<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1994
....................................................
OR
[ ] 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 0-11723
........................................................
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
................................................................................
(Exact name of registrant as specified in its charter)
California 94-2883067
................................................................................
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, Greenville, South Carolina 29602
................................................................................
(Address of principal executive offices) (Zip code)
(803) 239-1000
................................................................................
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
- ----------------------------------------------------------
None
Securities registered pursuant to Section 12(g) of the Act:
- ----------------------------------------------------------
Limited Partnership Units
Indicate by check mark whether the partnership, (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
partnership 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]
Out of the partnership's total 909,145 Limited Partnership Units ("Units") 6,778
units are held by affiliates and 902,367 units are held by non-affiliates. The
aggregate market value of Units held by affiliates and non-affiliates is not
determinable since there is no public trading market for Units and transfers of
Units are subject to certain restrictions.
Exhibit Index: See Page 45
Total Pages: 49
1
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PART I
ITEM 1. BUSINESS
HISTORY OF THE PARTNERSHIP
Consolidated Capital Institutional Properties/2 (the "Partnership") was
organized on April 12, 1983, as a limited partnership under the California
Uniform Limited Partnership Act. On July 22, 1983, the Partnership registered
with the Securities and Exchange Commission ("SEC") under the Securities Act of
1933 (File No. 2-83540) and commenced a public offering for sale of Units. The
Units represent equity interests in the Partnership and entitle the holders
thereof to participate in certain allocations and distributions of the
Partnership. The sale of Units terminated on July 21, 1985, with 912,182 units
sold at $250 each, or gross proceeds of approximately $227.8 million to the
Partnership. The Partnership subsequently filed a Form 8-A Registration
Statement with the SEC and registered its Units under the Securities Exchange
Act of 1934 (File No. 0-11723). As permitted under its Partnership Agreement
(the original partnership agreement of the Partnership with all amendments shall
be referred to as the "Partnership Agreement"), the Partnership has repurchased
and retired a total of 3,028 Units for a total of $611,000. The Partnership
may, at its absolute discretion, repurchase Units, but is under no obligation to
do so.
GENERAL PARTNER OF THE PARTNERSHIP
The General Partner of the Partnership is ConCap Equities, Inc. ("CEI" or the
"General Partner"), a Delaware corporation. The principal place of business for
the Partnership and for the General Partner is One Insignia Financial Plaza,
Greenville, South Carolina 29602. Also see "History of the General Partner."
BUSINESS OF THE PARTNERSHIP
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 Equity Partners/2 ("EP/2"), a California
general partnership in which certain of the partners were former shareholders
and former management of Consolidated Capital Equity Corporation ("CCEC"), the
former corporate general partner of the Partnership. See "Status of Master
Loan" for a description of the loan and settlement of EP/2's bankruptcy.
Through December 31, 1994, the Partnership had made 21 specific loans pursuant
to the Master Loan (as defined in "Status of Master Loan") and advanced a total
of approximately $180.6 million. As of December 31, 1994, the balance of the
Master Loan, net of the allowance for possible losses, was approximately $42.5
million. EP/2 used the proceeds from these loans to acquire eleven (11)
apartment buildings and ten (10) office complexes, which collateralized the
Master Loan. EP/2's successor in bankruptcy (as more fully described in "Status
of Master Loan") currently owns four (4) apartment buildings, and seven (7)
office complexes which secure the Master Loan. The Partnership owns directly
one (1) office complex which it acquired pursuant to a foreclosure in 1990. For
a brief description of the properties refer to Item 2 - Description of Property.
As of December 31, 1994, the Partnership's working capital reserves are greater
than the 5% of Net Invested Capital, as required by its Partnership Agreement.
See "Current Operating Plan" below and Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations, for discussion of
Partnership liquidity and capital resources. Also, see Item 8 -Financial
Statements and Supplementary Data, for the amounts of revenue and operating
losses generated by the Partnership's operations for its last three years. The
Partnership does not directly employ any persons. The General Partner and its
affiliates employ persons in the operation and management of the Partnership,
whose costs are reimbursed by the Partnership.
STATUS OF MASTER LOAN
Prior to 1989, the Partnership had loaned funds totaling approximately $176
million to EP/2 subject to a nonrecourse note with a participation interest (the
"Master Loan"), pursuant to the Master Loan Agreement dated July 22, 1983,
between the Partnership and EP/2. 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/2.
During 1989, EP/2 defaulted on certain interest payments that were due under the
Master Loan. Before the Partnership could exercise its remedies for such
defaults, EP/2 filed for bankruptcy protection in a Chapter 11 reorganization
proceeding. On October 18, 1990, the bankruptcy court approved EP/2's
consensual plan of reorganization (the "Plan"). In November 1990, EP/2 and the
Partnership consummated a closing under the Plan pursuant to which, among other
things, the Partnership and EP/2 executed an amended and restated loan agreement
(the "New Master Loan Agreement"), EP/2 was converted from a California general
partnership to a California limited partnership, Consolidated Capital Equity
Partners/Two, L.P. ("CCEP/2"), and CCEP/2 renewed the deeds of trust and
mortgages on all the properties collaterally securing the New Master Loan
Agreement. ConCap
2
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Holdings, Inc. ("CHI"), a Texas corporation and wholly-owned subsidiary of CEI,
is the sole general partner of CCEP/2 and an affiliate of the Partnership. The
general partners of EP/2 became limited partners in CCEP/2. CHI has full
discretion with respect to conducting CCEP/2's business, including managing
CCEP/2's properties and initiating and approving capital expenditures and asset
dispositions and refinancings. Under the new partnership agreement, CCEP/2 is
managed by CHI primarily for the benefit of the Partnership. CCEP/2's primary
objective is to conduct its business to maximize the Partnership's recovery
under the New Master Loan Agreement.
Under the terms of the New Master Loan Agreement, interest accrues at 10% and
payments are due quarterly in an amount equal to Excess Cash Flow, generally
defined in the New Master Loan Agreement as net cash flow from operations after
third-party debt service. 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 sale or refinancing of any of CCEP/2's properties are paid to the
Partnership under the terms of the New Master Loan Agreement. The Master Loan
matures in November 2000.
Effective January 1, 1993, the Partnership and CCEP/2 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/2. This amendment and change in
the definition of Excess Cash Flow will have the effect of reducing the
Partnership's interest income from the Master Loan by the amount of CCEP/2's
capital expenditures since such amounts were previously excluded from Excess
Cash Flow.
CURRENT OPERATING PLAN
The Partnership owns one 21-year old office building (North Park Plaza), located
in Michigan. The Partnership's investment in the Master Loan is collateralized
by four apartment buildings and seven office complexes comprising the CCEP/2
Properties, which range in age from 13 to 24 years old and are located
principally in Midwestern and Southern states.
The Master Loan payments attributable to Excess Cash Flow from the CCEP/2
Properties continue to be the Partnership's primary source of cash flow. Income
received on the Partnership's directly owned property, and interest earning
investments are secondary sources of cash flow to the Partnership.
The Partnership and CCEP/2 have made significant capital investments,
aggregating approximately $6.4 million, during the previous three years. These
investments consisted of selected property improvement and rehabilitation
programs and expenditures to cure deferred maintenance which existed at certain
of the properties. Capital improvements totaling $2.5 million are budgeted at
the Partnership's property or the CCEP/2 Properties during 1995. Management's
plan in 1995 is to continue to enhance the value of North Park Plaza and the
CCEP/2 Properties.
When the Partnership acquired the North Park Plaza office complex through
foreclosure in July 1990, certain sections of the building's exterior had
deteriorated and required replacement. Consequently, the operating performance
of the property had declined due to decreased occupancy. During 1991 and 1992
the Partnership invested approximately $2.1 million to rehabilitate the
property. Management continues the marketing efforts to attract new tenants;
however, as the property is located in an extremely competitive real estate
market, no significant occupancy increases are expected in 1995.
Approximately $1.4 million is budgeted for ongoing repairs, replacements and
improvements at the CCEP/2 Properties in 1995. These capital improvement
programs are expected to be funded from CCEP/2's operations. Remodeling and
improvement expenditures which may be needed at the commercial properties for
new or renewing tenants are not reflected in CCEP/2's capital improvement
budget. Such capital investments will be evaluated in light of the economics of
the related lease terms, and are dependent upon leasing activity at the
commercial properties.
Rental revenues, net of property operations expenses (as defined under Item 2 -
Description of Property) from the CCEP/2 Properties totaled almost $7.2 million
for 1994 and the properties' performance is expected to be consistent in 1995.
The Richmond Plaza Office Building ("Richmond Plaza") leases 48% of its leasable
square feet to a single tenant under a lease which was scheduled to expire in
July 1994. The tenant had previously expressed its desire to relocate its
offices. As a result of the General Partner's and the building management
company's extensive renewal efforts, CCEP/2 was successful in obtaining the
renewal of the tenant's lease during the first quarter of 1994. Since the
renewal, which extends the tenant's lease through December 1999, is for
approximately $120,000 per month rather than at the former rental rate of
$184,000, future rental revenue from this tenant will not be consistent with
prior years. In May 1994, CCEP/2 paid lease commissions to an affiliate of the
General Partner, totaling $455,000, related to the lease renewal, which were due
to the building's management company as provided for in the management
agreement. Richmond Plaza secures approximately $14.6 million in mortgage debt
(the "first
3
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lien note") which is superior to CCEP/2's related obligation under the Master
Loan of approximately $2.3 million. In May 1994, management negotiated a one-
year extension with the lender which extends the maturity of the first lien
note, which matured in March 1994, to March 1995. Management is pursuing a
modification or refinance of the mortgage debt. No assurance can be given that
the General Partner will be successful in its negotiations with the lender.
The Town Center Office Complex located in Santa Ana, California, secures
approximately $3.1 million of third party mortgage debt in four notes payable
superior to approximately $16.6 million of the investment in Master Loan. The
Town Center Office Complex consists of four buildings ("Phases I, II, III and
IV"). The note payable of approximately $910,000, secured by Phase III matured
in October 1992. The note payable of approximately $1.1 million secured by
Phase IV matured in July 1993. In April 1994, management negotiated an
extension and modification of these notes which provide for reduced interest
rates, and extension of the maturities to October 2000.
The Village Brooke Apartments, located in Cincinnati, Ohio, secures
approximately $6.8 million of first mortgage debt (the "first lien note") which
is superior to CCEP/2's related obligation under the Master Loan of
approximately $2 million. In May 1994, management negotiated a one-year
extension with the lender which extends the maturity of the first lien note,
which matured in June 1994, to June 1995.
HISTORY OF THE GENERAL PARTNER
Upon the Partnership's formation in 1983, CCEC, a Colorado corporation, was the
corporate general partner. In 1988, through a series of transactions, Southmark
Corporation ("Southmark") acquired controlling interest in 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, CEI acquired
CCEC's general partner interests in the Partnership and 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 sole managing 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
Partnership Agreement to limited changes of control of the Partnership.
All of CEI's outstanding stock is owned by GII Realty, Inc. In December 1994,
the parent of GII Realty, Inc., entered into a transaction (the "Insignia
Transaction") in which among other things, MAE-ICC, Inc., a wholly owned
subsidiary of Metropolitan Asset Enhancement, L.P. ("MAE"), an affiliate of
Insignia Financial Group, Inc. ("Insignia") acquired an option (exercisable in
whole or in part from time to time) to purchase all of the stock of GII Realty,
Inc. and, pursuant to a partial exercise of such option, acquired 50.5% of that
stock. As a part of the Insignia Transaction, MAE-ICC, Inc. also acquired all
of the outstanding stock of Partnership Services, Inc., an asset manager and a
subsidiary of Insignia acquired all of the outstanding stock of Coventry
Properties, Inc., a property manager. In addition, confidentiality, non-
competition, and standstill arrangements were entered into between certain of
the parties. Those arrangements, among other things, prohibit GII Realty's
former sole shareholder from purchasing Partnership Units for a period of three
years.
ITEM 2. DESCRIPTION OF PROPERTY
Investment in Property:
As of December 31, 1994, the Partnership's primary asset is the Master Loan, as
described in Item 1 - Business - Status of Master Loan. The Master Loan is
collaterally secured, in part, by deeds of trust on real property owned by
CCEP/2. CCEP/2 owns these properties in fee, unless otherwise indicated. The
deeds of trust securing the Master Loan are first lien deeds of trust, except
where other mortgage debt is shown. Additional property information is
discussed in Item 8 - Financial Statements and Supplementary Data, Note 3 -
Investment in Master Loan and Schedule III - Real Estate and Accumulated
Depreciation. The Partnership owns in fee an office complex which it acquired
through foreclosure in 1990. As of December 31, 1994, the investment in real
estate and the real estate securing the Master Loan are as follows (dollar
amounts are in thousands, except for rent per square foot data):
4
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<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994
-----------------------------------------------------------------
PROPERTY
AT NET AVERAGE
CARRYING MORTGAGE RENT PER
PROPERTY OCCUPANCY (a) VALUE DEBT SQ.FT. (b)
- -------- --------------------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
North Park Plaza
Office complex
267,273 sq.ft.
