UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A No. 1
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
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
(Registrant'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__
Explanatory Note
Consolidated Capital Institutional Properties (the "Partnership" or
"Registrant") is filing this Amendment on Form 10-Q (the "Amendment") for the
sole purpose of amending the Partnership's Amended Annual Report on Form 10-Q
for the quarter ended March 31, 2005 (the "Amended Filing"). This Amendment
adjusts the Item 4.(a) disclosure regarding the Partnership's disclosure
controls and procedures.
Please note that this Amendment restates only those items of the Amended Filing
that were affected by the above-described corrections. Furthermore, the
information contained in this Amendment is as of the date of the Amended Filing
and does not reflect any subsequent information or events occurring after the
date of the Amended Filing. Therefore, you should read this Amendment together
with other documents that we have filed with the SEC subsequent to the filing of
the Amended Filing. Information in such reports and documents updates and
supersedes certain information contained in this Amendment.
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
March 31, December 31,
2005 2004
(Unaudited) (Restated)
(Note)
Assets
Cash and cash equivalents $ 768 $ 955
Receivables and deposits 1,140 1,155
Restricted escrows 514 662
Other assets 1,941 989
Investment in affiliated partnerships (Note D) 624 624
Investment properties:
Land 20,365 20,365
Buildings and related personal property 100,046 98,265
120,411 118,630
Less: Accumulated depreciation (29,112) (27,837)
91,299 90,793
$ 96,286 $ 95,178
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 725 $ 1,499
Tenant security deposit liabilities 804 825
Accrued property taxes 316 100
Other liabilities 1,139 1,229
Due to affiliates (Note C) 4,427 2,596
Mortgage notes payable 65,279 65,768
72,690 72,017
Partners' Capital
General partner 137 133
Limited partners (199,043.2 units issued and
outstanding) 23,459 23,028
23,596 23,161
$ 96,286 $ 95,178
Note: The restated consolidated balance sheet at December 31, 2004 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 Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended
March 31,
2005 2004
Revenues: (Restated)
Rental income $ 5,708 $ 5,355
Other income 468 494
Total revenues 6,176 5,849
Expenses:
Operating 2,599 2,688
General and administrative 200 263
Depreciation 1,276 1,353
Interest 1,173 1,140
Property taxes 468 443
Casualty loss (Note G) 25 --
Total expenses 5,741 5,887
Income (loss) from continuing operations 435 (38)
Loss from discontinued operations (Notes A and E) -- (651)
Gain on sale of discontinued operations (Note E) -- 1,433
Net income $ 435 $ 744
Net income allocated to general partner (1%) $ 4 $ 7
Net income allocated to limited partners (99%) 431 737
$ 435 $ 744
Per limited partnership unit:
Income (loss) from continuing operations $ 2.17 $ (0.19)
Loss from discontinued operations -- (3.24)
Gain on sale of discontinued operations -- 7.13
Net income per limited partnership unit $ 2.17 $ 3.70
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 200,342.0 $ 1 $200,342 $200,343
Partners' capital at
December 31, 2004, as restated 199,043.2 $ 133 $ 23,028 $ 23,161
Net income for the three
months ended March 31, 2005 -- 4 431 435
Partners' capital at
March 31, 2005 199,043.2 $ 137 $ 23,459 $ 23,596
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2005 2004
(Restated)
Cash flows from operating activities:
Net income $ 435 $ 744
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,276 1,452
Amortization of loan costs, lease commissions and
mortgage premiums (43) (35)
Gain on sale of discontinued operations -- (1,433)
Loss on early extinguishment of debt -- 685
Casualty loss 25 --
Change in accounts:
Receivables and deposits 15 (25)
Other assets (957) (1,007)
Accounts payable 84 241
Tenant security deposit liabilities (21) (46)
Accrued property taxes 216 (225)
Other liabilities (90) (39)
Due to affiliates 192 77
Net cash provided by operating activities 1,132 389
Cash flows from investing activities:
Net proceeds from sale of discontinued operations -- 6,501
Net receipts from (deposits to) restricted escrows 148 (68)
Property improvements and replacements (2,665) (503)
Net cash (used in) provided by investing activities (2,517) 5,930
Cash flows from financing activities:
Advances from general partner 1,639 --
Payments on mortgage notes payable (420) (407)
Repayment of mortgage note payable -- (3,248)
Prepayment penalties -- (871)
Lease commissions, paid (21) (6)
Net cash provided by (used in) financing activities 1,198 (4,532)
Net (decrease) increase in cash and cash equivalents (187) 1,787
Cash and cash equivalents at beginning of period 955 2,417
Cash and cash equivalents at end of period $ 768 $ 4,204
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,185 $ 1,234
Supplemental disclosure of non-cash activity:
Property improvements and replacements in accounts
payable $ 414 $ 84
Included in property improvements and replacements for the three months ended
March 31, 2005 are approximately $1,272,000 of improvements which were included
in accounts payable at December 31, 2004.
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Consolidated
Capital Institutional Properties (the "Partnership" or "Registrant") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of ConCap Equities, Inc. (the "General
Partner"), which is ultimately owned by Apartment Investment and Management
Company ("AIMCO"), a publicly traded real estate investment trust, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three month
period ended March 31, 2005 are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 2005. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Partnership's Annual Report on Form 10-K/A No. 2 for the
fiscal year ended December 31, 2004.
The Partnership amended its Form 10-K for the year ended December 31, 2004 to
adjust for the recording in 2002 of an investment in an affiliated partnership
and to reverse the related equity in gains on sale of investment properties in
the affiliated partnership recognized in 2003 and 2004. The value of the
investment in 2002 should have been recorded at the discounted value of
operating cash flows that were reasonably expected at the date the Partnership
foreclosed on the investment. In addition, the equity in gains on sale of
investment properties recognized in 2003 and 2004 should not have been
recognized because the related sales proceeds will not be distributed to the
Partnership. Because of the errors noted above, the balance sheet as of December
31, 2004, the statement of operations and the statement of cash flows for the
three months ended March 31, 2004 and the partners capital account at December
31, 2004, have been restated to reflect the correction of these errors in the
restated financial statements.
