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
[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, 1998
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.)
55 Beattie Place, 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 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]
State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests, as of December 31, 1998. No market exists for the limited
partnership interests of the Registrant, and, therefore, no aggregate market
value can be determined.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
ITEM 1. DESCRIPTION OF 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 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. 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. Since its initial
offering, the Registrant has not received, nor are limited partners required to
make, additional capital contributions. The Partnership Agreement provides that
the Partnership is to terminate on December 31, 2011 unless terminated prior to
such date.
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 was owned by
Insignia Properties Trust ("IPT"). Effective February 26, 1999, IPT was merged
into Apartment Investment and Management Company ("AIMCO"). Hence, CEI is now a
wholly-owned subsidiary of AIMCO. (See "Transfer of Control" below)
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, 1998, 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, 1998, the balance of the
Master Loan, net of the allowance for possible losses, was approximately
$71,200,000. 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 eleven (11) apartment buildings, and
one (1) office complex. 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
also been collateral on the Master Loan. For a brief description of the
properties refer to "Item 2 - Description of Property."
A further description of the Partnership's business is included in "Management's
Discussion and Analysis or Plan of Operations" included in "Item 7" of this Form
10-K.
The Registrant has no employees. Management and administrative services are
provided by the General Partner, and by agents retained by the General Partner.
Property management services were performed at the Partnership's properties by
an affiliate of the General Partner.
The business in which the Partnership is engaged is highly competitive. There
are other residential and commercial properties within the market area of the
Registrant's properties. The number and quality of competitive properties,
including those which may be managed by an affiliate of the General Partner in
such market area, could have a material effect on the rental market for the
apartments and the commercial space at the Registrant's properties and the rents
that may be charged for such apartments and space. While the General Partner
and its affiliates are a significant factor in the United States in the
apartment industry, competition for the apartments is local. In addition,
various limited partnerships have been formed by the General Partner and/or
affiliates to engage in business which may be competitive with the Registrant.
Both the income and expenses of operating the properties owned by the
Partnership are subject to factors outside of the Partnership's control, such as
an oversupply of similar properties resulting from overbuilding, increases in
unemployment or population shifts, reduced availability of permanent mortgage
financing, changes in zoning laws, or changes in patterns or needs of users. In
addition, there are risks inherent in owning and operating residential and
commercial properties because such properties are susceptible to the impact of
economic and other conditions outside of the control of the Partnership.
There have been, and it is possible there may be other, Federal, state and local
legislation and regulations enacted relating to the protection of the
environment. The Partnership is unable to predict the extent, if any, to which
such new legislation or regulations might occur and the degree to which such
existing or new legislation or regulations might adversely affect the properties
owned by the Partnership.
The Partnership monitors its properties for evidence of pollutants, toxins and
other dangerous substances, including the presence of asbestos. In certain
cases environmental testing has been performed, which resulted in no material
adverse conditions or liabilities. In no case has the Partnership received
notice that it is a potentially responsible party with respect to an
environmental clean up site.
On July 30, 1998, an affiliate of the General Partner (the "Purchaser")
commenced a tender offer for limited partnership interests in the Partnership.
The Purchaser offered to purchase up to 50,000 of the outstanding units of
limited partnership interest in the Partnership, at $415 per Unit, net to the
seller in cash. The Purchaser acquired 11,163.1 units at $415 per Unit pursuant
to this tender offer as of December 31, 1998.
On October 30, 1997, another affiliate of the General Partner (the "Purchaser")
commenced a tender offer for limited partnership interests in the Partnership.
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. During December 1997 the Purchaser acquired 27,330 units at
$400 per Unit related to this tender offer. In February 1998 the Purchaser
acquired an additional 1570.5 units at $400 per Unit as a result of this tender
offer.
Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company, a publicly traded real
estate investment trust, with AIMCO being the surviving corporation (the
"Insignia Merger"). As a result, AIMCO ultimately acquired a 100% ownership
interest in Insignia Properties Trust ("IPT"), the entity which controls the
General Partner. The General Partner does not believe that this transaction
will have a material effect on the affairs and operations of the Partnership.
Segments
Segment data for the years ended December 31, 1998, 1997, and 1996 is included
in Item 8. Financial Statements - Note L and is an integral part of the Form 10-
K.
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, 1998:
Date of
Property Purchase Type of Ownership Use
The Loft Apartments 11/19/90 Fee ownership, Apartment
Raleigh, NC subject to a first 184 units
mortgage.
The Sterling Apartment 12/01/95 Fee ownership, Apartment
Homes and Commerce subject to first 536 units
Center mortgage. (1) Commercial
Philadelphia, PA 111,741 sq.ft.
(1) Property is held by a Limited Partnership in which the Registrant
ultimately owns a 100% interest.
SCHEDULE OF PROPERTIES:
Set forth below for each of the Registrant's properties is the gross carrying
value, accumulated depreciation, depreciable life, method of depreciation and
Federal tax basis.
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
(in thousands) (in thousands)
The Loft Apartments $ 6,881 $2,917 5-20 S/L $ 5,567
The Sterling Apartment
Homes and Commerce
Center 31,615 4,381 5-25 S/L 28,738
$38,496 $7,298 $34,305
See "Note A" of the financial statements included in "Item 8. Financial
Statements and Supplementary Data" for a description of the Partnership's
depreciation policy.
SCHEDULE OF PROPERTY INDEBTEDNESS:
The following table sets forth certain information relating to the loans
encumbering the Registrant's properties.
Principal Principal
Balance At Stated Balance
December 31, Interest Period Maturity Due At
Property 1998 Rate Amortized Date Maturity (3)
(in thousands) (in thousands)
The Loft Apartments
1st mortgage $ 4,395 6.95% (1) 12/01/05 $ 3,903
The Sterling Apartment
Homes and Commerce
Center 1st mortgage 22,965 6.77% (2) 10/01/08 19,975
$27,360 $23,878
(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.
(2) Payments of approximately $149,000 consisting of principal and interest are
being amortized over 120 months with a balloon payment due October 1, 2008.
(3) See "Item 8. Financial Statements and Supplementary Data _ Note E" for
information with respect to the Registrant's ability to prepay those loans
and other specific details about the loans.
RENTAL RATES AND OCCUPANCY:
Average annual rental rates and occupancy for 1998 and 1997 for each property:
Average Annual Average
Rental Rates Occupancy
Property 1998 1997 1998 1997
The Loft Apartments $ 8,664/unit $ 8,425/unit 92% 95%
The Sterling Apartment 13,121/unit 11,740/unit 92% 87%
Homes (residential)
The Sterling Commerce $14.43/s.f. $13.87/s.f. 81% 70%
Center (commercial)
The General Partner attributes the increase in occupancy at the Sterling
Apartment Homes to recent renovations completed over the past year and to
changes in demographics. The increase in occupancy at the Sterling Commerce
Center is attributable to recent major capital improvements including exterior
renovations, elevator rehabilitation, and common area renovations. The decrease
in occupancy at the Loft is due to a declining market and increased competition
in the area.
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 all of the properties are
adequately insured. Each apartment complex leases properties for terms of one
year or less. There are no residential tenants who lease 10% or more of the
available rental space. All of the properties (both commercial and residential)
are in good physical condition, subject to normal depreciation and deterioration
as is typical for assets of this type and age. See "Capital Improvements" below
for a description of budgeted capital improvements at the properties for 1999.
The following is a schedule of the lease expirations of the commercial space in
The Sterling for the years beginning 1999 through the maturities of current
leases:
Number of % of Gross
Expirations Square Feet Annual Rent Annual Rent
1999 2 5,644 $ 69,753 6.17%
2000 2 5,786 71,242 6.30%
2001 4 8,797 133,282 11.79%
2002 1 2,943 42,408 3.75%
2003 6 12,136 160,422 14.19%
2004 1 2,835 41,122 3.64%
2005 2 3,160 60,444 5.35%
2006 1 3,838 65,000 5.75%
2007 3 31,559 486,807 43.06%
The following schedule reflects information on tenants occupying 10% or more of
the leasable square footage of The Sterling Commerce Center.
Square Footage Annual Rent
Nature of Business Leased Per Square Foot Lease Expiration
Business Services 24,412 $11.65 7/31/07
REAL ESTATE TAXES AND RATES:
Real estate taxes and rates in 1998 for each property were:
1998 1998
Billing Rate
(in thousands)
The Loft $ 62 1.21%
The Sterling 539 8.26%
CAPITAL IMPROVEMENTS:
During 1998, the Partnership completed $128,000 of capital improvements at The
Loft, consisting primarily of HVAC condensing units, carpet, and other building
improvements. These improvements were funded primarily from cash flow. Based on
a report received from an independent third party consultant analyzing necessary
exterior improvements and estimates made by the General Partner on interior
improvements, it is estimated that the property requires approximately $152,000
of capital improvements over the near-term. Capital improvements planned for
1999 consist of HVAC condensing units, carpet and vinyl improvements,
landscaping, and roof repairs. These improvements are budgeted for, but not
limited to, approximately $132,000.
During 1998, the Partnership expended $3,111,000 on capital improvements at The
Sterling, consisting primarily of electrical/breakers, cabinets/countertops, and
other building improvements. These improvements were funded primarily from cash
flow. Based on a report received from an independent third party consultant
analyzing necessary exterior improvements and estimates made by the General
Partner on interior improvements, it is estimated that the property requires
approximately $4,407,000 of capital improvements over the near-term. Capital
improvements budgeted for, but not limited to, approximately $3,013,000 are
planned for 1999, including electrical repairs, plumbing fixtures, cabinets, and
HVAC condensing units.
The capital improvements planned for 1999 at the Partnership's properties will
be made only to the extent of cash available from operations and Partnership
reserves.
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 claim. The General Partner is unable to
determine the costs associated with this claim at this time.
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled ROSALIE NUANES, ET AL. V. INSIGNIA
FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and entities which were, at
the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain
general partner entities, past tender offers by Insignia Affiliates to acquire
limited partnership units, the management of partnerships by Insignia Affiliates
as well as a recently announced agreement between Insignia and AIMCO. The
complaint seeks monetary damages and equitable relief, including judicial
dissolution of the Partnership. On June 25, 1998, the General Partner filed a
motion seeking dismissal of the action. In lieu of responding to the motion,
the plaintiffs have filed an amended complaint. The General Partner has filed
demurrers to the amended complaint which were heard during February 1999. No
ruling on such demurrers has been received. The General Partner does not
anticipate that costs associated with this case, if any, to be material to the
Partnership's overall operations.
