FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(As last amended in Rel. No. 312905, eff. 04/26/93.)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period.........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, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (803) 239-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
<S> <C> <C>
Assets
Cash and cash equivalents $ 9,685 $ 1,351
Securities available for sale 11 9,769
Prepaid expenses and other assets 424 575
Due from affiliates -- 1,347
Net investment in master loan to affiliate 43,118 42,531
Investment properties:
Land 716 1,247
Building and related personal property 5,323 7,578
6,039 8,825
Less accumulated depreciation (3,961) (3,325)
2,078 5,500
$ 55,316 $ 61,073
Liabilities and Partners' Capital (Deficit)
Accounts payable and accrued expenses $ 200 $ 89
Tenant security deposits 113 106
Distributions payable 141 141
Accrued taxes 27 73
481 409
Partners' Capital (Deficit)
General partner (556) (498)
Limited partners (909,138 units
outstanding at September 30, 1995 and
909,145 units outstanding at
December 31, 1994) 55,391 61,162
54,835 60,664
$ 55,316 $ 61,073
</TABLE>
[FN]
See Accompanying Notes to Financial Statements
b) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S>
Revenues: <C> <C> <C> <C>
Rental income $ 353 $ 478 $ 1,347 $ 1,308
Interest income on net
investment in master
loan to affiliate 22 91 721 915
Interest and dividend
income on investments 148 155 482 463
Reduction of allowance for
possible losses 587 -- 587 --
Total revenues 1,110 724 3,137 2,686
Expenses:
Property operations 511 456 1,174 1,267
Depreciation and amortization 199 255 672 726
Administrative 206 128 767 454
Write-down of investment
properties 3,350 -- 3,350 --
Total expenses 4,266 839 5,963 2,447
Loss on sale of United
States Treasury Notes -- (55) -- (55)
Other income -- -- -- 91
Net (loss) income $(3,156) $ (170) $(2,826) $ 275
Net (loss) income allocated
to general partner (1%) $ (32) $ (2) $ (28) $ 3
Net (loss) income allocated
to limited partners (99%) (3,124) (168) (2,798) 272
$(3,156) $ (170) $(2,826) $ 275
Net (loss) income per
limited partnership unit $ (3.44) $ (.18) $ (3.08) $ .30
</TABLE>
[FN]
See Accompanying Notes to Financial Statements
c) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 912,182 $ 1 $228,046 $228,047
Partners' capital (deficit) at
December 31, 1993 909,154 $ (391) $ 71,791 $ 71,400
Net income for the nine months
ended September 30, 1994 -- 3 272 275
Partners' capital (deficit) at
September 30, 1994 909,154 $ (388) $ 72,063 $ 71,675
Partners' capital (deficit) at
December 31, 1994 909,145 $ (498) $ 61,162 $ 60,664
Distributions (30) (2,973) (3,003)
Net loss for the nine months
ended September 30, 1995 (7) (28) (2,798) (2,826)
Partners' capital (deficit) at
September 30, 1995 909,138 $ (556) $ 55,391 $ 54,835
</TABLE>
[FN]
See Accompanying Notes to Financial Statements
d) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (2,826) $ 275
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization 672 726
Write-down of investment properties 3,350 --
Reduction of allowance for possible losses (587) --
Change in accounts:
Prepaid expenses and other assets 116 (46)
Interest receivable on master loan -- 188
Accounts payable and accrued expenses 112 (11)
Distributions payable -- (2)
Due from affiliates 1,347 (53)
Tenant security deposits 7 9
Accrued taxes (47) 45
Net cash provided by
operating activities 2,144 1,131
Cash flows from investing activities:
Property improvements and replacements (564) (543)
Principal receipts on Master Loan -- 55
Purchase of securities available for sale (41,487) (8,729)
Proceeds from sale of securities available
for sale 51,244 7,488
Net cash provided by (used in)
investing activities 9,193 (1,729)
Cash flows from financing activities:
Distributions (3,003) --
Net cash used in
financing activities (3,003) --
Net increase (decrease) in cash and
cash equivalents 8,334 (598)
Cash and cash equivalents at beginning of period 1,351 1,912
Cash and cash equivalents at end of period $ 9,685 $ 1,314
</TABLE>
[FN]
See Accompanying Notes to Financial Statements
e) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of the General Partner, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 1995, are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 1995. For further information,
refer to the financial statements and footnotes thereto included in the
Partnership's annual report on Form 10-K for the year ended December 31, 1994.
