiary of CEI, became the sole general
partner of CCEP/2, replacing CCEI, and the former general partners of EP/2
became limited partners of CCEP/2. Pursuant to the New Partnership Agreement,
CCEP/2 is managed by CHI and CHI has full discretion with respect to conducting
CCEP/2's business. CHI and the limited partners are hereinafter referred to
collectively as the "Partners." All of CEI's outstanding stock is owned by
Insignia Properties Trust, an affiliate of Apartment Investment and Management
Company ("AIMCO"). (See Note B - Transfer of Control).
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents: Includes cash on hand and in banks and money market
accounts. At certain times, the amount of cash deposited at a bank may exceed
the limit on insured deposits. Cash balances include approximately $1,864,000 at
December 31, 2000 that are maintained by the affiliated management company on
behalf of affiliated entities in cash concentration accounts.
Tenant Security Deposits: The Partnership requires security deposits from
lessees for the duration of the lease and such deposits are included in
receivables and deposits. Deposits are refunded when the tenant vacates,
provided the tenant has not damaged its space and is current on its rental
payments.
Depreciation: Depreciation is provided by the straight-line method over the
estimated lives of the apartment properties and related personal property. For
Federal income tax purposes, the accelerated cost recovery method is used (1)
for real property over 15 years for additions prior to March 16, 1984, 18 years
for additions after March 15, 1984, and before May 9, 1985, and 19 years for
additions after May 8, 1985, and before January 1, 1987, and (2) for personal
property over 5 years for additions prior to January 1, 1987. As a result of the
Tax Reform Act of 1986, for additions after December 31, 1986, the modified
accelerated cost recovery method is used for depreciation of (1) real property
additions over 27 1/2 years and (2) personal property additions over 5 years.
Loan Costs: Loan costs of approximately $397,000 and approximately $418,000 at
December 31, 2000 and 1999, respectively, less accumulated amortization of
approximately $7,000 and $198,000, at December 31, 2000 and 1999, respectively
are included in other assets and are being amortized on a straight-line basis
over the life of the loans. The amortization expense is included in interest
expense. As a result of the refinance of three of the Partnership's residential
properties, Windmere Apartments, Highcrest Townhomes Apartments, and Canyon
Crest Apartments, and the repayment of the mortgage notes which had encumbered
the Partnership's other residential property, Village Brooke, loan costs of
approximately $175,000, net of accumulated amortization were written off in
2000. As a result of the sale of Town Center and Richmond Plaza, loan costs of
approximately $27,000, net of accumulated amortization were written off in 1999.
Advertising: The Partnership expenses the costs of advertising as incurred.
Advertising costs of approximately $116,000, $159,000, and $156,000 for the
years ended December 31, 2000, 1999 and 1998, respectively, were charged to
expense as incurred.
Investment Properties: Investment properties consist of four apartment complexes
and are stated at cost. Acquisition fees are capitalized as a cost of real
estate. In accordance with Financial Accounting Standards Board Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," the Partnership records impairment losses on
long-lived assets used in operations when events and circumstances indicate that
the assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets.
Costs of properties that have been permanently impaired have been written down
to appraised value. No adjustments for impairment of value were recorded in the
years ended December 31, 2000, 1999, and 1998.
Leases: The Partnership generally leases apartment units for twelve-month terms
or less. The Partnership recognizes income as earned on its leases. In addition,
the General Partner's policy is to offer rental concessions during particularly
slow months or in response to heavy competition from other similar complexes in
the area. Concessions are charged against rental income as incurred.
The Partnership leased certain commercial space to tenants under various lease
terms. The leases were accounted for as operating leases in accordance with
"Financial Accounting Standards Board Statement No. 13." Some of the leases
contained stated rental increases during their term. For leases with fixed
rental increases, rents were recognized on a straight-line basis over the terms
of the lease.
For all other leases, minimum rents were recognized over the terms of the
leases.
Restricted Escrow:
Reserve Account: A general Reserve Account was established in 1996 with the
refinancing proceeds for each mortgaged property. These funds were established
to cover necessary repairs and replacements of existing improvements, debt
service, out of pocket expenses incurred for ordinary and necessary
administrative tasks, and payment of real property taxes and insurance premiums.
The Partnership was required to make quarterly deposits of net operating income
(as defined in the mortgage note) from each refinanced property to the
respective reserve account. The balance at December 31, 1999, was approximately
$139,000 which includes interest. As a result of the refinancings of three of
the residential properties in 2000, the reserve accounts were no longer required
and the balances in each property's account was refunded during 2000.
Capital Improvement Account: A Capital Improvement Account was also established
in 1996 with the refinancing proceeds from Richmond Plaza. This fund was
established to cover necessary repairs and replacements of existing
improvements, debt service, out of pocket expenses incurred for ordinary and
necessary administrative tasks, and payment of real property taxes and insurance
premiums. The Partnership is required to make quarterly deposits of net
operating income (as defined in the mortgage note). The property was sold in
December 1999 with the balance in this account being transferred to the buyer.