As a result of the sale of Tates Creek Village Apartments to a third party
during the year ended December 31, 2004 and in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", the accompanying consolidated statements of
operations for the three months ended March 31, 2004 have been restated as of
January 1, 2004 to reflect the operations of Tates Creek Village Apartments as
loss from discontinued operations. In addition, the operations of Silverado
Apartments are reflected as loss from discontinued operations due to its sale
during the three months ended March 31, 2004. Total loss from discontinued
operations for the three months ended March 31, 2004 was approximately $651,000
including revenues of approximately $697,000.
Segment Reporting: Statement of Financial Accounting Standards ("SFAS") SFAS No.
131, "Disclosure about Segments of an Enterprise and Related Information"
established standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. It also established standards for related disclosures
about products and services, geographic areas, and major customers. (See "Note
F" for detailed disclosure of the Partnership's segments).
Note B - Net Investment in Master Loan
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 secured the Master Loan were purchased and 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 collateralized the Master Loan or extending the terms of
the Master Loan. The General Partner decided to foreclose on the properties that
collateralized the Master Loan. The General Partner began the process of
foreclosure or executing deeds in lieu of foreclosure during 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: Silverado, The
Knolls, Indian Creek Village and Tates Creek Village Apartments. In addition,
one of the properties held by CCEP was sold in December 2002. On November 10,
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. As the deeds
were executed, title in the properties previously owned by CCEP was transferred
to the Partnership subject to the existing liens on such properties, including
the first mortgage loans. As a result, during the years ended December 2003 and
2002, the Partnership assumed responsibility for the operations of such
properties. The results of operations of the four properties foreclosed on in
2003 and 2002 are reflected in the accompanying consolidated statements of
operations for both the three month periods ended March 31, 2005 and 2004.
Note C - Related Party Transactions
The Partnership has no employees and depends 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 receive 5% of gross receipts from the
Partnership's properties for providing property management services. The
Partnership paid to such affiliates approximately $307,000 and $323,000 for the
three months ended March 31, 2005 and 2004, respectively, which is included in
operating expenses and loss from discontinued operations.
Affiliates of the General Partner charged the Partnership for reimbursement of
accountable administrative expenses amounting to approximately $360,000 and
$192,000 for the three months ended March 31, 2005 and 2004, respectively which
is included in general and administrative expenses and investment properties.
The portion of these reimbursements included in investment properties for the
three months ended March 31, 2005 and 2004 are fees related to construction
management services provided by an affiliate of the General Partner of
approximately $216,000 and $6,000, respectively. The construction management
fees are calculated based on a percentage of current year additions to
investment properties. At March 31, 2005, approximately $317,000 of these fees
remain unpaid and are included in due to affiliates.
In connection with the sale of Silverado Apartments on March 31, 2004 (see "Note
E"), the General Partner earned a disposition fee of approximately $333,000. The
fee was included in gain on sale of discontinued operations and due to
affiliates at March 31, 2004. The fee was paid subsequent to March 31, 2004.
In accordance with the Partnership Agreement, the General Partner advanced the
Partnership approximately $1,639,000 for expenses at the Partnership's
properties and to fund redevelopment costs at The Sterling Apartment Homes and
The Knolls Apartments during the three months ended March 31, 2005. Interest was
charged at the prime rate plus 2% (7.75% at March 31, 2005) and amounted to
approximately $61,000 for the three months ended March 31, 2005. There were no
payments made on outstanding loans during the three months ended March 31, 2005.
At March 31, 2005, the amount of the outstanding loans and accrued interest was
approximately $4,110,000 and is included in due to affiliates. There were no
advances to the Partnership during the three months ended March 31, 2004.
Subsequent to March 31, 2005, the General Partner advanced the Partnership
approximately $2,074,000 for capital improvements at Palm Lake and Indian Creek
Village Apartments, redevelopment costs at The Knolls Apartments and operating
costs at Indian Creek Village Apartments.
The Partnership insures its property 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 property above the AIMCO limits through
insurance policies obtained by AIMCO from insurers unaffiliated with the General
Partner. During the three months ended March 31, 2005, the Partnership was
charged by AIMCO and its affiliates approximately $185,000 for hazard insurance
coverage and fees associated with policy claims administration. Additional
charges will be incurred by the Partnership during 2005 as other insurance
policies renew later in the year. The Partnership was charged by AIMCO and its
affiliates approximately $282,000 for insurance coverage and fees associated
with policy claims administration during the year ended December 31, 2004.
Note D - Investment in Affiliated Partnerships
Ownership Investment Balance
Partnership Type of Ownership Percentage March 31, 2005
(in thousands)
Consolidated Capital Special Limited
Growth Fund Partner 0.40% $ 13
Consolidated Capital Special Limited
Properties III Partner 1.85% 17
Consolidated Capital Special Limited
Properties IV Partner 1.85% 594
$ 624
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. There were no distributions received and no equity in income of
investment recognized during the three months ended March 31, 2005 and 2004.
