FORM 10-Q---QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________to _________
Commission file number 0-10831
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
(Exact name of registrant as specified in its charter)
California 94-2744492
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No___
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
(Unaudited) (Note)
Assets
<S> <C> <C>
Cash and cash equivalents $ 7,092 $ 11,175
Receivables and deposits 791 1,078
Restricted escrows 310 600
Other assets 1,832 1,641
Investment in Master Loan 63,157 67,865
Less: allowance for impairment loss (3,176) (17,417)
59,981 50,448
Investment properties:
Land 3,564 3,564
Building and related personal property 38,583 37,115
42,147 40,679
Less: accumulated depreciation (12,222) (9,953)
29,925 30,726
$ 99,931 $ 95,668
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 172 $ 108
Tenant security deposit liabilities 639 574
Accrued property taxes 70 --
Other liabilities 629 627
Mortgage note payable 26,859 27,074
28,369 28,383
Partners' (Deficit) Capital
General partner 114 (58)
Limited partners (199,045.2 units issued and
outstanding) 71,448 67,343
71,562 67,285
$ 99,931 $ 95,668
Note: The balance sheet at December 31, 1999, has been derived from the audited
financial statements at that date, but does not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
b)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Revenues:
<S> <C> <C> <C> <C>
Rental income $ 2,781 $ 2,470 $ 8,008 $ 7,389
Interest income on investment
in Master Loan to affiliate 1,000 1,691 2,000 2,744
Reduction of provision for
impairment loss 14,241 -- 14,241 --
Interest income 84 54 299 195
Other income 201 145 568 454
Property tax refunds 210 -- 210 61
Total revenues 18,517 4,360 25,326 10,843
Expenses:
Operating 1,123 936 3,431 3,144
Depreciation 764 711 2,269 1,974
General and administrative 274 120 573 417
Property taxes 163 142 449 427
Interest 492 485 1,451 1,447
Total expenses 2,816 2,394 8,173 7,409
Net income $15,701 $ 1,966 $17,153 $ 3,434
Net income allocated
to general partner (1%) $ 157 $ 19 $ 172 $ 34
Net income allocated
to limited partners (99%) 15,544 1,947 16,981 3,400
$15,701 $ 1,966 $17,153 $ 3,434
Net income per Limited
Partnership Unit $ 78.09 $ 9.78 $ 85.31 $ 17.08
Distributions per Limited
Partnership Unit $ 31.17 $104.35 $ 64.69 $113.64
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
c)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 200,342.0 $ 1 $200,342 $200,343
Partners' (deficit) capital
at December 31, 1998 199,045.2 $ (96) $ 86,230 $ 86,134
Distributions to partners -- -- (22,621) (22,621)
Net income for the nine months
ended September 30, 1999 -- 34 3,400 3,434
Partners' (deficit) capital
at September 30, 1999 199,045.2 $ (62) $ 67,009 $ 66,947
Partners' (deficit) capital at
December 31, 1999 199,045.2 $ (58) $ 67,343 $ 67,285
Distributions to partners -- -- (12,876) (12,876)
Net income for the nine months
ended September 30, 2000 -- 172 16,981 17,153
Partners' capital at
September 30, 2000 199,045.2 $ 114 $ 71,448 $ 71,562
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
d)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net income $ 17,153 $ 3,434
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,356 2,067
Reduction of provision for impairment loss (14,241) --
Change in accounts:
Receivables and deposits 287 58
Other assets (212) (517)
Accounts payable 64 (230)
Tenant security deposit liabilities 65 71
Accrued property taxes 70 (13)
Other liabilities 2 (117)
Net cash provided by operating activities 5,544 4,753
Cash flows from investing activities:
Net receipts from restricted escrows 290 1,351
Property improvements and replacements (1,468) (1,752)
Principal receipts on Master Loan 4,708 20,153
Lease commissions paid (59) --
Net cash provided by investing activities 3,471 19,752
Cash flows from financing activities:
Distributions to partners (12,876) (2,246)
Payments on notes payable (215) (213)
Loan costs paid (7) (8)
Net cash used in financing activities (13,098) (2,467)
Net (decrease) increase in cash and cash equivalents (4,083) 22,038
Cash and cash equivalents at beginning of period 11,175 8,683
Cash and cash equivalents at end of period $ 7,092 $ 30,721
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,401 $ 1,404
Supplemental disclosure of non-cash activity:
As of September 30, 1999, distributions payable was adjusted by approximately
$20,375 relating to non-cash activity.
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
e)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Consolidated
Capital Institutional Properties (the "Partnership" or "Registrant") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of ConCap Equities, Inc. (the "General
Partner"), all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and nine month periods ended September 30, 2000, are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 2000. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Partnership's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999.
Reclassifications
Certain reclassifications have been made to the 1999 information to conform to
the 2000 presentation.
Principles of Consolidation
The Partnership's financial statements include the accounts of Kennedy Boulevard
Associates, I, L.P., a Pennsylvania Limited Partnership ("KBA-I, L.P."), 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").
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 ("AIMCO"), a publicly
traded real estate investment trust, with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the General Partner. The General Partner does not believe that this transaction
has had or will have a material effect on the affairs and operations of the
Partnership.
<PAGE>
Note C - Related Party Transactions
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for (i) certain payments to affiliates for
services and (ii) reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership. The following payments were made to the General
Partner and its affiliates during the nine months ended September 30, 2000 and
1999:
2000 1999
(in thousands)
Property management fees (included in operating expenses) $ 429 $ 395
Reimbursement for services of affiliates (included in
operating, and general and administrative expenses
and investment properties) 398 187
During the nine months ended September 30, 2000 and 1999, affiliates of the
General Partner were entitled to receive 5% of gross receipts from the
Registrant's properties for providing property management services. The
Registrant paid to such affiliates approximately $429,000 and $395,000 for the
nine months ended September 30, 2000 and 1999, respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $398,000 and $187,000 for the
nine months ended September 30, 2000 and 1999, respectively.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates currently own 123,837.50 limited
partnership units in the Partnership representing 62.214% of the outstanding
units. A number of these units were acquired pursuant to tender offers made by
AIMCO or its affiliates. It is possible that AIMCO or its affiliates will make
one or more additional offers to acquire additional limited partnership
interests in the Partnership for cash or in exchange for units in the operating
partnership of AIMCO. Under the Partnership Agreement, unitholders holding a
majority of the Units are entitled to take action with respect to a variety of
matters, which would include without limitation, voting on certain amendments to
the Partnership Agreement and voting to remove the General Partner. As a result
of its ownership of 62.214% of the outstanding units, AIMCO is in a position to
influence all voting decisions with respect to the Registrant. 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.
