FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(As last amended in Rel. No. 312905, eff. 04/26/93.)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period.........to.........
Commission file number 0-11723
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
(Exact name of registrant as specified in its charter)
California 94-2883067
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (864) 239-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
BALANCE SHEET
(in thousands, except unit data)
June 30, December 31,
1996 1995
(Unaudited) (Note)
Assets
Cash and cash equivalents:
Unrestricted $ 8,281 $ 9,276
Restricted--tenant security deposits 5 5
Other assets 614 829
Net investment in master loan to affiliate 92,698 91,771
Less: allowance for impairment loss (48,205) (48,405)
44,493 43,366
Investment properties:
Land 716 716
Building and related personal property 5,546 5,440
6,262 6,156
Less: accumulated depreciation (4,449) (4,138)
1,813 2,018
$ 55,206 $ 55,494
Liabilities and Partners' Capital (Deficit)
Accounts payable and accrued expenses $ 136 $ 136
Tenant security deposits 114 114
Distributions payable 141 141
Accrued taxes 82 58
473 449
Partners' Capital (Deficit)
General partner (557) (554)
Limited partners (909,138 units
outstanding at June 30, 1996 and
December 31, 1995, respectively) 55,290 55,599
54,733 55,045
$ 55,206 $ 55,494
Note: The balance sheet at December 31, 1995, has been derived from the audited
financial statements at that date but does not include all the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
See Accompanying Notes to Financial Statements
b) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 450 $ 505 $ 861 $ 994
Reduction of provision
for impairment loss 200 -- 200 699
Other income 104 175 218 334
Total revenues 754 680 1,279 2,027
Expenses:
Operating 488 409 906 663
Depreciation and amortization 174 254 341 473
General and administrative 179 250 344 561
Total expenses 841 913 1,591 1,697
Net (loss) income $ (87) $ (233) $ (312) $ 330
Net (loss) income allocated
to general partner (1%) $ (1) $ (2) $ (3) $ 3
Net (loss) income allocated
to limited partners (99%) (86) (231) (309) 327
$ (87) $ (233) $ (312) $ 330
Net (loss) income per
limited partnership unit $ (.10) $ (.25) $ (.34) $ .36
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
c) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 912,182 $ 1 $228,046 $228,047
Partners' capital (deficit) at
December 31, 1994 909,154 $ (498) $ 61,162 $ 60,664
Net income for the six months
ended June 30, 1995 3 327 330
Partners' capital (deficit) at
June 30, 1995 909,145 $ (495) $ 61,489 $ 60,994
Partners' capital (deficit) at
December 31, 1995 909,138 $ (554) $ 55,599 $ 55,045
Net loss for the six months
ended June 30, 1996 (3) (309) (312)
Partners' capital (deficit) at
June 30, 1996 909,138 $ (557) $ 55,290 $ 54,733
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
d) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (312) $ 330
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization 341 473
Reduction of provision for impairment loss (200) --
Change in accounts:
Restricted cash -- --
Other assets 184 (12)
Interest receivable on master loan -- (699)
Accounts payable and accrued expenses (1) 146
Due from affiliates -- 1,347
Tenant security deposit liabilities 1 7
Accrued taxes 24 (73)
Net cash provided by operating activities 37 1,519
Cash flows from investing activities:
Property improvements and replacements (106) (270)
Principal receipts on Master Loan 74 --
Advances on Master Loan (1,000) --
Purchase of investments -- (30,096)
Proceeds from sale of investments -- 30,509
Net cash (used in) provided by
investing activities (1,032) 143
Cash flows from financing activities: -- --
Net (decrease) increase in cash and cash equivalents (995) 1,662
Cash and cash equivalents at beginning of period 9,276 1,351
Cash and cash equivalents at end of period $ 8,281 $ 3,013
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
e) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements of Consolidated Capital
Institutional Properties/2 ("Partnership") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of ConCap Equities, Inc., ("General Partner"), all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and six month
periods ended June 30, 1996, are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 1996. For further
information, refer to the financial statements and footnotes thereto included in
the Partnership's annual report on Form 10-K for the year ended December 31,
1995.
