FORM 10-K--ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(As last amended in Rel. No. 34-31905, eff 10/26/93.)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
For the fiscal year ended December 31, 1997
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [No Fee Required]
For the transition period.........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.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
Issuer's telephone number (864) 239-1000
Securities registered under Section 12(b) of the Act:
None
Securities registered under Section 12(g) of the Act:
Limited Partnership Units
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (' 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X] (Amended by Exch Act Rel No. 28869,
eff. 5/1/91.)
State the aggregate Market Value of the Limited Partnership Units ("Units") held
by non-affiliates of the Registrant. 121,946 of the Partnership's 199,052 Units
are held by non-affiliates. The aggregate market value of Units held by non-
affiliates is not determinable since there is no public trading market for Units
and transfers of Units are not subject to certain restrictions.
PART I
ITEM 1. BUSINESS
GENERAL
Consolidated Capital Institutional Properties (the "Partnership" or the
"Registrant") was organized on April 28, 1981, as a limited partnership under
the California Uniform Limited Partnership Act. On July 23, 1981, the
Partnership registered with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933 (File No. 2-72384) and commenced a public offering
for the sale of $200,000,000 of Units. The Units represent equity interests in
the Partnership and entitled the holders thereof (the "Limited Partners") to
participate in certain allocations and distributions of the Partnership. The
sale of Units terminated on July 21, 1983, with 200,342 Units sold for $1,000
each, or gross proceeds of approximately $200,000,000 to the Partnership. The
Partnership subsequently filed a Form 8-A Registration Statement with the SEC
and registered its Units under the Securities Exchange Act of 1934 (File No. 0-
10831) on January 3, 1982. In accordance with its partnership agreement (the
original partnership agreement of the Partnership together with all amendments
thereto shall be referred to as the "Agreement"), the Partnership has
repurchased and retired a total of 1,290 Units for a total purchase price of
$1,000,000. The Partnership may repurchase any Units, in its absolute
discretion, but is under no obligation to do so.
Upon the Partnership's formation in 1981, Consolidated Capital Equities
Corporation ("CCEC") was the corporate general partner. In 1988, through a
series of transactions Southmark Corporation ("Southmark") acquired control of
CCEC. In December 1988, CCEC filed for reorganization under Chapter 11 of the
United States Bankruptcy Code. In 1990, as part of CCEC's reorganization plan,
ConCap Equities, Inc. ("CEI" or the "General Partner") acquired CCEC's general
partner interests in the Partnership and in 15 other affiliated public limited
partnerships (the "Affiliated Partnerships") and CEI replaced CCEC as managing
general partner in all 16 partnerships. The selection of CEI as the General
Partner was approved by a majority of the Limited Partners in the Partnership
and in each of the Affiliated Partnerships pursuant to a solicitation of the
Limited Partners dated August 10, 1990. As part of this solicitation, the
Limited Partners also approved an amendment to the Agreement to limit changes of
control of the Partnership. All of CEI's outstanding stock is owned by Insignia
Properties Trust, an affiliate of Insignia Financial Group, Inc. ("Insignia"),
which was acquired through two transactions in December 1994, and October 1995.
The Partnership's primary business and only industry segment is real estate
related operations. The Partnership was formed for the benefit of its Limited
Partners (herein so called and together with the General Partner shall be called
the "Partners"), to lend funds to Consolidated Capital Equity Partners ("EP"), a
California general partnership in which certain of the partners were former
shareholders and former management of CCEC, the former corporate general partner
of the Partnership. See "Status of the Master Loan" for a description of the
loan and settlement of EP's bankruptcy.
Through December 31, 1997, the Partnership had advanced a total of approximately
$180,500,000 to EP and its successor under the Master Loan (as defined in
"Status of the Master Loan"). As of December 31, 1997, the balance of the
Master Loan, net of the allowance for possible losses, was approximately
$50,600,000. EP used the proceeds from these loans to acquire eighteen (18)
apartment buildings and four (4) office complexes, which served as collateral
for the Master Loan. EP's successor in bankruptcy (as more fully described in
"Status of the Master Loan") currently has twelve (12) apartment buildings, and
two (2) office complexes. The Partnership acquired The Loft Apartments through
foreclosure in November 1990. Prior to that time, The Loft Apartments had been
collateral on the Master Loan. The Partnership acquired a multiple-use
building, The Sterling Apartment Homes and Commerce Center ("The Sterling")
(formerly known as The Carlton House Apartment and Office Building) through a
deed-in-lieu of foreclosure transaction on November 30, 1995. The Sterling had
been collateral on the Master Loan. For a brief description of the properties
refer to "Item 2 - Description of Property."
The Registrant has no employees. Management and administrative services are
performed by CEI, the General Partner, and by an affiliate of Insignia, an
affiliate of the General Partner.
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in
Insignia Properties Trust, with Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust. The closing, which
is anticipated to happen in the third quarter of 1998, is subject to customary
conditions, including government approvals and the approval of Insignia's
shareholders. If the closing occurs, AIMCO will then control the General
Partner of the Partnership.
The real estate business in which the Partnership is engaged is highly
competitive and the Partnership is not a significant factor in this industry.
The Registrant's properties are subject to competition from similar properties
in the vicinity in which the properties are located. In addition, various
limited partnerships have been formed by the General Partner and/or its
affiliates to engage in business which may be competitive with the Registrant.
STATUS OF THE MASTER LOAN
Prior to 1989, the Partnership had loaned funds totaling $170,400,000 to EP
subject to a nonrecourse note with a participation interest (the "Master Loan"),
pursuant to the Master Loan Agreement dated July 22, 1981, between the
Partnership and EP. The Partnership secured the Master Loan with deeds of trust
or mortgages on real property purchased with the funds advanced, as well as by
the assignment and pledge of promissory notes from the partners of EP.
During 1989, EP defaulted on certain interest payments that were due under the
Master Loan. Before the Partnership could exercise its remedies for such
defaults, EP filed for bankruptcy protection in a Chapter 11 reorganization
proceeding. On October 18, 1990, the bankruptcy court approved EP's consensual
plan of reorganization (the "Plan"). In November 1990, EP and the Partnership
consummated a closing under the Plan pursuant to which, among other things, the
Partnership and EP executed an amended and restated loan agreement (the "New
Master Loan Agreement"), EP was converted from a California general partnership
to a California limited partnership, Consolidated Capital Equity Partners, L.P.
("CCEP"), and CCEP renewed the deeds of trust on all the collateral to secure
the New Master Loan Agreement.
ConCap Holdings, Inc. ("CHI"), a Texas corporation and wholly-owned subsidiary
of CEI, is the sole general partner of CCEP and an affiliate of the Partnership.
The general partners of EP became limited partners in 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.
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%.
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 current accrued interest, the excess amount
is applied to the principal balance of the loan. Any net proceeds from the sale
or refinancing of any of CCEP's properties are paid to the Partnership under the
terms of the New Master Loan Agreement. The New Master Loan Agreement matures
in November 2000.
For 1992, Excess Cash Flow was generally defined in the New Master Loan
Agreement as net cash flow from operations after third-party debt service.
Effective January 1, 1993, the Partnership and CCEP 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 the Partnership to CCEP. This amendment and change in the definition
of Excess Cash Flow will have the effect of reducing income on the investment in
the Master Loan by the amount of CCEP's capital expenditures since such amounts
were previously excluded from Excess Cash Flow.
ITEM 2. DESCRIPTION OF PROPERTY
The following table sets forth the Registrant's investment in real estate as of
December 31, 1997:
Date of
Property Purchase Type of Ownership Use
The Loft Apartments 11/19/90 Fee ownership, Apartment
Raleigh, NC subject to a first 188 units
mortgage.
The Sterling Apartment 12/01/95 Fee ownership. Apartment
Homes and Commerce 537 units
Center Commercial
Philadelphia, PA 111,741 sq.ft.
SCHEDULE OF PROPERTIES:
(dollar amounts in thousands)
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
The Loft Apartments $ 6,832 $2,637 5-20 S/L $ 5,509
The Sterling Apartment
Homes and Commerce
Center 28,503 2,377 5-25 S/L 27,205
$35,335 $5,014
See "Note A" of the financial statements included in "Item 8." for a description
of the Partnership's depreciation policy.
SCHEDULE OF MORTGAGES:
(dollar amounts in thousands)
Principal Principal
Balance At Stated Balance
December 31, Interest Period Maturity Due At
Property 1997 Rate Amortized Date Maturity
The Loft Apartments
1st mortgage $4,448 6.95% (1) 12/2005 $3,903
(1) Payments of approximately $30,000 consisting of principal and interest are
being amortized over 360 months with a balloon payment due December 1, 2005.
AVERAGE ANNUAL RENTAL RATE AND OCCUPANCY:
Average Annual Average
Rental Rates Occupancy
Property 1997 1996 1997 1996
The Loft Apartments $ 8,425/unit $ 8,093/unit 95% 95%
The Sterling Apartment 11,740/unit 10,886/unit 87% 84%
Homes (residential)
The Sterling Commerce $13.87/s.f. $7.34/s.f. 70% 68%
Center (commercial)
As noted under "Item 1. Description of Business," the real estate industry is
highly competitive. All of the properties of the Partnership are subject to
competition from other residential apartment complexes and commercial buildings
in the area. The General Partner believes that the properties are adequately
insured. The multi-family residential properties' lease terms are for one year
or less. There are no commercial tenants who lease greater than 10% of the
available space.