Completion/Repair Escrow: A completion/repair escrow account was established in
2000 with the refinancing proceeds for Windmere Apartments, Highcrest Townhomes,
and Canyon Crest Apartments. The funds were established to cover necessary
repairs and complete various capital projects as noted for each property. The
accounts were funded with proceeds from each mortgage refinancing and total
$406,000 at December 31, 2000.
Lease Commissions: Lease commissions are capitalized and amortized using the
straight-line method over the life of the applicable lease. The seven commercial
properties for which lease commissions were applicable were sold during 1999,
and the corresponding balance in lease commissions was written off.
Allocation of Net Income and Cash Distributions: Pursuant to the Partnership
Agreement, net income and net losses for both financial and tax reporting
purposes are allocated 99% to the Limited Partners and 1% to CHI. Distributions
to the Partners are not allowed until CCEP/2 has fully paid and performed under
the terms of the Master Loan.
Income Taxes: No provision has been made in the financial statements for Federal
income taxes because under current law, no Federal income taxes are paid
directly by CCEP/2. The Partners are responsible for their respective shares of
CCEP/2's net income or loss. CCEP/2 reports certain transactions differently for
tax than for financial statement purposes.
The tax basis of the Partnership's assets and liabilities is approximately
$212,361,000 and $187,178,000 greater than the assets and liabilities as
reported in the financial statements for the years ended December 31, 2000 and
1999, respectively.
Note B - Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into AIMCO, a publicly traded real estate investment trust, with AIMCO
being the surviving corporation (the "Insignia Merger"). As a result, AIMCO
acquired 100% ownership interest in the General Partner. The General Partner
does not believe that this transaction has had or will have a material effect on
the affairs and operations of the Partnership.
Note C - Casualty Event
In April 1999, one of the Partnership's residential properties, Village Brooke,
was completely destroyed by a tornado. It is estimated that the property
sustained approximately $16,000,000 in damages. As of December 31, 2000,
approximately $11,302,000 in insurance proceeds have been received, which
includes approximately $1,302,000 received in 2000. All of the property's fixed
assets and related accumulated depreciation were written off as a result of this
casualty. Lost rents of approximately $417,000 and $750,000 have been recorded
as of December 31, 2000 and 1999, respectively. A casualty gain of approximately
$250,000 was recognized at December 31, 2000 as a result of receiving additional
insurance proceeds which were previously not recognized net of approximately
$577,000 of additional clean up and demolition costs incurred. A casualty gain
of approximately $5,473,000 was recognized at December 31, 1999.
In April 1999, an electrical fire occurred at Town Center. The property
sustained approximately $181,000 in damages and realized a casualty loss of
approximately $33,000 which is included in operating expense. The property was
sold in September (see Note D). The purchaser of the property assumed the
remaining obligations related to the fire.
Note D - Sale of Investment Property-Discontinued Operations
Lahser One, Lahser Two, Crescent Centre, Central Park Place, Central Park Plaza,
Town Center Plaza and Richmond Plaza were the only commercial properties owned
by the Partnership and represented one segment of the Partnership's operations.
All of these properties were sold during 1999 and accordingly the results of the
commercial segment have been shown as gain on sale of and income from
discontinued operations for the years ended December 31, 1999 and 1998. The
consolidated statement of operations for the year ended December 31, 1998 has
been restated to reflect the discontinued segment. Revenues of these properties
were approximately $9,005,000 and $12,250,000 for the years ended December 31,
1999 and 1998, respectively. No revenues from the properties were recorded
during the year ended December 31, 2000. (Loss) income from discontinued
operations was approximately $3,000 and $1,204,000 for the years ended December
31, 1999 and 1998, respectively.
On September 10, 1999, the five commercial properties located in Michigan
(Lahser One, Lahser Two, Crescent Centre, Central Park Place, and Central Park
Plaza) were sold to an unaffiliated third party for $26,125,000. After closing
expenses of approximately $1,727,000 the net proceeds received by the
Partnership were approximately $24,398,000. The sale of the properties resulted
in a gain on sale of investment property of approximately $10,392,000.
On September 22, 1999, Town Center Plaza, located in Santa Ana, California, was
sold to an unaffiliated third party for $11,650,000. After closing expenses of
approximately $1,004,000, the net proceeds received by the Partnership were
approximately $10,646,000. The Partnership used some of the proceeds from the
sale of the property to pay off the debt encumbering the property of
approximately $2,316,000. The sale of the property resulted in a gain on sale of
investment property of approximately $4,862,000 and a loss on early
extinguishment of debt of approximately $7,000.