Certain reclassifications have been made to the 1995 information to conform to
the 1996 presentation.
Note B - Related Party Transactions
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
The Partnership paid property management fees based upon collected gross rental
revenues for property management services as noted below for the six month
periods ended June 30, 1996 and 1995. Fees paid to affiliates of Insignia during
the six month periods ended June 30, 1996 and 1995, are included in operating
expenses on the statement of operations and are reflected in the following
table. The Partnership Agreement ("Agreement") also provides for reimbursement
to the General Partner and its affiliates for costs incurred in connection with
the administration of Partnership activities. The General Partner, and its
current affiliates, received reimbursements as reflected in the following table:
For the Six Months Ended
June 30,
1996 1995
(in thousands)
Property management fees $ 41 $ 52
Lease commissions 11 43
Reimbursement for services of affiliates 150 296
Reimbursements for services of affiliates decreased during the six months ended
June 30, 1996, as compared to the six months ended June 30, 1995. The six
months ended June 30, 1995, included the additional costs associated with the
combined efforts of the Dallas and Greenville offices during the transition
period that ended June 30, 1995. The increased costs related to the transition
efforts were incurred to minimize any disruption in the 1994 year-end reporting
functions including the financial reporting and K-1 preparation and
distribution.
On July 1, 1995, the Partnership began insuring its properties under a master
policy through an agency and insurer unaffiliated with the General Partner. An
affiliate of the General Partner acquired, in the acquisition of a business,
certain financial obligations from an insurance agency which was later acquired
by the agent who placed the current year's master policy. The agent assumed the
financial obligations to the affiliate of the General Partner who receives
payments on these obligations from the agent. The amount of the partnership's
insurance premiums accruing to the benefit of the affiliate of the General
Partner by virtue of the agent's obligations is not significant.
Note C - Net Investment in Master Loan
At June 30, 1996, the recorded investment in the Master Loan is considered to be
impaired under "FASB 114." The Partnership measured the impairment of the loan
based upon the fair value of the collateral due to the fact that repayment of
the loan is expected to be provided solely by the collateral. For the six
months ended June 30, 1996, the Partnership recorded approximately $200,000 in
income based upon an increase in the fair value of the collateral.
Interest due to the Partnership pursuant to the terms of the Master Loan
Agreement, but not recognized in the income statements, totaled approximately
$10.4 million and $8.7 million for the six months ended June 30, 1996 and 1995,
respectively. At June 30, 1996, and December 31, 1995, such cumulative
unrecognized interest totaling approximately $123.1 million and $112.7 million
was not included in the balance of the investment in Master Loan.
During the second quarter of 1996, advances in the amount of $1 million were
made to Consolidated Capital Equity Partners/2, L.P. ("CCEP/2") as an advance on
the Master Loan to fund planned improvements at CCEP/2's investment properties.
During the second quarter of 1996, the Partnership received approximately
$74,000 as principal payments on the Master Loan which represented cash received
by CCEP/2 on certain investments held by CCEP/2, which are required to be
transferred to the Partnership per the Master Loan agreement. Subsequent to
June 30, 1996, the Partnership received an excess cash flow payment of
approximately $501,000 (as defined in the Master Loan agreement) from CCEP/2, to
be applied to the Master Loan principal.
Note D - Commitment
The Partnership is required by the Agreement to maintain working capital
reserves for contingencies of not less than 5% of Net Invested Capital, as
defined in the Agreement. In the event expenditures are made from this reserve,
operating revenue shall be allocated to such reserves to the extent necessary to
maintain the foregoing level. Reserves, including cash and cash equivalents
totaling approximately $8.3 million, were greater than the reserve requirement
of approximately $7.6 million at June 30, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Partnership's investment property consists of one office building. The
following table sets forth the average occupancy of this property for the six
month periods ended June 30, 1996 and 1995:
Average
Occupancy
Property 1996 1995
North Park Plaza
Southfield, Michigan 62% 59%
The General Partner attributes the increase in occupancy to its efforts to
attract new tenants. The property has reduced rental rates charged per square
foot and has offered additional amenities as compared with other buildings in
the area.