On July 30, 1998 certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners were, at the time,
affiliates of Insignia filed a complaint entitled EVEREST PROPERTIES, LLC. V.
INSIGNIA FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of
California, County of Los Angeles. The action involves 44 real estate limited
partnerships (including the Partnership) in which the plaintiffs allegedly own
interests and which Insignia Affiliates allegedly manage or control (the
"Subject Partnerships"). This case was settled on March 3, 1999. The
Partnership is responsible for a portion of the settlement costs. The expense
will not have a material effect on the Partnership's operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended December 31, 1998, 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
The Partnership, a publicly held limited partnership, offered and sold 200,342
limited partnership units aggregating $200,342,000. The Partnership currently
has 17,049 holders of record owning an aggregate of 199,045.2 Units. Affiliates
of the General Partner own 91,143.8 units or 45.79% of the outstanding Limited
Partnership Units at December 31, 1998. No public trading market has developed
for the Units, and it is not anticipated that such a market will develop in the
future.
Cash distributions of approximately $28,598,000 ($143.58 per limited partnership
unit) were paid during the year ended December 31, 1998 of which $1,798,000 was
paid from operations and $26,800,000 was paid out of surplus funds. Cash
distributions of $1,999,000 ($9.94 per limited partnership unit) were paid from
operations during the year ended December 31, 1997. During the first quarter of
fiscal 1999, the Registrant made a surplus distribution in the amount of
$1,850,000 ($9.29 per limited partnership unit). Included in both the 1998 and
1997 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. The Registrant's distribution policy will be
reviewed on a quarterly basis. Future cash distributions will depend on the
levels of net cash generated from operations, refinancings, property sales and
the availability of cash reserves. Furthermore, cash reserves are subject to
the requirements of the Agreement which requires that the Partnership maintain
reserves equal to 5% of Net investment Capital. There can be no assurance,
however, that the Registrant will generate sufficient funds from operations,
after required capital expenditures, to permit further distributions to its
partners in 1999 or subsequent periods.
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."
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996 1995 1994
STATEMENTS OF OPERATIONS
(in thousands, except unit data)
<S> <C> <C> <C> <C> <C>
Total Revenues $ 37,663 $ 11,608 $ 9,414 $ 5,275 $ 4,502
Total expenses (9,087) (8,041) (8,586) (3,088) (1,508)
Provision for impairment loss -- -- -- (5,578) --
Net income (loss) $ 28,576 $ 3,567 $ 828 $ (3,391) $ 2,994
Net income (loss) per
Limited Partnership Unit $ 142.12 $ 17.74 $ 4.12 $ (16.87) $ 14.90
Distributions per
Limited Partnership Unit $ 143.58 $ 9.94 $ 85.33 $ 15.10 $ 18.52
Limited Partnership
Units outstanding 199,045.2 199,052 199,052 199,052 199,052
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
BALANCE SHEETS 1998 1997 1996 1995 1994
(in thousands)
<S> <C> <C> <C> <C> <C>
Total assets $115,182 $ 91,628 $ 91,657 $106,351 $107,630
Mortgage note payable $ 27,360 $ 4,448 $ 4,498 $ 4,545 $ --
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The matters discussed in this Form 10-K contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the disclosure
contained in this Form 10-K and the other filings with the Securities and
Exchange Commission made by the Registrant from time to time. The discussion of
the Registrant's business and results of operations, including forward-looking
statements pertaining to such matters, does not take into account the effects of
any changes to the Registrant's business and results of operation. Accordingly,
actual results could differ materially from those projected in the forward-
looking statements as a result of a number of factors, including those
identified herein.
This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in this report.
Results of Operations
1998 Compared with 1997
The Registrant's net income for the year ended December 31, 1998, was
$28,576,000 as compared to $3,567,000 for the year ended December 31, 1997 (See
"Note C" of the financial statements for a reconciliation of these amounts to
the Registrant's federal taxable income). The increase in net income was due to
an increase in total revenue partially offset by an increase in total expenses.
Revenues increased due to increases in rental income, interest income recorded
on the investment in Master Loan to affiliate and other income as well as the
reduction of provision for impairment loss. Rental income increased due to an
increase in occupancy and average annual rental rates at The Sterling offset
somewhat by a decrease in occupancy at the Loft. The General Partner attributes
the increase in occupancy at The Sterling Apartment Homes to recent renovations
completed over the past year and to changes in demographics. The increase in
occupancy at The Sterling Commerce Center is attributable to recent major
capital improvements including exterior renovations, elevator rehabilitation,
and common area renovations. The decrease in occupancy at the Loft is due to a
declining market and increased competition in the area. As discussed in "Item
8. Financial Statements, Note D - Net Investment in Master Loan", the
Partnership recorded interest income of approximately $4,138,000 and $2,668,000
for the years ended December 31, 1998 and 1997, respectively, and recorded a
reduction of allowance for impairment loss of approximately $23,269,000 for the
year ended December 31, 1998. The increase in income recognized is due to an
increase in the fair value of the underlying collateral properties as a result
of capital improvements and repairs performed over the last few years, changing
market conditions and improved operations at such properties. See table below
for details of average annual occupancy and rental rates for 1998, 1997 and
1996. The increase in other income is primarily due to increases in utility
income and miscellaneous receipts.
Contributing to the increase in total expenses was an increase in depreciation
expense, general and administrative expenses, property tax expense and interest
expense. The increase in depreciation is due to the major capital improvements
and renovations to the Sterling over the past year. The increase in general and
administrative expenses is due to an increase in expense reimbursements,
administrative expenses and audit fees. Property tax expense increased at the
Sterling for the year ended December 31, 1998, compared to the year ended
December 31, 1997, due to a reassessment of the property. Interest expense
increased due to the financing of The Sterling in September 1998. Partially
offsetting the increase in total expenses is a decrease in operating expense
primarily as a result of decreased marketing activities at the Sterling
Apartment homes, a major landscaping project completed at the Loft in 1997 and a
decrease in utilities at the Sterling Commerce Center.
1998 Average Annual 1997 Average Annual 1996 Average Annual
Rental Rental Rental
Occupancy Rate Occupancy Rate Occupancy Rate
Tates Creek Village 91% $ 7,516 90% $ 7,588 90% $ 7,407
Magnolia Place 92% 5,813 91% 5,654 89% 5,462
Indian Creek
Village 96% 7,971 94% 7,521 96% 6,962
Shirewood 92% 5,013 88% 4,909 89% 4,799
Society Park East 94% 6,458 96% 6,253 90% 6,080
Palm Lake 93% 7,540 95% 7,284 92% 6,972
Society Park 94% 5,782 93% 5,446 92% 5,178
Plantation Gardens 92% 8,462 93% 8,292 95% 8,045
Regency Oaks 95% 6,478 91% 6,292 93% 5,956
The Knolls 96% 7,696 95% 7,515 91% 7,151
Silverado 95% 5,668 91% 5,672 88% 5,775
444 De Haro (1) 97% 14.76 94% 13.94 98% 13.48
(commercial)
(1) Commercial average annual rental rate is per square foot.
The General Partner attributes the increase in the net realizable value of the
collateral properties securing the Master Loan to the increase in occupancy
and/or average rental rates as presented in the table above. The increase in
occupancy at the properties is attributable to approximately $8,403,000 of
combined capital improvements made at most of the properties for the three years
ended December 31, 1998. These improvements were funded primarily from property
operations and cash flows as the only advances from the Partnership to CCEP
total approximately $367,000 for 1998, 1997 and 1996.
1997 Compared with 1996
The Registrant's net income for the year ended December 31, 1997 was $3,567,000
compared to $828,000 for the year ended December 31, 1996. The increase in net
income was primarily due to an increase in revenue which was partially offset by
an increase in expenses. Revenue increased primarily due to an increase in
rental income, the recognition of interest income on investment in Master Loan
in 1997 and other income which was offset by a decrease in interest income. The
increase in interest income on investment in Master Loan 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. Interest income decreased as a result of
a decrease in investment balances during 1997.
Total expenses increased as a result of an increase in depreciation expense
which was offset by decreases in operating, general and administrative expenses
and property taxes. Depreciation expense increased for the year ended December
31, 1997 as a direct result of major capital improvements and renovations to The
Sterling. 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. Included in general and administrative expenses
at both December 31, 1998 and 1997 are management reimbursements to the General
Partner allowed under the Partnership Agreement. In addition, costs associated
with the quarterly and annual communications with investors and regulatory
agencies and the annual audit required by the Partnership Agreement are also
included.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of each of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Registrant from increases in expense. As part of this
plan, the General Partner attempts to protect the Registrant 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, 1998, the Registrant had cash and cash equivalents of
approximately $8,683,000 as compared to approximately $8,691,000 at December 31,
1997. The decrease in cash and cash equivalents is due to $2,602,000 of cash
used in investing activities and $6,126,000 of cash used in financing
activities, which was partially offset by $8,720,000 of cash provided by
operating activities. Cash used in investing activities consisted of capital
improvements, lease commissions paid at The Sterling, and deposits to escrow
accounts maintained by the mortgage lender, which were partially offset by
principal repayments received on the Master Loan. Cash used in financing
activities consisted primarily of partner distributions and, to a lesser extent,
payments of principal made on the mortgages encumbering the Registrant's
properties and payments of loan costs related to the financing of The Sterling,
which were partially offset by financing proceeds from The Sterling.
In September 1998, the Partnership obtained financing for The Sterling Apartment
Homes and Commerce Center. The new indebtedness in the amount of $23,000,000
carries a stated interest rate of 6.77% per annum and is being amortized over 30
years with a balloon payment due October 1, 2008. The net proceeds from this
financing were distributed to limited partners during the third quarter of 1998.
Total loan costs of $440,000 relating to the new financing have been capitalized
and are being amortized over the life of the loan.
