EXHIBIT 99.1
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 and 1995
TABLE OF CONTENTS
December 31, 1996
LIST OF FINANCIAL STATEMENTS
Reports of Independent Auditors
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations for the Years Ended December 31,
1996, 1995 and 1994
Consolidated Statements of Partners' Deficit for the Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners
Consolidated Capital Equity Partners L.P.
We have audited the accompanying consolidated balance sheets of Consolidated
Capital Equity Partners L.P. as of December 31, 1996 and 1995, and the related
consolidated statements of operations, changes in partners' deficit and cash
flows for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Partnership's management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Consolidated Capital Equity Partners L.P. as of December 31, 1996 and 1995, and
the consolidated results of its operations and its cash flows for the years then
ended, in conformity with generally accepted accounting principles.
As discussed in Note A to the consolidated financial statements, in 1995 the
Partnership changed its method of accounting for impairment of long-lived assets
and for long-lived assets to be disposed of.
/s/ERNST & YOUNG LLP
Greenville, South Carolina
February 4, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Consolidated Capital Equity Partners, L.P.:
We have audited the accompanying statements of operations, partners' deficit and
cash flows of Consolidated Capital Equity Partners, L.P. (a California limited
partnership) for the year ended December 31, 1994. These financial statements
are the responsibility of the Partnership's management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations, changes in partners' deficit
and cash flows of Consolidated Capital Equity Partners, L.P. for the year ended
December 31, 1994, in conformity with generally accepted accounting principles.
/s/Arthur Andersen, LLP
Dallas, Texas
March 23, 1995
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands)
1996 1995
Assets
Cash and cash equivalents $ 2,515 $ 2,225
Investments in limited partnerships 336 460
Other assets 3,979 5,725
Investment properties:
Land 10,217 10,452
Building and related personal property 95,236 94,906
105,453 105,358
Less accumulated depreciation (70,606) (68,167)
34,847 37,191
$ 41,677 $ 45,601
Liabilities and Partners' Deficit
Liabilities
Accounts payable and accrued liabilities $ 1,949 $ 3,035
Mortgage notes and interest payable 23,529 25,050
Master Loan and interest payable 261,136 233,490
286,614 261,575
Partners' Deficit
General Partner (2,449) (2,159)
Limited Partners (242,488) (213,815)
(244,937) (215,974)
$ 41,677 $ 45,601
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
Revenues:
Rental $ 19,848 $ 24,907 $ 22,987
Other income 140 119 77
Total revenues 19,988 25,026 23,064
Costs and expenses:
Interest 31,323 30,432 27,573
Operating 12,198 16,380 15,903
Depreciation and amortization 5,372 6,431 6,132
General and administrative 965 965 780
Write-down of investment properties
and investment in limited partnerships -- 8,814 --
Total expenses 49,858 63,022 50,388
Gain (loss) on disposition of property 907 81 (31)
Loss before extraordinary item (37,915) (27,355)
Loss on early extinguishment of debt -- (19) --
Net loss $(28,963) $(37,934) $(27,355)
Net loss allocated to general partner (1%) $ (290) $ (379) $ (273)
Net loss allocated to limited partners (99%) (28,673) (37,555) (27,082)
$(28,963) $(37,934) $(27,355)
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
(in thousands)
General Limited
Partner Partners Total
Partners' deficit at
December 31, 1993 $(1,507) $(149,178) $(150,685)
Net loss for the year ended
December 31, 1994 (273) (27,082) (27,355)
Partners' deficit at
December 31, 1994 (1,780) (176,260) (178,040)
Net loss for the year ended
December 31, 1995 (379) (37,555) (37,934)
Partners' deficit at
December 31, 1995 (2,159) (213,815) (215,974)
Net loss for the year ended
December 31, 1996 (290) (28,673) (28,963)
Partners' deficit at
December 31, 1996 $(2,449) $(242,488) $(244,937)
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
Cash flows from operating activities:
Net loss $(28,963) $(37,934) $(27,355)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 5,450 6,440 6,132
(Gain) loss on disposition of property (907) (81) 31
Write-down of investment properties and
investments in limited partnerships 8,814 --
Change in accounts:
Other assets 1,676 (2,871) (170)
Interest payable 57 79 24,648
Payable to affiliates -- (969) 349
Accounts payable and accrued