Note E - Sale of Investment Property
On March 31, 2004, the Partnership sold Silverado Apartments, located in El
Paso, Texas, to an unaffiliated third party for $6,650,000. After payment of
closing costs, the net sales proceeds received by the Partnership were
approximately $6,501,000. The Partnership used a portion of the proceeds to
repay the mortgage encumbering the property of approximately $3,248,000. The
sale resulted in a gain on sale of investment property of approximately
$1,433,000 during the three months ended March 31, 2004. In addition, the
Partnership recorded a loss on early extinguishment of debt of approximately
$685,000 as a result of prepayment penalties paid partially offset by the write
off of the unamortized mortgage premium which is included in loss from
discontinued operations. Pursuant to the Partnership Agreement and in
conjunction with the sale, a disposition fee of approximately $332,000 was
earned by the General Partner in accordance with the Partnership Agreement which
was accrued and included in due to affiliates. The fee was paid subsequent to
March 31, 2004. The results of the property's operations for the three months
ended March 31, 2004 are included in loss from discontinued operations which was
approximately $649,000 and includes revenues of approximately $338,000.
Note F - Segment Reporting
Description of the types of products and services from which the reportable
segment derives its revenues: The Partnership has two reportable segments:
residential properties and commercial property. The Partnership's property
segments consist of seven apartment complexes one each in North Carolina,
Colorado, and Kansas, four in Florida 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 six 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 months ended March 31, 2005 and 2004 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.
2005 Residential Commercial Other Totals
Rental income $ 5,349 $ 359 $ -- $ 5,708
Other income 433 34 1 468
Interest expense 1,052 55 66 1,173
Depreciation 1,205 71 -- 1,276
General and administrative
expenses -- -- 200 200
Casualty loss (25) -- -- (25)
Segment profit (loss) 757 (57) (265) 435
Total assets 93,953 1,574 759 96,286
Capital expenditures for
investment properties 1,787 20 -- 1,807
2004 Residential Commercial Other Totals
(Restated) (Restated) (Restated)
Rental income $ 5,011 $ 344 $ -- $ 5,355
Other income 462 31 1 494
Gain on sale of investment 1,433 -- -- 1,433
Loss from discontinued operations (651) -- -- (651)
Interest expense 1,084 56 -- 1,140
Depreciation 1,294 59 -- 1,353
General and administrative
Expenses -- -- 263 263
Segment profit (loss) 1,212 (206) (262) 744
Total assets 97,256 1,409 3,671 102,336
Capital expenditures for
investment properties 289 298 -- 587
Note G - Casualty Loss
During the year ended December 31, 2004, the Partnership's investment property,
Regency Oaks Apartments, sustained damages from Hurricanes Charlie, Frances and
Jeanne. The damages incurred totaled approximately $245,000, which will not be
covered by insurance proceeds. There was a casualty loss of approximately
$204,000 recorded at Regency Oaks Apartments related to the damages to the
property caused by the hurricanes during 2004 and during the three months ended
March 31, 2005 the Partnership recognized an additional casualty loss of
approximately $25,000 as a result of the write-off of additional undepreciated
damaged assets. In addition, the property incurred approximately $7,000 in clean
up costs during the three months ended March 31, 2005 related to these
hurricanes which were not covered by insurance proceeds. These costs are
included in operating expenses.
During the year ended December 31, 2004, the Partnership's investment property,
The Dunes Apartments, sustained damages from Hurricane Jeanne. The damages
incurred totaled approximately $38,000, which will not be covered by insurance
proceeds. During 2004, there was a casualty loss of approximately $38,000
recorded at The Dunes Apartments related to the damages to the property caused
by Hurricane Jeanne. In addition, the property incurred approximately $44,000 in
clean up costs during the three months ended March 31, 2005 related to
Hurricanes Jeanne and Frances which is included in operating expenses.
Note H - Contingencies
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (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 captioned Heller v. Insignia Financial Group (the "Heller action") was
filed against the same defendants that are named in the Nuanes action. 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 28, 2002, the trial
court granted defendants motion to strike the complaint. Plaintiffs took an
appeal from this order.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action.
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
("Objector") filed an appeal (the "Appeal") seeking to vacate and/or reverse the
order approving the settlement and entering judgment thereto. On May 4, 2004 the
Objector filed a second appeal challenging the court's use of a referee and its
order requiring Objector to pay those fees.
On March 21, 2005, the Court of Appeals issued opinions in both pending appeals.
With regard to the settlement and judgment entered thereto, the Court of Appeals
vacated the trial court's order and remanded to the trial court for further
findings on the basis that the "state of the record is insufficient to permit
meaningful appellate review". With regard to the second appeal, the Court of
Appeals reversed the order requiring the Objector to pay referee fees. On April
26, 2005, the Court of Appeals lifted the stay of a pending appeal related to
the Heller action and the trial court's order striking the complaint. On April
28, 2005, the Objector filed a Petition for Review with the California Supreme
Court in connection with the opinion vacating the order approving settlement and
remanding for further findings. On June 10, 2005, the California Supreme Court
denied Objector's Petition for Review and the Court of Appeals sent the matter
back to the trial court on June 21, 2005. The parties intend to ask the trial
court to make further findings in connection with settlement consistent with the
Court of Appeal's remand order. The Court of Appeals is also scheduled to hear
oral argument in the Heller appeal on July 27, 2005.
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.
AIMCO Properties L.P. and NHP Management Company, both affiliates of the General
Partner, are defendants in a lawsuit alleging that they willfully violate 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 attempts to
bring 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. and NHP Management Company failed
to compensate maintenance workers for time that they were required to be
"on-call". Additionally, the complaint alleges AIMCO Properties L.P. and NHP
Management Company failed to comply with the FLSA in compensating maintenance
workers for time that they worked in excess of 40 hours in a week. The
defendants have filed an answer to the amended complaint denying the substantive
allegations. On June 23, 2005 the Court conditionally certified the collective
action on both the on-call and overtime issues. The Court will allow plaintiffs
to provide notice of the collective action to all non-exempt maintenance workers
from August 7, 2000 through the present. Those employees will have the
opportunity to opt-in to the collective action. After the notice goes out,
defendants will have the opportunity to move to decertify the collective action.
