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 June 30, 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)
June 30, December 31,
2001 2000
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 3,068 $ 2,036
Receivables and deposits 150 886
Restricted escrows 314 453
Other assets 1,891 1,616
Investment in Master Loan 26,747 34,231
Less: Allowance for impairment loss -- (3,176)
26,747 31,055
Investment properties:
Land 3,564 3,564
Building and related personal property 38,849 38,762
42,413 42,326
Less: accumulated depreciation (14,539) (12,989)
27,874 29,337
$ 60,044 $ 65,383
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 273 $ 189
Tenant security deposit liabilities 648 675
Accrued property taxes 49 --
Other liabilities 615 741
Mortgage notes payable 26,619 26,762
28,204 28,367
Partners' Capital
General partner 144 118
Limited partners (199,045.2 units issued and
outstanding) 31,696 36,898
31,840 37,016
$ 60,044 $ 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 generally accepted accounting
principles 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 Six Months Ended
June 30, June 30,
2001 2000 2001 2000
Rental income $ 2,797 $ 2,640 $ 5,602 $ 5,227
Interest income on investment in
Master Loan 804 1,000 2,704 1,000
Reduction of provision for impairment
loss -- -- 3,176 --
Interest income 18 101 59 215
Other income 215 222 444 367
Total revenues 3,834 3,963 11,985 6,809
Operating 1,308 1,147 2,612 2,308
General and administrative 372 199 543 299
Depreciation 775 767 1,550 1,505
Interest 462 480 947 959
Property taxes 209 143 419 286
Total expenses 3,126 2,736 6,071 5,357
Net income $ 708 $ 1,227 $ 5,914 $ 1,452
Net income allocated to general
partner (1%) $ 7 $ 12 $ 59 $ 14
Net income allocated to limited
partners (99%) 701 1,215 5,855 1,438
Net income $ 708 $ 1,227 $ 5,914 $ 1,452
Net income per limited partnership
unit $ 3.52 $ 6.10 $ 29.42 $ 7.22
Distributions per limited
partnership unit $ 16.53 $ 5.97 $ 55.55 $ 33.51
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 to partners -- -- (6,670) (6,670)
Net income for the six months
ended June 30, 2000 -- 14 1,438 1,452
Partners' (deficit) capital
at June 30, 2000 199,045.2 $ (44) $ 62,111 $ 62,067
Partners' capital at
December 31, 2000 199,045.2 $ 118 $ 36,898 $ 37,016
Distributions to partners -- (33) (11,057) (11,090)
Net income for the six months
ended June 30, 2001 -- 59 5,855 5,914
Partners' capital at
June 30, 2001 199,045.2 $ 144 $ 31,696 $ 31,840
See Accompanying Notes to Consolidated Financial Statements
d)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2001 2000
Cash flows from operating activities:
Net income $ 5,914 $ 1,452
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,615 1,564
Reduction of provision for impairment loss (3,176) --
Change in accounts:
Receivables and deposits 736 347
Other assets (340) (341)
Accounts payable 84 83
Tenant security deposit liabilities (27) 47
Accrued property taxes 49 33
Other liabilities (126) (32)
Net cash provided by operating activities 4,729 3,153
Cash flows from investing activities:
Net receipts from restricted escrows 139 62
Property improvements and replacements (87) (1,242)
Principal receipts on Master Loan 7,484 167
Net cash provided by (used in) investing activities 7,536 (1,013)
Cash flows from financing activities:
Distributions to partners (11,090) (6,670)
Payments on mortgage notes payable (143) (146)
Net cash used in financing activities (11,233) (6,816)
Net increase (decrease) in cash and cash equivalents 1,032 (4,676)
Cash and cash equivalents at beginning of period 2,036 11,175
Cash and cash equivalents at end of period $ 3,068 $ 6,499
Supplemental disclosure of cash flow information:
Cash paid for interest $ 917 $ 931
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"), all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and six month periods ended June 30, 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. The General Partner is ultimately
owned by Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust.