liabilities (1,084) 1,039 141
Interest on Master Loan 29,523 27,428 --
Net cash provided by operating activities 5,752 1,945 3,776
Cash flows from investing activities:
Property improvements and replacements (3,963) (5,137) (2,149)
Purchase of securities available for sale -- -- (195)
Proceeds from sale of securities available
for sale -- 195 --
Net proceeds from the disposition of
real estate 1,956 -- 130
Net cash used in investing activities (2,007) (4,942) (2,214)
Cash flows from financing activities:
Proceeds from long-term borrowings -- 23,635 --
Advances on Master Loan 367 4,002 40
Repayment of note payable (1,295) -- --
Loan costs paid (1) (798) --
Principal payments on Master Loan (2,243) (21,661) --
Principal payments on notes payable (283) (3,349) (638)
Net cash (used in) provided by
financing activities (3,455) 1,829 (598)
Net increase (decrease) in cash and
cash equivalents 290 (1,168) 964
Cash and cash equivalents, at beginning
of year 2,225 3,393 2,429
Cash and cash equivalents, at end of year $ 2,515 $ 2,225 $ 3,393
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 1,664 $ 2,917 $ 2,550
See Accompanying Notes to Consolidated Financial Statements
Note A - Organization and Summary of Significant Accounting Policies
Organization: Consolidated Capital Equity Partners ("EP"), a California general
partnership, was formed on June 24, 1981, to engage in the business of
acquiring, operating and holding equity investments in income-producing real
properties. The operations of EP were financed substantially through
nonrecourse notes (the "Master Loan") from Consolidated Capital Institutional
Properties ("CCIP"), a California limited partnership. These notes are secured
by the real properties owned by EP. The General Partner of CCIP is ConCap
Equities, Inc. ("CEI"), a Delaware corporation. In November 1990, EP's general
partners executed a new partnership agreement (the "New Partnership Agreement")
in conjunction with the bankruptcy settlement discussed below whereby EP
converted from a general partnership to a California limited partnership,
Consolidated Capital Equity Partners L.P. ("CCEP"). Pursuant to the New
Partnership Agreement, ConCap Holding, Inc. ("CHI"), a Texas corporation, a
wholly-owned subsidiary of CEI, became the general partner of CCEP, and the
former general partners of EP became limited partners of CCEP. CHI has full
discretion with respect to conducting CCEP's business, including managing CCEP's
properties and initiating and approving capital expenditures and asset
dispositions and refinancings. All of CEI's outstanding stock is owned by an
affiliate of Insignia Financial Group, Inc. ("Insignia"), which was acquired
through two transactions in December 1994, and October 1995.
Principles of Consolidation: CCEP owns a 75% interest in a limited partnership
("Western Can, Ltd.") which owns 444 De Haro, an office building in San
Francisco, California. CCEP's investment in Western Can, Ltd. is consolidated
in CCEP's financial statements. No minority interest liability has been
reflected for the 25% minority interest because Western Can Ltd. has a net
capital deficit and no minority liability exists with respect to CCEP.
The operations from September 30, 1993, through November 30, 1995, of The
Sterling are consolidated in CCEP's financial statements pursuant to accounting
guidelines regarding notes receivable in-substance foreclosed. The Sterling was
transferred to CCIP in a series of transactions on November 30, 1995.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
the accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents:
Unrestricted - Unrestricted cash includes cash on hand and in banks and in
money market funds. At certain times, the amount of cash deposited at a bank
may exceed the limit on insured deposits.
Restricted cash - tenant security deposits - CCEP requires security
deposits from lessees for the duration of the lease and such deposits are
considered restricted cash. Deposits are refunded when the tenant vacates,
provided the tenant has not damaged its space and is current on its rental
payments.
Restricted Escrows:
Replacement Reserve Account: At the time of the December 15, 1995,
refinancing approximately $375,000 of the proceeds were designated for a
"replacement reserve fund" for certain capital replacements (as defined in the
Replacement Reserve Agreement) at Plantation Gardens, Palm Lake, Society Park
East, The Knolls, Indian Creek Village and Tates Creek Village. At December 31,
1996, the "replacement reserve fund" was approximately $693,000 and is included
in other assets.
