FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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, 1997
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 past 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,
1997 1996
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 9,040 $ 18,478
Securities available for sale 11 11
Other assets 19 23
Investment in Master Loan to affiliate 83,779 84,167
Less: Allowance for impairment loss (47,533) (48,043)
36,246 36,124
$ 45,316 $ 54,636
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable and accrued liabilities $ 47 $ 29
Distributions payable 141 141
188 170
Partners' Capital (Deficit)
General partner (563) (560)
Limited partners (909,138 units
outstanding at June 30, 1997 and
December 31, 1996, respectively) 45,691 55,026
45,128 54,466
$ 45,316 $ 54,636
Note:The balance sheet at December 31, 1996, 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,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Rental income $ -- $ 450 $ -- $ 861
Interest income on investment
in Master Loan to affiliate -- -- 89 --
Reduction of allowance for impairment
loss in Master Loan to affiliate 374 200 510 200
Other income 113 104 321 218
Total revenues 487 754 920 1,279
Expenses:
Operating -- 488 -- 906
Depreciation and amortization -- 174 -- 341
General and administrative 157 179 266 344
Total expenses 157 841 266 1,591
Net (loss) income $ 330 $ (87) $ 654 $ (312)
Net (loss) income allocated
to general partner (1%) $ 4 $ (1) $ 7 $ (3)
Net (loss) income allocated
to limited partners (99%) 326 (86) 647 (309)
$ 330 $ (87) $ 654 $ (312)
Net (loss) income per
limited partnership unit $ .36 $ (.10) $ .71 $ (.34)
<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, 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
Partners' capital (deficit) at
December 31, 1996 909,138 $ (560) $ 55,026 $ 54,466
Net income for the six months
ended June 30, 1997 -- 7 647 654
Distributions to partners -- (10) (9,982) (9,992)
Partners' capital (deficit) at
June 30, 1997 909,138 $ (563) $ 45,691 $ 45,128
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
d) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1997 1996
Cash flows from operating activities:
Net income (loss) $ 654 $ (312)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization -- 341
Reduction of allowance for impairment loss
in Master Loan to affiliate (510) (200)
Change in accounts:
Other assets 4 184
Accounts payable and accrued liabilities 18 (1)
Tenant security deposit liabilities -- 1
Accrued taxes -- 24
Net cash provided by operating activities 166 37
Cash flows from investing activities:
Property improvements and replacements -- (106)
Principal receipts on Master Loan 388 74
Advances on Master Loan -- (1,000)
Net cash provided by (used in)
investing activities 388 (1,032)
Cash flows used in financing activities:
Distributions to partners (9,992) --
Net cash used in financing activities (9,992) --
Net decrease in cash and cash equivalents (9,438) (995)
Cash and cash equivalents at beginning of period 18,478 9,276
Cash and cash equivalents at end of period $ 9,040 $ 8,281
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 (the "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 six
month periods ended June 30, 1997, are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 1997. 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,
1996.
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, 1997 and 1996. Fees paid to affiliates of the General
Partner during the six month periods ended June 30, 1997 and 1996, 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:
June 30,
1997 1996
(in thousands)
Property management fees $ -- $ 41
Lease commissions -- 11
Reimbursement for services of affiliates 139 149
The Partnership insures 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, 1997, the recorded investment in the Master Loan was 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, 1997, the Partnership recorded approximately $599,000 in
income based upon an increase in the fair value of the collateral. During the
first quarter of 1997, approximately $89,000 was recorded as interest income on
investment in Master Loan to affiliate. A cash payment for this amount was
received from Consolidated Capital Equity Partners/2, L.P. ("CCEP/2") during the
second quarter of 1997. Approximately $510,000 was recorded as a reduction of
allowance for impairment loss in Master Loan to affiliate.
Interest due to the Partnership pursuant to the terms of the Master Loan
Agreement, but not recognized in the income statements, totaled approximately
$10,972,000 and $10,354,000 for the six months ended June 30, 1997 and 1996,
respectively. At June 30, 1997, and December 31, 1996, such cumulative
unrecognized interest totaling approximately $144,300,000 and $133,300,000,
respectively, was not included in the balance of the investment in Master Loan.
During the six month period ended June 30, 1997, no advances were made to CCEP/2
as an advance on the Master Loan. During the six month period ended June 30,
1997, the Partnership received approximately $388,000 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
Agreement.
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 $9,040,000, were greater than the reserve requirement of
approximately $7,157,000 at June 30, 1997.
NOTE E - CONTINGENCIES
In May 1997, the Partnership was named as a defendant in a lawsuit brought by
PHC Construction Corporation in the Circuit Court for Oakland County, Michigan.
The complaint arises from construction services allegedly performed by the
plaintiff at the North Park Plaza Building in Southfield, Michigan prior to the
sale of that property in September 1996. The complaint asserts claims for
breach of contract, quantum meruit and promissory estoppel. The Partnership was
only recently served with the complaint and is evaluating its position.
