FORM 10-K--ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(As last amended in Rel. No. 34-31905, eff 10/26/93.)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
For the fiscal year ended December 31, 1996
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [No Fee Required]
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)
Issuer's telephone number (864) 239-1000
Securities registered under Section 12(b) of the Act:
None
Securities registered under Section 12(g) of the Act:
Limited Partnership Units
(Title of class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X] (Amended by Exch Act Rel No.
28869, eff. 5/1/91.)
State the aggregate market value of the Limited Partnership Units ("Units") held
by non-affiliates. 902,360 of the Partnership's 909,138 Units are held by non-
affiliates. The aggregate market value of Units held by affiliates and non-
affiliates is not determinable since there is no public trading market for Units
and transfers of Units are not subject to certain restrictions.
PART I
Item 1. Business
General
Consolidated Capital Institutional Properties/2 (the "Partnership") was
organized on April 12, 1983, as a limited partnership under the California
Uniform Limited Partnership Act. On July 22, 1983, the Partnership registered
with the Securities and Exchange Commission ("SEC") under the Securities Act of
1933 (File No. 2-83540) and commenced a public offering for sale of Units. The
Units represent equity interests in the Partnership and entitle the holders
thereof to participate in certain allocations and distributions of the
Partnership. The sale of Units terminated on July 21, 1985, with 912,182 units
sold at $250 each, or gross proceeds of approximately $227.8 million to the
Partnership. The Partnership subsequently filed a Form 8-A Registration
Statement with the SEC and registered its Units under the Securities Exchange
Act of 1934 (File No. 0-11723). As permitted under its Partnership Agreement
(the original partnership agreement of the Partnership with all amendments shall
be referred to as the "Partnership Agreement"), the Partnership has repurchased
and retired a total of 3,028 Units for a total of $611,000. The Partnership
may, at its absolute discretion, repurchase Units, but is under no obligation to
do so.
Upon the Partnership's formation in 1983, CCEC, a Colorado corporation, was the
corporate general partner. In 1988, through a series of transactions, Southmark
Corporation ("Southmark") acquired controlling interest in CCEC. In December
1988, CCEC filed for reorganization under Chapter 11 of the United States
Bankruptcy Code ("Chapter 11"). In 1990, as part of CCEC's reorganization plan,
ConCap Equities, Inc. ("CEI" or the General Partner) acquired CCEC's general
partner interests in the Partnership and 15 other affiliated public limited
partnerships (the "Affiliated Partnerships") and CEI replaced CCEC as managing
general partner in all 16 partnerships. The selection of CEI as the general
partner was approved by a majority of the limited partners in the Partnership
and in each of the Affiliated Partnerships pursuant to a solicitation of the
Limited Partners dated August 10, 1990. As part of this solicitation, the
Limited Partners also approved an amendment to the Partnership Agreement to
limit changes of control of the Partnership. All of CEI's outstanding stock is
owned by an affiliate of Insignia Financial Group, Inc. ("Insignia"), which it
acquired through two transactions in December 1994, and October 1995.
The Partnership's primary business and only industry segment is real estate
related operations. The Partnership was formed, for the benefit of its Limited
Partners (herein so called and together with the General Partner shall be called
the "Partners"), to lend funds to Equity Partners/Two ("EP/2"), a California
general partnership in which certain of the partners were former shareholders
and former management of CCEC, the former corporate general partner of the
Partnership. See "Status of Master Loan" for a description of the loan and
settlement of EP/2's bankruptcy.
On September 12, 1996, the Partnership sold its sole investment property, North
Park Plaza, to an unaffiliated purchaser. Net proceeds, after closing costs,
were approximately $2,004,000. The disposition resulted in a loss of
approximately $90,000.
Through December 31, 1996, the Partnership advanced a total of approximately
$183.1 million to EP/2 and its successor under the Master Loan (as defined in
"Status of the Master Loan"). As of December 31, 1996, the balance of the
Master Loan, net of the allowance for possible losses, was approximately $36.1
million. EP/2 used the proceeds from these loans to acquire eleven (11)
apartment buildings and ten (10) office complexes, which collateralized the
Master Loan. EP/2's successor in bankruptcy (as more fully described in "Status
of Master Loan") currently owns four (4) apartment buildings, and eight (8)
office complexes which secure the Master Loan.
The Registrant has no employees. Management and administrative services are
performed by the General Partner and by an affiliate of Insignia, an affiliate
of the General Partner. The real estate business in which the Partnership is
engaged is highly competitive and the Partnership is not a significant factor in
this industry.
Status of Master Loan
Prior to 1989, the Partnership had loaned funds totaling approximately $176
million to EP/2 subject to a non-recourse note (the "Master Loan"), pursuant to
the Master Loan Agreement dated July 22, 1983, between the Partnership and EP/2.
The Partnership secured the Master Loan with deeds of trust or mortgages on real
property purchased with the funds advanced as well as by the assignment and
pledge of promissory notes from the partners of EP/2.
During 1989, EP/2 defaulted on certain interest payments that were due under the
Master Loan. Before the Partnership could exercise its remedies for such
defaults, EP/2 filed for bankruptcy protection in a Chapter 11 reorganization
proceeding. On October 18, 1990, the bankruptcy court approved EP/2's
consensual plan of reorganization (the "Plan"). In November 1990, EP/2 and the
Partnership consummated a closing under the Plan pursuant to which, among other
things, the Partnership and EP/2 executed an amended and restated loan agreement
(the "New Master Loan Agreement"), EP/2 was converted from a California general
partnership to a California limited partnership, Consolidated Capital Equity
Partners/Two, L.P. ("CCEP/2"), and CCEP/2 renewed the deeds of trust and
mortgages on all the properties collaterally securing the New Master Loan
Agreement. ConCap Holdings, Inc. ("CHI"), a Texas corporation and wholly-owned
subsidiary of CEI, is the sole general partner of CCEP/2 and an affiliate of the
Partnership. The general partners of EP/2 became limited partners in CCEP/2.
CHI has full discretion with respect to conducting CCEP/2's business, including
managing CCEP/2's properties and initiating and approving capital expenditures
and asset dispositions and refinancings. Under the new partnership agreement,
CCEP/2 is managed by CHI primarily for the benefit of the Partnership. CCEP/2's
primary objective is to conduct its business to maximize the Partnership's
recovery under the New Master Loan Agreement.
Under the terms of the New Master Loan Agreement, interest accrues at 10% and
payments are due quarterly in an amount equal to Excess Cash Flow, generally
defined in the New Master Loan Agreement as net cash flow from operations after
third-party debt service and capital improvements. If such Excess Cash Flow
payments are less than the current accrued interest during the quarterly period,
the unpaid interest is added to principal, compounded annually, and is payable
at the loan's maturity. If such Excess Cash Flow payments are greater than the
current accrued interest, the excess amount is applied to the principal balance
of the loan. Any net proceeds from sale or refinancing of any of CCEP/2's
properties are paid to the Partnership under the terms of the New Master Loan
Agreement. The Master Loan matures in November 2000.
Effective January 1, 1993, the Partnership and CCEP/2 amended the New Master
Loan Agreement to stipulate that Excess Cash Flow would be computed net of
capital improvements. Such expenditures were formerly funded from advances on
the Master Loan from the Partnership to CCEP/2. This amendment and change in
the definition of Excess Cash Flow will have the effect of reducing the
Partnership's interest income from the Master Loan by the amount of CCEP/2's
capital expenditures since such amounts were previously excluded from Excess
Cash Flow.
Item 2. Property
The Partnership's sole investment property, North Park Plaza, was sold in
September 1996. As of December 31, 1996, the Partnership has no real estate
assets.
Item 3. Legal Proceedings
The Partnership is unaware of any pending or outstanding litigation that is not
of a routine nature. The General Partner of the Registrant believes that all
such pending or outstanding litigation will be resolved without a material
adverse effect upon the business, financial condition, results of operations, or
liquidity of the Partnership.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the fiscal year ended December 31, 1996, no matter
was submitted to a vote of the unit holders through the solicitation of proxies
or otherwise.