Repair Escrow Account: In addition to the Replacement Reserve Account,
approximately $2,456,000 of the refinancing proceeds were designated for a
"repair escrow" to cover necessary repairs and replacements to be completed at
Plantation Gardens, Palm Lake, Society Park East, The Knolls, Indian Creek
Village and Tates Creek Village within one year of closing. At December 31,
1996, the balance was approximately $727,000 and is included in other assets.
All excess funds will be transferred into the Replacement Reserve Account once
the necessary repairs have been completed.
Escrows for Taxes: These funds, held by the Partnership and the mortgage
holder, are designated for the payment of real estate taxes and are included in
other assets.
Depreciation: Depreciation is provided by the straight-line method over the
estimated lives of the apartment properties and related personal property. For
Federal income tax purposes, the accelerated cost recovery method is used (1)
for real property over 15 years for additions prior to March 16, 1984, 18 years
for additions after March 15, 1984, and before May 9, 1985, and 19 years for
additions after May 8, 1985, and before January 1, 1987, and (2) for personal
property over 5 years for additions prior to January 1, 1987. As a result of
the Tax Reform Act of 1986, for additions after December 31, 1986, the modified
accelerated cost recovery method is used for depreciation of (1) real property
additions over 27 1/2 years and (2) personal property additions over 5 to 15
years.
Loan Costs: Loan costs of approximately $780,000, less accumulated amortization
of $81,000, are included in other assets and are being amortized on a straight-
line basis over the life of the loans.
Note Receivable In-Substance Foreclosed: The Sterling Apartment Homes and
Commerce Center ("The Sterling") was deemed in-substance foreclosed as of
September 30, 1993. The Sterling note receivable is deemed in-substance
foreclosed because control of the property effectively rests with an affiliate
of CCEP and the debtor is unable to pay debt service according to the note
terms. The note receivable in-substance foreclosed is recorded at the estimated
fair value of the collateral property. See "Note B."
Investments in Limited Partnerships: The investments in limited partnerships
represent certain interest in three affiliated limited partnerships that were
contributed by EP's general partners to CCEP. These investments are stated at
the lower of estimated fair value of the interests at the time of contribution
to CCEP or the current estimated fair value of the interests. CCEP wrote this
investment down $1 million to its estimated fair value during the third quarter
of 1995. Also, in the fourth quarter of 1995, CCEP received distributions from
two of the affiliated partnerships of approximately $1,048,000. During 1996,
CCEP received distributions from three of the affiliated partnerships of
approximately $124,000. This amount was subsequently paid to CCIP as a
principal payment on the Master Loan per the loan agreement.
Advertising: CCEP expenses the costs of advertising as incurred.
Investment Properties: During 1995, CCEP adopted "FASB Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. The impairment loss is measured by comparing the
fair value of the asset to its carrying amount. During 1995, 444 De Haro
experienced a decline in its estimated net realizable value. Accordingly, CCEP
recorded approximately $2.814 million in expense for the write-down on the real
estate in the year ended December 31, 1995. CCEP did not record any expense for
the write down on real estate during the year ended December 31, 1996.
Leases: CCEP leases certain commercial space to tenants under various lease
terms. The leases are accounted for as operating leases in accordance with
"FASB Statement 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
lease. For all other leases, minimum rents are recognized over the terms of the
leases.
CCEP generally leases apartment units for twelve-month terms or less. CCEP
recognizes income as earned on these leases. In addition, management finds it
necessary to offer rental concessions during particularly slow months or in
response to heavy competition from other similar complexes in the area.
Concessions are charged to expenses as incurred.
Lease Commissions: Lease commissions are capitalized and amortized using the
straight-line method over the life of the applicable lease. At December 31,
1996 and 1995, lease commissions totaled approximately $741,000 and
approximately $625,000, respectively, with accumulated amortization of
approximately $297,000 and approximately $201,000, respectively. Lease
commissions are included in other assets.
Allocation of Net Income: Pursuant to the Partnership Agreement, net income and
net losses for both financial and tax reporting purposes are allocated 99% to
the Limited Partners and 1% to CHI.
Due to Affiliates: Due to affiliates primarily represents cash flow payments
owed by CCEP to CCIP in accordance with the terms of the Master Loan.
Income Taxes: No provision has been made in the financial statements for
Federal income taxes because, under current law, no Federal income taxes are
paid directly by CCEP. The Partners are responsible for their respective shares
of CCEP's net income or loss. CCEP reports certain transactions differently
for tax than for financial statement purposes.