The following is a schedule of the lease expirations of the commercial space in
The Sterling for the years beginning 1998 through the maturities of current
leases:
Number of % of Gross
Expirations Square Feet Annual Rent Annual Rent
1998 5 13,139 $164,719 15.28%
1999 2 6,012 69,753 6.47%
2000 2 5,227 71,242 6.61%
2001 4 9,638 159,438 14.79%
2002 1 5,302 42,408 3.94%
2003 1 4,738 57,633 5.34%
2004 1 2,835 41,122 3.82%
2005 2 3,160 60,444 5.61%
2006 1 3,838 65,000 6.03%
2007 2 6,057 202,494 18.79%
Real estate taxes and rates in 1997 for each property were:
1997 1997
Billing Rate
(in thousands)
The Loft $ 63 1.23%
The Sterling 502 8.72%
ITEM 3. LEGAL PROCEEDINGS
In January 1998, a limited partner of the Partnership commenced an arbitration
proceeding against the General Partner claiming that the General Partner had
breached certain contractual and fiduciary duties allegedly owed to the
claimant. The General Partner believes the claim to be without merit and
intends to vigorously defend the claims.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature. The General Partner of the Registrant believes that
all such other pending or outstanding litigation will be resolved without a
material adverse effect upon the business, financial condition, results of
operations, or liquidity of the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal year ended December 31, 1997, no matter was submitted to a
vote of the Unit holders through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP AND RELATED
PARTNER MATTERS
There is no established market for the Units and it is not anticipated that any
will occur in the foreseeable future. As of December 31, 1997, there were
19,492 holders of record owning an aggregate of 199,052 Units. Distributions of
approximately $1,979,000 and approximately $16,986,000 were made to the limited
partners in 1997 and 1996, respectively. Additionally, distributions of
approximately $20,000 and approximately $30,000 were made to the General Partner
in 1997 and 1996, respectively.
Subsequent to December 31, 1997, distributions of approximately $1,778,000 and
approximately $18,000 were made to the limited partners and General partner,
respectively. Future distributions will depend on the levels of cash generated
from operations, refinancings, property sales, and the availability of cash
reserves. Such cash reserves are subject to the requirements of the Agreement
which requires that the Partnership have reserves equal to 5% of Net Invested
Capital.
On October 30, 1997, an Insignia affiliate commenced tender offers for limited
partnership interests in two real estate limited partnerships (including the
Partnership) in which various Insignia affiliates act as general partner. The
Purchaser offered to purchase up to 45,000 of the outstanding units of limited
partnership interest in the Partnership, at $400 per Unit, net to the seller in
cash, upon the terms and subject to the conditions set forth in the Offer to
Purchase dated October 30, 1997 (the "Offer to Purchase") and the related
Assignment of Partnership Interest attached as Exhibits (a)(1) and (a)(2),
respectively, to the Tender Offer Statement on Schedule 14D-1 originally filed
with the Securities and Exchange Commission on October 30, 1997. Because of the
existing and potential future conflicts of interest (described in the
Partnership's Statements on Schedule 14D-9 filed with the Securities and
Exchange Commission), neither the Partnership nor the General Partner expressed
any opinion as to the Offer to Purchase and made no recommendation as to whether
unit holders should tender their units in response to the Offer to Purchase. In
addition, because of these conflicts of interest, as a result of the Purchaser's
affiliation with various Insignia affiliates, the manner in which the Purchaser
votes its limited partner interests in the Partnership may not always be
consistent with the best interests of the other limited partners. During
December 1997 an affiliate of Insignia tendered 27,330 units related to the
tender offer mentioned above. In February 1998 an affiliate of Insignia tendered
an additional 1570.5 units as a result of this tender offer.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in "Item 8 - Financial
Statements and Supplementary Data."
FOR THE YEARS ENDED DECEMBER 31,
1997 1996 1995 1994 1993
STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Revenues $ 11,669 $ 9,475 $ 5,286 $ 4,490 $ 6,180
Costs and expenses (8,102) (8,647) (3,099) (1,496) (1,849)
Provision for impairment loss -- -- (5,578) -- (11,100)
Income (loss) from operations 3,567 828 (3,391) 2,994 (6,769)
Gain on sale of securities
available for sale -- -- -- -- 20
Net income (loss) $ 3,567 $ 828 $ (3,391) $ 2,994 $ (6,749)
Net income (loss) per
Limited Partnership Unit:
Income (loss) from operations $ 17.74 $ 4.12 $ (16.87) $ 14.90 $ (33.67)
Gain on sale of securities
available for sale -- -- -- -- .10
Net income (loss) $ 17.74 $ 4.12 $ (16.87) $ 14.90 $ (33.57)
Distributions per
Limited Partnership Unit $ 9.94 $ 85.33 $ 15.10 $ 18.52 $ 28.50
Limited Partnership
Units outstanding 199,052 199,052 199,052 199,052 199,052
AS OF DECEMBER 31,
BALANCE SHEETS 1997 1996 1995 1994 1993
(in thousands)
Total assets $ 91,628 $ 91,657 $106,351 $107,630 $108,442
Mortgage note payable $ 4,448 $ 4,498 $ 4,545 $ -- $ --
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in this report.
The Sterling is a multiple-use facility which consists of an apartment complex
and commercial space. This property was transferred from Consolidated Capital
Equity Partners, L.P. ("CCEP") to a wholly owned subsidiary of the Partnership
on November 30, 1995. The operations of The Sterling had a significant impact
on the results of operations of the Partnership for the year ended December 31,
1996, with revenues of approximately $6,291,000 and expenses of approximately
$6,356,000. The operations of The Sterling had an immaterial impact on the
results of operations of the Partnership for the year ended December 31, 1995,
as the Partnership owned The Sterling for only one month of 1995. Included in
the 1995 statement of operations were revenues of approximately $594,000 and
expenses of approximately $444,000.
Results of Operations
The Partnership's net income for the year ended December 31, 1997 was
approximately $3,567,000 compared to a net income of $828,000 for the
corresponding period in 1996. The increase in net income is primarily due to
interest income recorded on the investment in Master Loan to affiliate. This
increase is a result of an increase in the fair value of the underlying
collateral properties due to an increase in operations of such properties. In
addition, rental income increased at the Sterling residential property due to an
increase in both average rental rates and average occupancy for 1997.
Also contributing to the increase in net income for 1997 over 1996 was a
decrease in operating and general and administrative expenses. Operating
expenses decreased due to a reduction in repairs and maintenance expense for the
Loft during 1997. Repairs and maintenance expense for the Loft was higher in
1996 than in 1997 due to property damages caused by Hurricane Fran. Operating
expenses also decreased due to a reduction in the Sterling's insurance
requirements during 1997 as a result of the completion of major renovations in
1996. The decrease in general and administrative expense is attributable to
legal and professional fees incurred in 1996 as a result of the acquisition of
the Sterling.
Partially offsetting the increase in net income was an increase in depreciation
and a decrease in other income. Depreciation increased for the year ended
December 31, 1997 as a direct result of major capital improvements and
renovations to The Sterling. Other income decreased as a result of a decrease in
investment balances during 1997.
During the year ended December 31, 1997, the Partnership incurred approximately
$616,000 in major repairs and maintenance comprised primarily of interior and
exterior building improvements, major landscaping and window coverings.
Included in operating expense for the year ended December 31, 1996, is
approximately $534,000 of major repairs and maintenance comprised primarily of
major landscaping, exterior painting, and exterior building improvements.
The Partnership's net income for the year ended December 31, 1996, was
approximately $828,000 compared to a net loss of approximately $3,391,000 for
the year ended December 31, 1995. The increase in net income is primarily due
to a provision for impairment loss on the Master Loan recognized in 1995. The
Partnership recorded a $5,578,000 provision for impairment loss on the Master
Loan for the year ended December 31, 1995. The primary cause for this
impairment loss in 1995 was a reduction in the estimated fair value of the
underlying collateral properties in that year. Approximately $5,000,000 of the
provision for impairment loss related to The Sterling before it was transferred
to the Partnership. Also contributing to the increase in net income was the
recognition of a $792,000 increase in the reduction of the provision for
impairment losses of the Master Loan due to an increase in fair market value of
the underlying assets that collateralize the Master Loan in 1996. In addition,
general and administrative expenses decreased for the year ended December 31,
1996, compared to the corresponding period of 1995. This decrease was the
result of increased printing costs incurred in 1995, related to the printing of
additional 10-K's for investors. Also, there were additional costs associated
with the combined efforts of the Dallas and Greenville offices during the
transition period that ended June 30, 1995. The increased costs related to the
transition efforts were incurred to minimize any disruption in the 1994 year-end
reporting function including K-1 preparation and distribution. Additionally,
the Partnership incurred approximately $772,000 in transfer fees related to the
transfer of The Sterling from CCEP to the Partnership during the year ended
December 31, 1995. Offsetting these decreases in general and administrative
costs were increases in professional fees incurred for a valuation of The
Sterling and a successful tax appeal at The Sterling. Other income increased
during the year ended December 31, 1996, due to increased interest income
resulting from higher cash balances due to the proceeds received from the
December 1995 financing of The Loft, and also from the principal payments
received on the Master Loan in December 1995.
Offsetting the increases in net income noted above for the year ended December
31, 1996, compared to the corresponding period in 1995, was a decrease in
interest income recorded on the investment in Master Loan to affiliate, the
transfer of The Sterling from CCEP, which resulted in significant increases in
rental income, operating expenses and depreciation expense for the year ended
December 31, 1996, and an increase in interest expense. The decrease in
interest income on the investment in Master Loan is the result of a decrease in
interest payments as required by the loan agreement. The Sterling reported a
net loss of approximately $65,000 during the year ended December 31, 1996. The
transfer of The Sterling from CCEP resulted in significant increases in rental
income, which were more than offset by significant increases in operating
expenses, and depreciation expense. Operating expenses at The Sterling were
significantly higher during 1996 due to the major ongoing renovation project.
