UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002
[ ] 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
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
June 30, December 31,
2002 2001
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 1,086 $ 922
Receivables and deposits 363 488
Restricted escrows 417 392
Other assets 1,007 604
Investment in Master Loan to affiliate 26,430 26,430
Investment properties:
Land 3,564 3,564
Building and related personal property 39,760 39,658
43,324 43,222
Less: Accumulated depreciation (17,455) (15,969)
25,869 27,253
$ 55,172 $ 56,089
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 126 $ 126
Tenant security deposit liabilities 514 566
Accrued property taxes 46 --
Other liabilities 668 603
Mortgage notes payable 26,285 26,457
27,639 27,752
Partners' Capital
General partner 119 123
Limited partners (199,045.2 units issued and
outstanding) 27,414 28,214
27,533 28,337
$ 55,172 $ 56,089
Note: The balance sheet at December 31, 2001 has been derived from the audited
consolidated 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
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
Rental income $ 2,679 $ 2,797 $ 5,387 $ 5,602
Interest income on investment in
Master Loan to affiliate 386 804 386 2,704
Reduction of provision for impairment
loss -- -- -- 3,176
Other income 184 233 405 503
Total revenues 3,249 3,834 6,178 11,985
Operating 1,127 1,308 2,372 2,612
General and administrative 237 372 389 543
Depreciation 767 775 1,486 1,550
Interest 471 462 934 947
Property taxes 208 209 416 419
Total expenses 2,810 3,126 5,597 6,071
Net income $ 439 $ 708 $ 581 $ 5,914
Net income allocated to general
partner (1%) $ 4 $ 7 $ 6 $ 59
Net income allocated to limited
partners (99%) 435 701 575 5,855
Net income $ 439 $ 708 $ 581 $ 5,914
Net income per limited partnership
unit $ 2.19 $ 3.52 $ 2.89 $ 29.42
Distributions per limited
partnership unit $ 4.64 $ 16.53 $ 6.91 $ 55.55
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' 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' 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
Partners' capital at
December 31, 2001 199,045.2 $ 123 $ 28,214 $ 28,337
Distributions to partners -- (10) (1,375) (1,385)
Net income for the six months
ended June 30, 2002 -- 6 575 581
Partners' capital at
June 30, 2002 199,045.2 $ 119 $ 27,414 $ 27,533
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2002 2001
Cash flows from operating activities:
Net income $ 581 $ 5,914
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,514 1,615
Reduction of provision for impairment loss -- (3,176)
Change in accounts:
Receivables and deposits 125 736
Other assets (431) (340)
Accounts payable -- 84
Tenant security deposit liabilities (52) (27)
Accrued property taxes 46 49
Other liabilities 65 (126)
Net cash provided by operating activities 1,848 4,729
Cash flows from investing activities:
Net (deposits to) receipts from restricted escrows (25) 139
Property improvements and replacements (102) (87)
Principal receipts on Master Loan to affiliate -- 7,484
Net cash (used in) provided by investing activities (127) 7,536
Cash flows from financing activities:
Distributions to partners (1,385) (11,090)
Payments on mortgage notes payable (172) (143)
Net cash used in financing activities (1,557) (11,233)
Net increase in cash and cash equivalents 164 1,032
Cash and cash equivalents at beginning of period 922 2,036
Cash and cash equivalents at end of period $ 1,086 $ 3,068
Supplemental disclosure of cash flow information:
Cash paid for interest $ 905 $ 917
See Accompanying Notes to Consolidated Financial Statements
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 a subsidiary of 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 six month period
ended June 30, 2002 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 2002. 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, 2001.
Segment Reporting: Statement of Financial Accounting Standards ("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 D" for
detailed disclosure of the Partnership's segments).
Reclassifications: Certain reclassifications have been made to the 2001
information to conform to the 2002 presentation. These reclassifications had no
impact on net income or partners' capital as previously reported.
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.
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 $286,000 and $310,000 for the
six months ended June 30, 2002 and 2001, respectively, which is included in
operating expenses.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $225,000 and $251,000 for the
six months ended June 30, 2002 and 2001, respectively, which is included in
general administrative expenses.
Beginning in 2001, the Partnership began insuring its properties up to certain
limits through coverage provided by AIMCO which is generally self-insured for a
portion of losses and liabilities related to workers compensation, property
casualty and vehicle liability. The Partnership insures its properties above the
AIMCO limits through insurance policies obtained by AIMCO from insurers
unaffiliated with the General Partner. During the six months ended June 30, 2002
and 2001, the Partnership was charged by AIMCO and its affiliates approximately
$98,000 and $60,000, respectively, for insurance coverage and fees associated
with policy claims administration.