NOTE F - DISTRIBUTION
In April 1997, the Partnership distributed approximately $9,992,000 to the
partners. The limited partners received approximately $9,982,000 ($10.98 per
limited partnership unit) and the general partners received approximately
$10,000. Of the total distribution approxiamtely $9,000,000 was from surplus
fund as a result of the refinnacing of the CCEP/2 proeprties, which was passed
up to the PAtnership as a reduction in principle of master loan. These funds
were distributed 100% tot he limited partners. The remaining distribution
amount of approximately $992,000 was from operation which is allocated based ont
he 1% tot he general partner and 99% tot he limited partners.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Partnership's sole investment property, North Park Plaza, was sold in
September 1996. As of June 30, 1997, the Partnership has no real estate assets.
Results of Operations
The Partnership reported net income of approximately $330,000 and $654,000,
respectively for the three and six months ended June 30, 1997, as compared to
net losses of approximately $87,000 and $312,000, respectively for the
corresponding period of 1996. The increase in net income is attributable to the
sale of the Partnership's investment property in September 1996, the increase in
income recognized on the master loan, an increase in other income and a decrease
in general and administrative expenses. The Partnership recognized a loss on the
operations of North Park Plaza during the six month period ended June 30, 1996,
of approximately $386,000. As discussed in "Item 1. Note C - Net Investment in
Master Loan", the Partnership recorded income on the master loan of
approximately $599,000 as compared to $200,000 for the six month period ended
June 30, 1996. The increase in income recognized is due to the increase in the
fair value of the collateral during the six months ended June 30, 1997. Other
income increased for the six month period ended June 30, 1997 due to an increase
in interest income on investments. This increase is due to an increase in cash
balances and higher yields on these investments. General and administrative
expenses decreased due to a decrease in reimbursements to affiliates and
professional fees.
Liquidity and Capital Resources
At June 30, 1997 the Partnership had unrestricted cash of approximately
$9,040,000 versus approximately $8,281,000 at June 30, 1996. Net cash provided
by operating activities increased primarily due to the increase in net income as
previously explained. Net cash provided by investing activities increased due
to an increase in principal receipts on the Master Loan for the six months ended
June 30, 1997 as compared to the six months ended June 30, 1996. Also, there
were no property improvements and replacements due to the sale of North Park
Plaza nor were there any advances on the Master Loan during the six months ended
June 30, 1997. Cash used in financing activities increased as a result of the
$9,992,000 distribution which took place during the second quarter of 1997.
The sufficiency of existing liquid assets to meet future liquidity requirements
is directly related to the level of expenditures required to meet the ongoing
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. During the second quarter of 1997, the Partnership
made a distribution of approximately $9,992,000. No distributions were made
during the six months ended June 30, 1996. 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 $9,040,000, were greater than the reserve
requirement of $7,157,000 as of June 30, 1997.
CCEP/2 Property Operations
For the six months ended June 30, 1997, CCEP/2's net loss totaled approximately
$11,135,000 on total revenues of approximately $9,155,000. 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 the six months ended June 30,
1997, CCEP/2's statement of operations includes total interest expense
attributable to the Master Loan of approximately $10,972,000, $89,000 of which
represents interest paid, and the remaining of which represents interest expense
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, 1997, the Partnership received
approximately $388,000 as principal payments on the Master Loan. This cash was
received by CCEP/2 on certain investments which it holds. Such cash receipts
are required to be transferred to the Partnership per the Agreement.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In May 1997, the Partnership was named as a defendant in a lawsuit brought by
PHC Construction Corporation in the Circuit Court for Oakland County, Michigan.
The complaint arises from construction services allegedly performed by the
plaintiff at the North Park Plaza Building in Southfield, Michigan prior to the
sale of that property in September 1996. The complaint asserts claims for
breach of contract, quantum meruit and promissory estoppel. The Partnership was
only recently served with the complaint and is evaluating its position.
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, 1997 and 1996.
(b) Reports on Form 8-K:
None filed during the quarter ended June 30, 1997.
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/ William H. Jarrard, Jr.
William H. Jarrard, Jr.