At December 31, 1997, the Registrant had cash and cash equivalents of
approximately $8,691,000 as compared to approximately $12,348,000 at December
31, 1996. The decrease in cash and cash equivalents is due to $6,264,000 of
cash used in investing activities and $2,049,000 of cash used in financing
activities, which was partially offset by $4,656,000 of cash provided by
operating activities. Cash used in investing activities consisted of capital
improvements and deposits to escrow accounts maintained by the mortgage lender
which were partially offset by receipts on the Master Loan. Cash used in
financing activities consisted primarily of partner distributions and, to a
lesser extent, payments of principal made on the mortgages encumbering the
Registrant's properties. The Registrant invests its working capital reserves in
a money market account.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Registrant and to comply with federal,
state and local legal and regulatory requirements. The Registrant has budgeted,
but is not limited to, approximately $3,145,000 in capital improvements for all
of the Registrant's properties in 1999. Capital improvements planned for 1999
at The Loft consist of HVAC condensing units, carpet and vinyl improvements,
landscaping, and roof repairs. Capital improvements planned for 1999 at The
Sterling consist of electrical repairs, plumbing fixtures, cabinets, and HVAC
condensing units. The capital expenditures will be incurred only if cash is
available from operations or from partnership reserves. To the extent that such
budgeted capital improvements are completed, the Registrant's distributable cash
flow, if any, may be adversely affected at least in the short term.
The Registrant's current assets are thought to be sufficient for any near-term
needs of the Registrant. The mortgage indebtedness of approximately $27,360,000
requires monthly principal and interest payments and requires balloon payments
of $3,903,000 and $19,975,000 on December 1, 2005 and October 1, 2008,
respectively. The General Partner will attempt to refinance such indebtedness
and/or sell the properties prior to such maturity date. If the properties
cannot be refinanced or sold for a sufficient amount, the Registrant may risk
losing such properties through foreclosure.
Cash distributions of approximately $28,598,000 were paid during the year ended
December 31, 1998 of which $1,798,000 was paid from operations and $26,800,000
was paid out of surplus funds. A cash distribution of $1,999,000 was paid from
operations during the year ended December 31, 1997. During the first quarter of
fiscal 1999, the Registrant made a distribution in the aggregate amount of
$1,850,000. 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. The Registrant's
distribution policy will be reviewed on a quarterly basis. Future cash
distributions will depend on the levels of net cash generated from operations,
refinancings, property sales, and the availability of cash reserves. There can
be no assurance, however, that the Registrant will generate sufficient funds
from operations, after required capital expenditures, to permit further
distributions to its partners in 1999 or subsequent periods.
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 tenant security deposits totaling approximately $9,187,000, were
greater than the reserve requirement of approximately $6,090,000 at December 31,
1998.
CCEP Property Operations
For the year ended December 31, 1998, CCEP's net loss totaled approximately
$33,266,000 on total revenues of approximately $21,692,000. 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,
1998, CCEP's statement of operations includes total interest expense
attributable to the Master Loan of approximately $36,333,000, all but $4,742,000
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, 1998, the Partnership received approximately
$2,687,000 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 $285,000. Approximately
$296,000 received was due to an "Excess Cash Flow" payment from CCEP as
described above. Approximately $2,106,000 received was due to the sale of
Northlake Quadrangle, as discussed below.
On April 16, 1998, CCEP sold Northlake Quadrangle to an unrelated third party
for a contract price of $2,325,000. The Partnership received net proceeds of
approximately $2,106,000 after payment of closing costs. The proceeds were
remitted to CCIP to pay down the Master Loan.
Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company, a publicly traded real
estate investment trust, with AIMCO being the surviving corporation (the
"Insignia Merger"). As a result, AIMCO ultimately acquired a 100% ownership
interest in Insignia Properties Trust ("IPT"), the entity which controls the
General Partner. The General Partner does not believe that this transaction will
have a material effect on the affairs and operations of the Partnership.
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the General Partner and its affiliates for management and
administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four Phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the mainframe system used by the Managing Agent became fully
functional. In addition to the mainframe, PC-based network servers and routers
and desktop PCs were analyzed for compliance. The Managing Agent has begun to
replace each of the non-compliant network connections and desktop PCs and, as of
December 31, 1998, had completed approximately 75% of this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by March
31, 1999.
Computer software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
During 1998, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at
all properties, is $200,000, and the implementation and the testing process is
expected to be completed by March 31, 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded 80% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
March 31, 1999.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally. The Managing Agent intends to have a third-party conduct an
audit of these systems and report their findings by March 31, 1999.
Any of the above operating equipment that has been found to be non-compliant to
date has been replaced or repaired. To date, these have consisted only of
security systems and phone systems. As of December 31, 1998 the Managing Agent
has evaluated approximately 86% of the operating equipment for the Year 2000
compliance.
The total cost incurred for all properties managed by the Managing Agent as of
December 31, 1998 to replace or repair the operating equipment was approximately
$400,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $325,000, which is expected to be
completed by April 30, 1999.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within our enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before May 1999.
The Managing Agent has updated data transmission standards with two of the three
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by June 1, 1999.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.8 million ($0.6 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
ITEM 7A. MARKET RISK FACTORS
The Partnership is exposed to market risks associated with its Master Loan to
Affiliate ("Loan"). Receipts (interest income) on the Loan are based upon the
operations and cash flow of the underlying investment properties that
collateralize the Loan. Both the income and expenses of operating the
investment properties are subject to factors outside of the Partnership's
control, such as an oversupply of similar properties resulting from
overbuilding, increases in unemployment or population shifts, reduced
availability of permanent mortgage financing, changes in zoning laws, or changes
in the patterns or needs of users. The investment properties are also
susceptible to the impact of economic and other conditions outside of the
control of the Partnership as well as being affected by current trends in the
market area which they operate. In this regard, the General Partner of the
Partnership closely monitors the performance of the properties collateralizing
the loans. Based upon the fact that the loan is considered impaired under
Statement of Financial Accounting Standard No. 114, Accounting by Creditors for
Impairment of a Loan, interest rate fluctuations do not offset the recognition
of income, as income is only recognized to the extent of cash flow. Therefore,
market risk factors does not offset the Partnership's results of operations as
it relates to the Loan. See Item 8 - Financial Statements and Supplementary
Data - Note D for further information.
The Partnership is exposed to market risks from adverse changes in interest
rates. In this regard, changes in U.S. interest rates affect the interest earned
on the Partnership's cash and cash equivalents as well as interest paid on its
indebtedness. As a policy, the Partnership does not engage in speculative or
leveraged transactions, nor does it hold or issue financial instruments for its
borrowing activities used to maintain liquidity and fund business operations.
To mitigate the impact of fluctuations in U.S. interest rates, the Partnership
maintains its debt as fixed rate in nature by borrowing on a long-term basis.
Based on interest rates at December 31, 1998, a 1% increase or decrease in
market interest rates would not have a material impact on the Partnership.
The following table summarizes the Partnership's debt obligations at December
31, 1998. The interest rates represent the weighted-average rates. The fair
value of the debt obligations approximate the recorded value as of December 31,
1998.
Principal Amount by Expected Maturity
Fixed Rate Debt
Long-term Average Interest
Debt Rate 6.86%
(in thousands)
1999 $ 282
2000 297
2001 323
2002 346
2003 371
Thereafter 25,741
Total $ 27,360
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, 1998 and 1997
Consolidated Statements of Operations for the Years Ended December 31, 1998,
1997 and 1996
Consolidated Statements of Changes in Partners' (Deficit) Capital for the
Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998,
1997 and 1996
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, 1998 and 1997, and the
related consolidated statements of operations, changes in partners' (deficit)
capital and cash flows for each of the three years in the period ended
December 31, 1998. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Consolidated
Capital Institutional Properties at December 31, 1998 and 1997, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ERNST & YOUNG LLP
Greenville, South Carolina
March 31, 1999
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
December 31,
Assets 1998 1997
Cash and cash equivalents $ 8,683 $ 8,691
Receivables and deposits 985 984
Restricted escrows 1,912 66
Other assets 1,243 383
Interest receivable on Master Loan -- 604
Investment in Master Loan 88,578 91,265
Less: allowance for impairment loss (17,417) (40,686)
71,161 50,579
Investment properties:
Land 3,564 3,620
Buildings and related personal property 34,932 31,715
38,496 35,335
Less: accumulated depreciation (7,298) (5,014)
31,198 30,321
$115,182 $ 91,628
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 431 $ 164
Tenant security deposit liabilities 504 356
Accrued property taxes 62 --
Other liabilities 691 504
Mortgage note payable 27,360 4,448
29,048 5,472
Partners' (Deficit) Capital
General Partner (96) (364)
Limited Partners - (199,045.2 units and
199,052 units issued and outstanding in
1998 and 1997, respectively) 86,230 86,520
86,134 86,156
$115,182 $ 91,628
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,
1998 1997 1996
Revenues:
Rental income $ 9,191 $ 7,908 $ 7,201
Interest income on investment in
Master Loan to affiliate 4,138 2,668 --
Reduction of provision for impairment loss 23,269 -- 792
Interest income 410 439 936
Other income 655 593 485
Total revenues 37,663 11,608 9,414
Expenses:
Operating 4,856 4,929 5,748
General and administrative 556 433 690
Depreciation 2,292 1,797 1,259
Interest 751 324 326
Property taxes 632 558 563
Total expenses 9,087 8,041 8,586
Net income (Note C) $28,576 $ 3,567 $ 828
Net income allocated to general partner (1%) $ 286 $ 36 $ 8
Net income allocated to limited partners (99%) 28,290 3,531 820
$28,576 $ 3,567 $ 828
Net income per Limited Partnership Unit $142.12 $ 17.74 $ 4.12
Distribution per Limited Partnership Unit $143.58 $ 9.94 $ 85.33
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 200,342.0 $ 1 $200,342 $200,343
Partners' (deficit) capital at
December 31, 1995 199,052.0 $ (358) $101,134 $100,776
Distributions -- (30) (16,986) (17,016)
Net income for the year ended
December 31, 1996 -- 8 820 828
Partners' (deficit) capital at
December 31, 1996 199,052.0 (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' (deficit) capital at
December 31, 1997 199,052.0 (364) 86,520 86,156
Distributions -- (18) (28,580) (28,598)
Abandonment of partnership units
(Note K) (6.8) -- -- --
Net income for the year ended
December 31, 1998 -- 286 28,290 28,576
Partners' (deficit) capital at
December 31, 1998 199,045.2 $ (96) $ 86,230 $ 86,134
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
1998 1997 1996
Cash flows from operating activities:
Net income $ 28,576 $ 3,567 $ 828
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 2,360 1,827 1,277
Casualty loss 14 -- --
Gain on sale of land (19) -- --
Reduction of provision for impairment loss (23,269) -- (792)
Change in accounts:
Receivables and deposits (1) 4 127
Other assets (209) (40) 116
Interest receivable on Master Loan 604 (604) --
Accounts payable 267 (176) 147
Tenant security deposit liabilities 148 39 (6)
Accrued property taxes 62 -- --
Other liabilities 187 39 (49)
Net cash provided by operating activities 8,720 4,656 1,648
Cash flows from investing activities:
Property improvements and replacements (3,239) (8,202) (5,757)
Lease commissions paid (279) (167) --
Proceeds from sale of securities
available for sale -- 3 5,257
Proceeds from sale of land 75 -- --
Net (deposits to) receipts from restricted
escrows (1,846) (3) 265
Principal receipts on Master Loan 2,687 2,105 2,243
Advances on Master Loan -- -- (367)
Net cash (used in) provided by investing activities (2,602) (6,264) 1,641
Cash flows from financing activities:
Loan costs paid (440) -- --
Distributions to partners (28,598) (1,999) (17,016)
Proceeds from mortgage note payable 23,000 -- --
Payments on notes payable (88) (50) (47)
Net cash used in financing activities (6,126) (2,049) (17,063)
Net decrease in cash and cash equivalents (8) (3,657) (13,774)
Cash and cash equivalents at beginning of year 8,691 12,348 26,122
Cash and cash equivalents at end of year $ 8,683 $ 8,691 $12,348
Supplemental disclosure of cash flow information:
Cash paid for interest $ 597 $ 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.