PART II
Item 5. Market for the Registrant's Units of Limited Partnership and Related
Security Holder Matters
There is no established market for the Units and it is not anticipated that any
will occur in the foreseeable future. As of December 31, 1996, there were
45,015 holders of record owning an aggregate of 909,138 units.
The Partnership made a distribution of cash generated from operations of
approximately $3,003,000 for the year ended December 31, 1995. No distributions
were paid in the year ended December 31, 1996. Future distributions will depend
on levels of cash generated from operations, refinancings, property sales, and
the availability of cash reserves. Such cash reserves are subject to the
requirements of the Partnership Agreement which requires that the Partnership
maintain reserves equal to 5% of Net Invested Capital. At this time the General
Partner anticipates that cash distributions will be made during fiscal year
1997, but the timing or amount of such distributions cannot be determined at
this time.
Item 6. Selected Financial Data
The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in "Item 8 - Financial
Statements and Supplementary Data."
STATEMENTS OF OPERATIONS
(in thousands, except unit
data)
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994 1993 1992
Revenues $ 2,070 $ 4,065 $ 4,357 $ 4,068 $ 5,057
Expenses (2,649) (6,681) (15,093) (7,214) (15,651)
Net loss $ (579) $(2,616)$(10,736) $ (3,146) $(10,594)
Net loss per Limited
Partnership Unit:
Net loss $ (.64) $ (2.85)$ (11.69) $ (3.43) $ (11.54)
Distributions per Limited
Partnership Unit $ -- $ 3.27 $ -- $ -- $ --
Limited Partnership Units
outstanding 909,138 909,138 909,153 909,172 909,174
AS OF DECEMBER 31,
BALANCE SHEETS 1996 1995 1994 1993 1992
(in thousands)
Total assets $54,636 $55,494 $ 61,073 $ 71,775 $ 75,110
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This item should be read in conjunction with the financial statements and other
items contained elsewhere in this report.
Results of Operations
1996 Compared with 1995
The Partnership's net loss for the year ended December 31, 1996, was
approximately $579,000 versus a loss of approximately $2,616,000 for the year
ended December 31, 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 expenses.
Depreciation and amortization expense decreased due to the write-down of
investment property of approximately $3.4 million in 1995, along with the sale
of North Park Plaza during the third quarter of 1996. The decrease in general
and administrative expenses is the result of costs associated with the combined
efforts of the Dallas and Greenville offices during the transition period that
ended June 30, 1995. Costs relating to the transition efforts were incurred in
an effort to minimize any disruption in the 1994 year-end reporting function,
including K-1 preparation and distribution.
Partially offsetting the decrease in net loss were decreases in rental income,
interest income on investments, other income and the reduction of provision for
impairment loss. The decrease in rental income is primarily attributable to the
sale of North Park Plaza during the third quarter of 1996. Interest income on
investments decreased due to lower interest rates. The decrease in other income
is due to the Partnership's receipt of an insurance refund as well as dividend
income in 1995 with no corresponding receipt in 1996. Finally, the decrease in
the reduction of provision for impairment loss was due to a decrease in
operations of the properties that are the underlying collateral of the Master
Loan.
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
$2,004,000 after payment of closing costs. This disposition resulted in a loss
of approximately $90,000.
1995 Compared with 1994
The Partnership's net loss for the year ended December 31, 1995, was
approximately $2,616,000 compared to a net loss of approximately $10,736,000 for
the year ended December 31, 1994. This decrease in net loss was primarily due
to the reduction of the allowance for possible losses of the Master Loan as
determined under "FASB Statement 114" in 1995 compared to an increase in the
allowance in 1994. Contributing to the decrease in net loss was an increase in
other income which resulted from an insurance policy refund of approximately
$286,000 accrued in the fourth quarter of 1995. Operating expenses decreased
primarily as a result of decreased advertising costs. This decrease is
attributable to fewer rental concessions given to tenants in 1995. Depreciation
and amortization expense decreased due to the write-down of the investment
property of $3,350,000 and $2,496,000 taken in 1995 and 1994, respectively.
Offsetting these decreases in net loss was a decrease in interest income on the
Master Loan due to decreased cash flows of the investment properties that secure
the loan (income is recorded based on the cash flow of the properties
collateralized by the Master Loan). Also, general and administrative expenses
increased for the year ended December 31, 1995, as a result of higher printing
and mailing costs associated with first and second quarter 10-Q's that were sent
to investors. Additionally, expenses related to the combined efforts of the
Dallas and Greenville offices during the transition period that ended June 30,
1995, also contributed to the increase in general and administrative expenses.
The increased costs related to the transition efforts were incurred to minimize
any disruption in the year-end 1994 reporting function including the financial
reporting and K-1 preparation and distribution.
Liquidity and Capital Resources
At December 31, 1996, the Partnership had unrestricted cash of approximately
$18,478,000 versus approximately $9,276,000 at December 31, 1995. Net cash used
in operating activities increased primarily due to a decrease in cash provided
by "due from affiliates" and an increase in cash used in accounts payable and
accrued expenses. The decrease in cash provided by "due from affiliates"
resulted from the receipt in 1995 of the December 31, 1994, accrued interest
receivable on the Master Loan. Net cash provided by investing activities
increased due to principal receipts on the Master Loan as well as proceeds from
the sale of North Park Plaza of approximately $2,004,000. Net cash used in
financing activities decreased due to a distribution made in the third quarter
of 1995.
Capital improvement projects planned for 1997 include approximately $3.2 million
in deferred maintenance and upgrades at the CCEP/2 properties which will be
funded by additional borrowings 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.
The sufficiency of existing liquid assets to meet future liquidity requirements
is 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 year ended December 31, 1996. In September
1995, the Partnership made a distribution to the limited partners of
approximately $2,973,000, or $3.27 per unit. A matching distribution of
approximately $30,000 was made to the General Partner. Future cash
distributions will depend on the levels of net cash generated from the 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 and securities available for sale (at market), totaling
approximately $18.5 million, were greater than the reserve requirement of $7.6
million at December 31, 1996.
CCEP/2 Property Operations
Net loss at CCEP/2 was approximately $22,026,000 for the year ended December 31,
1996, versus a net loss of approximately $36,270,000 for the year ended December
31, 1995. This decrease in net loss was primarily due to the write down of
several properties as required by "FASB Statement 121" in 1995. 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 1996,
CCEP/2's consolidated statement of operations includes total interest expense
attributable to the Master Loan of $20.6 million, approximately $501,000 of
which represented required payments. CCEP/2 is expected to continue to generate
operating losses as a result of such interest accruals and non cash charges for
depreciation.
The Partnership invested approximately $1 million in CCEP/2 during 1996 as
advances under the Master Loan. This money was used by CCEP/2 for deferred
maintenance and capital improvements at its investment properties. Additional
advances under the Master Loan are anticipated to be made to CCEP/2 in 1997 as
these properties continue the deferred maintenance and capital improvement
programs. During the year ended December 31, 1996, the Partnership received
approximately $8,604,000 as principal payments on the Master Loan; comprising
these payments were approximately $124,000 of proceeds from certain investments,
$501,000 of required cash flow payments, and $7,979,000 of proceeds from
refinancings. These funds are required to be transferred to the Partnership
under the terms of the Master Loan.
