FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
(As last amended in Rel. No. 312905, eff. 04/26/93.)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 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)
September 30, December 31,
1996 1995
(Unaudited) (Note)
Assets
Cash and cash equivalents:
Unrestricted $ 10,535 $ 9,276
Restricted--tenant security deposits 5 5
Other assets 36 829
Net investment in master loan to affiliate 92,147 91,771
Less: provision for impairment loss (48,190) (48,405)
43,957 43,366
Investment properties:
Land -- 716
Building and related personal property -- 5,440
-- 6,156
Less: accumulated depreciation -- (4,138)
-- 2,018
$ 54,533 $ 55,494
Liabilities and Partners' Capital (Deficit)
Accounts payable and accrued expenses $ 86 $ 136
Tenant security deposits -- 114
Distributions payable 141 141
Accrued taxes -- 58
227 449
Partners' Capital (Deficit)
General partner (561) (554)
Limited partners (909,138 units
outstanding at September 30, 1996 and
December 31, 1995, respectively) 54,867 55,599
54,306 55,045
$ 54,533 $ 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 Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 345 $ 353 $ 1,206 $ 1,347
Interest income on net
investment in master
loan to affiliate -- 22 -- 721
Other income 110 148 328 482
Reduction of provision for
impairment loss 16 587 216 587
Total revenues 471 1,110 1,750 3,137
Expenses:
Operating 540 511 1,446 1,174
General and administrative 124 206 468 767
Depreciation and amortization 144 199 485 672
Write-down of investment property -- 3,350 -- 3,350
Total expenses 808 4,266 2,399 5,963
Loss on sale of investment property (90) -- (90) --
Net loss $ (427) $ (3,156) $ (739) $(2,826)
Net loss allocated
to general partner (1%) $ (4) $ (32) $ (7) $ (28)
Net loss allocated
to limited partners (99%) (423) (3,124) (732) (2,798)
$ (427) $ (3,156) $ (739) $(2,826)
Net loss per
limited partnership unit $ (.46) $ (3.44) $ (.80) $ (3.08)
<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 909,145 $ (498) $ 61,162 $ 60,664
Distributions (30) (2,973) (3,003)
Net loss for the nine months
ended September 30, 1995 (7) (28) (2,798) (2,826)
Partners' capital (deficit) at
September 30, 1995 909,138 $ (556) $ 55,391 $ 54,835
Partners' capital (deficit) at
December 31, 1995 909,138 $ (554) $ 55,599 $ 55,045
Net loss for the nine months
ended September 30, 1996 (7) (732) (739)
Partners' capital (deficit) at
September 30, 1996 909,138 $ (561) $ 54,867 $ 54,306
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
d) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1996 1995
Cash flows from operating activities:
Net loss $ (739) $(2,826)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 485 672
Write-down of investment properties -- 3,350
Reduction of provision for impairment loss (216) (587)
Loss on sale of investment property 90 --
Change in accounts:
Other assets 232 116
Accounts payable and accrued expenses (49) 112
Due from affiliates -- 1,347
Tenant security deposit liabilities (112) 7
Accrued taxes (44) (47)
Net cash (used in) provided by
operating activities (353) 2,144
Cash flows from investing activities:
Property improvements and replacements (132) (564)
Principal receipts on Master Loan 625 --
Advances on Master Loan (1,000) --
Purchase of investments -- (41,487)
Proceeds from sale of investments -- 51,244
Proceeds from sale of investment property 2,119 --
Net cash provided by
investing activities 1,612 9,193
Cash flows from financing activities:
Distributions -- ( 3,003)
Net cash used in financing activities -- ( 3,003)
Net increase in cash and cash equivalents 1,259 8,334
Cash and cash equivalents at beginning of period 9,276 1,351
Cash and cash equivalents at end of period $10,535 $ 9,685
See Accompanying Notes to Financial Statements
e) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements 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., (the "General Partner"), all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three and nine
month periods ended September 30, 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 - SALE OF NORTH PARK PLAZA
On September 12, 1996, the Partnership sold North Park Plaza to an unaffiliated
party. The property was sold in an effort to maximize the Partnership's return
on its investment. The Partnership received net proceeds of approximately
$2,119,000 after payment of closing costs. This disposition resulted in a loss
of approximately $90,000.
Operating Revenues and expenses from North Park Plaza were approximately
$1,208,000 and $1,931,000, respectively for the nine months ended September 30,
1996, and $1,406,000 and $1,847,000, respectively for the corresponding period
1995.