On December 23, 1999, Richmond Plaza, located in Richmond, Virginia, was sold to
an unaffiliated third party for $14,900,000. Closing expenses were approximately
$784,000. The debt encumbering the property of approximately $14,500,000 was
assumed by the buyer. The sale of the property resulted in a gain on sale of
investment property of approximately $5,499,000 and a loss on early
extinguishment of debt of approximately $24,000 at December 31, 1999.
Note E - Master Loan and Accrued Interest Payable
The Master Loan principal and accrued interest payable balances at December 31,
2000 and 1999, are approximately $263,751,000 and approximately $247,753,000,
respectively.
Terms of Master Loan Agreement
Under the terms of the Master Loan, interest accrues at 10% per annum and
payments are due quarterly in an amount equal to Excess Cash Flow, generally
defined in the Master Loan Agreement as net cash flow from operations after
capital improvements and third-party debt service. If such Excess Cash Flow
payments are less than the current accrued interest during the quarterly period,
the unpaid interest is added to principal, compounded annually, and is payable
at the loan's maturity. If such Excess Cash Flow payments are greater than the
currently payable interest, the excess amount is applied to the principal
balance of the loan. The net proceeds from the refinancing of three of the
residential properties during the years ended December 31, 2000 and the net
proceeds from the sale of the commercial properties during the year ended
December 31, 1999 were paid to CCIP/2 as required under the terms of the Master
Loan Agreement.
Effective January 1, 1993, CCEP/2 and CCIP/2 amended the Master Loan Agreement
to stipulate that Excess Cash Flow would be computed net of capital
improvements. Such expenditures were formerly funded from advances on the Master
Loan from CCIP/2 to CCEP/2. This amendment and change in the definition of
Excess Cash Flow has the effect of reducing Master Loan payments to CCIP/2 by
the amount of CCEP/2's capital expenditures since such amounts were previously
excluded from Excess Cash Flow. The amendment will have no effect on the
computation of interest expense on the Master Loan.
No advances were received from CCIP/2 during the year ended December 31, 2000
and 1999 as an advance on the Master Loan. The Master Loan matured in November
2000. The General Partner has determined that the Master Loan and related
interest payable has no determinable fair value since payments are limited to
net cash flows, as defined, but is not believed to be in excess of the fair
values of the underlying collateral.
The General Partner is currently in negotiations with CCIP/2 with respect to its
options which include CCIP/2 foreclosing on the properties in CCEP/2 which
collateralize the Master Loan or extending the terms of the Master Loan. If
CCIP/2 were to foreclose on its collateral, CCEP/2 would no longer hold title to
its properties and would be dissolved.
During 2000, CCEP/2 paid down the Master Loan by $7,724,000. These payments were
made from distributions received from three affiliated partnerships and from
proceeds received from the refinance of three of the Partnership's residential
properties. During 1999, CCEP/2 paid down the Master Loan by $33,111,000. These
payments were made from distributions received from three affiliated
partnerships, excess cash from the Partnership's investment properties and from
proceeds received from the sale of the Partnership's commercial properties.
During 1998, CCIP/2 loaned approximately $220,000 to CCEP/2 as an advance on the
Master Loan. Also during 1998, CCEP/2 paid down the Master Loan by $155,000.
These payments were made from distributions received from two affiliated
partnerships.
Note F - Mortgage Notes Payable
Principal Monthly Principal Principal
Balance At Payment Stated Balance Balance
December 31, Including Interest Maturity Due At At December 31,
Property 2000 Interest Rate Date Maturity 1999
(in thousands) (in thousands)
Canyon Crest
1st Mortgage $ 3,640 $ 28 7.10% 01/01/11 $ 2,613 $ 2,000
Highcrest
Townhomes
1st Mortgage 6,748 55 7.72% 02/01/10 4,868 4,000
Windemere
1st Mortgage 6,064 50 7.83% 11/01/10 3,905 3,000
Village Brooke
1st Mortgage (1) -- -- -- -- -- 6,557
Totals $16,452 $133 $11,386 $15,557
On October 3, 2000, the Partnership refinanced the mortgage note payable with
GMAC on Windmere Apartments. The refinancing replaced mortgage indebtedness of
$3,000,000 with a new mortgage of $6,075,000. The mortgage was refinanced at a
rate of 7.83% compared to the prior rate of 7.33%. Payments of approximately
$50,000 are due on the first day of each month until the loan matures on
November 1, 2010. A balloon payment of approximately $3,905,000 is due at
maturity. Capitalized loan costs incurred for the refinancing were approximately
$150,000. Prepayment penalties of approximately $95,000 and the write-off of
unamortized loan costs of approximately $50,000 resulted in an extraordinary
loss on early extinguishment of debt of approximately $145,000.