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"). The loans were made to, and the real
properties that secure the Master Loan were purchased and are owned by CCEP. At
June 30, 2002, the recorded investment in the Master Loan is 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, 2002 and 2001, the Partnership
recorded approximately $386,000 and $2,704,000, respectively, of interest income
based upon "Excess Cash Flow" generated (as defined in the terms of the New
Master Loan Agreement).
The fair value of all of the collateral properties which on a combined basis
secure the Master Loan, was determined by obtaining an appraisal by an
independent third party or by using the net operating income of all of the
collateral properties capitalized at a rate deemed reasonable for the type of
property adjusted for market conditions, the physical condition of each property
and other factors less the value of the first mortgage loans held on each
property which are superior to the Master Loan. 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
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 of
the Master Loan from the sales proceeds of Magnolia Trace in January 2001. There
was no change in the provision for impairment loss during the six months ended
June 30, 2002. The General Partner evaluates the net realizable value on a
semi-annual basis or as circumstance dictate that it should be analyzed.
The principal balance of the Master Loan due to the Partnership totaled
approximately $26,430,000 at June 30, 2002. 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 $23,528,000 and $18,446,000
for the six months ended June 30, 2002 and 2001, respectively. Interest income
is recognized on the cash basis as required by SFAS 114. At June 30, 2002 and
December 31, 2001, such cumulative unrecognized interest totaling approximately
$368,166,000 and $345,024,000 was not included in the balance of the investment
in Master Loan. In addition, all of the collateral properties are encumbered by
first mortgages totaling approximately $54,184,000 which are senior 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, 2002, the Partnership did not receive any
principal payments on the Master Loan. During the six months ended June 30,
2001, the Partnership received approximately $7,484,000, 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 additional proceeds
from the refinancing of the mortgages encumbering nine of the investment
properties in 2000. Approximately $72,000 was received during the six months
ended June 30, 2001 representing cash received on certain investments held by
CCEP, which are required to be transferred to the Partnership per the Master
Loan Agreement.
Terms of the Master Loan Agreement
The Master Loan matured in November 2000. The General Partner had been
negotiating with CCEP with respect to its options which included foreclosing on
the properties which collateralize the Master Loan or extending the terms of the
loan. The General Partner has decided to foreclose on the properties that
collateralize the Master Loan. The General Partner began the process of
foreclosure or executing deeds in lieu of foreclosure during the second quarter
of 2002 on all the properties in CCEP. As the deeds are executed, title in the
properties currently owned by CCEP will be transferred to the Partnership,
subject to the existing liens on such properties, including the first mortgage
loans. As a result, the Partnership will become responsible for the operations
of such properties. Subsequent to June 30, 2002 deeds in lieu of foreclosure
were executed on four of the properties in CCEP.
Note D - 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 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, 2001.
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 and six months ended June 30, 2002 and 2001 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 segments.
For the three months ended
June 30, 2002 Residential Commercial Other Totals
Rental income $ 2,396 $ 283 $ -- $ 2,679
Other income 157 26 1 184
Interest income on investment
in Master Loan -- -- 386 386
Interest expense 414 57 -- 471
Depreciation 701 66 -- 767
General and administrative expense -- -- 237 237
Segment profit 392 (103) 150 439
For the six months ended
June 30, 2002 Residential Commercial Other Totals
Rental income $ 4,841 $ 546 $ -- $ 5,387
Other income 348 55 2 405
Interest income on investment
in Master Loan -- -- 386 386
Interest expense 820 114 -- 934
Depreciation 1,399 87 -- 1,486
General and administrative expense -- -- 389 389
Segment profit 765 (183) (1) 581
Total assets 27,158 1,187 26,827 55,172
Capital expenditures 90 12 -- 102
For the three months ended
June 30, 2001 Residential Commercial Other Totals
Rental income $ 2,408 $ 389 $ -- $ 2,797
Other income 149 81 3 233
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
Other income 339 160 4 503
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
Note E - 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. (the "Nuanes action") 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. On July 20, 2001, Plaintiffs filed a
motion for reconsideration of the Court's July 10, 2001 order granting in part
and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed
a fourth amended class and derivative action complaint. On September 12, 2001,
the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the
General Partner and affiliated defendants filed a demurrer to the fourth amended
complaint, which was heard on December 11, 2001. On February 2, 2002, the Court
served its order granting in part the demurrer. The Court has dismissed without
leave to amend certain of the plaintiffs' claims. On February 11, 2002,
plaintiffs filed a motion seeking to certify a putative class comprised of all
non-affiliated persons who own or have owned units in the partnerships. The
General Partner and affiliated defendants oppose the motion. On April 29, 2002,
the Court held a hearing on plaintiffs' motion for class certification and took
the matter under submission after further briefing, as order by the court, was
submitted by the parties. On July 10, 2002, the Court entered an order vacating
the current trial date of January 13, 2003 (as well as the pre-trial and
discovery cut-off dates) and stayed the case in its entirety through November 7,
2002 so that the parties can have an opportunity to discuss settlement.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the General Partner and affiliated defendants
moved to strike the first amended complaint in its entirety for violating the
Court's July 10, 2001 order granting in part and denying in part defendants'
demurrer in the Nuanes action, or alternatively, to strike certain portions of
the complaint based on the statute of limitations. Other defendants in the
action demurred to the fourth amended complaint, and, alternatively, moved to
strike the complaint. On December 11, 2001, the court heard argument on the
motions and took the matters under submission. On February 4, 2002, the Court
served notice of its order granting defendants' motion to strike the Heller
complaint as a violation of its July 10, 2001 order in the Nuanes action. On
March 27, 2002, the plaintiffs filed a notice appealing the order striking the
complaint. The parties are currently in the midst of briefing that appeal.