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 established 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 made to the General
Partner and its affiliates during the six months ended June 30, 2001 and 2000:
2001 2000
(in thousands)
Property management fees (included in operating expenses) $ 310 $ 279
Reimbursement for services of affiliates (included in
operating and general and administrative expenses
and investment properties) 251 167
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 $310,000 and $279,000 for the
six months ended June 30, 2001 and 2000, respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $251,000 and $167,000 for the
six months ended June 30, 2001 and 2000, respectively.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 126,161 limited partnership units
(the "Units") in the Partnership representing 63.38% of the outstanding Units as
of June 30, 2001. 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 63.38% 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 June 30, 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 six
months ended June 30, 2001 and 2000, the Partnership recorded approximately
$2,704,000 and $1,000,000, respectively, of interest income based upon "Excess
Cash Flow" (as defined in the terms of the New Master Loan Agreement) generated
by CCEP and paid to the Partnership.
The fair value of all of the collateral properties which on a combined basis
secure the Master Loan, 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 reduction of $3,176,000 in the provision for
impairment loss recognized during the six months ended June 30, 2001 is
attributed to an increase in the net realizable value of the collateral
properties and to the payment of principal on the Master Loan from the sales
proceeds of Magnolia Trace. There was no change in the provision for impairment
loss during the six months ended June 30, 2000. The General Partner evaluates
the net realizable value on a semi-annual basis or as circumstances 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 $18,446,000 and $20,210,000 for the six months ended June 30, 2001
and 2000, respectively. Interest income is recognized on the cash basis as
required by SFAS 114. At June 30, 2001 and December 31, 2000, such cumulative
unrecognized interest totaling approximately $324,708,000 and $306,262,000 was
not included in the balance of the investment in Master Loan. All of the
collateral properties are collateralized by first mortgages totaling
approximately $55,459,000 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 six months ended June 30, 2001 and 2000, the Partnership received
approximately $7,484,000 and $167,000 respectively, in principal payments on the
Master Loan. During the six months ended June 30, 2001, approximately $5,987,000
was received representing net proceeds from the sale of Magnolia Trace and
approximately $1,425,000 was received representing refinancing proceeds, which
are required to be paid to the Partnership as principal payments on the Master
Loan as per the terms of the Master Loan Agreement. Approximately $72,000 and
$167,000 for the six months ended June 30, 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 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 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 six months ended June 30, 2001, distributions from surplus cash of
approximately $7,767,000 were paid to the limited partners ($39.02 per limited
partnership unit) and distributions of approximately $3,323,000 (approximately
$3,290,000 paid to the limited partners or $16.53 per limited partnership unit)
were paid from operations. During the six months ended June 30, 2000, the
Partnership paid approximately $6,670,000 in distributions from surplus cash to
the limited partners ($33.51 per limited partnership unit). Included in the
amounts at June 30, 2001 and 2000 are payments to both the Pennsylvania and
North Carolina Departments of Revenue for withholding taxes related to income
generated by the Registrant's investment properties located in those states.
Subsequent to June 30, 2001, the Partnership declared and paid a distribution
from operations of approximately $2,238,000 (approximately $2,216,000 paid to
the limited partners or $11.13 per limited partnership unit) and a distribution
from surplus cash of approximately $452,000 to the limited partners ($2.27 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 six months ended June 30, 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.
For the three months ended
June 30, 2001 Residential Commercial Other Totals
Rental income $ 2,408 $ 389 $ -- $ 2,797
Interest income 13 2 3 18
Other income 136 79 -- 215
Interest income on investment
in Master Loan -- -- 804 804
Interest expense 422 40 -- 462
Depreciation 751 24 -- 775
General and administrative expense -- -- 372 372
Segment profit 199 74 435 708
For the six months ended
June 30, 2001 Residential Commercial Other Totals
Rental income $ 4,815 $ 787 $ -- $ 5,602
Interest income 48 7 4 59
Other income 291 153 -- 444
Interest income on investment
in Master Loan -- -- 2,704 2,704
Reduction of provision for
impairment loss -- -- 3,176 3,176
Interest expense 832 115 -- 947
Depreciation 1,503 47 -- 1,550
General and administrative expense -- -- 543 543
Segment profit 437 136 5,341 5,914
Total assets 29,755 1,681 28,608 60,044
Capital expenditures 62 25 -- 87
For the three months ended
June 30, 2000 Residential Commercial Other Totals
Rental income $ 2,253 $ 387 $ -- $ 2,640
Interest income 33 13 55 101
Other income 166 56 -- 222
Interest income on investment
in Master Loan -- -- 1,000 1,000
Interest expense 421 59 -- 480
Depreciation 745 22 -- 767
General and administrative expense -- -- 199 199
Segment profit 262 109 856 1,227
For the six months ended
