FORM 10-Q---QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________to _________
Commission file number 0-10831
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
(Exact name of registrant as specified in its charter)
California 94-2744492
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No___
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
March 31, December 31,
2001 2000
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 3,515 $ 2,036
Receivables and deposits 777 886
Restricted escrows 358 453
Other assets 2,151 1,616
Investment in Master Loan 27,446 34,231
Less: Allowance for impairment loss -- (3,176)
27,446 31,055
Investment properties:
Land 3,564 3,564
Building and related personal property 38,814 38,762
42,378 42,326
Less: Accumulated depreciation (13,764) (12,989)
28,614 29,337
$ 62,861 $ 65,383
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 128 $ 189
Tenant security deposit liabilities 674 675
Accrued property taxes 24 --
Other liabilities 884 741
Mortgage notes payable 26,696 26,762
28,406 28,367
Partners' Capital
General partner 170 118
Limited partners (199,045.2 units issued and
outstanding) 34,285 36,898
34,455 37,016
$ 62,861 $ 65,383
Note: The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date, but does not include all the
information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements.
See Accompanying Notes to Consolidated Financial Statements
b)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
2001 2000
Revenues:
Rental income $ 2,805 $ 2,587
Interest income on investment in
Master Loan to affiliate 1,900 --
Reduction of provision for impairment loss (Note C) 3,176 --
Interest income 41 114
Other income 229 145
Total revenues 8,151 2,846
Expenses:
Operating 1,304 1,161
Depreciation 775 738
General and administrative 171 100
Property taxes 210 143
Interest 485 479
Total expenses 2,945 2,621
Net income $ 5,206 $ 225
Net income allocated to general partner (1%) $ 52 $ 2
Net income allocated to limited partners (99%) 5,154 223
$ 5,206 $ 225
Net income per limited partnership unit $ 25.89 $ 1.12
Distributions per limited partnership unit $ 39.02 $ 27.54
See Accompanying Notes to Consolidated Financial Statements
c)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 200,342.0 $ 1 $200,342 $200,343
Partners' (deficit) capital
at December 31, 1999 199,045.2 $ (58) $ 67,343 $ 67,285
Distributions -- -- (5,481) (5,481)
Net income for the three months
ended March 31, 2000 -- 2 223 225
Partners' (deficit) capital
at March 31, 2000 199,045.2 $ (56) $ 62,085 $ 62,029
Partners' capital at
December 31, 2000 199,045.2 $ 118 $ 36,898 $ 37,016
Distributions -- -- (7,767) (7,767)
Net income for the three months
ended March 31, 2001 -- 52 5,154 5,206
Partners' capital at
March 31, 2001 199,045.2 $ 170 $ 34,285 $ 34,455
See Accompanying Notes to Consolidated Financial Statements
d)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2001 2000
Cash flows from operating activities:
Net income $ 5,206 $ 225
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 806 767
Reduction of provision of impairment loss (3,176) --
Change in accounts:
Receivables and deposits 109 346
Other assets (566) (466)
Accounts payable (61) 105
Tenant security deposit liabilities (1) 16
Accrued property taxes 24 16
Other liabilities 143 (41)
Net cash provided by operating activities 2,484 968
Cash flows from investing activities:
Net withdrawals from restricted escrows 95 69
Property improvements and replacements (52) (702)
Principal receipts on Master Loan 6,785 109
Net cash provided by (used in) investing activities 6,828 (524)
Cash flows from financing activities:
Distributions to partners (7,767) (5,481)
Payments on mortgage notes payable (66) (75)
Net cash used in financing activities (7,833) (5,556)
Net increase (decrease) in cash and cash equivalents 1,479 (5,112)
Cash and cash equivalents at beginning of period 2,036 11,175
Cash and cash equivalents at end of period $ 3,515 $ 6,063
Supplemental disclosure of cash flow information:
Cash paid for interest $ 455 $ 464
See Accompanying Notes to Consolidated Financial Statements
e)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Consolidated
Capital Institutional Properties (the "Partnership" or "Registrant") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of ConCap Equities, Inc. (the "General
Partner"), which is ultimately owned by Apartment Investment and Management
Company ("AIMCO") a publicly traded real state investment trust, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended March 31, 2001 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 2001. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Partnership's Annual Report on Form 10-K for the fiscal year ended December
31, 2000.