The tax basis of CCEP's assets and liabilities is approximately $156.5 million
greater than the assets and liabilities as reported in the financial statements
at December 31, 1996.
Fair Value: In 1995, CCEP implemented "FASB Statement No. 107, Disclosure about
Fair Value of Financial Instruments," which requires disclosure of fair value
information about financial instruments for which it is practicable to estimate
that value. The carrying amount of CCEP's cash and cash equivalents
approximates fair value due to short-term maturities. CCEP estimates the fair
value of its fixed rate mortgages by discounted cash flow analysis, based on
estimated borrowing rates currently available to the Partnership.
Reclassifications: Certain reclassifications have been made to the 1995 and
1994 information to conform to the 1996 presentation.
Note B - Note Receivable Deemed in-Substance Foreclosed
CCEP held a note receivable (the "Sterling Note" formerly the "Carlton House
Note") secured by a deed of trust on The Sterling with a scheduled maturity in
1995. According to the note terms, interest accrues at 10% and compounds monthly
on principal plus accrued but unpaid interest. The note receivable has been in
default since 1991. As described more fully below the required debt service
payments were reduced to only the amount of net cash flow from The Sterling.
CCEP recognized no interest income in 1994 and 1995, as no cash related to the
note receivable was received by CCEP.
The Sterling was originally owned by CCEP. In 1984, CCEP sold The Sterling and
received back a $28 million purchase money note secured by a first lien on the
property. CCEP assigned this purchase money note to CCIP as additional
collateral for the Master Loan. In 1986, the buyer defaulted on this purchase
money note and filed for bankruptcy when CCEP attempted to foreclose on The
Sterling. Pursuant to a reorganization plan, a successor (New Carlton House
Partners, Ltd., "NCHP") to the buyer executed a new promissory note in the
amount of $31.5 million (the Sterling Note).
In early 1991, NCHP defaulted on The Sterling Note. Since the default, CCEP and
NCHP have negotiated a restructuring of The Sterling Note. During the
negotiating process, the owner made interim payments of $150,000 per month. In
1992, CCEP and NCHP entered into a Restructure Agreement. Pursuant to the
Restructure Agreement, 1801 Tower, Inc., an affiliate of CCEP and CCIP was
substituted as the new general partner of NCHP in February 1993.
In September 1993, a wholly-owned subsidiary of CCIP purchased the $20.4 million
second lien mortgage note secured by The Sterling from an unaffiliated third
party. This mortgage note, which is subordinate to CCEP's Master Loan debt
secured by The Sterling, remains the obligation of NCHP. As a result of the
facts that (1) NCHP has no equity in The Sterling, considering the current fair
value of The Sterling; (2) proceeds for repayment of The Sterling Note can be
expected to come only from the operations or sale of The Sterling; and (3) NCHP
effectively abandoned control of The Sterling to CCEP when 1801 Tower, Inc.
gained the general partner interest in NCHP in 1993, CCEP deemed The Sterling
in-substance foreclosed as of December 31, 1993.
On November 30, 1995, NCHP, owner of a multi-use apartment/commercial building
known as The Sterling, CCEP, Philly Associates Inc., a Texas Corporation
("Philly"), and Kennedy Boulevard Associates, L.P., a Pennsylvania limited
partnership ("KBA-I, L.P.") (an affiliate of CCIP) entered into a consensual
Transfer Agreement whereby certain mortgage notes held by CCEP and Philly that
are secured by The Sterling were assigned to KBA-I, L.P. As NCHP is unable to
repay the debt, the parties agreed that in order to avoid the additional costs
and expenses of litigation or a judicial foreclosure, that NCHP transfer The
Sterling to KBA-I, L.P. by a deed-in-lieu of foreclosure in full satisfaction of
its obligations on the mortgages assigned to KBA-I, L.P. As an additional
matter, the transfer of The Sterling to KBA-I, L.P. shall be in satisfaction of
a portion of the amounts owed by CCEP to CCIP under the Master Loan Agreement.
NCHP transferred The Sterling to KBA-I, L.P. and CCIP recorded the transfer on
November 30, 1995.