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: Consolidated Capital Institutional Properties (the "Partnership"
or "Registrant"), 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, 1998, the Partnership had advanced a total of approximately $180,500,000 to
EP and its successor under the Master Loan. The Partnership Agreement provides
that the Partnership is to terminate on December 31, 2011 unless terminated
prior to such date.
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 was owned by
Insignia Properties Trust ("IPT"). Effective February 26, 1999, IPT was merged
into Apartment Investment and Management Company ("AIMCO"). Hence, CEI is now a
wholly-owned subsidiary of AIMCO.
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: For the year ended December 31, 1997, the
Partnership's financial statements included 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").
As of December 31, 1997, KBA-I, L.P. became 100% effectively owned by the
Registrant. 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.
Allocation of Profits, Gains, and Losses: 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 199,045.2 and 199,052 Units outstanding in 1998 and
1997, respectively.
Cash and Cash Equivalents: Includes cash on hand and in banks, money market
funds and certificates of deposit 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.
Restricted Escrows:
Replacement Reserve
At the time of the December 15, 1995 refinancing of The Loft, approximately
$60,000 of the proceeds were designated for a Replacement Reserve Fund for
certain capital replacements at the property. At December 31, 1998, the balance
remaining was approximately $81,000 and is included in restricted escrows.
In conjunction with the financing of the Sterling in September 1998, the
Partnership is required to make monthly deposits of approximately $17,000 with
the mortgage company to establish and maintain a Replacement Reserve Fund
designated for repairs and replacements at the property. As of December 31,
1998, the balance in this reserve totaled approximately $35,000 which includes
interest.
Repair Escrow Fund
In addition to the Replacement Reserve Fund, a Repair Escrow Fund was
established with a portion of the proceeds of the new Sterling note to pay for
certain costs of repairs to the property to be completed within the next two
years. As of December 31, 1998, the balance in this Fund totaled approximately
$1,797,000.
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
$461,000 and $437,000 at December 31, 1998 and 1997, 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 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 five 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
seven years.
Loan Costs: As of December 31, 1998 and 1997, loan costs of approximately
$564,000 and $124,000 less accumulated amortization of approximately $46,000 and
$26,000, respectively, are included in other assets and are being amortized on a
straight-line basis over the life of the loans.
Tenant Security Deposits: The Partnership requires security deposits from
lessees for the duration of the lease and such deposits totaling $503,000 and
$356,000 as of December 31, 1998 and 1997, respectively, are included in
receivables and deposits. Deposits are refunded when the tenant vacates,
provided the tenant has not damaged its space and is current on its rental
payments.
Investment Properties: Investment properties consist of one apartment complex
and one multiple-use building consisting of apartment units and commercial space
and are stated at cost. Acquisition fees are capitalized as a cost of real
estate. In accordance with Financial Accounting Standards Board Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," 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.
Costs of properties that have been permanently impaired have been written down
to appraised value. No adjustments for the impairment of value were recorded in
the years ended December 31, 1998 and 1997.
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 its leases. In addition, the
General Partner's policy is to offer rental concessions during particularly slow
months or in response to heavy competition from other similar complexes in the
area. Concessions are charged against rental income as incurred.
Lease Commissions: Lease commissions are capitalized and included in other
assets and are being amortized using the straight-line method over the life of
the applicable lease. At December 31, 1998 and 1997, lease commissions totaled
approximately $469,000 and $204,000, with accumulated amortization of
approximately $65,000 and $31,000, respectively.
Fair Value of Financial Instruments: Statement of Financial Accounting Standards
("SFAS") No. 107, "Disclosures about Fair Value of Financial Instruments", as
amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate fair value. Fair value
is defined in the SFAS as the amount at which the instruments could be exchanged
in a current transaction between willing parties, other than in a forced or
liquidation sale. 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 to
maturity, approximates its carrying balance.
Segment Reporting: In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("Statement 131"), which is effective for
years beginning after December 15, 1997. Statement 131 established standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. (See "Note L" for detailed
disclosure of the Partnership's segments)
Advertising: The Partnership expenses the costs of advertising as incurred.
Advertising costs of approximately $138,000 and $164,000 for the years ended
December 31, 1998 and 1997, respectively, were charged to operating expense as
incurred.
Reclassification: Certain reclassifications have been made to the 1997 and 1996
information to conform to the 1998 presentation.
NOTE B - TRANSFER OF CONTROL
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company, a publicly traded real
estate investment trust, with AIMCO being the surviving corporation (the
"Insignia Merger"). As a result, AIMCO ultimately acquired a 100% ownership
interest in Insignia Properties Trust ("IPT"), the entity which controls the
General Partner. The General Partner does not believe that this transaction
will have a material effect on the affairs and operations of the Partnership.
NOTE C - 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
income (in thousands, except per unit data):
1998 1997 1996
Net income as reported $28,576 $3,567 $ 828
Add (deduct):
Deferred revenue and other liabilities 155 14 31
Depreciation differences 459 266 264
Accrued expenses 3 (4) 17
Interest income (4,138) (2,668) --
Differences in valuation allowances (23,269) -- (792)
Other loss on disposition -- (99) --
Federal taxable income $ 1,786 $1,076 $ 348
Federal taxable income per
limited partnership unit $ 8.88 $ 5.35 $ 1.73
The tax basis of the Partnership's assets and liabilities is approximately
$51,303,000 greater than the assets and liabilities as reported in the financial
statements at December 31, 1998.
NOTE D - NET INVESTMENT IN MASTER LOAN
The Partnership was formed for the benefit of its Limited Partners to lend funds
to Consolidated Capital Equity Partners ("CCEP"), a California General
Partnership. The Partnership loaned funds to CCEP subject to a nonrecourse note
with a participation interest (the "Master Loan"). At December 31, 1998, the
recorded investment in the Master Loan was considered to be impaired under
Statement of Financial Accounting Standard No. 114 ("SFAS 114"), Accounting by
Creditors for Impairment of a Loan. The Partnership measures the impairment of
the loan based upon the fair value of the collateral due to the fact that
repayment of the loan is expected to be provided solely by the collateral. For
the years ended December 31, 1998, and 1996 the Partnership recorded
approximately $23,269,000 and $792,000, respectively, in income based upon an
increase in the fair value of the collateral. No increase in the fair value of
the collateral was recorded for the year ended December 31, 1997.
For the years ended December 31, 1998 and 1997, the Partnership recorded
approximately $4,138,000 and $2,668,000, respectively, of interest income based
upon "Excess Cash Flow" generated (as defined in the terms of the New Master
Loan Agreement) as a result of improved operations at the properties which
secure the loan.
The fair value of the collateral properties was determined using the net
operating income of the collateral properties capitalized at a rate deemed
reasonable for the type of property adjusted for market conditions, the physical
condition of the property and other factors, or by obtaining an appraisal
by an independent third party. This methodology has not changed
from that used in prior calculations performed by the General Partner in
determining the fair value of the collateral properties. The approximate
$23,269,000 reduction in the provision for impairment loss recognized during the
year ended December 31, 1998 is attributed to an increase in the net realizable
value of the collateral properties. The General Partner evaluates the net
realizable value on a semi-annual basis. The General Partner has seen a
consistent increase in the net realizable value of the collateral properties,
taken as a whole, over the past two years. The increase is deemed to be
attributable to major capital improvement projects and the concerned effort to
complete deferred maintenance items that have been ongoing over the past few
years at the various properties. This has enabled the properties to increase
their respective occupancy levels or in some cases to maintain the properties'
high occupancy levels. The vast majority of this work was funded by cash flow
from the collateral properties themselves as no amounts have been borrowed on
the master loan or from other sources in the past few years.
The General Partner attributes the increase in the net realizable value of the
collateral properties securing the Master Loan to the increase in occupancy
and/or average rental rates. The increase in occupancy at the properties is
attributable to approximately $8,403,000 of
combined capital improvements made at most of the properties for the three years
ended December 31, 1998. These improvements were funded primarily from property
operations and cash flows as the only advances from the Partnership to CCEP
total approximately $367,000 for 1998, 1997 and 1996.