CCEP/2 was a general partner in a limited partnership ("Broad and Locust
Associates") which was managed by an unaffiliated co-general partner and which
owned the 230 S. Broad Street Office Complex. Broad and Locust Associates filed
for protection under Chapter 11 of the U.S. Bankruptcy Code in 1992, and in 1993
a reorganization plan was confirmed by the bankruptcy court. Pursuant to the
reorganization, the 230 S. Broad Street Office Complex was transferred to the
first lien holder which held a mortgage loan of approximately $16 million
secured by the property. The bankruptcy court determined the first lien was in
excess of the property's estimated fair value, therefore, CCEP/2's general
partner interest was unsecured. The disposition of the property did not release
CCEP/2 from its $4.4 million obligation to the Partnership under the Master Loan
which had been secured by the general partner interest in Broad and Locust
Associates. The Partnership had previously recognized a provision for possible
losses for the balance of the Investments in Master Loan secured by the general
partner interest in Broad and Locust Associates. In 1994, CCEP/2 made a demand
on certain other partners of Broad & Locust Associates for the amount of the
Deficit Restoration Obligation ("DRO") as defined in the Broad & Locust
Associates Second Amended and Restated Partnership Agreement entered into in
July 1984, by CCEP/2 and certain other partners. In 1995, approximately
$204,000 was received by CCEP/2 on partial settlement of this claim. No
assurance can be given that CCEP/2 will be successful in its attempts to obtain
further payment of the DRO amount.
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 interest only payment is approximately $95,000 and
the first payment was due on December 1, 1996.
On November 13, 1996, CCEP/2 was successful in obtaining financing on Canyon
Crest, Highcrest Townhomes, and Windmere. Gross proceeds from the financing
were $9,000,000; the mortgage notes encumbering the properties carry a stated
interest rate of 7.33% with balloon payments due on November 1, 2003.
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
LIST OF FINANCIAL STATEMENTS
Reports of Independent Auditors
Balance Sheets as of December 31, 1996 and 1995
Statements of Operations for the Years Ended December 31,
1996, 1995 and 1994
Statements of Partners' Capital (Deficit) for the Years
Ended December 31, 1996, 1995 and 1994
Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994
Notes to Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners
Consolidated Capital Institutional Properties/2
We have audited the accompanying balance sheets of Consolidated Capital
Institutional Properties/2 as of December 31, 1996 and 1995, and the related
statements of operations, partners' capital (deficit) and cash flows for the
years then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Partnership's management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Consolidated Capital
Institutional Properties/2 as of December 31, 1996 and 1995, and the results of
its operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
As discussed in Note A to the financial statements, in 1995 the Partnership
changed its method of accounting for impairment of long-lived assets and for
long-lived assets to be disposed of, and of accounting by creditors for
impairment of a loan.
/s/ERNST & YOUNG LLP
Greenville, South Carolina
March 10, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Consolidated Capital Institutional Properties/2:
We have audited the accompanying statements of operations, partners' capital
(deficit) and cash flows of Consolidated Capital Institutional Properties/2 (a
California limited partnership) for the year ended December 31, 1994. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations, partners' capital (deficit),
and cash flows of Consolidated Capital Institutional Properties/2 for the year
ended December 31, 1994, in conformity with generally accepted accounting
principles.
/s/Arthur Andersen, LLP
Dallas, Texas
March 23, 1995
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
BALANCE SHEETS
(in thousands, except unit data)
DECEMBER 31,
Assets 1996 1995
Cash and cash equivalents:
Unrestricted $ 18,478 $ 9,276
Restricted - tenant security deposits -- 5
Securities available for sale 11 11
Other assets 23 818
Net investment in master loan to affiliate 84,167 91,771
Less: Allowance for impairment loss (48,043) (48,405)
36,124 43,366
Investment property:
Land -- 716
Buildings and related personal property -- 5,440
-- 6,156
Less: accumulated depreciation -- (4,138)
-- 2,018
$ 54,636 $ 55,494
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable and accrued liabilities $ 29 $ 136
Tenant security deposits -- 114
Distributions payable 141 141
Accrued taxes -- 58
170 449
Partners' Capital (Deficit)
General Partner (560) (554)
Limited Partners - (909,138 units
outstanding at December 1996 and 1995.) 55,026 55,599
54,466 55,045
$ 54,636 $ 55,494
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
Revenues:
Rental income $ 1,210 $ 1,887 $ 1,798
Interest income on net investment
in master loan to affiliate -- 721 1,880
Interest income on investments 498 556 626
Other income -- 314 53
Reduction of provision for impairment loss 362 587 --
Total revenues 2,070 4,065 4,357
Expenses:
Operating 1,481 1,576 1,666
General and administrative 593 888 628
Depreciation and amortization 485 867 1,041
Provision for impairment loss -- -- 9,262
Write-down of investment property -- 3,350 2,496
Loss on sale of property 90 -- --
Total expenses 2,649 6,681 15,093
Net loss $ (579) $(2,616) $(10,736)
Net loss allocated to general partner (1%) $ (6) $ (26) $ (107)
Net loss allocated to limited partners (99%) (573) (2,590) (10,629)
$ (579) $(2,616) $(10,736)
Net loss per limited partnership unit $ (0.63) $ (2.85) $ (11.69)
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
For the Years Ended December 31, 1996, 1995 and 1994
(in thousands)
TOTAL
LIMITED PARTNERS
PARTNERSHIP GENERAL LIMITED CAPITAL
UNITS PARTNERS PARTNERS (DEFICIT)
Original capital contributions 912,182 $ 1 $228,046 $228,047
Partners' capital (deficit) at
December 31, 1993 909,154 (391) 71,791 71,400
Net loss for the year ended
December 31, 1994 (107) (10,629) (10,736)
Partners' capital (deficit) at
December 31, 1994 909,145 (498) 61,162 60,664
Net loss for the year ended
December 31, 1995 (26) (2,590) (2,616)
Distributions (30) (2,973) (3,003)
Partners' capital (deficit) at
December 31, 1995 909,138 (554) 55,599 55,045
Net loss for the year ended
December 31, 1996 (6) (573) (579)
Partners' capital (deficit at
December 31, 1996 909,138 $ (560) $ 55,026 $ 54,466
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF CASH FLOWS
(in thousands)
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
Cash flows from operating activities:
Net loss $ (579) $ (2,616) $(10,736)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 485 867 1,041
Write-down of investment property -- 3,350 2,496
(Reduction of) provision for
impairment loss (362) (587) 9,262
Receipt of Southmark stock -- -- (11)
Loss on sale of investment property 90 -- --
Changes in accounts:
Restricted cash 5 (5) --
Other assets 234 (296) (23)
Accounts payable and accrued
liabilities (106) 47 36
Due from affiliates -- 1,347 (1,063)
Tenant security deposits 3 8 --
Accrued taxes (44) (15) --
Net cash (used in) provided
by operating activities (274) 2,100 1,002
Cash flows from investing activities:
Property improvements and replacements (132) (681) (635)
Advances on Master Loan (1,000) (1,500) --
Principal receipts on Master Loan 8,604 1,252 315
Purchase of securities available for sale -- (41,487) (8,729)
Proceeds from sale of securities
available for sale -- 51,244 7,488
Proceeds from sale of investment property 2,004 -- --
Net cash provided by (used in)
investing activities 9,476 8,828 (1,561)
Cash flows from financing activities:
Distributions -- (3,003) --
Payments on previously
declared distributions -- -- (2)
Net cash used in financing
activities -- (3,003) (2)
Net increase (decrease) in cash and
cash equivalents 9,202 7,925 (561)
Cash and cash equivalents at beginning
of period 9,276 1,351 1,912
Cash and cash equivalents at end of period $ 18,478 $ 9,276 $ 1,351
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
NOTES TO FINANCIAL STATEMENTS
Note A - Organization and Summary of Significant Accounting Policies
Organization: Consolidated Capital Institutional Properties/2 (the
"Partnership"), a California limited partnership, was formed on April 12, 1983,
to lend funds through non-recourse notes with participation interests (the
"Master Loan"). The loans were made to, and the real properties that secure the
Master Loan were purchased and owned by Equity Partners/Two, ("EP/2"), a
California general partnership in which certain of the partners were former
shareholders and former management of Consolidated Capital Equities Corporation
("CCEC"), the former corporate general partner. Through December 31, 1996, the
Partnership had advanced approximately $183.1 million under the Master Loan.