Summarized below are the results of operations of The Sterling that are included
in CCEP's financial statements for the years ended December 31, 1995 and 1994,
prepared on the same basis as CCEP's financial statements. Any intercompany
balances between CCEP and The Sterling have been eliminated in CCEP's
consolidated financial statements and the summarized financial statements set
forth below:
For the Eleven For the Year
Months Ended Ended
November 30, December 31,
1995 1994
Rental revenue $ 5,705 $ 4,831
Investment income 26 27
Total revenues 5,731 4,858
Costs and expenses:
Property operations 3,747 4,108
Depreciation 953 920
Administrative 103 78
Interest 1,342 3
Write-down of investment
property 5,000 --
Total costs and expenses 11,145 5,109
Net loss $(5,414) $ (251)
Note C - Disposition of Real Estate
On September 13, 1996, CCEP sold Lakeview office Tower to an unrelated third
party for a contract price of $2,060,000. The Partnership received net proceeds
of approximately $1,956,000 after payment of closing costs. A portion of the
net proceeds were used to retire a mortgage note payable on the property in the
amount of approximately $1,295,000. The remaining proceeds of approximately
$587,000 were remitted to CCIP to pay down the Master Loan.
During 1995, CCEP recognized a gain of approximately $134,000 related to a
clubhouse fire at Tates Creek Village and a roof replacement at The Knolls.
Offsetting these gains were losses of approximately $53,000 relating to roof
replacements at Granada, Society Park East, Palm Lake, Indian Creek Village and
Shirewood Townhomes.
During 1994, CCEP sold a building and the related parcel of land which was
adjacent to the Plantation Gardens Apartments. CCEP recognized a $31,000 loss
on the sale.
Note D - Master Loan and Accrued Interest Payable
The Master Loan principal and accrued interest payable balances at December 31,
1996, and December 31, 1995, are $261.1 million and $233.5 million,
respectively.
Terms of the New Master Loan Agreement
Under the terms of the New Master Loan Agreement (as adopted in November 1990),
interest accrues at a fluctuating rate per annum adjusted annually on July 15 by
the percentage change in the U.S. Department of Commerce Implicit Price Deflator
for the Gross National Product subject to an interest rate ceiling of 12.5%.
The interest rates for each of the years ended December 31, 1996, 1995 and 1994
was 12.5%. Interest payments are currently payable quarterly in an amount equal
to "Excess Cash Flow." If such Excess Cash Flow payments are less than the
current accrued interest during the quarterly period, the unpaid interest is
added to principal, compounded annually, and is payable at the loan's maturity.
If such Excess Cash Flow payments are greater than the currently payable
interest, the excess amount is applied to the principal balance of the loan.
Any net proceeds from sale or refinancing of any of CCEP's properties are paid
to CCIP under the terms of the Master Loan Agreement. The Master Loan Agreement
matures in November 2000. The General Partner has determined that the Master
Loan and related interest payable has no determinable fair value since payments
are limited to net cash flow, as defined, however the fair value is not believed
to be in excess of the fair value of the underlying collateral.
Effective January 1, 1993, CCEP and CCIP amended the New Master Loan Agreement
to stipulate that Excess Cash Flow would be computed net of capital
improvements. Such expenditures were formerly funded from advances on the
Master Loan from CCIP to CCEP. This amendment and change in the definition of
Excess Cash Flow will have the effect of reducing Master Loan payments to CCIP
by the amount of CCEP's capital expenditures, since such amounts were previously
excluded from Excess Cash Flow. The amendment will have no effect on the
computation of interest expense on the Master Loan for CCEP.
CCIP advanced approximately $367,000 and $4 million to CCEP as an advance on the
Master Loan during 1996 and 1995, respectively, to pay for deferred maintenance
and capital improvements and to pay off certain third party mortgages. In
February 1994, CCIP advanced approximately $589,000 to New Carlton House
Partners ("NCHP"), as an advance on the note receivable ("The Sterling Note")
secured by a deed of trust on The Sterling Apartment Homes and Commerce Center
("The Sterling"), to pay The Sterling's 1994 property taxes. In February 1994,
CCIP advanced $40,000 to CCEP as an advance on the Master Loan. CCEP then
advanced $40,000 to NCHP as an advance on The Sterling Note to pay the remaining
balance of 1993 property taxes. The Sterling note was forgiven in the November
30, 1995, deed-in-lieu of foreclosure transaction. The Sterling note had been
previously written-off in the 1993 in-substance foreclosure transaction.