Certain reclassifications have been made to the 1994 information to conform
to the 1995 presentation.
Investment in Master Loan
Beginning in 1995, Consolidated Capital Institutional Properties/2
("Partnership") adopted Financial Accounting Standards Board Statement No. 114,
"Accounting by Creditors for Impairment of a Loan." Under the new standard, the
1995 allowance for credit losses related to loans that are identified for
evaluation in accordance with Statement 114 is based on discounted cash flows
using the loan's initial effective interest rate or the fair value of the
collateral for certain collateral dependent loans. Prior to 1995, the allowance
for credit losses related to these loans was based on undiscounted cash flows or
the fair value of the collateral for collateral dependent loans.
Accounting Change - Investments
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", which requires impairment losses to be recognized for
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Partnership adopted Statement 121 at September 30, 1995.
Note B - Related Party Transactions
The Partnership paid property management fees based upon collected gross
rental revenues for property management services as noted below for the nine
month periods ended September 30, 1995 and 1994, along with leasing
commissions. For the nine months ended September 30, 1994, a portion of such
property management fees were paid to Coventry Properties, Inc. ("Coventry"),
an affiliate of the General Partner, for day-to-day property management services
and a portion was paid to Partnership Services, Inc. ("PSI") for advisory
services related to day-to-day property operations. In late December 1994, an
affiliate of Insignia assumed day-to-day property management responsibilities
for all of the Partnership's properties. Fees paid to affiliates of Insignia
during the nine months ended September 30, 1995, and fees paid to Coventry and
PSI for the nine months ended September 30, 1994, are reflected in the following
table:
For the Nine Months Ended
September 30,
1995 1994
(in thousands)
Property management fees $72 $14
Leasing commissions 98 --
The Partnership Agreement ("Agreement") also provides for reimbursement to
the General Partner and its affiliates for costs incurred in connection with the
administration of Partnership activities. The General Partner and its current
and former affiliates, which includes Coventry for the nine months ended
September 30, 1994, received reimbursements as reflected in the following table:
For the Nine Months Ended
September 30,
1995 1994
(in thousands)
Reimbursement for services of affiliates $331 $224
On July 1, 1995, the Partnership began insuring its properties under a master
policy through an agency and insurer unaffiliated with the General Partner. An
affiliate of the General Partner acquired, in the acquisition of a business,
certain financial obligations from an insurance agency which was later acquired
by the agent who placed the current year's master policy. The current agent
assumed the financial obligations to the affiliate of the General Partner, who
receives payments on these obligations from the agent. The amount of the
partnership's insurance premiums accruing to the benefit of the affiliate of the
General Partner by virtue of the agent's obligations is not significant.
Note C - Net Investment in Master Loan
The "net investment in Master Loan to affiliate" consists of the following:
September 30, 1995 December 31, 1994
(in thousands)
Master Loan funds advances $ 93,974 $ 93,974
Accrued deferred basic interest 1,495 1,495
Collection reserve (3,946) (3,946)
91,523 91,523
Less: allowance for possible loss (48,405) (48,992)
Net investment in Master Loan
to affiliate $ 43,118 $ 42,531
At September 30, 1995, the recorded investment in Master Loan is considered
to be impaired under Statement 114. The Partnership measured the impairment of
the loan based upon the fair value of the collateral due to the fact repayment
of the loan is expected to be provided solely by the collateral. For the nine
months ended September 30, 1995, the Partnership recorded approximately $587,000
in income based upon an increase in the fair value of the collateral.
Interest due to the Partnership pursuant to the terms of the Master Loan
Agreement, but not recognized in the income statements, totaled approximately
$14.1 million and $12.0 million for the nine months ended September 30, 1995 and
1994, respectively. At September 30, 1995, and December 31, 1994, such
cumulative unrecognized interest totaling approximately $107.3 million and $93.9
million was not included in the balance of the investment in Master Loan.