During 1989, EP/2 defaulted on certain interest payments that were due under the
Master Loan. Before the Partnership could exercise its remedies for such
defaults, EP/2 filed for bankruptcy protection under Chapter 11 of the United
States Bankruptcy Code ("Chapter 11"). On October 18, 1990, the bankruptcy
court approved EP/2's consensual plan of reorganization (the "Plan"). In
November 1990, EP/2 and the Partnership consummated a closing under the Plan
pursuant to which, among other things, the Partnership and EP/2 executed an
amended and restated loan agreement (the "New Master Loan Agreement"), EP/2 was
converted from a California general partnership to a California limited
partnership, Consolidated Capital Equity Partners/Two, L.P. ("CCEP/2"), and
CCEP/2 renewed the deeds of trust and mortgages on all the properties
collaterally securing the New Master Loan Agreement. ConCap Holdings, Inc.
("CHI"), a Texas corporation and wholly-owned subsidiary of CEI, is the sole
general partner of CCEP/2 and an affiliate of the Partnership. The general
partners of EP/2 became limited partners in CCEP/2. CHI has full discretion
with respect to conducting CCEP/2's business, including managing CCEP/2's
properties and initiating and approving capital expenditures and asset
dispositions and refinancings. See "Note C" for further discussion of EP/2's
bankruptcy settlement.
Upon the Partnership's formation in 1983, CCEC, a Colorado corporation, was the
corporate general partner. In December 1988, CCEC filed for reorganization under
Chapter 11. In 1990, as part of CCEC's reorganization plan, ConCap Equities,
Inc., a Delaware corporation (the "General Partner" or "CEI") acquired CCEC's
general partner interests in the Partnership and in 15 other affiliated public
limited partnerships and replaced CCEC as managing general partner in all 16
partnerships. All of CEI's outstanding stock is owned by an affiliate of
Insignia, which it acquired through two transactions in December 1994, and
October 1995. At December 31, 1996, Insignia and affiliates own 14,000 Units of
the Partnership.
The Partnership is the holder of a note receivable which is collateralized by
apartment and commercial properties located throughout the United States.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
the accompanying notes. Actual results could differ from those estimates.
Escrows for Taxes: These funds are held by the Partnership, designated for the
payment of real estate taxes and are included in other assets.
Depreciation: Depreciation is provided by the straight-line method over the
estimated life of the commercial property and related personal property. For
Federal income tax purposes, the modified accelerated cost recovery method is
used. As a result of the Tax Reform Act of 1986, for additions after December
31, 1986, the modified accelerated cost recovery method is used for depreciation
of (1) real property additions over 27 1/2 years and (2) personal property
additions over 5 to 15 years.
Cash and Cash Equivalents:
Unrestricted - Unrestricted cash includes cash on hand and in banks, money
market funds and U.S. Treasury Bills with original maturities less than 90 days.
At certain times, the amount of cash deposited at a bank may exceed the limit on
insured deposits.
Restricted cash - tenant security deposits - The Partnership required
security deposits from lessees for the duration of the lease and such deposits
are considered restricted cash. Deposits are refunded when the tenant vacates,
provided the tenant has not damaged its space and is current on its rental
payments.
Advertising: The Partnership expenses the costs of advertising as incurred.
Investment Properties: During 1995, the Partnership adopted "FASB Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires impairment losses to be 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 value of
the investment property owned by the Partnership was determined using the net
operating income of the investment property capitalized at a rate deemed
reasonable for the type of property. This methodology has not changed from the
methodology under the previous accounting policy except the Partnership no
longer uses the non-recourse debt as a floor for recording impairment losses.
The effect of adoption was not material.
Prior to its sale in the third quarter of 1996, the property owned by the
Partnership experienced declines in its estimated net realizable value due to
regional economic factors such as a depressed real estate market in the area of
Michigan that the property was located and its deteriorating physical condition
due to the decision of the General Partner to postpone both routine and major
maintenance projects. Additionally, occupancy for this property was 61% at
December 31, 1994, and it was believed that occupancy could be increased. The
General Partner did not believe that this occupancy rate was permanent in
nature. After unsuccessful attempts at increasing occupancy during 1995
(occupancy remained at 61% at September 30, 1995) and with no new major tenants
expected in the future, it was determined that occupancy could not be increased
as expected and the asset was permanently impaired. Accordingly, the
Partnership recorded $3.3 million and $2.5 million in expense for the write-down
on the real estate in the years ended December 31, 1995 and 1994, respectively.
Investment in Master Loan: Beginning in 1995, the Partnership adopted
"Financial Accounting Standards Board Statement No. 114, Accounting by Creditors
for Impairment of a Loan." Under the new standard, the allowance for credit
losses related to loans that are identified for evaluation in accordance with
"Statement 114" is based on discounted cash flows using the loan's initial
effective interest rate or the fair value of the collateral for certain
collateral dependent loans. Prior to 1995, the allowance for credit losses
related to these loans was based on undiscounted cash flows or the fair value of
the collateral for collateral dependent loans.
Investments: The General Partner determines the appropriate classification of
debt securities at the time of purchase and reevaluates such designation as of
each balance sheet date. Presently, all of the Partnership's investments are
classified as available-for-sale. Available-for-sale securities are carried at
fair value, with the unrealized gains and losses, net of tax, reported in a
separate component of partner's capital. The amortized cost of debt securities
in this category is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization is included in investment income.
Realized gains and losses and declines in value judged to be other-than-
temporary on available-for-sale securities are included in investment income.
The cost of securities sold is based on the specific identification method.
Interest and dividends on securities classified as available-for-sale are
included in investment income.
Income Taxes: No provision has been made in the financial statements for
Federal income taxes because, under current law, no Federal income taxes are
paid directly by the Partnership. The Unitholders are responsible for their
respective shares of Partnership net income or loss. The Partnership reports
certain transactions differently for tax than for financial statement purposes.
The tax basis of the Partnership's assets and liabilities is approximately $101
million greater than the assets and liabilities as reported in the financial
statements.
Lease Commissions: Lease commissions are capitalized and amortized using the
straight-line method over the life of the applicable lease. At December 31,
1996, there were no remaining lease commissions or related accumulated
amortization due to the sale of North Park Plaza in September 1996. At December
31, 1995, lease commissions totaled approximately $273,000 with accumulated
amortization of approximately $87,000.
Partners' Capital (Deficit): The Partnership Agreement provides for net income
and net losses for both financial and tax reporting purposes to be allocated 99%
to the Limited Partners and 1% to the General Partner. "Distributable Cash from
Operations," as defined in the Partnership Agreement, are to be allocated 99%
to the Limited Partners and 1% to the General Partner. Distributions of surplus
funds are to be allocated 100% to the Limited Partners.
Net Income (Loss) Per Limited Partnership Unit: Net income (loss) per Limited
Partnership Unit ("Unit") is computed by dividing net income (loss) allocated to
the Limited Partners by the number of Units outstanding. Per Unit information
has been computed based on 909,138 Units outstanding in 1996 and 1995 and
909,145 Units outstanding in 1994.
Fair Value: In 1995, the Partnership implemented "Statement of Financial
Accounting Standards No. 107, Disclosure about Fair Value of Financial
Instruments," which requires disclosure of fair value information about
financial instruments for which it is practicable to estimate that value. The
carrying amount of the Partnership's cash and cash equivalents approximates fair
value due to short-term maturities. The carrying amount of the Partnership's
net investment in the Master Loan approximates fair value due to the fact that
it has been valued based on the fair value of the underlying collateral.
Allowance for Impairment Loss: Allowances to reduce the carrying cost of the
Master Loan are provided when it is probable that reasonably estimable net
realizable values are less than the recorded carrying cost of such investment.
