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 September 30, 2003
[ ] 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___
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 120-2 of the Exchange Act). Yes _____ No __X__
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
September 30, December 31,
2003 2002
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 1,504 $ 3,175
Receivables and deposits 382 493
Restricted escrows 891 1,114
Other assets 1,097 592
Investment in affiliated partnerships (Note D) 945 894
Investment in Master Loan to affiliate (Note B) 14,123 14,144
Investment properties:
Land 14,272 14,272
Buildings and related personal property 68,835 67,805
83,107 82,077
Less: Accumulated depreciation (22,120) (19,158)
60,987 62,919
$ 79,929 $ 83,331
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 205 $ 176
Tenant security deposit liabilities 680 689
Accrued property taxes 378 326
Other liabilities 1,116 1,408
Mortgage notes payable 51,705 52,649
54,084 55,248
Partners' Capital
General partner 119 125
Limited partners (199,043.2 units issued and
outstanding) 25,726 27,958
25,845 28,083
$ 79,929 $ 83,331
Note: The consolidated balance sheet at December 31, 2002 has been derived from
the audited financial statements at that date but does not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See Accompanying Notes to Consolidated Financial Statement
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
Rental income $ 4,278 $ 3,585 $12,439 $ 8,972
Interest income on investment in
Master Loan to affiliate (Note B) -- -- -- 386
Other income 359 298 1,026 703
Casualty gain (Note F) (7) -- 18 --
Total revenues 4,630 3,883 13,483 10,061
Operating 1,980 1,345 6,081 3,717
General and administrative 211 296 738 685
Depreciation 952 768 2,981 2,254
Interest 900 633 2,728 1,567
Property taxes 294 265 867 681
Total expenses 4,337 3,307 13,395 8,904
Income from operations 293 576 88 1,157
Gain on foreclosure of real estate -- 1,831 -- 1,831
Gain on sale of investment (Note D) 748 -- 1,098 --
Net income $ 1,041 $ 2,407 $ 1,186 $ 2,988
Net income allocated to general
partner (1%) $ 10 $ 24 $ 12 $ 30
Net income allocated to limited
partners (99%) 1,031 2,383 1,174 2,958
Net income $ 1,041 $ 2,407 $ 1,186 $ 2,988
Net income per limited partnership
unit $ 5.18 $ 11.97 $ 5.90 $ 14.86
Distributions per limited
partnership unit $ 5.38 $ 4.70 $ 17.11 $ 11.61
See Accompanying Notes to Consolidated Financial Statement
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, 2001 199,045.2 $ 123 $ 28,214 $ 28,337
Distributions to partners -- (18) (2,312) (2,330)
Net income for the nine months
ended September 30, 2002 -- 30 2,958 2,988
Partners' capital at
September 30, 2002 199,045.2 $ 135 $ 28,860 $ 28,995
Partners' capital
at December 31, 2002 199,043.2 $ 125 $ 27,958 $ 28,083
Distributions to partners -- (18) (3,406) (3,424)
Net income for the nine months
ended September 30, 2003 -- 12 1,174 1,186
Partners' capital
at September 30, 2003 199,043.2 $ 119 $ 25,726 $ 25,845
See Accompanying Notes to Consolidated Financial Statement
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2003 2002
Cash flows from operating activities:
Net income $ 1,186 $ 2,988
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,981 2,254
Amortization of loan costs, lease commissions on
mortgage premiums (53) 61
Casualty gain (18) --
Gain on sale of investment (1,098) --
Gain on foreclosure of real estate -- (1,831)
Change in accounts:
Receivables and deposits 117 (246)
Other assets (452) (274)
Accounts payable (95) (33)
Tenant security deposit liabilities (9) 17
Accrued property taxes 52 113
Other liabilities (292) 469
Net cash provided by operating activities 2,319 3,518
Cash flows from investing activities:
Net receipts from (deposits to) restricted escrows 223 (72)
Property improvements and replacements (1,019) (276)
Insurance proceeds received 112 --
Principal receipts on Master Loan to affiliate 15 88
Distributions from affiliated partnerships 1,047 19
Net cash provided by (used in) investing activities 378 (241)
Cash flows from financing activities:
Distributions to partners (3,424) (2,330)
Payments on mortgage notes payable (829) (309)
Lease commissions paid (115) --
Advances from general partner 220 --
Repayment of advances from general partner (220) --
Net cash used in financing activities (4,368) (2,639)
Net (decrease) increase in cash and cash equivalents (1,671) 638
Cash and cash equivalents at beginning of period 3,175 922
Cash and cash equivalents at end of period $ 1,504 $ 1,560
Supplemental disclosure of cash flow information:
Cash paid for interest $ 3,007 $ 1,525
Supplemental disclosure of non-cash activity:
Property improvements and replacements included in
accounts payable $ 124 $ --
See Accompanying Notes to Consolidated Financial Statement
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Consolidated
Capital Institutional Properties (the "Partnership" or "Registrant") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of ConCap Equities, Inc. (the "General
Partner"), which is ultimately owned by Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three and nine
month periods ended September 30, 2003 are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 2003. 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, 2002.
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
E" for detailed disclosure of the Partnership's segments).
Reclassifications: Certain reclassifications have been made to the 2002
information to conform to the 2003 presentation.
Recent Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), Consolidation
of Variable Interest Entities. FIN 46 requires the consolidation of entities in
which an enterprise absorbs a majority of the entity's expected losses, receives
a majority of the entity's expected residual returns, or both, as a result of
ownership, contractual or other financial interests in the entity. Prior to the
issuance of FIN 46, entities were generally consolidated by an enterprise when
it had a controlling financial interest through ownership of a majority voting
interest in the entity. FIN 46 applied immediately to variable interest entities
created after January 31, 2003, and with respect to variable interests held
before February 1, 2003, FIN 46 will apply beginning October 1, 2003.
The Partnership has not entered into any partnership investments subsequent to
January 31, 2003. The Partnership is in the process of evaluating its
investments in unconsolidated partnerships that may be deemed variable interest
entities under the provisions of FIN 46. The Partnership has not yet determined
the anticipated impact of adopting FIN 46 for its partnership agreements that
existed as of January 31, 2003. However, FIN 46 may require the consolidation of
the assets, liabilities and operations of certain of the Partnership's
unconsolidated partnership investments. Although the Partnership does not
believe the full adoption of FIN 46 will have an impact on net earnings, the
Partnership cannot make any definitive conclusion until it completes its
evaluation.
Note B - Net Investment in Master Loan and Gain on Foreclosure of Real Estate
The Partnership was initially 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.
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
Master Loan. The General Partner 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 third quarter
of 2002 on all the properties in CCEP. During August 2002, the General Partner
executed deeds in lieu of foreclosure on four of the active properties of CCEP.
In addition, one of the properties held by CCEP was sold in December 2002. On
November 10, 2003 the Partnership acquired the remaining four properties held by
CCEP through a foreclosure sale (see Note H for further discussion). As the
deeds were executed, title in the properties previously owned by CCEP were
transferred to the Partnership, subject to the existing liens on such
properties, including the first mortgage loans. As a result, the Partnership
assumed responsibility for the operations of such properties. The results of
operations of the foreclosed properties are reflected in the accompanying
consolidated statements of operations for the three and nine month periods
ending September 30, 2003 and 2002.
The following table sets forth the Partnership's non-cash activities during the
nine months ended September 30, 2002 with respect to the foreclosure of
Silverado, The Knolls, Indian Creek Village and Tates Creek Village Apartments:
Investment properties (a) $ 38,273
Investments in affiliated partnerships (b) 918
Mortgage notes payable (c) (26,787)
Master loan, net of allowance (d) (10,591)
Other assets received, net of
other liabilities assumed 18
Gain on foreclosure $ 1,831
(a) Amount represents the estimated fair value of the properties. The fair
value was determined by appraisals obtained in September 2000 from an
independent third party which have been updated by management using the
net operating income of all of the collateral properties capitalized at a
rate deemed reasonable for the type of property and adjusted by management
for current market conditions, physical condition of each respective
property, and other factors.
(b) See "Note D".
(c) Amount represents the present value on the mortgages encumbering the
investment properties acquired through foreclosure, discounted at a rate
currently available to the Partnership.
(d) Amount represents the amount of the Master Loan associated with the four
properties acquired.
At September 30, 2003, 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 nine months ended September 30, 2003 there was
no interest income recorded by the Partnership. For the nine months ended
September 30, 2002 the Partnership recorded approximately $386,000 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. There was no provision for impairment loss during the nine months
ended September 30, 2003 and 2002. The General Partner evaluates the net
realizable value on a semi-annual basis or as circumstances dictate that it
should be analyzed.