Southfield, Michigan 61% $5,500 $ - $ 11.61
============ ===========
INVESTMENT IN MASTER LOAN:
AS OF DECEMBER 31, 1994
---------------------------------------------------------------
ORIGINAL AVERAGE
PURCHASE MASTER LOAN THIRD PARTY RENT PER
COLLATERAL PROPERTY PRICE OCCUPANCY (a) BALANCE MORTGAGE DEBT SQ.FT. (b)
- ------------------- -------- ------------ ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
1. Canyon Crest
Apartments-90 units
Littleton, Colorado $ 2,695 100% $3,149 $ - $ 6.86
2. Civic Center
Office complex
114,536 sq.ft.
Southfield, Michigan 7,892 80% 9,975 - 13.55
3. Central Park Plaza
Office complex
102,190 sq.ft.
Southfield, Michigan 7,058 96% 8,961 - 12.92
4. Cosmopolitan Center (d)
Office complex
70,500 sq.ft.
Atlanta, Georgia 5,445 95% 6,313 - 10.18
5. Crescent
Office complex
70,706 sq.ft.
Southfield, Michigan 3,754 75% 4,278 - 11.04
6. Lahser I & II
Office complex
164,822 sq.ft.
Southfield, Michigan 8,796 80% 9,643 - 12.80
7. Highcrest Townhomes
Apartments-176 units
Woodbridge, Illinois 5,900 94% 7,128 - 8.16
8. Richmond Plaza (c)
Office complex
232,000 sq.ft.
Richmond, Virginia 16,053 92% 2,323 14,556 15.16
</TABLE>
5
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<TABLE>
<CAPTION>
INVESTMENT IN MASTER LOAN:
- ----------------------------
AS OF DECEMBER 31, 1994
- - ---------------------------------------------------------------------------------------
ORIGINAL AVERAGE
PURCHASE MASTER LOAN THIRD PARTY RENT PER
COLLATERAL PROPERTY PRICE OCCUPANCY (a) BALANCE MORTGAGE DEBT SQ.FT. (b)
- ------------------- ----------------- --------------------------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
9. Town Center (c)
Office complex
154,585 sq.ft.
Santa Ana, California $17,738 72% $16,574 $3,074 14.73
10. Village Brooke (c)
Apartments-330 units
Cincinnati, Ohio 8,250 90% 1,976 6,811 7.82
11. Windmere
Apartments-257 units
Houston, Texas 5,423 96% 6,494 - 6.91
--------- -----------
$ 76,814 $ 24,441
========= ===========
- ---------------------
Total: Apartments - 853 units
Office complex - 909,339 net leasable sq.ft.
</TABLE>
(a) Occupancy percentage represents number of occupied units for residential
properties divided by total number of units available and square footage
leased divided by total square footage available for commercial properties.
(b) Average Rent per Square Foot represents gross annual rents less
concessions and lease adjustments, divided by the net leasable square
footage of the property. Gross annual rents include an increment for
utilities for those properties where all utility costs are paid by the
property.
(c) These properties securing the Master Loan are subordinate to first lien
deeds of trust aggregating approximately $24.4 million. These first lien
notes payable are scheduled to mature between 1995 and 2003, with stated
interest rates ranging from 8.75% to 9.875%.
(d) Cosmopolitan Center is owned by a general partnership between CCEP/2 and
Anderson CC 2, a Georgia limited partnership.
230 S. Broad Street
CCEP/2 was a general partner in a limited partnership ("Broad and Locust
Associates") which was managed by an unaffiliated co-general partner and which
owned the 230 S. Broad Street Office Complex. Broad and Locust Associates
filed for protection under Chapter 11 of the U.S. Bankruptcy Code in 1992, and
in 1993 a reorganization plan was confirmed by the bankruptcy court. Pursuant
to the reorganization, the 230 S. Broad Street Office Complex was transferred
to the first lien holder which held a mortgage loan of approximately $16
million secured by the property. The bankruptcy court determined the first
lien was in excess of the property's estimated fair value, therefore, CCEP/2's
general partner interest was unsecured. The disposition of the property did
not release CCEP/2 from its $4.4 million obligation to the Partnership under
the Master Loan which had been secured by the general partner interest in
Broad and Locust Associates. The Partnership had previously recognized a
provision for possible losses for the balance of the Investments in Master
Loan secured by the general partner interest in Broad and Locust Associates.
In 1994, CCEP/2 made a demand on certain other partners of Broad & Locust
Associates for the amount of the Deficit Restoration Obligation ("DRO") as
defined in the Broad & Locust Associates Second Amended and Restated
Partnership Agreement entered into in July 1984 by CCEP/2 and certain other
partners. No assurance can be given that CCEP/2 will be successful in its
attempts to obtain payment of the DRO amount.
Note Receivable
CCEP/2 held a note receivable received in connection with the November 18,
1988, sale of Scotts Level Apartments, a 234-unit complex located in
Pikesville, Maryland. The property had been purchased with funds loaned by
the Partnership pursuant to the Master Loan and which have subsequently been
repaid. The note receivable had an outstanding balance including accrued
interest at December 31, 1992 of $326,000 which had previously been fully
reserved. No payments had been received on the note receivable since 1990,
and the owner of the property subsequently filed for protection under
6
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the U.S. Bankruptcy Code. The Bankruptcy Court determined that CCEP/2's note
receivable had no value, and in December 1993, CCEP/2 received $10,000 as full
settlement of the note receivable. The remaining unpaid note and interest
receivable was charged to the previously established allowance account.
<TABLE>
<CAPTION>
SUMMARY OF INVESTMENT IN MASTER LOAN AS OF DECEMBER 31, 1994
-----------------------
(in thousands)
<S> <C>
Secured by real property owned by CCEP/2................. $ 76,814
Principal owed for properties no longer owned by CCEP/2.. 17,160 (a)
Deferred basic interest.................................. 1,495
Collections reserve (d).................................. (3,946)
--------------
91,523 (b)
Less allowance for possible losses (c)................... (48,992)
-------------
Net investment in Master Loan............................ $ 42,531
=============
</TABLE>
Notes:
(a) The Master Loan balance shown represents the amount by which the liability
under the Master Loan agreement exceeded CCEP/2's basis in the properties on
the date of their disposition. Since the properties securing the Master Loan
are cross-collateralized, any gain or loss which is realized by the
Partnership and results from CCEP/2's disposition of its properties is
deferred.
(b) This amount does not include $93.9 million of interest not recognized as
income pursuant to accounting guidelines as they relate to ADC lending
arrangements.
(c) See Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations and Item 8 - Financial Statements and
Supplementary Data for a description of the allowance for possible losses.
(d) The collections reserve represents funds collected by the Partnership
relating to the Master Loan but which are not attributable to a specific
property. The funds represent collections from properties sold by EP/2 for
which the representative portion of the Master Loan has been repaid.
ITEM 3. LEGAL PROCEEDINGS
The Partnership is not a party to, nor is the Partnership's property the
subject of, any material pending legal proceedings, other than ordinary
litigation routine to the Partnership's business at December 31, 1994.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
7
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP AND RELATED
SECURITY HOLDER MATTERS
(A) No established public trading market for the Partnership's Units exists
nor is one expected to develop.
(B) Title of Class Number of Record Unit Holders
Limited Partnership Units 46,284 as of February 16, 1995
No distributions were paid in the years ended December 31, 1994 and 1993.
Cumulative distributions since the inception of the Partnership totaled
approximately $145.4 million to the Limited Partners and approximately
$553,000 to the general partner of the Partnership as of December 31, 1994.
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
-----------------------------------------------------
STATEMENTS OF OPERATIONS 1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(in thousands, except unit data)
Revenues............................... $ 4,266 $ 4,068 $ 5,057 $ 6,138 $ 6,055
Costs and expenses..................... (15,093) (7,214) (15,651) (5,594) (11,063)
-------- -------- -------- -------- --------
Income (loss) from operations.......... (10,827) (3,146) (10,594) 544 (5,008)
Gain (loss) on sale of securities
available for sale.................... - - - 112 (43)
Other income........................... 91 - - - -
-------- -------- -------- -------- --------
Net income (loss)...................... $(10,736) $ (3,146) $(10,594) $ 656 $ (5,051)
======== ======== ======== ======== ========
Net income (loss) per Limited
Partnership Unit:
Income (loss) from operations......... $ (11.79) $ (3.43) $ (11.54) $ .59 $(5.45)
Gain (loss) on sale of securities
available for sale.................... - - - .12 (.05)
Other Income.......................... .10 - - - -
-------- -------- -------- -------- --------
Net income (loss)..................... $ (11.69) $ (3.43) $ (11.54) $ .71 $(5.50)
======== ======== ======== ======== ========
Distributions per Limited Partnership
Unit.................................. $ - $ - $ - $ 2.20 $ 9.90
======== ======== ======== ======== ========
Weighted Average Limited Partner-
ship Units outstanding.............. 909,153 909,172 909,174 909,174 909,174
======== ======== ======== ======== ========
AS OF DECEMBER 31,
--------------------------------------------------
BALANCE SHEETS 1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(in thousands)
Total assets $ 61,073 $ 71,775 $ 75,110 $ 85,501 $ 86,895
======== ======== ======== ======== ========
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The operations of the Partnership primarily include mortgage servicing and
collection; consequently, the following discussion will focus on these
activities and the underlying properties that secure the Master Loan. This
discussion should
8
<PAGE>
be read in conjunction with Item 8 - Financial Statements and Supplementary
Data and notes related thereto included elsewhere in this report.
RESULTS OF OPERATIONS
The Partnership's loss from operations totaled approximately $10.8 million for
the year ended December 31, 1994, compared with losses from operations of
approximately $3.1 million and $10.6 million in 1993 and 1992, respectively.
The Partnership will continue to generate losses from operations primarily
because certain noncash items are included in costs and expenses. Provision
for possible losses for Investments in Real Estate and the Investment in the
Master Loan, the primary noncash expense, totaled approximately $11.8 million,
$4 million and $12.5 million in 1994, 1993 and 1992, respectively. In
addition, depreciation expense totaled approximately $986,000, $879,000 and
$788,000 in 1994, 1993, and 1992, respectively.
1994 Compared with 1993
Property Operations:
Rental revenues increased $269,000 or 18% as a result of an increase in
occupancy at the Partnership's sole property, the North Park Plaza Office
Complex in 1994. This increase was partially offset by increased property
operations expenses of $192,000 or 13%, primarily due to a refund of 1990
property taxes received in 1993 and a general increase in utilities, service,
cleaning, and repair and maintenance expense.
Investment Income:
Investment income for 1994 decreased $35,000 or 6% from 1993 because lower
average cash balances were available for investment in interest-bearing
accounts.
Income on Investment in Master Loan:
See separate discussion for "Income on Investment in Master Loan," below.
Administrative Expenses:
Administrative expenses decreased approximately $178,000 or 22%, primarily due
to decreased administrative overhead costs allocated to the Partnership and
other professional fees.
1993 Compared with 1992
Property Operations:
The Partnership's sole property, the North Park Plaza Office Complex,
experienced a slight increase in occupancy in late 1993. However, rental
revenues decreased $215,000 or 13% as a result of overall reduced rental
rates. This is due to the property's age, location and local market conditions
which make it difficult to obtain new leases and renew expired leases.
Property operations expenses for 1993 decreased $79,000 or 5%, primarily
because a refund of 1990 property taxes was received in 1993.
Investment Income:
Investment income for 1993 increased $19,000 or 4% from 1992 because higher
average cash balances were available for investment in interest-bearing
accounts.
Income on Investment in Master Loan:
See separate discussion for "Income on Investment in Master Loan," below.
Administrative Expenses:
Administrative expenses increased approximately $53,000 or 7%, primarily due
to increased insurance costs of $112,000. This increase was partially offset
by decreases of $46,000 in printing, mailing and legal costs.
9
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Income on Investment in Master Loan
The following table summarizes the sources of income and payments on the
Investment in Master Loan with respect to CCEP/2's operations during the years
ended December 31, 1994, 1993 and 1992, respectively:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
----------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Funds provided by property operations......... $ 18,014 $ 18,204 $ 17,621
Proceeds from Chagrin Richmond sale........... 2,807 - -
Funds used for property operations (includes
administrative expenses)..................... (14,010) (12,186) (11,364)
Debt service payments on underlying notes
payable...................................... ( 4,665) (3,065) (3,085)
-------- -------- --------
Net funds provided by property operations..... 2 ,146 2,953 3,172
-------- -------- --------
Net investing activity........................ 49 38 13
-------- -------- --------
Net funds provided............................ 2,195 2,991 3,185
Excess cash remitted.......................... - - -
-------- -------- --------
$ 2,195 $ 2,991 $ 3,185
======== ======== ========
Master Loan activity:
Principal receipts on Master Loan............. $ 315 $ 1,075 $ 476
Interest income............................... 1,880 1,916 2,709
-------- -------- --------
$ 2,195 $ 2,991 $ 3,185
======== ======== ========
</TABLE>
1994 Compared with 1993:
In 1994, net funds provided for payments on the Master Loan decreased $796,000
or 27% primarily as a result of lease commissions of approximately $493,000
paid for lease renewals at the Richmond Plaza and Town Center Office Buildings
and increased capital expenditures of approximately $477,000 at the CCEP/2
properties. See "Status of Master Loan."