Gains or losses that result from the ongoing periodic evaluation of the net
realizable value of the Master Loan are credited or charged, as appropriate, to
operations in the period in which they are identified. If a collateral property
is sold, CCEP/2 remains liable for any outstanding debt under the Master Loan
Agreement, however, the value of the net investment in Master Loan on the
Partnership's books would be written down to the appropriate level.
Reclassifications: Certain reclassifications have been made to the 1995 and
1994 information to conform to the 1996 presentation.
Note B - Securities Available for Sale
Investments, stated at cost, consist of the following at December 31, 1996, (in
thousands):
Face Maturity
Rate Amount Cost Date
Southmark Corporation
Redeemable Series A
Preferred Stock N/A $11 $11 N/A
The Partnership's investments are classified as available for sale. The General
Partner believes that the market value of the investment is approximately the
same as its cost.
Note C - Net Investment in Master Loan
At December 31, 1996, the recorded investment in the Master Loan is considered
to be impaired under "Statement 114." The Partnership measured the impairment
of the loan based upon the fair value of the collateral due to the fact that
repayment of the loan is expected to be provided solely by the collateral. For
the years ended December 31, 1996 and 1995, the Partnership recorded
approximately $362,000 and $587,000, respectively, in income based upon an
increase in the fair value of the collateral.
The principal balance of the Master Loan due to the Partnership totaled
approximately $84.2 million and $91.8 million at December 31, 1996 and 1995,
respectively. Interest due to the Partnership pursuant to the terms of the
Master Loan Agreement, but not recognized in the income statements, totaled
approximately $20.6 million, $18.8 million and $15.4 million for the years ended
December 31, 1996, 1995 and 1994, respectively. At December 31, 1996 and 1995,
such cumulative unrecognized interest totaled approximately $133.3 million and
$112.7 million and was not included in the balance of the investment in Master
Loan. The allowance for possible losses totaled approximately $48 million and
$48.4 million at December 31, 1996 and 1995, respectively.
During 1996, the Partnership advanced $1,000,000 to CCEP/2 as an advance on the
Master Loan. The advance was used by CCEP/2 to fund deferred maintenance and
capital improvement projects on these properties in order to maximize returns
during improved market conditions as well as maintain the condition of the
properties securing the Master Loan. CCEP/2 has approximately $33,180,000 in
liens on the collateral that are superior to the Master Loan.
The investment in Master Loan consists of the following:
AS OF DECEMBER 31,
1996 1995
(in thousands)
Master Loan funds advanced, at
beginning of year $ 91,771 $ 91,523
Advances on Master Loan 1,000 1,500
Principal receipts on Master Loan (8,604) (1,252)
Master Loan funds advanced, at
end of year $ 84,167 $ 91,771
The allowance for impairment loss on Master Loan to affiliates consists of the
following:
AS OF DECEMBER 31,
1996 1995 1994
(in thousands)
Allowance for impairment loss on Master
Loan to affiliates, beginning of year $ 48,405 $ 48,992 $ 39,730
Reduction of provision for impairment loss (362) (587) --
Provision for impairment loss -- -- 9,262
Allowance for impairment loss on Master
Loan to affiliates, end of year $ 48,043 $ 48,405 $ 48,992
Terms of the New Master Loan Agreement: Under the terms of the New Master Loan
Agreement, interest accrues at 10% and payments are due quarterly in an amount
equal to Excess Cash Flow, generally defined in the New Master Loan Agreement as
net cash flow after third party debt service and capital improvements. If such
Excess Cash Flow payments are less than the current accrued interest during the
quarterly period, the unpaid interest is added to principal, compounded
annually, and is payable at the maturity. If such Excess Cash Flow payments
are greater than the current accrued interest, the excess amount is applied to
the principal balance of the loan. Any net proceeds from the sale or
refinancing of any of CCEP/2's properties are paid to the Partnership under
the terms of the New Master Loan Agreement. The New Master Loan Agreement
matures in November 2000.
Effective January 1, 1993, the Partnership and CCEP/2 amended the New Master
Loan Agreement to stipulate that Excess Cash Flow would be computed net of
capital improvements. Such expenditures were formerly funded from advances on
the Master Loan from the Partnership to CCEP/2. This amendment and change in
the definition of Excess Cash Flow will have the effect of reducing income on
the investment in Master Loan by the amount of CCEP/2's capital expenditures,
since such amounts were previously excluded from Excess Cash Flow.
EP/2's Bankruptcy Settlement: In November 1990, pursuant to EP/2's
reorganization plan described in "Note A," the Partnership and EP/2 consummated
a closing pursuant to which: (1) the Partnership and EP/2 executed the New
Master Loan Agreement more fully described below; (2) CCEP/2 renewed the deeds
of trust on all the collateral securing the Master Loan; (3) the Partnership
received cash of approximately $2.5 million, including $1.8 million from the
general partners of EP/2 related to their promissory notes; (4) the Partnership
accepted assignment of certain partnership interests in affiliated partnerships
(the "Affiliated Partnership Interests"), which were valued by management of the
Partnership at approximately $2.5 million, as additional collateral securing the
Master Loan; and (5) all liabilities and claims between the Partnership and
EP/2's general partners were released.
EP/2 was the holder of a note receivable secured by North Park Plaza which had
not been performing according to the note terms since 1989. In the process of
negotiating the final bankruptcy settlement discussed above, EP/2 assigned its
interest in the note receivable to the Partnership. The Partnership foreclosed
upon and acquired North Park Plaza in July 1990, CCEP/2 is still obligated for
$6.6 million under the Master Loan attributable to North Park Plaza not
extinguished in the foreclosure proceeding.
Note D - Transactions with Affiliated Parties
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 years ended
December 31, 1996, 1995 and 1994. For the year ended December 31, 1994, a
portion of such property management fees were paid to Coventry Properties, Inc.
("Coventry"), an affiliate of the General Partner, for day-to-day property
management services and a portion was paid to Partnership Services, Inc. ("PSI")
for advisory services related to day-to-day property operations. In late
December 1994, an affiliate of Insignia Financial Group, Inc. ("Insignia")
assumed day-to-day property management responsibilities for the Partnership's
property. Fees paid to affiliates of Insignia for the years ended December 31,
1996 and 1995, and fees paid to Coventry and PSI for the year ended December 31,
1994, are reflected in the following table:
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
(in thousands)
Property management fees $ 63 $ 95 $ 19
The Partnership Agreement ("Agreement") also provides for reimbursement to the
General Partner and its affiliates for costs incurred in connection with the
administration of Partnership activities. The General Partner and its current
and former affiliates, which included Coventry, received reimbursements as
reflected in the following table:
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
(in thousands)
Reimbursements for services of affiliates $317 $379 $325
Leasing commissions 23 101 --
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 E - Commitment and Contingencies
The Partnership is required by the Partnership Agreement to maintain working
capital reserves for contingencies of not less than 5% of Net Invested Capital,
as defined in the Partnership Agreement. 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 levels. Reserves, including cash and
cash equivalents and securities available for sale (at market), totaling
approximately $18.5 million, were greater than the reserve requirement of $7.6
million at December 31, 1996.
The Partnership is unaware of any pending or outstanding litigation that is not
of a routine nature. The General Partner believes that all such matters are
adequately covered by insurance and will be resolved without a material adverse
effect upon the business, financial condition, results of operations, or
liquidity of the Partnership.
Note F - Other Income
In 1991, the Partnership (and simultaneously 15 Affiliated Partnerships) entered
claims in Southmark Corporation's Chapter 11 bankruptcy proceeding. These
claims related to Southmark Corporation's activities while it exercised control
(directly, or indirectly through its affiliates) over the Partnership. The
Bankruptcy Court set the Partnership's and the affiliated Partnerships' allowed
claim at $11 million, in aggregate. In March 1994, the Partnership received
1,468 shares of Southmark Corporation Redeemable Series A Preferred Stock and
10,738 shares of Southmark Corporation New Common Stock with an aggregate market
value on the date of receipt of $11,000 and approximately $80,000 in cash
representing the Partnership's share of the recovery, based on its pro rata
share of the claims filed. Other income for 1995 includes a $286,000 refund
from the former master insurance policy.