The principal balance of the Master Loan due to the Partnership totaled
approximately $14,123,000 and $14,144,000 at September 30, 2003 and December 31,
2002, respectively. This amount represents the fair market value of the
remaining properties held by CCEP, less the net liabilities owed by the
properties. Interest, calculated on the accrual basis, due to the Partnership
pursuant to the terms of the Master Loan Agreement, but not recognized in the
income statements due to the impairment of the loan, totaled approximately
$1,322,000, and $31,601,000 for the nine months ended September 30, 2003 and
2002, respectively. Interest income is recognized on the cash basis as required
by SFAS 114. At September 30, 2003 and December 31, 2002, such cumulative
unrecognized interest totaling approximately $1,784,000 and $462,000 was not
included in the balance of the investment in Master Loan. Cumulative
unrecognized interest owed on the Master Loan of approximately $376,239,000 was
forgiven by the Partnership during the third quarter of 2002. The remaining
collateral properties are encumbered by first mortgages totaling approximately
$22,828,000 as of September 30, 2003, which are senior to the Master Loan. This
has been taken into consideration in determining the fair value of the Master
Loan.
During the nine months ended September 30, 2003 and 2002, the Partnership made
no advances to CCEP on the Master Loan. During the nine months ended September
30, 2003 the Partnership received principal payments on the Master Loan of
approximately $15,000 from escrows released by the mortgage lender of Society
Park which was sold during 2002. During the nine months ended September 30, 2002
the Partnership received principal payments of approximately $88,000
representing cash received on certain investments held by CCEP, which were
required to be transferred to the Partnership per the Master Loan Agreement.
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.
Affiliates of the General Partner are entitled to receive 5% of gross receipts
from all of the Partnership's properties as compensation for providing property
management services. The Partnership paid to such affiliates approximately
$695,000 and $468,000 for the nine months ended September 30, 2003 and 2002,
respectively, which is included in operating expenses.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $375,000 and $337,000 for the
nine months ended September 30, 2003 and 2002, 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 $36,000 during the nine months
ended September 30, 2003. There were no construction management fees during the
nine months ended September 30, 2002. The construction management fees are
calculated based on a percentage of current year additions to investment
properties.
In accordance with the Partnership Agreement, the General Partner advanced the
Partnership approximately $220,000 for expenses at four of the Partnership's
properties during the nine months ended September 30, 2003. This advance was
repaid in full prior to September 30, 2003. Interest was charged at the prime
rate plus 2% and amounted to less than $1,000 for the nine months ended
September 30, 2003. There were no loans from the General Partner or associated
interest expense during the nine months ended September 30, 2002.
The Partnership insures 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 nine months ended September 30, 2003 and 2002, the
Partnership was charged by AIMCO and its affiliates approximately $212,000 and
$145,000, respectively, for insurance coverage and fees associated with policy
claims administration.
Note D - Investment in Affiliated Partnerships
The Partnership has investments in the following affiliated partnerships:
Ownership Investment At
Partnership Type of Ownership Percentage September 30, 2003
(in thousands)
Consolidated Capital Non-controlling
Growth Fund General Partner 0.40% $ 17
Consolidated Capital Non-controlling
Properties III General Partner 1.85% 23
Consolidated Capital Non-controlling
Properties IV General Partner 1.85% 905
$ 945
These investments were assumed during the foreclosure of investment properties
from CCEP (see "Note B") and are accounted for on the equity method of
accounting. Distributions from the affiliated partnerships are accounted for as
a reduction of the investment balance until the investment balance is reduced to
zero. When the investment balance has been reduced to zero, subsequent
distributions received are recognized as income in the accompanying statements
of operations. During the nine months ended September 30, 2003 and 2002, the
Partnership received distributions of approximately $1,048,000 and $19,000,
respectively, from two of the affiliated partnerships. Approximately $1,013,000
of the distribution received during the nine months ended September 30, 2003
related to the sale of three properties in Consolidated Capital Growth Fund. Of
this amount, approximately $984,000 was recognized as gain on sale of investment
once the investment balance allocated to those properties had been reduced to
zero. The Partnership also recognized gain on sale of investment of
approximately $114,000 related to the sale of a property in Consolidated Capital
Properties IV. There were no distributions associated with this sale.
Note E - 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 property. The Partnership's property
segments consist of five apartment complexes one each in North Carolina, Texas,
Colorado, Kansas, and Kentucky and one multiple use facility consisting of
apartment units and commercial space in Pennsylvania. The Partnership rents
apartment units to tenants for terms that are typically less than twelve months.
The commercial property leases space to various medical offices, career service
facilities, and retail shops at terms ranging from month to month to five years.
Measurement of segment profit and 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 summary of
significant accounting policies.
Factors management used to identify the enterprise's reportable segment: The
Partnership's reportable segments are business units (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 nine months ended September 30, 2003 and
2002 is shown in the tables below (in thousands). The "Other" Column includes
partnership administration related items and income and expense not allocated to
reportable segments.
For the three months ended
September 30, 2003 Residential Commercial Other Totals
Rental income $ 3,983 $ 295 $ -- $ 4,278
Other income 327 32 -- 359
Interest expense 843 57 -- 900
Depreciation 909 43 -- 952
General and administrative expense -- -- 211 211
Gain on sale of investment -- -- 748 748
Segment profit (loss) 601 (97) 537 1,041
For the nine months ended
September 30, 2003 Residential Commercial Other Totals
Rental income $11,643 $ 796 $ -- $12,439
Other income 938 88 -- 1,026
Interest expense 2,559 169 -- 2,728
Depreciation 2,854 127 -- 2,981
General and administrative expense -- -- 738 738
Gain on sale of investment -- -- 1,098 1,098
Segment profit (loss) 1,229 (403) 360 1,186
Total assets 63,327 956 15,646 79,929
Capital expenditures 1,064 79 -- 1,143
For the three months ended
September 30, 2002 Residential Commercial Other Totals
Rental income $ 3,307 $ 278 $ -- $ 3,585
Other income 264 31 3 298
Interest expense 576 57 -- 633
Depreciation 722 46 -- 768
General and administrative expense -- -- 296 296
Gain on foreclosure of real estate -- -- 1,831 1,831
Segment profit (loss) 948 (79) 1,538 2,407
For the nine months ended
September 30, 2002 Residential Commercial Other Totals
Rental income $ 8,148 $ 824 $ -- $ 8,972
Other income 612 86 5 703
Interest income on investment
in Master Loan -- -- 386 386
Interest expense 1,396 171 -- 1,567
Depreciation 2,121 133 -- 2,254
General and administrative expense -- -- 685 685
Gain on foreclosure of real estate -- -- 1,831 1,831
Segment profit (loss) 1,713 (262) 1,537 2,988
Total assets 65,451 1,078 17,840 84,369
Capital expenditures 257 19 -- 276
Note F - Casualty Gain
During the nine months ended September 30, 2003, there was a casualty gain of
approximately $25,000 recorded at The Sterling Apartment Homes related to an
electrical fire that damaged two units. This gain was the result of the receipt
of insurance proceeds of approximately $73,000, net of the write off of
undepreciated fixed assets of approximately $48,000.
During the nine months ended September 30, 2003, there was a casualty loss of
approximately $7,000 recorded at Tates Creek Village Apartments related to an
ice storm which resulted in major landscaping damage. The loss was the result of
the receipt of insurance proceeds of approximately $39,000, net of the write off
of undepreciated fixed assets of approximately $46,000.
Note G - Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (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 purported to
assert claims on behalf of a class of limited partners and derivatively on
behalf of a number of limited partnerships (including the Partnership) that 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 that 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 sought monetary damages and equitable relief, including judicial
dissolution of the Partnership. In addition, 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 Heller
action was brought as a purported derivative action, and asserted claims for,
among other things, breach of fiduciary duty, unfair competition, conversion,
unjust enrichment, and judicial dissolution.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action.