<PAGE>
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 September 30, 2000, 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 nine months ended September 30, 2000 and 1999, the Partnership recorded
approximately $2,000,000 and $2,744,000, respectively, of interest income based
upon "Excess Cash Flow" generated (as defined in the terms of the New Master
Loan Agreement).
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. During the nine months ended September 30,
2000, a reduction in the provision for impairment loss was recognized for
approximately $14,241,000 due to an increase in the net realizable value of the
collateral properties. There was no change in the provision for impairment loss
for the nine months ended September 30, 1999. 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 concerted 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 in order to fund
such improvements. 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 of such properties. The
increase in occupancy at the properties is attributable to approximately
$6,847,000 of combined capital improvements made at most of the properties for
the past twenty one months. These improvements have been funded primarily from
property operations and cash flows. During the nine months ended September 30,
2000 and 1999, the Partnership made no advances to CCEP as an advance on the
Master Loan.
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 nine months ended September 30, 2000.
<PAGE>
Interest, calculated on the accrual basis, due to the Partnership pursuant to
the terms of the Master Loan Agreement, but not recognized in the consolidated
statements of operations due to the impairment of the loan, totaled
approximately $29,681,000 and $27,471,000 for the nine months ended September
30, 2000 and 1999, respectively. Interest income is recognized on the cash basis
as allowed under SFAS 114. At September 30, 2000, and December 31, 1999, such
cumulative unrecognized interest totaling approximately $296,656,000 and
$266,975,000 was not included in the balance of the investment in Master Loan.
In addition, eight of the properties are collateralized by first mortgages
totaling approximately $40,590,000 at September 30, 2000, which are superior to
the Master Loan. During the nine months ended September 30, 2000, CCEP incurred
new first mortgage debt on two properties and refinanced first mortgage debt on
three properties. Accordingly, these facts have been taken into consideration in
determining the fair value of the Master Loan.
During the nine months ended September 30, 2000 the Partnership received
approximately $4,708,000 as principal payments on the Master Loan. Approximately
$182,000 was from cash received on certain investments by CCEP, which are
required to be transferred to CCIP as per the Master Loan Agreement and the
remaining, $4,526,000 resulted from the receipt of net proceeds from the sale of
Shirewood Townhomes by CCEP on July 21, 2000. Subsequent to September 30, 2000
the Partnership received approximately $28,770,000 as principal payments on the
Master Loan.
During the nine months ended September 30, 1999, the Partnership received
approximately $20,153,000 as principal payments on the Master Loan.
Approximately $153,000 was from cash received on certain investments by CCEP,
which are required to be transferred to CCIP as per the Master Loan Agreement
and the remaining, $20,000,000 resulted from the receipt of net proceeds from
the sale of 444 De Haro.
Note E - Commitment
Until October 17, 2000, the Partnership was required by the Partnership
Agreement to maintain working capital reserves for contingencies of not less
than 5% of Net Invested Capital, as defined in the Partnership Agreement. In the
event expenditures were made from this reserve, operating revenues were to be
allocated to such reserve to the extent necessary to maintain the foregoing
level. Reserves, including cash and securities available for sale, totaling
approximately $7,092,000, were greater than the reserve requirement of
approximately $4,315,000 at September 30, 2000. On September 16, 2000, the
Partnership sought the vote of limited partners to amend the Partnership
Agreement to eliminate the requirement for the Partnership to maintain reserves
equal to at least 5% of the limited partner's capital contributions less
distributions to limited partners and instead permit the General Partner to
determine reasonable reserve requirements of the Partnership. The vote was
sought pursuant to a Consent Solicitation that expired on October 16, 2000 at
which time the amendment was approved by the requisite percent of limited
partnership interests. Upon expiration of the consent period, a total number of
140,565.90 units had voted of which 136,767.20 units had voted in favor of the
amendment, 2,805.70 voted against the amendment and 993.00 units abstained.
<PAGE>
Note F - Distributions
Distributions from surplus cash of approximately $12,876,000 were paid to the
limited partners ($64.69 per limited partnership unit) during the nine months
ended September 30, 2000. During the nine months ended September 30, 1999, the
Partnership paid approximately $2,246,000 in distributions from surplus cash to
the limited partners ($11.28 per limited partnership unit). In addition,
distributions totaling approximately $20,375,000 were declared as of September
30, 1999 and paid from surplus funds in October 1999 to the limited partners
(approximately $102.36 per limited partnership unit). Included in the amounts at
September 30, 2000 are payments to both the Pennsylvania and North Carolina
Departments of Revenue for withholding taxes related to income generated by the
Registrant's investment properties located in those states. Included in the
amounts at September 30, 1999 are payments to the North Carolina Department of
Revenue for withholding taxes related to income generated by the Registrant's
investment property located in that state. Subsequent to September 30, 2000, the
Partnership declared and paid to the limited partners a distribution from
surplus cash of approximately $35,004,000 ($175.86 per limited partnership
unit). Approximately $28,770,000 of which was from the receipt of net financing
and refinancing proceeds from CCEP subsequent to September 30, 2000.
Note G - Segment Reporting
Description of the types of products and services from which the reportable
segment derives its revenues:
The Partnership has two reportable segments: residential properties and
commercial properties. The Partnership's residential property segment consists
of one apartment complex located in North Carolina and one multiple-use facility
consisting of apartment units and commercial space located in Pennsylvania. The
Partnership rents apartment units to tenants for terms that are typically twelve
months or less.
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.
Measurement of segment profit or loss:
The Partnership evaluates performance based on segment profit (loss) before
depreciation. The accounting policies of the reportable segments are the same as
those described in the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1999.