June 30, 2000 Residential Commercial Other Totals
Rental income $ 4,463 $ 764 $ -- $ 5,227
Interest income 42 14 159 215
Other income 256 111 -- 367
Interest income on investment
in Master Loan -- -- 1,000 1,000
Interest expense 841 118 -- 959
Depreciation 1,463 42 -- 1,505
General and administrative expense -- -- 299 299
Segment profit 372 220 860 1,452
Total assets 32,490 1,713 56,232 90,435
Capital expenditures 1,223 19 -- 1,242
Note G - Legal Proceedings
In March 1998, several putative unitholders 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 series of transactions
which closed on October 1, 1998 and February 26, 1999 whereby Insignia and
Insignia Properties Trust, respectively, were merged into AIMCO. 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. On May 14, 2001, the Court heard the demurrer to the third
amended complaint. On July 10, 2001, the Court issued an order sustaining
defendants' demurrer on certain grounds. Plaintiffs have until August 16, 2001
to file a fourth amended complaint. The General Partner does not anticipate that
any costs, whether legal or settlement 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 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 six months ended June 30, 2001 and 2000:
Average Occupancy
Property 2001 2000
The Loft Apartments 91% 93%
Raleigh, North Carolina
The Sterling Apartment Homes 95% 92%
The Sterling Commerce Center 89% 89%
Philadelphia, Pennsylvania
The increase in occupancy at The Sterling Apartment Homes is attributed to a
major renovation project which was performed at the property during the past
year which improved the curb appeal of the property.
Results of Operations
The Partnership's net income for the six months ended June 30, 2001 was
approximately $5,914,000 compared to net income of approximately $1,452,000 for
the corresponding period in 2000. The Partnership recorded net income of
approximately $708,000 for the three months ended June 30, 2001 compared to net
income of approximately $1,227,000 for the corresponding period in 2000. The
increase in net income for the six months ended June 30, 2001 as compared to the
six months ended June 30, 2000 is primarily due to the $3,176,000 reduction of
the provision for impairment loss on the investment in the Master Loan and an
increase of $1,704,000 in interest payments received and therefore recognized on
the Master Loan. Each of these factors was caused by improved operations at the
collateral properties due to major capital projects and the concerted effort to
complete deferred maintenance items that have been ongoing over the past few
years. 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 order to fund such improvements.
Excluding the items related to the Master Loan, the Partnership's net income for
the six months ended June 30, 2001 and 2000 was approximately $34,000 and
$452,000, respectively. For the three months ended June 30, 2001 and 2000, the
Partnership had a net loss of approximately $96,000 and net income of
approximately $227,000, respectively. The decrease in income for the three and
six month periods is due to an increase in total expenses which more than offset
an increase in total revenues.
Total expenses increased for the three and six months ended June 30, 2001 due to
increases in operating, property tax, depreciation, and general and
administrative expenses. Operating expenses increased due to an increase in
utility expense, primarily natural gas, at The Sterling and to increases in
salary and other benefits at both investment properties. Property tax expense
increased due to a reassessment by the taxing authorities at the Loft and The
Sterling which increased the assessed values of the properties due to recent
renovations at each property. Depreciation increased due to an increase in
capital improvements at The Sterling.
General and administrative expenses increased for the three and six months ended
June 30,2001 due to a business privilege tax paid to the city of Philadelphia
and 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.
The increase in total revenues for the six months ended June 30, 2001 is 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 rental revenue was due to an increase in average rental
rates at both of the Partnership's properties and an increase in occupancy at
The Sterling and Apartment Homes, offset by a decrease in occupancy at The Loft
Apartments. The increase in other income for the six months ended June 30, 2001
is due to increases in utility reimbursements, cleaning and damage 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.
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 June 30, 2001, the Partnership had cash and cash equivalents of approximately
$3,068,000 as compared to approximately $6,499,000 at June 30, 2000. Cash and
cash equivalents increased approximately $1,032,000 for the six months ended
June 30, 2001 from December 31, 2000. This increase was primarily due to
approximately $4,729,000 and $7,536,000 of cash provided by operating and
investing activities, respectively, which was offset by approximately
$11,233,000 of cash used in financing activities. Cash provided by investing
activities consisted of principal repayments received on the Master Loan and net
receipts from escrow accounts maintained by the mortgage lender slightly offset
by property improvements and replacements. 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 $51,000 for
capital improvements during 2001 consisting of floor covering and window
dressing replacements, air conditioning units and water heaters. During the six
months ended June 30, 2001, the Partnership completed approximately $46,000 of
capital improvements, consisting primarily of the aforementioned budgeted
improvements. These improvements were funded from operations and replacement
reserves.