The General Partner does not anticipate that any costs, whether legal or
settlement costs, associated with these cases 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 six months ended June 30, 2002 and
2001:
Average Occupancy
Property 2002 2001
The Loft Apartments 92% 91%
Raleigh, North Carolina
The Sterling Apartment Homes 91% 95%
The Sterling Commerce Center 55% 89%
Philadelphia, Pennsylvania
The decrease in occupancy at The Sterling Apartment Homes is due to the
competitive market of the apartment industry in the Philadelphia area. The
decrease in occupancy at The Sterling Commerce Center is due to the loss of a
major tenant in December 2001. The Partnership is actively seeking a tenant to
lease the space formerly occupied by this major tenant.
Results of Operations
The Partnership's net income for the six months ended June 30, 2002 was
approximately $581,000 compared to net income of approximately $5,914,000 for
the corresponding period in 2001. The Partnership recorded net income of
approximately $439,000 for the three months ended June 30, 2002 compared to net
income of approximately $708,000 for the corresponding period in 2001. The
decrease in net income for the six months ended June 30, 2002 as compared to the
six months ended June 30, 2001 is primarily due to the $3,176,000 reduction of
the provision for impairment loss on the investment in the Master Loan
recognized during the six months ended June 30, 2001, and a decrease of
approximately $2,318,000 in interest payments received and therefore recognized
on the Master Loan. Interest income on investment in Master Loan 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 reduction of the provision for impairment loss on the Master
Loan was recognized due to an increase in the net realizable value of the
collateral properties and the payment of principal on the Master Loan from the
sales proceeds of Magnolia Trace during the six months ended June 30, 2001. The
General Partner evaluates the net realizable value on a semi-annual basis or
when circumstances dictate that it should be analyzed.
Excluding the items related to the Master Loan, the Partnership's net income for
the six months ended June 30, 2002 and 2001 was approximately $195,000 and
$34,000, respectively. For the three months ended June 30, 2002 and 2001, the
Partnership had net income of approximately $53,000 and a net loss of
approximately $96,000, respectively. The increase in income for the three and
six month periods ended June 30, 2002 is due to a decrease in total expenses
which more than offset a decrease in total revenues.
The decrease in total revenues is due to decreases in rental and other income.
The decrease in rental revenue is due to a decrease in occupancy at The Sterling
Commerce Center and The Sterling Apartment Homes and a decrease in average
rental rates at The Loft Apartments. This was partially offset by an increase in
occupancy at The Loft Apartments and an increase in average rental rates at The
Sterling Commerce Center and The Sterling Apartment Homes. The decrease in other
income is due to a decrease in interest income as a result of lower average cash
balances in interest bearing accounts and decreases in cleaning and damage fees,
corporate housing revenue and parking income partially offset by an increase in
vending income at The Sterling Apartment Homes.
Total expenses decreased for the three and six month periods ended June 30, 2002
due to decreases in operating, depreciation and general and administrative
expenses. Operating expenses decreased primarily due to a decrease in utility
and maintenance expenses at The Sterling Commerce Center and The Sterling
Apartment Homes. These decreases were partially offset by increased insurance
expense at The Sterling Apartment Homes and Commerce Center. Depreciation
expense decreased due to capital improvements and replacements becoming fully
depreciated during the past year at The Sterling Commerce Center and The
Sterling Apartment Homes.