Subsequent to quarter end, the Partnership loaned an additional $1.5 million to
Consolidated Capital Equity Partners/Two L.P. to fund planned capital
improvements.
Note D - Other Income
In 1991, the Partnership (and simultaneously other 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 partnerships'
allowed claim at $11 million, in the 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 $80,472 in cash
representing the Partnership's share of the recovery, based on its pro rata
share of the claims filed.
Note E - Commitment
The Partnership is required by the Agreement to maintain working capital
reserves for contingencies of not less than 5% of Net Invested Capital, as
defined in the Agreement. In the event expenditures are made from this reserve,
operating revenue shall be allocated to such reserves to the extent necessary
to maintain the foregoing level. Reserves, including cash and securities
available for sale, totalling approximately $9.7 million, were greater than the
reserve requirement of $7.5 million at September 30, 1995.
Note F - Accounting for the Impairment of Long-Lived Assets
At September 30, 1995, the Partnership adopted FASB Statement 121. Estimated
fair value of the investment property was 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.
As a result of the Partnership's continuing evaluation of its investments, an
impairment loss of approximately $3.35 million was recorded based on the
property's operating results and expected cash flows.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Partnership's investment property consists of one office building. The
following table sets forth the average occupancy of this property for the nine
months ended September 30, 1995 and 1994:
Average
Occupancy
Property 1995 1994
North Park Plaza
Southfield, Michigan 62% 58%
The General partner attributes the increase in occupancy to its efforts to
attract new tenants. During the nine months ended September 30, 1995,
approximately 25,000 square feet of space was leased to new tenants.
The Partnership's net loss for the nine months ended September 30, 1995, was
approximately $2,826,000 as compared to net income of approximately $275,000 for
the nine months ended September 30, 1994. The Partnership realized a net loss
of approximately $3,156,000 for the three months ended September 30, 1995, as
compared to a net loss of approximately $170,000 for the three months ended
September 30, 1994. The increase in net loss for the three and nine months
ended September 30, 1995, is primarily attributable to the write-down of the
Partnership's sole investment property, North Park Plaza, due to the early
adoption of FASB 121 (see note F). Also contributing to the increased net loss
was a decrease in interest income on the Master Loan due to decreased cash flows
of the affiliated investment properties (income is recorded based on the cash
flow of the properties collateralized by the Master Loan). Also, administrative
expenses increased for the three and nine month periods ended September 30,
1995. The increase for the three months ended September 30, 1995, was the
result of printing and mailing costs associated with first and second quarter
10-Q's that were sent to investors. The increase for the nine months ended
September 30, 1995, is due to the items noted above and to expenses related to
the combined efforts of the Dallas and Greenville offices during the transition
period that ended June 30, 1995. The increased costs related to the transition
efforts were incurred to minimize any disruption in the year-end reporting
function including the financial reporting and K-1 preparation and
distribution. Offsetting the increased net loss was a reduction of the
allowance for possible losses of the Master Loan as determined under FASB 114.
Other income realized in the nine months ended September 30, 1994, is due to
the receipt of its pro rata share of the claims filed in Southmark's Chapter 11
bankruptcy proceedings. (See Note D).
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of each of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expenses. As part of
this plan, the General Partner attempts to protect the Partnership from the
burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
General Partner will be able to sustain such a plan.
At September 30, 1995, the Partnership reported cash of approximately
$9,685,000 versus cash of approximately $1,314,000 for the corresponding period
of 1994. Net cash provided by operating activities increased due to the
decrease in due from affiliates which resulted from the payment of the December
31, 1994, accrued interest receivable on the Master Loan which had been recorded
as "due from affiliates" at December 31, 1994. Net cash provided by investing
activities increased due to an increase in proceeds from securities available
for sale which was only partially offset by a decrease in purchases of
securities. Net cash used in financing activities increased due to a
distribution made during the third quarter of 1995.