1993 Compared with 1992:
In 1993, principal receipts on the Master Loan increased $599,000 or 126% from
1992 primarily because of a nonrecurring payment for utility charges from a
tenant of the Richmond Plaza Office Building. Interest income from the Master
Loan decreased $793,000 or 30% from 1992 primarily due to $1.3 million of
capital expenditures at the CCEP/2 properties. Capital expenditures were
funded from CCEP/2's property operations in 1993 whereas the Partnership
funded these expenditures through advances on the Master Loan in 1992. See
"Status of Master Loan."
LIQUIDITY AND CAPITAL RESOURCES
Year ended December 31, 1994
The Partnership's primary cash inflows during 1994, which totaled
approximately $8.8 million, were approximately $7.5 million of proceeds from
the maturity of securities available for sale, approximately $1 million of net
cash provided by operating activities, and $315,000 of principal receipts on
the Master Loan. The primary uses of cash during the same period, which
totaled approximately $9.3 million, were approximately $8.7 million for the
purchase of securities available for sale, and $635,000 for additions to real
estate.
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 in the Partnership Agreement. Reserves, including cash
and cash equivalents and securities available for sale (at market), totaling
approximately $11.1 million were greater than the reserve requirement of $7.6
million as of December 31, 1994.
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 as well as future maturing mortgage obligations and related
refinancing expenses. Such assets are currently thought to be sufficient for
any near-term needs of the partnership. Future cash distributions will depend
on the levels of net cash generated from operations, refinancings, and
property sales.
10
<PAGE>
CCEP/2 Property Operations
For the year ended December 31, 1994, CCEP/2's net loss totaled approximately
$19.9 million on total revenues of approximately $18 million. CCEP/2
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 1994,
CCEP/2's statement of operations includes total interest expense attributable
to the Master Loan of $17.3 million of which approximately $15.4 million
represents interest accrued in excess of required Excess Cash Flow payments.
CCEP/2 is expected to continue to generate operating losses as a result of
such interest accruals and noncash charges for depreciation. However, the
CCEP/2 Properties are expected to continue to provide cash flow from
operations during 1995 which will be available to be utilized as Master Loan
debt service.
In December 1994, Chagrin Richmond Office Complex was sold for net proceeds of
approximately $862,000 after closing costs and repayment of approximately $1.7
million of third party mortgage debt including approximately $312,000 of
related participation interest. The disposition of the property did not
release CCEP/2 from its approximately $4.4 million obligation to the
partnership under the Master Loan. CCEP/2 recognized a loss of approximately
$714,000 on the sale. The property generated a net loss of approximately $1.2
million on revenues of approximately $922,000 during 1994, prior to the sale.
Town Center Office Complex
The Town Center Office Complex located in Santa Ana, California, secures
approximately $3.1 million of third party mortgage debt in four notes payable
superior to approximately $16.6 million of the investment in Master Loan. The
Town Center Office Complex consists of four buildings ("Phases I, II, III and
IV"). The note payable of approximately $910,000, secured by Phase III
matured in October 1992. The note payable of approximately $1.1 million
secured by Phase IV matured in July 1993. In April 1994, management
negotiated an extension and modification of these notes which provide for
reduced interest rates, and extension of the maturities to October 2000.
Richmond Plaza Office Building
The Richmond Plaza Office Building ("Richmond Plaza") leases 48% of its
leasable square feet to a single tenant under a lease which was scheduled to
expire in July 1994. The tenant had previously expressed its desire to
relocate its offices. As a result of the General Partner's and the building
management company's extensive renewal efforts, CCEP/2 was successful in
obtaining the renewal of the tenant's lease during the first quarter of 1994.
Since the renewal, which extends the tenant's lease through December 1999, is
for approximately $120,000 per month rather than at the former rental rate of
$184,000, future rental revenue from this tenant will not be consistent with
prior years. In May 1994, CCEP/2 paid lease commissions totaling $455,000,
related to the lease renewal, which were due to the building's management
company as provided for in the management agreement. Richmond Plaza secures
approximately $14.6 million in mortgage debt (the "first lien note") which is
superior to CCEP/2's related obligation under the Master Loan of approximately
$2.3 million. In May 1994, management negotiated a one-year extension with
the lender which extends the maturity of the first lien note, which matured in
March 1994, to March 1995. Management is pursuing a modification or refinance
of the mortgage debt. No assurance can be given that the General Partner will
be successful in its negotiations with the lender.
Village Brooke Apartments
The Village Brooke Apartments, located in Cincinnati, Ohio, secures
approximately $6.8 million of first mortgage debt (the "first lien note")
which is superior to CCEP/2's related obligation under the Master Loan of
approximately $2 million. In May 1994, management negotiated a one-year
extension with the lender which extends the maturity of the first lien note,
which matured in June 1994, to June 1995.
Allowance for Possible Losses
The property owned by the Partnership experienced declines in 1994 and 1993
in its estimated net realizable value due to regional economic factors.
Accordingly, the Partnership recorded approximately $2.5 million and
approximately $2.0 million in provisions for possible losses on the real
estate in the years ended December 31, 1994 and 1993, respectively.
Certain of the CCEP/2 Properties collateralizing the Master Loan have
experienced declines in their estimated net realizable values. As a result of
this decline in collateral value, the Partnership recorded approximately $9.3
and approximately $2 million in provisions for possible losses on the
Investment in the Master Loan in 1994 and 1993 respectively.
11
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
- -----------------------------------------------
PAGE
INDEX NUMBER
- ----- ------
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.................... 13
BALANCE SHEETS as of December 31, 1994 and 1993............. 14
STATEMENTS OF OPERATIONS for the Years Ended December 31,
1994, 1993 and 1992....................................... 15
STATEMENTS OF PARTNERS' EQUITY (DEFICIT) for the Years
Ended December 31, 1994, 1993 and 1992..................... 16
STATEMENTS OF CASH FLOWS for the Years Ended December 31,
1994, 1993 and 1992....................................... 17
NOTES TO FINANCIAL STATEMENTS............................... 19
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION..... 25
CONSOLIDATED FINANCIAL STATEMENTS FOR CONSOLIDATED CAPITAL
EQUITY PARTNERS/TWO, L.P. as of and for the years ended
December 31, 1994 and 1993................................. 27
</TABLE>
All other schedules are omitted as they are not required, are not applicable or
the financial information required is included in the financial statements or
the notes thereto.
12
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Consolidated Capital Institutional Properties/2:
We have audited the accompanying balance sheets of Consolidated Capital
Institutional Properties/2 (a California limited partnership) as of December
31, 1994 and 1993, and the related statements of operations, partners' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1994. These financial statements and the schedule referred to
below are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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 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 financial position of Consolidated Capital
Institutional Properties/2 as of December 31, 1994 and 1993, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1994 in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Supplemental Schedule III is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in our audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 23, 1995
13
<PAGE>
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
BALANCE SHEETS
(in thousands, except unit data)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
ASSETS 1994 1993
-------- --------
<S> <C> <C>
Real estate:
Land.......................................... $ 2,281 $ 2,281
Buildings and improvements.................... 11,040 10,405
-------- --------
13,321 12,686
Less: Accumulated depreciation................ (3,325) (2,339)
Allowance for possible losses........... (4,496) (2,000)
-------- --------
5,500 8,347
-------- --------
Net Investment in Master Loan.................. 91,523 91,838
Less: Allowance for possible losses........... (48,992) (39,730)
-------- --------
42,531 52,108
-------- --------
Cash and cash equivalents...................... 1,351 1,912
Securities available for sale.................. 9,769 8,572
Due from affiliates............................ 1,347 284
Other assets................................... 575 552
-------- --------
$ 61,073 $ 71,775
======== ========
</TABLE>
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
<TABLE>
<S> <C> <C>
Accounts payable and accrued expenses.......... $ 89 $ 34
Distributions payable.......................... 141 143
Deposits....................................... 106 120
Accured property taxes......................... 73 78
------- -------
409 375
------- -------
Commitment and contingencies (Note 6)..........
Partners' equity (deficit):
Limited Partners - 909,145 and 909,154 units
outstanding in 1994 and 1993, respectively... 61,162 71,791
General Partner............................... (498) (391)
------- -------
60,664 71,400
------- -------
$61,073 $71,775
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------
1994 1993 1992
-------- ------- --------
<S> <C> <C> <C>
Revenues:
Rental.................................... $ 1,798 $ 1,529 $ 1,744
Income on investment in Master Loan
to affiliate............................. 1,880 1,916 2,709
Investment Income......................... 588 623 604
-------- ------- --------
Total revenues........................... 4,266 4,068 5,057
-------- ------- --------
Costs and expenses:
Property operations....................... 1,721 1,529 1,608
Depreciation.............................. 986 879 788
Provision for possible losses............. 11,758 4,000 12,500
Interest.................................. - - 2
Administrative............................ 628 806 753
-------- ------- --------
Total costs and expenses (a)............. 15,093 7,214 15,651
-------- ------- --------
Loss from operations........................ (10,827) (3,146) (10,594)
Other Income (Note 5)....................... 91 - -
-------- ------- --------
Net loss.................................... $(10,736) $(3,146) $(10,594)
======== ======= ========
Loss per Weighted Average Limited
Partnership Unit:
Loss from operations...................... $ (11.79) $(3.43) $(11.54)
Other Income.............................. .10 - -
-------- ------- --------
Net loss per Limited Partnership Unit..... $ (11.69) $(3.43) $(11.54)
======== ======= ========
Distributions per Weighted Average Limited
Partnership Unit.......................... $ - $ - $ -
======== ======= ========
</TABLE>
(a) Costs and expenses include $344,000, $466,000 and $441,000 to related
parties for the years ended December 31, 1994, 1993 and 1992,
respectively. See supplemental information with respect to related party
transactions in Note 2 of the financial statements.
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1994, 1993 and 1992
(in thousands)
<TABLE>
<CAPTION>
TOTAL
GENERAL LIMITED PARTNERS'
PARTNER PARTNERS EQUITY (DEFICIT)
--------- ---------- ------------------
<S> <C> <C> <C>
Balance at December 31, 1991.. $ (254) $ 85,394 $ 85,140
Net loss...................... (106) (10,488) (10,594)
-------- ---------- ----------
Balance at December 31, 1992.. (360) 74,906 74,546
Net loss...................... (31) (3,115) (3,146)
-------- ---------- ---------
Balance at December 31, 1993.. $ (391) $ 71,791 $ 71,400
Net loss...................... (107) (10,629) (10,736)
-------- ---------- ---------
Balance at December 31, 1994.. $ (498) $ 61,162 $ 60,664
======== ========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from tenants........................... $ 1,768 $ 1,506 $ 1,787
Cash paid to suppliers (a)........................... (2,158) (2,213) (1,650)
Interest received (b)................................ 1,494 2,740 3,305
Investment income paid............................... - - (2)
Property taxes paid.................................. (182) (133) (202)
Other income received................................ 80 - -
------- ------- -------
Net cash provided by operating activities............. 1,002 1,900 3,238
------- ------- -------
Cash flows from investing activities:
Additions to real estate............................. (635) (473) (450)
Advances on Master Loan.............................. - (662) (2,353)
Principal receipts on Master Loan.................... 315 1,075 476
Purchase of securities available for sale............ (8,729) (3,872) -
Proceeds from sale of securities available for sale.. 7,488 2,350 -
------- ------- -------
Net cash used in investing activities................. (1,561) (1,582) (2,327)
------- ------- -------
Cash flows from financing activities:
Principal payments on note payable................... - - (13)
Distributions to partners............................ - - -
Payments of previously declared distributions........ (2) (1) (9)
------- ------- -------
Net cash used in financing activities................. (2) (1) (22)
------- ------- -------
Net increase (decrease) in cash and cash equivalents.. (561) 317 889
Cash and cash equivalents, at beginning of year....... 1,912 1,595 706
------- ------- -------
Cash and cash equivalents, at end of year............. $ 1,351 $ 1,912 $ 1,595
======= ======= =======
</TABLE>
(a) Payments to related parties totaling $344,000, $466,000, and $441,000 for
the years ended December 31, 1994, 1993 and 1992, respectively, are
included in cash paid to suppliers. See supplemental information with
respect to related party transactions in Note 2 of the financial
statements.