Factors management used to identify the enterprise's reportable segment:
The Partnership's reportable segments are 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.
<PAGE>
Segment information for the three and nine month periods ended September 30,
2000 and 1999 is shown in the tables below (in thousands). The "Other" column
includes Partnership administration related items and income and expense not
allocated to the reportable segment.
<TABLE>
<CAPTION>
Three Months Ended September 30, 2000
Residential Commercial Other Totals
<S> <C> <C> <C> <C>
Rental income $ 2,395 $ 386 $ -- $ 2,781
Interest income 23 5 56 84
Other income 134 66 1 201
Property tax refunds 179 31 -- 210
Interest income on investment in
Master Loan -- -- 1,000 1,000
Reduction of provision for
impairment loss -- -- 14,241 14,241
Interest expense 433 59 -- 492
Depreciation 743 21 -- 764
General and administrative
expense -- -- 274 274
Segment profit 577 100 15,024 15,701
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000
Residential Commercial Other Totals
<S> <C> <C> <C> <C>
Rental income $ 6,858 $ 1,150 $ -- $ 8,008
Interest income 65 19 215 299
Other income 390 177 1 568
Property tax refunds 179 31 -- 210
Interest income on investment in
Master Loan -- -- 2,000 2,000
Reduction of provision for
impairment loss -- -- 14,241 14,241
Interest expense 1,274 177 -- 1,451
Depreciation 2,206 63 -- 2,269
General and administrative
expense -- -- 573 573
Segment profit 949 320 15,884 17,153
Total assets 32,915 1,950 65,066 99,931
Capital expenditures for
investment properties 1,449 19 -- 1,468
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999
Residential Commercial Other Totals
<S> <C> <C> <C> <C>
Rental income $ 2,085 $ 385 $ -- $ 2,470
Interest income 5 2 47 54
Other income 103 42 -- 145
Interest income on investment
in Master Loan -- -- 1,691 1,691
Interest expense 446 39 -- 485
Depreciation 684 27 -- 711
General and administrative
expense -- -- 120 120
Segment profit 156 192 1,618 1,966
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1999
Residential Commercial Other Totals
<S> <C> <C> <C> <C>
Rental income $ 6,325 $ 1,064 $ -- $ 7,389
Interest income 20 4 171 195
Other income 343 111 -- 454
Property tax refunds 52 9 -- 61
Interest income on investment
in Master Loan -- -- 2,744 2,744
Interest expense 1,290 157 -- 1,447
Depreciation 1,912 62 -- 1,974
General and administrative
expense -- -- 417 417
Segment profit 569 367 2,498 3,434
Total assets 34,718 1,860 79,290 115,868
Capital expenditures
for investment properties 1,716 36 -- 1,752
</TABLE>
Note H - Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, its General Partner and several of their affiliated
partnerships and corporate entities. The action 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 of interests in certain general partner
entities by Insignia Financial Group, Inc. ("Insignia") and entities which were,
at one time, affiliates of Insignia; past tender offers by the Insignia
affiliates to acquire limited partnership units; the management of partnerships
by the Insignia affiliates; and the Insignia Merger. The plaintiffs seek
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 filed demurrers to the
amended complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to final court approval, on behalf of the Partnership
and all limited partners who owned units as of November 3, 1999. Preliminary
approval of the settlement was obtained on November 3, 1999 from the Court, at
which time the Court set a final approval hearing for December 10, 1999. Prior
to the December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the General Partner and its affiliates terminated the
proposed settlement. In February 2000, counsel for some of the named plaintiffs
filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated
the settlement. On June 27, 2000, the Court entered an order disqualifying them
from the case. The Court is considering applications for lead counsel and has
currently scheduled a hearing on the matter for November 20, 2000. The General
Partner does not anticipate that costs associated with this case will be
material to the Partnership's overall 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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The matters discussed in this Form 10-Q contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-Q 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
operations. 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.
The Partnership's investment properties consist of two properties, The Loft and
The Sterling Apartment Homes and Commerce Center ("The Sterling"). The Sterling
is a multiple-use facility which consists of an apartment complex and commercial
space. The following table sets forth the average occupancy of the properties
for the nine months ended September 30, 2000 and 1999:
Average Occupancy
Property 2000 1999
The Loft Apartments 93% 96%
Raleigh, North Carolina
The Sterling Apartment Homes 93% 91%
The Sterling Commerce Center 89% 88%
Philadelphia, Pennsylvania
The decrease in occupancy at The Loft Apartments is attributed to a large number
of new apartment complexes in the area.
Results of Operations
The Partnership's net income for the nine months ended September 30, 2000 was
approximately $17,153,000 compared to net income of approximately $3,434,000 for
the corresponding period in 1999. The Partnership recorded net income of
approximately $15,701,000 for the three months ended September 30, 2000 compared
to net income of approximately $1,966,000 for the corresponding period in 1999.
The increase in net income for the three and nine months ended September 30,
2000 compared with the corresponding period in 1999 was primarily due to the
$14,241,000 reduction of provision for impairment loss recognized in 2000.
During the nine months ended September 30, 2000, a reduction in the provision
for impairment loss was recognized for approximately $14,241,000 due to an
increase in the net realizable value of the collateral properties. There was no
change in the provision for impairment loss for the nine months ended September
30, 1999. 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 concerted 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 in order to fund such improvements. 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 of such properties. The increase in occupancy at the properties is
attributable to approximately $6,847,000 of combined capital improvements made
at most of the properties for the past twenty one months. These improvements
have been funded primarily from property operations and cash flows. During the
nine months ended September 30, 2000 and 1999, the Partnership made no advances
to CCEP as an advance on the Master Loan.