On October 31, 2000, the Partnership refinanced the mortgage note payable on
Highcrest Townhomes. The refinancing replaced mortgage indebtedness of
$4,000,000 with a new mortgage of $6,760,000. The mortgage was refinanced at a
rate of 7.72% compared to the prior rate of 7.33%. Payments of approximately
$55,000 are due on the first day of each month until the loan matures on
February 1, 2010. A balloon payment of approximately $4,868,000 is due at
maturity. Capitalized loan costs incurred for the refinancing were approximately
$141,000. Prepayment penalties of approximately $142,000 and the write-off of
unamortized loan costs of approximately $52,000 resulted in an extraordinary
loss on early extinguishment of debt of approximately $194,000.
On December 21, 2000, the Partnership refinanced the mortgage note payable on
Canyon Crest Apartments. The refinancing replaced mortgage indebtedness of
$2,000,000 with a new mortgage of $3,640,000. The mortgage was refinanced at a
rate of 7.10% compared to the prior rate of 7.33%. Payments of approximately
$28,000 are due on the first day of each month until the loan matures on January
1, 2011. A balloon payment of approximately $2,613,000 is due at maturity.
Capitalized loan costs incurred for the refinancing were approximately $100,000.
Prepayment penalties of approximately $98,000 and the write-off of unamortized
loan costs of approximately $38,000 resulted in an extraordinary loss on early
extinguishment of debt of approximately $136,000.
During the year ended December 31, 2000, the General Partner determined that it
was in the best interest of the Partnership to repay the mortgage note on
Village Brooke. Accordingly, funds which had previously been restricted to
rebuild the property were used to repay the mortgage note which had encumbered
the property of approximately $6,517,000. The Partnership will likely obtain a
construction loan when the re-construction of Village Brooke begins in mid 2001.
An extraordinary loss on early extinguishment of debt of approximately $35,000
was recognized as a result of unamortized loan costs associated with this
mortgage.
The mortgage notes payable are nonrecourse and are collateralized by deeds of
trust on the real property. The mortgage notes require prepayment penalties if
repaid prior to maturity. All of these notes are superior to the Master Loan.
Scheduled principal payments of mortgage notes payable subsequent to December
31, 2000, are as follows (in thousands):
Years Ending December 31,
2001 $ 359
2002 394
2003 426
2004 459
2005 495
Thereafter 14,319
Total $ 16,452
Note G - Related Party Transactions
CCEP/2 has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
Affiliates of the General Partner provide property management and asset
management services to the Partnership. CCEP/2 paid property management fees
based upon collected gross rental revenues for property management services in
each of the years ended December 31, 2000, 1999 and 1998. The Partnership
Agreement (the "Agreement") also provides for reimbursement to the General
Partner and its affiliates for costs incurred in connection with the
administration of CCEP/2's activities.
Also, CCEP/2 is subject to an Investment Advisory Agreement between CCEP/2 and
an affiliate of the General Partner. This agreement provides for an annual fee,
payable in monthly installments, to an affiliate of the General Partner for
advising and consulting services for CCEP/2's properties. The General Partner
and its affiliates received reimbursements and fees for the years ended December
31, 2000, 1999, and 1998 as follows:
2000 1999 1998
Property management fees (included in
operating expenses) $ 257 $ 304 $ 696
Investment advisory fees (included in general
and administrative expense) 178 178 173
Lease commissions -- -- 381
Reimbursement for services of affiliates
(included in operating, general and
administrative expenses, and investment
properties) 172 237 292
Real estate brokerage commissions (included in
gain on sale of discontinued operations) -- 1,581 --
Refinancing fees (included in capitalized loan
costs) 165 -- --
During the years ended December 31, 2000, 1999, and 1998, affiliates of the
General Partner were entitled to receive 5% of gross receipts from the
Registrant's residential properties for providing property management services.
The Registrant paid to such affiliates approximately $257,000, $304,000, and
$696,000 for the years ended December 31, 2000, 1999, and 1998, respectively.
For the years ended December 31, 1998 affiliates of the General Partner were
entitled to receive varying percentages of gross receipts from all the
Registrant's commercial properties for providing property management services.
The Registrant paid to such affiliates $359,000 for the year ended December 31,
1998. No such fees were paid for the year ended December 31, 1999 as these
services were provided by an unrelated third party effective October 1, 1998. As
of December 23, 1999 all of the Registrant's commercial properties were sold.
An affiliate of the General Partner received investment advisory fees amounting
to approximately $178,000 for the years ended December 31, 2000 and 1999 and
$173,000 for the year ended December 31, 1998, respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expense amounting to approximately $172,000, $237,000, and
$292,000 for the years ended December 31, 2000, 1999, and 1998, respectively.
For services provided in connection with the refinancings of three of the
Partnership's residential properties, the General Partner was paid total
commissions related to the refinancings of approximately $165,000 during the
year ended December 31, 2000.
For acting as real estate broker in connection with the sales of seven of the
Partnership's commercial properties, the General Partner was paid a real estate
commission of approximately $1,134,000 during the year ended December 31, 1999.