Principles of Consolidation
The Partnership's financial statements include the accounts of Kennedy Boulevard
Associates, I, L.P., a Pennsylvania Limited Partnership ("KBA-I, L.P."), Kennedy
Boulevard Associates II, L.P. a Pennsylvania Limited Partnership, Kennedy
Boulevard Associates III, L.P. a Pennsylvania Limited Partnership, Kennedy
Boulevard Associates IV, L.P. a Pennsylvania Limited Partnership and Kennedy
Boulevard GP I, a Pennsylvania Partnership. The general partners of each of the
affiliated limited and general partnerships are limited liability corporations
of which the Partnership is the sole member. The limited partners of each of the
affiliated limited and general partnerships are either the Partnership or a
limited liability corporation of which the Partnership is the sole member.
Therefore, the Partnership controls such partnerships and consolidation is
appropriate. KBA-I, L.P. holds title to The Sterling Apartment Home and Commerce
Center ("Sterling").
Segment Reporting: Statement of Financial Accounting Standards ("SFAS") SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information"
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. (See "Note
F" for detailed disclosure of the Partnership's segments).
Note B - Related Party Transactions
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for (i) certain payments to affiliates for
services and (ii) reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership. The following payments were paid to the General
Partner and its affiliates during the three months ended March 31, 2001 and
2000:
2001 2000
(in thousands)
Property management fees (included in operating expenses) $ 153 $ 136
Reimbursement for services of affiliates (included in
operating and general and administrative expenses) 139 54
Affiliates of the General Partner are entitled to receive 5% of gross receipts
from the Registrant's properties for providing property management services. The
Registrant paid to such affiliates approximately $153,000 and $136,000 for the
three months ended March 31, 2001 and 2000, respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $139,000 and $54,000 for the
three months ended March 31, 2001 and 2000, respectively. At March 31, 2001,
approximately $26,000 of these fees are accrued and included in other
liabilities.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 125,940 limited partnership units
(the "Units") in the Partnership representing 63.27% of the outstanding Units. 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 make one or
more additional offers to acquire additional limited partnership interests in
the Partnership for cash or in exchange for units in the operating partnership
of AIMCO. 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 63.27% of the outstanding Units, AIMCO is in a position to
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 its affiliation with
the General Partner.
Note C - Net Investment in Master Loan
The Partnership was formed for the benefit of its limited partners to lend funds
to Consolidated Capital Equity Partners ("CCEP"), a California general
partnership. The general partner of CCEP is an affiliate of the General Partner.
The Partnership loaned funds to CCEP subject to a nonrecourse note with a
participation interest (the "Master Loan"). At March 31, 2001, the recorded
investment in the Master Loan was considered to be impaired under SFAS 114
"Accounting by Creditors for Impairment of a Loan". The Partnership measures the
impairment of the loan based upon the fair value of the collateral, as repayment
of the loan is expected to be provided solely by the collateral. For the three
months ended March 31, 2001, the Partnership recorded approximately $1,900,000,
of interest income based upon "Excess Cash Flow" generated (as defined in the
terms of the New Master Loan Agreement). There was no interest income recorded
for the three months ended March 31, 2000.
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, the 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 $3,176,000 reduction in the
provision for impairment loss recognized during the three months ended March 31,
2000 is attributed to an increase in the net realizable value of the collateral
properties and to the payment of principal of the Master Loan from the sales
proceeds of Magnolia Trace. There was no change in the provision for impairment
loss during the three months ended March 31, 2000. The General Partner evaluates
the net realizable value on a semi-annual basis or as circumstance dictate that
it should be analyzed.