General and administrative expenses decreased for the three and six month
periods ended June 30, 2002 due to a business privilege tax paid to the city of
Philadelphia during the six months ended June 30, 2001, increased legal fees and
a decrease 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 June 30, 2002, the Partnership had cash and cash equivalents of approximately
$1,086,000 compared to approximately $3,068,000 at June 30, 2001. Cash and cash
equivalents increased approximately $164,000 since December 31, 2001 due to
approximately $1,848,000 of cash provided by operating activities partially
offset by approximately $1,557,000 and $127,000 of net cash used in financing
and investing activities, respectively. Cash used in investing activities
consisted of property improvements and replacement and net deposits to escrow
accounts maintained by the mortgage lenders. Cash used in financing activities
consisted of distributions to partners and 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 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 budgeted approximately $109,000 for capital improvements during
2002 consisting of floor covering replacements, water submetering and swimming
pool improvements. During the six months ended June 30, 2002, the Partnership
completed approximately $49,000 of capital improvements, consisting primarily of
floor covering replacements and swimming pool improvements. These improvements
were funded from operating cash flow and replacement reserves. Additional
improvements may be considered and will depend on the physical condition of the
property as well as replacement reserves and anticipated cash flow generated by
the property.
The Sterling
The Partnership budgeted approximately $1,670,000 for capital improvements
during 2002 consisting primarily of window replacement and, to a lesser extent,
appliance and floor covering replacements. During the six months ended June 30,
2002, the Partnership completed approximately $53,000 of capital improvements
consisting primarily of parking area resurfacing, floor covering replacements
and office computers. These improvements were funded from operating cash flow
and replacement reserves. Additional improvements may be considered and will
depend on the physical condition of the property as well as replacement reserves
and anticipated cash flow generated by the property.
The additional capital improvements 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 $26,285,000 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.
The Partnership distributed the following amounts during the six months ended
June 30, 2002 and 2001 (in thousands, except per unit data):
Six Months Per Limited Six Months Per Limited
Ended Partnership Ended Partnership
June 30, 2002 Unit June 30, 2001 Unit
Operations $ 999 $ 4.97 $ 3,323 $16.53
Surplus (1) 386 1.94 7,767 39.02
$1,385 $ 6.91 $11,090 $55.55
(1) Consists of receipt of principal and interest payments on the Master Loan
from operations of the collateral properties.
The Registrant's cash available for distribution is reviewed on a monthly 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 2002 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 129,498 limited partnership units
(the "Units") in the Partnership representing 65.06% of the outstanding Units at
June 30, 2002. A number of these Units were acquired pursuant to tender offers
made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates
will acquire additional units of limited partnership interest in the Partnership
in exchange for cash or a combination of cash and units in the operating
partnership of AIMCO either through private purchases or tender offers. In this
regard, on June 25, 2002, a tender offer by AIMCO Properties, L.P., to acquire
any and all of the units not owned by affiliates of AIMCO for a purchase price
of $166.00 per unit expired. Pursuant to this offer, AIMCO acquired 2,859 units
during the quarter ended June 30, 2002. 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 voting on certain amendments
to the Partnership Agreement and voting to remove the Managing General Partner.
As a result of its ownership of 65.06% of the outstanding Units, AIMCO is in a
position to control all voting decisions with respect to the Registrant.
Although the General Partner owes fiduciary duties to the limited partners of
the Partnership, the General Partner also owed fiduciary duties to AIMCO as its
sole Stockholder. As a result, the duties of the General Partner, as managing
general partner, to the Partnerships and its limited partners may come into
conflict with the duties of the General Partner to AIMCO, as it sole
stockholder.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the Partnership
to make estimates and assumptions. The Partnership believes that of its
significant accounting policies, the following may involve a higher degree of
judgment and complexity.
Impairment of Long-Lived Assets
Investment properties are recorded at cost, less accumulated depreciation,
unless considered impaired. If events or circumstances indicate that the
carrying amount of a property may be impaired, the Partnership will make an
assessment of its recoverability by estimating the undiscounted future cash
flows, excluding interest charges, of the property. If the carrying amount
exceeds the aggregate future cash flows, the Partnership would recognize an
impairment loss to the extent the carrying amount exceeds the fair value of the
property.
Real property investments are subject to varying degrees of risk. Several
factors may adversely affect the economic performance and value of the
Partnership's investment properties. These factors include changes in the
national, regional and local economic climate; local conditions, such as an
oversupply of multifamily properties; competition from other available
multifamily property owners and changes in market rental rates. Any adverse
changes in these factors could cause an impairment in the Partnership's assets.
Revenue Recognition
The Partnership generally leases apartment units for twelve-month terms or less.