Based upon the consistent increase in net realizable value of the collateral
properties, the General Partner determined the increase to be permanent in
nature and accordingly, reduced the allowance for impairment loss on the master
loan during the year ended December 31, 1998.
Interest, calculated on the accrual basis, due to the Partnership pursuant to
the terms of the Master Loan Agreement, but not recognized in the income
statements due to the impairment of the loan, totaled approximately $32,195,000,
$30,100,000 and $29,500,000 for the years ended December 31, 1998, 1997 and
1996, respectively. Interest income is recognized on the cash basis as allowed
under SFAS 114. At December 31, 1998 and 1997, such cumulative unrecognized
interest totaling approximately $229,995,000 and $197,800,000 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
$22,855,000 as of December 31, 1998, 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 years ended December 31, 1998 and 1997, the Partnership made no
advances to CCEP on the Master Loan. During the year ended December 31, 1996,
the Partnership advanced approximately $367,000 to CCEP as an advance on the
Master Loan to pay for deferred maintenance and capital improvements and to pay
off certain third party mortgages.
During the year ended December 31, 1998, the Partnership received approximately
$2,687,000 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 $285,000. Approximately
$296,000 received was due to an "Excess Cash Flow" payment received from CCEP as
stipulated by the Master Loan Agreement. Approximately $2,106,000 received was
due to the sale of Northlike Quadrangle. Such proceeds are required to be
transferred to the Partnership per the Master Loan Agreement. Approximately
$4,742,000 of interest payments were also made during the year ended December
31, 1998.
Terms of the Master Loan Agreement
Under the terms of the Master Loan, 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, 1998, 1997 and 1996 was 12.5%. Payments are
currently payable quarterly in an amount equal to "Excess Cash Flow", generally
defined in the Master Loan as net cash flow from operations after third-party
debt service and capital expenditures. Any unpaid interest is added to
principal, compounded annually, and is payable at the loan's maturity. 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 investment in Master Loan consists of the following:
As of December 31,
1998 1997
(in thousands)
Master Loan funds advanced,
at beginning of year $91,265 $93,370
Principal receipts on Master Loan (2,687) (2,105)
Master Loan funds advanced,
at end of year $88,578 $91,265
The allowance for impairment loss on Master Loan to affiliates consists of the
following:
As of December 31,
1998 1997 1996
(in thousands)
Allowance for impairment loss on Master
Loan to affiliates, beginning of year $40,686 $40,686 $41,478
Reduction of impairment loss (23,269) -- (792)
Allowance for impairment loss on Master
Loan to affiliates, end of year $17,417 $40,686 $40,686
NOTE E - MORTGAGE NOTES PAYABLE
The principle terms of mortgage notes payable are as follows:
Principal Monthly Principal
Balance At Payment Stated Balance
December 31,Including Interest Maturity Due At
Property 1998 Interest Rate Date Maturity
(in thousands) (in thousands)
The Lofts $ 4,395 $ 30 6.95% 12/1/05 $ 3,903
The Sterling Apartment 22,965 149 6.77% 10/1/08 19,975
Homes and Commerce
Center $27,360 $179 $23,878
The mortgage notes payable are non-recourse and are secured by pledge of the
respective properties and by pledge of revenues from the respective properties.
The notes require prepayment penalties if repaid prior to maturity. Further,
the properties may not be sold subject to existing indebtedness.
In September 1998, the Partnership obtained financing for The Sterling Apartment
Homes and Commerce Center. The new indebtedness in the amount of $23,000,000
carries a stated interest rate of 6.77% per annum and is being amortized over 30
years with a balloon payment of approximately $19,975,000, due October 1, 2008.
Monthly payments of principal and interest of approximately $149,000 commenced
November 1, 1998.
Total loan costs of $440,000 relating to the new financing have been capitalized
and are being amortized over the term of the loan.
As a condition to the loan, the Partnership is required to make monthly deposits
of approximately $17,000 into a Replacement Reserve Fund for the term of the
loan to pay the costs of replacements, tenant improvements and leasing
commissions. As of December 31, 1998, the balance in the Partnership's
Replacement Reserve Fund was approximately $35,000. The Partnership was also
required to deposit approximately $1,797,000 into a Repair Escrow Fund to pay
for certain costs of repairs to the property to be completed within the next two
years.
Scheduled principal payments of the mortgage notes payable subsequent to
December 31, 1998, are as follows (in thousands):
1999 $ 282
2000 297
2001 323
2002 346
2003 371
Thereafter 25,741
$27,360
NOTE F - RELATED PARTY TRANSACTIONS
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for (i) certain payments to affiliates for
services and (ii) reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership. The following payments were made to the General
Partner and affiliates during the years ended December 31, 1998, 1997, and 1996:
1998 1997 1996
(in thousands)
Property management fees (included in operating expenses) $485 $424 $409
Reimbursement for services of
affiliates (included in operating,
general and administrative expenses, other
assets and investment properties) 543 587 485
Included in "Reimbursement for services of affiliates" for the years ended 1998,
1997 and 1996 is approximately $33,000, $191,000, and $219,000, respectively, in
reimbursements for construction oversight costs. In addition, approximately
$66,000 and $167,000 of lease commissions are included for the years ended
December 31, 1998 and 1997, respectively and approximately $171,000 in loan
financing costs are included for the year ended December 31, 1998.
During the years ended December 31, 1998, 1997, and 1996, affiliates of the
General Partner, were entitled to receive 5% of gross receipts from all of
Registrant's properties for providing property management services. The
Registrant paid to such affiliates approximately $485,000, $424,000 and $409,000
for the years ended December 31, 1998, 1997, and 1996, respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $543,000, $587,000, and
$485,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
On October 30, 1997, an affiliate of the General Partner (the "Purchaser")
commenced a tender offer for limited partnership interests in the Partnership.
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. During December 1997 the Purchaser acquired 27,330 units at $400
per Unit related to this tender offer. In February 1998, the Purchaser acquired
an additional 1,570.5 units at $400 per Unit as a result of this tender offer.
On July 30, 1998, another affiliate of the General Partner (the "Purchaser")
commenced a tender offer for limited partnership interests in the Partnership.
The Purchaser offered to purchase up to 50,000 of the outstanding units of
limited partnership interest in the Partnership, at $415 per Unit, net to the
seller in cash. The Purchaser acquired 11,163.1 units at $415 per Unit pursuant
to this tender offer. As a result of this purchase, AIMCO currently owns,
through its affiliates, a total of 91,143.8 units or 45.79% of the outstanding
Limited Partnership units. Consequently, AIMCO could be in a position to
significantly influence all voting decisions with respect to the Registrant.
Under the Partnership Agreement, unitholders holding a majority of the Units are
entitled to take action with respect to a variety of matters.
When voting on matters, AIMCO would in all likelihood vote the Units it acquired
in a manner favorable to the interest of the General Partner because of their
affiliation with the General Partner.
For the period of January 1, 1996 to August 31, 1997, the Partnership insured
its properties under a master policy through an agency affiliated with the
General Partner with an 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 which 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 _ COMMITMENTS
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
tenant security deposits, totaling approximately $9,187,000, were greater than
the reserve requirement of approximately $6,090,000 at December 31, 1998.
NOTE H - REAL ESTATE AND ACCUMULATED DEPRECIATION
Investment Properties Initial Cost
To Partnership
Buildings Cost
and Related Capitalized
Personal Subsequent to
Description Encumbrances Land Property Acquisition
(in thousands)
The Lofts Apartments $ 4,395 $ 1,053 $ 4,147 $ 1,681
Raleigh, NC
The Sterling Apartment Homes 22,965 2,567 12,341 16,707
and Commerce Center
Philadelphia, PA $27,360 $ 3,620 $16,488 $18,388
<TABLE>
<CAPTION>
Gross Amount At Which Carried
at December 31, 1998
Buildings
And
Related
Personal Accumulated Date of Date Depreciable
Description Land Property Total Depreciation Construction Acquired Life-Years
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
The Lofts $ 997 $ 5,884 $ 6,881 $2,917 1975 11/19/90 5-20
The Sterling 2,567 29,048 31,615 4,381 1961 12/01/95 5-25
Total $ 3,564 $34,932 $38,496 $7,298
</TABLE>
Reconciliation of "Real Estate and Accumulated Depreciation":
Years Ended December 31,
1998 1997 1996
(in thousands)
REAL ESTATE:
Balance, real estate at beginning of year $35,335 $28,582 $ 21,376
Property improvements and replacements 3,239 6,753 7,206
Property sold/written off (78) -- --
Balance, real estate at end of year $38,496 $35,335 $ 28,582
ACCUMULATED DEPRECIATION:
Balance at beginning of year $ 5,014 $ 3,217 $ 1,958
Additions charged to expense 2,292 1,797 1,259
Disposals due to write-offs (8) -- --
Balance at end of year $ 7,298 $ 5,014 $ 3,217
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1998 and 1997, is approximately $39,405,000 and $36,244,000,
respectively. Accumulated depreciation for Federal income tax purposes at
December 31, 1998 and 1997, is approximately $5,100,000 and $3,530,000,
respectively.
NOTE I - 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,
1999 $ 810
2000 1,005
2001 1,030
2002 985
2003 834
Thereafter 2,457
$ 7,121
There is no assurance that this rental income will continue at the same level
when the current leases expire.
NOTE J _ SALE OF LAND
In July 1998, the Partnership sold approximately 55,000 square feet of land
(5.33% of the total land) at The Loft Apartments. The land was situated to the
side of the property. This resulted in a net gain of approximately $19,000 on
the sale.
NOTE K _ ABANDONMENT OF LIMITED PARTNERSHIP UNITS
In 1998, the number of Limited Partnership Units decreased by 6.8 units due to
Limited Partners abandoning their units. In abandoning his or her Limited
Partnership Units, a Limited Partner relinquishes all right, title, and interest
in the Partnership as of the date of abandonment. However, during the year of
abandonment, the Limited Partner is still allocated his or her share of net
income or loss for that year. The income or loss per Limited Partnership Unit
in the accompanying Statements of Operations is calculated based on the number
of units outstanding at the beginning of the year.