NOTE C - RELATED PARTY TRANSACTIONS
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
The Partnership paid property management fees based upon collected gross rental
revenues for property management services as noted below for the nine month
periods ended September 30, 1996 and 1995. Fees paid to affiliates of Insignia
during the nine month periods ended September 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 which are included
in general and administrative expense on the statement of operations. The
General Partner, and its current affiliates, received reimbursements as
reflected in the following table:
For the Nine Months Ended
September 30,
1996 1995
(in thousands)
Property management fees $ 61 $ 72
Lease commissions 23 98
Reimbursement for services of affiliates 247 331
Reimbursements for services of affiliates decreased during the nine months ended
September 30, 1996, as compared to the nine months ended September 30, 1995. The
nine months ended September 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 D - NET INVESTMENT IN MASTER LOAN
At September 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 nine
months ended September 30, 1996, the Partnership recorded approximately $216,000
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
$15.5 million and $14.1 million for the nine months ended September 30, 1996 and
1995, respectively. At September 30, 1996, and December 31, 1995, such
cumulative unrecognized interest totaling approximately $128.2 million and
$112.7 million was not included in the balance of the investment in Master Loan.
During the second quarter of 1996, advances of approximately $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.
Through September 30, 1996, the Partnership received approximately $124,000 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. During the three months ended
September 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 E - COMMITMENT
The Partnership is required by the Agreement to maintain working capital
reserves for contingencies of not less than 5% of Net Invested Capital, as
defined in the Agreement. In the event expenditures are made from this reserve,
operating revenue shall be allocated to such reserves to the extent necessary to
maintain the foregoing level. Reserves, including cash and cash equivalents
totaling approximately $10.5 million, were greater than the reserve requirement
of approximately $7.6 million at September 30, 1996.
NOTE F - ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
At September 30, 1995, the Partnership adopted FASB Statement 121. Estimated
fair value of the investment property was determined using net operating income
of the property, capitalized at a rate deemed reasonable for the type of
property, adjusted for market conditions, physical condition of the property and
other factors to assess whether any permanent impairment in value has occurred.
As a result of the Partnership's continuing evaluation of its investments, an
impairment loss of approximately $3.35 million was recorded based on the
property's operating results and expected cash flows.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Partnership's investment property consisted of one office building which was
sold on September 12, 1996, to an unaffiliated party. The following table sets
forth the average occupancy of this property through the date of sale on
September 12, 1996, and for the nine month period ended September 30, 1995:
Average
Occupancy
Property 1996 1995
North Park Plaza
Southfield, Michigan 63% 62%
Results of Operations
The Partnership's net loss for the nine months ended September 30, 1996 was
approximately $739,000 with the three months ended September 30, 1996, having a
loss of approximately $427,000. The Partnership reported net losses of
approximately $2,826,000 and $3,156,000 for the corresponding periods of 1995.
The decrease in net loss is primarily attributable to the write-down of the
Partnership's sole investment property, North Park Plaza, in 1995 due to the
Partnership's continuing evaluation of its investment property. Also
contributing to the decrease in net loss were decreases in depreciation and
amortization expense and general and administrative expense. Depreciation and
amortization expense decreased due to the write-down of investment property of
approximately $3.4 million 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.
Offsetting the decrease in net loss were decreases in the reduction of provision
for impairment loss, rental income, interest income on net investment in master
loan to affiliate, and other income. The reduction of the provision for
impairment loss on the investment in the Master Loan as determined under
"FASB 114" (see "Note D") is due to a decrease in the increase in the value of
the investment properties collateralizing the Master Loan in 1996 as compared to
1995. Rental income decreased for the nine months ended September 30, 1996, due
to the property offering lower rates to new tenants in order to increase
occupancy and the sale of North Park Plaza on September 12, 1996. Other income
decreased for the three and nine months ended September 30, 1996, due to a
decrease in interest income as a result of a decrease in interest rates.
Interest income on the Master Loan decreased for the three and nine months ended
September 30, 1996, due to the adoption of "FASB 114" which requires income to
be based upon the increase in the underlying value of the assets collateralizing
the Master Loan versus income recognized on the cash flow of the properties
collateralized by the Master Loan. The increase in operating expenses also
offset the decrease in net loss for the nine months ended September 30, 1996, as
a result of increases 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 and required repairs per the North
Park Plaza sales contract.