The Court further denied plaintiffs' Motion for Certification of the state
subclasses. Although the outcome of any litigation is uncertain, AIMCO
Properties, L.P. does not believe that the ultimate outcome will have a material
adverse effect on its financial condition or results of operations. Similarly,
the General Partner does not believe that the ultimate outcome will have a
material adverse effect on the Partnership's financial condition or results of
operations.
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.
Environmental
Various Federal, state and local laws subject property owners or operators to
liability for management, and the costs of removal or remediation, of certain
hazardous substances present on a property. Such laws often impose liability
without regard to whether the owner or operator knew of, or was responsible for,
the release or presence of the hazardous substances. The presence of, or the
failure to manage or remedy properly, hazardous substances may adversely affect
occupancy at affected apartment communities and the ability to sell or finance
affected properties. In addition to the costs associated with investigation and
remediation actions brought by government agencies, the presence of hazardous
substances on a property could result in claims by private plaintiffs for
personal injury, disease, disability or other infirmities. Various laws also
impose liability for the cost of removal, remediation or disposal of hazardous
substances through a licensed disposal or treatment facility. Anyone who
arranges for the disposal or treatment of hazardous substances is potentially
liable under such laws. These laws often impose liability whether or not the
person arranging for the disposal ever owned or operated the disposal facility.
In connection with the ownership and operation of its properties, the
Partnership could potentially be liable for environmental liabilities or costs
associated with its properties.
Mold
The Partnership is aware of lawsuits against owners and managers of multifamily
properties asserting claims of personal injury and property damage caused by the
presence of mold, some of which have resulted in substantial monetary judgments
or settlements. The Partnership has only limited insurance coverage for property
damage loss claims arising from the presence of mold and for personal injury
claims related to mold exposure. Affiliates of the General Partner have
implemented a national policy and procedures to prevent or eliminate mold from
its properties and the General Partner believes that these measures will
eliminate, or at least minimize, the effects that mold could have on residents.
To date, the Partnership has not incurred any material costs or liabilities
relating to claims of mold exposure or to abate mold conditions. Because the law
regarding mold is unsettled and subject to change the General Partner can make
no assurance that liabilities resulting from the presence of or exposure to mold
will not have a material adverse effect on the Partnership's consolidated
financial condition or results of operations.
SEC Investigation
The Central Regional Office of the United States Securities and Exchange
Commission (the "SEC") is conducting a formal investigation relating to certain
matters. Although the staff of the SEC is not limited in the areas that it may
investigate, AIMCO believes the areas of investigation include AIMCO's
miscalculated monthly net rental income figures in third quarter 2003,
forecasted guidance, accounts payable, rent concessions, vendor rebates,
capitalization of payroll and certain other costs, and tax credit transactions.
At the end of the first quarter of 2005, the SEC added certain tender offers for
limited partnership interests as an area of investigation. AIMCO is cooperating
fully. AIMCO is not able to predict when the investigation will be resolved.
AIMCO does not believe that the ultimate outcome will have a material adverse
effect on its consolidated financial condition or results of operations.
Similarly, the General Partner does not believe that the ultimate outcome will
have a material adverse effect on the Partnership's consolidated financial
condition or results of operations.
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 eight 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 three months ended March 31, 2005 and 2004:
Average Occupancy
Property 2005 2004
The Loft Apartments (1) 89% 86%
Raleigh, North Carolina
The Sterling Apartment Homes (2) 92% 96%
The Sterling Commerce Center (3) 80% 74%
Philadelphia, Pennsylvania
The Knolls Apartments (4) 72% 73%
Colorado Springs, Colorado
Indian Creek Village Apartments (1) 92% 88%
Overland Park, Kansas
Plantation Gardens Apartments (1) 95% 88%
Plantation, Florida
Palm Lake Apartments 95% 96%
Tampa, Florida
The Dunes Apartments (1) 98% 95%
Indian Harbor, Florida
Regency Oaks Apartments (1) 96% 93%
Fern Park, Florida
(1) The General Partner attributes the increase in occupancy at The Loft
Apartments, Indian Creek Village Apartments, Plantation Gardens
Apartments, The Dunes Apartments and Regency Oaks Apartments to an
increase in marketing outreach and promotions.
(2) The General Partner attributes the decrease in occupancy at The Sterling
Apartments Homes to the competitive market of the apartment industry in
the property's location.
(3) The General Partner attributes the increase in occupancy at The Sterling
Commerce Center to a more stable tenant base due to the existence of a new
major tenant. During the fourth quarter of 2003, the new tenant signed a
lease and occupied a large portion of the vacant space.
(4) The General Partner is addressing the low occupancy at The Knolls
Apartment with a redevelopment project currently in process. The
redevelopment project, which began during the fourth quarter of 2004 is
scheduled to be completed during 2005. The low occupancy for the three
months ended March 31, 2005 was partially due to 16 units not rented due
to ongoing redevelopment work.
The Partnership's financial results depend upon a number of factors including
the ability to attract and maintain tenants at the investment properties,
interest rates on mortgage loans, costs incurred to operate the investment
properties, general economic conditions and weather. As part of the ongoing
business plan of the Partnership, the General Partner monitors the rental market
environment 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. Further,
a number of factors that are outside the control of the Partnership, such as the
local economic climate and weather, can adversely or positively affect the
Partnership's financial results.
Results of Operations
The Partnership's net income for the three months ended March 31, 2005 was
approximately $435,000 compared to net income of approximately $744,000 for the
corresponding period in 2004. The decrease in net income for the three months
ended March 31, 2005 as compared to the three months ended March 31, 2004 is
primarily due to the gain on the sale of Silverado Apartments during the three
months ended March 31, 2004, partially offset by an increase in total revenues,
a decrease in total expenses and the loss from discontinued operations during
the three months ended March 31, 2004.