NOTE L _ SEGMENT REPORTING
As defined by SFAS. No. 131, "Disclosures about Segments of an Enterprise and
Related Information," the Partnership has two reportable segments: residential
properties and commercial properties. The Partnership's property segments
consist of one apartment complex in North Carolina and one multiple use facility
consisting of apartment units and commercial space in Pennsylvania. The
Partnership rents apartment units to people for terms that are typically less
than twelve months. The commercial property leases space to various medical
offices, various career services facilities, and a credit union at terms ranging
from two months to fifteen years.
The Partnership evaluates performance based on net income. The accounting
policies of the reportable segments are the same as those described in the
summary of significant accounting policies.
The Partnership's reportable segments are business units (investment properties)
that offer different products and services. The reportable segments are each
managed separately because they provide distinct services with different types
of products and customers.
Segment information for the years 1998, 1997, and 1996 is shown in the tables
below. The "Other" column includes partnership administration related items and
income and expense not allocated to reportable segments.
<TABLE>
<CAPTION>
1998 RESIDENTIAL COMMERCIAL OTHER TOTALS
(in thousands)
<S> <C> <C> <C> <C>
Rental income $ 7,853 $ 1,338 $ -- $ 9,191
Interest income 27 6 377 410
Other income 470 155 30 655
Interest expense 751 -- -- 751
Depreciation 2,240 52 -- 2,292
General and administrative expense -- -- 556 556
Interest Income on Investment in
Master Loan -- -- 4,138 4,138
Reduction of provision for
impairment loss -- -- 23,269 23,269
Segment profit (loss) 822 496 27,258 28,576
Total assets 35,283 1,281 78,618 115,182
Capital expenditures for
investment properties 2,902 337 -- 3,239
</TABLE>
<TABLE>
<CAPTION>
1997 RESIDENTIAL COMMERCIAL OTHER TOTALS
<S> <C> <C> <C> <C>
Rental income $6,870 $ 1,038 $ -- 7,908
Interest income 26 4 409 439
Other income 456 137 -- 593
Interest expense 324 -- -- 324
Depreciation 1,782 15 -- 1,797
General and administrative expense -- -- 433 433
Interest Income on Investment
in Master Loan -- -- 2,668 2,668
Segment profit (loss) 717 206 2,644 3,567
Total assets 31,556 566 59,506 91,628
Capital expenditures for
investment properties 6,659 94 -- 6,753
</TABLE>
<TABLE>
<CAPTION>
1996
<S> <C> <C> <C> <C>
Rental income $ 6,185 $ 1,016 $ -- $ 7,201
Interest income 30 3 903 936
Other income 402 83 -- 485
Interest expense 326 -- -- 326
Depreciation 1,256 3 -- 1,259
General and administrative expense -- -- 690 690
Reduction of provision for
impairment loss -- -- 792 792
Segment profit (loss) (280) 103 1,005 828
Total assets 27,212 289 64,156 91,657
Capital expenditures for
investment properties 5,757 -- -- 5,757
</TABLE>
NOTE M _ 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 claim. The General Partner is unable to
determine the costs associated with this claim at this time.
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled ROSALIE NUANES, ET AL. V. INSIGNIA
FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and entities which were, at
the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain
general partner entities, past tender offers by Insignia Affiliates to acquire
limited partnership units, the management of partnerships by Insignia Affiliates
as well as a recently announced agreement between Insignia and AIMCO. The
complaint seeks monetary damages and equitable relief, including judicial
dissolution of the Partnership. On June 25, 1998, the General Partner filed a
motion seeking dismissal of the action. In lieu of responding to the motion,
the plaintiffs have filed an amended complaint. The General Partner has filed
demurrers to the amended complaint which were heard during February 1999. No
ruling on such demurrers has been received. The General Partner does not
anticipate that costs associated with this case, if any, to be material to the
Partnership's overall operations.
On July 30, 1998 certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners were, at the time,
affiliates of Insignia filed a complaint entitled EVEREST PROPERTIES, LLC. V.
INSIGNIA FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of
California, County of Los Angeles. The action involves 44 real estate limited
partnerships (including the Partnership) in which the plaintiffs allegedly own
interests and which Insignia Affiliates allegedly manage or control (the
"Subject Partnerships"). This case was settled on March 3, 1999. The
Partnership is responsible for a portion of the settlement costs. The expense
will not have a material effect on the Partnership's operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 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 and ages of, as well as the positions and offices held by, the present
executive officers of ConCap Equities, Inc. ("CEI") and directors, the
Partnership's General Partner as of December 31, 1998, their ages and the nature
of all positions with CEI presently held by them are as follows:
Name Age Position
Patrick J. Foye 41 Executive Vice President and Director
Timothy R. Garrick 42 Vice President _ Accounting and Director
Patrick J. Foye has been Executive Vice President and Director of the General
Partner since October 1, 1998. Mr. Foye has served as Executive Vice President
of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the
law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was
Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992
through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power
Authority and serves as a member of the New York State Privatization Council.
He received a B.A. from Fordham College and a J.D. from Fordham University Law
School.
Timothy R. Garrick has served as Vice President _ Accounting of AIMCO and Vice
President-Accounting and Director of the General Partner since October 1, 1998.
Prior to that date, Mr. Garrick served as Vice President-Accounting Services of
Insignia Financial Group since June of 1997. From 1992 until June of 1997, Mr.
Garrick served as Vice President of Partnership Accounting and from 1990 to 1992
as an Asset Manager for Insignia Financial Group. From 1984 to 1990, Mr.
Garrick served in various capacities with U.S. Shelter Corporation. From 1979
to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick
received his B.S. Degree from the University of South Carolina and is a
Certified Public Accountant.
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, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
Except as provided below, as of December 31, 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 UNIT OF TOTAL
Insignia Properties, L.P.
(an affiliate of AIMCO) 50,549.4 25.396%
Reedy River Properties, L.L.C.
(an affiliate of AIMCO) 28,832.5 14.485%
Cooper River Properties, L.L.C.
(an affiliate of AIMCO) 11,163.1 5.608%
AIMCO Properties, L.P.
(an affiliate of AIMCO) 598.8 0.301%
Reedy River Properties, L.L.C., Cooper River Properties LLC, AIMCO Properties,
L.P. and Insignia Properties LP are indirectly ultimately owned by AIMCO. With
the exception of AIMCO Properties, L.P., the business address of these
affiliates is 55 Beattie Place, Greenville, SC 29602. The business address for
AIMCO Properties, L.P., is 1873 South Bellaire Street, 17th Floor, Denver,
Colorado 80222.
(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, 1998, the following entity was known to CEI to be the
beneficial owner 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%
55 Beattie Place
P.O. Box 1089
Greenville, SC 29602
Effective February 26, 1999 Insignia Properties Trust merged into AIMCO with
AIMCO being the surviving corporation. As a result, AIMCO ultimately acquired a
100% interest in Insignia Properties Trust.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for (i) certain payments to affiliates for
services and (ii) reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership. The following payments were made to the General
Partner and affiliates during the years ended December 31, 1998, 1997, and 1996:
1998 1997 1996
(in thousands)
Property management fees (included in operating expenses) $485 $424 $409
Reimbursement for services of
affiliates (included in operating,
general and administrative expenses, other
assets and investment properties) 543 587 485
Included in "Reimbursement for services of affiliates" for the years ended 1998,
1997 and 1996 is approximately $33,000, $191,000, and $219,000, respectively, in
reimbursements for construction oversight costs. In addition, approximately
$66,000 and $167,000 of lease commissions are included for the years ended
December 31, 1998 and 1997, respectively and approximately $171,000 in loan
financing costs are included for the year ended December 31, 1998.
During the years ended December 31, 1998, 1997, and 1996, affiliates of the
General Partner, were entitled to receive 5% of gross receipts from all of
Registrant's properties for providing property management services. The
Registrant paid to such affiliates approximately $485,000, $424,000 and $409,000
for the years ended December 31, 1998, 1997, and 1996, respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $543,000, $587,000, and
$485,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
On October 30, 1997, an affiliate of the General Partner (the "Purchaser")
commenced a tender offer for limited partnership interests in the Partnership.
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. During December 1997 the Purchaser acquired 27,330 units at $400
per Unit related to this tender offer. In February 1998, the Purchaser acquired
an additional 1,570.5 units at $400 per Unit as a result of this tender offer.
On July 30, 1998, another affiliate of the General Partner (the "Purchaser")
commenced a tender offer for limited partnership interests in the Partnership.
The Purchaser offered to purchase up to 50,000 of the outstanding units of
limited partnership interest in the Partnership, at $415 per Unit, net to the
seller in cash. The Purchaser acquired 11,163.1 units at $415 per Unit pursuant
to this tender offer. As a result of this purchase, AIMCO currently owns,
through its affiliates, a total of 91,143.8 units or 45.79% of the outstanding
Limited Partnership units. Consequently, AIMCO could be in a position to
significantly influence all voting decisions with respect to the Registrant.
Under the Partnership Agreement, unitholders holding a majority of the Units are
entitled to take action with respect to a variety of matters.
When voting on matters, AIMCO would in all likelihood vote the Units it acquired
in a manner favorable to the interest of the General Partner because of their
affiliation with the General Partner.
For the period of January 1, 1996 to August 31, 1997, the Partnership insured
its properties under a master policy through an agency affiliated with the
General Partner with an 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 which 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.
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 Capital Equity Partners, L.P.
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996
Consolidated Statements of Changes in Partners' (Deficit) Capital for
the Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996
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
(a) See exhibit index
(b) Reports on Form 8-K filed in the fourth quarter of 1998:
Current Report on Form 8-K dated October 1, 1998 and filed on October
16, 1998 disclosing change in control of Registrant from Insignia
Financial Group, Inc., to AIMCO.
Exhibits
S-K REFERENCE DOCUMENT DESCRIPTION
3 Certificates of Limited Partnership, as amended to date.
(Incorporated by reference to the Annual Report on Form 10-K for
the year ended December 31, 1991("1991 Annual Report")).
10.1 Amended Loan Agreement dated November15, 1990 (the "Effective
Date"), by and between the Partnership and EP (Incorporated 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 Date, by and between EP
and CCEP (Incorporated by reference to the 1990 Annual Report).