A commission of $447,000 was paid during the year ended December 31, 2000
relating to the sale of Richmond Plaza which was accrued at December 31, 1999.
In addition to the compensation and reimbursements described above, interest
payments are made to and loan advances are received from Consolidated Capital
Institutional Properties/2 ("CCIP/2") pursuant to the Master Loan Agreement.
Such interest payments totaled approximately $1,198,000, $998,000, and
$1,200,000 for the years ended December 31, 2000, 1999, and 1998, respectively.
Advances of approximately $220,000 were made under the Master Loan Agreement
during the year ended December 31, 1998. No advances were made under the Master
Loan Agreement during the years ended December 31, 2000 and 1999. Additionally,
CCEP/2 made principal payments on the Master Loan of approximately $7,724,000,
$33,111,000 and $155,000 respectively. These funds were received from
distributions from three affiliated partnerships, excess cash from the
Partnership's investment properties, and from proceeds received from the sale of
commercial properties and from proceeds received from the refinance of three of
the Partnership's residential properties.
Note H - Real Estate and Accumulated Depreciation
The investment properties owned by the Partnership consist of the following at
December 31, 2000 (in thousands):
Building
& Related
Personal Accumulated Depreciable
Description Land Interest Total Depreciation Life-Years
Canyon Crest $ 145 $ 3,798 $ 3,943 $ 2,516 3-20
Highcrest Townhomes 707 8,081 8,788 5,461 3-20
Village Brooke 1,099 87 1,186 -- 3-20
Windmere 780 6,330 7,110 4,457 3-20
Total $ 2,731 $18,296 $ 21,027 $12,434
Note I - 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 the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, its General Partner and several of their affiliated
partnerships and corporate entities. The action 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, among other things, the acquisition of interests in
certain general partner entities by Insignia Financial Group, Inc. ("Insignia")
and entities which were, at one time, affiliates of Insignia; past tender offers
by the Insignia affiliates to acquire limited partnership units; management of
the partnerships by the Insignia affiliates; and the Insignia Merger. The
plaintiffs seek monetary damages and equitable relief, including judicial
dissolution of the Partnership. On June 25, 1998, the General Partner filed a
motion seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs filed an amended complaint. The General Partner filed demurrers to
the amended complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the General Partner and its affiliates terminated the
proposed settlement. In February 2000, counsel for some of the named plaintiffs
filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated
the settlement. On June 27, 2000, the Court entered an order disqualifying them
from the case and an appeal was taken from the order on October 5, 2000. On
December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann &
Bernstein LLP as new lead counsel for plaintiffs and the putative class.
Plaintiffs filed a third amended complaint on January 19, 2001. On March 2,
2001, the General Partner and its affiliates filed a demurrer to the third
amended complaint. The General Partner does not anticipate that costs associated
with this case will be material to the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
Note J - Selected Quarterly Financial Data (unaudited)
The following is a summary of the unaudited quarterly results of operations for
the Partnership (in thousands):
Year Ended December 31, 2000
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
Revenues $ 1,665 $ 2,447 $ 1,266 $ 480 $ 5,858
Expenses 7,670 7,488 7,431 7,379 29,968
Loss before extraordinary item (6,005) (5,041) (6,165) (6,899) (24,110)
Extraordinary loss on debt
extinguishment -- (35) -- (475) (510)
Net loss $ (6,005) $ (5,076) $ (6,165) $ (7,374) $(24,620)
Year Ended December 31, 1999
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Total
Revenues $ 1,807 $ 1,467 $ 1,434 $ 6,972 $ 11,680
Expenses 8,019 7,808 7,861 6,920 30,608
(Loss) income from continuing
operations (6,212) (6,341) (6,427) 52 (18,928)
Income (loss) from discontinued
operations 87 394 (455) (23) 3
Gain on sale of discontinued
operations -- -- 15,517 5,236 20,753
(Loss) income before
extraordinary item (6,125) (5,947) 8,635 5,265 1,828
Extraordinary loss on debt
extinguishment -- -- (7) (24) (31)
Net (loss) income $ (6,125) $ (5,947) $ 8,628 $ 5,241 $ 1,797
PART III
Item 10. Directors and Executive Officers of the General Partner of the
Partnership
The Registrant has no officers or directors. The General Partner is ConCap
Equities, Inc. ("CEI"). The names and ages of, as well as the position and
offices held by the present executive officers and directors of the General
Partner are set forth below. There are no family relationships between or
among any officers or directors.
Name Age Position
Patrick J. Foye 43 Executive Vice President and Director
Martha L. Long 41 Senior Vice President and Controller
Patrick J. Foye has been Executive Vice President and Director of the General
Partner since October 1, 1998. Mr. Foye has served as Executive Vice
President of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a
partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989
to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow
offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long
Island Power Authority and serves as a member of the New York State
Privatization Council. He received a B.A. from Fordham College and a J.D.
from Fordham University Law School.