On March 31, 2004, the Partnership sold Silverado Apartments, located in El
Paso, Texas, to an unaffiliated third party for $6,650,000. After payment of
closing costs, the net sales proceeds received by the Partnership were
approximately $6,501,000. The Partnership used a portion of the proceeds to
repay the mortgage encumbering the property of approximately $3,248,000. The
sale resulted in a gain on sale of investment property of approximately
$1,433,000 during the three months ended March 31, 2004. In addition, the
Partnership recorded a loss on early extinguishment of debt of approximately
$685,000 as a result of prepayment penalties paid partially offset by the write
off of the unamortized mortgage premium which is included in loss from
discontinued operations. Pursuant to the Partnership Agreement and in
conjunction with the sale, a disposition fee of approximately $332,000 was
earned by the General Partner in accordance with the Partnership Agreement which
was accrued and included in due to affiliates. The fee was paid subsequent to
March 31, 2004. The results of the property's operations for the three months
ended March 31, 2004 are included in loss from discontinued operations which was
approximately $649,000 and includes revenues of approximately $338,000.
As a result of the sale of Tates Creek Village Apartments to a third party
during the year ended December 31, 2004 and in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", the accompanying consolidated statements of
operations for the three months ended March 31, 2004 have been restated as of
January 1, 2004 to reflect the operations of Tates Creek Village Apartments as
loss from discontinued operations. In addition, the operations of Silverado
Apartments are reflected as loss from discontinued operations due to its sale
during the three months ended March 31, 2004. Total loss from discontinued
operations for the three months ended March 31, 2004 was approximately $651,000
including revenues of approximately $697,000.
The Partnership's net income from continuing operations for the three months
ended March 31, 2005 was approximately $435,000 compared to net loss from
continuing operations of approximately $38,000 for the corresponding period in
2004. The increase in income from continuing operations for the three months
ended March 31, 2005 as compared to the three months ended March 31, 2004 is
primarily due to an increase in total revenues and a decrease in total expenses.
The increase in total revenues during the three months ended March 31, 2005 is
primarily due to an increase in rental income. Rental income increased primarily
due to an increase in average rental rates at The Sterling Apartment Homes, The
Loft Apartments, Plantation Gardens Apartments, Palm Lake Apartments, The Dunes
Apartments and Regency Oaks Apartments and an increase in occupancy at The
Sterling Commerce Center, The Loft Apartments, Indian Creek Village Apartments,
Plantation Gardens Apartments, The Dunes Apartments and Regency Oaks Apartments
and a decrease in bad debt expense at The Loft Apartments, Palm Lake Apartments,
and Regency Oaks Apartments partially offset by a decrease in rental rates at
The Sterling Commerce Center and Indian Creek Village Apartments and a decrease
in occupancy at Sterling Apartment Homes, The Knolls Apartments and Palm Lake
Apartments.
Total expenses decreased during the three months ended March 31, 2005 primarily
due to decreases in operating, general and administrative and depreciation
expenses partially offset by increased interest and property tax expenses and a
casualty loss recorded in 2005 as discussed below. Operating expense decreased
primarily due to a decrease in administrative and insurance expenses partially
offset by increased property expense. Administrative expense decreased primarily
due to a decrease in credit card service fees and business licenses and permits
at The Sterling Apartment Homes. Insurance expense decreased primarily due to a
decrease in hazard insurance premiums at Plantation Gardens Apartments and
Regency Oaks Apartments. Property expense increased primarily due to increased
salary and related benefit expenses at most of the Partnership's properties
partially offset by reduced utility expenses at The Sterling Commerce Center,
and the Sterling Apartment Homes. Depreciation expense decreased due to capital
improvements and replacements becoming fully depreciated at The Sterling
Apartment Homes, Plantation Gardens Apartments and the Dunes Apartments during
2004. Interest expense increased primarily due to interest incurred on advances
from affiliates. There were no advances during the three months ended March 31,
2004. This increase was partially offset by the capitalization of construction
period interest at the Knolls Apartments due to the redevelopment project
occurring at that property. Property tax expense increased due to an increase in
the assessed value of The Sterling Commerce Center.
During the year ended December 31, 2004, the Partnership's investment property,
Regency Oaks Apartments, sustained damages from Hurricanes Charlie, Frances and
Jeanne. The damages incurred totaled approximately $245,000, which will not be
covered by insurance proceeds. There was a casualty loss of approximately
$204,000 recorded at Regency Oaks Apartments related to the damages to the
property caused by the hurricanes during 2004 and during the three months ended
March 31, 2005 the Partnership recognized an additional casualty loss of
approximately $25,000 as a result of the write-off of additional undepreciated
damaged assets. In addition, the property incurred approximately $7,000 in clean
up costs during the three months ended March 31, 2005 related to these
hurricanes which were not covered by insurance proceeds. These costs are
included in operating expenses.
During the year ended December 31, 2004, the Partnership's investment property,
The Dunes Apartments, sustained damages from Hurricane Jeanne. The damages
incurred totaled approximately $38,000, which will not be covered by insurance
proceeds. During 2004, there was a casualty loss of approximately $38,000
recorded at The Dunes Apartments related to the damages to the property caused
by Hurricane Jeanne. In addition, the property incurred approximately $44,000 in
clean up costs during the three months ended March 31, 2005 related to
Hurricanes Jeanne and Frances which is included in operating expenses.
General and administrative expenses decreased primarily due to a decrease in the
costs of services included in the management reimbursements to the General
Partner as allowed under the Partnership Agreement and reduced legal fees
related to the foreclosures of the properties held by CCEP during 2003 partially
offset by an increase in business privilege taxes paid to the city of
Philadelphia. Also included in general and administrative expenses are costs
associated with the quarterly and annual communications with investors and
regulatory agencies and the annual audit required by the Partnership Agreement.
Liquidity and Capital Resources
At March 31, 2005, the Partnership had cash and cash equivalents of
approximately $768,000 compared to approximately $4,204,000 at March 31, 2004.