Note G - Sale of Real Estate
In September 1996, the Partnership sold North Park Plaza, an office building in
Southfield, Michigan, for net sales proceeds of approximately $2,004,000 after
payment of closing costs. The Partnership realized a loss of approximately
$90,000 on the sale in 1996.
The sales transaction is summarized as follows (in thousands):
Cash proceeds received $ 2,004
Net real estate (1) (1,708)
Net other assets (386)
Loss on sale of real estate $ (90)
(1) Real estate at cost, net of accumulated depreciation of approximately $4.6
million.
The following pro-forma information reflects the operations of the Partnership
for the years ended December 31, 1996, 1995 and 1994, as if North Park Plaza had
been sold January 1, 1994.
Pro-Forma Results of Operations
For the Years Ended December 31,
1996 1995 1994
Revenues $ 858 $2,121 $ 2,559
Expenses 593 888 9,887
Net income (loss) $ 265 $1,233 $(7,328)
Income (loss) per limited partnership unit $ .30 $ 1.34 $ (7.94)
Note H - Real Estate and Accumulated Depreciation
The Partnership sold its sole real estate property, North Park Plaza, in
September 1996. The following table presents a reconciliation of real estate
and accumulated depreciation for each of the years ended December 31, 1996,
1995, and 1994:
Years Ended December 31,
1996 1995 1994
(in thousands)
REAL ESTATE:
Balance, real estate at beginning of year $ 6,156 $ 8,825 $ 10,686
Additions 132 681 635
Sale of Investment Property (6,288) -- --
Write-downs -- (3,350) (2,496)
Balance, real estate at end of year $ -- $ 6,156 $ 8,825
ACCUMULATED DEPRECIATION:
Accumulated depreciation of real estate
at beginning of year $ 4,138 $ 3,325 $ 2,339
Depreciation of real estate 442 813 986
Accumulated depreciation on
real estate sale (4,580) -- --
Accumulated depreciation of real estate
at end of year $ -- $ 4,138 $ 3,325
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1995, was approximately $14,104,000. The accumulated depreciation
taken for Federal income tax purposes at December 31, 1995, was approximately
$2,070,000.
Item 9. Changes In And Disagreements With Accountants On Accounting And
Financial Disclosure.
As of May 3, 1995, Arthur Andersen LLP, the independent accountant previously
engaged as the principal accountant to audit the financial statements of the
Registrant, was dismissed. As of the same date, the firm of Ernst & Young LLP
was engaged to provide that service for the Registrant.
During the Partnership's two most recent fiscal years and any subsequent interim
period preceding the change, there were no disagreements with the former
accountant on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of the former accountant, would have caused it
to make reference to the subject matter of the disagreement in connection with
its report.
PART III
Item 10. Directors And Executive Officers Of The General Partner Of The
Partnership.
The names of the directors and executive officers of ConCap Equities, Inc.
("CEI"), the Partnership's Managing General Partner as of December 31, 1996,
their ages and the nature of all positions with CEI presently held by them are
as follows:
NAME OF INDIVIDUAL AGE POSITION IN CEI
William H. Jarrard, Jr. 50 President
Ronald Uretta 41 Vice President/
Treasurer
John K. Lines 37 Vice President/
Secretary
Kelley M. Buechler 39 Assistant Secretary
Martha L. Long 37 Controller
William H. Jarrard, Jr. has been Managing Director - Partnership Administration
of Insignia since January 1991. Mr. Jarrard served as Managing Director -
Partnership Administration and Asset Management from July 1994 until January
1996.
Ronald Uretta has been Vice President/Treasurer of CEI since December 1996 and
Insignia's Treasurer since January 1992. Since August 1996, he has also served
as Insignia's Chief Operating Officer. He also served as Secretary from January
1992 to 1994 and as Insignia's Chief Financial Officer from January 1992 to
August 1996. Since September 1990, Mr. Uretta has also served as the Chief
Financial Officer and Controller of Metropolitan Asset Group.
John K. Lines has been Vice President and Secretary of CEI since December of
1994, Secretary of the MAE subsidiaries since August 1994, General Counsel of
Insignia since June 1994, and General Counsel and Secretary of Insignia since
July 1994. From May 1993 until June 1994, Mr. Lines was the Assistant General
Counsel and Vice President of Ocwen Financial Corporation in West Palm Beach,
Florida. From October 1991 until April 1993, Mr. Lines was a Senior Attorney
with Banc One Corporation in Columbus, Ohio. From May 1984 until October 1991,
Mr. Lines was employed as an associate with Squire Sanders & Dempsey in
Columbus, Ohio.
Kelley M. Buechler has been Assistant Secretary of CEI since December 1994,
Assistant Secretary of the MAE subsidiaries since January 1992, and Assistant
Secretary of Insignia since January 1991. During the five years prior to
joining Insignia in 1991, she served in a similar capacity for U.S. Shelter.
Martha L. Long has been Controller of CEI since December 1996 and Senior Vice
President - Finance and Controller of Insignia since January 1997. In June
1994, Ms. Long joined Insignia as its Controller and was promoted to Senior Vice
President - Finance in January 1997. Prior to that time, she was Senior Vice
President and Controller of The First Savings Bank, FSB in Greenville, South
Carolina.
Item 11. Executive Compensation
No remuneration was paid to the General Partner nor any of its directors and
officers during the year ended December 31, 1996.
Item 12. Security Ownership Of Certain Beneficial Owners And Management
(a) Security Ownership of Certain Beneficial Owners
As of March 1997, no person was known to CEI to own of record or beneficially
more than 5 percent (5%) of the Units of the Partnership.
(b) Beneficial Owners of Management
Neither CEI nor any of the directors or officers or associates of CEI own any
Units of the Partnership of record or beneficially.
(c) Changes in Control
Beneficial Owners of CEI
As of March 1997, the following persons were known to CEI to be the beneficial
owners of more than 5 percent (5%) of its common stock:
NUMBER OF PERCENT
NAME AND ADDRESS CEI SHARES OF TOTAL
GII Realty, Inc. 100,000 100%
One Insignia Financial Plaza
P.O. Box 1089
Greenville, SC 29602
GII Realty, Inc. is owned by an affiliate of Insignia (see "Item 1.").
Item 13. Certain Relationships And Related Transactions
Transactions with Current Management and Others
The Registrant has a property management agreement with Insignia Commercial
Group, L.P. pursuant to which Insignia Commercial Group, L.P., has assumed
direct responsibility for day-to-day management of the Partnership's properties.
This service includes the supervision of leasing, rent collection, maintenance,
budgeting, employment of personnel, payment of operating expenses, etc.
Insignia Commercial Group, L.P. receives a property management fee equal to 5%
of revenues. During the fiscal year ended December 31, 1996, Insignia
Commercial Group, L.P. received approximately $63,000 in fees for property
management.
PART IV
Item 14. Exhibits, Financial Statements, Schedules And Reports On Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
Balance Sheets as of December 31, 1996 and 1995
Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994
Statements of Partners' Capital (Deficit) for the Years
Ended December 31, 1996, 1995 and 1994
Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994
Notes to Financial Statements
2. Schedules
All other schedules are omitted because they are not required, are not
applicable or the financial information is included in the financial
statements or notes thereto.
3. Exhibits
S-K REFERENCE SEQUENTIAL
NUMBER DOCUMENT DESCRIPTION PAGE NUMBER
3 Certificates of Limited Partnership, as amended
to date.
10.1 Amended Loan Agreement dated November N/A
15, 1990 (the "Effective Date"), by and between
the Partnership and EP/2 (Incorporated by refer-
ence to the Annual Report on Form 10-K for the
year ended December 31, 1990 ("1990 Annual
Report")).