Interest, calculated on the accrual basis, due to the Partnership pursuant to
the terms of the Master Loan Agreement, but not recognized in the consolidated
statements of operations due to the impairment of the loan, totaled
approximately $10,640,000 and $10,608,000 for the three months ended March 31,
2001 and 2000, respectively. Interest income is recognized on the cash basis as
required by SFAS 114. At March 31, 2001 and December 31, 2000, such cumulative
unrecognized interest totaling approximately $315,002,000 and $306,262,000 was
not included in the balance of the investment in Master Loan. In addition, nine
of the properties are collateralized by first mortgages totaling approximately
$55,762,000 which are superior to the Master Loan. Accordingly, this fact has
been taken into consideration in determining the fair value of the Master Loan.
During the three months ended March 31, 2001 and 2000, the Partnership received
approximately $6,785,000 and $109,000 respectively, in principal payments on the
Master Loan. During the three months ended March 31, 2001, approximately
$6,776,000 was received representing net proceeds from the sale of Magnolia
Trace. Approximately $9,000 and $109,000 for the three months ended March 31,
2001 and 2000 respectively, represents cash received on certain investments held
by CCEP, which are required to be transferred to the Partnership per the Master
Loan Agreement.
Note D - 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 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 140,565.90 units had voted of which 136,767.20 units had voted
in favor of the amendment, 2,805.70 voted against the amendment and 993.00 units
abstained.
Note E - Distributions
During the three months ended March 31, 2001, the Partnership paid approximately
$7,767,000 in distributions from surplus cash to the limited partners ($39.02
per limited partnership unit). Distributions from surplus cash of approximately
$5,481,000 were paid to the limited partners ($27.54 per limited partnership
unit) during the three months ended March 31, 2000. Included in these amounts
are payments to the North Carolina Department of Revenue for withholding taxes
related to income generated by the Registrant's investment property located in
that state. Subsequent to March 31, 2001, the Partnership declared and paid a
distribution from operations of approximately $2,597,000 (approximately
$2,571,000 paid to the limited partners or $12.92 per limited partnership unit).
Note F - Segment Reporting
Description of the types of products and services from which the reportable
segment derives its revenues:
The Partnership has two reportable segments: residential properties and
commercial properties. The Partnership's residential property segment consist of
one apartment complex located in North Carolina and one multiple-use facility
consisting of apartment units and commercial space located in Pennsylvania. The
Partnership rents apartment units to tenants for terms that are typically twelve
months or less. The commercial property leases space to various medical offices,
various career services facilities and a credit union at terms ranging from two
months to fifteen years.
Measurement of segment profit or loss:
The Partnership evaluates performance based on segment profit (loss) before
depreciation. The accounting policies of the reportable segments are the same as
those described in the Partnership's Annual Report on Form 10-K for the year
ended December 31, 2000.
Factors management used to identify the enterprise's reportable segment:
The Partnership's reportable segments are investment properties that offer
different products and services. The reportable segments are each managed
separately because they provide distinct services with different types of
products and customers.
Segment information for the three months ended March 31, 2001 and 2000 is shown
in the tables below (in thousands). The "Other" column includes Partnership
administration related items and income and expense not allocated to the
reportable segment.
2001 Residential Commercial Other Totals
Rental income $ 2,407 $ 398 $ -- $ 2,805
Interest income 35 5 1 41
Other income 155 74 -- 229
Interest income on investment
in Master Loan -- -- 1,900 1,900
Reduction of provision for
impairment loss -- -- 3,176 3,176
Interest expense 410 75 -- 485
Depreciation 752 23 -- 775
General and administrative
expense -- -- 171 171
Segment profit 238 62 4,906 5,206
Total assets 33,110 2,014 27,737 62,861
Capital expenditures for
investment properties 31 21 -- 52
2000 Residential Commercial Other Totals
Rental income $ 2,210 $ 377 $ -- $ 2,587
Interest income 9 1 104 114
Other income 90 55 -- 145
Interest expense 420 59 -- 479
Depreciation 718 20 -- 738
General and administrative
expense -- -- 100 100
Segment profit 110 111 4 225
Total assets 33,688 2,317 54,428 90,433
Capital expenditures for
investment properties 694 8 -- 702
Note G - 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 demurrer is scheduled to be heard on May 14, 2001. The
Court has also scheduled a hearing on a motion for class certification for
August 27, 2001. Plaintiffs must file their motion for class certification no
later than June 15, 2001. 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 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The matters discussed in this Form 10-Q contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-Q 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.