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 six months ended June 30, 2001, the
Partnership completed approximately $41,000 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 $26,619,000 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 dates. If the properties cannot be refinanced or sold for a sufficient
amount, the Registrant may risk losing such properties through foreclosure.
During the six months ended June 30, 2001, distributions from surplus cash of
approximately $7,767,000 were paid to the limited partners ($39.02 per limited
partnership unit) and distributions of approximately $3,323,000 (approximately
$3,290,000 paid to the limited partners or $16.53 per limited partnership unit)
were paid from operations. During the six months ended June 30, 2000, the
Partnership paid approximately $6,670,000 in distributions from surplus cash to
the limited partners ($33.51 per limited partnership unit). Included in the
amounts at June 30, 2001 and 2000 are payments to both the Pennsylvania and
North Carolina Departments of Revenue for withholding taxes related to income
generated by the Registrant's investment properties located in those states.
Subsequent to June 30, 2001, the Partnership declared and paid a distribution
from operations of approximately $2,238,000 (approximately $2,216,000 paid to
the limited partners or $11.13 per limited partnership unit) and a distribution
from surplus cash of approximately $452,000 to the limited partners ($2.27 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 six months ended June 30, 2001, CCEP's net loss totaled approximately
$16,660,000 on total revenues of approximately $13,634,000. 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 six months ended June 30, 2001
and 2000 CCEP's statements of operations include total interest expense
attributable to the Master Loan of approximately $21,150,000 and $21,210,000,
respectively, with all but approximately $2,704,000 and $1,000,000,
respectively, representing 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 six months ended June 30, 2001, CCEP made approximately $7,484,000 in
principal payments on the Master Loan. Approximately $5,987,000 represents net
proceeds from the sale of Magnolia Trace, approximately $1,425,000 represents
refinancing proceeds and approximately $72,000 represents amounts received on
certain investments by CCEP, all of 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 to
Affiliate ("Master Loan"). Receipts (interest income) on the Master 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 Master Loan. Based upon the fact that 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 June 30, 2001, a 100 basis points 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 June 30,
2001. The interest rates represent the weighted-average rates. The fair value of
the debt obligations approximate the recorded value as of June 30, 2001.
Principal Amount by Expected Maturity
Fixed Rate Debt
Long-term Average Interest
Debt Rate 6.86%
(in thousands)
2001 $ 161
2002 346
2003 371
2004 393
2005 4,320
Thereafter 21,028
Total $26,619
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unitholders 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 series of transactions
which closed on October 1, 1998 and February 26, 1999 whereby Insignia and
Insignia Properties Trust, respectively, were merged into AIMCO. 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. On May 14, 2001, the Court heard the demurrer to the third
amended complaint. On July 10, 2001, the Court issued an order sustaining
defendants' demurrer on certain grounds. Plaintiffs have until August 16, 2001
to file a fourth amended complaint. The General Partner does not anticipate that
any costs, whether legal or settlement 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 six months ended June
30, 2001 and 2000.