Cash and cash equivalents decreased approximately $187,000 since December 31,
2004 due to approximately $2,517,000 of cash used in investing activities,
partially offset by approximately $1,198,000 and $1,132,000 of cash provided by
financing and operating activities, respectively. Cash used in investing
activities consisted of property improvements and replacements partially offset
by net receipts from restricted escrow accounts maintained by the mortgage
lenders. Cash provided by financing activities consisted of advances from
affiliates partially offset by principal payments made on the mortgages
encumbering the Partnership's properties and lease commissions paid. 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 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. For example, 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. The Partnership regularly evaluates the capital improvements needs
of all its properties for the upcoming year. Certain routine capital
expenditures are anticipated during 2005. In addition, the Partnership has
material commitments to complete rehabilitation projects at The Sterling
Apartment Homes and The Knolls Apartments. The budget for these two projects for
2005 is approximately $16,258,000. Such capital expenditures will depend on the
physical condition of the properties as well as replacement reserves and
anticipated cash flow generated by the properties. It is anticipated that a
substantial portion of the costs associated with the rehabilitation projects
will be funded from advances from affiliates of the General Partner. Other
capital expenditures will be incurred only if cash is available from operations
and Partnership reserves. To the extent that capital improvements are completed,
the Partnership's distributable cash flow, if any, may be adversely affected at
least in the short term.
The Loft Apartments
During the three months ended March 31, 2005, the Partnership completed
approximately $45,000 of capital improvements at The Loft Apartments consisting
primarily of floor covering replacements, roof replacement, furniture and
fixtures, recreation equipment and heating upgrades. These improvements were
funded from operating cash flow. The Partnership regularly evaluates the capital
improvement needs of the property. While the Partnership has no material
commitments for property improvements and replacements, certain routine capital
expenditures are anticipated during 2005. Such capital expenditures will depend
on the physical condition of the property as well as anticipated cash flow
generated by the property.
The Sterling Apartment Homes and Commerce Center
During the three months ended March 31, 2005, the Partnership completed
approximately $516,000 of capital improvements at The Sterling Apartment Homes
and Commerce Center consisting primarily of costs associated with a
redevelopment project at The Sterling Apartment Homes, structural improvements
and floor covering replacements. These improvements were funded from operating
cash flow, advances from the General Partner and replacement reserves. The
Partnership regularly evaluates the capital improvement needs of the property.
Certain routine capital expenditures are anticipated during 2005. The
redevelopment project, which began in 2004 is scheduled to be completed during
2007. The project budget is approximately $24,218,000. Approximately $2,272,000
of redevelopment costs were incurred in 2004 and approximately $11,279,000 are
budgeted for 2005. The Partnership plans to fund these redevelopment
expenditures from operating cash flow, partnership reserves and advances from
the General Partner. During the three months ended March 31, 2005 approximately
$467,000 of redevelopment costs were incurred. 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 three months ended March 31, 2005, the Partnership completed
approximately $659,000 of capital improvements at The Knolls Apartments
consisting primarily of costs associated with a redevelopment project at the
property. These expenditures included capitalized construction period interest
of approximately $25,000 and other construction period expenses of approximately
$3,000. These improvements were funded from operating cash flow and advances
from the General Partner. The Partnership regularly evaluates the capital
improvement needs of the property. Certain routine capital expenditures are
anticipated during 2005. The redevelopment project, which began in 2004 is
scheduled to be completed during 2005. The project budget is approximately
$7,083,000. Approximately $2,104,000 of redevelopment costs were incurred in
2004 and approximately $4,979,000 are budgeted for 2005. The Partnership plans
to fund these redevelopment expenditures from operating cash flow, partnership
reserves and advances from the General Partner. During the three months ended
March 31, 2005 approximately $639,000 of redevelopment costs were incurred.
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.
Indian Creek Village Apartments
During the three months ended March 31, 2005, the Partnership completed
approximately $128,000 of capital improvements at Indian Creek Village
Apartments consisting primarily of floor covering replacements, roof
replacement, wood siding replacement and exterior painting. These improvements
were funded from operating cash flow. The Partnership regularly evaluates the
capital improvement needs of the property. While the Partnership has no material
commitments for property improvements and replacements, certain routine capital
expenditures are anticipated during 2005. Such capital expenditures will depend
on the physical condition of the property as well as anticipated cash flow
generated by the property.
Plantation Gardens Apartments
During the three months ended March 31, 2005, the Partnership completed
approximately $97,000 of capital improvements at Plantation Gardens Apartments
consisting primarily of floor covering and appliance replacements, structural
improvements, roof replacement and wood replacement. These improvements were
funded from operating cash flow. The Partnership regularly evaluates the capital
improvement needs of the property. While the Partnership has no material
commitments for property improvements and replacements, certain routine capital
expenditures are anticipated during 2005. Such capital expenditures will depend
on the physical condition of the property as well as anticipated cash flow
generated by the property.
Palm Lake Apartments
During the three months ended March 31, 2005, the Partnership completed
approximately $147,000 of capital improvements at Palm Lake Apartments
consisting primarily of floor covering replacements, exterior painting and wood
replacement. These improvements were funded from operating cash flow. The
Partnership regularly evaluates the capital improvement needs of the property.
While the Partnership has no material commitments for property improvements and
replacements, certain routine capital expenditures are anticipated during 2005.
Such capital expenditures will depend on the physical condition of the property
as well as anticipated cash flow generated by the property.
The Dunes Apartments
During the three months ended March 31, 2005, the Partnership completed
approximately $49,000 of capital improvements at The Dunes Apartments consisting
primarily of floor covering replacements, swimming pool decking replacement, and
reconstruction of damages to the property caused by Hurricane Jeanne. These
improvements were funded from operating cash flow. The Partnership regularly
evaluates the capital improvement needs of the property. While the Partnership
has no material commitments for property improvements and replacements, certain
routine capital expenditures are anticipated during 2005. Such capital
expenditures will depend on the physical condition of the property as well as
anticipated cash flow generated by the property.