The Loft was also a contributing factor in offsetting the increase in net income
due to an increase in interest expense. The increase in interest expense
resulted from the financing of The Lofts in December 1995. Because this
property did not have a mortgage balance prior to December 1995, interest
expense during the year ended December 31, 1995 was minimal.
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 expense. As part of this plan,
the General Partner attempts to protect the Partnership from the burden of
inflation-related increases in expenses by increasing rents and maintaining a
high overall occupancy level. However, due to changing market conditions, which
can result in the use of rental concessions and rental reductions to offset
softening market conditions, there is no guarantee that the General Partner will
be able to sustain such a plan.
Liquidity and Capital Resources
At December 31, 1997, the Partnership had cash and cash equivalents of
approximately $8,691,000 as compared to approximately $12,348,000 at December
31, 1996. The net decrease in cash and cash equivalents for the years ended
December 31,1997 and 1996 is $3,657,000 and $13,774,000, respectively. Net cash
provided by operating activities increased primarily because of the increase in
net income from operations as discussed above. This increase was partially
offset by a decrease in accounts payable resulting from the payment of invoices
relating to the renovations at The Sterling. Net cash provided by investing
activities decreased for the year ended December 31, 1997 due to increased
expenditures for property improvements and replacements and a decrease in
proceeds from the sale of securities due to the liquidation of available for
sale securities during the year ended December 31, 1996. Net cash used in
financing activities decreased as a result of a reduction in partners'
distributions made during the year ended December 31, 1997.
At December 31, 1996, the Partnership had cash and cash equivalents of
approximately $12,348,000 versus approximately $26,122,000 at December 31, 1995.
The net decrease in cash and cash equivalents for the year ended December 31,
1996 is $13,774,000 compared to a net increase in cash and cash equivalents of
$24,602,000 for the year ended December 31, 1995. Net cash provided by
operating activities decreased for 1996 as compared to 1995 primarily due to the
decrease in net income after adjustment for the provision for impairment loss on
investment in Master Loan to affiliates in 1995 as described above. In
addition, other assets increased due to the acquisition of The Sterling in 1995.
Net cash provided by investing activities decreased as a result of a decrease in
principal receipts on the Master Loan. These principal receipts on the Master
Loan in 1995 were due primarily to the refinancing proceeds received from CCEP.
The decrease in cash provided by investing activities also resulted from an
increase in property improvements and replacement due to the capital
improvements at The Sterling as noted above. Partially offsetting the decrease
in cash provided by investing activities was a decrease in advances on the
Master Loan. Cash used in financing activities increased due to an increase in
distributions to partners which was partially offset by a decrease in proceeds
from long-term borrowings, which resulted from the financing of The Loft in
December 1995.
The Partnership has budgeted approximately $567,000 for capital improvements to
be made to its commercial and residential properties during 1998. These
improvements will be paid by existing cash and from cash generated by property
operations and debt service on the Master Loan. As of December 31, 1997,
approximately $12,213,000 had been spent on these programs.
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 property to adequately maintain the physical assets
and other operating needs of the Partnership. Such assets are currently thought
to be sufficient for any near-term needs of the Partnership. The mortgage
indebtedness of approximately $4,448,000 requires monthly principal and interest
payments and requires a balloon payment on December 1, 2005, at which time the
property will either be refinanced or sold. Distributions of approximately
$1,979,000 were made to the limited partners during the year ended December 31,
1997. A matching distribution of approximately $20,000 was made to the General
Partner. Included in these amounts are payments to the North Carolina
Department of Revenue for withholding taxes related to income generated by the
Partnership's investment property located in that state. Distributions of
approximately $16,986,000 were made to the limited partners during the year
ended December 31, 1996. Approximately $30,000 was distributed to the General
Partner during that same period. Included in these amounts are payments to the
North Carolina Department of Revenue for withholding taxes related to income
generated by the Partnership's investment property located in that state.
Subsequent to December 31, 1997, distributions of approximately $1,778,000 and
approximately $18,000 were made to the limited partners and General Partner,
respectively. Future cash distributions will depend on the levels of cash
generated from operations, Master Loan interest income, capital expenditure
requirements, property sales, and the availability of cash reserves.
The Partnership is required by the Partnership Agreement to maintain working
capital reserves for contingencies of not less than 5% of Net Invested Capital,
as defined by the Partnership Agreement. Reserves, including cash and cash
equivalents and securities available for sale totaling approximately $9,048,000,
were greater than the reserve requirement of approximately $7,261,000 at
December 31, 1997.
CCEP Property Operations
For the year ended December 31, 1997, CCEP's net loss totaled approximately
$32,600,000 on total revenues of approximately $20,700,000. CCEP recognizes
interest expense on the New Master Loan Agreement obligation according to the
note terms, although payments to the Partnership are required only to the extent
of Excess Cash Flow, as defined therein. During the year ended December 31,
1997, CCEP's statement of operations includes total interest expense
attributable to the Master Loan of approximately $32,800,000, all of which
represents interest accrued in excess of required payments. CCEP is expected to
continue to generate operating losses as a result of such interest accruals and
noncash charges for depreciation.
During the year ended December 31, 1997, the Partnership received approximately
$2,105,000 as principal payments on the Master Loan. Cash received on certain
investments by CCEP, which are required to be transferred to the Partnership per
the Master Loan Agreement, accounted for approximately $462,000. Approximately
$643,000 received was due to an "Excess Cash Flow" payment from CCEP as
described above and $1,000,000 consisted of a principal payment.
Year 2000
The Partnership is dependent upon the General Partner and Insignia for
management and administrative services. Insignia has completed an assessment
and will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter (the "Year 2000 Issue"). The project is estimated to be completed
not later than December 31, 1998, which is prior to any anticipated impact on
its operating systems. The General Partner believes that with modifications to
existing software and conversions to new software, the Year 2000 Issue will not
pose significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the
Partnership.
Other
Certain items discussed in this annual report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date of
this annual report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates of revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
LIST OF FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations for the Years Ended December 31, 1997,
1996 and 1995
Consolidated Statements of Changes in Partners' Capital (Deficit) for the
Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997,
1996 and 1995
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners
Consolidated Capital Institutional Properties
We have audited the accompanying consolidated balance sheets of
Consolidated Capital Institutional Properties as of December 31, 1997 and
1996, and the related consolidated statements of operations, changes in
partners' capital (deficit) and cash flows for each of the three years in
the period ended December 31, 1997. 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 Institutional Properties at December 31,
1997 and 1996, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ERNST & YOUNG LLP
Greenville, South Carolina
January 23, 1998,
except for Note I, as to which the date is
March 17, 1998
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
December 31,
Assets 1997 1996
Cash and cash equivalents $ 8,691 $ 12,348
Receivables and deposits 984 988
Restricted escrows 66 63
Other assets 383 209
Interest receivable on Master Loan 604 --
Investment in Master Loan 91,265 93,370
Less: allowance for impairment loss (40,686) (40,686)
50,579 52,684
Investment properties:
Land 3,620 3,620
Buildings and related personal property 31,715 24,962
35,335 28,582
Less: accumulated depreciation (5,014) (3,217)
30,321 25,365
$ 91,628 $ 91,657
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 164 $ 1,789
Tenant security deposit liabilities 356 317
Other liabilities 504 465
Mortgage note payable 4,448 4,498
5,472 7,069
Partners' Capital (Deficit)
General Partner (364) (380)
Limited Partners - (199,052 units issued and
outstanding in 1997 and 1996) 86,520 84,968
86,156 84,588
$ 91,628 $ 91,657
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
Years Ended December 31,
1997 1996 1995
Revenues:
Rental income $ 7,969 $ 7,262 $ 1,874
Interest income on investment in
Master Loan to affiliate 2,668 -- 2,502
Reduction in provision for impairment loss
on investment in Master Loan to affiliate -- 792 --
Other income 1,032 1,421 910
Total revenues 11,669 9,475 5,286
Expenses:
Operating 4,990 5,809 1,064
General and administrative 433 690 1,456
Depreciation 1,797 1,259 452
Interest 324 326 15
Property taxes 558 563 112
Provision for impairment loss on
Master Loan to affiliate -- -- 5,578
Total expenses 8,102 8,647 8,677
Net income (loss) $ 3,567 $ 828 $(3,391)
Net income (loss) allocated to general partner $ 36 $ 8 $ (34)
Net income (loss) allocated to limited partners 3,531 820 (3,357)
$ 3,567 $ 828 $(3,391)
Income (loss) per Limited Partnership Unit $ 17.74 $ 4.12 $(16.87)
Distributions per Limited Partnership Unit $ 9.94 $ 85.33 $ 15.10
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 200,342 $ 1 $200,342 $200,343
Partners' capital (deficit) at
December 31, 1994 199,052 $ (294) $107,498 $107,204
Distributions (30) (3,007) (3,037)
Net loss for the year ended
December 31, 1995 (34) (3,357) (3,391)
Partners' capital (deficit) at
December 31, 1995 199,052 (358) 101,134 100,776
Distributions (30) (16,986) (17,016)
Net income for the year ended
December 31, 1996 8 820 828
Partners' capital (deficit) at
December 31, 1996 199,052 (380) 84,968 84,588
Distributions (20) (1,979) (1,999)
Net income for the year ended
December 31, 1997 36 3,531 3,567
Partners' capital (deficit) at
December 31, 1997 199,052 $ (364) $ 86,520 $ 86,156
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,567 $ 828 $(3,391)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 1,827 1,277 453
Reduction in provision for impairment loss
on investment in Master Loan to affiliates -- (792) --
Provision for impairment loss on investment
in Master Loan to affiliates -- -- 5,578
Changes in accounts:
Receivables and deposits 4 127 128
Other assets (207) 116 (211)
Interest receivable on Master Loan (604) -- --
Accounts payable (176) 147 90
Tenant security deposit liabilities 39 (6) 291
Other liabilities 39 (49) 157
Net cash provided by operating activities 4,489 1,648 3,095
Cash flows from investing activities:
Property improvements and replacements (8,202) (5,757) (274)
Purchases of securities available for sale -- -- (2,115)
Proceeds from sale of securities
available for sale 3 5,257 5,180
Receipts from (deposits to) restricted escrows (3) 265 (328)
Principal receipts on Master Loan 2,105 2,243 21,661
Advances on Master Loan -- (367) (4,002)
Net cash (used in) provided by investing activities (6,097) 1,641 20,122
Cash flows from financing activities:
Loan costs paid -- -- (123)
Distributions to partners (1,999) (17,016) (3,037)
Payments on notes payable (50) (47) --
Proceeds from long-term borrowings -- -- 4,545
Net cash (used in) provided by financing
activities (2,049) (17,063) 1,385
Net (decrease) increase in cash and
cash equivalents (3,657) (13,774) 24,602
Cash and cash equivalents, at beginning
of year 12,348 26,122 1,520
Cash and cash equivalents, at end of year $ 8,691 $ 12,348 $26,122
Supplemental disclosure of cash flow information:
Cash paid for interest $ 311 $ 302 $ --
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY
Property Improvements and Replacements
Accounts payable was adjusted approximately $1,449,000 at December 31, 1996, for
non-cash amounts in connection with property improvements and replacements.