The sufficiency of existing liquid assets to meet future liquidity and
capital expenditure requirements is directly related to the level of capital
expenditures required at the property to adequately maintain the physical assets
and other operating needs of the Partnership. Such assets are currently thought
to be sufficient for any near-term needs of the Partnership. In September 1995,
the Partnership made a distribution to the limited partners of approximately
$2,973,000, or $3.28 per unit. A matching distribution of approximately $30,000
was made to the General Partner. Future cash distributions will depend on the
levels of net cash generated from operations, master loan interest income,
property sales, and the availability of cash reserves.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
S-K Reference
Number Description
27 Financial Data Schedule is filed as an
exhibit to this report.
28.1 Consolidated Capital Equity Partners/Two,
L.P., unaudited financial statements for the
nine months ended September 30, 1995 and
1994.
(b) Reports on Form 8-K:
None filed during the quarter ended September 30, 1995.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CONSOLIDATED CAPITAL INSTITUTIONAL
PROPERTIES/2
By: CONCAP EQUITIES, INC.
General Partner
By:/s/ Carroll D. Vinson
Carroll D. Vinson
President
By:/s/ Robert D. Long, Jr.
Robert D. Long, Jr.
Controller and Principal
Accounting Officer
Date: November 14, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Consolidated
Captial Insitutional Properties 2 1995 Third Quarter 10-Q and is qualified in
its entirety by reference to such 10-Q.
</LEGEND>
<CIK> 0000719184
<NAME> CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES 2
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 9685
<SECURITIES> 11
<RECEIVABLES> 43,118
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 6,039
<DEPRECIATION> (3,961)
<TOTAL-ASSETS> 55,316
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 54,835
<TOTAL-LIABILITY-AND-EQUITY> 55,316
<SALES> 0
<TOTAL-REVENUES> 3,137
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,963
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,826)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,826)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,826)
<EPS-PRIMARY> (3.08)
<EPS-DILUTED> 0
<FN>
<F1>The Registrant has an unclassified balance sheet.
</FN>
</TABLE>
EXHIBIT 28.1
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1994
EXHIBIT 28.1 (Continued)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
<S> <C> <C>
Assets
Cash $ 1,272 $ 1,936
Securities available for sale -- 390
Prepaid expenses and other assets 3,458 3,121
Investments in limited partnerships 1,508 2,508
Due from affiliates -- 10
Investment properties:
Land 10,977 13,418
Building and related personal
equipment 84,363 95,171
95,340 108,589
Less accumulated depreciation (52,351) (48,364)
42,989 60,225
$ 49,227 $ 68,190
Liabilities and Partners' Capital (Deficit)
Accounts payable and accrued expenses $ 2,225 $ 1,781
Mortgage notes and interest payable 24,130 24,441
Master loan and interest payable 198,822 185,442
Due to affiliates -- 1,318
225,177 212,982
Partners' Capital (Deficit)
General partner (1,746) (1,434)
Limited partners (174,204) (143,358)
(175,950) (144,792)
$ 49,227 $ 68,190
</TABLE>
[FN]
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 28.1 (Continued)
b) CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 4,121 $ 4,498 $ 12,322 $ 13,575
Interest and distribution
income from investments 35 25 105 40
Total revenues 4,156 4,523 12,427 13,615
Expenses:
Property operations 2,742 2,759 7,400 7,905
Depreciation and amortization 1,459 1,449 4,379 4,346
Interest 5,272 4,872 15,856 14,800
Administrative 140 201 507 484
Write-down of investment
properties and investment
in limited partnerships 15,406 -- 15,406 --
Total expenses 25,019 9,281 43,548 27,535
Loss on disposal of property (37) -- (37) --
Net loss $(20,900) $(4,758) $(31,158) $(13,920)
Net loss allocated
to general partner (1%) $ (209) $ (48) $ (312) $ (139)
Net loss allocated
to limited partners (99%) (20,691) (4,710) (30,846) (13,781)
$(20,900) $(4,758) $(31,158) $(13,920)
</TABLE>
[FN]
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 28.1 (Continued)
c) CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
For the Nine Months Ended September 30, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
<S> <C> <C> <C>
Partners's deficit at December 31, 1993 $(1,235) $(123,635) $(124,870)
Net loss for the nine months ended
September 30, 1994 (139) (13,781) (13,920)
Partners' deficit at September 30, 1994 $(1,374) $(137,416) $(138,790)
Partners' deficit at December 31, 1994 $(1,434) $(143,358) $(144,792)
Net loss for the nine months ended
September 30, 1995 (312) (30,846) (31,158)
Partners' deficit at September 30, 1995 $(1,746) $(174,204) $(175,950)
</TABLE>
[FN]
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 28.1 (Continued)
d) CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net loss $(31,158) $(13,920)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 4,379 4,346
Loss on disposal of property 37 --
Write-down of investment properties and
investment in limited partnerships 15,406 --
Change in accounts:
Prepaid expenses and other assets (628) (459)
Accounts payable and accrued expenses 444 (362)
Interest on master loan 13,380 12,004
Due to affiliates (1,308) (148)
Interest payable 20 --
Net cash provided by
operating activities 572 1,461
Cash flows from investing activities:
Property improvements and replacements (1,294) (1,568)
Proceeds from sale of securities
available for sale 10,018 --
Purchase of securities available for sale (9,629) (390)
Net cash used in investing
activities (905) (1,958)
Cash flow used in financing activities:
Payments on notes payable (331) (360)
Payments on master loan -- (55)
Net cash used in financing
activities (331) (415)
Net decrease in cash (664) (912)
Cash at beginning of period 1,936 1,506
Cash at end of period $ 1,272 $ 594
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 3,750 $ 2,956
</TABLE>
[FN]
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 28.1 (Continued)
e) CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the General Partner, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine month period
ended September 30, 1995, are not necessarily indicative of the results that may
be expected for the fiscal year ending December 31, 1995.
Certain reclassifications have been made to the 1994 information to conform
to the 1995 presentation.
Consolidation
In 1985, Equity Partners/Two ("EP/2"), a California general partnership,
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
Consolidated Capital Equity Partners/Two, L.P. ("Partnership"), as successor to
EP/2, and Anderson CC 2, respectively. The Partnership's investment in CC
Office Associates is consolidated in the Partnership'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 Consolidated Capital Institutional Properties/2 ("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 the Partnership.
Investments in Limited Partnerships
The investments in limited partnerships represent certain interests in three
affiliated limited partnerships that were contributed by EP/2's general partners
to the Partnership. These investments are stated at the lower of estimated fair
value of the interests at the time of contribution to the Partnership or the
current estimated fair value of the interests. The Partnership wrote this
investment down $1 million to its estimated fair value during the third quarter
of 1995.
Accounting Change - Investments
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", which requires impairment losses to be recognized for
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Partnership adopted Statement 121 at September 30, 1995.
Note B - Related Party Transactions
The Partnership paid property management fees based upon collected gross
rental revenues for property management services as noted below for the nine
month periods ended September 30, 1995 and 1994 along with leasing commissions
on its commercial properties. For the nine months ended September 30, 1994, a
portion of such property management fees were paid to the property management
companies performing day-to-day property management services and a portion was
paid to Partnership Services, Inc. ("PSI") for advisory services related to day-
to-day property operations. Coventry Properties, Inc. ("Coventry"), an
affiliate of the General Partner, provided day-to-day property management
responsibilities for four of the Partnership's properties under the same
management fee arrangement as the unaffiliated management companies. In late
December 1994, an affiliate of Insignia assumed day-to-day property management
responsibilities for all of the Partnerships' properties. Fees paid to
affiliates of Insignia during the nine months ended September 30, 1995, and fees
paid to Coventry and PSI for the nine months ended September 30, 1994, are
reflected in the following table.
Also, the Partnership is subject to an Investment Advisory Agreement between
the Partnership and an affiliate of ConCap Holdings, Inc. ("CHI"). This
agreement provides for an annual fee, payable in monthly installments, to an
affiliate of CHI for advising and consulting services for the Partnership's
properties. Advisory fees paid pursuant to this agreement are reflected in the
following table:
For the Nine Months Ended
September 30,
1995 1994
(in thousands)
Property management fees $649 $388
Investment advisory fees 136 143
Leasing commissions 274 455
Property management fees increased for the nine months ended September 30,
1995, compared to the nine months ended September 30, 1994, due to the fact that
only four of the Partnership's investment properties were managed by Coventry
during the nine months ended September 30, 1994. All of the Partnership's
investment properties were managed by an affiliate of Insignia during the nine
months ended September 30, 1995.