Martha L. Long has been Senior Vice President and Controller of the General
Partner since October 1998 as a result of the acquisition of Insignia Financial
Group, Inc. As of February 2001, Ms. Long was also appointed head of the service
business for AIMCO. From June 1994 until January 1997, she was the Controller
for Insignia, and was promoted to Senior Vice President - Finance and Controller
in January 1997, retaining that title until October 1998. From 1988 to June
1994, Ms. Long was Senior Vice President and Controller for The First Savings
Bank, FSB in Greenville, South Carolina.
One or more of the above persons are also directors and/or officers of a general
partner (or general partner of a general partner) of limited partnerships which
either have a class of securities registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, or are subject to the reporting requirements of
Section 15(d) of such Act: Further, one or more of the above persons are also
directors and/or officers of Apartment Investment and Management Company and the
general partner of AIMCO Properties, L.P., entities that have a class of
securities registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934, or are subject to the reporting requirements of Section 15 (d) of such
Act.
The executive officers and director of the General Partner fulfill the
obligations of the Audit Committee and oversee the Partnership's financial
reporting process on behalf of the General Partner. Management has the primary
responsibility for the financial statements and the reporting process including
the systems of internal controls. In fulfilling its oversight responsibilities,
the executive officers and director of the General Partner reviewed the audited
financial statements with management including a discussion of the quality, not
just the acceptability, of the accounting principles, the reasonableness of
significant judgments, and the clarity of disclosures in the financial
statements.
The executive officers and director of the General Partner reviewed with the
independent auditors, who are responsible for expressing an opinion on the
conformity of those audited financial statements with generally accepted
accounting principles, their judgments as to the quality, not just the
acceptability, of the Partnership's accounting principles and such other matters
as are required to be discussed with the Audit Committee or its equivalent under
generally accepted auditing standards. In addition, the Partnership has
discussed with the independent auditors the auditors' independence from
management and the Partnership including the matters in the written disclosures
required by the Independence Standards Board and considered the compatibility of
non-audit services with the auditors' independence.
The executive officers and director of the General Partner discussed with the
Partnership's independent auditors the overall scope and plans for their audit.
In reliance on the reviews and discussions referred to above, the executive
officers and director of the General Partner has approved the inclusion of the
audited financial statements in the Form 10-K for the year ended December 31,
2000 for filing with the Securities and Exchange Commission.
The General Partner has reappointed Ernst & Young LLP as independent auditors to
audit the financial statements of the Partnership for the current fiscal year.
Fees for the last fiscal year were annual audit services of approximately
$78,000 and non-audit services (principally tax-related) of approximately
$39,000.
Item 11. Executive Compensation
None of the directors and officers of the General Partner received any
remuneration from the Registrant.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Except as noted below, no person was known by the Registrant to be the
beneficial owner of more than 5% of the Limited Partnership Units of the
Registrant as of December 31, 2000:
Entity Number of Units Percentage
Reedy River Properties
(an affiliate of AIMCO) 168,736.5 18.56%
Insignia Properties LP
(an affiliate of AIMCO) 17,240.6 1.90%
AIMCO Properties, LP
(an affiliate of AIMCO) 168,243.8 18.50%
Cooper River Properties, LLC
(an affiliate of AIMCO) 67,518.7 7.43%
Reedy River Properties, Insignia Properties LP, and Cooper River Properties, LLC
are indirectly ultimately owned by AIMCO. Their business address is 55 Beattie
Place, Greenville, SC 29602.
AIMCO Properties LP is indirectly ultimately controlled by AIMCO. Its business
address is 2000 South Colorado Boulevard, Denver, Colorado 80222.
No directors or officers of the General Partner owns any Units of the
Partnership of record or beneficially.
Item 13. Certain Relationships and Related 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 Agreement (the "Agreement") provides for reimbursement to the
General Partner and its affiliates for costs incurred in connection with the
administration of Partnership activities. The following payments were made to
the General Partner and affiliates during the years ended December 31, 2000,
1999, and 1998:
For the years ended December 31,
2000 1999 1998
(in thousands)
Reimbursements for services of affiliates $ 444 $ 217 $ 303
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $444,000, $217,000 and
$303,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 421,739.60 limited partnership units
in the Partnership representing 46.39% of the outstanding units at December 31,
2000. 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 limited partnership interests in the Partnership for cash or
in exchange for units in the operating partnership of AIMCO either through
private purchases or tender offers. In this regard, on February 8, 2001, AIMCO
Properties, L.P., commenced a tender offer to acquire all of the Units not owned
by affiliates of AIMCO for a purchase price of $31.00 per Unit. Pursuant to this
offer, AIMCO acquired an additional 2,784.30 units resulting in its total
ownership being increased to 424,523.90 units or 46.70% of the total outstanding
units. Under the Partnership Agreement, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters, which
would include without limitation, voting on certain amendments to the
Partnership Agreement and voting to remove the General Partner. As a result of
its ownership of 46.70% of the outstanding units, AIMCO is in a position to
significantly influence all voting decisions with respect to the Registrant.