Results of Operations
The Partnership realized a net loss of approximately $312,000 for the six months
ended June 30, 1996, as compared to net income of approximately $330,000 for the
six months ended June 30, 1995. For the three months ended June 30, 1996, the
Partnership realized a net loss of approximately $87,000, compared to a net loss
of approximately $233,000 for the three months ended June 30, 1995. The
increase in net loss is primarily due to a decrease in revenues, which is
attributable to a decrease in reduction of the provision for impairment loss on
the investment in Master Loan to affiliate during the six months ended June 30,
1996. However, the three months ended June 30, 1996, showed an increase in
reduction of the provision for impairment loss on the investment in Master Loan
to affiliate due to an increase in the value of the investment properties
collateralizing the Master Loan. Rental revenues also decreased for the three
and six month periods ended June 30, 1996, compared to the corresponding periods
of 1995, resulting from the property offering lower rates to new tenants in
order to increase occupancy. Other income decreased for the three and six month
periods ended June 30, 1996, compared to the corresponding periods of 1995, due
to a decrease in interest income resulting from a decrease in the cash and
investment balances.
Also, contributing to the decrease in net income for the three and six months
ended June 30, 1996, compared to the corresponding periods of 1995, was an
increase in operating expenses. Operating expenses increased as a result of an
increase in real estate taxes and maintenance expense. Maintenance expense
increased due to deferred maintenance from prior years being corrected at the
property to help attract new tenants. Offsetting the increase in net loss was a
decrease in depreciation and amortization and general and administrative expense
during the three and six month periods ended June 30, 1996, compared to the
corresponding periods of 1995. The decrease in depreciation expense is the
result of approximately $3.4 million in writedowns taken on the investment
property in 1995. The decrease in general and administrative expense is the
result of additional costs associated with the combined efforts of the Dallas
and Greenville offices during the transition period that ended June 30, 1995.
The increased costs relating to the transition efforts were incurred to minimize
any disruption in the 1994 year-end reporting function, including K-1
preparation and distribution.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of its investment property to assess the
feasibility of increasing rents, maintaining or increasing occupancy levels and
protecting the Partnership from increases in expense. As part of this plan, the
General Partner attempts to protect the Partnership from the burden of
inflation-related increases in expenses by increasing rents and maintaining a
high overall occupancy level. However, due to changing market conditions, which
can result in the use of rental concessions and rental reductions to offset
softening market conditions, there is no guarantee that the General Partner will
be able to sustain such a plan.
Liquidity and Capital Resources
At June 30, 1996, the Partnership had unrestricted cash of approximately
$8,281,000 versus approximately $3,013,000 at June 30, 1995. Net cash provided
by operating activities decreased primarily due to a decrease in due from
affiliates. This decrease in due from affiliates resulted from the payment of
the December 31, 1994, accrued interest receivable on the Master Loan which had
been recorded as "due from affiliate" at December 31, 1994, and was paid during
1995. The increase in net loss as explained above also contributed to the
decrease in net cash provided by operating activities. Net cash used in
investing activities increased due to $1,000,000 advances made to CCEP/2 as
advances on the Master Loan. There were no financing activities for the six
month periods ended June 30, 1996 or 1995.
The General Partner is currently marketing North Park Plaza for sale. However,
the property is still considered an Asset to be Held and Used in Operations, as
the General Partner will not necessarily sell the property unless certain terms
of the potential sale are satisfied. If the property cannot be sold at terms
deemed acceptable by the General Partner after a period of time, the property
will no longer be marketed for sale. At this time, the General Partner has been
contacted by a potential purchaser and is negotiating a possible sale. The
General Partner has not entered into any agreement to sell the property to the
potential purchaser and the General Partner will continue to solicit other
purchasers until a sales agreement is signed or the property is removed from the
market. Capital improvement projects planned for 1996 include approximately $3
million in deferred maintenance and general upgrades at several of the CCEP/2
properties which will be funded by additional borrowing under the Master Loan.