(b) Payments from related parties totaling approximately $812,000, $1.9
million, and $2.7 million for the years ended December 31, 1994, 1993 and
1992, respectively, are included in interest received.
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF CASH FLOWS
Reconciliation of Net Loss to Net Cash Provided by
Operating Activities
(in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1994 1993 1992
-------- ------- --------
<S> <C> <C> <C>
Net loss.......................................... $(10,736) $(3,146) $(10,594)
-------- ------- --------
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation..................................... 986 879 788
Provision for possible losses.................... 11,758 4,000 12,500
Amortization of premium on securities available
for sale....................................... 55 - -
Southmark stock receipt.......................... (11) - -
Amortization of GNMA and Treasury Note discount.. - - (7)
Changes in assets and liabilities:
Due from affiliates............................ (1,063) 206 560
Other assets................................... (23) (23) (62)
Accounts payable and accrued expenses.......... 36 (16) 53
-------- ------- --------
Total adjustments............................ 11,738 5,046 13,832
-------- ------- --------
Net cash provided by operating activities......... $ 1,002 $ 1,900 $ 3,238
======== ======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
NOTES TO FINANCIAL STATEMENTS
December 31, 1994 and 1993
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Consolidated Capital Institutional Properties/2 (the "Partnership"), a
California limited partnership, was formed on April 12, 1983, 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 Equity Partners/2, ("EP/2"), 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, 1994, the Partnership
had made 21 specific loans totaling approximately $180.6 million under the
Master Loan.
During 1989, EP/2 defaulted on certain interest payments that were due under
the Master Loan. Before the Partnership could exercise its remedies for such
defaults, EP/2 filed for bankruptcy protection in a Chapter 11 reorganization
proceeding. On October 18, 1990, the bankruptcy court approved EP/2's
consensual plan of reorganization (the "Plan"). In November 1990, EP/2 and the
Partnership consummated a closing under the Plan pursuant to which, among
other things, the Partnership and EP/2 executed an amended and restated loan
agreement (the "New Master Loan Agreement"), EP/2 was converted from a
California general partnership to a California limited partnership,
Consolidated Capital Equity Partners/Two, L.P. ("CCEP/2"), and CCEP/2 renewed
the deeds of trust and mortgages on all the properties collaterally securing
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/2 and an affiliate of the Partnership. The general partners of EP/2
became limited partners in CCEP/2. CHI has full discretion with respect to
conducting CCEP/2's business, including managing CCEP/2's properties and
initiating and approving capital expenditures and asset dispositions and
refinancings. See Note 3 for further discussion of EP/2's bankruptcy
settlement.
Upon the Partnership's formation in 1983, 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 ("Chapter 11"). 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 and replaced CCEC as managing general partner in all 16
partnerships.
All of CEI's outstanding stock is owned by GII Realty, Inc. In December 1994,
the parent of GII Realty, Inc., entered into a transaction (the "Insignia
Transaction") in which among other things, MAE-ICC, Inc., a wholly owned
subsidiary of Metropolitan Asset Enhancement, L.P., an affiliate of Insignia
Financial Group, Inc. ("Insignia") acquired an option (exercisable in whole or
in part from time to time) to purchase all of the stock of GII Realty, Inc.
and, pursuant to a partial exercise of such option, acquired 50.5% of that
stock. As a part of the Insignia Transaction, MAE-ICC, Inc. also acquired all
of the outstanding stock of Partnership Services, Inc., an asset manager and
Insignia acquired all of the outstanding stock of Coventry Properties, Inc., a
property manager. In addition, confidentiality, non-competition, and
standstill arrangements were entered into between certain of the parties.
Those arrangements, among other things, prohibit GII Realty's former sole
shareholder from purchasing Partnership Units for a period of three years.
The principal place of business for the Partnership and for the General
Partner is One Insignia Financial Plaza, Greenville, South Carolina 29602.
Statements of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, demand deposits, money market funds and investments in commercial
paper with original maturities of three months or less.
Investment in Real Estate
The investment in real estate is recorded at the carrying value of the portion
of the Master Loan (net of the allowance for possible losses) which, prior to
foreclosure, was attributable to North Park Plaza and approximates the market
value of such property at the date of foreclosure or estimated fair value.
Estimated fair value is determined using net operating
19
<PAGE>
income of the property capitalized at a rate deemed reasonable for the type of
property, adjusted for market conditions, physical condition of the property
and other factors to assess whether any permanent impairment in value has
occurred.
Depreciation
Buildings and improvements are depreciated using the straight-line method over
the estimated useful lives of the assets, ranging from 5 to 20 years.
Investment in Master Loan
According to generally accepted accounting principles, lending arrangements
that qualify as real estate acquisition, development, and construction ("ADC")
loans are subject to certain rules for financial statement presentation and
income recognition. Pursuant to these rules, the Master Loan and New Master
Loan agreements as previously defined are classified as investments in ADC
loans as of December 31, 1994 and 1993, primarily because the Partnership is
entitled to receive, according to the provisions of the Master Loan and New
Master Loan agreements, in excess of 50% of the residual profits from the sale
or refinancing of the properties securing the agreements. Under the
accounting rules, the investment in Master Loan is accounted for by the cost
method, whereby income from the investment is recognized as interest income to
the extent of payments received and losses in the estimated net realizable
value of the investment are recognized in the period they are identified.
Interest income contractually due according to the terms of the Master Loan
and New Master Loan agreements in excess of payments received is deferred. As
of December 31, 1994 and 1993, such cumulative deferred interest, which is not
included in the balance of the net investment in Master Loan, totaled $93.9
million and $78.5 million, respectively.
Allowance for Possible Losses
Allowances to reduce the carrying cost of the Master Loan and real estate
investments are provided when it is probable that reasonably estimable net
realizable values are less than the recorded carrying cost of such
investments. Losses that result from the ongoing periodic evaluation of the
net realizable value of the Master Loan and real estate investments are
charged to expense in the period in which they are identified.
Securities Available For Sale
In 1994, the Partnership adopted Statements of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
As the fair values of securities available for sale ("Securities") approximate
their cost, any unrealized gains or losses are immaterial and therefore have
not been recorded in the accompanying financial statements. Any such
adjustment would be recorded directly to Partners' Equity (Deficit) and would
not be reflected in the Statement of Operations. The cost of securities sold
is determined using the specific identification method.
The Securities mature as follows:
<TABLE>
<CAPTION>
DESCRIPTION COST MATURITY
----------- ---------- --------------
<S> <C> <C>
Treasury Bill $ 683,000 February, 1995
Treasury Bill 1,463,000 March, 1995
Treasury Bill 5,112,000 March, 1995
Treasury Bill 2,500,000 April, 1995
Equity Securities 11,000 N/A
----------
$9,769,000
==========
</TABLE>
Rental Income
The Partnership leases its commercial property under operating leases which
vary in duration from one to five years. Rental income is recognized on a
straight-line basis over the life of the applicable leases. Minimum future
rental income subject to noncancellable operating leases is as follows (in
thousands):
20
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1995 $1,382
1996 1,106
1997 808
1998 606
1999 257
Thereafter 62
------
Total $4,221
======
</TABLE>
There is no assurance that this rental income will continue at the same level
when the current leases expire.
Income Taxes
No provision has been made in the financial statements for Federal income
taxes because under current law, no Federal income taxes are paid directly by
the Partnership. The partners are responsible for their respective shares of
Partnership net income or loss. The Partnership reports certain transactions
differently for tax than for financial statement purposes.
The tax basis of the Partnership's assets and liabilities is approximately
$108.1 million greater than the assets and liabilities as reported in the
financial statements.
Allocation of Net Income and Net Loss
The Partnership 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 Weighted Average Limited Partnership Unit
Net income (loss) per Weighted Average Limited Partnership Unit ("Unit") is
computed by dividing net income (loss) allocated to the Limited Partners by
the number of weighted average Units outstanding. Per Unit information has
been computed based on 909,153, 909,172, and 909,174 Weighted Average Units
outstanding in 1994, 1993, and 1992, respectively.
Due from affiliates
Due from affiliates primarily represents cash flow payments owed by CCEP/2 to
the Partnership under the terms of the New Master Loan Agreement.
NOTE 2 - RELATED PARTY TRANSACTIONS
The Partnership has paid property management fees equal to 5% of collected
gross rental revenues ("Rental Revenues") for property management services in
each of the three years in the period ended December 31, 1994. A portion of
such property management fees equal to 4% of Rental Revenues has been paid to
the property management company performing day-to-day property management
services and the portion equal to 1% of Rental Revenues has been paid to
Partnership Services, Inc. ("PSI") or its predecessor for advisory services
related to day-to-day property operations. During 1992 and 1993, day-to-day
property management services were provided by an unaffiliated management
company. In late December 1994, an affiliate of Insignia began to perform
property management services under the same management fee arrangement as the
unaffiliated management company. Fees paid to PSI and Insignia have been
reflected in the following table as compensation to related parties in the
applicable periods:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
COMPENSATION 1994 1993 1992
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Charged to property operations expenses
Property management fees $ 19 $ 15 $ 17
====== ====== ======
</TABLE>
The Partnership Agreement also provides for reimbursement to the general
partner and its affiliates for costs incurred in connection with
administration of Partnership activities. The General Partner and its
affiliates received reimbursements as reflected in the following table:
21
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------
REIMBURSEMENTS 1994 1993 1992
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Charged to administrative expenses
(including computer and payroll reimbursement) $ 325 $ 451 $ 424
------ ------ ------
</TABLE>
NOTE 3 - INVESTMENT IN MASTER LOAN
The investment in Master Loan consists of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------
1994 1993
-------- --------
<S> <C> <C>
(in thousands)
Master Loan funds advanced.......... $ 93,974 $ 94,289
Accrued deferred basic interest..... 1,495 1,495
Collections reserve (a)............. (3,946) (3,946)
-------- --------
91,523 91,838
Less allowance for possible losses (48,992) (39,730)
-------- --------
Net investment in Master Loan $ 42,531 $ 52,108
======== ========
</TABLE>
(a) The collections reserve represents funds collected by the Partnership
relating to the Master Loan but which are not attributable to a specific
property. The funds represent collections from properties sold by EP/2 for
which the representative portion of the Master Loan has been repaid.
At December 31, 1994 and 1993, cumulative deferred interest totaling
approximately $93.9 million and $78.5 million, respectively, was not included
in the balance of the investment in Master Loan.
EP/2's Bankruptcy Settlement
Pursuant to a cash collateral order under EP/2's Chapter 11 proceeding
described in Note 1, EP/2 was obligated to remit to the Partnership any excess
cash generated on a monthly basis to service the Master Loan obligations. The
Partnership received approximately $2 million from EP/2 pursuant to the cash
collateral order during the year ended December 31, 1990.
In November 1990, pursuant to EP/2's reorganization plan described in Note 1,
the Partnership and EP/2 consummated a closing pursuant to which: (1) the
Partnership and EP/2 executed the New Master Loan Agreement more fully
described below; (2) CCEP/2 renewed the deeds of trust on all the collateral
securing the Master Loan; (3) the Partnership received cash of approximately
$2.5 million, including $1.8 million from the general partners of EP/2 related
to their promissory notes; (4) the Partnership accepted assignment of certain
partnership interests in affiliated partnerships (the "Affiliated Partnership
Interests"), which were valued by management of the Partnership at
approximately $2.5 million, as additional collateral securing the Master Loan;
and (5) all liabilities and claims between the Partnership and EP/2's general
partners were released.
EP/2 was the holder of a note receivable secured by North Park Plaza which had
not been performing according to the note terms since 1989. In the process of
negotiating the final bankruptcy settlement discussed above, EP/2 assigned its
interest in the note receivable to the Partnership. The Partnership
foreclosed upon and acquired North Park Plaza in July 1990, CCEP/2 is still
obligated for $6.6 million under the Master Loan attributable to North Park
Plaza not extinguished in the foreclosure proceeding.
Terms of the New Master Loan Agreement
Under the terms of the New Master Loan Agreement, interest accrues at 10% and
payments are due quarterly in an amount equal to Excess Cash Flow, generally
defined in the New Master Loan Agreement as net cash flow from operations
after third-party debt service. 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 sale or refinancing of any of
CCEP/2's properties are paid to the Partnership under the terms of the Net
Master Loan Agreement. The Master Loan matures in November 2000.
22
<PAGE>
Effective January 1, 1993, the Partnership and CCEP/2 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/2. This amendment and change in
the definition of Excess Cash Flow will have the effect of reducing income on
the investment in Master Loan by the amount of CCEP/2's capital expenditures
since such amounts were previously excluded from Excess Cash Flow.