In general terms, the proposed settlement provides for certification for
settlement purposes of a settlement class consisting of all limited partners in
this Partnership and others (the "Partnerships") as of December 20, 2002, the
dismissal with prejudice and release of claims in the Nuanes and Heller
litigation, payment by AIMCO of $9.9 million (which shall be distributed to
settlement class members after deduction of attorney fees and costs of class
counsel and certain costs of settlement) and up to $1 million toward the cost of
independent appraisals of the Partnerships' properties by a Court appointed
appraiser. An affiliate of the General Partner has also agreed to make at least
one round of tender offers to purchase all of the partnership interests in the
Partnerships within one year of final approval, if it is granted, and to provide
partners with the independent appraisals at the time of these tenders. The
proposed settlement also provided for the limitation of the allowable costs
which the General Partner or its affiliates will charge the Partnerships in
connection with this litigation and imposes limits on the class counsel fees and
costs in this litigation. On April 11, 2003, notice was distributed to limited
partners providing the details of the proposed settlement.
On June 13, 2003, the Court granted final approval of the settlement and entered
judgment in both the Nuanes and Heller actions. On August 12, 2003, an objector
filed an appeal seeking to vacate and/or reverse the order approving the
settlement and entering judgment thereto. The General Partner intends to file a
respondent's brief in support of the order approving settlement and entering
judgment thereto.
The General Partner does not anticipate that any costs to the Partnership,
whether legal or settlement costs, associated with these cases will be material
to the Partnership's overall operations.
On August 8, 2003 AIMCO Properties L.P., an affiliate of the General Partner,
was served with a Complaint in the United States District Court, District of
Columbia alleging that AIMCO Properties L.P. willfully violated the Fair Labor
Standards Act (FLSA) by failing to pay maintenance workers overtime for all
hours worked in excess of forty per week. The Complaint is styled as a
Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the Complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The Complaint also attempts to certify a subclass for salaried
service directors who are challenging their classification as exempt from the
overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to
the Complaint denying the substantive allegations. Although the outcome of any
litigation is uncertain, in the opinion of the General Partner the claims will
not result in any material liability to the Partnership.
The Partnership is unaware of any other pending or outstanding litigation
matters involving it or its investment properties that are not of a routine
nature arising in the ordinary course of business.
Note H - Subsequent Event
In November 2003, the Partnership acquired the four remaining properties held by
CCEP: Plantation Gardens Apartments, Regency Oaks Apartments, The Dunes
Apartments, and Palm Lake Apartments. These properties were sold at a
foreclosure sale due to CCEP's inability to repay the Master Loan and accrued
interest (Note B). An affiliate of the General Partner advanced the Partnership
approximately $31,278,000 in order to purchase these properties at the sale. The
sale proceeds will be sent to the Partnership as the lien holder and will be
used to repay the advance from the affiliate of the General Partner. The advance
will bear interest at prime plus 2%. The Partnership acquired the properties
previously held by CCEP subject to the existing liens on the properties
including the first mortgage loans. CCIP intends to continue to operate these
properties as residential apartment complexes.
ITEM 2. Management's Discussion and Analysis Of Financial Condition and Results
of Operations
The matters discussed in this report contain certain forward-looking statements,
including, without limitation, statements regarding future financial performance
and the effect of government regulations. Actual results may differ materially
from those described in the forward-looking statements and will be affected by a
variety of risks and factors including, without limitation: national and local
economic conditions; the terms of governmental regulations that affect the
Registrant and interpretations of those regulations; the competitive environment
in which the Registrant operates; financing risks, including the risk that cash
flows from operations may be insufficient to meet required payments of principal
and interest; real estate risks, including variations of real estate values and
the general economic climate in local markets and competition for tenants in
such markets; litigation, including costs associated with prosecuting and
defending claims and any adverse outcomes, and possible environmental
liabilities. Readers should carefully review the Registrant's financial
statements and the notes thereto, as well as the risk factors described in the
documents the Registrant files from time to time with the Securities and
Exchange Commission.
The Partnership's investment properties consist of six properties. 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 nine months ended September 30, 2003 and 2002:
Average Occupancy
Property 2003 2002
The Loft Apartments (2) 82% 92%
Raleigh, North Carolina
The Sterling Apartment Homes 93% 91%
The Sterling Commerce Center (1) 55% 55%
Philadelphia, Pennsylvania
Silverado Apartments (3) 94% 96%
El Paso, Texas
The Knolls Apartments (2), (3) 84% 92%
Colorado Springs, Colorado
Indian Creek Village Apartments (3) 91% 93%
Overland Park, Kansas
Tates Creek Village Apartments (3), (4) 89% 96%
Lexington, Kentucky
(1) The General Partner attributes the low occupancy at The Sterling Commerce
Center to the loss of a major tenant in late December 2001. A new tenant
has signed a lease and is expected to occupy a large portion of the vacant
space during the fourth quarter of 2003.
(2) The General Partner attributes the decrease in occupancy at The Loft
Apartments and The Knolls Apartments to the competitive market of the
apartment industry in the properties' respective locations.
(3) The Partnership acquired these investment properties through foreclosure
during the third quarter of 2002 (see discussion below).
(4) The General Partner attributes the decrease in occupancy at Tates Creek
Village Apartments to lower interest rates in the market leading to
tenants purchasing homes.
Results of Operations
The Partnership's net income for the nine months ended September 30, 2003 was
approximately $1,186,000 compared to net income of approximately $2,988,000 for
the corresponding period in 2002. The Partnership's net income for the three
months ended September 30, 2003 was approximately $1,041,000 compared to net
income of approximately $2,407,000 for the corresponding period in 2002. The
decrease in net income for the three and nine months ended September 30, 2003 as
compared to the three and nine months ended September 30, 2002 is primarily due
to an increase in total expenses, a decrease in gain on foreclosure of real
estate of $1,831,000 and a decrease of approximately $386,000 in interest
payments received during the three month period and therefore recognized on the
Master Loan partially offset by an increase in total revenues and an increase in
gain on sale of investment. 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 decrease in gain on foreclosure of real estate and the increase in total
expenses is largely due to the foreclosure of four properties (Silverado, The
Knolls, Indian Creek Village, and Tates Creek Village Apartments) during August
2002. 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
Master Loan. The General Partner 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 third quarter
of 2002 on all the properties in CCEP. During August 2002, the General Partner
executed deeds in lieu of foreclosure on four of the active properties of CCEP.
In addition, one property held by CCEP was sold during December 2002 (see "CCEP
Property Operations" for further discussion). The foreclosure process on the
remaining four properties held by CCEP was completed during the fourth quarter
of 2003. As the deeds are executed, title in the properties previously owned by
CCEP are transferred to the Partnership, subject to the existing liens on such
properties, including the first mortgage loans. As a result, the Partnership
assumed responsibility for the operations of such properties during the third
quarter of 2002.
Exclusive of the item related to the Master Loan, the gain on foreclosure of
real estate, and the operations of the foreclosed properties, the Partnership
recognized net income for the nine months ended September 30, 2003 of
approximately $962,000 compared to net income of approximately $307,000 for the
corresponding period in 2002. The Partnership's net income for the three months
ended September 30, 2003 was approximately $940,000 compared to net income of
approximately $112,000 for the corresponding period in 2002. The increase in net
income for the three and nine months ended September 30, 2003 as compared to the
three and nine months ended September 30, 2002 is primarily due to an increase
in gain on sale of investment. The increase in net income for the nine months
ended September 30, 2003 was partially offset by an increase in total expenses
and a decrease in total revenues. The increase in net income for the three
months ended September 30, 2003 was also due to a decrease in total expenses and
an increase in total revenues.
Total expenses, exclusive of the foreclosed properties, decreased during the
three months ended September 30, 2003 primarily due to a decrease in general and
administrative expenses and depreciation expense partially offset by an increase
in operating expenses. Total expenses increased during the nine months ended
September 30, 2003 primarily due to increases in operating expenses and general
and administrative expenses partially offset by a decrease in depreciation
expense. Operating expense increased during the three and nine months ended
September 30, 2003 primarily due to an increase in property and maintenance
expenses. Property expenses increased due to an increase in utility expenses at
The Sterling Apartment Homes and Commerce Center and increased contract security
patrol expenses at The Sterling Commerce Center partially offset by a decrease
in salaries and other related benefits and contract security patrol expenses at
The Sterling Apartment Homes. Maintenance expenses increased due to an increase
in contract services at Sterling Apartment Homes and The Loft Apartments.
Depreciation expense decreased during the three and nine months ended September
30, 2003 due to capital improvements and replacements becoming fully depreciated
during the past year at The Sterling. General and administrative expenses
decreased for the three months ended September 30, 2003 due to a change in the
estimated tax liability of a business privilege tax paid annually to the city of
Philadelphia. General and administrative expenses increased during the nine
months ended September 30, 2003 primarily due to an increase in the cost of the
annual audit required by the Partnership Agreement.