Excluding the reduction of provision for impairment loss, the partnership's net
income for the three and nine months ended September 30, 2000 was approximately
$1,460,000 and $2,912,000 as compared to approximately $1,966,000 and $3,434,000
for the three and nine months ended September 30, 1999. The decrease in net
income for the nine month period ended September 30, 2000 compared with the nine
month period ended September 30, 1999 was primarily due to an increase in total
expenses, partially offset by an increase in total revenues. The decrease in net
income for the three month period ended September 30, 2000 compared with the
three month period ended September 30, 1999 was primarily due to an increase in
total expenses and a decrease in total revenues. The increase in total revenues
for the nine months ended September 30, 2000 is attributable to an increase in
rental income, interest income, other income and property tax refunds which more
than offset the decrease in interest income on investment in Master Loan to
affiliate. The decrease in total revenues for the three months ended September
30, 2000 is due to the decrease in interest income on investment in Master Loan
to affiliate more than offsetting the increases in the other components of total
revenues. The decrease in interest income related to the Master Loan is a factor
of the method used to recognize income. Income is only recognized to the extent
that actual cash is received. The receipt of cash is dependent on the
corresponding cash flow of the properties, which secure the Master Loan. Cash
flow for these properties was lower for the nine months ended September 30, 2000
as a result of capital expenditures at the properties. The increase in rental
income for the three and nine months ended September 30, 2000 as compared to the
same periods in 1999, was due to increases in average rental rates at the
Registrant's investment properties offset slightly by a decrease in occupancy at
The Loft Apartments. In addition, there has been a decrease in concessions
offered at The Sterling as a result of the complex nearing completion of its
renovation. The increase in interest income is the result of increased levels of
cash maintained in interest bearing accounts. The increase in real estate tax
refunds is due to The Sterling receiving refunds on prior year tax bills which
had been under appeal.
The increase in total expenses for the three and nine months ended September 30,
2000 is primarily due to an increase in depreciation, operating expenses and
general and administrative expenses. The increase in operating expense is the
result of an increase in property expenses, slightly offset by a decrease in
maintenance expense. Property expenses increased due to an increase in the cost
of utility expense and salaries at The Sterling. Maintenance expenses decreased
due to decreases in repairs and supplies at The Sterling. Depreciation expense
increased due to major capital improvements and replacements at The Sterling
during 1999.
General and administrative expenses increased for the three and nine month
periods ended September 30, 2000 and 1999 due to an increase in the costs of
services included in the 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 Partnership from increases in expenses. As part of
this plan, the General Partner attempts to protect the Partnership from the
burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, 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 September 30, 2000, the Partnership had cash and cash equivalents of
approximately $7,092,000 as compared to approximately $30,721,000 at September
30, 1999. Cash and cash equivalents decreased approximately $4,083,000 for the
nine months ended September 30, 2000 from the Partnership's year ended December
31, 1999. This decrease was primarily due to approximately $13,098,000 of net
cash used in financing activities offset by approximately $3,471,000 of net cash
provided by investing activities and approximately $5,544,000 of net cash
provided by operating activities. Cash provided by investing activities
consisted primarily of principal repayments received on the Master Loan and net
receipts from escrow accounts maintained by the mortgage lender partially offset
by property improvements and replacements and lease commissions paid. Cash used
in financing activities consisted primarily of distributions to partners and, to
a lesser extent, payments of principal made on the mortgages encumbering the
Registrant's properties and other loan costs. The Registrant invests its working
capital reserves in money market accounts.
<PAGE>
Until October 17, 2000, the Partnership was required by the Partnership
Agreement to maintain working capital reserves for contingencies of not less
than 5% of Net Invested Capital, as defined in the Partnership Agreement. In the
event expenditures were made from this reserve, operating revenues were to be
allocated to such reserve to the extent necessary to maintain the foregoing
level. Reserves, including cash and securities available for sale, totaling
approximately $7,092,000, were greater than the reserve requirement of
approximately $4,315,000 at September 30, 2000. On September 16, 2000, the
Partnership sought the vote of limited partners to amend the Partnership
Agreement to eliminate the requirement for the Partnership to maintain reserves
equal to at least 5% of the limited partner's capital contributions less
distributions to limited partners and instead permit the General Partner to
determine reasonable reserve requirements of the Partnership. The vote was
sought pursuant to a Consent Solicitation that expired on October 16, 2000 at
which time the amendment was approved by the requisite percent of limited
partnership interests. Upon expiration of the consent period, a total number of
140,565.90 units had voted of which 136,767.20 units had voted in favor of the
amendment, 2,805.70 voted against the amendment and 993.00 units abstained.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the various properties to adequately maintain the
physical assets and other operating needs of the Partnership and to comply with
Federal, state, and local, legal and regulatory requirements. Capital
improvements planned for each of the Registrant's properties are detailed below.
The Loft
The Partnership has budgeted, but is not limited to, approximately $93,000 for
capital improvements during the current year consisting of floor covering and
mini-blinds replacements, appliances, HVAC condensing units, and water heaters.
During the nine months ended September 30, 2000, the Partnership completed
approximately $77,000 of budgeted capital improvements, consisting primarily of
appliances, floor covering replacement and mini-blind replacements. These
improvements were funded from cash flow and replacement reserves.
The Sterling
The Partnership has budgeted, but is not limited to, approximately $2,610,000
for capital improvements during the current year consisting of appliances,
cabinet replacements, interior building improvements, electrical and plumbing
upgrades, and floor covering replacements. During the nine months ended
September 30, 2000, the Partnership completed approximately $1,391,000 of
budgeted capital improvements consisting primarily of plumbing and electrical
upgrades, air conditioning units, appliance and cabinet replacements and
interior building improvements. These improvements were funded primarily from
cash flow and replacement reserves.
The additional capital improvements planned for 2000 at the Partnership's
properties will be made only to the extent of cash available from operations and
Partnership reserves. To the extent that such budgeted capital improvements are
completed, the 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 (exclusive of capital improvements) of the Registrant. The mortgage
indebtedness of approximately $26,859,000 requires monthly payments of principal
and interest and balloon payments of approximately $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 dates. If the properties cannot be refinanced or sold for a sufficient
amount, the Registrant may risk losing such properties through foreclosure.