When voting on matters, AIMCO would in all likelihood vote the Units it acquired
in a manner favorable to the interest of the General Partner because of their
affiliation with the General Partner.
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K filed in the fourth quarter of fiscal year
2000:
Form 8-K dated October 3, 2000, as filed with the Securities and
Exchange Commission on November 27, 2000 in connection with the
refinance of the mortgage note payable with GMAC on Windmere
Apartments and Highcrest Townhomes.
Form 8-K dated December 22, 2000 as filed with the Securities and
Exchange Commission on January 22, 2001 in connection with the
refinance of the mortgage note payable with GMAC on Canyon Crest
Apartments.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CONSOLIDATED CAPITAL INSTITUTIONAL
PROPERTIES/2
By: ConCap Equities, Inc.
Its General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
and Controller
Date: March 28, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities on the date indicated.
/s/Patrick J. Foye Date: March 28, 2001
Patrick J. Foye
Executive Vice President and Director
/s/Martha L. Long Date: March 28, 2001
Martha L. Long
Senior Vice President and Controller
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES 2
EXHIBIT INDEX
Exhibit Number Description of Exhibit
2.1 Agreement and Plan of Merger, dated as of October 1, 1998
between AIMCO and IPT.
3 Certificates of Limited Partnership, as amended to date.
10.1 Amended Loan Agreement dated November 15, 1990 (the "Effective
Date"), by and between the Partnership and EP/2 (Incorporated
by reference to the Annual Report on Form 10-K for the year
ended December 31, 1990 ("1990 Annual Report")).
10.2 Assumption Agreement as of the Effective Date, by and between
EP/2 and CCEP/2 (Incorporated by reference to the 1990 Annual
Report).
10.3 Assignment of Claims as of the Effective Date, by and
between the Partnership and EP/2. (Incorporated by
reference to the 1990 Annual Report).
10.4 Assignment of Partnership Interests in CC Office Associates
and Broad and Locust Associates dated November 16, 1990 (the
effective date), by and between EP/2 and CCEP/2 (Incorporated
by reference to the 1990 Annual Report).
10.5 Property Management Agreement No. 113 dated October 23,
1990, by and between the Partnership and CCEC (Incorporated
by reference to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990).
10.6 Bill of Sale and Assignment dated October 23, 1990, by and
between CCEC and ConCap Services Company (Incorporated by
reference to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1990).
10.7 Assignment and Assumption dated October 23, 1990, by and
between CCEC and ConCap Management Limited Partnership
("CCMLP") (Incorporated by reference to the Quarterly Report
on Form 10-Q for the quarter ended September 30, 1990).
10.8 Assignment and Agreement as to Certain Property Management
Services dated October 23, 1990, by and between CCMLP and
ConCap Capital Company (Incorporated by reference to the
Quarterly Report on Form 10-Q for the quarter ended September
30, 1990).
10.9 Assignment and Agreement dated October 23, 1990, by and
between CCMLP and The Hayman Company (100 Series of Property
Management Contracts)(Incorporated by reference to the
Quarterly Report on Form 10-Q for the quarter ended September
30, 1990).
10.10 Construction Management Cost Reimbursement Agreement dated
January 1, 1991, by and between the Partnership and The Hayman
Company. (Incorporated by reference to the Annual Report on
Form 10-K for the year ended December 31, 1991).
10.11 Investor Services Agreement dated October 23, 1990, by and
between the Partnership and CCEC (Incorporated by reference to
the Quarterly Report on Form 10-Q for the quarter ended
September 30, 1990).
10.12 Assignment and Assumption Agreement (Investor Services
Agreement) dated October 23, 1990 by and between CCEC and
ConCap Services Company.
10.13 Letter of Notice dated December 20, 1991, from Partnership
Services, Inc. ("PSI") to the Partnership regarding the change
in ownership and dissolution of ConCap Services Company
whereby PSI assumed the Investor Services Agreement.
(Incorporated by reference to the Annual Report on Form 10-K
for the year ended December 31, 1991).
10.14 Financial Services Agreement dated October 23, 1990, by and
between the Partnership and CCEC (Incorporated by reference to
the Quarterly Report on Form 10-Q for the quarter ended
September 30, 1990) (Incorporated by reference to the 1990
Annual Report).
10.15 Assignment and Assumption Agreement (Financial Services
Agreement) dated October 23, 1990, by and between CCEC and
ConCap Capital Company (Incorporated by reference to the
Quarterly Report on Form 10-Q for the quarter ended September
30, 1990).
10.16 Letter of Notice dated December 20, 1991, from PSI to the
Partnership regarding the change in ownership and dissolution
of ConCap Capital Company whereby PSI assumed the Financial
Services Agreement. (Incorporated by reference to the Annual
Report on Form 10-K for the year ended December 31, 1991).