On September 12, 1996, the Partnership sold North Park Plaza to an unaffiliated
party. The property was sold in an effort to maximize the Partnership's return
on its investment. The Partnership received net proceeds of approximately
$2,119,000 after payment of closing costs. This disposition resulted in a loss
of approximately $90,000.
Liquidity and Capital Resources
At September 30, 1996, the Partnership had unrestricted cash of approximately
$10,535,000 versus approximately $9,685,000 at September 30, 1995. Net cash
provided by operating activities decreased primarily due to a decrease in "due
from affiliates", and accounts payable and accrued expenses. This decrease in
due from affiliates resulted from the payment in 1995 of the December 31, 1994,
accrued interest receivable on the Master Loan. Also contributing to the
decrease in cash provided by operating activities was the transfer of security
deposits to the new owner of North Park Plaza. Net cash provided by investing
activities decreased due to a decrease in net proceeds from the sale of
investments and an increase in net advances on the Master Loan. The Partnership
advanced approximately $1,000,000 to CCEP/2 and received receipts of
approximately $625,000 during the nine months ended September 30, 1996.
Offsetting these amounts was the receipt of approximately $2,119,000 in proceeds
from the sale of investment property during the nine months ended September 30,
1996. Net cash used in financing activities decreased due to a distribution
which was made during the third quarter of 1995.
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 if the
properties do not generate sufficient cash flow to pay for these items. 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 September 30, 1996,
approximately $2.3 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 nine
months ended September 30, 1996. Approximately $3 million of distributions were
made during the corresponding period in 1995. Future cash distributions will
depend on the levels of net cash generated from operations, master loan interest
income, 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 $10.5 million, were greater than the reserve
requirement of approximately $7.6 million at September 30, 1996.
CCEP/2 Property Operations
For the nine months ended September 30, 1996, CCEP/2's net loss totaled
approximately $16,944,000 on total revenues of approximately $13,166,000.
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 nine
months ended September 30, 1996, CCEP/2's statement of operations includes total
interest expense attributable to the Master Loan of approximately $15.5 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 nine months ended September 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 nine months ended
September 30, 1996, CCEP/2 made payments of approximately $124,000 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. During the third
quarter of 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
nine months ended September 30, 1996 and 1995.
(b) Reports on Form 8-K:
Current report on Form 8-K dated September 12, 1996, as filed with
the Securities and Exchange Commission on October 2, 1996, in
connection with the sale of North Park Plaza.
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: November 12, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Consolidated
Capital Institutional Properties/2 1996 Third Quarter 10-QSB and is qualified in
its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000719184
<NAME> CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 10,535
<SECURITIES> 0
<RECEIVABLES> 92,147
<ALLOWANCES> 48,190
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 54,533
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 54,306
<TOTAL-LIABILITY-AND-EQUITY> 54,533
<SALES> 0
<TOTAL-REVENUES> 1,750
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,399
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (739)
<EPS-PRIMARY> (.80)
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
</FN>
</TABLE>
EXHIBIT 99.1
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 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)
September 30, December 31,
1996 1995
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 2,288 $ 2,132
Other assets 3,357 3,773
Investments in limited partnerships 336 460
Investment properties:
Land 10,841 10,977
Building and related personal equipment 88,289 85,853
99,130 96,830
Less accumulated depreciation (56,967) (53,493)
42,163 43,337
$ 48,144 $ 49,702
Liabilities and Partners' Deficit
Accounts payable and accrued expenses $ 2,348 $ 2,608
Mortgage notes and interest payable 24,095 24,351
Master loan and interest payable 219,715 203,805
246,158 230,764
Partners' Deficit
General partner (1,967) (1,797)
Limited partners (196,047) (179,265)
(198,014) (181,062)
$ 48,144 $ 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)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 4,267 $ 4,270 $ 13,105 $ 12,322
Other income 16 35 61 105
Total revenues 4,283 4,305 13,166 12,427
Expenses:
Operating 2,658 2,891 7,836 7,400
General and administrative 163 140 447 507
Interest 5,729 5,272 17,186 15,856
Depreciation and amortization 1,283 1,459 3,841 4,379
Write down of investment
properties -- 15,406 800 15,406