The increase in gain on sale of investment for the three and nine months ended
September 30, 2003 is primarily due to the recognition of the Partnership's
share of distributions received and recognized as earnings from affiliated
partnerships in excess of investment balance. The Partnership assumed
investments in three affiliated partnerships during the foreclosure of
investment properties from CCEP as discussed above. These investments are
accounted for on the equity method of accounting. Distributions from the
affiliated partnerships are accounted for as a reduction of the investment
balance until the investment balance is reduced to zero. When the investment
balance has been reduced to zero, subsequent distributions received are
recognized as income in the accompanying statements of operations. During the
nine months ended September 30, 2003, the Partnership received distributions of
approximately $1,048,000 from two of the affiliated partnerships, of which
approximately $1,013,000 related to the sale of three properties in Consolidated
Capital Growth Fund. Of this amount, approximately $984,000 was recognized as
gain on sale of investment once the investment balance allocated to those
properties had been reduced to zero. The Partnership also recognized gain on
sale of investment of approximately $114,000 related to the sale of a property
in Consolidated Capital Properties IV. There were no distributions associated
with this sale.
The decrease in total revenues, exclusive of the foreclosed properties, during
the nine months ended September 30, 2003 is primarily due to a decrease in
rental income and other income. Rental income decreased primarily due to a
decrease in rental rates at Sterling Apartment Homes and Commerce Center and The
Loft Apartments and a decrease in occupancy at The Loft Apartments. The decrease
is also due to an increase in concession related expenses at The Sterling
Apartment Homes. These decreases were partially offset by an increase in
occupancy at The Sterling Apartment Homes. The decrease in other income is
primarily due to a decrease in utility reimbursements at The Sterling Apartment
Homes. The increase in total revenues during the three months ended September
30, 2003 is primarily due to an increase in rental income partially offset by a
decrease in other income. Rental income increased primarily due to an increase
in occupancy at The Sterling Apartment Homes. The decrease in other income is
primarily due to a decrease in parking income and utility reimbursements at The
Sterling Apartment Homes partially offset by an increase in vending income at
The Sterling Apartment Homes.
Included in general and administrative expenses for the three and nine months
ended September 30, 2003 and 2002 are costs of the services provided by the
General Partner as allowed under the Partnership Agreement associated with its
management of the Partnership. Also included are costs associated with the
quarterly and annual communications with investors and regulatory agencies.
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, the General Partner may use
rental concessions and rental rate reductions to offset softening market
conditions, accordingly, there is no guarantee that the General Partner will be
able to sustain such a plan.
Liquidity and Capital Resources
At September 30, 2003, the Partnership had cash and cash equivalents of
approximately $1,504,000 compared to approximately $1,560,000 at September 30,
2002. Cash and cash equivalents decreased approximately $1,671,000 since
December 31, 2002 due to approximately $4,368,000 of net cash used in financing
activities partially offset by approximately $2,319,000 and $378,000 of cash
provided by operating and investing activities, respectively. Cash used in
financing activities consisted of distributions to partners, principal payments
made on the mortgages encumbering the Partnership's properties, lease
commissions paid and repayment of advances from general partner, slightly offset
by advances from general partner. Cash provided by investing activities
consisted of distributions received from affiliated partnerships, insurance
proceeds, principal receipts on the Master Loan and net withdrawals from escrow
accounts maintained by the mortgage lenders partially offset by property
improvements and replacements. The Partnership 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. The General Partner
monitors developments in the area of legal and regulatory compliance and is
studying new federal laws, including the Sarbanes-Oxley Act of 2002. The
Sarbanes-Oxley Act of 2002 mandates or suggests additional compliance measures
with regard to governance, disclosure, audit and other areas. In light of these
changes, the Partnership expects that it will incur higher expenses related to
compliance, including increased legal and audit fees. Capital improvements
planned for each of the Partnership's properties are detailed below.
The Loft Apartments
During the nine months ended September 30, 2003, the Partnership completed
approximately $94,000 of capital improvements at The Loft Apartments, consisting
primarily of floor covering and roof replacements. These improvements were
funded from operating cash flow and replacement reserves. The Partnership
evaluates the capital improvement needs of the property during the year and
currently expects to complete an additional $15,000 in capital improvements
during the remainder of 2003. The additional capital improvements will consist
primarily of floor covering replacements. 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 Apartment Homes and Commerce Center
During the nine months ended September 30, 2003, the Partnership completed
approximately $304,000 of capital improvements at The Sterling Apartments Homes
and Commerce Center, consisting primarily of floor covering replacements, air
conditioning upgrades, tenant improvements and reconstruction of two units
damaged by an electrical fire. These improvements were funded from operating
cash flow, insurance proceeds and replacement reserves. The Partnership
evaluates the capital improvement needs of the property during the year and
currently expects to complete an additional $54,000 in capital improvements
during the remainder of 2003. The additional capital improvements will consist
primarily of additional floor covering and appliance replacements, HVAC
replacement and heating and electrical upgrades. 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.
Silverado Apartments
During the nine months ended September 30, 2003, the Partnership completed
approximately $62,000 of capital improvements at Silverado Apartments consisting
primarily of floor covering and water heater replacements and electrical
upgrades. These improvements were funded from operating cash flow. The
Partnership evaluates the capital improvement needs of the property during the
year and currently expects to complete an additional $36,000 in capital
improvements during the remainder of 2003. The additional capital improvements
will consist primarily of air conditioning renovations, floor covering and
appliance replacements, and exterior painting. 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 Knolls Apartments
During the nine months ended September 30, 2003, the Partnership completed
approximately $442,000 of capital improvements at The Knolls Apartments
consisting primarily of major landscaping, structural improvements, floor
covering and appliance replacements and air conditioning upgrades. These
improvements were funded from operating cash flow and capital reserves. The
Partnership evaluates the capital improvement needs of the property during the
year and currently expects to complete an additional $19,000 in capital
improvements during the remainder of 2003. The additional capital improvements
will consist primarily of floor covering replacements and other property
improvements. Additional improvements may be considered and will depend on the
physical condition of the property as well as anticipated cash flow generated by
the property.
Indian Creek Village Apartments
During the nine months ended September 30, 2003, the Partnership completed
approximately $119,000 of capital improvements at Indian Creek Village
Apartments consisting primarily of floor covering replacements and structural
improvements. These improvements were funded from operating cash flow. The
Partnership evaluates the capital improvement needs of the property during the
year and currently expects to complete an additional $13,000 in capital
improvements during the remainder of 2003. The additional capital improvements
will consist primarily of additional floor covering replacements. 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.
Tates Creek Village Apartments
During the nine months ended September 30, 2003, the Partnership completed
approximately $122,000 of capital improvements at Tates Creek Village Apartments
consisting primarily of plumbing improvements, major landscaping and air
conditioning unit replacements. These improvements were funded from operating
cash flow and insurance proceeds. The Partnership evaluates the capital
improvement needs of the property during the year and currently expects to
complete an additional $15,000 in capital improvements during the remainder of
2003. The additional capital improvements will consist primarily of additional
floor covering and appliance replacements and air conditioning unit
replacements. Additional improvements may be considered and will depend on the
physical condition of the property as well as replacement reserve 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
Partnership's distributable cash flow, if any, may be adversely affected at
least in the short term.
The Partnership's assets are thought to be sufficient for any near-term needs
(exclusive of capital improvements) of the Partnership. The mortgage
indebtedness encumbering the Partnership's properties of approximately
$51,705,000 requires monthly payments of principal and interest and balloon
payments of approximately $3,903,000, $19,975,000 and $18,907,000 on December 1,
2005, October 1, 2008 and during 2010, 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 Partnership may risk losing such properties through foreclosure.
The Partnership distributed the following amounts during the nine months ended
September 30, 2003 and 2002 (in thousands, except per unit data):
Nine Months Nine Months
Ended Per Limited Ended Per Limited
September 30, Partnership September 30, Partnership
2003 Unit 2002 Unit
Operations $1,793 $ 8.92 $1,856 $ 9.23
Sale (1) 1,631 8.19 -- --
Surplus (2) -- -- 474 2.38
$3,424 $17.11 $2,330 $11.61
(1) From the sale of Society Park Apartments owned by CCEP and received as a
principal payment on the Master Loan.
(2) Consists of receipt of principal and interest payments on the Master Loan
from operations of the collateral properties.