These upgrades and repairs include exterior and interior improvements, drainage
repair, HVAC upgrades, installation of fire and sprinkler systems and upgrades
necessary to comply with ADA requirements. As of June 30, 1996, approximately
$2.5 million had been spent on these programs.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the property to adequately maintain the physical assets
and other operating needs of the Partnership. Such assets are currently thought
to be sufficient for any near-term needs of the Partnership. See "CCEP/2
Property Operations" for discussion on CCEP/2's ability to provide future cash
flow as Master Loan debt service. No distributions were made during the six
months ended June 30, 1996 or 1995. Future cash distributions will depend on
the levels of net cash generated from operations, master loan interest income,
property sales, and the availability of cash reserves.
The Partnership is required by the Partnership Agreement to maintain working
capital reserves for contingencies of not less than 5% of Net Invested Capital,
as defined by the Partnership Agreement. Reserves, including cash and cash
equivalents, totaling approximately $8.3 million, were greater than the reserve
requirement of approximately $7.6 million at June 30, 1996.
CCEP/2 Property Operations
For the six months ended June 30, 1996, CCEP/2's net loss totaled approximately
$11,394,000 on total revenues of approximately $8,883,000. CCEP/2 recognizes
interest expense on the Master Loan Agreement obligation according to the note
terms, although payments to the Partnership are required only to the extent of
Excess Cash Flow, as defined therein. During the six months ended June 30,
1996, CCEP/2's statement of operations includes total interest expense
attributable to the Master Loan of approximately $10.4 million, all of which
represents interest accrued in excess of required payments. CCEP/2 is expected
to continue to generate operating losses as a result of such interest accruals
and noncash charges for depreciation.
During the six months ended June 30, 1996, advances in the amount of $1 million
were made to CCEP/2 as an advance on the Master Loan to fund planned
improvements at CCEP/2's investment properties. During the six months ended
June 30, 1996, CCEP/2 made payments of approximately $74,000 to the Partnership,
as principal payments on the Master Loan. This amount received was due to cash
received on certain investments held by CCEP/2, which are required to be
transferred to the Partnership per the agreement. Subsequent to June 30, 1996,
CCEP/2 made an excess cash flow payment of approximately $501,000 (as defined in
the Master Loan Agreement) to the Partnership, which was applied to the
principal balance on the Master Loan.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
S-K Reference
Number Description
27 Financial Data Schedule is filed as an
exhibit to this report.
99.1 Consolidated Capital Equity Partners/Two,
L.P., unaudited financial statements for the
three and six months ended June 30, 1996 and
1995.
(b) Reports on Form 8-K:
None filed during the quarter ended June 30, 1996.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CONSOLIDATED CAPITAL INSTITUTIONAL
PROPERTIES/2
By: CONCAP EQUITIES, INC.
General Partner
By:/s/ Carroll D. Vinson
Carroll D. Vinson
President
By:/s/ Robert D. Long, Jr.
Robert D. Long, Jr.
Vice President/CAO
Date: August 12, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Consolidated
Capital Institutional Properties/2 1996 Second Quarter 10-Q and is qualified in
its entirety by reference to such 10-Q filing.
</LEGEND>
<CIK> 0000719184
<NAME> CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 8,281
<SECURITIES> 0
<RECEIVABLES> 92,698
<ALLOWANCES> 48,205
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 6,262
<DEPRECIATION> 4,449
<TOTAL-ASSETS> 55,206
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 54,733
<TOTAL-LIABILITY-AND-EQUITY> 55,206
<SALES> 0
<TOTAL-REVENUES> 1,279
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,591
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (312)
<EPS-PRIMARY> .34<F2>
<EPS-DILUTED> 0
<FN>
<F1>The Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
EXHIBIT 99.1
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 1996 AND 1995
EXHIBIT 99.1 (Continued)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED BALANCE SHEET
(in thousands)
June 30, December 31,
1996 1995
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 2,218 $ 2,132
Other assets 4,056 3,773
Investments in limited partnerships 387 460
Investment properties:
Land 10,841 10,977
Building and related personal equipment 87,329 85,853
98,170 96,830