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: Consolidated Capital Institutional Properties (the
"Partnership"), a California limited partnership, was formed on April 28, 1981,
to lend funds through nonrecourse notes with participation interests (the
"Master Loan"). The loans were made to, and the real properties that secure the
Master Loan were purchased and owned by, Consolidated Capital Equity Partners,
("EP"), a California general partnership in which certain of the partners were
former shareholders and former management of Consolidated Capital Equities
Corporation ("CCEC"), the former corporate general partner. Through December
31, 1997, the Partnership had advanced a total of approximately $180,500,000 to
EP and its successor under the Master Loan.
Upon the Partnership's formation in 1981, CCEC, a Colorado corporation, was the
corporate general partner. In December 1988, CCEC filed for reorganization
under Chapter 11 of the United States Bankruptcy Code. In 1990, as part of
CCEC's reorganization plan, ConCap Equities, Inc., a Delaware corporation (the
"General Partner" or "CEI") acquired CCEC's general partner interests in the
Partnership and in 15 other affiliated public limited partnerships (the
"Affiliated Partnerships") and replaced CCEC as managing general partner in all
16 partnerships.
During 1989, EP defaulted on certain interest payments that were due under the
Master Loan. Before the Partnership could exercise its remedies for such
defaults, EP filed for bankruptcy protection in a Chapter 11 reorganization
proceeding. On October 18, 1990, the Bankruptcy Court approved EP's consensual
plan of reorganization (the "Plan"). In November 1990, EP and the Partnership
consummated a closing under the Plan pursuant to which, among other things, the
Partnership and EP executed an amended and restated loan agreement (the "New
Master Loan Agreement"). EP was converted from a California general partnership
to a California limited partnership, Consolidated Capital Equity Partners, L.P.
("CCEP"), and CCEP renewed the deeds of trust on all the collateral to secure
the New Master Loan Agreement.
ConCap Holdings, Inc. ("CHI"), a Texas corporation and wholly-owned subsidiary
of CEI, is the sole general partner of CCEP and an affiliate of the Partnership.
The general partners of EP became limited partners in 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
Insignia Properties Trust, an affiliate of Insignia Financial Group, Inc.
("Insignia"), which was acquired through two transactions in December 1994 and
October 1995. At December 31, 1997, Insignia Properties, L.P., an affiliate of
Insignia, owned a total of 77,106 Units of the Partnership.
The Partnership owns and operates one apartment property and one multiple-use
building in North Carolina and Pennsylvania, respectively. Also, the
Partnership is the holder of a note receivable which is collateralized by
apartment and commercial properties located throughout the United States.
Principles of Consolidation: The Partnership's financial statements include the
accounts of Kennedy Boulevard Associates, I, L.P., a Pennsylvania limited
partnership ("KBA-I, L.P.") which is 99% owned by the Partnership, Kennedy
Boulevard Associates II, L.P. a Pennsylvania limited partnership ("KBA-II,
L.P."), Kennedy Boulevard Associates III, L.P. a Pennsylvania limited
partnership ("KBA-III, L.P."), Kennedy Boulevard Associates IV, L.P. a
Pennsylvania limited partnership ("KBA-IV, L.P.") and Kennedy Boulevard GP I,
a Pennsylvania partnership. The general partners of each of the affiliated
limited and general partnerships are limited liability corporations of which
the Partnership is the sole member. The limited partners of each of the
affiliated limited and general partnerships are either the Partnership or a
limited liability corporation of which the Partnership is the sole member.
Therefore, the Partnership controls the affiliated limited and general
partnerships and consolidation is appropriate. KBA-I, L.P. holds title
to The Sterling Apartment Home and Commerce Center ("Sterling"). All
intercompany transactions have been eliminated.
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.
Restricted Escrows: At the time of the December 15, 1995, refinancing,
approximately $60,000 of the proceeds were designated for a "replacement reserve
fund" for certain capital replacements (as defined in the Replacement Reserve
Agreement) at The Lofts. At December 31, 1997, the balance remaining was
approximately $66,000 and is included in restricted escrows.
Escrows for Taxes: All escrow funds are designated for the payment of real
estate taxes and are held by the Partnership. These funds totaled approximately
$437,000 and $551,000 at December 31, 1997 and 1996, respectively, and are
included in receivables and deposits.
Depreciation: Depreciation is provided by the straight-line method over the
estimated lives of the apartment and commercial properties and related personal
property. For Federal income tax purposes, the modified accelerated cost
recovery method is used. 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 $124,000 (1997 and 1996), less
accumulated amortization of approximately $26,000 (1997) and $13,000 (1996), are
included in other assets and are being amortized on a straight-line basis over
the life of the loan.
Cash and Cash Equivalents: Includes cash on hand and in banks, certificates of
deposit, and money market funds with original maturities less than 90 days. At
certain times, the amount of cash deposited at a bank may exceed the limit on
insured deposits.
Tenant Security Deposits: The Partnership requires security deposits from
lessees for the duration of the lease and such deposits totaling $356,000 (1997)
and $317,000 (1996) are included in receivables and deposits. The security
deposits are refunded when the tenant vacates, provided the tenant has not
damaged its space and is current on its rental payments.
Advertising: The Partnership expenses the costs of advertising as incurred.
Advertising expense, included in operating expenses, was approximately $164,000
and $265,000 for the years ended December 31, 1997 and 1996, respectively.
Investment Properties: Investment properties are stated at cost. Acquisition
fees are capitalized as a cost of real estate. The Partnership records
impairment losses on long-lived assets used in operations when events and
circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets.
Investment in Master Loan: In accordance with SFAS No. 114, Accounting by
Creditors for Impairment of a Loan, the allowance for credit losses related to
loans that are identified for evaluation in accordance with the Statement is
based on discounted cash flows using the loan's initial effective interest rate
or the fair value of the collateral for certain collateral dependent loans.
Leases: 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.
The Partnership generally leases apartment units for twelve-month terms or less.
The Partnership 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, as the difference
between expensing concessions as incurred versus the straight-line method of
amortizing the expense over the life of the lease is not considered material to
net income (loss) for any given year.
Lease Commissions: Lease commissions are capitalized and amortized using the
straight-line method over the life of the applicable lease. At December 31,
1997 and 1996, lease commissions totaled approximately $204,000 and $38,000,
with accumulated amortization of approximately $31,000 and $16,000,
respectively. Lease commissions are included in other assets.
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 the Partnership. The Unit holders are responsible for their
respective shares of Partnership net income or loss. The Partnership reports
certain transactions differently for tax than for financial statement purposes.
Partners' Capital (Deficit): The Partnership Agreement ("Agreement") provides
for net income and net losses for both financial and tax reporting purposes to
be allocated 99% to the Limited Partners and 1% to the General Partner.
Net Income (Loss) Per Limited Partnership Unit: Net income (loss) per Limited
Partnership Unit ("Unit") is computed by dividing net income (loss) allocated to
the Limited Partners by the number of Units outstanding. Per Unit information
has been computed based on 199,052 Units outstanding in 1997, 1996 and 1995,
respectively.
Fair Value of Financial Instruments: The Partnership believes that the carrying
amount of its financial instruments (except for long term debt) approximates
their fair value due to the short term maturity of these instruments. The fair
value of the Partnership's long term debt, after discounting the scheduled loan
payments, at an estimated borrowing rate currently available to the Partnership,
approximates its carrying balance.
Reclassifications: Certain reclassifications have been made to the 1996 and
1995 information to conform to the 1997 presentation.