The Partnership'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 2003 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 129,695.10 limited partnership units
(the "Units") in the Partnership representing 65.16% of the outstanding Units at
September 30, 2003. 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 in exchange for cash or a combination
of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO,
either through private purchases or tender offers. Pursuant to the Partnership
Agreement, unitholders holding a majority of the Units are entitled to take
action with respect to a variety of matters that would include, but are not
limited to, voting on certain amendments to the Partnership Agreement and voting
to remove the General Partner. As a result of its ownership of 65.16% of the
outstanding Units, AIMCO and its affiliates are in a position to control all
voting decisions with respect to the Partnership. Although the General Partner
owes fiduciary duties to the limited partners of the Partnership, the General
Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a
result, the duties of the General Partner, as general partner, to the
Partnership and its limited partners may come into conflict with the duties of
the General Partner to AIMCO, as its sole stockholder.
Recent Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), Consolidation
of Variable Interest Entities. FIN 46 requires the consolidation of entities in
which an enterprise absorbs a majority of the entity's expected losses, receives
a majority of the entity's expected residual returns, or both, as a result of
ownership, contractual or other financial interests in the entity. Prior to the
issuance of FIN 46, entities were generally consolidated by an enterprise when
it had a controlling financial interest through ownership of a majority voting
interest in the entity. FIN 46 applied immediately to variable interest entities
created after January 31, 2003, and with respect to variable interests held
before February 1, 2003, FIN 46 will apply beginning October 1, 2003.
The Partnership has not entered into any partnership investments subsequent to
January 31, 2003. The Partnership is in the process of evaluating its
investments in unconsolidated partnerships that may be deemed variable interest
entities under the provisions of FIN 46. The Partnership has not yet determined
the anticipated impact of adopting FIN 46 for its partnership agreements that
existed as of January 31, 2003. However, FIN 46 may require the consolidation of
the assets, liabilities and operations of certain of the Partnership's
unconsolidated partnership investments. Although the Partnership does not
believe the full adoption of FIN 46 will have an impact on net earnings, the
Partnership cannot make any definitive conclusion until it completes its
evaluation.
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. The investment properties foreclosed upon in the third
quarter of 2002 were recorded at their fair market value at the time of the
foreclosure. 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, but are not limited
to, changes in 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 impairment of 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 and
the Partnership fully reserves all outstanding balances over thirty days. The
Partnership will offer rental concessions during particularly slow months or in
response to heavy competition from other similar complexes in the area. Any
concessions given at the inception of the lease are amortized over the life of
the lease.
The Partnership leases certain commercial space to tenants under various lease
terms. The leases are accounted for as operating leases in accordance with SFAS
No. 13, "Accounting for Leases". Some of the leases contain stated rental
increases during their term. For leases with fixed rental increases, rents are
recognized on a straight-line basis over the terms of the leases. For all other
leases, minimum rents are recognized over the terms of the leases.
Investment in Master Loan to Affiliates and Interest Income Recognition
The investment in the Master Loan is evaluated for impairment based upon the
fair value of the collateral properties as the collateral is the sole basis of
repayment of the loan. The fair value of the remaining collateral properties is
based on the fair market value of those properties. If the fair value of a
collateral property increases or decreases for other than temporary conditions,
then the allowance on the Master Loan is adjusted appropriately.
The investment in the Master Loan is considered to be impaired under SFAS No.
114, "Accounting by Creditors for Impairment of a Loan". Due to this impairment,
interest income is recognized on the cash basis of accounting.
CCEP Property Operations
During the year ended December 31, 2002, CCIP foreclosed on four of the
properties that collaterized the Master Loan (see "Item 1. Financial Statements
- - Note B" for further discussion). During the third quarter of 2002, CCIP began
the process of foreclosure or executing deeds in lieu of foreclosure. During
August 2002, the General Partner executed deeds in lieu of foreclosure on four
of the active properties of CCEP. In addition, one property held by CCEP was
sold in December 2002. On November 10, 2003 the Partnership acquired the
remaining four properties held by CCEP through a foreclosure sale.
In November 2003, the Partnership acquired the four remaining properties held by
CCEP: Plantation Gardens Apartments, Regency Oaks Apartments, The Dunes
Apartments, and Palm Lake Apartments. These properties were sold at a
foreclosure sale due to CCEP's inability to repay the Master Loan and accrued
interest (Note B). An affiliate of the General Partner advanced the Partnership
approximately $31,278,000 in order to purchase these properties at the sale. The
sale proceeds will be sent to the Partnership as the lien holder and will be
used to repay the advance from the affiliate of the General Partner. The advance
will bear interest at prime plus 2%. The Partnership acquired the properties
previously held by CCEP subject to the existing liens on the properties
including the first mortgage loans. CCIP intends to continue to operate these
properties as residential apartment complexes.
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 period from January 1, 2003 to September 30, 2003, the net change in
liabilities remained constant, but was affected by increases in cash and cash
equivalents, other assets, tenant security deposit liabilities, due to
affiliates, accrued property taxes and Master Loan and interest payable and
decreases in other liabilities, mortgage notes payable and accounts payable due
to the sale of Society Park Apartments as discussed below and the operations of
the four remaining properties.
On December 27, 2002, the Partnership sold Society Park Apartments, located in
Tampa, Florida, to an unaffiliated third party for net sales proceeds of
approximately $1,631,000, 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. In conjunction with the
sale, a fee of approximately $218,000 was earned by the General Partner in
accordance with the Partnership Agreement. The fee was paid during the nine
months ended September 30, 2003.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Partnership is exposed to market risks associated with its Master Loan.
Receipts (interest income) on the Loan are based upon the operations and cash
flow of the underlying investment properties that collateralize the Master Loan.
Both the income and expenses of operating the investment properties are subject
to factors outside the Partnership's control, such as an oversupply of similar
properties resulting from overbuilding, increases in unemployment or population
shifts, reduced availability of permanent mortgage financing, changes in zoning
laws or changes in the patterns or needs of users. The investment properties are
also susceptible to the impact of economic and other conditions outside of the
control of the Partnership as well as being affected by current trends in the
market area in which they operate. In this regard, the General Partner of the
Partnership closely monitors the performance of the properties collateralizing
the loans. Because the Master Loan is considered impaired under Statement of
Financial Accounting Standard No. 114, "Accounting by Creditors for Impairment
of a Loan", interest rate fluctuations do not 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 September 30, 2003, 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 September
30, 2003. The interest rates represent the weighted-average rates. The fair
value of the debt obligations approximated the recorded value as of September
30, 2003.
Principal Amount by Expected Maturity
Fixed Rate Debt
Long-term Average Interest
Debt Rate 7.13%
(in thousands)
2003 $ 204
2004 1,118
2005 5,105
2006 1,210
2007 1,304
Thereafter 41,490
Total $ 50,431
ITEM 4. Controls and Procedures
(a) Disclosure Controls and Procedures. The Partnership's management, with the
participation of the principal executive officer and principal financial officer
of the General Partner, who are the equivalent of the Partnership's principal
executive officer and principal financial officer, respectively, has evaluated
the effectiveness of the Partnership's disclosure controls and procedures (as
such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the
period covered by this report. Based on such evaluation, the principal executive
officer and principal financial officer of the General Partner, who are the
equivalent of the Partnership's principal executive officer and principal
financial officer, respectively, have concluded that, as of the end of such
period, the Partnership's disclosure controls and procedures are effective.
(b) Internal Control Over Financial Reporting. There have not been any changes
in the Partnership's internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect, the Partnership's internal control
over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (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 purported to
assert claims on behalf of a class of limited partners and derivatively on
behalf of a number of limited partnerships (including the Partnership) that 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 that 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 sought monetary damages and equitable relief, including judicial
dissolution of the Partnership. In addition, 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 Heller
action was brought as a purported derivative action, and asserted claims for,
among other things, breach of fiduciary duty, unfair competition, conversion,
unjust enrichment, and judicial dissolution.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action.
In general terms, the proposed settlement provides for certification for
settlement purposes of a settlement class consisting of all limited partners in
this Partnership and others (the "Partnerships") as of December 20, 2002, the
dismissal with prejudice and release of claims in the Nuanes and Heller
litigation, payment by AIMCO of $9.9 million (which shall be distributed to
settlement class members after deduction of attorney fees and costs of class
counsel and certain costs of settlement) and up to $1 million toward the cost of
independent appraisals of the Partnerships' properties by a Court appointed
appraiser. An affiliate of the General Partner has also agreed to make at least
one round of tender offers to purchase all of the partnership interests in the
Partnerships within one year of final approval, if it is granted, and to provide
partners with the independent appraisals at the time of these tenders. The
proposed settlement also provided for the limitation of the allowable costs
which the General Partner or its affiliates will charge the Partnerships in
connection with this litigation and imposes limits on the class counsel fees and
costs in this litigation. On April 11, 2003, notice was distributed to limited
partners providing the details of the proposed settlement.