Total expenses 9,833 25,168 30,110 43,548
Loss on disposal of property -- (37) -- (37)
Net loss $(5,550) $(20,900) $(16,944) $(31,158)
Net loss allocated
to general partner (1%) $ (55) $ (209) $ (169) $ (312)
Net loss allocated
to limited partners (99%) (5,495) (20,691) (16,775) (30,846)
$(5,550) $(20,900) $(16,944) $(31,158)
<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 nine months ended
September 30, 1995 (312) (30,846) (31,158)
Partners' deficit at September 30, 1995 $(1,746) $(174,204) $(175,950)
Partners' deficit at December 31, 1995 $(1,797) $(179,265) $(181,062)
Net loss for the nine months ended
September 30, 1996 (169) (16,775) (16,944)
Distributions to partners (1) (7) (8)
Partners' deficit at September 30, 1996 $(1,967) $(196,047) $(198,014)
<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)
Nine Months Ended
September 30,
1996 1995
Cash flows from operating activities:
Net loss $(16,944) $(31,158)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 3,852 4,379
Loss on disposal of property -- 37
Write-down of investment property 800 15,406
Change in accounts:
Other assets 106 (628)
Accounts payable and accrued expenses (259) 444
Interest on master loan 15,534 13,380
Due to affiliates -- (1,308)
Interest payable 67 20
Net cash provided by operating activities 3,156 572
Cash flows from investing activities:
Property improvements and replacements (3,100) (1,294)
Proceeds from sale of investments -- 10,018
Purchase of investments -- (9,629)
Distributions from investment in limited partnerships 124 --
Net cash used in investing activities (2,976) (905)
Cash flow used in financing activities:
Principal payments on notes payable (323) (331)
Principal payments on Master Loan (625) --
Loan costs paid (68) --
Advances received on Master Loan 1,000 --
Distributions paid to Partners (8) --
Net cash used in
financing activities (24) (331)
Net increase (decrease) in cash and cash equivalents 156 (664)
Cash and cash equivalents at beginning of period 2,132 1,936
Cash and cash equivalents at end of period $ 2,288 $ 1,272
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,574 $ 3,750
See Accompanying Notes to Consolidated Financial Statements
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., (the "General
Partner"), all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and nine month periods ended September 30, 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 nine month periods ended
September 30, 1996 and 1995. Fees paid to affiliates of Insignia during the
nine month periods ended September 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 nine months ended
September 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 Nine Months Ended
September 30,
1996 1995
(in thousands)
Property management fees $626 $649
Investment advisory fees 115 136
Lease commissions 233 274
Reimbursement for services of affiliates (1) 258 280
(1) Included in "reimbursements for services of affiliates" in 1996 is
approximately $39,000 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 nine month periods ended September 30,
1996. CCEP/2 made interest payments of approximately $721,000 during the
corresponding period of 1995. (See further discussion in "Note D"). Advances in
the amount of $1,000,000 were made under the Master Loan Agreement during the
nine months ended September 30, 1996, to fund planned improvements at CCEP/2's
investment properties. Principal payments of approximately $625,000 were made on
the Master Loan during the nine months ended September 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 - SUBSEQUENT EVENT - MORTGAGE NOTE PAYABLE
Richmond Plaza's mortgage indebtedness of approximately $14,232,000 matured in
March 1995, with waivers of the default obtained from the lender through June
15, 1996. The Partnership continued making the monthly payment of approximately
$132,000 under the terms of the original note through September 30, 1996, while
negotiating the refinancing with the original lender. During the negotiation
period, the lender did not issue a formal waiver but continued to accept
payments under the terms of the original note. On October 1, 1996, the
Partnership signed a promissory note with the existing mortgage holder for
$14,500,000 with an interest rate of 7.875% and a maturity date of June 1, 2000.
The Partnership's new monthly payment is approximately $95,000 and the first
payment is due on December 1, 1996.
NOTE D - MASTER LOAN AND ACCRUED INTEREST PAYABLE
The Master Loan principal and accrued interest payable balances at September 30,
1996, are approximately $90.6 million and approximately $129.1 million,
respectively and December 31, 1995, were approximately $90.3 million and
approximately $113.5 million, respectively.
During the second quarter of 1996, advances of approximately $1 million were
made from Consolidated Capital Institutional Properties/2, L.P. ("CCIP/2") as an
advance on the Master Loan to fund planned improvements at CCEP/2's investment
properties. Through September 30, 1996, the Partnership paid approximately
$124,000 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. During the
three months ended September 30, 1996, the Partnership paid 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 E - 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.