NOTE B - INCOME TAXES
The Partnership has received a ruling from the Internal Revenue Service that it
will be classified as a partnership for Federal income tax purposes.
Accordingly, no provision for income taxes is made in the financial statements
of the Partnership. Taxable income or loss of the Partnership is reported in the
income tax returns of its partners.
The following is a reconciliation of reported net income and Federal taxable
loss (in thousands, except per unit data):
1997 1996 1995
Net income (loss) as reported $ 3,567 $ 828 $(3,391)
Add (deduct):
Deferred revenue and other liabilities 14 31 126
Depreciation differences 266 264 223
Accrued expenses (4) 17 (10)
Interest income (2,668) -- --
Differences in valuation allowances -- (792) 5,572
Other gain (loss) on disposition (99) -- 772
Federal taxable income $ 1,076 $ 348 $ 3,292
Federal taxable income (loss) per
limited partnership unit $ 5.35 $ 1.73 $ 16.37
The tax basis of the Partnership's assets and liabilities is approximately
$78,100,000 greater than the assets and liabilities as reported in the financial
statements at December 31, 1997.
NOTE C - NET INVESTMENT IN MASTER LOAN
At December 31, 1997, the recorded investment in Master Loan is considered to be
impaired under SFAS No. 114. The Partnership measures the impairment of the
loan based upon the fair value of the collateral due to the fact that repayment
of the loan is expected to be provided solely by the collateral. For the year
ended December 31, 1997, the Partnership recorded approximately $2,668,000 of
interest income based upon cash generated as a result of improved operations at
the properties which secure the loan. For the year ended December 31, 1996, the
Partnership recorded approximately $792,000 in income based upon an increase in
the fair value of the collateral. For the year ended December 31, 1995, the
Partnership recorded approximately $5,578,000 in expense based upon a decrease
in the fair value of the collateral.
In connection with the transfer of The Sterling to Kennedy Boulevard Associates,
L.P. ("KBA-I"), a 99% owned subsidiary of the Partnership, the General Partner
had a valuation performed on the property to determine its estimated fair value.
The asset had previously been recorded on the books of CCEP 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. 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 at its estimated
net realizable value. CCEP recorded this write-down during the fourth quarter of
1995, before the property was transferred to KBA-I. As this property was
collateral for the Master Loan and the value of the Master Loan is recorded
based upon the estimated fair value of the underlying collateral, the
Partnership recorded an increase in the Provision for Impairment Loss on the
Master Loan to affiliate due to this impairment.
Interest, calculated on the accrual basis, is due to the Partnership pursuant to
the terms of the Master Loan Agreement, but not recognized in the income
statements due to the impairment of the loan, totaled approximately $30,100,000,
$29,500,000 and $27,400,000 for the years ended December 31, 1997, 1996 and
1995, respectively. Interest income is recognized on the cash basis as allowed
under "SFAS 114". At December 31, 1997 and 1996, such cumulative unrecognized
interest totaling approximately $197,800,000 and $167,700,000 was not included
in the balance of the investment in Master Loan. In addition, six of the
properties are collateralized by first mortgages totaling approximately
$23,133,000 which are superior to the Master Loan. Accordingly this fact has
been taken into consideration in determining the fair value of the Master Loan.
During the year ended December 31, 1997, the Partnership made no advances to
CCEP on the Master Loan. Advances on the Master Loan to CCEP totaled $367,000
during the year ended December 31, 1996. CCEP used the advances to pay for
deferred maintenance and capital improvements on the properties which
collateralize the Master Loan.
During the year ended December 31, 1997, the Partnership received approximately
$2,105,000 as principal payments on the Master Loan. Cash received on certain
investments by CCEP, which are required to be transferred to the Partnership per
the Master Loan Agreement, accounted for approximately $462,000. Approximately
$643,000 received was due to excess cash flow payments received from CCEP as
stipulated by the Master Loan Agreement. Another $1,000,000 was received from
CCEP as an additional principal payment.
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, 1997, 1996, and
1995, was 12.5%. These payments are currently payable quarterly in an amount
equal to "Excess Cash Flow." Unpaid interest is added to principal, compounded
annually, and is payable at the loan's maturity. Any net proceeds from the sale
or refinancing of any of CCEP's properties are paid to the Partnership under the
terms of the New Master Loan Agreement. The New Master Loan Agreement matures
in November 2000.
Effective January 1, 1993, the Partnership and CCEP 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 the Partnership to CCEP. This amendment and change in the
definition of Excess Cash Flow will have the effect of reducing payments on the
investment in Master Loan by the amount of CCEP's capital expenditures, since
such amounts were previously excluded from Excess Cash Flow.
On November 30, 1995, New Carlton House Partners, Ltd., a Pennsylvania limited
partnership ("NCHP"), owner of a multi-use apartment/commercial building known
as The Sterling, the Partnership, Philly Associates Inc., a Texas Corporation
("Philly"), and 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 the Partnership under the Master Loan
Agreement. NCHP transferred The Sterling to KBA-I, L.P. and the Partnership
recorded the transfer on November 30, 1995.
The investment in Master Loan consists of the following:
As of December 31,
1997 1996
(in thousands)
Master Loan funds advanced,
at beginning of year $93,370 $95,246
Master Loan funds advanced -- 367
Principal receipts on Master Loan (2,105) (2,243)
Master Loan funds advanced,
at end of year $91,265 $93,370
The allowance for impairment loss on Master Loan to affiliates consists of the
following:
As of December 31,
1997 1996 1995
(in thousands)
Allowance for impairment loss on Master
Loan to affiliates, beginning of year $40,686 $41,478 $35,900
(Reduction of) provision for impairment loss -- (792) 5,578
Allowance for impairment loss on Master
Loan to affiliates, end of year $40,686 $40,686 $41,478
NOTE D - MORTGAGE NOTE PAYABLE
On December 15, 1995, the Partnership financed The Lofts. The principal terms
of the mortgage note payable are as follows (in thousands):
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
Property 1997 Interest Rate Date Maturity
The Lofts $ 4,448 $ 30 6.95% 12/1/05 $ 3,903
The mortgage note payable is non-recourse and is secured by pledge of the
Partnership's property and by pledge of revenue from the apartment property.
The note requires prepayment penalties if repaid prior to maturity. Scheduled
principal payments of the mortgage note payable subsequent to December 31, 1997,
are as follows (in thousands):
Year Ended
December 31,
1998 $ 53
1999 57
2000 62
2001 66
2002 71
Thereafter 4,139
Total $4,448
NOTE E - RELATED PARTY TRANSACTIONS
The Partnership has no employees and is dependent on the General Partner and its
affiliates for management and administration of all Partnership activities. The
Partnership paid property management fees based upon collected gross rental
revenues for property management services as noted below for the years ended
December 31, 1997, 1996 and 1995. The Partnership Agreement ("Agreement") also
provides for reimbursement to the General Partner and its affiliates for costs
incurred in connection with the administration of Partnership activities. The
General Partner and its affiliates received reimbursements as reflected in the
following table:
For the Years Ended
December 31,
1997 1996 1995
(in thousands)
Property management fees, included in operating expense $424 $409 $120
Reimbursement for services of
affiliates (included in operating,
general and administrative, other
assets and investment properties) (1) 587 485 305
(1) Included in "Reimbursement for services of affiliates" for the years ended
1997 and 1996 is approximately $191,000 and $219,000, respectively, in
reimbursements for construction oversight costs. In addition, approximately
$167,000 of lease commissions are included for the year ended December 31, 1997.
As of December 31, 1995, the Partnership had paid approximately $15,000 and had
accrued approximately $13,000 of reimbursements to an affiliate of the General
Partner related to the refinancing of The Lofts, which is included in
"Reimbursement for services of affiliates" above.
For the period of July 1, 1995 to August 31, 1997, the Partnership insured 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 master policy. The
agent assumed the financial obligations to the affiliate of the General Partner
who receives payments on these obligations from the agent. The amount of the
Partnership's insurance premiums accruing to the benefit of the affiliate of the
General Partner by virtue of the agent's obligations is not significant.
On October 30, 1997, an Insignia affiliate commenced tender offers for limited
partnership interests in two real estate limited partnerships (including the
Partnership) in which various Insignia affiliates act as general partner. The
Purchaser offered to purchase up to 45,000 of the outstanding units of limited
partnership interest in the Partnership, at $400 per Unit, net to the seller
incash, upon the terms and subject to the conditions set forth in the Offer to
Purchase dated October 30, 1997 (the "Offer to Purchase") and the related
Assignment of Partnership Interest attached as Exhibits (a)(1) and (a)(2),
respectively, to the Tender Offer Statement on Schedule 14D-1 originally filed
with the Securities and Exchange Commission on October 30, 1997. Because of the
existing and potential future conflicts of interest (described in the
Partnership's Statements on Schedule 14D-9 filed with the Securities and
Exchange Commission), neither the Partnership nor the General Partner expressed
any opinion as to the Offer to Purchase and made no recommendation as to whether
unit holders should tender their units in response to the Offer to Purchase. In
addition, because of these conflicts of interest, as a result of the Purchaser's
affiliation with various Insignia affiliates, the manner in which the Purchaser
votes its limited partner interests in the Partnership may not always be
consistent with the best interests of the other limited partners. During
December 1997 an affiliate of Insignia tendered 27,330 units related to the
tender offer mentioned above. In February 1998 an affiliate of Insignia
tendered an additional 1570.5 units as a result of this tender offer.
At December 31, 1997, Insignia Properties, L.P. was the beneficial owner of
77,106 of the Partnership's limited partnership units.