The Partnership's investment properties consist of two properties, The Loft
Apartments and The Sterling Apartment Homes and Commerce Center ("The
Sterling"). The Sterling is a multiple-use facility which consists of an
apartment complex and commercial space. The following table sets forth the
average occupancy of the properties for the three months ended March 31, 2001
and 2000:
Average Occupancy
Property 2001 2000
The Loft Apartments 90% 94%
Raleigh, North Carolina
The Sterling Apartment Homes 95% 91%
The Sterling Commerce Center 90% 88%
Philadelphia, Pennsylvania
The decrease in occupancy at The Loft Apartments is due to a weak economy in the
Raleigh area. The increase in occupancy at The Sterling Apartment Homes is
attributable to a major renovation project which was performed at the property
during the past year which has improved the curb appeal of the property. The
increase in occupancy at the Sterling Commerce Center is attributable to major
capital improvements including exterior renovations, elevator rehabilitation and
common area renovations which have been completed during the past year.
Results of Operations
The Partnership's net income for the three months ended March 31, 2001 was
approximately $5,206,000 compared to a net income of approximately $225,000 for
the corresponding period in 2000. The increase in net income for the three
months ended March 31, 2001 as compared to the three months ended March 31, 2000
was due to the $3,176,000 reduction of the provision for impairment loss on the
investment in the Master Loan recognized due to an increase in the net
realizable value of the collateral properties and due to the payment of
principal on the Master Loan from the sales proceeds of Magnolia Trace. The
General Partner evaluates the net realizable value on a semi-annual basis or
when circumstances dictate that it should be analyzed. The General Partner has
seen a consistent increase in the net realizable value of the collateral
properties, taken as a whole, over the past two years. The increase is deemed to
be attributable to major capital improvement projects and the concerted effort
to complete deferred maintenance items that have been ongoing over the past few
years at the properties. This has enabled the properties to increase their
respective net realizable values. The vast majority of this work was funded by
cash flow from the collateral properties themselves as no amounts have been
borrowed on the master loan or from other sources in the past few years in order
to fund such improvements.
Excluding the reduction of provision for impairment loss, the partnership's net
income for the three months ended March 31, 2001 and 2000 was approximately
$2,030,000 and $225,000, respectively. The increase in net income for the three
months ended March 31, 2001 was primarily due to an increase in total revenues
which was offset by an increase in total expenses. The increase in total
revenues is partially due to an increase in interest income related to the
Master Loan and to increases in rental revenue and other income, partially
offset by a decrease in interest income. The increase in interest income related
to the Master Loan is due to the receipt of an interest payment of excess cash
from the properties securing the Master Loan. No such payment was made in 2000.
Interest income is only recognized to the extent that actual cash is received.
The receipt of cash is dependent on the corresponding cash flow of the
properties which secure the Master Loan. The increase in rental revenue is due
to increases in cleaning and damage fees, lease cancellation fees, and Corporate
housing revenue at The Sterling Commerce Center and Apartment Homes. Interest
income decreased due to the release of the working capital reserve requirement
(See Note D to the consolidated financial statements) which resulted in lower
average cash balances in interest bearing accounts.
Total expenses increased due to increases in operating, property tax,
depreciation and general and administrative expenses. Operating expenses
increased due to increase in salaries and other benefits and utility expenses at
The Sterling, offset by a decrease in maintenance expense at both investment
properties. Property tax increased due to a reassessment by the taxing
authorities at The Lakes and The Sterling. Depreciation expense increased due to
the increase in capital improvements at The Sterling.