Rental income attributable to leases is recognized monthly as it is earned. The
Partnership will offer rental concessions during particularly slow months or in
response to heavy competition from other similar complexes in the area.
Concessions are charged to income as incurred.
CCEP Property Operations
CCIP has decided to foreclose on the properties that collaterize the Master
Loan. During the six months ended June 30, 2002, CCIP began the process of
foreclosure or executing deeds in lieu of foreclosure. As the deeds are
executed, title in the properties currently owned by CCEP will be vested in
CCIP, subject to the existing liens on the properties including the first
mortgage loans. Subsequent to June 30, 2002 deeds in lieu of foreclosure were
executed on four of the properties in CCEP. When CCEP no longer has title to the
properties, it will be dissolved.
As a result of the decision to liquidate, CCEP changed its basis of accounting
for its financial statements at March 31, 2002, to the liquidation basis of
accounting. Consequently, assets have been valued at estimated net realizable
value and liabilities are presented at their estimated settlement amounts. The
valuation of assets and liabilities necessarily requires many estimates and
assumptions and there are substantial uncertainties in carrying out the
liquidation. The actual realization of assets and settlement of liabilities
could be higher or lower than amounts indicated and is based upon estimates of
the General Partner of CCEP as of the date of the consolidated financial
statements.
During the three months ended June 30, 2002, the change in net liabilities
remained constant, but was affected by an increase in cash and cash equivalents,
receivables and deposits, and the Master Loan and interest. The increase in cash
and cash equivalents is primarily due to the operating cash generated by the
Partnership's investment properties. The increase in receivables and deposits is
primarily due to increase in tenant receivables at several of the Partnership's
investment properties. The increase in the Master Loan is due to increases in
interest payable due on the Master Loan.
During the six months ended June 30, 2001, CCEP paid approximately $7,484,000 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. No principal payments were made during the six months ended June
30, 2002.
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 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 affect the recognition
of income, as income is only recognized to the extent of cash flow. Therefore,
market risk factors do not affect the Partnership's results of operations as it
relates to the Master 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, 2002, 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 June 30,
2002. The interest rates represent the weighted-average rates. The fair value of
the debt obligations approximated the recorded value as of June 30, 2002.
Principal Amount by Expected Maturity
Fixed Rate Debt
Long-term Average Interest
Debt Rate 6.80%
(in thousands)
2002 $ 174
2003 371
2004 393
2005 4,320
2006 362
Thereafter 20,665
Total $ 26,285
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. (the "Nuanes action") 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. On July 20, 2001, Plaintiffs filed a
motion for reconsideration of the Court's July 10, 2001 order granting in part
and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed
a fourth amended class and derivative action complaint. On September 12, 2001,
the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the
General Partner and affiliated defendants filed a demurrer to the fourth amended
complaint, which was heard on December 11, 2001. On February 2, 2002, the Court
served its order granting in part the demurrer. The Court has dismissed without
leave to amend certain of the plaintiffs' claims. On February 11, 2002,
plaintiffs filed a motion seeking to certify a putative class comprised of all
non-affiliated persons who own or have owned units in the partnerships. The
General Partner and affiliated defendants oppose the motion. On April 29, 2002,
the Court held a hearing on plaintiffs' motion for class certification and took
the matter under submission after further briefing, as order by the court, was
submitted by the parties. On July 10, 2002, the Court entered an order vacating
the current trial date of January 13, 2003 (as well as the pre-trial and
discovery cut-off dates) and stayed the case in its entirety through November 7,
2002 so that the parties can have an opportunity to discuss settlement.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the General Partner and affiliated defendants
moved to strike the first amended complaint in its entirety for violating the
Court's July 10, 2001 order granting in part and denying in part defendants'
demurrer in the Nuanes action, or alternatively, to strike certain portions of
the complaint based on the statute of limitations. Other defendants in the
action demurred to the fourth amended complaint, and, alternatively, moved to
strike the complaint. On December 11, 2001, the court heard argument on the
motions and took the matters under submission. On February 4, 2002, the Court
served notice of its order granting defendants' motion to strike the Heller
complaint as a violation of its July 10, 2001 order in the Nuanes action. On
March 27, 2002, the plaintiffs filed a notice appealing the order striking the
complaint. The parties are currently in the midst of briefing that appeal.
The General Partner does not anticipate that any costs, whether legal or
settlement costs, associated with these cases 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
EXHIBIT 3.1 Certificate of Limited Partnership, as amended to date (Exhibit 3 to
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1991, is incorporated herein by reference).
EXHIBIT 3.2 Agreement of Limited Partnership, incorporated by reference to the
Registration Statement of the Registrant (File No. 2-72384) filed April 23,
1981, as amended to date.