Note B - Related Party Transactions (continued)
The Partnership Agreement ("Agreement") also provides for reimbursement to
the General Partner and its affiliates for costs incurred in connection with the
administration of Partnership activities.
The General Partner and its current and former affiliates which includes
Coventry for the nine months ended September 30, 1995 and 1994, received
reimbursements as reflected in the following table:
For the Nine Months Ended
September 30,
1995 1994
(in thousands)
Reimbursement for services of affiliates $280 $235
Reimbursements for services of affiliates increased during the nine months
ended September 30, 1995, compared to the nine months ended September 30, 1994,
due to increased expense reimbursements related to the combined efforts of the
Dallas and Greenville offices during the transition period that ended June 30,
1995. These increased costs related to the transition efforts were incurred to
minimize any disruption in the year-end reporting function including the
financial reporting and K-1 preparation and distribution. Administrative
expenses began decreasing in the third quarter of 1995 as the transition efforts
are now complete.
In addition to the compensation and reimbursements described above, interest
payments are made to, and loan advances are received from, CCIP/2 pursuant to
the new Master Loan Agreement, which is described more fully in the 1994 Annual
Report. No advances under the Master Loan Agreement were made during the nine
months ended September 30, 1995, and September 30, 1994.
On July 1, 1995, the Partnership began insuring its properties under a master
policy through an agency and insurer unaffiliated with the General Partner. An
affiliate of the General Partner acquired, in the acquisition of a business,
certain financial obligations from an insurance agency which was later acquired
by the agent who placed the current year's master policy. The current agent
assumed the financial obligations to the affiliate of the General Partner, who
receives payments on these obligations from the agent. The amount of the
partnership's insurance premiums accruing to the benefit of the affiliate of the
General Partner by virtue of the agent's obligations is not significant.
Note C - Master Loan and Accrued Interest Payable
The Master Loan principal and accrued interest payable balances at September
30, 1995, and December 31, 1994, are $198.8 million and $185.4 million,
respectively. Subsequent to September 30, 1995, CCIP/2 made an additional loan
to CCEP/2 in the amount of $1.5 million to fund planned improvements at the
Partnership's investment properties.
Note C - Master Loan and Accrued Interest Payable - continued
Terms of Master Loan Agreement
Under the terms of the Master Loan Agreement, interest accrues at 10% per
annum. Interest payments are currently payable 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 and capital expenditures.
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 the Partnership's properties are paid to CCIP/2 under the
terms of the Master Loan Agreement. The Master Loan Agreement matures in
November 2000.
Note D - Notes Payable
The Village Brooke Apartments, located in Cincinnati, Ohio, secures
approximately $6.7 million of first mortgage debt that matured in June 1995 and
is superior to the Partnership's related obligation under the Master Loan of
approximately $3.6 million. The General Partner 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 negotiations with the lender.
The Richmond Plaza Office Building, located in Richmond, Virginia, secures
approximately $14.5 million in mortgage debt which is superior to the
Partnership's related obligation under the Master Loan of approximately $5.4
million. In March 1995, the General Partner negotiated a three month extension
with the lender which extended the maturity of the mortgage debt to June 1995.
In June 1995, the General Partner negotiated an additional three month extension
with the lender which extends the maturity of the mortgage debt. The General
Partner 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
negotiations with the lender.
Note E - Accounting for the Impairment of Long-Lived Assets
At September 30, 1995, the Partnership adopted FASB Statement 121. Estimated
fair value of the investment properties was 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.
Estimated fair value of the investments in limited partnerships was determined
using the estimated value of the limited partnership units in each partnership
and the estimated future distributions. As a result of the Partnership's
continuing evaluation of its investments, an impairment loss of approximately
$15.4 million was recorded based on the individual property's operating results
and expected cash flows and the estimated value of the limited partnership units
owned by the Partnership.