General and administrative expenses increased for the three months ended March
31, 2001 due to an increase in the costs of services included in the management
reimbursements to the General Partner allowed under the Partnership Agreement.
In addition to these reimbursements, costs associated with the quarterly and
annual communications with investors and regulatory agencies and the annual
audit required by the Partnership Agreement are also included.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of each of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expenses. As part of
this plan, the General Partner attempts to protect the Partnership from the
burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At March 31, 2001, the Partnership had cash and cash equivalents of
approximately $3,515,000 as compared to approximately $6,063,000 at March 31,
2000. Cash and cash equivalents increased approximately $1,479,000 for the three
months ended March 31, 2001 from the Partnership's year ended December 31, 2000.
This increase was primarily due to approximately $6,828,000 of net cash provided
by investing activities and, to a lesser extent, approximately $2,484,000 of
cash provided by operating activities which was partially offset by
approximately $7,833,000 of cash used in financing activities. Cash provided by
investing activities consisted primarily of principal repayments received on the
Master Loan and net withdrawals from escrow accounts maintained by the mortgage
lender offset by property improvements and replacement. Cash used in financing
activities consisted primarily of distributions to partners and, to a lesser
extent, principal payments made on the mortgages encumbering the Registrant's
properties. The Registrant invests its working capital reserves in interest
bearing accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the various properties to adequately maintain the
physical assets and other operating needs of the Partnership and to comply with
Federal, state, and local, legal and regulatory requirements. Capital
improvements planned for each of the Registrant's properties are detailed below.
The Loft
The Partnership has budgeted, but is not limited to, approximately $51,200 for
capital improvements during the current year consisting of floor covering and
window dressing replacements, air conditioning units and water heaters. During
the three months ended March 31, 2001, the Partnership completed approximately
$21,000 of capital improvements, consisting primarily of floor covering
replacements. These improvements were funded from operating cash flow.
The Sterling
The Partnership has budgeted, but is not limited to, approximately $1,714,000
for capital improvements during the current year consisting of appliances,
structural upgrades, interior decoration, recreational facility upgrades and
floor covering replacements. During the three months ended March 31, 2001, the
Partnership completed approximately $31,000 of capital improvements consisting
primarily of interior decoration and floor covering replacements. These
improvements were funded primarily from operating cash flow and replacement
reserves.
The additional capital improvements planned for 2001 at the Partnership's
properties will be made only to the extent of cash available from operations and
Partnership reserves. To the extent that such budgeted capital improvements are
completed, the Registrant's distributable cash flow, if any, may be adversely
affected at least in the short term.
The Registrant's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Registrant. The mortgage
indebtedness of approximately $26,696,000 requires monthly payments of principal
and interest and balloon payments of approximately $3,903,000 and $19,975,000 on
December 1, 2005 and October 1, 2008, respectively. The General Partner will
attempt to refinance such indebtedness and/or sell the properties prior to such
maturity date. If the properties cannot be refinanced or sold for a sufficient
amount, the Registrant may risk losing such properties through foreclosure.
During the three months ended March 31, 2001, the Partnership paid approximately
$7,767,000 in distributions from surplus cash to the limited partners ($39.02
per limited partnership unit). Distributions from surplus cash of approximately
$5,481,000 were paid to the limited partners ($27.54 per limited partnership
unit) during the three months ended March 31, 2000. Included in these amounts
are payments to the North Carolina Department of Revenue for withholding taxes
related to income generated by the Registrant's investment property located in
that state. Subsequent to March 31, 2001, the Partnership declared and paid a
distribution from operations of approximately $2,597,000 (approximately
$2,571,000 paid to the limited partners or $12.92 per limited partnership unit).
The Registrant's distribution policy is reviewed on a quarterly basis. Future
cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, and the timing of debt
maturities, refinancings, and/or property sales. There can be no assurance that
the Partnership will generate sufficient funds from operations, after planned
capital improvement expenditures, to permit further distributions to its
partners during the remainder of 2001 or subsequent periods.
