UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
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)
(864) 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.
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 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 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):
<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:
</TABLE>
<TABLE>
<CAPTION>
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
102,190 sq.ft.
Southfield, Michigan 7,058 96% 8,961 -- 12.92
4. Cosmopolitan Center- Office
70,500 sq.ft.
Atlanta, Georgia 5,445 95% 6,313 -- 10.18
5. Crescent -Office complex
164,822 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 -Office complex
232,000 sq.ft. 16,053 92% 2,323 14,556 15.16
9. Town Center -Office complex (c)
154,585 sq.ft.
Santa Ana, California 17,738 72% 16,574 3,074 14.73
10. Village Brooke -Apartments (c)
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.
<FN>
(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.
</TABLE>
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 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.
SUMMARY OF INVESTMENT IN MASTER LOAN
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994
(in thousands)
<S> <C> <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
<FN>
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.
</TABLE>
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.
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
(in thousands, except unit data)
<S> <C> <C> <C> <C> <C>
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)$ (11.45)$ .59 $ (5.45)
Gain (loss) on sale of securities
available for sale -- -- -- .12 (.05)
Other Income .10 -- -- -- --
Net income (loss) $ (11.69) $ (3.43)$ (11.45)$ .71 $ (5.50)
Distributions per Limited Partnership $ -- $ -- $ -- $ 2.20 $ 9.90
Weighted Average Limited Partnership
Units outstanding 909,153 909,172 909,174 909,174 909,174
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
BALANCE SHEETS 1994 1993 1992 1991 1990
(in thousands)
<S> <C> <C> <C> <C> <C>
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 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.
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
(included 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>
The following table reconciles the table above to the amounts presented in the
financial statements of CCEP/2 in Exhibit 99.1.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1994 1993 1992
(in thousands)
<S> <C> <C> <C>
Net cash flows for CCEP/2 $ 430 $ 357 $ 300
Cash payments of principal and interest
on master loan 1,160 2,698 3,185
Purchase of securities available for sale 390 -- --
Amounts deducted from gross proceeds from
property sales 196 -- --
Miscellaneous 19 (64) (300)
$ 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.
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. The Partnership has considered the projected impact of these
reduced revenues in its valuation of the Master Loan. 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
PAGE
INDEX NUMBER
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 16
BALANCE SHEETS as of December 31, 1994 and 1993 17
STATEMENTS OF OPERATIONS for the Years Ended December 31,
1994, 1993 and 1992 18
STATEMENTS OF PARTNERS' EQUITY (DEFICIT) for the Years
Ended December 31, 1994, 1993 and 1992 19
STATEMENTS OF CASH FLOWS for the Years Ended December 31,
1994, 1993 and 1992 20
NOTES TO FINANCIAL STATEMENTS 22
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION 31
CONSOLIDATED FINANCIAL STATEMENTS FOR CONSOLIDATED CAPITAL
EQUITY PARTNERS/TWO, L.P. as of and for the years ended
December 31, 1994 and 1993 Exhibit 99.1
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.
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
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 $ 1,247 $ 1,821
Buildings and improvements 7,578 8,865
8,825 10,686
Less: Accumulated depreciation (3,325) (2,339)
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
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Accounts payable and accrued expenses $ 89 $ 34
Distributions payable 141 143
Deposits 106 120
Accrued 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, 61,162 71,791
General Partner (498) (391)
60,664 71,400
$ 61,073 $ 71,775
<FN>
The accompanying notes are an integral part of the financial statements
</TABLE>
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
Write-down of investment properties 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 $ -- $ -- $ --
<FN>
(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 party of the financial statements.
</TABLE>
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
For the Years Ended December 31, 1994, 1993 and 1992
(in thousands)
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
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Increase (Decrease) in Cash and Cash Equivalents
(in thousands)
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 on 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
<FN>
(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 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.
</TABLE>
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Reconciliation of Net Loss to Net Cash Provided by
Operating Activities
(in thousands)
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
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
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 partner-
ships 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 lower of cost (carrying value
of the portion of the Master Loan prior to foreclosure) or net realizable
value. Net realizable 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.
Losses that result from the ongoing periodic evaluation of the net realizable
value of the real estate investments are charged against fixed assets and
expensed in the period in which they are identified.
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 expense for the write-down on the real estate in the years ended December 31,
1994 and 1993, respectively.