Distributions from surplus cash of approximately $12,876,000 were paid to the
limited partners ($64.68 per limited partnership unit) during the nine months
ended September 30, 2000. During the nine months ended September 30, 1999, the
Partnership paid approximately $2,246,000 in distributions from surplus cash to
the limited partners ($11.28 per limited partnership unit). In addition,
distributions totaling approximately $20,375,000 were declared as of September
30, 1999 and paid from surplus funds in October 1999 to the limited partners
(approximately $102.36 per limited partnership unit). Included in the amounts at
September 30, 2000 are payments to both the Pennsylvania and North Carolina
Departments of Revenue for withholding taxes related to income generated by the
Registrant's investment properties located in those states. Included in the
amounts at September 30, 1999, are payments to the North Carolina Department of
Revenue for withholding taxes related to income generated by the Registrant's
investment property located in that state. Subsequent to September 30, 2000, the
Partnership declared and paid to the limited partners a distribution from
surplus cash of approximately $35,004,000 ($175.86 per limited partnership
unit). Approximately $28,770,000 of which was from the receipt of net financing
and refinancing proceeds from CCEP subsequent to September 30, 2000. The
Registrant's distribution policy is reviewed on a quarterly basis. Future cash
distributions will depend on the levels of net cash generated from operations,
the availability of cash reserves, and the timing of debt maturities,
refinancings, and/or property sales. There can be no assurance, however, that
the Partnership will generate sufficient funds from operations, after planned
capital improvement expenditures, to permit further distributions to its
partners during the remainder of 2000 or subsequent periods.
CCEP Property Operations
For the nine months ended September 30, 2000, CCEP's net loss totaled
approximately $26,957,000 on total revenues of approximately $17,835,000 of
which approximately $3,024,000 is from the gain on sale of one of CCEP's
investment properties. CCEP recognizes interest expense on the 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 nine months ended September 30, 2000 and 1999, CCEP's
statement of operations includes total interest expense attributable to the
Master Loan of approximately $31,680,000 and $30,215,000, respectively, all but
approximately $2,000,000 and $2,744,000, respectively, 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 nine months ended September 30, 2000, the Partnership received
approximately $4,708,000 in principal payments on the Master Loan. Approximately
$182,000 was from cash received on certain investments by CCEP, which are
required to be transferred to the Partnership per the Master Loan Agreement and
the remaining $4,526,000 resulted from the receipt of net proceeds from the sale
of Shirewood Townhomes by CCEP on July 21, 2000. Subsequent to September 30,
2000 the Partnership received approximately $28,770,000 as principal payments on
the Master Loan.
<PAGE>
On July 21, 2000, CCEP sold Shirewood Townhomes, located in Shreveport,
Louisiana, to an unaffiliated third party for net sales proceeds of
approximately $4,526,000, after payment of closing costs. CCEP used all of the
proceeds from the sale to paydown the Master Loan principal, as required by the
Master Loan Agreement. The sale resulted in a gain on sale of investment
property of approximately $3,024,000.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
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 the Partnership's control, such as an
oversupply of similar properties resulting from overbuilding, increases in
unemployment or population shifts, reduced availability of permanent mortgage
financing, changes in zoning laws, or changes in the patterns or needs of users.
The investment properties are also susceptible to the impact of economic and
other conditions outside of the control of the Partnership as well as being
affected by current trends in the market area in which they operate. In this
regard, the General Partner of the Partnership closely monitors the performance
of the properties collateralizing the loans. 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 do not offset the Partnership's
results of operations as it relates to the Loan.
The Partnership is exposed to market risks from adverse changes in interest
rates. In this regard, changes in U.S. interest rates affect the interest earned
on the Partnership's cash and cash equivalents as well as interest paid on its
indebtedness. As a policy, the Partnership does not engage in speculative or
leveraged transactions, nor does it hold or issue financial instruments for its
borrowing activities used to maintain liquidity and fund business operations. To
mitigate the impact of fluctuations in U.S. interest rates, the Partnership
maintains its debt as fixed rate in nature by borrowing on a long-term basis.
Based on interest rates at September 30, 2000, an increase or decrease of 100
basis points in market interest rates would not have a material impact on the
Partnership.
The following table summarizes the Partnership's debt obligations at September
30, 2000. The interest rates represent the weighted-average rates. The fair
value of the debt obligations approximate the recorded value as of September 30,
2000.
Principal Amount by Expected Maturity
Fixed Rate Debt
Long-term Average Interest
Debt Rate 6.86%
(in thousands)
2000 $ 82
2001 323
2002 346
2003 371
2004 393
Thereafter 25,344
Total $ 26,859
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, its General Partner and several of their affiliated
partnerships and corporate entities. The action 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 of interests in certain general partner
entities by Insignia Financial Group, Inc. ("Insignia") and entities which were,
at one time, affiliates of Insignia; past tender offers by the Insignia
affiliates to acquire limited partnership units; the management of partnerships
by the Insignia affiliates; and the Insignia Merger. The plaintiffs seek
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 filed demurrers to the
amended complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to final court approval, on behalf of the Partnership
and all limited partners who owned units as of November 3, 1999. Preliminary
approval of the settlement was obtained on November 3, 1999 from the Court, at
which time the Court set a final approval hearing for December 10, 1999. Prior
to the December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the General Partner and its affiliates terminated the
proposed settlement. In February 2000, counsel for some of the named plaintiffs
filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated
the settlement. On June 27, 2000, the Court entered an order disqualifying them
from the case. The Court is considering applications for lead counsel and has
currently scheduled a hearing on the matter for November 20, 2000. The General
Partner does not anticipate that costs associated with this case will be
material to the Partnership's overall operations.
Item 4. Submission of Matters to a Vote of Security Holders
On September 16, 2000, the Partnership sought the vote of limited partners to
amend the Partnership Agreement to eliminate the requirement for the Partnership
to maintain reserves equal to at least 5% of the limited partners' capital
contributions less distributions to limited partners and instead permit the
General Partner to determine reasonable reserve requirements of the Partnership.
The vote was sought pursuant to a Consent Solicitation that expired on October
16, 2000 at which time the amendment was approved by the requisite percent of
limited partnership interests. Upon expiration of the consent period, a total of
140,565.90 units had voted of which 136,767.20 units had voted in favor of the
amendment, 2,805.70 units voted against the amendment and 993.00 units
abstained.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
S-K Reference
Number Description
27 Financial Data Schedule, is filed as an exhibit to this report.
99.1 Consolidated Capital Equity Partners, L.P., unaudited
financial statements for the nine months ended September 30, 2000 and 1999.
b) Reports on Form 8-K during the quarter ended September 30, 2000:
Current report on Form 8-K filed August 7, 2000 disclosing the sale of
Shirewood Townhomes, one of Consolidated Capital Equity Partners, L.P.'s
properties.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES
By: CONCAP EQUITIES, INC.