CCEP Property Operations
For the three months ended March 31, 2001, CCEP's net loss totaled approximately
$6,228,000 on total revenues of approximately $8,961,000. CCEP recognizes
interest expense on the Master Loan Agreement obligation according to the note
terms, although payments to the Partnership are required only to the extent of
Excess Cash Flow, as defined therein. During the three months ended March 31,
2001 and 2000, CCEP's statement of operations includes total interest expense
attributable to the Master Loan of approximately $10,640,000 and $10,608,000,
respectively, which represents interest accrued in excess of required payments.
CCEP is expected to continue to generate operating losses as a result of such
interest accruals and noncash charges for depreciation.
During the three months ended March 31, 2001, CCEP paid approximately $6,785,000
in principal payments on the Master Loan. These amounts were paid from the sales
proceeds of one of CCEP's investment properties and on certain investments by
CCEP, which are required to be transferred to the Partnership per the Master
Loan Agreement.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Partnership is exposed to market risks associated with its Master Loan.
Receipts (interest income) on the Loan are based upon the operations and cash
flow of the underlying investment properties that collateralize the Master Loan.
Both the income and expenses of operating the investment properties are subject
to factors outside 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 in which they operate. In this regard, the General Partner of the
Partnership closely monitors the performance of the properties collateralizing
the loans. Because the Master Loan is considered impaired under Statement of
Financial Accounting Standard No. 114, "Accounting by Creditors for Impairment
of a Loan", interest rate fluctuations do not offset the recognition of income,
as income is only recognized to the extent of cash flow. Therefore, market risk
factors do not offset the Partnership's results of operations as it relates to
the Loan.
The Partnership is exposed to market risks from adverse changes in interest
rates. In this regard, changes in U.S. interest rates affect the interest earned
on the Partnership's cash and cash equivalents as well as interest paid on its
indebtedness. As a policy, the Partnership does not engage in speculative or
leveraged transactions, nor does it hold or issue financial instruments for its
borrowing activities used to maintain liquidity and fund business operations. To
mitigate the impact of fluctuations in U.S. interest rates, the Partnership
maintains its debt as fixed rate in nature by borrowing on a long-term basis.
Based on interest rates at March 31, 2001, a 100 basis point increase or
decrease in market interest rates would not have a material impact on the
Partnership.
The following table summarizes the Partnership's debt obligations at March 31,
2001. The interest rates represent the weighted-average rates. The fair value of
the debt obligations approximated the recorded value as of March 31, 2001.
Principal Amount by Expected Maturity
Fixed Rate Debt
Long-term Average Interest
Debt Rate 6.86%
(in thousands)
2001 $ 238
2002 346
2003 371
2004 393
2005 4,320
Thereafter 21,028
Total $ 26,696
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in 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 demurrer is scheduled to be heard on May 14, 2001. The
Court has also scheduled a hearing on a motion for class certification for
August 27, 2001. Plaintiffs must file their motion for class certification no
later than June 15, 2001. The General Partner does not anticipate that costs
associated with this case will be material to the Partnership's overall
operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
S-K Reference
Number Description
99.1 Consolidated Capital Equity Partners, L.P., unaudited
financial statements for the three months ended March
31, 2001 and 2000.
b) Reports on Form 8-K during the quarter ended March 31, 2001:
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
By: CONCAP EQUITIES, INC.
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: May 15, 2001
EXHIBIT 99.1
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
March 31, 2001 and 2000
EXHIBIT 99.1 (Continued)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
2001 2000
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 3,270 $ 5,894
Receivables and deposits 610 928
Restricted escrows 878 767
Other assets 1,772 1,634
Investment properties:
Land 6,904 7,796
Building and related personal property 77,874 83,558
84,778 91,354
Less accumulated depreciation (66,234) (70,793)
18,544 20,561
$ 25,074 $ 29,784
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 164 $ 410
Tenant security deposit liabilities 505 485
Accrued property taxes 368 218
Other liabilities 523 586
Mortgage notes 55,762 56,060
Master loan and interest payable (Note D) 342,448 340,493
399,770 398,252
Partners' Deficit
General partner (3,747) (3,685)
Limited partners (370,949) (364,783)
(374,696) (368,468)
$ 25,074 $ 29,784
Note: The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date, but does not include all the
information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements.