10.3 Assignment of Claims as of the Effective Date, by and between the
Partnership and EP (Incorporated by reference to the 1990 Annual
Report).
10.4 Assignment of Partnership Interests in Western Can, Ltd., by and
between EP and CCEP (Incorporated by reference to the 1990 Annual
Report).
10.5 Bill of Sale and Assignment dated October 23,1990, 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 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 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, 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 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 Partnership
Services, Inc. ("PSI") to the Partnership 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, 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 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 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 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 June 1, 1993, by and
between the Partnership and Coventry Properties, Inc.
10.16 Assignment and Assumption Agreement as to 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.
10.18 Contract of Sale for Northlake Quadrangle, Tucker, Georgia,
Consolidated Capital Equity Partners, L.P. and SPIVLL Management
and Investment Company dated December 17, 1997, filed in Form 10-
Q for the quarter ended September 30, 1998.
10.19 First Amendment to Contract of Sale for Northlake Quadrangle,
Tucker, Georgia, between Consolidated Capital Equity Partners,
L.P., and SPIVLL Management and Investment Company dated April
16,1998, filed in Form 10-Q for the quarter ended September 30,
1998.
10.20 Mortgage and Security Agreement between Kennedy Boulevard
Associates I, L.P., and Lehman Brothers Holdings Inc., dated
August 25, 1998, securing The Sterling Apartment Home and
Commerce Center filed in Form 10-Q for the quarter ended
September 30, 1998.
10.21 Repair Escrow Agreement between Kennedy Boulevard Associates I
L.P., and Lehman Brothers Holdings Inc. dated August 25, 1998,
securing The Sterling Apartment Home and Commerce Center filed in
Form 10-Q for the quarter ended September 30, 1998.
10.22 Replacement Reserve and Security Agreement between Kennedy
Boulevard Associates I L.P., and Lehman Brothers Holding Inc.
dated August 25, 1998, securing The Sterling Apartment Home and
Commerce Center filed in Form 10-Q for the quarter ended
September 30, 1998.
11 Statement regarding computation of Net Income per Limited
Partnership Unit (Incorporated by reference to Note A of Item 8 -
Financial Statements of this Form 10-K).
16 Letter, dated August 12, 1992, from Ernst & Young to the
Securities and Exchange Commission regarding change in certifying
accountant. (Incorporated by reference to Form 8-K dated August
6, 1992).
27 Financial Data Schedule containing summary 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 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, 1998 and 1997.
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.
General Partner,
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Timothy R. Garrick
Timothy R. Garrick
Vice President _ Accounting
Date: March 31, 1999
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 31, 1999 By: /s/Patrick J. Foye
Date Patrick J. Foye
Executive Vice President
and Director
March 31, 1999 By: /s/Timothy R. Garrick
Date Timothy R. Garrick
Vice President _ Accounting
and Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Consolidated Capital Institutional Properties 1998 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-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 8,683
<SECURITIES> 0
<RECEIVABLES> 985
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 38,496
<DEPRECIATION> 7,298
<TOTAL-ASSETS> 115,182
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 27,360
0
0
<COMMON> 0
<OTHER-SE> 86,134
<TOTAL-LIABILITY-AND-EQUITY> 115,182
<SALES> 0
<TOTAL-REVENUES> 37,663
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,087
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 751
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,576
<EPS-PRIMARY> 142.12<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
FOR THE YEAR ENDED DECEMBER 31, 1998 and 1997
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
TABLE OF CONTENTS
December 31, 1998
LIST OF FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996
Consolidated Statements of Changes in Partners' Deficit for the Years Ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996
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, 1998 and 1997, 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, 1998. 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 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, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ERNST & YOUNG LLP
Greenville, South Carolina
March 3, 1999
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31,
1998 1997
Assets
Cash and cash equivalents $ 1,992 $ 1,439
Receivables and deposits 1,282 1,241
Restricted escrows 759 798
Other assets 1,262 1,550
Investment properties (Notes E & H):
Land 9,237 10,217
Buildings and related personal property 95,236 97,598
104,473 107,815
Less accumulated depreciation (77,251) (75,746)
27,222 32,069
$ 32,517 $ 37,097
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 353 $ 426
Tenant security deposit liabilities 573 620
Accrued property taxes 245 116
Other liabilities 590 513
Mortgage notes (Note E) 22,855 23,133
Master loan and interest payable 318,688 289,783
343,304 314,591
Partners' Deficit
General Partner (3,108) (2,775)
Limited Partners (307,679) (274,719)
(310,787) (277,494)
$ 32,517 $ 37,097
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
Years Ended December 31,
1998 1997 1996
Revenues:
Rental income $ 19,687 $ 18,889 $ 18,654
Other income 1,580 1,310 1,336
Gain on sale of property 425 -- 907
Total revenues 21,692 20,199 20,897
Expenses:
Operating 9,735 10,940 11,016
General and administrative 692 842 965
Depreciation 5,279 5,191 5,257
Interest 38,009 34,512 31,323
Property taxes 1,243 1,271 1,299
Total expenses 54,958 52,756 49,860
Net loss $(33,266) $(32,557) $(28,963)
Net loss allocated to general partner (1%) $ (333) $ (326) $ (290)
Net loss allocated to limited partners (99%) (32,933) (32,231) (28,673)
$(33,266) $(32,557) $(28,963)
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
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, 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)
Distributions -- (27) (27)
Net loss for the year ended
December 31, 1998 (333) (32,933) (33,266)
Partners' deficit at
December 31, 1998 $(3,108) $(307,679) $(310,787)
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
1998 1997 1996
Cash flows from operating activities:
Net loss $(33,266) $(32,557) $(28,963)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Loss on disposal of property 28 13 --
Depreciation and amortization 5,500 5,414 5,450
Gain on sale of property (425) -- (907)
Change in accounts:
Receivables and deposits (41) 398 (332)
Other assets 27 (124) 333
Accounts payable (73) (372) (735)
Tenant security deposit liabilities (16) 9 22
Accrued property taxes 139 (198) 3
Other liabilities 7 151 (252)
Accrued interest on Master Loan 31,592 30,752 29,523
Net cash provided by operating activities 3,472 3,486 4,142
Cash flows from investing activities:
Property improvements and replacements (2,015) (2,425) (3,963)
Lease commissions paid (57) (176) (133)
Proceeds from sale of investment property 2,106 -- 1,882
Net withdrawals from restricted escrows 39 622 1,678
Distributions from investments in limited
partnerships -- 336 124
Net cash provided by (used in)
investing activities 73 (1,643) (412)
Cash flows from financing activities:
Advances on Master Loan -- -- 367
Principal payments on Master Loan (2,687) (2,105) (2,243)
Principal payments on notes payable (278) (260) (283)
Distributions to partners (27) -- --
Loan costs paid -- -- (1)
Repayment of note payable -- -- (1,295)
Net cash used in financing activities (2,992) (2,365) (3,455)
Net increase (decrease) in cash and
cash equivalents 553 (522) 275
Cash and cash equivalents at beginning of year 1,439 1,961 1,686
Cash and cash equivalents at end of year $ 1,992 $ 1,439 $ 1,961
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 6,341 $ 3,682 $ 1,664
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
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" or the "Partnership").
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 was owned
by Insignia Properties Trust ("IPT"). Effective February 26, 1999, IPT was
merged into Apartment Investment and Management Company ("AIMCO"). Hence, CEI
is now a wholly-owned subsidiary of AIMCO (See "Note B" - Transfer of Control).
The Partnership Agreement provides that the Partnership is to terminate on
December 31, 2011 unless terminated prior to such date.
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.
Allocation of Profits, Gains and Losses: 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.
Cash and Cash Equivalents: Includes cash on hand and in banks, money market
accounts and certificates of deposit 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.
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.
Tenant Security Deposits: The Partnership requires security deposits from
lessees for the duration of the lease and such deposits totaling $575,000 (1998)
and $611,000 (1997) are included in receivables and deposits. 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 of several of the properties, 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, 1998 and 1997, the balance in the Replacement Reserve
Fund was approximately $759,000 and $798,000, 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 $517,000 (1998) and $399,000 (1997),
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 7 years.
Loan Costs: Loan costs of approximately $781,000 (1998 and 1997), less
accumulated amortization of approximately $240,000 (1998) and $163,000 (1997),
are included in other assets and are being amortized on a straight-line basis
over the life of the loans.
Advertising: The Partnership expenses the costs of advertising as incurred.
Advertising costs were approximately $382,000, $394,000 and $351,000 for the
years ended December 31, 1998, 1997 and 1996, respectively.
Investment Properties: Investment properties consist of eleven (11) apartment
complexes and one (1) commercial building and are stated at cost. Acquisition
fees are capitalized as a cost of real estate. In accordance with Financial
Accounting Standards Board Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," 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. Costs of properties that have been
permanently impaired have been written down to appraised value. No adjustments
for the impairment of value were recorded in the years ended December 31, 1998
or 1997.
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.
The Partnership generally leases apartment units for twelve-month terms or less.
The Partnership recognizes income as earned on these leases. In addition, the
General Partner's policy is to offer rental concessions during particularly slow
months or in response to heavy competition from other similar complexes in the
area. Concessions are charged against rental income 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,
1998 and 1997, lease commissions totaled approximately $784,000 and $860,000,
respectively, with accumulated amortization of approximately $463,000 and
$383,000, 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 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 $231,040,000
greater than the assets and liabilities as reported in the financial statements
at December 31, 1998.
Fair Value of Financial Instruments: Statement of Financial Accounting Standards
("SFAS") No. 107, "Disclosures about Fair Value of Financial Instruments", as
amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate fair value. Fair value
is defined in the SFAS as the amount at which the instruments could be exchanged
in a current transaction between willing parties, other than in a forced or
liquidation sale. 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 to
maturity, approximates its carrying balance.
Reclassification: Certain reclassifications have been made to the 1996 and 1997
information to conform to the 1998 presentation.