Its General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President and
Controller
Date: November 14, 2000
<PAGE>
EXHIBIT 99.1
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
September 30, 2000 and 1999
EXHIBIT 99.1 (Continued)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands, except unit data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
(Unaudited) (Note)
Assets
<S> <C> <C>
Cash and cash equivalents $ 20,446 $ 2,865
Receivables and deposits 2,306 1,359
Restricted escrows 387 718
Other assets 1,277 761
Investment properties:
Land 7,796 8,290
Building and related personal property 82,293 85,969
90,089 94,259
Less accumulated depreciation (69,701) (71,592)
20,388 22,667
$ 44,804 $ 28,370
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 514 $ 493
Tenant security deposit liabilities 483 466
Accrued property taxes 890 435
Other liabilities 447 555
Mortgage notes 40,590 22,556
Master loan and interest payable 359,812 334,840
402,736 359,345
Partners' Deficit
General partner (3,580) (3,310)
Limited partners (354,352) (327,665)
(357,932) (330,975)
$ 44,804 $ 28,370
Note: The balance sheet at December 31, 1999, has been derived from the audited
financial statements at that date, but does not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
EXHIBIT 99.1 (Continued)
b)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Revenues: (restated) (restated)
<S> <C> <C> <C> <C>
Rental income $ 4,360 $ 4,455 $ 13,518 $ 13,360
Other income 443 295 1,293 969
Gain on sale of investment property 3,024 -- 3,024 --
Total revenues 7,827 4,750 17,835 14,329
Expenses:
Operating 2,092 2,090 6,236 6,179
General and administrative 242 166 560 453
Depreciation 1,072 1,197 3,729 3,538
Interest 10,890 10,466 32,920 31,460
Property taxes 287 296 940 917
Total expenses 14,583 14,215 44,385 42,547
Loss from continuing operations (6,756) (9,465) (26,550) (25,218)
(Loss) income from discontinued
operations -- (172) -- 12
Gain on sale of discontinued operations -- 16,690 -- 16,690
(Loss) income before extraordinary
item (6,756) 7,053 (26,550) (11,516)
Extraordinary loss on early
extinguishment of debt (407) -- (407) --
Net (loss) income $ (7,163) $ 7,053 $(26,957) $(11,516)
Net (loss) income allocated to general
partner (1%) $ (72) $ 71 $ (270) $ (115)
Net (loss) income allocated to limited
partners (99%) (7,091) 6,982 (26,687) (11,401)
$ (7,163) $ 7,053 $(26,957) $(11,516)
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
EXHIBIT 99.1 (Continued)
c)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands)
General Limited
Partners Partners Total
Partners' deficit at
December 31, 1998 $ (3,108) $(307,679) $(310,787)
Net loss for the nine months
ended September 30, 1999 (115) (11,401) (11,516)
Partners' deficit
at September 30, 1999 $ (3,223) $(319,080) $(322,303)
Partners' deficit
at December 31, 1999 $ (3,310) $(327,665) $(330,975)
Net loss for the nine months
ended September 30, 2000 (270) (26,687) (26,957)
Partners' deficit at
September 30, 2000 $ (3,580) $(354,352) $(357,932)
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
EXHIBIT 99.1 (Continued)
d)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net loss $(26,957) $(11,516)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 3,788 4,088
Gain on sale of discontinued operations -- (16,690)
Extraordinary loss on early extinguishment of debt 407 --
Gain on sale of investment property (3,024) --
Change in accounts:
Receivables and deposits (947) (446)
Other assets (5) (1,390)
Accounts payable 21 (94)
Tenant security deposit liabilities 17 (110)
Accrued property taxes 455 619
Other liabilities (108) 499
Accrued interest on Master Loan 29,680 27,471
Net cash provided by operating activities 3,327 2,431
Cash flows from investing activities:
Property improvements and replacements (2,945) (2,212)
Proceeds from sale of investment property 4,526 21,900
Net receipts from restricted escrows 324 160
Lease commission paid -- (144)
Net cash provided by investing activities 1,905 19,704
Cash flows from financing activities:
Principal payments on Master Loan (4,708) (20,153)
Principal payments on notes payable (238) (223)
Proceeds from refinancing 24,325 --
Payoff of mortgage notes payable (6,053) --
Debt extinguishment cost (251) --
Loan cost paid (726) --
Net cash provided by (used in) financing
activities 12,349 (20,376)
Net increase in cash and cash equivalents 17,581 1,759
Cash and cash equivalents at beginning of period 2,865 1,992
Cash and cash equivalents at end of period $ 20,446 $ 3,751
Supplemental disclosure of cash flow information:
Cash paid for interest $ 3,216 $ 3,930
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
e)
CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Going Concern
The Partnership's financial statements have been prepared assuming that the
Partnership will continue as a going concern. The Partnership continues to incur
operating losses, suffers from inadequate liquidity, has an accumulated deficit
and is unable to repay the Master Loan balance, which matures in November 2000.
The Partnership realized a net loss of approximately $26,957,000 for the nine
months ended September 30, 2000. The General Partner expects the Partnership to
continue to incur such losses from operations. The Partnership generated cash
from operations of approximately $3,327,000 during the nine months ended
September 30, 2000; however, this was primarily the result of accruing interest
of approximately $29,680,000 on its Master Loan indebtedness.
The Partnership's indebtedness to CCIP under the Master Loan of approximately
$359,812,000, including accrued interest, matures in November 2000. The
Partnership has not received notice as to the maturity of the Master Loan. The
holder of the note has two options, which include foreclosing on the properties
that collateralize the Master Loan or extending the term of the note. Currently,
the Partnership does not have the means with which to satisfy this obligation.
No other sources of additional financing have been identified by the
Partnership, nor does the General Partner have any other plans to remedy the
liquidity problems the Partnership is currently experiencing. At September 30,
2000, partners' deficit was approximately $357,932,000.