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
b)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2001 2000
Revenues:
Rental income $ 4,150 $ 4,555
Other income 434 381
Gain on sale of investment property (Note E) 4,377 --
Total revenues 8,961 4,936
Expenses:
Operating 1,881 1,999
General and administrative 184 161
Depreciation 1,051 1,314
Property taxes 296 326
Interest 11,777 11,018
Total expenses 15,189 14,818
Net loss $ (6,228) $ (9,882)
Net loss allocated to general partner (1%) $ (62) $ (99)
Net loss allocated to limited partners (99%) (6,166) (9,783)
$ (6,228) $ (9,882)
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
c)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands)
General Limited
Partners Partners Total
Partners' deficit at
December 31, 1999 $ (3,310) $(327,665) $(330,975)
Net loss for the three months
ended March 31, 2000 (99) (9,783) (9,882)
Partners' deficit
at March 31, 2000 $ (3,409) $(337,448) $(340,857)
Partners' deficit
at December 31, 2000 $ (3,685) $(364,783) $(368,468)
Net loss for the three months
ended March 31, 2001 (62) (6,166) (6,228)
Partners' deficit at
March 31, 2001 $ (3,747) $(370,949) $(374,696)
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
d)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2001 2000
Cash flows from operating activities:
Net loss $ (6,228) $ (9,882)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 1,095 1,336
Gain on sale of investment property (4,377) --
Change in accounts:
Receivables and deposits 318 276
Other assets (143) (90)
Accounts payable (246) (32)
Tenant security deposit liabilities 20 23
Accrued property taxes 150 (24)
Other liabilities (63) (64)
Accrued interest on Master Loan 8,740 10,608
Net cash (used in) provided by operating activities (734) 2,151
Cash flows from investing activities:
Property improvements and replacements (676) (937)
Proceeds from sale of investment property 6,019 --
Net (deposits to) receipts from restricted escrows (111) 138
Net cash provided by (used in) investing activities 5,232 (799)
Cash flows from financing activities:
Principal payments on Master Loan (6,785) (109)
Principal payments on notes payable (298) (78)
Loan costs paid (39) --
Net cash used in financing activities (7,122) (187)
Net (decrease) increase in cash and cash equivalents (2,624) 1,165
Cash and cash equivalents at beginning of period 5,894 2,865
Cash and cash equivalents at end of period $ 3,270 $ 4,030
Supplemental disclosure of cash flow information:
Cash paid for interest $ 2,993 $ 391
See Accompanying Notes to Consolidated Financial Statements
e)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Going Concern
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 November 2000.
The Partnership realized a net loss of approximately $6,228,000 for the three
months ended March 31, 2001. The General Partner expects the Partnership to
continue to incur such losses from operations. The Partnership generated
negative cash from operations of approximately $734,000 during the three months
ended March 31, 2001.
The Partnership's indebtedness to Consolidated Capital Institutional Properties
("CCIP") under the Master Loan of approximately $342,448,000, including accrued
interest, matured in November 2000. The holder of the note has two options,
which include foreclosing on the properties that collateralize the Master Loan
or extending the term of the note. If CCIP were to foreclose on the properties
securing the Master Loan, title in the properties owned by the Partnership would
be transferred to CCIP, subject to existing liens on such properties including
the first mortgage loans. As a result, CCIP would become responsible for the
operations of such properties. Currently, 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 March 31, 2001, partners' deficit was approximately
$374,696,000.
The general partner expects revenues from the nine 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 the Master Loan
balance, including accrued interest, in the event it is not renegotiated.