Summary of Operations of CCEP/2 and EP/2
Income and payments on the Partnership's Investment in Master Loan related to
CCEP/2 and EP/2 totaled approximately $2.2 million, $2.9 million and $3.2
million, respectively, during the years ended December 31, 1994, 1993, and
1992. Following is a summary of operations of CCEP/2 and EP/2 for the years
then ended:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
----------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Funds provided by property operations.............. $ 18,014 $ 18,204 $ 17,621
Gross proceeds from Chagrin Richmond sale.......... 2,807 - -
Funds used for property operations (includes
administrative expenses).......................... (14,010) (12,186) (11,364)
Debt service payments on underlying notes payable.. (4,665) (3,065) (3,085)
-------- -------- --------
Total funds from operations........................ 2,146 2,953 3,172
-------- -------- --------
Collections on general partner promissory notes.... - - -
Net investing activity............................. 49 38 13
-------- -------- --------
Net funds provided................................. 2,195 2,991 3,185
Excess cash remitted............................... - - -
-------- -------- --------
$ 2,195 $ 2,991 $ 3,185
======== ======== ========
Master Loan activity:
Principal receipts on Master Loan.................. $ 315 $ 1,075 $ 476
Interest income .................................. 1,880 1,916 2,709
-------- -------- --------
$ 2,195 $ 2,991 $ 3,185
======== ======== ========
</TABLE>
Change in Status of Collateral Properties
In December 1994, EP/2 sold the Chagrin Richmond Office Complex for net sales
proceeds of approximately $862,000 after closing costs and repayment of
approximately $1.7 million of related mortgage debt, including approximately
$312,000 of participation interest. The disposition of the property does not
release CCEP/2 from its $4.4 million obligation under the Master Loan.
CCEP/2 was a general partner in a limited partnership ("Broad and Locust
Associates") which was managed by an unaffiliated co-general partner and which
owned the 230 S. Broad Street Office Complex. Broad and Locust Associates
filed for protection under Chapter 11 of the U.S. Bankruptcy Code in 1992, and
in 1993 a reorganization plan was confirmed by the bankruptcy court. Pursuant
to the reorganization, the 230 S. Broad Street Office Complex was transferred
to the first lien holder which held a mortgage loan of approximately $16
million secured by the property. The bankruptcy court determined the first
lien was in excess of the property's estimated fair value, therefore, CCEP/2's
general partner interest was unsecured. The disposition of the property did
not release CCEP/2 from its $4.4 million obligation to the Partnership under
the Master Loan which had been secured by the general partner interest in
Broad and Locust Associates. The Partnership had previously recognized a
provision for possible loss for the balance of the Investments in Master Loan
secured by the general partner interest in Broad and Locust Associates. In
1994 CCEP/2 made a demand on certain other partners of Broad & Locust
Associates for the amount of the Deficit Restoration Obligation ("DRO") as
defined in the Broad & Locust Associates Second Amended and Restated
Partnership Agreement entered into in July 1984 by CCEP/2 and certain other
partners. No assurance can be given that CCEP/2 will be successful in its
attempts to obtain payment of the DRO amount.
In October 1988, CCEP/2 sold the Kendale Gardens Apartments located in Miami,
Florida, and accepted a $675,000 second lien note secured by the property. In
May 1992, the underlying lender foreclosed on the property. At the time of
foreclosure, there was no residual equity available to CCEP/2, therefore
CCEP/2 charged the note and interest receivable to a previously established
allowance for possible losses. This foreclosure did not release CCEP/2 from
its $2.4 million obligation to the Partnership under the Master Loan related
to Kendale Gardens.
23
<PAGE>
NOTE 4 - ALLOWANCE FOR POSSIBLE LOSSES
Activity in the allowance for possible losses account is as follows (in
thousands):
<TABLE>
<CAPTION>
REAL INVESTMENT IN
ESTATE MASTER LOAN TOTAL
------ ------------- -----------
<S> <C> <C> <C>
Balance, December 31, 1991..... $ - $ 25,230 $ 25,230
Provision for possible losses.. - 12,500 12,500
------ ----------- -----------
Balance, December 31, 1992..... - 37,730 37,730
Provision for possible losses.. 2,000 2,000 4,000
------ ----------- -----------
Balance, December 31, 1993..... 2,000 39,730 41,730
Provision for possible losses.. 2,496 9,262 11,758
------ ----------- -----------
Balance, December 31, 1994..... $4,496 $ 48,992 $ 53,488
====== =========== ===========
</TABLE>
The property owned by the Partnership has experienced declines in its
estimated net realizable value due to regional economic factors. Accordingly,
the Partnership recorded approximately $2.5 million and approximately $2.0
million in provisions for possible losses on the real estate in the years
ended December 31, 1994 and 1993, respectively.
Certain of the CCEP/2 properties collateralizing the Master Loan have
experienced declines in their estimated net realizable values. As a result of
this decline in collateral value, the Partnership recorded approximately $9.3
million and approximately $2.0 million in provisions for possible losses on
the Investment in the Master Loan in 1994 and 1993, respectively.
Some of the commercial properties held by CCEP/2 have experienced declines in
their estimated net realizable values due to regional economic factors and
over built local commercial real estate markets. The Partnership recorded a
$12.5 million provision for possible losses on the Investment in the Master
Loan in 1992, primarily attributable to declines in estimated net realizable
values of the Richmond Plaza and Town Center office complexes.
NOTE 5 - OTHER INCOME
In 1991, the Partnership (and simultaneously 15 Affiliated Partnerships)
entered claims in Southmark Corporation's Chapter 11 bankruptcy proceeding.
These claims related to Southmark Corporation's activities while it exercised
control (directly, or indirectly through its affiliates) over the Partnership.
The Bankruptcy Court set the Partnership's and the affiliated Partnership's
allowed claim at $11 million, in aggregate. In March 1994, the Partnership
received 1,468 shares of Southmark Corporation Redeemable Series A Preferred
Stock and 10,738 shares of Southmark Corporation New Common Stock with an
aggregate market value on the date of receipt of $11,000 and approximately
$80,000 in cash representing the Partnership's share of the recovery, based on
its pro rata share of the claims filed.
NOTE 6 - COMMITMENT AND CONTINGENCIES
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 in the Partnership Agreement. Reserves, including cash
and cash equivalents and Securities available for sale (at market), totaling
approximately $11.1 million, were greater than the reserve requirement of $7.6
million at December 31, 1994.
The Partnership is not a party to, nor is the Partnership's property the
subject of, any material pending legal proceedings, other than ordinary
litigation routine to the Partnership's business.
NOTE 7 - PARTNERS' EQUITY (DEFICIT)
There were no distributions for the years ended December 31, 1994, 1993 and
1992.
24
<PAGE>
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1994
(dollars in thousands)
<TABLE>
<CAPTION>
Gross Amount at
Initial Cost Costs Which Carried at Close of Period
------------------------- Capitalized ---------------------------------------
Property Related Buildings and Substitution Buildings and
Description Encumbrances Land Improvements To Acquisition Land Improvements Total
- ----------- ------------ --------- ------------ -------------- -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
North Park Plaza
Southfield, MI $ - $ 2,281 $ 7,719 $ 3,321 $ 2,281 $ 11,040 $ 13,321
========= ========= ========= ========= ======== ============ ==========
Allowance Depre-
for Date of ciable
Accumulated Possible Construc- Date lives
Depreciation Losses(a) tion Acquired (years)
------------ --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
North Park Plaza
Southfield, MI $ 3,325 $ (4,496) 1972 7/13/90 5-20
======== =========
</TABLE>
(a) An allowance for possible losses has been provided for this property. See
Note 1 of the Financial Statements - "Organization and
Summary of Significant Accounting Policies."
25
<PAGE>
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
Notes to Schedule III
Real Estate and Accumulated Depreciation
Changes in real estate and accumulated depreciation are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
REAL ESTATE: 1994 1993 1992
- ------------ --------- ------- --------
<S> <C> <C> <C>
(in thousands)
Balance, real estate at beginning of year... $ 12,686 $ 12,213 $ 11,763
Additions.................................. 635 473 450
-------- -------- --------
Balance, real estate at end of year......... $ 13,321(1) $ 12,686(1) $ 12,213(1)
======== ======== ========
ACCUMULATED DEPRECIATION:
- ------------------------
Accumulated depreciation of real estate at
beginning of year.......................... $ 2,339 $ 1,460 $ 672
Depreciation of real estate................ 986 879 788
-------- --------- --------
Accumulated depreciation of real estate at
end of year................................ $ 3,325 $ 2,339 $ 1,460
======== ========= ========
</TABLE>
(1) The aggregate cost for federal income tax purposes is (in thousands):
<TABLE>
<S> <C>
1994 $ 13,423
1993 $ 12,788
1992 $ 12,315
</TABLE>
26
<PAGE>
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 and 1993
27
<PAGE>
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
TABLE OF CONTENTS
December 31, 1994
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS................................ 29
CONSOLIDATED BALANCE SHEETS as of December 31, 1994 and 1993............ 30
CONSOLIDATED STATEMENTS OF OPERATIONS for the Years Ended December 31,
1994, 1993 and 1992................................................... 31
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT for the Years Ended
December 31, 1994, 1993 and 1992....................................... 32
CONSOLIDATED STATEMENTS OF CASH FLOWS for the Years Ended December 31,
1994, 1993 and 1992................................................... 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.............................. 35
</TABLE>
28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Consolidated Capital Equity Partners/Two, L.P.:
We have audited the accompanying consolidated balance sheets of Consolidated
Capital Equity Partners/Two, L.P. (a California limited partnership) as of
December 31, 1994 and 1993, and the related consolidated statements of
operations, partners' deficit and cash flows for each of the three years in
the period ended December 31, 1994. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our 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 management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note 4, approximately $21.4 million of nonrecourse mortgage
debt secured by certain of the Partnership's properties matures in 1995. The
General Partner intends to refinance this debt prior to its maturity. If the
refinancings are not completed, the General Partner intends to request
extensions of the maturities. Management's plans in regard to this matter are
discussed in Note 4. The financial statements do not contain any adjustments
that might result from the outcome of this uncertainty.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Consolidated Capital Equity
Partners/Two, L.P. as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 23, 1995
29
<PAGE>
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
ASSETS 1994 1993
-------- --------
<S> <C> <C>
Real estate, at cost:
Land and improvements............... $ 13,418 $ 14,149
Buildings........................... 78,052 82,769
Building improvements............... 14,515 13,489
Furniture and fixtures.............. 2,604 2,770
-------- --------
108,589 113,177
Less: Accumulated depreciation...... (48,364) (45,543)
-------- --------
60,225 67,634
-------- --------
Cash and cash equivalents............ 1,936 1,506
Securities available for sale........ 390 -
Investments in limited partnerships.. 2,508 2,508
Other assets......................... 3,121 2,383
Due from affiliates.................. 10 -
-------- --------
$ 68,190 $ 74,031
========= ========
LIABILITIES AND PARTNERS' DEFICIT
<S> <C> <C>
Master Loan and interest payable... $ 185,442 $ 170,364
Notes and interest payable......... 24,441 26,354
Due to affiliates.................. 1,318 302
Other liabilities.................. 1,781 1,881
--------- ---------
212,982 198,901
--------- ---------
Partners' deficit:
Limited Partners.................. (143,358) (123,635)
General Partner................... (1,434) (1,235)
---------- ---------
(144,792) (124,870)
---------- ---------
$ 68,190 $ 74,031
========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
30
<PAGE>
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
----------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Rental............................ $ 17,923 $ 17,671 $ 17,703
Investment income................. 55 38 13
Other............................. - 650 -
-------- -------- --------
Total revenues.................. 17,978 18,359 17,716
-------- -------- --------
Costs and expenses:
Interest (a)...................... 20,076 18,363 17,351
Property operations............... 10,685 10,480 10,849
Depreciation...................... 5,789 5,880 5,890
Provision for possible losses..... - 224 -
Administrative.................... 636 561 641
-------- -------- --------
Total costs and expenses (b).... 37,186 35,508 34,731
-------- -------- --------
Loss on disposition of real estate.. (714) - -
-------- -------- --------
Net loss............................ $(19,922) $(17,149) $(17,015)
======== ======== ========
</TABLE>
(a) Interest expense includes approximately $17.3 million, $15.8 million, and
$14.7 million, to related parties for the years ended December 31, 1994,
1993 and 1992, respectively.
(b) Costs and expenses include approximately $1.5 million, $1.1 million, and
$853,000 to related parties for the years ended December 31, 1994, 1993
and 1992, respectively. See supplemental information with respect to
related party transactions in Note 2 to the consolidated financial
statements.
The accompanying notes are an integral part of the financial statements.