Less accumulated depreciation (55,796) (53,493)
42,374 43,337
$ 49,035 $ 49,702
Liabilities and Partners' Deficit
Accounts payable and accrued expenses $ 2,206 $ 2,608
Mortgage notes and interest payable 24,207 24,351
Master loan and interest payable 215,086 203,805
241,499 230,764
Partners' Deficit
General partner (1,912) (1,797)
Limited partners (190,552) (179,265)
(192,464) (181,062)
$ 49,035 $ 49,702
Note: The balance sheet at December 31, 1995, has been derived from the audited
financial statements at that date but does not include all the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
b) CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 4,639 $ 3,894 $ 8,838 $ 8,052
Other income 25 46 45 70
Total revenues 4,664 3,940 8,883 8,122
Expenses:
Operating 2,448 2,018 5,178 4,509
General and administrative 159 209 284 367
Interest 5,739 5,290 11,457 10,584
Depreciation and amortization 1,293 1,458 2,558 2,920
Write down of investment
properties 800 -- 800 --
Total expenses 10,439 8,975 20,277 18,380
Net loss $(5,775) $(5,035) $(11,394) $(10,258)
Net loss allocated
to general partner (1%) $ (58) $ (50) $ (114) $ (103)
Net loss allocated
to limited partners (99%) (5,717) (4,985) (11,280) (10,155)
$(5,775) $(5,035) $(11,394) $(10,258)
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
EXHIBIT 99.1 (Continued)
c) CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' DEFICIT
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
<S> <C> <C> <C>
Partners' deficit at December 31, 1994 $(1,434) $(143,358) $(144,792)
Net loss for the six months ended
June 30, 1995 (103) (10,155) (10,258)
Partners' deficit at June 30, 1995 $(1,537) $(153,513) $(155,050)
Partners' deficit at December 31, 1995 $(1,797) $(179,265) $(181,062)
Net loss for the six months ended
June 30, 1996 (114) (11,280) (11,394)
Distributions to partners (1) (7) (8)
Partners' deficit at June 30, 1996 $(1,912) $(190,552) $(192,464)
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
EXHIBIT 99.1 (Continued)
d) CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net loss $(11,394) $(10,258)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 2,565 2,953
Write-down of investment property 800 --
Change in accounts:
Other assets (499) (354)
Accounts payable and accrued expenses (401) (55)
Interest on master loan 10,354 9,401
Due to affiliates -- (1,308)
Interest payable 67 20
Net cash provided by operating activities 1,492 399
Cash flows from investing activities:
Property improvements and replacements (2,140) (537)
Proceeds from sale of investments -- 9,617
Purchase of investments -- (9,629)
Distributions from investment in limited partnerships 74 --
Net cash used in investing activities (2,066) (549)
Cash flow used in financing activities:
Principal payments on notes payable (211) (216)
Principal payments on Master Loan (74) --
Loan costs paid (47) --
Advances received on Master Loan 1,000 --
Distributions paid to Partners (8) --
Net cash provided by (used in)
financing activities 660 (216)
Net increase (decrease) in cash and cash equivalents 86 (366)
Cash and cash equivalents at beginning of period 2,132 1,936
Cash and cash equivalents at end of period $ 2,218 $ 1,570
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,032 $ 2,457
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
EXHIBIT 99.1 (Continued)
e) CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of ConCap Holdings, Inc., ("General
Partner"), all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and six month periods ended June 30, 1996, are not necessarily indicative
of the results that may be expected for the fiscal year ending December 31,
1996.
Certain reclassifications have been made to the 1995 information to conform to
the 1996 presentation.
Consolidation
In 1985, Equity Partners/Two ("EP/2"), a California general partnership,
together with Anderson CC 2, a Georgia limited partnership, entered into a
general partnership agreement ("CC Office Associates") to acquire Cosmopolitan
Center, an office building located in Atlanta, Georgia. Pursuant to such
general partnership agreement, the property ownership is split 90%/10% between
Consolidated Capital Equity Partners/Two, L.P. ("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 Consolidated Capital
Institutional Properties/2 ("CCIP/2") on Cosmopolitan Center, exceeds the value
of the property. As a result, CC Office Associates has a net capital deficit
and no minority liability exists with respect to CCEP/2.
Note B - Related Party Transactions
CCEP/2 has no employees and is dependent on the General Partner and its
affiliates for management and administration of all partnership activities.