On June 13, 2003, the Court granted final approval of the settlement and entered
judgment in both the Nuanes and Heller actions. On August 12, 2003, an objector
filed an appeal seeking to vacate and/or reverse the order approving the
settlement and entering judgment thereto. The General Partner intends to file a
respondent's brief in support of the order approving settlement and entering
judgment thereto.
The General Partner does not anticipate that any costs to the Partnership,
whether legal or settlement costs, associated with these cases will be material
to the Partnership's overall operations.
On August 8, 2003 AIMCO Properties L.P., an affiliate of the General Partner,
was served with a Complaint in the United States District Court, District of
Columbia alleging that AIMCO Properties L.P. willfully violated the Fair Labor
Standards Act (FLSA) by failing to pay maintenance workers overtime for all
hours worked in excess of forty per week. The Complaint is styled as a
Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the Complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The Complaint also attempts to certify a subclass for salaried
service directors who are challenging their classification as exempt from the
overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to
the Complaint denying the substantive allegations. Although the outcome of any
litigation is uncertain, in the opinion of the General Partner the claims will
not result in any material liability to the Partnership.
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 10.28 Form of Amended Order Setting Foreclosure Sale
Date pursuant to amending the foreclosure date filed on
September 25, 2003 (Schedules and supplemental
materials to this exhibit filed herewith have been
omitted but will be provided to the Securities and
Exchange Commission upon request).
Exhibit 10.29 Form of Certificate of Sale as to Property "1"
pursuant to sale of Palm Lake Apartments to CCIP Palm
Lake, L.L.C. filed October 28, 2003.
Exhibit 10.30 Form of Certificate of Sale as to Property "2"
pursuant to sale of Regency Oaks Apartments to CCIP
Regency Oaks, L.L.C. filed October 28, 2003.
Exhibit 10.31 Form of Certificate of Sale as to Property "3"
pursuant to sale of The Dunes Apartments (formerly
known as Society Park East Apartments) to CCIP Society
Park East, L.L.C. filed October 28, 2003.
Exhibit 10.32 Form of Certificate of Sale as to Property "4"
pursuant to sale of Plantation Gardens Apartments to
CCIP Plantation Gardens, L.L.C. filed October 28, 2003.
Exhibit 31.1 Certification of equivalent of Chief Executive
Officer pursuant to Securities Exchange Act Rules
13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 Certification of equivalent of Chief Financial
Officer pursuant to Securities Exchange Act Rules
13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Exhibit 99 Consolidated Capital Equity Partners, L.P.,
unaudited financial statements for the three and nine
months ended September 30, 2003 and 2002.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 2003.
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/Paul J. McAuliffe
Paul J. McAuliffe
Executive Vice President and
Chief Financial Officer
Date: November 13, 2003
Exhibit 31.1
CERTIFICATION
I, Patrick J. Foye, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Consolidated Capital
Institutional Properties;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: November 13, 2003
/s/Patrick J. Foye
Patrick J. Foye
Executive Vice President of ConCap Equities,
Inc., equivalent of the chief executive officer
of the Partnership
Exhibit 31.2
CERTIFICATION
I, Paul J. McAuliffe, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Consolidated Capital
Institutional Properties;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: November 13, 2003
/s/Paul J. McAuliffe
Paul J. McAuliffe
Executive Vice President and Chief Financial
Officer of ConCap Equities, Inc., equivalent of
the chief financial officer of the Partnership
Exhibit 32.1
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
September 30, 2003 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: November 13, 2003
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: November 13, 2003
This certification is furnished with this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
EXHIBIT 99
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED
September 30, 2003 and 2002
ITEM 1. Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
STATEMENT OF NET LIABILITIES IN LIQUIDATION
(in thousands)
September 30, December 31,
2003 2002
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 1,312 $ 963
Receivables and deposits 207 264
Other assets 285 90
Investment properties 38,500 38,500
40,304 39,817
Liabilities
Accounts payable 124 338
Tenant security deposit liabilities 295 272
Due to affiliates 1,026 929
Accrued property taxes 563 --
Other liabilities 49 876
Mortgage notes payable 22,828 23,290
Master Loan and interest payable 15,419 14,112
40,304 39,817
Net liabilities in liquidation $ -- $ --
Note: The Statement of Net Liabilities in Liquidation at December 31, 2002 has
been derived from the audited financial statements at that date but does
not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements.
See Accompanying Notes to Financial Statements
Exhibit 99 (continued)
statement of changes in net liabilities in liquidation
(Unaudited)
(in thousands)
Period from January 1, 2003 to September 30, 2003
Net liabilities in liquidation at December 31, 2002 $ --
Changes in net liabilities in liquidation attributed to:
Increase in cash and cash equivalents 349
Decrease in receivables and deposits (57)
Increase in other assets 195
Decrease in accounts payable 214
Increase in tenant security deposit liabilities (23)
Increase in due to affiliates (97)
Increase in accrued taxes (563)
Decrease in other liabilities 827
Decrease in mortgage notes payable 462
Increase in Master Loan and interest payable (1,307)
Net liabilities in liquidation at September 30, 2003 $ --
See Accompanying Notes to Financial Statements
Exhibit 99 (continued)
statement of changes in net liabilities in liquidation
(Unaudited)
(in thousands)
Period from March 31, 2002 to September 30, 2002
Net liabilities in liquidation at March 31, 2002 $ --
Changes in net liabilities in liquidation attributed to:
Increase in cash and cash equivalents 423
Increase in receivables and deposits 34
Decrease in restricted escrows (625)
Decrease in other assets (97)
Decrease in investment in affiliated partnerships (1,371)
Decrease in investment properties (50,660)
Decrease in accounts payable 194
Decrease in tenant security deposit liabilities 120
Increase in accrued taxes (280)
Decrease in other liabilities 270
Decrease in mortgage notes payable 25,971
Decrease in Master Loan and interest payable 26,021
Net liabilities in liquidation at September 30, 2002 $ --
See Accompanying Notes to Financial Statements
EXHIBIT 99 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
STATEMENT OF OPERATIONS
(Unaudited)
(in thousands)
Period from
January 1, 2002 to
March 31, 2002
(restated)
Revenues:
Rental income $ 1,874
Other income 275
Total revenues 2,149
Expenses:
Operating 898
General and administrative 228
Depreciation 263
Property taxes 167
Interest 12,252
Total expenses 13,808
Loss from continuing operations (11,659)
Income from discontinued operations 217
Net loss $(11,442)
Net loss allocated to general partner (1%) $ (114)
Net loss allocated to limited partners (99%) (11,328)
$(11,442)
See Accompanying Notes to Financial Statements
EXHIBIT 99 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
STATEMENT OF CHANGES IN PARTNERS' DEFICIT/NET LIABILITIES IN LIQUIDATION
(Unaudited)
(in thousands)
General Limited
Partners Partners Total
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
at March 31, 2002 $ --
See Accompanying Notes to Financial Statements
EXHIBIT 99 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
Period from
January 1, 2002 to
March 31,2002
Cash flows from operating activities:
Net loss $(11,442)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 604
Change in accounts:
Receivables and deposits 56
Other assets (430)
Accounts payable 36
Accrued property taxes 114
Other liabilities 163
Accrued interest on Master Loan 11,769
Net cash provided by operating activities 870
Cash flows from investing activities:
Property improvements and replacements (617)
Net deposits to restricted escrows (10)
Net cash used in investing activities (627)
Cash flows from financing activities:
Principal payments on notes payable (323)
Loan costs paid (36)
Net cash used in financing activities (359)
Net decrease in cash and cash equivalents (116)
Cash and cash equivalents at beginning of period 1,321
Cash and cash equivalents at end of period $ 1,205
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,068
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
On March 31, 2002, Consolidated Capital Equity Partners, L.P. ("the Partnership"
or "CCEP") adopted the liquidation basis of accounting as a result of the
Partnership receiving notification from Consolidated Capital Institutional
Properties, 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 deeds in lieu of foreclosure on
the investment properties held by the Partnership. The Master Loan matured in
November 2000. The Partnership did not have the means with which to satisfy its
obligation under the Master Loan. No other sources of additional financing have
been identified by the Partnership, nor did ConCap Holdings, Inc. (the "General
Partner") have any other plans to remedy the liquidity problems the Partnership
was experiencing. CCIP executed deeds in lieu of foreclosure during the third
quarter of 2002 on four of the active properties of the Partnership. In
addition, one of the properties was sold in December 2002. On November 10, 2003
the Partnership acquired the remaining four properties held by CCEP through a
foreclosure sale. The General Partner plans to dissolve the Partnership in
accordance with the Partnership Agreement during the fourth quarter of 2003. 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 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 Partner as of the date of
the financial statements.