NOTE F - COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS
The Partnership is required by the Agreement to maintain working capital
reserves for contingencies of not less than 5% of Net Invested Capital, as
defined in the Agreement. In the event expenditures are made from this reserve,
operating revenue shall be allocated to such reserves to the extent necessary to
maintain the foregoing level. Reserves, including cash and cash equivalents and
securities available for sale (at market), totaling approximately $9,048,000,
were greater than the reserve requirement of approximately $7,261,000 at
December 31, 1997.
In January 1998, a limited partner of the Partnership commenced an arbitration
proceeding against the General Partner claiming that the General Partner had
breached certain contractual and fiduciary duties allegedly owed to the
claimant. The General Partner believes the claim to be without merit and intends
to vigorously defend the claims.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature. The General Partner believes that all such other
matters are adequately covered by insurance and will be resolved without a
material adverse effect upon the business, financial condition, results of
operations, or liquidity of the Partnership.
Subsequent to December 31, 1997, the Partnership made a distribution of
approximately $1,788,000 to limited partners and $18,000 to the General Partner.
NOTE G - REAL ESTATE AND ACCUMULATED DEPRECIATION
(dollar amounts in thousands)
Initial Cost
To Partnership
Buildings Cost
and Related Capitalized
Personal Subsequent to
Description Encumbrances Land Property Acquisition
The Lofts Apartments $ 4,448 $ 1,053 $ 4,147 $ 1,632
Raleigh, NC
The Sterling Apartment Homes -- 2,567 12,341 13,595
and Commerce Center
Philadelphia, PA $ 4,448 $ 3,620 $16,488 $15,227
<TABLE>
<CAPTION>
Gross Amount At Which Carried
at December 31, 1997
Buildings
And Related
Personal Accumulated Date of Date Depreciable
Description Land Property Total Depreciation Construction Acquired Life-Years
<S> <C> <C> <C> <C> <C> <C> <C>
The Lofts $ 1,053 $ 5,779 $ 6,832 $2,637 1975 11/19/90 5-20
The Sterling 2,567 25,936 28,503 2,377 1961 12/01/95 5-25
Total $ 3,620 $31,715 $35,335 $5,014
</TABLE>
Reconciliation of real estate and accumulated depreciation:
Years Ended December 31,
1997 1996 1995
(in thousands)
REAL ESTATE:
Balance, real estate at beginning of year $28,582 $21,376 $ 6,255
Additions 6,753 7,206 274
Property acquired through foreclosure -- -- 14,847
Balance, real estate at end of year $35,335 $28,582 $ 21,376
ACCUMULATED DEPRECIATION:
Balance at beginning of year $ 3,217 $ 1,958 $ 1,506
Additions charged to expense 1,797 1,259 452
Balance at end of year $ 5,014 $ 3,217 $ 1,958
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1997 and 1996, is approximately $36,244,000 and $29,491,000,
respectively. Accumulated depreciation for Federal income tax purposes at
December 31, 1997 and 1996, is approximately $3,530,000 and $1,999,000,
respectively.
NOTE H - 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,
1998 $ 781
1999 738
2000 681
2001 604
2002 476
Thereafter 1,511
$ 4,791
There is no assurance that this rental income will continue at the same level
when the current leases expire.
NOTE I - SUBSEQUENT EVENT
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in
Insignia Properties Trust, with Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust. The closing, which
is anticipated to happen in the third quarter of 1998, is subject to customary
conditions, including government approvals and the approval of Insignia's
shareholders. If the closing occurs, AIMCO will then control the General
Partner of the Partnership.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER OF THE
PARTNERSHIP
The names of the directors and executive officers of ConCap Equities, Inc.
("CEI"), the Partnership's General Partner as of December 31, 1997, their ages
and the nature of all positions with CEI presently held by them are as follows:
NAME OF INDIVIDUAL POSITION IN CEI AGE
William H. Jarrard, Jr. President/Director 51
Ronald Uretta Vice President/Treasurer 41
Daniel M. LeBey Vice President/Secretary 32
Robert D. Long, Jr. Vice President 30
Kelley M. Buechler Assistant Secretary 40
Martha L. Long Controller 38
William H. Jarrard, Jr. has been President and Director of CEI since December
1996. He has acted as Senior Vice President of Insignia Properties Trust
("IPT"), parent of the General Partner since May 1997. Mr. Jarrard previously
acted as Managing Director - Partnership Administration of Insignia From January
1991 through September 1997 and served as Managing Director - Partnership
Administration and Asset Management from July 1994 until January 1996.
Ronald Uretta has been Vice President and Treasurer of CEI since December 1996
and Insignia's Treasurer since January 1992. Since August 1996, he has also
served as Insignia's Chief Operating Officer. He has also served as Insignia's
Secretary from January 1992 to June 1996 and as Insignia's Chief Financial
Officer from January 1992 to August 1996.
Daniel M. LeBey has been Vice President and Secretary of CEI since January 29,
1998 and Insignia's Assistant Secretary since April 30, 1997. Since July 1996
he has also served as Insignia's Associate General Counsel. From September 1992
until June 1996, Mr. LeBey was an attorney with the law firm of Alston & Bird
LLP, Atlanta, Georgia.
Robert D. Long, Jr. has been Vice President of CEI since January 2, 1998. Mr.
Long joined Metropolitan Asset Enhancement, L.P. ("MAE"), an affiliate of
Insignia, in September 1993. Since 1994 he has acted as Vice President and
Chief Accounting Officer of the MAE subsidiaries. Mr. Long was an accountant
for Insignia until joining MAE in 1993. Prior to joining Insignia, Mr. Long was
an auditor for the State of Tennessee and was associated with the accounting
firm of Harsman Lewis and Associates.
Kelley M. Buechler has been Assistant Secretary of CEI since December 1994 and
Assistant Secretary of Insignia since 1991.
Martha L. Long has been Controller of CEI since December 1996 and Senior Vice
President - Finance and Controller of Insignia since January 1997. In June
1994, Ms. Long joined Insignia as its Controller, and was promoted to Senior
Vice President - Finance in January 1997. Prior to that time, she was Senior
Vice President and Controller of the First Savings Bank, in Greenville, SC.
ITEM 11. EXECUTIVE COMPENSATION
No remuneration was paid to the General Partner nor any of its directors and
officers during the year ended December 31, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
Except as provided below, as of February 28, 1998, no person was known to
CEI to own of record or beneficially more than 5 percent (5%) of the
Units of the Partnership:
NUMBER OF PERCENT
NAME AND ADDRESS UNITS OF TOTAL
Insignia Properties, L.P. 78,953.40 39.67%
One Insignia Financial Plaza
P. O. Box 1089
Greenville, SC 29602
Insignia Properties, L.P. is an affiliate of Insignia. (See "Item 1").
(b) Beneficial Owners of Management
Except as described in "Item 12(a)" above, neither CEI nor any of the
directors, officers or associates of CEI own any Units of the Partnership
of record or beneficially.
(c) Changes in Control
Beneficial Owners of CEI
As of December 31, 1997, the following persons were known to CEI to be
the beneficial owners of more than 5 percent (5%) of its common stock:
NUMBER OF PERCENT
NAME AND ADDRESS CEI SHARES OF TOTAL
Insignia Properties Trust 100,000 100%
One Insignia Financial Plaza
P. O. Box 1089
Greenville, SC 29602
Insignia Properties Trust is an affiliate of Insignia. (See "Item 1")
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in
Insignia Properties Trust, with Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust. The closing, which
is anticipated to happen in the third quarter of 1998, is subject to customary
conditions, including government approvals and the approval of Insignia's
shareholders. If the closing occurs, AIMCO will then control the General
Partner of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Partnership has no employees and is dependent on the General Partner and its
affiliates for management and administration of all Partnership activities. The
Partnership paid property management fees based upon collected gross rental
revenues for property management services as noted below for the years ended
December 31, 1997, 1996 and 1995. The Partnership Agreement ("Agreement") also
provides for reimbursement to the General Partner and its affiliates for costs
incurred in connection with the administration of Partnership activities. The
General Partner and its affiliates received reimbursements as reflected in the
following table:
For the Years Ended
December 31,
1997 1996 1995
(in thousands)
Property management fees $424 $409 $120
Reimbursement for services of affiliates (1) 587 485 305
(1) Included in "Reimbursement for services of affiliates" for the years ended
1997 and 1996 is approximately $191,000 and $219,000, respectively, in
reimbursements for construction oversight costs. In addition, approximately
$167,000 of lease commissions are included for the year ended December 31, 1997.
As of December 31, 1995, the Partnership had paid approximately $15,000 and had
accrued approximately $13,000 of reimbursements to an affiliate of the General
Partner related to the refinancing of The Lofts, which is included in
"Reimbursement for services of affiliates" above.
For the period of July 1, 1995 to August 31, 1997, the Partnership insured 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 master policy. The
agent assumed the financial obligations to the affiliate of the General Partner
who receives payments on these obligations from the agent. The amount of the
Partnership's insurance premiums accruing to the benefit of the affiliate of the
General Partner by virtue of the agent's obligations is not significant.