In connection with the transfer of The Sterling to KBA-I, the General Partner of
CCIP had a valuation performed on the property to determine its estimated fair
value. The asset had previously been recorded on the books on the Partnership
and for valuation for the Master Loan based upon appraisals performed by a third
party. The last appraisal valued the property as of May 12, 1995. The General
Partner believed that the information needed to evaluate the property had
changed since this appraisal and that the use of updated information would
ensure a more accurate recording of the transfer of this asset.
Based on its ongoing evaluation of the condition of the property, the General
Partner concluded that additional information received during the fourth quarter
of 1995 regarding the extent of deferred maintenance and improvements needed to
the property indicated that a $5,000,000 write-down was needed to reduce the
property to its estimated net realizable value. The Partnership recorded this
write-down during the fourth quarter of 1995 before the property was transferred
to KBA-I.
Note E - Notes and Interest Payable
The principal terms of mortgage notes payable are as follows (in thousands):
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
Property 1996 Interest Rate Date Maturity
Indian Creek Village
1st Mortgage $ 4,652 $ 31 6.95% 12/01/05 $ 4,036
The Knolls
1st Mortgage 5,370 36 6.95% 12/01/05 4,659
Palm Lake
1st Mortgage 1,732 12 6.95% 12/01/05 1,503
Plantation Gardens
1st Mortgage 7,027 47 6.95% 12/01/05 6,097
Society Park East
1st Mortgage 2,039 14 6.95% 12/01/05 1,769
Tates Creek Village
1st Mortgage 2,573 17 6.95% 12/01/05 2,233
Totals $23,393
At December 31, 1996, the notes payable are all nonrecourse, collateralized by
deeds of trust on the real property.
The estimated fair value of CCEP's aggregate debt, excluding the Master Loan,
approximates its carrying value. This estimate is not necessarily indicative of
the amount the Partnership may pay in actual market transactions.
On December 15, 1995, CCEP successfully financed new mortgage notes on
Plantation Gardens, Palm Lake, Society Park East, The Knolls, Tates Creek
Village and Indian Creek Village. Of the $23,635,000 gross proceeds received in
the refinancing, approximately $546,000 was used to pay off the old mortgage
debt on Tates Creek Village. Additionally, $19,857,000 of the net proceeds was
used to pay down the Master Loan to CCIP. This new debt is superior to the
Master Loan.
Summary of Maturities
Principal payments on notes payable are due as follows (in thousands):
Years Ending December 31, Notes Payable
1997 $ 260
1998 279
1999 298
2000 320
2001 343
Thereafter 21,893
Total $ 23,393
Note F - Related Party Transactions
CCEP has no employees and is dependent on the General Partner and its affiliates
for management and administration of all partnership activities. CCEP paid
property management fees based upon collected gross rental revenues for property
management services in each of the years ended December 31, 1996, 1995 and 1994.
For the year ended December 31, 1994, a portion of such property management fees
were paid to the unaffiliated property management companies performing day-to-
day property management services and a portion was paid to Partnership Services,
Inc. ("PSI") for advisory services related to day-to-day property operations.
In July 1993, Coventry Properties, Inc. ("Coventry"), an affiliate of the
General Partner, assumed day-to-day property management responsibility for two
of CCEP's properties under the same fee arrangement as the unaffiliated
management companies. Additionally, from February 1993 until December 1994,
Coventry managed The Sterling for CCEP. In late December 1994, an affiliate of
Insignia Financial Group, Inc. ("Insignia"), an affiliate of the General
Partner, assumed day-to-day property management responsibilities for all of
CCEP's properties. Fees paid to affiliates of Insignia during the years ended
December 31, 1996 and 1995, and fees paid to Coventry and PSI for the year ended
December 31, 1994, are reflected in the following table.
Also, CCEP is subject to an Investment Advisory Agreement between CCEP and an
affiliate of ConCap Holdings, Inc. ("CHI"). This agreement provides for an
annual fee, payable in monthly installments, to an affiliate of CHI for advising
and consulting services for CCEP's properties. Advisory fees paid pursuant to
this agreement are reflected in the following table. The Partnership Agreement
("Agreement") also provides for reimbursement to the General Partner and its
affiliates for costs incurred in connection with the administration of CCEP
activities. The General Partner and its current and former affiliates, which
includes Coventry, received reimbursements for the year ended December 31, 1996,
1995 and 1994, as reflected in the following table:
For the Years Ended
December 31,
1996 1995 1994
(in thousands)
Property management fees $1,000 $1,253 $740
Investment advisory fees 182 233 257
Lease commissions 69 221 110
Reimbursement for services of affiliates (1) 537 428 319
(1) Included in "reimbursements for services of affiliates" for 1996 is
approximately $150,000 in reimbursements for construction oversight costs.