Regency Oaks Apartments
During the three months ended March 31, 2005, the Partnership completed
approximately $166,000 of capital improvements at Regency Oaks Apartments
consisting primarily of floor covering, air conditioning unit and appliance
replacements, major landscaping, structural improvements and reconstruction of
damages to the property caused by Hurricanes Charlie, Frances and Jeanne. These
improvements were funded from operating cash flow and advances from the General
Partner. The Partnership regularly evaluates the capital improvement needs of
the property. While the Partnership has no material commitments for property
improvements and replacements, certain routine capital expenditures are
anticipated during 2005. Such capital expenditures will depend on the physical
condition of the property as well as anticipated cash flow generated by the
property.
Capital improvements at the Partnership's properties will be made only to the
extent of cash available from operations or from Partnership reserves. To the
extent that 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
$65,279,000 requires monthly payments of principal and interest and balloon
payments of approximately $3,903,000, $19,975,000 and $31,040,000 during 2005,
2008 and 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.
There were no distributions paid by the Partnership during the three months
ended March 31, 2005 and 2004. Future cash distributions will depend on the
levels of cash generated from operations, the timing of debt maturities,
refinancings, and/or property sales. The Partnership's cash available for
distribution is reviewed on a monthly basis. Given the balance of outstanding
loans to the General Partner, it is not expected that the Partnership will
generate sufficient funds from operations, after planned capital improvement
expenditures, to permit any distributions to its partners during 2005 or for the
foreseeable future.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 146,008.60 limited partnership units
(the "Units") in the Partnership representing 73.36% of the outstanding Units at
March 31, 2005. 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 73.36% of the
outstanding Units, AIMCO and its affiliates are in a position to control all
such 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.
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 and fourth quarter of 2003 were recorded at 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.
The Partnership will offer rental concessions during particularly slow months or
in response to heavy competition from other similar complexes in the area.
Rental income attributable to leases, net of any concessions, is recognized on a
straight-line basis over the term of the lease. The Partnership evaluates all
accounts receivable from residents and establishes an allowance, after the
application of security deposits, for accounts greater than 30 days past due on
current tenants and all receivables due from former tenants.
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.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
The Partnership is exposed to market risks from adverse changes in interest
rates. In this regard, changes in U.S. interest rates affect the interest earned
on the Partnership's cash and cash equivalents as well as interest paid on its
indebtedness. As a policy, the Partnership does not engage in speculative or
leveraged transactions, nor does it hold or issue financial instruments for its
borrowing activities used to maintain liquidity and fund business operations. To
mitigate the impact of fluctuations in U.S. interest rates, the Partnership
maintains its debt as fixed rate in nature by borrowing on a long-term basis.
Based on interest rates at March 31, 2005, a 100 point increase or decrease in
market interest rates would not have a material impact on the Partnership.
The following table summarizes the Partnership's debt obligations at March 31,
2005. The interest rates represent the weighted-average rates. The fair value of
the debt obligations approximated the recorded value as of March 31, 2005.
Principal Amount by Expected Maturity
Fixed Rate Debt
Long-term Average Interest
Debt Rate 7.35%
(in thousands)
2005 $ 5,159
2006 1,750
2007 1,887
2008 21,900
2009 1,753
Thereafter 31,231
Total $ 63,680
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
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 were not effective due to the
Partnership's failure to properly record the Partnership's investment in an
affiliated partnership and incorrectly recognizing equity in gains on sale of
investment properties in the affiliated partnership in 2003 and 2004. The
Partnership's management believes that, as of the date of the filing of the Form
10-Q for the quarterly period ended March 31, 2005 on July 1, 2005, the
Partnership's ineffective disclosure controls were and continue to be fully
remediated. Actions taken include improving the education of accounting
personnel to ensure the understanding and application of appropriate accounting
treatment, as well as improving the Partnership's accounting review procedures.
(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 captioned Heller v. Insignia Financial Group (the "Heller action") was
filed against the same defendants that are named in the Nuanes action. 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 28, 2002, the trial
court granted defendants motion to strike the complaint. Plaintiffs took an
appeal from this order.
On January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action.
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
("Objector") filed an appeal (the "Appeal") seeking to vacate and/or reverse the
order approving the settlement and entering judgment thereto. On May 4, 2004 the
Objector filed a second appeal challenging the court's use of a referee and its
order requiring Objector to pay those fees.
On March 21, 2005, the Court of Appeals issued opinions in both pending appeals.
With regard to the settlement and judgment entered thereto, the Court of Appeals
vacated the trial court's order and remanded to the trial court for further
findings on the basis that the "state of the record is insufficient to permit
meaningful appellate review". With regard to the second appeal, the Court of
Appeals reversed the order requiring the Objector to pay referee fees. On April
26, 2005, the Court of Appeals lifted the stay of a pending appeal related to
the Heller action and the trial court's order striking the complaint. On April
28, 2005, the Objector filed a Petition for Review with the California Supreme
Court in connection with the opinion vacating the order approving settlement and
remanding for further findings. On June 10, 2005, the California Supreme Court
denied Objector's Petition for Review and the Court of Appeals sent the matter
back to the trial court on June 21, 2005. The parties intend to ask the trial
court to make further findings in connection with settlement consistent with the
Court of Appeal's remand order. The Court of Appeals is also scheduled to hear
oral argument in the Heller appeal on July 27, 2005.
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.