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 are provided when it
is probable that reasonably estimable net realizable values are less than the
recorded carrying cost of such investment. Losses that result from the ongoing
periodic evaluation of the net realizable value of the Master Loan are charged
to expense in the period in which they are identified. If a collateral property
is sold, CCEP/2 remains liable for any outstanding debt under the Master Loan
Agreement, however, the value of the net investment in Master Loan on the
Partnership's books would be written down to the appropriate level.
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:
DESCRIPTION COST MATURITY
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
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):
YEAR ENDING
DECEMBER 31,
1995 $ 1,382
1996 1,106
1997 808
1998 606
1999 257
Thereafter 62
Total $ 4,221
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:
<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
NOTE 3 - INVESTMENT IN MASTER LOAN
The investment in Master Loan consists of the following:
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1994 1993
<S> <C> <C>
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
<FN>
(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.
</TABLE>
Although the recent payments of principle and interest on the Master Loan have
been nominal compared to the balance, and the fact that there have been
writedowns the past three years, the Master Loan balance recorded on the balance
sheet is determined based upon the net realizable value of the properties that
collateralize the loan. The net realizable value, which is the value fo the
properties after payment of any third party debt, is calculated for each
property. These amounts are summerized to determine the value of the Master
Loan.
CCEP is required to make interest payments as noted in Note 1, therefore, CCEP
is not in violation of the Master Loan Agreement. The Master Loan is due in
November, 2000 at which time CCEP will pay the debt or CCIP may foreclose upon
the properties. It is anticipated at this time that CCEP will not be able to
make the required debt payment. If CCIP forecloses on the properties they will
record the properties at their fair value (net realizable value). Therefore,
the Master Loan balance recorded is expected to be recovered.
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.
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.
NOTE 4 - ALLOWANCE FOR POSSIBLE LOSSES
Activity in the allowance for possible losses account is as follows (in
thousands):
INVESTMENT IN
MASTER LOAN
Balance, December 31, 1991 $ 25,230
Provision for possible losses 12,500
Balance, December 31, 1992 37,730
Provision for possible losses 2,000
Balance, December 31, 1993 39,730
Provision for possible losses 9,262
Balance, December 31, 1994 $ 48,992
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. The properties
that experienced declines in their net realizable value in 1994 and 1993 were
Canyon Crest, Highcrest Townhomes, Windemere, Central Park Plaza, Central Park
Place, Crescent Center, Lahser Center and Cosmopolitan.
Some of the commercial properties held by CCEP/2 have experienced declines in
their estimated net realizable values in 1992 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.
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1994
(dollars in thousands)
Inital Cost Costs
Capitalized
Related Building and Subsequent
Description Encumbrances Land Improvements To Acquisistion
North Park
Plaza
Southfield, MI $ -- $2,281 $ 7,719 $3,321
Building and
Description Land Improvements Total
North Park
Plaza
Southfield, MI $1,247 $7,578 $8,825
Depreciable
Accumulated Date of Date Lives
Description Depreciation Construction Acquired (Years)
North Park
Plaza
Southfield, MI $3,325 1972 7/13/90 5-20
(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."
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
(in thousands)
<S> <C> <C> <C>
Balance, real estate at beginning of year $ 12,686 $ 12,213 $ 11,763
Additions 635 473 450
Balance, real estate at end of year (1) $ 13,321 $ 12,686 $ 12,213
ACCUMULATED DEPRECIATION:
Accumulated depreciation of real estate at
beginning of year $ 2,339 $ 1,460 $ 672
Depreciation of real estate 986 879 450
Accumulated depreciation of real estate
at end of year $ 3,325 $ 2,339 $ 1,460
<FN>
(1) The aggregate cost for federal income tax purposes is (in thousands):
</TABLE>
1994 $ 13,423
1993 $ 12,788
1992 $ 12,315
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:
NAME OF INDIVIDUAL POSITION IN CEI AGE
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
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 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 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 new or 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.
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
S-K REFERENCE
SEQUENTIAL
NUMBER DOCUMENT DESCRIPTION PAGE NUMBER
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. (Incor-
porated 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).
10.5 Property Management Agreement No. 113 N/A
dated October 23, 1990, by and between the
Partnership and CCEC (Incorporated by refer-
ence 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).
10.14 Financial Services Agreement dated October N/A
23, 1990, by and between the Partnership and
CCEC (Incorporated by reference to the Quar-
terly 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 refer-
ence 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).