Note B - Master Loan and Accrued Interest Payable
The Master Loan principal and interest payable balance at September 30, 2003 is
approximately $15,419,000.
Terms of Master Loan Agreement
The General Partner had been in negotiations with CCIP with respect to its
options which included CCIP foreclosing on the properties in CCEP which
collateralize the Master Loan or extending the terms of the Master Loan. CCIP
decided to foreclose on the properties that collaterize the Master Loan. CCIP
began the process of executing deeds in lieu of foreclosure during the third
quarter of 2002 on all the investment properties of the Partnership. During
August 2002 the General Partner executed deeds in lieu of foreclosure on four of
the active properties of CCEP. In addition, one of the properties held by the
Partnership was sold in December 2002. As a result, during the year ended
December 31, 2002, CCIP assumed responsibility for the operations of the
foreclosed properties.
In November 2003, the Partnership acquired the four remaining properties held by
CCEP: Plantation Gardens Apartments, Regency Oaks Apartments, The Dunes
Apartments, and Palm Lake Apartments. These properties were sold at a
foreclosure sale due to CCEP's inability to repay the Master Loan and accrued
interest (Note B). An affiliate of the General Partner advanced the Partnership
approximately $31,278,000 in order to purchase these properties at the sale. The
sale proceeds will be sent to the Partnership as the lien holder and will be
used to repay the advance from the affiliate of the General Partner. The advance
will bear interest at prime plus 2%. The Partnership acquired the properties
previously held by CCEP subject to the existing liens on the properties
including the first mortgage loans. CCIP intends to continue to operate these
properties as residential apartment complexes.
While the process of foreclosure or executing deeds in lieu of foreclosure on
all the properties currently held by CCEP was being completed, interest accrued
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 were 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 was 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.
During the nine months ended September 30, 2003, the Partnership paid a
principal payment on the Master Loan of approximately $15,000. During the nine
months ended September 30, 2002, the Partnership paid approximately $88,000 in
principal payments on the Master Loan, representing cash received on certain
investments held by CCEP, which were required to be transferred to CCIP under
the terms of the Master Loan.
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.
Affiliates of the General Partner are entitled to receive 5% of gross receipts
from all of the Partnership's properties as compensation for providing property
management services. The Partnership paid to such affiliates approximately
$310,000 and $620,000 for the nine months ended September 30, 2003 and 2002,
respectively.
The Partnership is also subject to an Investment Advisory Agreement between the
Partnership and an affiliate of the General Partner. This agreement provides for
an annual fee, payable in monthly installments, to an affiliate of the General
Partner for advising and consulting services for CCEP's properties. The
Partnership paid to such affiliates approximately $114,000 and $164,000 for the
nine months ended September 30, 2003 and 2002, respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $210,000 and $386,000 for the
nine months ended September 30, 2003 and 2002, respectively. Included in these
amounts are fees related to construction management services provided by an
affiliate of the General Partner of approximately $40,000 and $60,000 for the
nine months ended September 30, 2003 and 2002, 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 Society Park in December 2002 the Partnership
paid the General Partner a fee of $218,000 during the nine months ended
September 30, 2003 as compensation for its role in the sale. This fee was
included in gain on sale of discontinued operations at December 31, 2002.
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 2002 annual report. There were
no interest payments made during the nine months ended September 30, 2003. A
$386,000 interest payment was made on the Master Loan during the nine months
ended September 30, 2002.
There were no advances on the Master Loan during the nine months ended September
30, 2003 or 2002. Principal payments, of approximately $15,000 and $88,000, were
made on the Master Loan during the nine months ended September 30, 2003 and
2002, respectively.
The Partnership insures 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 nine months ended September 30, 2003 and 2002, the
Partnership paid AIMCO and its affiliates approximately $103,000 and $266,000,
respectively, for insurance coverage and fees associated with policy claims
administration.
Note D - Sale of Property
On December 27, 2002, the Partnership sold Society Park Apartments, located in
Tampa, Florida, to an unaffiliated third party for net sales proceeds of
approximately $1,631,000, 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 $727,000. In conjunction with
the sale, a fee of approximately $218,000 was earned by the General Partner in
accordance with the Partnership Agreement. The fee was paid during the nine
months ended September 30, 2003.
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
EXHIBIT 10.28
IN THE CIRCUIT COURT OF THE THIRTEENTH JUDICIAL CIRCUIT
IN AND FOR HILLSBOROUGH COUNTY, FLORIDA
CONSOLIDATED CAPITAL INSTITUTIONAL
PROPERTIES, A CALIFORNIA LIMITED
PARTNERSHIP, a California Limited Partnership,
Plaintiff,
V. Case No. 02-04757
CONSOLIDATED CAPITAL EQUITY
PARTNERS L.P., a California limited
Partnership,
Defendant.
______________________________/
AMENDED ORDER SETTING FORECLOSURE SALE DATE
THIS CAUSE having come before the court, upon Plaintiff, CONSOLIDATED CAPITAL
INSTITUTIONAL PROPERTIES, A CALIFORNIA LIMITED PARTNERSHIP, a California limited
partnership's Motion to Amend Order Setting Foreclosure Sale Date, and the Court
having reviewed the Motion, and the Court being otherwise fully advised in the
premises, it is hereby, ORDERED AND ADJUDGED as follows:
1. Plaintiff's Motion to Amend Order Setting Foreclosure Sale Date is granted.
2. The Final Summary Judgment of Foreclosure, previously entered in this cause
on August 11, 2003, and the Order Setting Foreclosure Sale Date, entered on
September 18, 2003, are incorporated herein by reference thereto, to the
extent that it is consistent herewith.
3. CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES, A CALIFORNIA LIMITED
PARTNERSHIP holds a lien for the total sum superior to any claim or
estate of Defendant CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P., on
property (hereinafter referred to as "Property No. 1") in Hillsborough
County, Florida described on Exhibit "1" attached hereto.
4. CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES, A CALIFORNIA LIMITED
PARTNERSHIP, holds a lien for the total sum superior to any claim or
estate of Defendant, CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P., on
property (hereinafter referred to as "Property No.2") in Seminole County,
Florida described on Exhibit "2" attached hereto.
5. CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES, A CALIFORNIA LIMITED
PARTNERSHIP, holds a lien for the total sum superior to any claim or
estate of Defendant, CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P., on
property (hereinafter referred to as "Property No.3") in Brevard County,
Florida described on Exhibit "3" attached hereto.
6. CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES, A CALIFORNIA LIMITED
PARTNERSHIP, holds a lien for the total sum superior to any claim or
estate of Defendant, CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P., on
property (hereinafter referred to as "Property No.4") in Broward County,
Florida described on Exhibit "4" attached hereto.
7. If the total sum as described in the Final Summary Judgment of Foreclosure
entered on August 11, 2003, together with six percent (6%) interest from
the date of the Final Summary Judgment of Foreclosure to the date of
payment, and all court costs accrued subsequent to that date are not paid,
the Clerk of this court shall sell separately each of the four (4)
properties (in the order listed in paragraphs 3, 4, 5 and 6 of this Order)
at Public Sales on October 28, 2003, commencing at 11:00 o'clock a.m. to
the highest bidder for cash, except as prescribed in paragraph 8 of this
Order, on the second floor in the lobby of the Hillsbourough County
Courthouse located at 419 Pierce Street, Tampa, Florida in accordance with
S45.031 of the Florida Statutes.
8. Plaintiff shall advance all subsequent costs of this action as to each
respective property and shall be reimbursed for them by the clerk if
Plaintiff is not the purchaser of the particular property for which
subsequent costs have been advanced. If Plaintiff is the purchaser of any
particular property, the clerk shall credit Plaintiff's bid with the total
sum awarded in Paragraph 2 of the Final Summary Judgment of Foreclosure,
with interest and costs accruing subsequent to the judgment, or such part
of it, as is necessary to pay the bid in full, as more particularly
described below. In the event Plaintiff does not use its entire credit in
connection with the sale of Property No. 1, then the balance of Plaintiff's
credit shall be available to Plaintiff to bid at the sale of Property No.2.