b) Reports on Form 8-K during the quarter ended June 30, 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: August 9, 2001
EXHIBIT 99.1
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
June 30, 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, except unit data)
June 30, December 31,
2001 2000
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 2,528 $ 5,894
Receivables and deposits 834 928
Restricted escrows 842 767
Other assets 1,670 1,634
Investment properties:
Land 6,904 7,796
Building and related personal property 78,522 83,558
85,426 91,354
Less accumulated depreciation (67,274) (70,793)
18,152 20,561
$ 24,026 $ 29,784
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 204 $ 410
Tenant security deposit liabilities 487 485
Accrued property taxes 569 218
Other liabilities 980 586
Mortgage notes payable 55,459 56,060
Master loan and interest payable 351,455 340,493
409,154 398,252
Partners' Deficit
General partner (3,852) (3,685)
Limited partners (381,276) (364,783)
(385,128) (368,468)
$ 24,026 $ 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 generally accepted accounting
principles 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 Six Months Ended
June 30, June 30,
2001 2000 2001 2000
Revenues:
Rental income $ 4,201 $ 4,603 $ 8,351 $ 9,158
Other income 472 469 906 850
Gain on sale of investment property -- -- 4,377 --
Total revenues 4,673 5,072 13,634 10,008
Expenses:
Operating 1,915 2,145 3,796 4,144
General and administrative 209 157 393 318
Depreciation 1,040 1,343 2,091 2,657
Interest 11,640 11,012 23,417 22,030
Property taxes 301 327 597 653
Total expenses 15,105 14,984 30,294 29,802
Net loss $(10,432) $ (9,912) $(16,660) $(19,794)
Net loss allocated to general
partner (1%) $ (104) $ (99) $ (167) $ (198)
Net loss allocated to limited
partners (99%) (10,328) (9,813) (16,493) (19,596)
$(10,432) $ (9,912) $(16,660) $(19,794)
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 six months
ended June 30, 2000 (198) (19,596) (19,794)
Partners' deficit
at June 30, 2000 $(3,508) $(347,261) $(350,769)
Partners' deficit
at December 31, 2000 $(3,685) $(364,783) $(368,468)
Net loss for the six months
ended June 30, 2001 (167) (16,493) (16,660)
Partners' deficit at
June 30, 2001 $(3,852) $(381,276) $(385,128)
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)
Six Months Ended
June 30,
2001 2000
Cash flows from operating activities:
Net loss $(16,660) $(19,794)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 2,178 2,696
Gain on sale of investment property (4,377) --
Change in accounts:
Receivables and deposits 94 (33)
Other assets (34) 7
Accounts payable (206) (280)
Tenant security deposit liabilities 2 40
Accrued property taxes 351 199
Other liabilities 394 (112)
Accrued interest on Master Loan 18,446 20,210
Net cash provided by operating activities 188 2,933
Cash flows from investing activities:
Property improvements and replacements (1,324) (2,015)
Proceeds from sale of investment property 6,019 --
Net (deposits to) receipts from restricted escrows (75) 365
Net cash provided by (used in) investing activities 4,620 (1,650)
Cash flows from financing activities:
Principal payments on Master Loan (7,484) (167)
Principal payments on mortgage notes payable (601) (158)
Loan costs paid (89) --
Net cash used in financing activities (8,174) (325)
Net increase in cash and cash equivalents (3,366) 958
Cash and cash equivalents at beginning of period 5,894 2,865
Cash and cash equivalents at end of period $ 2,528 $ 3,823
Supplemental disclosure of cash flow information:
Cash paid for interest $ 5,521 $ 1,781
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 $16,660,000 for the six
months ended June 30, 2001. The General Partner expects the Partnership to
continue to incur such losses from operations.
The Partnership's indebtedness to Consolidated Capital Institutional Properties
("CCIP") under the Master Loan of approximately $351,455,000, 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 June 30, 2001, partners' deficit was approximately
$385,128,000.
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") all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and six month periods ended June 30, 2001, are not necessarily indicative
of the results that may be expected for the fiscal year ending December 31,
2001. The General Partner is ultimately owned by Apartment Investment and
Management Company ("AIMCO"), a publicly traded real estate investment trust.
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 six months ended June 30, 2001 and 2000:
2001 2000
(in thousands)
Property management fees (included in operating expenses) $ 465 $ 502
Investment advisory fees (included in general
and administrative expenses) 115 90
Reimbursement for services of affiliates (included in
operating and general and administrative expenses
and investment properties) 232 179
Affiliates of the General Partner are entitled to receive 5% of gross receipts
from the Partnership's investment properties for providing property management
services. The Partnership paid to such affiliates approximately $465,000 and
$502,000 for the six months ended June 30, 2001 and 2000, respectively.
The Partnership is 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 $115,000 and $90,000 for the
six months ended June 30, 2001 and 2000, respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $232,000 and $179,000 for the
six months ended June 30, 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 $2,704,000 for
the six months ended June 30, 2001 and approximately $1,000,000 for the six
months ended June 30, 2000. There were no advances on the Master Loan during the
six months ended June 30, 2001 or 2000. During the six months ended June 30,
2001 and 2000, CCEP paid approximately $7,484,000 and $167,000, 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 June 30, 2001
and December 31, 2000, are approximately $351,455,000 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.
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.