On October 30, 1997, an Insignia affiliate commenced tender offers for limited
partnership interests in two real estate limited partnerships (including the
Partnership) in which various Insignia affiliates act as general partner. The
Purchaser offered to purchase up to 45,000 of the outstanding units of limited
partnership interest in the Partnership, at $400 per Unit, net to the seller in
cash, upon the terms and subject to the conditions set forth in the Offer to
Purchase dated October 30, 1997 (the "Offer to Purchase") and the related
Assignment of Partnership Interest attached as Exhibits (a)(1) and (a)(2),
respectively, to the Tender Offer Statement on Schedule 14D-1 originally filed
with the Securities and Exchange Commission on October 30, 1997. Because of the
existing and potential future conflicts of interest (described in the
Partnership's Statements on Schedule 14D-9 filed with the Securities and
Exchange Commission), neither the Partnership nor the General Partner expressed
any opinion as to the Offer to Purchase and made no recommendation as to whether
unit holders should tender their units in response to the Offer to Purchase. In
addition, because of these conflicts of interest, as a result of the Purchaser's
affiliation with various Insignia affiliates, the manner in which the Purchaser
votes its limited partner interests in the Partnership may not always be
consistent with the best interests of the other limited partners. During
December 1997 an affiliate of Insignia tendered 27,330 units related to the
tender offer mentioned above. In February 1998 an affiliate of Insignia
tendered an additional 1570.5 units as a result of this tender offer.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations for the Years Ended December 31,
1997, 1996 and 1995
Consolidated Statements of Changes in Partners' Capital (Deficit) for
the Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
2. Schedules
All schedules are omitted because they are not required, are not
applicable or the financial information is included in the financial
statements or notes thereto
3. Exhibits
S-K REFERENCE SEQUENTIAL
NUMBER DOCUMENT DESCRIPTION PAGE NUMBER
3 Certificates of Limited Partnership, as N/A
amended to date. (Incorporated by refer-
ence to the Annual Report on Form 10-K
for the year ended December 31, 1991
("1991 Annual Report")).
10.1 Amended Loan Agreement dated November N/A
15, 1990 (the "Effective Date"), by and
between the Partnership and EP (Incorpora-
ted by reference to the Annual Report on
Form 10-K for the year ended December 31,
1990 ("1990 Annual Report")).
10.2 Assumption Agreement as of the Effective N/A
Date, by and between EP and CCEP (Incor-
porated by reference to the 1990 Annual
Report).
10.3 Assignment of Claims as of the Effective N/A
Effective Date, by and between the Partner-
ship and EP (Incorporated by reference to
the 1990 Annual Report).
10.4 Assignment of Partnership Interests in N/A
Western Can, Ltd., by and between EP and
CCEP (Incorporated by reference to the
990 Annual Report).
10.5 Bill of Sale and Assignment dated October 23, N/A
1990, by and between CCEC and ConCap
Services Company (Incorporated by reference
to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990).
10.6 Assignment and Assumption Agreement dated N/A
dated October 23, 1990, by and between CCMLP
and Metro ConCap, Inc. (300 series of Property
Management contracts). (Incorporated by
reference to the 1990 Annual Report).
10.7 Construction Management Cost Reimbursement N/A
Agreement dated January 1, 1991, by and
between the Partnership and Metro ConCap, Inc.
(Incorporated by reference to the 1991 Annual
Report).
10.8 Investor Services Agreement dated October 23, N/A
1990, by and between the Partnership and CCEC
(Incorporated by reference to the Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1990).
10.9 Assignment and Assumption Agreement (Investor N/A
Services Agreement) dated October 23, 1990 by
and between CCEC and ConCap Services
Company (Incorporated by reference to the
1990 Annual Report).
10.10 Letter of Notice dated December 20,1991, from N/A
Partnership Services, Inc. ("PSI") to the Partner-
ship regarding the change in ownership and
dissolution of ConCap Services Company whereby
PSI assumed the Investor Services Agreement.
(Incorporated by reference to the 1991 Annual
Report).
10.11 Financial Services Agreement dated October 23, N/A
1990, by and between the Partnership and CCEC
(Incorporated by reference to the Quarterly Report
on Form 10-Q for the quarter ended September 30,
1990).
10.12 Assignment and Assumption Agreement (Financial N/A
Services Agreement) dated October 23, 1990, by
and between CCEC and ConCap Capital Company
(Incorporated by reference to the Quarterly Report
on Form 10-Q for the quarter ended September 30,
1990).
10.13 Letter of Notice dated December 20, 1991, from N/A
PSI to the Partnership regarding the change in
ownership and dissolution of ConCap Capital
Company whereby PSI assumed the Financial
Services Agreement. (Incorporated by reference
to the 1991 Annual Report).
10.14 Property Management Agreement No. 503 N/A
dated February 16, 1993, by and between the
Partnership, New Carlton House Partners, Ltd.
and Coventry Properties, Inc. (Incorporated
by reference to the Annual Report on Form 10-K
for the year ended December 31, 1992).
10.15 Property Management Agreement No. 508 dated N/A
June 1, 1993, by and between the Partnership
and Coventry Properties, Inc.
10.16 Assignment and Assumption Agreement as to N/A
Certain Property Management Services dated
November 17, 1993, by and between Coventry
Properties, Inc. and Partnership Services, Inc.
10.17 Multifamily Note dated November 30, 1995
between Consolidated Capital Institutional
Properties, a California limited partnership,
and Lehman Brothers Holdings Inc. d/b/a Lehman
Capital, A Division of Lehman Brothers Holding Inc.
11 Statement regarding computation of Net Income 20
per Limited Partnership Unit (Incorporated by
reference to Note A of Item 8 - Financial State-
ments of this Form 10-K).
16 Letter, dated August 12, 1992, from Ernst & Young N/A
to the Securities and Exchange Commission regard-
ing change in certifying accountant. (Incorporated
by reference to Form 8-K dated August 6, 1992).
27 Financial Data Schedule containing summary N/A
financial information extracted from the balance
sheet and statement of operations which is qualified
in its entirety by reference to such financial
statements.
28.1 Fee Owner's Limited Partnership Agreement dated N/A
November 14, 1990 (Incorporated by reference to
the 1990 Annual Report).
99.1 Audited Financial Statements of Consolidated
Capital Equity Partners, L.P. for the years
ended December 31, 1997 and 1996.
(b) Reports on Form 8-K filed in the fourth quarter of fiscal year 1997:
None.
SIGNATURE PAGE
Pursuant to the requirements of Section 13 or 15(d) 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.
Its General Partner,
March 24, 1998 By: /s/ William H. Jarrard, Jr.
Date William H. Jarrard, Jr.
President/Director
March 24, 1998 By: /s/ Ronald Uretta
Date Ronald Uretta
Vice President/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
March 24, 1998 By: William H. Jarrard, Jr.
Date William H. Jarrard
President/Director
March 24, 1998 By: /s/Ronald Uretta
Date Ronald Uretta
Vice President/Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Consolidated Capital Institutional Properties 1997 Year-End 10-K and is
qualified in its entirety by reference to such 10-K filing.
</LEGEND>
<CIK> 0000352983
<NAME> CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,691
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 35,335
<DEPRECIATION> (5,014)
<TOTAL-ASSETS> 91,628
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 4,448
0
0
<COMMON> 0
<OTHER-SE> 86,156
<TOTAL-LIABILITY-AND-EQUITY> 91,628
<SALES> 0
<TOTAL-REVENUES> 11,669
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,102
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 324
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,567
<EPS-PRIMARY> 17.74<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
EXHIBIT 99.1
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 and 1996
TABLE OF CONTENTS
December 31, 1997
LIST OF FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations for the Years Ended December 31,
1997, 1996 and 1995
Consolidated Statements of Changes in Partners' Deficit for the Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995
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, 1997 and 1996, and the related
consolidated statements of operations, changes in partners' deficit and cash
flows for each of the three years in the period ended December 31, 1997. 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. at December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Greenville, South Carolina
January 23, 1998
except for Note I, as to which the date is
March 17, 1998
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31,
1997 1996
Assets
Cash and cash equivalents $ 1,439 $ 1,961
Receivables and deposits 1,241 1,639
Restricted escrows 798 1,420
Investments in limited partnerships -- 336
Other assets 1,550 1,474
Investment properties:
Land 10,217 10,217
Buildings and related personal property 97,598 95,236
107,815 105,453
Less accumulated depreciation (75,746) (70,606)
32,069 34,847
$ 37,097 $ 41,677
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 426 $ 798
Tenant security deposit liabilities 620 611
Accrued property taxes 116 314
Other liabilities 513 362
Mortgage notes and interest payable 23,133 23,393
Master Loan and interest payable 289,783 261,136
314,591 286,614
Partners' Deficit
General Partners (2,775) (2,449)
Limited Partners (274,719) (242,488)
(277,494) (244,937)
$ 37,097 $ 41,677
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
Years Ended December 31,
1997 1996 1995
Revenues:
Rental income $ 19,425 $ 19,091 $ 23,892
Other income 1,310 1,336 1,545
Gain on disposition of property -- 907 81
Total revenues 20,735 21,334 25,518
Expenses:
Operating 11,463 11,453 15,106
General and administrative 842 965 965
Depreciation 5,191 5,257 6,335
Interest 34,512 31,323 30,432
Property taxes 1,271 1,299 1,781
Loss and disposition of property 13 -- --
Write-down of investment properties
and investment in limited partnerships -- -- 8,814
Total expenses 53,292 50,297 63,433
Loss before extraordinary item (32,557) (28,963) (37,915)
Loss on early extinguishment of debt -- -- (19)
Net loss $(32,557) $(28,963) $(37,934)
Net loss allocated to general partner (1%) $ (326) $ (290) $ (379)
Net loss allocated to limited partners (99%) (32,231) (28,673) (37,555)
$(32,557) $(28,963) $(37,934)
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(in thousands)
General Limited
Partner Partners Total
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)
Net loss for the year ended
December 31, 1997 (326) (32,231) (32,557)
Partners' deficit at
December 31, 1997 $(2,775) $(274,719) $(277,494)
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
1997 1996 1995
Cash flows from operating activities:
Net loss $(32,557) $(28,963) $(37,934)
Adjustments to reconcile net loss to net
cash provided by operating activities:
(Gain) loss on disposition of property 13 (907) (81)
Depreciation and amortization 5,414 5,450 6,440
Write-down of investment properties and
investments in limited partnerships -- -- 8,814
Change in accounts:
Receivables and deposits 398 (332) (95)
Other assets (300) 200 (1,200)
Accounts payable (372) (735) 940
Tenant security deposit liabilities 9 22 (358)
Accrued property taxes (198) 3 86
Other liabilities 151 (252) 489
Accrued interest on Master Loan 30,752 29,523 27,428
Payable to affiliates -- -- (969)
Net cash provided by operating activities 3,310 4,009 3,560
Cash flows from investing activities:
Property improvements and replacements (2,425) (3,963) (5,137)
Net proceeds from the disposition of real estate -- 1,882 --
Proceeds from sale of securities -- -- 195
Receipts from (deposits to) restricted escrows 622 1,678 (2,569)
Distributions from investments in limited
partnerships 336 124 1,048
Net cash used in investing activities (1,467) (279) (6,463)
Cash flows from financing activities:
Proceeds from long-term borrowing -- -- 23,635
Advances on Master Loan -- 367 4,002
Principal payments on Master Loan (2,105) (2,243) (21,661)
Principal payments on notes payable (260) (283) (3,365)
Loan costs paid -- (1) (798)
Repayment of note payable -- (1,295) --
Net cash (used in) provided by
financing activities (2,365) (3,455) 1,813
Net (decrease) increase in cash and
cash equivalents (522) 275 (1,090)
Cash and cash equivalents, at beginning
of year 1,961 1,686 2,776
Cash and cash equivalents, at end of year $ 1,439 $ 1,961 $ 1,686
Supplemental disclosure of cash flow information:
Cash paid for interest $ 3,682 $ 1,664 $ 2,917
See Accompanying Notes to Consolidated Financial Statements
December 31, 1997
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
Insignia Properties Trust, 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: 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.