10.2 Assumption Agreement as of the Effective Date, N/A
by and between EP/2 and CCEP/2 (Incorporated
by reference to the 1990 Annual Report).
10.3 Assignment of Claims as of the Effective Date, N/A
by and between the Partnership and EP/2. (Incor-
porated by reference to the 1990 Annual Report).
10.4 Assignment of Partnership Interests in CC Office N/A
Associates and Broad and Locust Associates dated
November 16, 1990 (the effective date), by and
between EP/2 and CCEP/2 (Incorporated by
reference to the 1990 Annual Report).
10.5 Property Management Agreement No. 113 N/A
dated October 23, 1990, by and between the
Partnership and CCEC (Incorporated by refer-
ence to the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1990).
10.6 Bill of Sale and Assignment dated October 23, N/A
1990, by and between CCEC and ConCap
Services Company (Incorporated by reference
to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990).
10.7 Assignment and Assumption dated October 23, N/A
1990, by and between CCEC and ConCap
Management Limited Partnership ("CCMLP")
(Incorporated by reference to the Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1990).
10.8 Assignment and Agreement as to Certain N/A
Property Management Services dated October 23,
1990, by and between CCMLP and ConCap
Capital Company (Incorporated by reference to
the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1990).
10.9 Assignment and Agreement dated October 23, N/A
1990, by and between CCMLP and The Hayman
Company (100 Series of Property Management
Contracts) (Incorporated by reference to the
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1990).
10.10 Construction Management Cost Reimbursement N/A
Agreement dated January 1, 1991, by and between
the Partnership and The Hayman Company.
(Incorporated by reference to the Annual Report
on Form 10-K for the year ended December 31,
1991).
10.11 Investor Services Agreement dated October 23, N/A
1990, by and between the Partnership and CCEC
(Incorporated by reference to the Quarterly Report
on Form 10-Q for the quarter ended September 30,
1990).
10.12 Assignment and Assumption Agreement Investor N/A
Services Agreement) dated October 23, 1990 by
and between CCEC and ConCap Services Company.
10.13 Letter of Notice dated December 20, 1991, from N/A
Partnership Services, Inc. ("PSI") to the Partnership
regarding the change in ownership and dissolution
of ConCap Services Company whereby PSI assumed
the Investor Services Agreement. (Incorporated by
reference to the Annual Report on Form 10-K for
the year ended December 31, 1991).
10.14 Financial Services Agreement dated October N/A
23, 1990, by and between the Partnership and
CCEC (Incorporated by reference to the Quar-
terly Report on Form 10-Q for the quarter ended
September 30, 1990) (Incorporated by reference
to the 1990 Annual Report).
10.15 Assignment and Assumption Agreement N/A
(Financial Services Agreement) dated October
23, 1990, by and between CCEC and ConCap
Capital Company (Incorporated by reference to
the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990).
10.16 Letter of Notice dated December 20, 1991, from N/A
PSI to the Partnership regarding the change in
ownership and dissolution of ConCap Capital
Company whereby PSI assumed the Financial
Services Agreement. (Incorporated by reference
to the Annual Report on Form 10-K for the year
ended December 31, 1991).
10.17 Property Management Agreement No. 501 dated N/A
February 16, 1993, by and between the Partnership
and Coventry Properties, Inc. (Incorporated by
reference to the Annual Report on Form 10-K for
the year ended December 31, 1992).
10.18 Property Management Agreement No. 412 dated N/A
May 13, 1993, by and between Consolidated
Capital Equity Partners/Two L.P. and Coventry
Properties, Inc. (Incorporated by reference to the
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993).
10.19 Assignment and Assumption Agreement (Property N/A
Management Agreement No. 412) dated May 13,
1993, by and between Coventry Properties, Inc.,
R&B Apartment Management Company Inc. and
Partnership Services, Inc. (Incorporated by refer-
ence to the Quarterly Report on Form 10-Q for
the quarter ended September 30, 1993).
10.20 Assignment and Agreement as to Certain Property N/A
Management Services dated May 13, 1993, by and
between Coventry Properties, Inc. and Partnership
Services, Inc. (Incorporated by reference to the
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993).
10.21 Property Management Agreement No. 413 dated N/A
May 13, 1993, by and between Consolidated Equity
Partners/Two L.P. and Coventry Properties, Inc.
(Incorporated by reference to the Quarterly Report
on Form 10-Q for the quarter ended September 30,
1993).
10.22 Assignment and Assumption Agreement N/A
(Property Management Agreement No. 413)
dated May 13, 1993, by and between Coventry
Properties, Inc., R&B Apartment Management
Company, Inc. and Partnership Services, Inc.
(Incorporated by reference to the Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1993).
10.23 Assignment and Agreement as to Certain Property N/A
Management Services dated May 13,1993, by
and between Coventry Properties, Inc. and
Partnership Services, Inc. (Incorporated by refer-
ence to the Quarterly Report on Form 10-Q for
the quarter ended September 30, 1993).
10.24 Contract for sale of real estate for North Park N/A
Plaza dated September 12, 1996, between
Consolidated Capital Institutional Properties/2,
a California limited partnership and North Park
Southfield, L.L.C., a Michigan limited liability
company.
11 Statement regarding computation of Net Income N/A
per Limited Partnership Unit (Incorporated by
reference to Note 1 of Item 8 - Financial State-
ments of this Form 10-K).
16 Letter, dated August 12, 1992, from Ernst & Young N/A
to the Securities and Exchange Commission regard-
ing change in certifying accountant. (Incorporated
by reference to Form 8-K dated August 6, 1992).
27 Financial Data Schedule containing summary financial N/A
information extracted from the balance sheet and
statement of operations which is qualified in its
entirety by reference to such financial statements.
28.1 Fee Owner's Limited Partnership Agreement N/A
dated November 14, 1990 (Incorporated by
reference to the 1990 Annual Report).
99.1 Consolidated Capital Equity Partners/Two, L.P., N/A
audited financial statements for the years ended
December 31, 1996 and 1995.
(b) Reports on Form 8-K filed in the fourth quarter of fiscal year 1996:
A 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.
SIGNATURE PAGE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
By: CONCAP EQUITIES, INC.
Its General Partner,
March 28, 1997 By: /s/ William H. Jarrard, Jr.
Date William H. Jarrard, Jr.
President
March 28, 1997 By: /s/ Ronald Uretta
Date Ronald Uretta
Vice President/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
March 28, 1997 By: /s/William H. Jarrard, Jr.
Date William H. Jarrard
President
March 28, 1997 By: /s/Ronald Uretta
Date Ronald Uretta
Vice President/Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Consolidated
Capital Institutional Properties 2 1996 Year-End 10-K and is qualified in its
entirety by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000719184
<NAME> CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES 2
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 18,478
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 54,636
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 54,466
<TOTAL-LIABILITY-AND-EQUITY> 54,636
<SALES> 0
<TOTAL-REVENUES> 2,070
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,649
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (579)
<EPS-PRIMARY> (.63)<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.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 and 1995
LIST OF CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Auditors
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations for the Years Ended December 31,
1996, 1995 and 1994
Consolidated Statements of Partners' Deficit for the Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners
Consolidated Capital Equity Partners/Two L.P.
We have audited the accompanying consolidated balance sheets of Consolidated
Capital Equity Partners/Two L.P. as of December 31, 1996 and 1995, and the
related consolidated statements of operations, partners' deficit and cash flows
for the years then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Partnership's management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Consolidated Capital Equity Partners/Two L.P. as of December 31, 1996 and 1995,
and the consolidated results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
As discussed in Note A to the consolidated financial statements, in 1995 the
Partnership changed its method of accounting for impairment of long-lived assets
and for long-lived assets to be disposed of.
/s/ERNST & YOUNG LLP
Greenville, South Carolina
March 10, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Consolidated Capital Equity Partners/Two, L.P.:
We have audited the accompanying consolidated statements of operations,
partners' deficit, and cash flows of Consolidated Capital Equity Partners/Two,
L.P. (a California limited partnership) for the year ended December 31, 1994.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations, changes in partners' deficit,
and cash flows of Consolidated Capital Equity Partners/Two, L.P. for the year
ended December 31, 1994, in conformity with generally accepted accounting
principles.