In addition to the compensation and reimbursements described above, interest
payments are made to and loan advances are received from Consolidated Capital
Institutional Properties ("CCIP") pursuant to the Master Loan Agreement. Such
interest and principal payments totaled approximately $2.5 million and $1.5
million for the years ended December 31, 1995 and 1994, respectively. There
were no interest payments during 1996. The Partnership received advances under
the Master Loan Agreement totaling $40,000 in February 1994. Advances of
approximately $4 million were made under the Master Loan Agreement during the
year ended December 31, 1995. The Sterling was transferred to CCIP on November
30, 1995, in partial settlement of the Master Loan. As a result of this
transaction, CCIP relieved the Master Loan obligation by approximately
$15,537,000. Additionally, the net proceeds from the financing of Plantation
Gardens, Palm Lake, Society Park East, The Knolls, Tates Creek Village and
Indian Creek Village of $19,857,000 were paid to CCIP to pay down the Master
Loan. Also, approximately $1,048,000 of distributions received from two
affiliated partnerships were paid to CCIP to pay down the Master Loan.
During 1996, advances of approximately $367,000 were made under the Master Loan
Agreement. During the year ended December 31, 1996, CCEP paid approximately
$2,243,000 to CCIP as principal payments on the Master Loan. Approximately
$101,000 was due to the return of a real estate tax escrow set up at the time of
the December 1995, financing of a certain CCEP investment property. This escrow
was held until CCEP was able to provide proof of payment to the mortgage holder.
In September 1996, Lakeview Office Towers was sold and approximately $587,000
was paid to CCIP to pay down the Master Loan. Also, approximately $123,000 of
distributions received from three affiliated partnerships and approximately
$1,432,000 of excess cash flow was paid to CCIP to reduce the Master Loan
obligation.
On July 1, 1995, CCEP began insuring its properties under a master policy
through an agency and insurer unaffiliated with the General Partner. An
affiliate of the General Partner acquired, in the acquisition of a business,
certain financial obligations from an insurance agency which was later acquired
by the agent who placed the current year's master policy. The current agent
assumed the financial obligations to the affiliate of the General Partner, who
receives payments on these obligations from the agent. The amount of CCEP's
insurance premiums accruing to the benefit of the affiliate of the General
Partner by virtue of the agent's obligations is not significant.
Note G - Revenues
Rental income on the commercial property leases is recognized on a straight-line
basis over the life of the applicable leases. Minimum future rental income for
the commercial properties subject to noncancellable operating leases is as
follows (in thousands):
YEAR ENDING
DECEMBER 31,
1997 $2,159
1998 1,870
1999 1,618
2000 1,177
2001 791
Thereafter 1,033
$8,648
There is no assurance that this rental income will continue at the same level
when the current leases expire.
Note H - Real Estate and Accumulated Depreciation
The investment properties owned by the Partnership consist of the following:
(dollar amounts in thousands)
Building
& Related
Personal Accumulated Depreciable
Description Land Interest Total Depreciation Life-Years
444 De Haro $ 947 $12,231 $ 13,178 $ 9,296 3-18
Granada 171 2,849 3,020 2,082 5-18
Indian Creek Village 1,041 8,242 9,283 5,941 5-18
The Knolls 647 6,797 7,444 4,876 5-18
Northlake Quadrangle 980 4,157 5,137 3,343 5-18
Palm Lake 272 4,300 4,572 3,238 5-18
Plantation Gardens 1,958 12,919 14,877 9,675 5-18
Regency 350 7,174 7,524 5,357 5-18
Magnolia Trace 892 5,599 6,491 4,228 5-18
Shirewood Townhomes 494 5,968 6,462 4,413 5-18
Silverado 628 4,591 5,219 3,625 5-18
Society Park 966 8,264 9,230 6,275 5-18
Society Park East 489 5,163 5,652 3,353 5-18
Tates Creek Village 382 6,982 7,364 4,904 5-18
Total $10,217 $95,236 $105,453 $70,606