President
By:/s/ Ronald Uretta
Ronald Uretta
Vice President/Treasurer
Date: August 11, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Consolidated
Capital Institutional Properties/2 1997 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-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 9,040
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 45,316
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 45,128
<TOTAL-LIABILITY-AND-EQUITY> 45,316
<SALES> 0
<TOTAL-REVENUES> 920
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 266
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 654
<EPS-PRIMARY> .71<F2>
<EPS-DILUTED> 0
<FN>
<F1>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, 1997 AND 1996
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,
1997 1996
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 1,531 $ 1,478
Other assets 5,392 4,956
Investments in limited partnerships -- 336
Investment properties:
Land 10,841 10,841
Building and related personal equipment 90,960 89,443
101,801 100,284
Less accumulated depreciation (60,589) (58,187)
41,212 42,097
$ 48,135 $ 48,867
Liabilities and Partners' Deficit
Accounts payable and accrued expenses $ 1,957 $ 1,793
Mortgage notes and interest payable 33,139 33,395
Master loan and interest payable 227,270 216,775
262,366 251,963
Partners' Deficit
General partner (2,128) (2,017)
Limited partners (212,103) (201,079)
(214,231) (203,096)
$ 48,135 $ 48,867
Note:The balance sheet at December 31, 1996, 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
b) CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Revenues:
Rental income $ 4,634 $ 4,639 $ 9,111 $ 8,838
Other income 18 25 44 45
Total revenues 4,652 4,664 9,155 8,883
Expenses:
Operating 2,451 2,448 4,995 5,178
General and administrative 187 159 321 284
Interest 6,161 5,739 12,304 11,457
Depreciation and amortization 1,351 1,293 2,670 2,558
Write down of investment
properties -- 800 -- 800
Total expenses 10,150 10,439 20,290 20,277
Net loss $(5,498) $(5,775) $(11,135) $(11,394)
Net loss allocated
to general partner (1%) $ (55) $ (58) $ (111) $ (114)
Net loss allocated
to limited partners (99%) (5,443) (5,717) (11,024) (11,280)
$(5,498) $(5,775) $(11,135) $(11,394)
See Accompanying Notes to Consolidated Financial Statements
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, 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)
Partners' deficit at December 31, 1996 $(2,017) $(201,079) $(203,096)
Net loss for the six months ended
June 30, 1997 (111) (11,024) (11,135)
Partners' deficit at June 30, 1997 $(2,128) $(212,103) $(214,231)
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
d) CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1997 1996
Cash flows from operating activities:
Net loss $(11,135) $(11,394)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 2,726 2,565
Write-down of investment property -- 800
Change in accounts:
Other assets (732) (499)
Accounts payable and accrued expenses 164 (401)
Interest on master loan 10,883 10,354
Interest payable (115) 67
Net cash provided by operating activities 1,791 1,492
Cash flows from investing activities:
Property improvements and replacements (1,516) (2,140)
Distributions from investment in limited partnerships 336 74
Net cash used in investing activities (1,180) (2,066)
Cash flow used in financing activities:
Principal payments on notes payable (141) (211)
Principal payments on Master Loan (388) (74)
Loan costs paid (29) (47)
Advances received on Master Loan -- 1,000
Distributions paid to Partners -- (8)
Net cash (used in) provided by
financing activities (558) 660
Net increase in cash and cash equivalents 53 86
Cash and cash equivalents at beginning of period 1,478 2,132
Cash and cash equivalents at end of period $ 1,531 $ 2,218
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,480 $ 1,032
See Accompanying Notes to Consolidated Financial Statements
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 of Consolidated
Capital Equity Partners/Two, L.P. ("CCEP/2") 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 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 six
month periods ended June 30, 1997, are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 1997.
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 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,
1997 and 1996. Fees paid to affiliates of the General Partner during the six
month periods ended June 30, 1997 and 1996, are included in operating expenses
on the consolidated statement of operations and are reflected in the following
table. The Partnership Agreement (the "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, 1997 and 1996, 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:
June 30,
1997 1996
(in thousands)
Property management fees $437 $401
Investment advisory fees 77 77
Lease commissions 214 167
Reimbursement for services of affiliates 131 139
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 1996 Annual Report.
No interest payments were made during the six month period ended June 30, 1996.
(See further discussion in "Note C"). An interest payment of approximately
$89,000 was made during the six month period ended June 30, 1997. No advances
were received under the Master Loan Agreement during the six months ended June
30, 1997. 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 $388,000 and $74,000 were made on the Master Loan during the six
months ended June 30, 1997 and 1996, respectively.
The Partnership insures 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,
1997, and December 31, 1996, are approximately $227,747,000 and approximately
$216,775,000, respectively.
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.
During the six months ended June 30, 1997, CCEP/2 paid approximately $388,000 to
CCIP/2 as principal payments on the Master Loan. These payments were comprised
of cash received by CCEP/2 on certain investments which is required to be
transferred to CCIP/2 per the Master Loan Agreement. An interest payment of
approximately $89,000 was made during the six months ended June 30, 1997.
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 amount. 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.
NOTE E - CONTINGENCIES
In May 1997, the Partnership was named as a defendant in a lawsuit brought by
PHC Construction Corporation in the Circuit Court for Oakland County, Michigan.
The complaint arises from construction services allegedly performed by the
plaintiff at several property locations in Southfield, Michigan and asserts
claims for breach of contract, quantum meruit and promissory estoppel. The
Partnership was only recently served with the complaint and is evaluating its
position.