31
<PAGE>
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
For the Years Ended December 31, 1994, 1993 and 1992
(in thousands)
<TABLE>
<CAPTION>
GENERAL LIMITED PARTNERS'
PARTNER PARTNERS DEFICIT
-------- -------- ---------
<S> <C> <C> <C>
Balance at December 31, 1991.. $ (894) $ (89,812) $ (90,706)
Net loss...................... (170) (16,845) (17,015)
-------- ----------- -----------
Balance at December 31, 1992.. (1,064) (106,657) (107,721)
Net loss...................... (171) (16,978) (17,149)
-------- ----------- -----------
Balance at December 31, 1993.. (1,235) (123,635) (124,870)
Net loss...................... (199) (19,723) (19,922)
-------- ----------- -----------
Balance at December 31, 1994.. $ (1,434) $ (143,358) $ (144,792)
======== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
32
<PAGE>
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
----------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from tenants......................... $ 18,014 $18,204 $17,621
Cash paid to suppliers (a)......................... (10,568) (9,295) (9,560)
Interest received.................................. 49 38 13
Interest paid (b).................................. (3,287) (4,663) (5,865)
Property taxes paid................................ (1,430) (1,639) (1,660)
-------- ------- -------
Net cash provided by operating activities............ 2,778 2,645 549
-------- ------- -------
Cash flows from investing activities:
Additions to real estate........................... (1,835) (1,358) (1,659)
Purchase of Securities available for sale.......... (390) - -
Proceeds from property disposition................. 862 - -
Tenant improvement note receivable................. (195) - -
-------- ------- -------
Net cash used in investing activities.......... (1,558) (1,358) (1,659)
-------- ------- -------
Cash flows from financing activities:
Advances on Master Loan............................ - 662 2,353
Principal payments on Master Loan.................. (315) (1,075) (476)
Principal payments on notes payable................ (475) (517) (467)
-------- ------- -------
Net cash provided by (used in) financing activities.. (790) (930) 1,410
-------- ------- -------
Net increase in cash and cash equivalents............ 430 357 300
Cash and cash equivalents, at beginning of year...... 1,506 1,149 849
-------- ------- -------
Cash and cash equivalents, at end of year............ $ 1,936 $ 1,506 $ 1,149
======== ======= =======
</TABLE>
(a) Payments to related parties totaling approximately $2.0 million, $1.1
million, and $853,000 for the years ended December 31, 1994, 1993 and
1992, respectively, are included in cash paid to suppliers. See
supplemental information with respect to related party transactions in
Note 2 to the consolidated financial statements.
(b) Payments to related parties totaling approximately $812,000, $1.9 million,
and $2.7 million for the years ended December 31, 1994, 1993 and 1992,
respectively, are included in interest paid.
See supplemental information with respect to this
consolidated statement of cash flows
in Notes 4 and 6 to the consolidated financial statements.
The accompanying notes are an integral part of the financial statements.
33
<PAGE>
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Reconciliation of Net Loss to Net Cash Provided by
Operating Activities
(in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
----------- ---------- ----------
<S> <C> <C> <C>
Net loss................................................. $(19,922) $(17,149) $(17,015)
-------- -------- --------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation......................................... 5,789 5,880 5,890
Provision for possible losses........................ - 224 -
Loss on disposition of real estate................... 714 - -
Participation interest paid at property disposition.. 313 - -
Prorated rents paid at property disposition.......... 42 - -
Changes in assets and liabilities:
Other assets......................................... (566) (16) 38
Interest payable..................................... 16,429 13,644 11,424
Other liabilities.................................... 10 15 257
Due to (from) affiliates............................. (31) 47 (45)
-------- -------- --------
Total adjustments.................................... 22,700 19,794 17,564
-------- -------- --------
Net cash provided by operating activities................ $ 2,778 $ 2,645 $ 549
======== ======== ========
</TABLE>
See supplemental information with respect to this consolidated statement of
cash flows in Notes 4 and 6 to the consolidated financial statements.
The accompanying notes are an integral part of the financial statements.
34
<PAGE>
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994 and 1993
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Equity Partners/Two ("EP/2"), a California general partnership, was formed on
April 28, 1983, to engage in the business of acquiring, operating and holding
equity investments in income-producing real properties. Certain of the
general partners of EP/2 were former shareholders and former management of
Consolidated Capital Equities Corporation ("CCEC"), the former corporate
general partner of CCIP/2 (as defined below). On November 16, 1990, pursuant
to the bankruptcy settlement discussed below, EP/2's general partners executed
a new partnership agreement (the "New Partnership Agreement") whereby EP/2
converted from a general partnership to a California limited partnership,
Consolidated Capital Equity Partners/Two, L.P. ("CCEP/2"). The general
partners of EP/2 became limited partners of CCEP/2. ConCap Holdings, Inc.
("CHI"), a Texas corporation, is CCEP/2's general partner. See "History of
CHI" below.
The operations of EP/2 were financed substantially through nonrecourse notes
with participation interests (the "Master Loan") from Consolidated Capital
Institutional Properties/2 ("CCIP/2"), a California limited partnership.
These notes are secured by the real properties owned by and notes receivable
on sold properties owed to CCEP/2.
EP/2 Bankruptcy and Reorganization
During 1989, EP/2 defaulted on certain interest payments that were due to
CCIP/2 under the Master Loan and, before CCIP/2 was able to exercise its
remedies for such default, EP/2 filed for bankruptcy protection in a Chapter
11 reorganization proceeding ("Chapter 11").
On October 18, 1990, the bankruptcy court approved EP/2's consensual plan of
reorganization (the "Plan"). On November 16, 1990, CCIP/2 consummated a
closing under the Plan pursuant to which: (1) CCIP/2 and EP/2 executed an
amended and restated loan agreement ("New Master Loan Agreement"); (2) CCEP/2
renewed the deeds of trust on all collateral securing the Master Loan; (3)
EP/2 paid CCIP/2 cash of approximately $2.5 million, including $1.8 million
contributed by the general partners of EP/2 related to their promissory notes;
(4) the general partners of EP/2 contributed certain partnership interests in
affiliated partnerships ("General Partnership Interests"), which were valued
by management of CCIP/2 at approximately $2.5 million, that were assigned to
CCIP/2 as additional collateral securing the Master Loan and (5) all
liabilities and claims between EP/2's general partners and CCIP/2 were
released. See Note 3 for a description of the terms of the New Master Loan
Agreement.
History of CHI
The managing general partner of EP/2 was Consolidated Capital Enterprises,
Inc. ("CCEI"), a Georgia corporation. In December 1988, CCEC filed for
Chapter 11 protection. In October 1990, as part of CCEC's reorganization
plan, CCEC sold its general partner interest in CCIP/2 to ConCap Equities,
Inc. ("CEI"), a Delaware corporation.
Pursuant to the New Partnership Agreement as discussed above, CHI, a wholly-
owned subsidiary of CEI, became the sole general partner of CCEP/2, replacing
CCEI, and the former general partners of EP/2 became limited partners of
CCEP/2. Pursuant to the New Partnership Agreement, CCEP/2 is managed by CHI
and CHI has full discretion with respect to conducting CCEP/2's business. CHI
and the limited partners are hereinafter referred to collectively as the
"Partners."
All of CEI's outstanding stock is owned by GII Realty, Inc. In December 1994,
the parent of GII Realty, Inc., entered into a transaction (the "Insignia
Transaction") in which among other things, MAE-ICC, Inc., a wholly owned
subsidiary of Metropolitan Asset Enhancement, L.P., an affiliate of Insignia
Financial Group, Inc. ("Insignia") acquired an option (exercisable in whole or
in part from time to time) to purchase all of the stock of GII Realty, Inc.
and, pursuant to a partial exercise of such option, acquired 50.5% of that
stock. As a part of the Insignia Transaction, MAE-ICC, Inc. also acquired all
of the outstanding stock of Partnership Services, Inc., an asset manager and
Insignia acquired all of the outstanding stock of Coventry Properties, Inc., a
property manager. In addition, confidentiality, non-competition, and
standstill arrangements were entered into between certain of the parties.
Those arrangements, among other things, prohibit GII Realty's former sole
shareholder from purchasing Partnership Units for a period of three years.
The principal place of business for CCEP/2, CEI and CHI is One Insignia
Financial Plaza, Greenville, South Carolina, 29602.
35
<PAGE>
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO,L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1994 AND 1993
Consolidation of Investment in Majority-Owned Limited Partnership
In 1985, EP/2 together with Anderson CC 2, a Georgia limited partnership,
entered into a general partnership agreement ("CC Office Associates") to
acquire Cosmopolitan Center, an office building located in Atlanta, Georgia.
Pursuant to such general partnership agreement, the property ownership is
split 90%/10% between CCEP/2, as successor to EP/2, and Anderson CC 2,
respectively. CCEP/2's investment in CC Office Associates is consolidated in
CCEP/2's financial statements. No minority interest liability has been
reflected for Anderson CC 2's minority 10% interest because the Master Loan
balance, which is secured by a deed of trust held by CCIP/2 on Cosmopolitan
Center, exceeds the value of the property. As a result, CC Office Associates
has a net capital deficit and no minority liability exists with respect to
CCEP/2.
Statements of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, demand deposits, money market funds and investments in commercial
paper with original maturities of three months or less.
Restricted Cash
The Partnership maintained the following restricted cash balances in Other
Assets at December 31:
<TABLE>
<CAPTION>
1994 1993
------------ ----------
<S> <C> <C>
Tax and Insurance Escrows $ 397,400 $ 266,800
</TABLE>
Investments in Real Estate
Investments in real estate are stated at lower of cost or estimated fair
value. Estimated fair value is determined using net operating income of the
property capitalized at a rate deemed reasonable for the type of property,
adjusted for market conditions, physical condition of the property and other
factors to assess whether any permanent impairment in value has occurred.
However, in certain cases, when real estate has been purchased subject to
existing mortgages, the basis of the investment has been reduced to reflect a
discount recorded to reflect interest on the mortgage at the then prevailing
market rates.
Investments in Limited Partnerships
Approximately $2.5 million of the investments in limited partnerships
represents certain general partner interests in seven affiliated limited
partnerships that were contributed by EP/2's general partners to CCEP/2
pursuant to the bankruptcy settlement previously discussed. These investments
are recorded at their fair value as estimated by CCIP/2's management.
Allowance for Possible Losses
Allowances to reduce the carrying cost of real estate investments are provided
when it is probable that their reasonably estimable net realizable values are
less than the recorded carrying costs of such investments. Losses that result
from the ongoing periodic evaluation of the net realizable value of the real
estate investments are charged to expense in the period in which they are
identified.
Securities Available For Sale
In 1994, the Partnership adopted Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
as the fair values of securities available for sale ("Securities") approximate
their cost, any unrealized gains or losses are immaterial and therefore have
not been recorded in the accompanying financial statements. Any such
adjustment would be recorded directly to Partners' Equity (Deficit) and would
not be reflected in the Statement of Operations. The cost of securities sold
is determined using the specific identification method.
36
<PAGE>
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
The Securities mature as follows:
DESCRIPTION COST MATURITY
----------- -------- -----------
Treasury Bill $ 389,600 March, 1995
Deferred Loan Fees
Deferred loan fees are amortized using the effective interest method over the
lives of the related mortgage notes. Unamortized deferred loan fees are
included in other assets.
Rental Income
CCEP/2 leases its residential properties under short-term operating leases.
Lease terms are generally one year or less in duration. CCEP/2 expects that
in the normal course of business these leases will be renewed or replaced by
other leases. Commercial office leases vary from 1 to 15 years. Rental income
is recognized on a straight-line basis over the life of the applicable leases.
Minimum future rental income for the commercial property as of December 31,
1994, subject to noncancellable operating leases is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1995 $ 8,296
1996 6,708
1997 5,595
1998 4,348
1999 3,804
Thereafter 9,837
-----------
$ 38,588
===========
</TABLE>
There is no assurance that this rental income will continue at the same level
when the current leases expire.
Other Revenue
During 1992, CCEP/2 initiated litigation to collect reimbursable utility
charges from one of the tenants of the Richmond Plaza Office Building. In
1993 the litigation was dismissed. In July 1993, CCEP/2 collected $650,000
from the tenant which was recognized as other income.
Depreciation
Building, improvements, and furniture and fixtures are depreciated using the
straight-line method over the estimated useful lives of the assets, ranging
from 3 to 20 years.
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/2. The Partners are responsible for their respective shares of CCEP/2's
net income or loss. CCEP/2 reports certain transactions differently for tax
than for financial statement purposes.
The tax basis of the Partnership's assets and liabilities is approximately
$84.4 million greater than the assets and liabilities as reported in the
financial statements.
37
<PAGE>
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
Due to affiliates
Due to affiliates primarily represents cash flow payments owned by CCEP/2 to
CCIP/2 under the terms of the New Master Loan Agreement.
NOTE 2 - RELATED PARTY TRANSACTIONS
CCEP/2 has paid property management fees equal to 5% of collected gross rental
revenues ("Rental Revenues") for property management services in each of the
three years in the period ended December 31, 1994. A portion of such property
management fees equal to 4% of Rental Revenues has been paid to the property
management companies performing day-to-day property management services and
the portion equal to 1% of Rental Revenues has been paid to Partnership
Services, Inc. ("PSI") an affiliate of the General Partner, for advisory
services related to day-to-day property operations. Prior to July 1992, day
to day property management services were provided to CCEP/2 properties by
unaffiliated management companies. In July 1992, Coventry Properties, Inc.