NOTE B - TRANSFER OF CONTROL
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company, a publicly traded real
estate investment trust, with AIMCO being the surviving corporation (the
"Insignia Merger"). As a result, AIMCO ultimately acquired a 100% ownership
interest in Insignia Properties Trust ("IPT"), the entity which controls the
General Partner. The General Partner does not believe that this transaction
will have a material effect on the affairs and operations of the Partnership.
NOTE C - GAIN ON SALE OF PROPERTIES
On April 16, 1998, CCEP sold Northlake Quadrangle to an unrelated third party
for a contract price of $2,325,000. The Partnership received net proceeds of
approximately $2,106,000 after payment of closing costs. The proceeds were
remitted to CCIP to pay down the Master Loan, as required by the Master Loan
Agreement.
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.
NOTE D - MASTER LOAN AND ACCRUED INTEREST PAYABLE
The Master Loan principal and accrued interest payable balances at December 31,
1998 and December 31, 1997, are approximately $318,700,000 and $289,800,000,
respectively.
Terms of Master Loan Agreement
Under the terms of the Master Loan, 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, 1998, 1997 and 1996 was 12.5%. Payments are
currently payable quarterly in an amount equal to "Excess Cash Flow", generally
defined in the Master Loan as net cash flow from operations after third-party
debt service and capital expenditures. Any unpaid interest is added to
principal, compounded annually, and is payable at the loan's maturity. 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.
During the year ended December 31, 1998, CCEP paid approximately $2,687,000 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 $285,000. Approximately $296,000 was due
to an "Excess Cash Flow" payment paid to CCIP as stipulated by the Master Loan.
Approximately $2,106,000 was paid due to the sale of Northlake Quadrangle. Such
proceeds are required to be transferred to CCIP as per the Master Loan
Agreement, as mentioned above.
During the years ended December 31, 1998 and 1997, there were no advances on the
Master Loan. CCIP advanced approximately $367,000 to CCEP as an advance on the
Master Loan during 1996 to pay for deferred maintenance and capital improvements
and to pay off certain third party mortgages.
NOTE E - MORTGAGE NOTES PAYABLE
The principle terms of mortgage notes payable are as follows:
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
Property 1998 Interest Rate Date Maturity
(in thousands) (in thousands)
Indian Creek Village
1st Mortgage $ 4,545 $ 31 6.95% 12/01/05 $ 4,036
The Knolls
1st Mortgage 5,246 36 6.95% 12/01/05 4,659
Palm Lake
1st Mortgage 1,692 12 6.95% 12/01/05 1,503
Plantation Gardens
1st Mortgage 6,866 47 6.95% 12/01/05 6,097
Society Park East
1st Mortgage 1,992 14 6.95% 12/01/05 1,769
Tates Creek Village
1st Mortgage 2,514 17 6.95% 12/01/05 2,233
Totals $22,855 $20,297
The mortgage notes payable are non-recourse and are secured by pledge of the
respective apartment properties and by pledge of revenues from the respective
apartment properties. The mortgage notes are superior to the Master Loan.
Prepayment penalties are required if repaid prior to maturity. Further the
properties may not be sold subject to existing indebtedness. The estimated fair
value of the Partnership's mortgage notes payable is approximately $22,855,000.
This estimate is not necessarily indicative of the amounts the Partnership may
pay in actual market transactions.
Summary of Maturities
Principal payments on notes payable are due as follows (in thousands):
Years Ending December 31,
1999 $ 298
2000 320
2001 343
2002 367
2003 394
Thereafter 21,133
$ 22,855
NOTE F - RELATED PARTY TRANSACTIONS
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for (i) certain payments to affiliates for
services and (ii) reimbursement of certain expenses incurred by affiliates for
services. The following payments were made to the General Partner and
affiliates during the years ended December 31, 1998, 1997 and 1996:
1998 1997 1996
(in thousands)
Property management fees (included in
operating expenses) $1,042 $1,032 $1,000
Investment advisory fees (included in 174 182 182
general and administrative expense)
Reimbursement for services of affiliates
(included in operating, general and
administrative expenses and
investment properties) 346 565 606
Included in "Reimbursements for services of affiliates" for 1998, 1997, and 1996
is approximately $28,000, $78,000, and $150,000, respectively, in reimbursements
for construction oversight costs and approximately $16,000, $139,000, and
$69,000 respectively, in lease commissions.
During the years ended December 31, 1998, 1997, and 1996 affiliates of the
General Partner were entitled to receive 5% of gross receipts from all of the
Partnership's residential properties for providing property management services.
The Partnership paid to such affiliates $945,000, $906,000, and $881,000 for the
years ended December 31, 1998, 1997 and 1996, respectively. For the nine months
ended September 30, 1998 and the years ended December 31, 1997 and 1996,
affiliates of the General Partner were entitled to receive varying percentages
of gross receipts from all of the Partnership's commercial properties for
providing property management services. The Partnership paid to such affiliates
$97,000, $126,000 and $119,000 for the nine months ended September 30, 1998 and
for the years ended December 31, 1997 and 1996, respectively. Effective October
1, 1998 (the effective date of the Insignia Merger), these services for the
commercial properties were provided by an unrelated party.
The Partnership is also subject to an Investment Advisory Agreement between the
Partnership and an affiliate of the General Partner. This agreement provides
for an annual fee, payable in monthly installments, to an affiliate of the
General Partner for advising and consulting services for CCEP's properties. The
Partnership paid to such affiliates $174,000, $182,000, and $182,000 for the
years ended December 31, 1998, 1997, and 1996, respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $346,000, $565,000 and
$606,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
In conjunction with the sale of Northlake Quadrangle in 1998 the General Partner
was entitled to a fee of $102,000 in compensation for its role in the sale.
Such amount is included in other liabilities at December 31, 1998.
In addition to the compensation and reimbursements described above, interest
payments are made to and loan advances are received from Consolidated Capital
Institutional Properties ("CCIP") pursuant to the Master Loan Agreement (the
"Master Loan"). Such interest payments totaled approximately $4,742,000 and
$2,064,000 for the years ended December 31, 1998 and 1997, respectively. There
were no interest payments during 1996. Advances of approximately $367,000 were
made under the Master Loan Agreement during the year ended December 31, 1996.
There were no advances during 1997 or 1998. During the year ended December 31,
1998, CCEP paid approximately $2,687,000 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 $285,000. Approximately $296,000 was due to excess cash flow
payments paid to CCIP as stipulated by the Master Loan Agreement. Approximately
$2,106,000 received was due to the sale of Northlake Quadrangle. Such proceeds
are required to be transferred to the Partnership per the Master Loan Agreement.
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.
For the period January 1, 1996 to August 31, 1997, the Partnership insured its
properties under a master policy through an agency affiliated with the General
Partner. However, the insurer was 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 which 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 was 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,
1999 $1,791
2000 1,201
2001 1,043
2002 902
2003 673
Thereafter 611
$6,221
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 $13,049 $ 13,996 $10,471 3-18
Indian Creek Village 1,041 8,747 9,788 6,826 5-18
The Knolls 647 7,295 7,942 5,690 5-18
Palm Lake 272 4,513 4,785 3,714 5-18
Plantation Gardens 1,958 13,247 15,205 11,194 5-18
Regency Oaks 521 10,459 10,980 8,390 5-18
Magnolia Trace 892 5,792 6,684 4,868 5-18
Shirewood Townhomes 494 6,147 6,641 5,043 5-18
Silverado 628 4,725 5,353 4,120 5-18
Society Park 966 8,550 9,516 7,203 5-18
Society Park East 489 5,362 5,851 3,956 5-18
Tates Creek Village 382 7,350 7,732 5,776 5-18
Total $ 9,237 $95,236 $104,473 $77,251
NOTE I - YEAR 2000 (UNAUDITED)
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the General Partner and its affiliates for management and
administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four Phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the mainframe system used by the Managing Agent became fully
functional. In addition to the mainframe, PC-based network servers and routers
and desktop PCs were analyzed for compliance. The Managing Agent has begun to
replace each of the non-compliant network connections and desktop PCs and, as of
December 31, 1998, had completed approximately 75% of this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by March
31, 1999.
Computer software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
During 1998, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at
all properties, is $200,000, and the implementation and the testing process is
expected to be completed by March 31, 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded 80% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
March 31, 1999.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally. The Managing Agent intends to have a third-party conduct an
audit of these systems and report their findings by March 31, 1999.
Any of the above operating equipment that has been found to be non-compliant to
date has been replaced or repaired. To date, these have consisted only of
security systems and phone systems. As of December 31, 1998 the Managing Agent
has evaluated approximately 86% of the operating equipment for the Year 2000
compliance.
The total cost incurred for all properties managed by the Managing Agent as of
December 31, 1998 to replace or repair the operating equipment was approximately
$400,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $325,000, which is expected to be
completed by April 30, 1999.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within our enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before May 1999.
The Managing Agent has updated data transmission standards with two of the three
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by June 1, 1999.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.8 million ($0.6 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
NOTE J - 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 claim. The General Partner is unable to
determine the costs associated with this claim at this time.
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled ROSALIE NUANES, ET AL. V. INSIGNIA
FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and entities which were, at
the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain
general partner entities, past tender offers by Insignia Affiliates to acquire
limited partnership units, the management of partnerships by Insignia Affiliates
as well as a recently announced agreement between Insignia and AIMCO. The
complaint seeks monetary damages and equitable relief, including judicial
dissolution of the Partnership. On June 25, 1998, the General Partner filed a
motion seeking dismissal of the action. In lieu of responding to the motion,
the plaintiffs have filed an amended complaint. The General Partner has filed
demurrers to the amended complaint which were heard during February 1999. No
ruling on such demurrers has been received. The General Partner does not
anticipate that costs associated with this case, if any, to be material to the
Partnership's overall operations.
On July 30, 1998 certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners were, at the time,
affiliates of Insignia filed a complaint entitled EVEREST PROPERTIES, LLC. V.
INSIGNIA FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of
California, County of Los Angeles. The action involves 44 real estate limited
partnerships (including the Partnership) in which the plaintiffs allegedly own
interests and which Insignia Affiliates allegedly manage or control (the
"Subject Partnerships"). This case was settled on March 3, 1999. The
Partnership is responsible for a portion of the settlement costs. The expense
will not have a material effect on the Partnership's operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