Tenant Security Deposits: CCEP requires security deposits from lessees for the
duration of the lease and such deposits totaling $611,000 (1997) and $554,000
(1996) are included in receivables and deposits. The security 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,
1997 and 1996, the balance in the "replacement reserve fund" was approximately
$798,000 and $693,000, respectively.
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. As of December 31,
1997, substantially all of these repairs and replacements had been completed and
any excess funds have been transferred into the Replacement Reserve Account.
Escrows for Taxes: These funds totaling $399,000 (1997) and $678,000 (1996),
held by the Partnership and the mortgage holder, are designated for the payment
of real estate taxes and are included in receivables and deposits.
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 $781,000 (1997 and 1996), less
accumulated amortization of $163,000 (1997) and $81,000 (1996), 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 interests 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 1997,
CCEP received distributions from two of the affiliated partnerships of $336,000.
During 1996, CCEP received distributions from three of the affiliated
partnerships of approximately $124,000. These amounts were 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. Advertising
expense, included in operating expenses, was approximately $394,000, $351,000
and $352,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
Investment Properties: Investment properties are stated at cost. Acquisition
fees are capitalized as a cost of real estate. The Partnership records
impairment losses on long-lived assets used in operations when events and
circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets. During 1995, 444 De Haro experienced a decline in its
estimated net realizable value. Accordingly, CCEP recorded approximately
$2,814,000 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 years ended December 31, 1997 and 1996.
Leases: CCEP leases certain commercial space to tenants under various lease
terms. The leases are accounted for as operating leases in accordance with
"SFAS 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 expense 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,
1997 and 1996, lease commissions totaled approximately $860,000 and $741,000,
respectively, with accumulated amortization of approximately $383,000 and
$297,000, 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 the General Partner.
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 $190,692,000
greater than the assets and liabilities as reported in the financial statements
at December 31, 1997.
Reclassifications: Certain reclassifications have been made to the 1995 and
1996 information to conform to the 1997 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 $28,000,000 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 $31,500,000 ("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 year ended December 31, 1995, 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
Months Ended
November 30,
1995
Rental revenue $ 5,705
Investment income 26
Total revenues 5,731
Costs and expenses:
Property operations 3,747
Depreciation 953
Administrative 103
Interest 1,342
Write-down of investment
property 5,000
Total costs and expenses 11,145
Net loss $(5,414)
NOTE C - DISPOSITION OF REAL ESTATE
During 1997, CCEP recognized a loss of approximately $13,000 related to roof
replacements at Regency Oaks.
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 $1,882,000 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.
NOTE D - MASTER LOAN AND ACCRUED INTEREST PAYABLE
The Master Loan principal and accrued interest payable balances at December 31,
1997 and December 31, 1996, are approximately $289,800,000 and $261,000,000,
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, 1997, 1996 and 1995
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.
During the year ended December 31, 1997, there were no advances on the Master
Loan. CCIP advanced approximately $367,000 and $4,002,000 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 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 of the Partnership.
For valuation purposes, the Master Loan value was 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 principle 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 1997 Interest Rate Date Maturity
Indian Creek Village
1st Mortgage $ 4,600 $ 31 6.95% 12/01/05 $ 4,036
The Knolls
1st Mortgage 5,310 36 6.95% 12/01/05 4,659
Palm Lake
1st Mortgage 1,713 12 6.95% 12/01/05 1,503
Plantation Gardens
1st Mortgage 6,949 47 6.95% 12/01/05 6,097
Society Park East
1st Mortgage 2,016 14 6.95% 12/01/05 1,769
Tates Creek Village
1st Mortgage 2,545 17 6.95% 12/01/05 2,233
Totals $23,133
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. The notes payable are nonrecourse and collateralized by deeds of
trust on the real property. All of the notes require prepayment penalties if
repaid prior to maturity.
Summary of Maturities
Principal payments on notes payable are due as follows (in thousands):
Years Ending December 31,
1998 $ 279
1999 298
2000 320
2001 343
2002 367
Thereafter 21,526
Total $ 23,133
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, 1997, 1996 and 1995.
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.
Also, CCEP is subject to an Investment Advisory Agreement between CCEP and an
affiliate of the General Partner. This agreement provides for an annual fee,
payable in monthly installments, to an affiliate of the General Partner for
advising and consulting services for CCEP's properties. The following amounts
were paid or accrued to the General Partner and affiliates:
For the Years Ended
December 31,
1997 1996 1995
(in thousands)
Property management fees $1,032 $1,000 $1,253
Investment advisory fees 182 182 233
Lease commissions 139 69 221
Reimbursement for services of affiliates (1) 426 537 428
(1) Included in "reimbursements for services of affiliates" for 1997 and 1996
are approximately $78,000 and $150,000, respectively, for construction
oversight costs. There was no such expense in 1995.
In addition to the compensation and reimbursements described above, principal
and interest payments are made to and loan advances are received from CCIP
pursuant to the Master Loan Agreement. Such interest payments totaled
approximately $2,064,000 and $2,500,000 for the years ended December 31, 1997
and 1995, respectively. There were no interest payments during 1996. Advances
of approximately $367,000 and $4,002,000 were made under the Master Loan
Agreement during the years ended December 31, 1996 and 1995, respectively.
There were no advances during 1997. During the year ended December 31, 1997,
CCEP paid approximately $2,105,000 to CCIP as principal payments on the Master
Loan. Cash received on certain investments by CCEP, which are required to be
transferred to CCIP per the Master Loan Agreement, accounted for approximately
$462,000. Approximately $643,000 was due to excess cash flow payments paid to
CCIP as stipulated by the Master Loan Agreement. CCEP also paid an additional
$1,000,000 to CCIP as principal payment on the Master Loan.
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 $124,000 of
distributions received from three affiliated partnerships and approximately
$1,431,000 of excess cash flow was paid to CCIP to reduce the Master Loan
obligation.
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.
From July 1, 1995 to August 31, 1997, the Partnership insured 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 the Partnership'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,
1998 $2,357
1999 2,161
2000 1,490
2001 947
2002 657
Thereafter 484
$8,096
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 Property Total Depreciation Life-Years
444 De Haro $ 947 $12,939 $ 13,886 $ 9,855 3-18
Indian Creek Village 1,041 8,507 9,548 6,369 5-18
The Knolls 647 6,952 7,599 5,273 5-18
Northlake Quadrangle 980 4,215 5,195 3,570 5-18
Palm Lake 272 4,369 4,641 3,469 5-18
Plantation Gardens 1,958 13,065 15,023 10,433 5-18
Regency Oaks 521 10,252 10,773 7,938 5-18
Magnolia Trace 892 5,678 6,570 4,543 5-18
Shirewood Townhomes 494 6,057 6,551 4,722 5-18
Silverado 628 4,660 5,288 3,867 5-18
Society Park 966 8,424 9,390 6,732 5-18
Society Park East 489 5,274 5,763 3,646 5-18
Tates Creek Village 382 7,206 7,588 5,329 5-18
Total $10,217 $97,598 $107,815 $75,746
NOTE I - SUBSEQUENT EVENT
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in
Insignia Properties Trust, with Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust. The closing, which
is anticipated to happen in the third quarter of 1998, is subject to customary
conditions, including government approvals and the approval of Insignia's
shareholders. If the closing occurs, AIMCO will then control the General
Partner of the Partnership.