("Coventry"), an affiliate of CHI assumed day-to-day property management
responsibilities for one of CCEP/2 properties under the same management fee
arrangement as the unaffiliated management companies. Coventry assumed day-
to-day property management responsibilities for three additional CCEP/2
properties in January 1994, and an affiliate of Insignia assumed day-to-day
property management responsibilities for all of the rest of CCEP/2 properties
in late December 1994. The management fee arrangement with Coventry, the
affiliated management company, and the unaffiliated management companies also
provided for payment of leasing their services in connection with obtaining
new or renewed leases with tenants of the commercial office buildings. Fees
paid to PSI and Coventry have been reflected in the following table as
compensation to related parties.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
COMPENSATION 1994 1993 1992
- ------------ ------ ------ ------
<S> <C> <C> <C>
(in thousands)
Charged to other assets:
Lease commissions........................ $ 493 $ - $ -
------ ----- -----
Charged to property operations expenses:
Property management fees................. 511 388 289
------ ----- -----
Charged to administrative expenses:
Investment advisory fees................. 182 191 218
------ ----- -----
$1,186 $ 579 $ 507
====== ===== =====
</TABLE>
In addition to the compensation paid in connection with property operations
and lease commissions described above, the Partnership Agreement provides for
reimbursement to the property management companies for their expenses related
to property operations (primarily salaries and related costs for on-site
property personnel). The Partnership Agreement also provides for
reimbursement to CHI and its affiliates for costs incurred in connection with
administration of CCEP/2 activities. CHI and its affiliates (including
Coventry) received reimbursements as reflected in the following table:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------
REIMBURSEMENTS 1994 1993 1992
- -------------- ----- ----- -----
<S> <C> <C> <C>
(in thousands)
Charged to property operations expenses:
Reimbursement of direct property expense......... $ 542 $ 254 $ 126
----- ----- -----
Charged to administrative expenses:
(including computer and payroll reimbursements).. 293 260 220
----- ----- -----
$ 835 $ 514 $ 346
===== ===== =====
</TABLE>
38
<PAGE>
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994 and 1993
Beginning in 1991, CCEP/2 is subject to an Investment Advisory Agreement
between CCEP/2 and an affiliate of CHI. This agreement provides for an annual
fee, payable in monthly installments, to an affiliate of CHI for advising and
consulting services for CCEP/2's properties. The fee is computed as a .24%
annual charge on the fair market value of CCEP/2's assets, excluding cash and
cash equivalents. The agreement automatically renews for successive renewal
terms of 90 days each, unless either party terminates the agreement.
NOTE 3 - MASTER LOAN AND ACCRUED INTEREST PAYABLE
Under the terms of the Master Loan Agreement, interest accrues at 10% per
annum and payments are due quarterly in an amount equal to Excess Cash Flow,
generally defined in the Master Loan Agreement as net cash flow from
operations after third-party debt service. If such Excess Cash Flow payments
are less than the current accrued interest during the quarterly period, the
unpaid interest is added to principal, compounded annually, and is payable at
the loan's maturity. If such Excess Cash Flow payments are greater than the
currently payable interest, the excess amount is applied to the principal
balance of the loan. Any net proceeds from sale or refinancing of any of
CCEP/2's properties are paid to CCIP/2 under the terms of the Master Loan
Agreement. The Master Loan matures in November 2000.
Effective January 1, 1993, CCEP/2 and CCIP/2 amended the Master Loan Agreement
to stipulate that Excess Cash Flow would be computed net of capital
improvements. Such expenditures were formerly funded from advances on the
Master Loan from CCIP/2 to CCEP/2. This amendment and change in the
definition of Excess Cash Flow will have the effect of reducing Master Loan
payments to CCIP/2 by the amount of CCEP/2's capital expenditures since such
amounts were previously excluded from Excess Cash Flow. The amendment will
have no effect on the computation of interest expense on the Master Loan.
Property and Note Receivable Dispositions through Foreclosure in 1990
EP/2's note receivable secured by North Park Plaza had not been performing
according to the note terms since 1989. In the process of negotiating the
bankruptcy reorganization discussed in Note 1, EP/2 assigned its interest in
the North Park Plaza note receivable to CCIP/2 and in July 1990, CCIP/2
foreclosed on North Park Plaza. Approximately $10 million of Master Loan
debt, which amount was equal to the appraised value of the property
foreclosed, was extinguished by CCIP/2 in connection therewith. During the
first quarter 1991, CCIP/2 adjusted the amount of the Master Loan extinguished
through the foreclosure by $4 million, representing the difference between the
amount bid at the foreclosure sale and the appraised value of the property.
All of such extinguished amount, both in 1991 and 1990, was applied toward the
outstanding Master Loan principal balance. CCEP/2 recognized a net gain on
extinguishment of debt of $4.2 million in 1991. The remaining principal and
accrued interest on the portion of the Master Loan originally secured by North
Park Plaza of approximately $6.6 million was not extinguished at the time of
foreclosure and CCEP/2 is still obligated under the Master Loan for this
amount.
NOTE 4 - NOTES PAYABLE
Balances at December 31, 1994 and 1993
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------
1994 1993
------------------ ------------------
NOTES AND INTEREST NOTES AND INTEREST
PAYABLE PAYABLE
------------------ ------------------
(in thousands) (in thousands)
<S> <C> <C>
Notes on real estate owned $24,441 $26,354
======= =======
</TABLE>
General
CCEP/2's notes payable are nonrecourse and collateralized by deeds of trust on
real property. The notes payable bear interest at rates ranging from 8.75% to
9.875% per annum and mature between 1995 and 2003.
39
<PAGE>
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994 and 1993
<TABLE>
<CAPTION>
Summary of Maturities
NOTE PAYABLE
----------------------------
YEAR ENDING SPECIAL
DECEMBER 31, REGULAR OR BALLOON TOTAL
- ----------------------- ------- ---------- -------
<S> <C> <C> <C>
(in thousands)
1995 $ 195 $21,309 $21,504
1996 150 - 150
1997 164 - 164
1998 179 - 179
1999 196 - 196
Thereafter 393 1,855 2,248
------- ------- -------
$ 1,277 $23,164 $24,441
======= ======= =======
</TABLE>
Regular principal payments on notes payable are those monthly or annual
payments required to amortize the notes, exclusive of special or balloon
payments. Balloon principal payments include payments required to repay notes
at maturity.
The Village Brooke Apartments, located in Cincinnati, Ohio, secures
approximately $6.8 million of first mortgage debt (the "first lien note")
which is superior to CCEP/2's related obligation under the Master Loan of
approximately $2 million. In May 1994, management negotiated a one-year
extension with the lender which extends the maturity of the first lien note,
which matured in June 1994, to June 1995. Management is negotiating with the
lender to extend the maturity of the mortgage debt. No assurance can be given
that the General Partner will be successful in its negotiations with the
lender.
The Richmond Plaza Office Building, located in Richmond, Virginia, secures
approximately $14.6 million in mortgage debt (the "first lien note") which is
superior to CCEP/2's related obligation under the Master Loan of approximately
$2.3 million. In May 1994, management negotiated a one-year extension with
the lender which extends the maturity of the first lien note, which matured in
March 1994, to March 1995. Management is pursuing a modification or refinance
of the mortgage debt. No assurance can be given that the General Partner will
be successful in its negotiations with the lender.
Note Receivable Disposition in 1993
CCEP/2 held a note receivable received in connection with the November 18,
1988, sale of Scotts Level Apartments, a 234-unit complex located in
Pikesville, Maryland. The property had been purchased with funds loaned by
the Partnership pursuant to the Master Loan and which have subsequently been
repaid. The note receivable had an outstanding balance including accrued
interest at December 31, 1992 of $326,000 which had previously been fully
reserved. No payments had been received on the note receivable since 1990,
and the owner of the property subsequently filed for protection under the U.S.
Bankruptcy Code. The Bankruptcy Court determined that CCEP/2's note
receivable had no value, and in December 1993, CCEP/2 received $10,000 as full
settlement of the note receivable. The remaining unpaid note and interest
receivable was charged to the previously established allowance account.
Interest which was due under the payment terms of the note but not recognized
in the Statement of Operations due to the note's delinquent status totaled
$52,000 and $47,000 for the years ended December 31, 1993 and 1992,
respectively.
Note Receivable Disposition in 1992
At December 31, 1991, CCEP/2 held a note receivable with an outstanding
principal balance of $675,000 pursuant to the October 1988 sale of the Kendale
Gardens Apartments located in Miami, Florida. The note receivable was secured
by a deed of trust on the property, and was subordinate to a first lien deed
held by an underlying lender. As the borrower had not made scheduled interest
payments since June 1990, the note was classified noncurrent and nonaccruing
for accounting purposes at December 31, 1991. Interest which was due under
the payment terms of the note but not recognized in the Statements of
Operations due to the note's delinquent status totaled approximately $30,000
for the year ended December 31, 1992. In addition, the aggregate note and
interest receivable balance of approximately $687,000 was fully reserved for
possible loss at December 31, 1991.
40
<PAGE>
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994 and 1993
The underlying lender foreclosed on the property in May 1992, and at the time
of foreclosure, there was no residual equity available to CCEP/2.
Accordingly, the note and interest receivable were charged to the related
allowance for possible loss in May 1992. There was no effect on net income
for the year ended December 31, 1992. This noncash transaction is not
reflected in the accompanying statement of cash flows for the year ended
December 31, 1992. This foreclosure did not release CCEP/2 from its
obligation of $2.4 million under the Master Loan attributable to Kendale
Gardens Apartments.
NOTE 5 - PARTNERS' DEFICIT
Pursuant to the New Partnership Agreement, the original general partner
contributions to CCEP/2 and net income or losses from ongoing operations for
both financial and tax reporting purposes are allocated 99% to the limited
partners and 1% to CHI.
NOTE 6 - REAL ESTATE SALE
In December 1994, EP/2 sold the Chagrin Richmond Office Complex for net sales
proceeds of approximately $862,000 after closing costs and repayment of
approximately $1.7 million of related mortgage debt, including approximately
$312,000 of participation interest. The disposition of the property does not
release CCEP/2 from its $4.4 million obligation under the Master Loan. The
Partnership recognized a loss of approximately $714,000 on the sale.
The sale transaction is summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31, 1994
-----------------------
<S> <C>
Sales Value:
Cash proceeds received............... $ 862
Debt discharged...................... 1,749
--------
Total sales value................... 2,611
--------
Cost of Sales:
Net real estate (a).................. (3,455)
Other liabilities, net of other
assets.............................. 130
--------
Total costs of sales................ (3,325)
--------
Loss on sale of real estate.......... $ (714)
========
</TABLE>
(a) Real estate at cost, $6.4 million.
41
<PAGE>
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER OF
THE PARTNERSHIP.
The names of the directors and executive officers of ConCap Equities, Inc.
("CEI"), the Partnership's Managing General Partner as of December 31, 1994,
their age and the nature of all positions with CEI presently held by them are
as follows:
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL POSITION IN CEI AGE
- ------------------ --------------- ---
<S> <C> <C>
Carroll D. Vinson President 53
William H. Jarrard, Jr. Vice President 48
John K. Lines Vice President/Secretary 35
Kelley M. Buechler Assistant Secretary 37
Robert D. Long, Jr. Chief Accounting Officer/ 27
Controller
</TABLE>
Carroll D. Vinson has been President of CEI since December of 1994 and
President of the MAE subsidiaries since August 1994. Prior to that, during
1993 to August 1994, Mr. Vinson was affiliated with Crisp, Hughes & Co. (a
regional CPA firm) and engaged in various other investment and consulting
activities. Briefly, in early 1993, Mr. Vinson served as President and Chief
Executive Officer of Angeles Corporation, a real estate investment firm. From
1991 to 1993, Mr. Vinson was employed by Insignia in various capacities
including Managing Director-President during 1991. From 1986 to 1990, Mr.
Vinson was President and a Director of U.S. Shelter Corporation, a real estate
services company which sold substantially all of its assets to Insignia in
December 1990.
William H. Jarrard, Jr. has been Vice President of CEI since December of 1994,
Vice President of the MAE subsidiaries since January 1992 and Managing
Director - Asset Management and Partnership Administration of Insignia since
January 1991. During the five years prior to joining Insignia in 1991, he
served in a similar capacity for U.S. Shelter. He was previously associated
with the accounting firm of Ernst & Whinney for eleven years. Mr. Jarrard is
a graduate of the University of South Carolina and a certified public
accountant.