The General Partner expects revenues from the ten investment properties will be
sufficient over the next twelve months to meet all property operating expenses,
mortgage debt service requirements and capital expenditure requirements.
However, these cash flows will be insufficient to repay to CCIP the Master Loan
balance, including accrued interest, in the event it is not renegotiated.
As a result of the above, there is substantial doubt about the Partnership's
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or amounts and classifications of
liabilities that may result from these uncertainties.
Note B - Basis of Presentation
The accompanying unaudited consolidated financial statements of Consolidated
Capital Equity Partners, L.P. ("CCEP" or the "Partnership") have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of ConCap Holdings, Inc. (the "General
Partner"), all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and nine month periods ended September 30, 2000, are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 2000.
<PAGE>
Certain reclassifications have been made to the 1999 information to conform to
the 2000 presentation.
Consolidation
As of December 31, 1998, CCEP owned a 75% interest in a limited partnership
("Western Can, Ltd.") which owned 444 De Haro, an office building in San
Francisco, California. No minority interest liability was reflected, as of
December 31, 1998, for the 25% minority interest because Western Can, Ltd. had a
net capital deficit and no minority liability existed with respect to CCEP. In
May 1999, a limited partner in Western Can, Ltd. withdrew in connection with a
settlement with CCEP pursuant to which the partner was paid $1,350,000 by CCEP.
This settlement effectively terminated Western Can Ltd. as CCEP became the sole
limited partner. CCEP's investment in Western Can, Ltd. is consolidated in
CCEP's financial statements. In September 1999, 444 DeHaro was sold (see "Note D
- Discontinued Segment").
Note C - 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 ("AIMCO"), a publicly
traded real estate investment trust, with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the General Partner. The General Partner does not believe that this transaction
has had or will have a material effect on the affairs and operations of the
Partnership.
Note D - Discontinued Segment
In September 1999, 444 De Haro located in San Francisco, California was sold to
an unaffiliated third party for approximately $23,250,000. In conjunction with
the sale, a fee of approximately $698,000 was accrued to the General Partner in
accordance with the Partnership Agreement. This fee was paid in 2000. After
payment of closing costs and the fee to the General Partner, the net proceeds
received by the Partnership were approximately $21,900,000. The sale of the
property resulted in a gain on sale of discontinued operations of approximately
$16,690,000 after writing off the undepreciated value of the property and CCEP's
investment in Western Can, Ltd (as discussed above). As required by the terms of
the Master Loan Agreement (see Note F), the Partnership remitted $20,000,000 of
the net sale proceeds to CCIP during the nine months ended September 30, 1999.
444 DeHaro was the only remaining property in the commercial segment of the
Partnership. Due to the sale of this property, the results of operations of the
property have been classified as "(Loss) Income from Discontinued Operations"
for the three and nine months ended September 30, 1999. Revenues from 444 DeHaro
were approximately $261,000 and $1,279,000 for the three and nine months ended
September 30, 1999. No revenues from 444 DeHaro were recorded during the three
or nine months ended September 30, 2000.
<PAGE>
Note E - 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 nine months ended September 30, 2000 and 1999:
2000 1999
(in thousands)
Property management fees (included in operating expenses) $ 744 $ 725
Investment advisory fees (included in general
and administrative expense) 134 134
Reimbursement for services of affiliates (included in
operating, general and administrative expenses
and investment properties) 369 279
Due to affiliates (included in other liabilities) 73 --
During the nine months ended September 30, 2000 and 1999, affiliates of the
General Partner were entitled to receive 5% of gross receipts from the
Partnership's residential properties for providing property management services.
The Partnership paid to such affiliates approximately $744,000 and $725,000 for
the nine months ended September 30, 2000 and 1999, respectively.
The Partnership is also subject to an Investment Advisory Agreement between the
Partnership and an affiliate of the General Partner. This agreement provides for
an annual fee, payable in monthly installments, to an affiliate of the General
Partner for advising and consulting services for CCEP's properties. The
Partnership paid to such affiliates approximately $134,000 for both the nine
months ended September 30, 2000 and 1999.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $369,000 and $279,000 for the
nine months ended September 30, 2000 and 1999, respectively. At September 30,
2000, approximately $73,000 of the current year expense was accrued and is
included in other liabilities in the accompanying consolidated balance sheet.
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"), which is described more fully in the 1999 annual report. Such
interest payments totaled approximately $2,744,000 for the nine months ended
September 30, 1999 and approximately $2,000,000 for the nine months ended
September 30, 2000. There were no advances on the Master Loan during the nine
months ended September 30, 2000 or 1999. During the nine months ended September
30, 2000 CCEP paid approximately $4,708,000 to CCIP as principal payments on the
Master Loan. Approximately $182,000 was from cash received on certain
investments by CCEP, which are required to be transferred to CCIP as per the
Master Loan Agreement and the remaining, $4,526,000 resulted from the receipt of
net proceeds from the sale of Shirewood Townhomes (see "Note G").
During the nine months ended September 30, 1999, CCEP paid approximately
$20,153,000 to CCIP as principal payments on the Master Loan. Approximately
$153,000 was from cash received on certain investments by CCEP, which are
required to be transferred to CCIP as per the Master Loan Agreement and the
remaining, $20,000,000 resulted from the receipt of net proceeds from the sale
of 444 De Haro.
Note F - Master Loan and Accrued Interest Payable
The Master Loan principal and accrued interest payable balances at September 30,
2000 and December 31, 1999, are approximately $359,812,000 and $334,840,000,
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%. 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 the 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 Partnership has not received notice as to the maturity of the Master Loan.
The holder of the note has two options which include foreclosing on the
properties that collateralize the Master Loan or extending the terms of the
note.
During the nine months ended September 30, 2000, CCEP paid approximately
$4,708,000 to CCIP as principal payments on the Master Loan. Approximately
$182,000 was from cash received on certain investments by CCEP, which are
required to be transferred to CCIP as per the Master Loan Agreement and the
remaining, $4,526,000 resulted from the receipt of net proceeds from the sale of
Shirewood Townhomes. There were no advances on the Master Loan for the nine
months ended September 30, 2000 or 1999.