EXHIBIT 3.3 Fee Owner's Limited Partnership Agreement dated November 14, 1990
(incorporated by reference to the 1990 Annual Report).
EXHIBIT 99 Certification of Chief Executive Officer and Chief Financial Officer
EXHIBIT 99.1 Consolidated Capital Equity Partners, L.P., unaudited financial
statements for the six months ended June 30, 2002 and 2001.
b. Reports on Form 8-K during the quarter ended June 30, 2002:
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/Thomas C. Novosel
Thomas C. Novosel
Senior Vice President and
Chief Accounting Officer
Date: August 14, 2002
Exhibit 99
Certification of CEO and CFO
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Consolidated Capital
Institutional Properties (the "Partnership"), for the quarterly period ended
June 30, 2002 as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), Patrick J. Foye, as the equivalent of the Chief Executive
Officer of the Partnership, and Paul J. McAuliffe, as the equivalent of the
Chief Financial Officer of the Partnership, each hereby certifies, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Partnership.
/s/Patrick J. Foye
Name: Patrick J. Foye
Date: August 14, 2002
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: August 14, 2002
This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Partnership for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.
EXHIBIT 99.1
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
June 30, 2002 and 2001
1
EXHIBIT 99.1 (Continued)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED STATEMENT OF NET LIABILITIES IN LIQUIDATION
(Unaudited)
(in thousands)
June 30, 2002
Assets
Cash and cash equivalents $ 1,364
Receivables and deposits 302
Restricted escrows 516
Other assets 231
Investment in affiliated partnerships (Note F) 1,371
Investment properties 94,660
98,444
Liabilities
Accounts payable 172
Tenant security deposit liabilities 444
Accrued property taxes 667
Other liabilities 551
Mortgage notes payable 54,184
Master Loan and interest payable 42,426
98,444
Net liabilities in liquidation $ --
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
b)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED BALANCE SHEET
(in thousands)
December 31,
2001
(Note)
Assets
Cash and cash equivalents $ 1,321
Receivables and deposits 280
Restricted escrows 615
Other assets 1,514
Investment properties:
Land 6,904
Building and related personal property 80,399
87,303
Less accumulated depreciation (68,315)
18,988
$ 22,718
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 527
Tenant security deposit liabilities 440
Accrued property taxes 256
Other liabilities 564
Mortgage notes 54,834
Master loan and interest payable (Note C) 371,455
428,076
Partners' Deficit
General partner (4,054)
Limited partners (401,304)
(405,358)
$ 22,718
Note: The balance sheet at December 31, 2001 has been derived from the audited
consolidated financial statements at that date, but does not include all
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
c)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands)
Three Months Six Months
Ended Ended
March 31, June 30, June 30,
2002 2001 2001
(restated) (restated)
Revenues:
Rental income $ 3,877 $ 4,201 $ 8,324
Other income 494 472 894
Total revenues 4,371 4,673 9,218
Expenses:
Operating 1,839 1,915 3,755
General and administrative 228 209 393
Depreciation 564 1,040 2,060
Property taxes 307 301 595
Interest 12,875 11,640 23,417
Total expenses 15,813 15,105 30,220
Loss from continuing operations (11,442) (10,432) (21,002)
Loss from discontinued operations -- -- (35)
Gain on sale of discontinued
operations (Note D) -- -- 4,377
Net loss $(11,442) $(10,432) $(16,660)
Net loss allocated to general partner (1%) $ (114) $ (104) $ (167)
Net loss allocated to limited partners (99%) (11,328) (10,328) (16,493)
$(11,442) $(10,432) $(16,660)
See Accompanying Notes to Consolidated Financial Statements
d)
Exhibit 99.1 (continued)
CONSOLIDATED statement of changes in net liabilities in liquidation
(Unaudited)
(in thousands)
Three Months Ended June 30, 2002
Net liabilities in liquidation at March 31, 2002 $ --
Changes in net liabilities in liquidation attributed to:
Increase in cash and cash equivalents 159
Increase in receivables and deposits 78
Decrease in restricted escrows (109)
Decrease in other assets (111)
Decrease in accounts payable 142
Increase in tenant security deposit liabilities (4)
Increase in accrued taxes (297)
Decrease in other liabilities 176
Decrease in mortgage notes payable 327
Increase in Master Loan and interest payable (361)
Net liabilities in liquidation at June 30, 2002 $ --
See Accompanying Notes to Consolidated Financial Statements
5
EXHIBIT 99.1 (Continued)
e)
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, 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)
Partners' deficit
at December 31, 2001 $ (4,054) $(401,304) $(405,358)
Net loss for the three months
ended March 31, 2002 (114) (11,328) (11,442)
Partners' deficit at
March 31, 2002 $ (4,168) $(412,632) $(416,800)
Adjustment to liquidation basis
(Note E) 416,800
Net liabilities in liquidation
of June 30, 2002 $ --
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
f)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Six Months
Ended Ended
March 31, June 30,
2002 2001
Cash flows from operating activities:
Net loss $(11,442) $(16,660)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 604 2,178
Gain on sale of discontinued operations -- (4,377)
Change in accounts:
Receivables and deposits 56 94
Other assets (430) (34)
Accounts payable 36 (206)
Tenant security deposit liabilities -- 2
Accrued property taxes 114 351
Other liabilities 163 394
Accrued interest on Master Loan 11,769 18,446
Net cash provided by operating activities 870 188
Cash flows from investing activities:
Property improvements and replacements (617) (1,324)
Proceeds from sale of investment property -- 6,019
Net deposits to restricted escrows (10) (75)
Net cash (used in) provided by investing activities (627) 4,620
Cash flows from financing activities:
Principal payments on Master Loan -- (7,484)
Principal payments on notes payable (323) (601)
Loan costs paid (36) (89)
Net cash used in financing activities (359) (8,174)
Net decrease in cash and cash equivalents (116) (3,366)
Cash and cash equivalents at beginning of period 1,321 5,894
Cash and cash equivalents at end of period $ 1,205 $ 2,528
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,068 $ 5,521
See Accompanying Notes to Consolidated Financial Statements
g)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Going Concern
On March 31, 2002, Consolidated Capital Equity Partners, L.P. ("the Partnership"
or "CCEP") adopted the liquidation basis of accounting due to the Partnership
receiving notification from Consolidated Capital Investment Partners, L.P.
("CCIP"), the holder of the nonrecourse note ("Master Loan") and a related
party, of its intention to exercise its remedy under the Master Loan agreement
and to foreclose or to execute a deed in lieu of foreclosure on the investment
properties held by the Partnership. The Master Loan matured in November 2000.
The Partnership does not have the means to satisfy its obligation under the
Master Loan. No other sources of additional financing have been identified by
the Partnership, nor does ConCap Holdings, Inc. (the "General Partner") have any
other plans to remedy the liquidity problems the Partnership is experiencing.
Upon completion of the foreclosures or execution of the deeds in lieu of
foreclosure, the Partnership will cease to exist as a going concern, and it will
be dissolved. Subsequent to June 30, 2002 deeds in lieu of foreclosure were
executed on four of the properties in CCEP. The General Partner is ultimately
owned by Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust.
As a result of the decision to liquidate the Partnership, the Partnership
changed its basis of accounting for its consolidated financial statements at
March 31, 2002, to the liquidation basis of accounting. Consequently, assets
have been valued at estimated net realizable value and liabilities are presented
at their estimated settlement amounts, including estimated costs associated with
completing the liquidation and estimated operations of the investment
properties. The valuation of assets and liabilities requires many estimates and
assumptions. There are substantial uncertainties in completing the liquidation.
The actual realization of assets and settlement of liabilities could be higher
or lower than amounts indicated and is based upon estimates of the General
Partners as of the date of the consolidated financial statements.
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.
Affiliates of the General Partner are entitled to receive 5% of gross receipts
from the Partnership's properties for providing property management services.
The Partnership paid to such affiliates approximately $458,000 and $465,000 for
the six months ended June 30, 2002 and 2001, respectively, which is included in
operating expenses and loss from discontinued operations.
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 $115,000 for each of the six
month periods ended June 30, 2002 and 2001, which is included in general and
administrative expenses.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $264,000 and $232,000 for the
six months ended June 30, 2002 and 2001, respectively, which is included in
general and administrative expenses and investment properties. Included in these
amounts are fees related to construction management services provided by an
affiliate of the General Partner of approximately $47,000 and $30,000 for the
six months ended June 30, 2002 and 2001, respectively. The construction
management service fees are calculated based on a percentage of current year
additions to investment properties.
In connection with the sale of Magnolia Trace in January 2001, the Partnership
paid the General Partner a fee of $206,000 in compensation for its role in the
sale. This Partnership fee is included in gain on sale of discontinued
operations.
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 which is described more fully in the 2001 annual report. Such
interest payments totaled approximately $386,000 and $2,704,000 for the six
months ended June 30, 2002 and 2001, respectively.
There were no advances on the Master Loan during the six months ended June 30,
2002 or 2001. During the six months ended June 30, 2001 CCEP paid approximately
$7,484,000 to CCIP as principal payments on the Master Loan. There were no
principal payments made on the Master Loan during the six months ended June 30,
2002.