John K. Lines has been Vice President and Secretary of CEI since December of
1994, Secretary of the MAE subsidiaries since August 1994, General Counsel of
Insignia since June 1994, and General Counsel and Secretary of Insignia since
July 1994. From May 1993 until June 1994, Mr. Lines was the Assistant General
Counsel and Vice President of Ocwen Financial Corporation in West Palm Beach,
Florida. From October 1991 until April 1993, Mr. Lines was a Senior Attorney
with Banc One Corporation in Columbus, Ohio. From May 1990 until October
1991, Mr. Lines was employed as an associate with Squire Sanders & Dempsey in
Columbus, Ohio.
Robert D. Long, Jr. has been Controller and Chief Accounting Officer of CEI
since December 1994 and Chief Accounting Officer and Controller of the MAE
subsidiaries since February 1994. Prior to joining MAE, he was an auditor for
the State of Tennessee and was associated with the accounting firm of Harshman
Lewis and Associates. He is a graduate of The University of Memphis.
Kelley M. Buechler has been Assistant Secretary of CEI since December 1994,
Assistant Secretary of the MAE subsidiaries since January 1992, and Assistant
Secretary of Insignia since January 1991. During the five years prior to
joining Insignia in 1991, she served in a similar capacity for U.S. Shelter.
Ms. Buechler is a graduate of the University of North Carolina.
CEI is the general partner of the Partnership and 13 other Affiliated
Partnerships as of December 31, 1994. One of the Affiliated Partnerships,
Consolidated Capital Properties II, filed for reorganization under Chapter 11
of the U.S. Bankruptcy Code on October 15, 1991, and was subsequently
liquidated pursuant to a reorganization plan approved by
42
<PAGE>
the Bankruptcy Court in the year ended December 31, 1992. Another Affiliated
Partnership, Consolidated Capital Properties, filed for Chapter 11 protection
on February 19, 1992, and was liquidated in 1994 pursuant to a reorganization
plan approved by the Bankruptcy Court. These Chapter 11 filings were made due
to the Partnerships' liquidity problems and maturities on certain mortgage
debt secured by the Partnerships' real estate investments.
No family relationship exists between any of the directors and officers of CEI.
ITEM 11. EXECUTIVE COMPENSATION
No direct compensation was paid or payable by the Partnership to directors or
officers (since it does not have any directors or officers) for the year ended
December 31, 1994, nor was any direct compensation paid or payable by the
Partnership to directors or officers of the General Partner for the year ended
December 31, 1994. The Partnership has no plans to pay any such remuneration
to any directors or officers of the General Partner in the future.
See Item 8 - Financial Statements and Supplementary Data, Note 2 - Related
Party Transactions, for amounts of compensation and reimbursement of salaries
paid by the Partnership to the General Partner and its affiliates and the
former general partner and former affiliates.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
As of February 16, 1995, no person was known to CEI to own of record or
beneficially more than 5 percent (5%) of the Units of the Partnership.
(b) Beneficial Owners of Management
Neither CEI nor any of the directors or 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 February 16, 1995, the following persons were known to CEI to be the
beneficial owners of more than 5 percent (5%) of its common stock:
NUMBER OF PERCENT
NAME AND ADDRESS CEI SHARES OF TOTAL
---------------- ---------- --------
GII Realty, Inc. 100,000 100%
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Current Management and Others
Except for the transactions described below, neither CEI nor any of its
directors, officers or associates, or any associates of any of them, has had
any interest in any other transaction to which the Partnership is a party.
Please refer to Item 8 -Financial Statements and Supplementary Data, Note 2 -
Related Party Transactions, for the amounts and items of permissible
compensation and fees paid to the General Partner and its affiliates and other
related parties for the last three years.
The Partnership has paid property management fees equal to 5% of collected
gross rental revenues ("Rental Revenues") for property management services in
each of the three years in the period ended December 31, 1994. A portion of
such property management fees equal to 4% of Rental Revenues has been paid to
the management company performing day-to-day property management services and
the portion equal to 1% of Rental Revenues has been paid to PSI for advisory
services related to day-to-day property operations. Prior to July 1992, day
to day property management services were provided to CCEP/2 properties by
unaffiliated management companies. In July 1992, Coventry Properties, Inc.
("Coventry") an affiliate of CHI assumed day-to-day property management
responsibilities for one of the CCEP/2 properties under the same management
fee arrangement as the unaffiliated management companies. Coventry assumed
day-to-day property management responsibilities for three additional CCEP/2
properties in January 1994, and an affiliate
43
<PAGE>
of Insignia assumed day-to-day property management responsibilities for the
rest of CCEP/2 properties in late December 1994. The management fee
arrangement with Coventry, the affiliated management company, and the
unaffiliated management companies also provided for payment of leasing their
services in connection with obtaining newor renewed leases with tenants of the
commercial office buildings.
All of the above-referenced agreements with affiliates of CEI and related
parties of the Partnership are subject to the conditions and limitations
imposed by the Partnership Agreement.
44
<PAGE>
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
Balance Sheets as of December 31, 1994 and 1993
Statements of Operations for the Years Ended
December 31, 1994, 1993 and 1992
Statements of Partners' Equity (Deficit) for the Years
Ended December 31, 1994, 1993 and 1992
Statements of Cash Flows for the Years Ended
December 31, 1994, 1993 and 1992
Notes to Financial Statements
2. Schedules
Schedule III - Real Estate and Accumulated Depreciation
Audited Financials for Consolidated Capital Equity Partners/Two, L.P.
for the years ended December 31, 1994, 1993 and 1992.
All other schedules are omitted as they are not required, are not
applicable or the financial information is included in the financial
statements or notes thereto.
3. Exhibits
<TABLE>
<CAPTION>
S-K REFERENCE SEQUENTIAL
NUMBER DOCUMENT DESCRIPTION PAGE NUMBER
------------- -------------------- --------------
<S> <C> <C>
3 Certificates of Limited Partnership, as amended
to date.
10.1 Amended Loan Agreement dated November N/A
15, 1990 (the "Effective
Date"), by and between
the Partnership and EP/2 (Incorporated by refer-
ence 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, N/A
by and between EP/2 and CCEP/2 (Incorporated
by reference to the 1990 Annual Report).
10.3 Assignment of Claims as of the Effective Date, N/A
by and between the Partnership and EP/2.
(Incorporated by reference to the 1990
Annual Report).
10.4 Assignment of Partnership Interests in CC Office N/A
Associates and Broad and Locust Associates dated
November 16, 1990 (the effective date), by and
between EP/2 and CCEP/2 (Incorporated by reference
to the 1990 Annual Report).
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
S-K REFERENCE SEQUENTIAL
NUMBER DOCUMENT DESCRIPTION PAGE NUMBER
------------- -------------------- -----------
<S> <C> <C>
10.5 Property Management Agreement No. 113 N/A
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).
10.6 Bill of Sale and Assignment dated October 23, N/A
1990, by and between CCEC and ConCap Services Company
(Incorporated by reference to the Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1990).
10.7 Assignment and Assumption dated October 23, N/A
1990, by and between CCEC and ConCap Management
Limited Partnership ("CCMLP") (Incorporated by
reference to the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1990).
10.8 Assignment and Agreement as to Certain N/A
Property Management Services dated October 23,
1990, by and between CCMLP and ConCap Capital
Company (Incorporated by reference to the
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1990).
10.9 Assignment and Agreement dated October 23, N/A
1990, by and between CCMLP and The Hayman Company
(100 Series of Property Management Contracts)
(Incorporated by reference to the Quarterly Report
on Form 10-Q for the quarter ended September 30, 1990).
10.10 Construction Management Cost Reimbursement N/A
Agreement dated January 1, 1991, by and between the
Partnership and The Hayman Company.
(Incorporated by reference to the Annual Report on
Form 10-K for the year ended December 31, 1991).
10.11 Investor Services Agreement dated October 23, N/A
1990, by and between the Partnership and CCEC
(Incorporated by reference to the Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1990).
10.12 Assignment and Assumption Agreement Investor N/A
Services Agreement) dated October 23, 1990 by
and between CCEC and ConCap Services Company.
10.13 Letter of Notice dated December 20, 1991, from N/A
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 Annual Report on Form 10-K for
the year ended December 31, 1991).
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
S-K REFERENCE SEQUENTIAL
NUMBER DOCUMENT DESCRIPTION PAGE NUMBER
------------- -------------------- -----------
<S> <C> <C>
10.14 Financial Services Agreement dated October N/A
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) (Incorporated by reference
to the 1990 Annual Report).
10.15 Assignment and Assumption Agreement N/A
(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).
10.16 Letter of Notice dated December 20, 1991, from N/A
PSI to the Partnership regarding the change in
ownership and dissolution of ConCap Capital Company
whereby PSI assumed the Financial Services Agreement.
(Incorporated by reference to the Annual Report on
Form 10-K for the year ended December 31, 1991).
10.17 Property Management Agreement No. 501 dated N/A
February 16, 1993, by and between the Partnership
and Coventry Properties, Inc. (Incorporated by
reference to the Annual Report on Form 10-K for
the year ended December 31, 1992).
10.18 Property Management Agreement No. 412 dated N/A
May 13, 1993, by and between Consolidated Capital
Equity Partners/Two L.P. and Coventry
Properties, Inc. (Incorporated by reference to the
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993).
10.19 Assignment and Assumption Agreement (Property N/A
Management Agreement No. 412) dated May 13, 1993, by
and between Coventry Properties, Inc., R&B Apartment
Management Company Inc. and Partnership Services, Inc.
(Incorporated by reference to the Quarterly Report
on Form 10-Q for the quarter ended September 30, 1993).
10.20 Assignment and Agreement as to Certain Property N/A
Management Services dated May 13, 1993, by and between
Coventry Properties, Inc. and Partnership Services, Inc.
(Incorporated by reference to the Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993).
10.21 Property Management Agreement No. 413 dated N/A
May 13, 1993, by and between Consolidated
Equity Partners/Two L.P. and Coventry Properties, Inc.
(Incorporated by reference to the Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993).
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
S-K REFERENCE SEQUENTIAL
NUMBER DOCUMENT DESCRIPTION PAGE NUMBER
------------- -------------------- -----------
<S> <C> <C>
10.22 Assignment and Assumption Agreement N/A
(Property Management Agreement No. 413)
dated May 13, 1993, by and between
Coventry Properties, Inc.,
R&B Apartment Management Company, Inc.
and Partnership Services, Inc. (Incorporated
by reference to the Quarterly Report on
Form 10-Q for the quarter ended
September 30, 1993).
10.23 Assignment and Agreement as to Certain Property N/A
Management Services dated May 13,1993, by and
between Coventry Properties, Inc. and Partnership
Services, Inc. (Incorporated by reference to the
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993).
11 Statement regarding computation of Net Income 21
per Limited Partnership Unit (Incorporated by
reference to Note 1 of Item 8 - Financial
Statements of this Form 10-K).
16 Letter, dated August 12, 1992, from Ernst & Young N/A
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 N/A
financial information extracted from the
balance sheet and statement of operations
which is qualified in its entirety by reference
to such financial statements.
28.1 Fee Owner's Limited Partnership Agreement N/A
dated November 14, 1990 (Incorporated by
reference to the 1990 Annual Report).
</TABLE>
(B) Reports on Form 8-K.
A Form 8-K dated on December 8, 1994 was filed reporting a change in
control of the general partner of the Registrant in fourth quarter 1994.
48
<PAGE>
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
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/2
By: CONCAP EQUITIES, INC.
Its General Partner,
March 30, 1995 By: /s/ Carroll D. Vinson
- -------------- ----------------------------------------------------
Date Carroll D. Vinson
President
March 30, 1995 By: /s/ Robert D. Long, Jr.
- -------------- ----------------------------------------------------
Date Robert D. Long, Jr.
Controller, Principal Accounting Officer
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 30, 1995 By: /s/ Carroll D. Vinson
- -------------- -----------------------------------------------
Date Carroll D. Vinson
Director and President
March 30, 1995 By: /s/ Robert D. Long, Jr.
- -------------- -----------------------------------------------
Date Robert D. Long, Jr.
Controller, Principal Accounting Officer
49
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the financial statements of Consolidated Capital Institutional Properties/2 as
filed in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1995 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-1-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 0.1
<CASH> 1,351
<SECURITIES> 9,769
<RECEIVABLES> 0
<ALLOWANCES> (48,992)
<INVENTORY> 0
<CURRENT-ASSETS> 1,922
<PP&E> 8,825
<DEPRECIATION> (3,325)
<TOTAL-ASSETS> 61,073
<CURRENT-LIABILITIES> 409
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 60,664
<TOTAL-LIABILITY-AND-EQUITY> (61,073)
<SALES> 0
<TOTAL-REVENUES> 4,266
<CGS> 0
<TOTAL-COSTS> 15,093
<OTHER-EXPENSES> (91)
<LOSS-PROVISION> 11,758
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (10,736)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,736)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,736)
<EPS-PRIMARY> (11.69)
<EPS-DILUTED> (11.69)
</TABLE>