AIMCO Properties L.P. and NHP Management Company, both affiliates of the General
Partner, are defendants in a lawsuit alleging that they willfully violate 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 attempts to
bring 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. and NHP Management Company failed
to compensate maintenance workers for time that they were required to be
"on-call". Additionally, the complaint alleges AIMCO Properties L.P. and NHP
Management Company failed to comply with the FLSA in compensating maintenance
workers for time that they worked in excess of 40 hours in a week. The
defendants have filed an answer to the amended complaint denying the substantive
allegations. On June 23, 2005 the Court conditionally certified the collective
action on both the on-call and overtime issues. The Court will allow plaintiffs
to provide notice of the collective action to all non-exempt maintenance workers
from August 7, 2000 through the present. Those employees will have the
opportunity to opt-in to the collective action. After the notice goes out,
defendants will have the opportunity to move to decertify the collective action.
The Court further denied plaintiffs' Motion for Certification of the state
subclasses. Although the outcome of any litigation is uncertain, AIMCO
Properties, L.P. does not believe that the ultimate outcome will have a material
adverse effect on its financial condition or results of operations. Similarly,
the General Partner does not believe that the ultimate outcome will have a
material adverse effect on the Partnership's financial condition or results of
operations.
ITEM 5. Other Information
None.
ITEM 6. Exhibits
See Exhibit Index Attached.
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/Martha L. Long
Martha L. Long
Senior Vice President
By: /s/Stephen B. Waters
Stephen B. Waters
Vice President
Date: August 15, 2005
EXHIBIT INDEX
S-K Reference
Number Description
3 Certificates of Limited Partnership, as amended to date.
(Incorporated by reference to the Annual Report on Form
10-K for the year ended December 31, 1991 ("1991 Annual
Report")).
10.20 Mortgage and Security Agreement between Kennedy Boulevard
Associates I, L.P., and Lehman Brothers Holdings, Inc.,
dated August 25, 1998, securing The Sterling Apartment Home
and Commerce Center filed in Form 10-Q for the quarter
ended September 30, 1998.
10.21 Repair Escrow Agreement between Kennedy Boulevard
Associates I, L.P., and Lehman Brothers Holdings, Inc.,
dated August 25, 1998, securing The Sterling Apartment Home
and Commerce Center filed in Form 10-Q for the quarter
ended September 30, 1998.
10.22 Replacement Reserve and Security Agreement between Kennedy
Boulevard Associates I, L.P., and Lehman Brothers Holdings,
Inc., dated August 25, 1998, securing The Sterling
Apartment Home and Commerce Center filed in Form 10-Q for
the quarter ended September 30, 1998.
10.23 Third Amendment to the Limited Partnership Agreement filed as
Exhibit 10.23 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 2001 and incorporated herein
by reference.
10.24 Fourth Amendment to the Limited Partnership Agreement filed as
Exhibit 10.24 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 2001 and incorporated herein
by reference.
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).*
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.*
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.*
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.*
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.*
10.33 Purchase and Sale contract between Consolidated Capital Equity
Partner, LP, a California limited partnership and Cash
Investments of El Paso, LLC, a Texas limited liability company
dated December 8, 2003 filed as exhibit 10.33 to the Quarterly
Report on Form 10-Q for the quarter ended March 31, 2004 and
incorporated herein by reference.
10.34 Assignment of purchase and sale contract between Consolidated
Capital Equity Partners, LP, a California limited partnership
and CCIP Silverado, LP, a Delaware limited partnership dated
December 8, 2003 filed as exhibit 10.34 to the Quarterly
Report on Form 10-Q for the quarter ended March 31, 2004 and
incorporated herein by reference.
10.35 Reinstatement and first amendment to purchase and sale
contract by and between CCIP Silverado, LP, a Delaware limited
partnership, assignee of Consolidated Capital Equity Partners,
LP, a California limited liability partnership, and Cash
Investments of El Paso, LLC, a Texas limited liability company
and EPT San Mateo Apartments, LP, a Texas limited liability
partnership, assignee of original purchaser dated February 6,
2004 filed as exhibit 10.35 to the Quarterly Report on Form
10-Q for the quarter ended March 31, 2004 and incorporated
herein by reference.
10.36 Purchase and Sale contract between CCIP Tates Creek Village,
LLC, a Delaware limited liability company and Tates Creek
Investments, LLC, a Michigan limited liability company dated
April 13, 2004 for the sale of Tates Creek Village Apartments
filed as exhibit 10.36 to the Quarterly Report on Form 10-Q
for the quarter ended June 30, 2004 and incorporated herein by
reference.
10.37 Amendment of purchase and sale contract between CCIP Tates
Creek Village, LLC and Tates Creek Investments, LLC, dated May
27, 2004 filed as exhibit 10.37 to the Quarterly Report on
Form 10-Q for the quarter ended June 30, 2004 and incorporated
herein by reference.
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.
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.
32.1 Certification of the equivalent of the Chief Executive Officer
and Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
*Filed as exhibits 10.28 through 10.32 in the Registrant's
Quarterly Form 10-Q for the quarter ended September 30, 2003
incorporated herein by reference.
Exhibit 31.1
CERTIFICATION
I, Martha L. Long, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A No. 1 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: August 15, 2005
/s/Martha L. Long
Martha L. Long
Senior Vice President of ConCap
Equities, Inc., equivalent of the
chief executive officer of the
Partnership
Exhibit 31.2
CERTIFICATION
I, Stephen B. Waters, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A No. 1 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: August 15, 2005
/s/Stephen B. Waters
Stephen B. Waters
Vice President 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/A No. 1 of Consolidated
Capital Institutional Properties (the "Partnership"), for the quarterly period
ended March 31, 2005 as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), Martha L. Long, as the equivalent of the chief
executive officer of the Partnership, and Stephen B. Waters, 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/Martha L. Long
Name: Martha L. Long
Date: August 15, 2005
/s/Stephen B. Waters
Name: Stephen B. Waters
Date: August 15, 2005
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.