Subsequent to September 30, 2000, CCEP paid approximately $28,770,000 to CCIP as
principal payments to the Master Loan in connection with the transaction
discussed in Notes H and I below.
<PAGE>
Note G - Sale of Property
On July 21, 2000 the Partnership sold Shirewood Townhomes, located in
Shreveport, Louisiana, to an unaffiliated third party for net sales proceeds of
approximately $4,526,000, after payment of closing costs. The Partnership used
all of the proceeds from the sale of the property to pay down the Master Loan
principal as required by the Master Loan Agreement. The sale resulted in a gain
on sale of investment property of approximately $3,024,000. In conjunction with
the sale, a fee of approximately $133,000 was paid to the General Partner in
accordance with the Partnership Agreement.
Note H - Refinancings/Financings and Extraordinary Loss
On September 29, 2000, the Partnership refinanced the mortgage encumbering The
Dunes Apartments. The refinancing replaced indebtedness of approximately
$1,945,000 with a new mortgage in the amount of $4,120,000. The new mortgage
carries a stated interest rate of 7.81%. Interest on the old mortgage was 6.95%.
Principal and interest payments on the mortgage loan of approximately $34,000
are due monthly until the loan matures on February 1, 2010. Total capitalized
loan costs were approximately $116,000 at September 30, 2000. The Partnership
recognized an extraordinary loss on the early extinguishment of debt of
approximately $134,000 due to the write-off of unamortized loan costs and a
prepayment penalty.
On September 29, 2000, the Partnership refinanced the mortgage encumbering Palm
Lake Apartments. The refinancing replaced indebtedness of approximately
$1,653,000 with a new mortgage in the amount of $3,000,000. The new mortgage
carries a stated interest rate of 7.86%. Interest on the old mortgage was 6.95%.
Principal and interest payments on the mortgage loan of approximately $25,000
are due monthly until the loan matures on February 1, 2010. Total capitalized
loan costs were approximately $94,000 at September 30, 2000. The Partnership
recognized an extraordinary loss on the early extinguishment of debt of
approximately $118,000 due to the write-off of unamortized loan costs and a
prepayment penalty.
On September 29, 2000, the Partnership refinanced the mortgage encumbering Tates
Creek Village Apartments. The refinancing replaced indebtedness of approximately
$2,455,000 with a new mortgage in the amount of $4,225,000. The new mortgage
carries a stated interest rate of 7.78%. Interest on the old mortgage was 6.95%.
Principal and interest payments on the mortgage loan of approximately $35,000
are due monthly until the loan matures on April 1, 2010. Total capitalized loan
costs were approximately $106,000 at September 30, 2000. The Partnership
recognized an extraordinary loss on the early extinguishment of debt of
approximately $155,000 due to the write-off of unamortized loan costs and a
prepayment penalty.
On September 29, 2000, the Partnership financed a mortgage encumbering Society
Park Apartments. The mortgage debt totaled $5,330,000. The mortgage carries a
stated interest rate of 7.80%. Principal and interest payments on the mortgage
loan of approximately $44,000 are due monthly until the loan matures on February
1, 2010. Total capitalized loan costs were approximately $159,000 at September
30, 2000.
On September 29, 2000, the Partnership financed a mortgage encumbering Regency
Oaks Apartments. The mortgage debt totaled $7,650,000. The mortgage carries a
stated interest rate of 7.80%. Principal and interest payments on the mortgage
loan of approximately $63,000 are due monthly until the loan matures on February
1, 2010. Total capitalized loan costs were approximately $217,000 at September
30, 2000.
<PAGE>
Included in the loan costs capitalized associated with the above transactions
was a 1% fee of approximately $243,000 paid to the General Partner in accordance
with the terms of the Partnership Agreement.
Note I - Subsequent Events
On October 3, 2000, the Partnership refinanced the mortgage encumbering
Plantation Gardens Apartments. The refinancing replaced indebtedness of
approximately $6,704,000 with a new mortgage in the amount of $9,700,000. The
new mortgage carries a stated interest rate of 7.83%. Interest on the old
mortgage was 6.95%. Principal and interest payments on the mortgage loan of
approximately $80,000 are due monthly until the loan matures on March 1, 2010.
Total capitalized loan costs were approximately $229,000. The Partnership
recognized an extraordinary loss on the early extinguishment of debt of
approximately $428,000 due to the write-off of unamortized loan costs and a
prepayment penalty during the fourth quarter of 2000.
On October 3, 2000, the Partnership refinanced the mortgage encumbering Indian
Creek Apartments. The refinancing replaced indebtedness of approximately
$4,438,000 with a new mortgage in the amount of $8,750,000. The new mortgage
carries a stated interest rate of 7.83%. Interest on the old mortgage was 6.95%.
Principal and interest payments on the mortgage loan of approximately $72,000
are due monthly until the loan matures on January 1, 2010. Total capitalized
loan costs were approximately $199,000. The Partnership recognized an
extraordinary loss on the early extinguishment of debt of approximately $260,000
due to the write-off of unamortized loan costs and a prepayment penalty during
the fourth quarter of 2000.
On October 3, 2000, the Partnership financed a mortgage encumbering Silverado
Apartments. The new mortgage is in the amount of $3,525,000. The new mortgage
carries a stated interest rate of 7.87%. Principal and interest payments on the
mortgage loan of approximately $29,000 are due monthly until the loan matures on
November 1, 2010. Total capitalized loan costs were approximately $110,000.
On October 11, 2000, the Partnership refinanced the mortgage encumbering The
Knolls Apartments. The refinancing replaced indebtedness of approximately
$5,116,000 with a new mortgage in the amount of $9,900,000. The new mortgage
carries a stated interest rate of 7.78%. Interest on the old mortgage was 6.95%.
Principal and interest payments on the mortgage loan of approximately $81,000
are due monthly until the loan matures on March 1, 2010. Total capitalized loan
costs were approximately $228,000. The Partnership recognized an extraordinary
loss on the early extinguishment of debt of approximately $315,000 due to the
write-off of unamortized loan costs and a prepayment penalty during the fourth
quarter of 2000.
Included in the loan costs capitalized associated with the above transactions
was a 1% fee of approximately $319,000 paid to the General Partner in accordance
with the terms of the Partnership Agreement.