CCEP/2 paid property management fees based upon collected gross rental revenues
for property management services in each of the six month periods ended June 30,
1996 and 1995. Fees paid to affiliates of Insignia during the six month periods
ended June 30, 1996 and 1995, are included in operating expenses on the
consolidated statement of operations and are reflected in the following table.
The Partnership Agreement ("Agreement") also provides for reimbursement to the
General Partner and its affiliates for costs incurred in connection with the
administration of CCEP/2's activities. The General Partner, and its current
affiliates, received reimbursements for the six months ended June 30, 1996 and
1995, as reflected in the following table.
Also, CCEP/2 is subject to an Investment Advisory Agreement between CCEP/2 and
an affiliate of the General Partner. This agreement provides for an annual fee,
payable in monthly installments, to an affiliate of the General Partner for
advising and consulting services for CCEP/2's properties. Advisory fees paid
pursuant to this agreement are included in general and administrative expenses
on the consolidated statement of operations and are reflected in the following
table:
For the Six Months Ended
June 30,
1996 1995
(in thousands)
Property management fees $401 $414
Investment advisory fees 77 91
Lease commissions 167 134
Reimbursement for services of affiliates (1) 181 232
(1) Included in "reimbursements for services of affiliates" in 1996 is
approximately $34,000 in reimbursements for construction oversight costs.
In addition to the compensation and reimbursements described above, interest
payments are made to and loan advances are received from CCIP/2 pursuant to the
Master Loan Agreement, which is described more fully in the 1995 Annual Report.
No interest payments were made during the six month periods ended June 30, 1996
and 1995. (See further discussion in "Note C"). Advances in the amount of
$1,000,000 were made under the Master Loan Agreement during the six months ended
June 30, 1996, to fund planned improvements at CCEP/2's investment properties.
Principal payments of approximately $74,000 were made on the Master Loan during
the six months ended June 30, 1996.
On July 1, 1995, CCEP/2 began insuring its properties under a master policy
through an agency and insurer unaffiliated with the General Partner. An
affiliate of the General Partner acquired, in the acquisition of a business,
certain financial obligations from an insurance agency which was later acquired
by the agent who placed the current year's master policy. The current agent
assumed the financial obligations to the affiliate of the General Partner who
receives payments on these obligations from the agent. The amount of CCEP/2's
insurance premiums accruing to the benefit of the affiliate of the General
Partner by virtue of the agent's obligations is not significant.
Note C - Master Loan and Accrued Interest Payable
The Master Loan principal and accrued interest payable balances at June 30,
1996, and December 31, 1995, are approximately $91.2 million and approximately
$123.9 million, respectively. Subsequent to June 30, 1996, the Partnership made
an excess cash flow payment of approximately $501,000 (as defined in the Master
Loan agreement) to CCIP/2, to be applied to the Master Loan principal.
Terms of Master Loan Agreement
Under the terms of the Master Loan Agreement, interest accrues at 10% per annum.
Payments are currently payable quarterly in an amount equal to "Excess Cash
Flow," generally defined in the Master Loan Agreement as net cash flow from
operations after third-party debt service and capital expenditures. Any unpaid
interest is added to principal, compounded annually, and is payable at the
loan's maturity. Any net proceeds from the sale or refinancing of any of
CCEP/2's properties are paid to CCIP/2 under the terms of the Master Loan
Agreement. The Master Loan Agreement matures in November 2000.
Note D - Accounting for the Impairment of Long-Lived Assets
Investment properties are accounted for under FASB Statement No 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," ("SFAS 121"). SFAS 121 requires that impairment losses be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. The impairment loss is measured by
comparing the fair value of the asset to its carrying amounts. The fair values
of the investment properties owned by the Partnership were determined using the
net operating income of the investment property capitalized at a rate deemed
reasonable for the type of property. Based on this valuation analysis it was
determined that there was an impairment loss at Town Center, and the Partnership
recorded a write down of $800,000 at the property. This write down was caused
by a decrease in occupancy and rental rates at the property. The General
Partner believes that it is unlikely that the property will be able to increase
occupancy or rental rates and that this write down is necessary due to the
location of the property and the weak economy in the Orange County, California
area.