In the event Plaintiff does not use its entire remaining credit in
connection with the sale of Property No.2, then the balance of Plaintiff's
credit shall be available to Plaintiff to bid at the sale of Property No.
3. In the event Plaintiff does not use its entire remaining credit in
connection with the sale of Property No.3, then the balance of Plaintiff's
credit shall be available to Plaintiff to bid at the sale of Property No.
4. In other words, Plaintiff's credit may be spread over the four sales as
Plaintiff deems appropriate, and the clerk shall continue to credit each of
Plaintiff's bids with the total sum awarded in Paragraph 2 of the judgment,
with interest and costs accruing subsequent to the judgment, as may be
remaining after each sale, respectively.
9. On filing the certificate of title as to each property, the clerk shall
distribute the proceeds of each sale, respectively, so far as they are
sufficient, by paying first, one-fourth of any of Plaintiff's costs awarded
in Paragraph 2 of the judgment; if any; second, one-fourth of Plaintiff's
attorneys' fees awarded in Paragraph 2 of the judgment; if any; third, the
total sum awarded in Paragraph 2 of the judgment with interest and costs
accruing subsequent to the judgment, less any items paid subsequent to the
judgment, plus interest at the rate prescribed in Paragraph 2 from the date
of the judgment to the date of each sale, less any proceeds distributed to
Plaintiff by the clerk as the result of any of the separate sales described
in the judgment or, in the event Plaintiff is the successful bidder at any
sale, less the amount of the Plaintiff's successful bid; and by retaining
any remaining amount pending the further order of this court.
10. On filing the certificates of title, respectively, Defendant and all
persons claiming under or against Defendant since the filing of the
Notices of Lis Pendens, respectively, shall be foreclosed of all estate
or claim in the properties, respectively, and each purchaser at their
respective sale shall be let into possession of the property purchased by
each purchaser.
11. Jurisdiction is retained to enter further Orders that are proper
including, without limitation, writs of possession.
DONE AND ORDERED at the Hillsborough County Courthouse, Tampa, Florida, on
this 25th day of September, 2003.
/s/ Robert J. Simms
Honorable Robert J. Simms
Circuit Judge
EXHIBIT 10.29
IN THE CIRCUIT COURT OF THE THIRTEENTH JUDICIAL CIRCUIT
IN AND FOR HILLSBOROUGH COUNTY, FLORIDA
CONSOLIDATED CAPITAL INSTITUTIONAL
PROPERTIES, A CALIFORNIA LIMITED
PARTNERSHIP, a California Limited Partnership,
Plaintiff,
V. Case No. 02-04757
CONSOLIDATED CAPITAL EQUITY
PARTNERS L.P., a California limited
partnership,
Defendant.
______________________________/
CERTIFICATE OF SALE AS TO PROPERTY "1"
The undersigned Clerk of the Circuit Court certifies that the Second Amended
Notice of Public Sale of the property of Defendant, CONSOLIDATED CAPITAL EQUITY
PARTNERS L.P., a California limited partnership, described in the Final Summary
Judgment of Foreclosure, Order Setting Foreclosure Sale Date and Amended Order
Setting Foreclosure Sale Date was published in the Tampa Tribune, a newspaper
circulated in Hillsborough County, Florida, in the manner shown by the Proof of
Publication attached, and on the 28th day of October, 2003, the property was
offered for Public Sale to the highest and best bidder for cash. The highest and
best bid received for the property was submitted by CCIP PALM LAKE, L.L.C., to
whom the property was sold. The proceeds of the sale are retained for
distribution in accordance with the Final Summary Judgment of Foreclosure, Order
Setting Foreclosure Sale Date and Amended Order Setting Foreclosure Sale Date.
EXHIBIT 10.30
IN THE CIRCUIT COURT OF THE THIRTEENTH JUDICIAL CIRCUIT
IN AND FOR HILLSBOROUGH COUNTY, FLORIDA
CONSOLIDATED CAPITAL INSTITUTIONAL
PROPERTIES, A CALIFORNIA LIMITED
PARTNERSHIP, a California Limited Partnership,
Plaintiff,
V. Case No. 02-04757
CONSOLIDATED CAPITAL EQUITY
PARTNERS L.P., a California limited
partnership,
Defendant.
______________________________/
CERTIFICATE OF SALE AS TO PROPERTY "2"
The undersigned Clerk of the Circuit Court certifies that a Second Amended
Notice of Public Sale of the property of Defendant, CONSOLIDATED CAPITAL EQUITY
PARTNERS L.P., a California limited partnership, described in the Final Summary
Judgment of Foreclosure, Order Setting Foreclosure Sale Date and Amended Order
Setting Foreclosure Sale Date, was published in the Tampa Tribune, a newspaper
circulated in Hillsborough County, Florida and in the Orlando Sentinel, a
newspaper circulated in Seminole County, Florida, in the manner shown by the
Proofs of Publication attached, and on the 28th day of October, 2003, the
property was offered for Public Sale to the highest and best bidder for cash.
The highest and best bid received for the property was submitted by CCIP REGENCY
OAKS, L.L.C., to whom the property was sold. The proceeds of the sale are
retained for distribution in accordance with the Final Summary Judgment of
Foreclosure, Order Setting Foreclosure Sale Date and Amended Order Setting
Foreclosure Sale Date.
EXHIBIT 10.31
IN THE CIRCUIT COURT OF THE THIRTEENTH JUDICIAL CIRCUIT
IN AND FOR HILLSBOROUGH COUNTY, FLORIDA
CONSOLIDATED CAPITAL INSTITUTIONAL
PROPERTIES, A CALIFORNIA LIMITED
PARTNERSHIP, a California Limited Partnership,
Plaintiff,
V. Case No. 02-04757
CONSOLIDATED CAPITAL EQUITY
PARTNERS L.P., a California limited
partnership,
Defendant.
______________________________/
CERTIFICATE OF SALE AS TO PROPERTY "3"
The undersigned Clerk of the Circuit Court certifies that Second Amended Notice
of Public Sale of the property of Defendant, CONSOLIDATED CAPITAL EQUITY
PARTNERS L.P., a California limited partnership, described in the Final Summary
Judgment of Foreclosure, Order Setting Foreclosure Sale Date and Amended Order
Setting Foreclosure Sale Date, was published in the Tampa Tribune, a newspaper
circulated in Hillsborough County and in The Orlando Sentinel, a newspaper
circulated in Brevard County, Florida, in the manner shown by the Proofs of
Publication attached, and on the 28th day of October, 2003, the property was
offered for Public Sale to the highest and best bidder for cash. The highest and
best bid received for the property was submitted by CCIP SOCIETY PARK EAST,
L.L.C., to whom the property was sold. The proceeds of the sale are retained for
distribution in accordance with the Final Summary Judgment of Foreclosure, Order
Setting Foreclosure Sale Date and Amended Order Setting Foreclosure Sale Date.
EXHIBIT 10.32
IN THE CIRCUIT COURT OF THE THIRTEENTH JUDICIAL CIRCUIT
IN AND FOR HILLSBOROUGH COUNTY, FLORIDA
CONSOLIDATED CAPITAL INSTITUTIONAL
PROPERTIES, A CALIFORNIA LIMITED
PARTNERSHIP, a California Limited Partnership,
Plaintiff,
V. Case No. 02-04757
CONSOLIDATED CAPITAL EQUITY
PARTNERS L.P., a California limited
partnership,
Defendant.
______________________________/
CERTIFICATE OF SALE AS TO PROPERTY "4"
The undersigned Clerk of the Circuit Court certifies that Second Amended Notice
of Public Sale of the property of Defendant, CONSOLIDATED CAPITAL EQUITY
PARTNERS L.P., a California limited partnership, described in the Final Summary
Judgment of Foreclosure, Order Setting Foreclosure Sale Date and Amended Order
Setting Foreclosure Sale Date was published in the Tampa Tribune, a newspaper
circulated in Hillsborough County, Florida and the Sun-Sentinel, a newspaper
circulated in Broward County, Florida, in the manner shown by the Proofs of
Publication attached, and on the 28th day of October, 2003, the property was
offered for Public Sale to the highest and best bidder for cash. The highest and
best bid received for the property was submitted by CCIP PLANTATION GARDENS,
L.L.C., to whom the property was sold. The proceeds of the sale are retained for
distribution in accordance with the Final Summary Judgment of Foreclosure, Order
Setting Foreclosure Sale Date and Amended Order Setting Foreclosure Sale Date.