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 refer-
ence to the Quarterly Report on Form 10-Q for
the quarter ended September 30, 1993).
11 Statement regarding computation of Net Income N/A
per Limited Partnership Unit (Incorporated by
reference to Note 1 of Item 8 - Financial State-
ments of this Form 10-K).
16 Letter, dated August 12, 1992, from Ernst & Young N/A
to the Securities and Exchange Commission regard-
ing change in certifying accountant. (Incorporated
by reference to Form 8-K dated August 6, 1992).
27 Financial Data Schedule containing summary N/A
financial information extracted from the balance
sheet and statement of operations which is qualified
in its entirety by reference to such financial
statements.
28.1 Fee Owner's Limited Partnership Agreement N/A
dated November 14, 1990 (Incorporated by
reference to the 1990 Annual Report).
99.1 Consolidated Capital Equity Partners/Two, L.P., N/A
audited financial statements for the years ended
December 31, 1994 and 1993.
(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.
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,
Date March 30, 1995 By: /s/ Carroll D. Vinson
Carroll D. Vinson
President
Date March 30, 1995 By: /s/ Robert D. Long, Jr.
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.
Date March 30, 1995 By: /s/ Carroll D. Vinson
Carroll D. Vinson
Director and President
Date March 30, 1995 By: /s/ Robert D. Long, Jr.
Robert D. Long, Jr.
Controller, Principal Accounting
Officer
EXHIBIT 99.1
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 and 1993
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
TABLE OF CONTENTS
December 31, 1994
PAGE
NUMBER
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 3
CONSOLIDATED BALANCE SHEETS as of December 31, 1994 and 1993 4
CONSOLIDATED STATEMENTS OF OPERATIONS for the Years Ended December 31,
1994, 1993 and 1992 5
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT for the Years Ended
December 31, 1994, 1993 and 1992 6
CONSOLIDATED STATEMENTS OF CASH FLOWS for the Years Ended December 31,
1994, 1993 and 1992 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9
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
EXHIBIT 99.1 (Continued)
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
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
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
EXHIBIT 99.1 (Continued)
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
Loss on disposition of real estate 714 -- --
Total costs and expenses (b) 37,900 35,508 34,731
Net loss $(19,922) $(17,149) $(17,015)
<FN>
(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 transaction in Note 2
to the consolidated financial statements.
The accompanying notes are an integral party of the financial statements.
</TABLE>
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
<TABLE>
<CAPTION>
For the Years Ended December 31, 1994, 1993 and 1992
(in thousands)
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)
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Increase (Decrease) in Cash and Cash Equivalents
(in thousands)
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 improvements 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 note 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
<FN>
(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 consolidated financial statements.
</TABLE>
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Reconciliation of Net Loss to Net Cash Provided by
Operating Activities
(in thousands)
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 313 -- --
Prorated rents paid at property 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)
22,700 19,794 17,564
Net cash provided by operating activities $ 2,778 $ 2,645 $ 549
<FN>
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 consolidated financial statements.
</TABLE>
EXHIBIT 99.1 (Continued)
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.
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:
1994 1993
Tax and Insurance Escrows $ 397,400 $ 266,800
Investments in Real Estate
Investments in real estate are stated at lower of cost or net realizable value.
Net realizable 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. Losses that result from the ongoing periodic evaluation of the net
realizable value of the real estate investments are charged against the fixed
assets and expensed in the period in which they are identified.
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.
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.
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):
YEAR ENDING
DECEMBER 31,
1995 $ 8,296
1996 6,708
1997 5,595
1998 4,348
1999 3,804
Thereafter 9,837
$ 38,588
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.
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
(in thousands)
<S> <C> <C> <C>
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
(in thousands)
<S> <C> <C> <C>
Charged to property operations:
Reimbursement to direct property expense $ 542 $ 254 $ 126
Charged to administrative expenses:
(including computer and payroll 293 260 220
$ 835 $ 514 $ 346
</TABLE>
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. CEP/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.
Summary of Maturities
<TABLE>
<CAPTION>
NOTE PAYABLE
YEAR ENDING SPECIAL
DECEMBER 31, REGULAR OR BALLOON TOTAL
(in thousands)
<S> <C> <C> <C>
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.
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)
<FN>
(a) Real estate at cost, $6.4 million
</TABLE>