10.17 Property Management Agreement No. 501 dated February 16,
1993, by and between the Partnership and Coventry
Properties, Inc. (Incorporated by reference to the Annual
Report on Form 10-K for the year ended December 31, 1992)
10.18 Property Management Agreement No. 412 dated May 13, 1993,
by and between Consolidated Capital Equity Partners/Two
L.P. and Coventry Properties, Inc. (Incorporated by
reference to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993).
10.19 Assignment and Assumption Agreement (Property Management
Agreement No. 412) dated May 13, 1993, by and between
Coventry Properties, Inc., R&B Apartment Management Company
Inc. and Partnership Services, Inc. (Incorporated by
reference to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993).
10.20 Assignment and Agreement as to Certain Property Management
Services dated May 13, 1993, by and between Coventry
Properties, Inc. and Partnership Services, Inc.
(Incorporated by reference to the Quarterly Report on Form
10-Q for the quarter ended September 30, 1993).
10.21 Property Management Agreement No. 413 dated May 13, 1993,
by and between Consolidated Capital Equity Partners/Two
L.P. and Coventry Properties, Inc. (Incorporated by
reference to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993).
10.22 Assignment and Assumption Agreement (Property Management
Agreement No. 413) dated May 13, 1993, by and between
Coventry Properties, Inc., R&B Apartment Management
Company, Inc. and Partnership Services, Inc. (Incorporated
by reference to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993).
10.23 Assignment and Agreement as to Certain Property Management
Services dated May 13, 1993, by and between Coventry
Properties, Inc. and Partnership Services, Inc.
(Incorporated by reference to the Quarterly Report on Form
10-Q for the quarter ended September 30, 1993).
10.24 Contract for sale of real estate for North Park Plaza dated
September 12, 1996, between Consolidated Capital Institutional
Properties/2, a California limited partnership and North Park
Southfield, L.L.C., a Michigan limited liability company.
10.25 Contract for sale of real estate for Lahser One, Lahser Two,
Crescent Centre, Central Park Place, and Central Park Plaza
dated September 10, 1999 between Consolidated Capital
Institutional Properties/2, a California limited partnership
and Southfield Office Properties, LLC. (Filed with Form 8-K
dated September 10, 1999)
10.26 Second amendment to purchase and sale contract between
Consolidated Capital Institutional Properties/2, a
California limited partnership and Southfield Office
Properties, LLC for sale of real estate for Lahser One,
Lahser Two, Crescent Centre, Central Park Place, and
Central Park Plaza (Filed with Form 8-K dated September 10,
1999)
10.27 Reinstatement of and Third amendment to purchase and sale
contract between Consolidated Capital Institutional
Properties/2, a California limited partnership and Southfield
Office Properties, LLC for sale of real estate for Lahser One,
Lahser Two, Crescent Centre, Central Park Place, and Central
Park Plaza (Filed with Form 8-K dated September 10, 1999)
10.28 Contract for sale of real estate for Towne Center Plaza dated
September 22, 1999 between Consolidated Capital Institutional
Properties/2 , a California limited partnership and Colton
Real Estate Group, d/b/a The Colton Company (Filed with Form
8-K/A dated September 22, 1999)
10.29 Contract for sale for real estate for Richmond Plaza dated
December 23, 1999 between Consolidated Capital Institutional
Properties/2, a California limited partnership and The
Bernstein Companies(Filed with Form 8-K dated December 23,
1999)
10.30 Multifamily Note dated October 2, 2000 between Consolidated
Capital Equity Partners/Two L.P., a California limited
partnership, and GMAC Commercial Mortgage Corporation for
refinance of Windmere Apartments (Filed with Form 8-K on
November 27, 2000)
10.31 Multifamily Note dated October 31, 2000 between Consolidated
Capital Equity Partners/Two L.P., a California limited
partnership, and GMAC Commercial Mortgage Corporation for
refinance of Highcrest Townhomes Apartments (Filed with Form
8-K on November 27, 2000)
10.32 Multifamily Note dated December 22, 2000 between Consolidated
Capital Equity Partners/Two L.P., a California limited
partnership, and GMAC Commercial Mortgage Corporation for
refinance of Canyon Crest Apartments (filed with Form 8-K on
January 22, 2001)
11 Statement regarding computation of Net Income per Limited
Partnership Unit (Incorporated by reference to Note 1 of
Item 8 - Financial Statements of this Form 10-K)
16 Letter, dated August 12, 1992, from Ernst & Young to the
Securities and Exchange Commission regarding change in
certifying accountant. (Incorporated by reference to Form
8-K dated August 6, 1992)
28.1 Fee Owner's Limited Partnership Agreement dated November
14, 1990 (Incorporated by reference to the 1990 Annual
Report)