As a result, there is substantial doubt about the Partnership's ability to
continue as a going concern. The consolidated 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.
Note B - Basis of Presentation
The accompanying unaudited consolidated financial statements of Consolidated
Capital Equity Partners, L.P. ("CCEP" or the "Partnership") have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of ConCap Holdings, Inc. (the "General
Partner"), which is ultimately owned by Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three month
period ended March 31, 2001, are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 2001.
Note C - Related Party Transactions
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for (i) certain payments to affiliates for
services and (ii) reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership. The following payments were made to the General
Partner and affiliates during the three months ended March 31, 2001 and 2000:
2001 2000
(in thousands)
Property management fees (included in operating expenses) $ 230 $ 250
Investment advisory fees (included in general
and administrative expense) 63 45
Reimbursement for services of affiliates (included in
operating, general and administrative expenses
and investment properties) 94 93
Affiliates of the General Partner are entitled to receive 5% of gross receipts
from the Partnership's residential properties for providing property management
services. The Partnership paid to such affiliates approximately $230,000 and
$250,000 for the three months ended March 31, 2001 and 2000, respectively.
The Partnership is also subject to an Investment Advisory Agreement between the
Partnership 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's properties. The
Partnership paid to such affiliates approximately $63,000 and $45,000 for the
three months ended March 31, 2001 and 2000, respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $94,000 and $93,000 for the
three months ended March 31, 2001 and 2000, respectively.
In addition to the compensation and reimbursements described above, interest
payments are made to and loan advances are received from CCIP pursuant to the
Master Loan Agreement (the "Master Loan"), which is described more fully in the
2000 annual report. Such interest payments totaled approximately $1,900,000 for
the three months ended March 31, 2001. There were no interest payments made
during the three months ended March 31, 2000.
There were no advances on the Master Loan during the three months ended March
31, 2001 or 2000. During the three months ended March 31, 2001 and 2000 CCEP
paid approximately $6,785,000 and $109,000 respectively, to CCIP as principal
payments on the Master Loan.
Note D - Master Loan and Accrued Interest Payable
The Master Loan principal and accrued interest payable balances at March 31,
2001 and December 31, 2000, are approximately $342,448,000 and $340,493,000,
respectively.
Terms of Master Loan Agreement
Under the terms of the Master Loan, interest accrues at a fluctuating rate per
annum adjusted annually on July 15 by the percentage change in the U.S.
Department of Commerce Implicit Price Deflator for the Gross National Product
subject to an interest rate ceiling of 12.5%. Payments are currently payable
quarterly in an amount equal to "Excess Cash Flow", generally defined in the
Master Loan as net cash flow from operations after third-party debt service and
capital expenditures. Any unpaid interest is added to principal, compounded
annually, and is payable at the loan's maturity. Any net proceeds from the sale
or refinancing of any of CCEP's properties are paid to CCIP under the terms of
the Master Loan Agreement. The Master Loan Agreement matured in November 2000.
The holder of the note has two options which include foreclosing on the
properties that collateralize the Master Loan or extending the terms of the
note. If CCIP were to foreclose on its collateral, CCEP would no longer hold
title to its properties and the Partnership would be dissolved.
During the three months ended March 31, 2001 and 2000, CCEP paid approximately
$6,785,000 and $109,000, respectively, to CCIP as principal payments on the
Master Loan. There were no advances on the Master Loan for the three months
ended March 31, 2001 or 2000.
Note E - Sale of Property
On January 19, 2001, the Partnership sold Magnolia Trace, located in Baton
Rouge, Louisiana, to an unaffiliated third party for net sales proceeds of
approximately $6,019,000, after payment of closing costs. The Partnership used
all of the proceeds from the sale of the property to pay down the Master Loan
principal as required by the Master Loan Agreement. The sale resulted in a gain
on sale of investment property of approximately $4,377,000. In conjunction with
the sale, a fee of approximately $206,000 was paid to the General Partner in
accordance with the Partnership Agreement.