Beginning in 2001, the Partnership began insuring its properties up to certain
limits through coverage provided by AIMCO which is generally self-insured for a
portion of losses and liabilities related to workers compensation, property
casualty and vehicle liability. The Partnership insures its properties above the
AIMCO limits through insurance policies obtained by AIMCO from insurers
unaffiliated with the General Partner. During the six months ended June 30, 2002
and 2001, the Partnership was charged by AIMCO and its affiliates approximately
$224,000 and $259,000, respectively, for insurance coverage and fees associated
with policy claims administration.
Note C - Master Loan and Accrued Interest Payable
Prior to the adjustments for the liquidation basis, the Master Loan principal
and accrued interest payable balances at June 30, 2002 and December 31, 2001,
are approximately $394,597,000 and $371,455,000, respectively.
Until the process of foreclosure or executing deeds in lieu of foreclosure on
all the properties currently held by CCEP is completed, interest will accrue on
the Master Loan 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, and compounded annually. 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 General Partner has been in negotiations with CCIP with respect to its
options which include CCIP foreclosing on the properties in CCEP which
collateralize the Master Loan or extending the terms of the Master Loan. CCIP
has decided to foreclose on the properties that collaterize the Master Loan.
CCIP began the process of executing deeds in lieu of foreclosure during the
second quarter of 2002 on all the investment properties of the Partnership. As
the deeds are executed, title in the properties currently owned by the
Partnership will be vested in CCIP, subject to the existing liens on the
properties including the first mortgage loans. Subsequent to June 30, 2002 deeds
in lieu of foreclosure were executed on four of the properties in CCEP. When the
Partnership no longer has title to the properties, it will be dissolved.
During the six months ended June 30, 2002, CCEP did not make any principal
payments on the Master Loan to CCIP. During the six months ended June 30, 2001,
CCEP paid approximately $7,484,000 to CCIP as principal payments on the Master
Loan. There were no advances on the Master Loan for the six months ended June
30, 2002 or 2001.
Note D - Sale of Property
Effective January 1, 2002, the Partnership adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", which established standards for the way that public business
enterprises report information about long-lived assets that are either being
held for sale or have already been disposed of by sale or other means. The
standard requires that results of operations for a long-lived asset that is
being held for sale or has already been disposed of be reported as a
discontinued operation on the statement of operations. As a result, the
accompanying consolidated statements of operations have been restated as of
January 1, 2001 to reflect the operations of Magnolia Trace as loss from
discontinued operations. The Partnership recognized a loss from discontinued
operations for the six months ended June 30, 2001 of approximately $35,000 on
revenues of approximately $39,000.
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 as a payment on the Master
Loan principal as required by the Master Loan Agreement. The sale resulted in a
gain on sale of discontinued operations 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.
Note E - Adjustment to Liquidation Basis of Accounting
At March 31, 2002, in accordance with the liquidation basis of accounting,
assets were adjusted to their estimated net realizable value and liabilities
were adjusted to their estimated settlement amount. The net adjustment required
to convert to the liquidation basis of accounting was a decrease in net
liabilities of approximately $416,800,000 which is included in the Statement of
Changes in Partners' Deficit/Net Liabilities In Liquidation. The adjustments are
summarized as follows:
Increase in
Net Assets
(in thousands)
Adjustment of book value of property and
improvements to estimated net realizable value $ 75,868
Adjustment for estimated net realizable value of
investment in affiliated partnerships 1,371
Adjustment of master loan and accrued interest to
estimated settlement amount 341,159
Adjustment of other assets and liabilities, net (1,598)
Decrease in net liabilities $416,800
Note F - Investment in Affiliated Partnerships
The Partnership has investments in the following affiliated partnerships:
Estimated
Ownership Net Realizable
Partnership Type of Ownership Percentage Value
Consolidated Capital Non-controlling
Growth Fund General Partner 0.40% $ 47
Consolidated Capital Non-controlling
Properties III General Partner 1.85% 27
Consolidated Capital Non-controlling
Properties IV General Partner 1.85% 1,297
$1,371
Prior to the adoption of the liquidation basis of accounting, the Partnership
did not recognize an investment in these affiliated partnerships in its
consolidated financial statements as these investment balances had been reduced
to zero as a result of the receipt of distributions from the affiliated
partnerships in prior periods exceeding the investment balance of the
Partnership. However, due to the adoption of the liquidation basis of
accounting, the investments in these affiliated partnerships have been valued at
their estimated fair value and included in the Consolidated Statement of Net
Liabilities in Liquidation as of June 30, 2002.