/s/Arthur Andersen, LLP
Dallas, Texas
March 23, 1995
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands)
DECEMBER 31,
Assets 1996 1995
Cash and cash equivalents $ 1,478 $ 2,132
Other assets 4,956 3,773
Investments in limited partnerships 336 460
Investment properties:
Land 10,841 10,977
Buildings and related personal property 89,443 85,853
100,284 96,830
Less: accumulated depreciation (58,187) (53,493)
42,097 43,337
$ 48,867 $ 49,702
Liabilities and Partners' Deficit
Liabilities
Accounts payable and accrued liabilities $ 1,793 $ 2,581
Mortgage notes and interest payable 33,395 24,351
Master loan and interest payable 216,775 203,805
Due to affiliates -- 27
251,963 230,764
Partners' Deficit
General Partner (2,017) (1,797)
Limited Partners (201,079) (179,265)
(203,096) (181,062)
$ 48,867 $ 49,702
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
Revenues:
Rental income $ 17,650 $ 16,963 $ 17,923
Other income 88 125 55
Gain on disposal of property 26 -- --
Total revenues 17,764 17,088 17,978
Expenses:
Operating 10,323 10,478 10,685
Depreciation and amortization 5,166 5,655 5,789
Interest 22,853 21,156 20,076
General and administrative 648 619 636
Write-down of investment properties
and investment in limited partnerships 800 15,406 --
Loss on disposal of property -- 44 714
Total expenses 39,790 53,358 37,900
Net loss $(22,026) $(36,270) $(19,922)
Net loss allocated to general partner (1%) $ (220) $ (363) $ (199)
Net loss allocated to limited partners (99%) (21,806) (35,907) (19,723)
$(22,026) $(36,270) $(19,922)
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
(in thousands)
General Limited
Partner Partners Total
Partners' deficit at December 31, 1993 $(1,235) $(123,635) $(124,870)
Net loss for the year ended
December 31, 1994 (199) (19,723) (19,922)
Partners' deficit at December 31, 1994 (1,434) (143,358) (144,792)
Net loss for the year ended
December 31, 1995 (363) (35,907) (36,270)
Partners' deficit at December 31, 1995 (1,797) (179,265) (181,062)
Net loss for the year ended
December 31, 1996 (220) (21,806) (22,026)
Distributions -- (8) (8)
Partners' deficit at December 31, 1996 $(2,017) $(201,079) $(203,096)
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
FOR THE YEARS ENDED DECEMBER 31,
Cash flows from operating activities: 1996 1995 1994
Net loss $(22,026) $(36,270) $(19,922)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 5,166 5,655 5,789
Loss on disposal of property -- 44 714
Participation interest paid at property
disposition -- -- 313
Prorated rents paid at property
disposition -- -- 42
Write-down of investment properties and
investment in limited partnerships 800 15,406 --
Change in accounts:
Other assets (1,183) (959) (761)
Accounts payable and accrued
liabilities (935) 827 10
Interest on Master Loan 20,574 18,115 --
Interest payable 148 68 16,429
Due from affiliates (27) (1,308) (31)
Net cash provided by operating activities 2,517 1,578 2,583
Cash flows from investing activities:
Property improvements and replacements (4,108) (2,813) (1,835)
Proceeds from property disposition -- -- 862
Proceeds from sale of securities
available for sale -- 10,019 --
Purchase of securities available for sale -- (9,629) (390)
Distributions from investment in
limited partnerships 124 1,048 --
Net cash used in investing activities (3,984) (1,375) (1,363)
Cash flows from financing activities:
Distributions (8) -- --
Advances on Master Loan 1,000 1,500 --
Loan costs paid (471) (97) --
Principal payments on notes payable (390) (426) (475)
Principal payments on Master Loan (8,604) (1,252) (315)
Proceeds from long-term borrowings 9,286 6,970 --
Repayment of mortgage notes payable -- (6,702) --
Net cash provided by (used in)
financing activities 813 (7) (790)
Net (decrease) increase in cash (654) 196 430
Cash and cash equivalents, at beginning
of year 2,132 1,936 1,506
Cash and cash equivalents at end of year $ 1,478 $ 2,132 $ 1,936
Supplemental disclosure of cash
flow information:
Cash paid for interest $ 2,149 $ 4,265 $ 3,287
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY
Accounts payable was adjusted $147,000 at December 31, 1996, for non-cash
amounts in connection with property improvements and replacements.
See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, AND 1995
Note A - Organization and Summary of Significant Accounting Policies
Organization: Equity Partners/Two ("EP/2"), a California general partnership,
was formed on April 28, 1983, to engage in the business of acquiring, operating
and holding equity investments in income-producing real properties. Certain of
the general partners of EP/2 were former shareholders and former management of
Consolidated Capital Equities Corporation ("CCEC"), the former corporate
general partner of CCIP/2 (as defined below). On November 16, 1990, pursuant
to the bankruptcy settlement discussed below, EP/2's general partners executed
a new partnership agreement (the "New Partnership Agreement") whereby EP/2
converted from a general partnership to a California limited partnership,
Consolidated Capital Equity Partners/Two, L.P. ("CCEP/2"). The general
partners of EP/2 became limited partners of CCEP/2. ConCap Holdings, Inc.
("CHI"), a Texas corporation, is CCEP/2's General Partner.
The operations of EP/2 were financed substantially through nonrecourse notes
with participation interests (the "Master Loan") from Consolidated Capital
Institutional Properties/2 ("CCIP/2"), a California limited partnership. These
notes are secured by the real properties owned by and notes receivable on sold
properties owed to CCEP/2. The Partnership operates four apartment properties
located in Colorado, Illinois, Ohio and Texas and eight commercial office
complexes located in California, Georgia, Michigan and Virginia.
EP/2 Bankruptcy and Reorganization: During 1989, EP/2 defaulted on certain
interest payments that were due to CCIP/2 under the Master Loan and, before
CCIP/2 was able to exercise its remedies for such default, EP/2 filed for
bankruptcy protection in a Chapter 11 reorganization proceeding ("Chapter 11").
On October 18, 1990, the bankruptcy court approved EP/2's consensual plan of
reorganization (the "Plan"). On November 16, 1990, CCIP/2 consummated a
closing under the Plan pursuant to which: (1) CCIP/2 and EP/2 executed an
amended and restated loan agreement ("New Master Loan Agreement"); (2) CCEP/2
renewed the deeds of trust on all collateral securing the Master Loan; (3) EP/2
paid CCIP/2 cash of approximately $2.5 million, including $1.8 million
contributed by the general partners of EP/2 related to their promissory notes;
(4) the general partners of EP/2 contributed certain partnership interests in
affiliated partnerships ("General Partnership Interests"), which were valued by
management of CCIP/2 at approximately $2.5 million, that were assigned to
CCIP/2 as additional collateral securing the Master Loan and (5) all
liabilities and claims between EP/2's general partners and CCIP/2 were
released. See "Note C" for a description of the terms of the New Master Loan
Agreement.
The managing general partner of EP/2 was Consolidated Capital Enterprises, Inc.
("CCEI"), a Georgia corporation. In December 1988, CCEC filed for Chapter 11
protection. In October 1990, as part of CCEC's reorganization plan, CCEC sold
its general partner interest in CCIP/2 to ConCap Equities, Inc. ("CEI"), a
Delaware corporation. Pursuant to the New Partnership Agreement as discussed
above, CHI, a wholly-owned subsidiary of CEI, became the sole general partner
of CCEP/2, replacing CCEI, and the former general partners of EP/2 became
limited partners of CCEP/2. Pursuant to the New Partnership Agreement, CCEP/2
is managed by CHI and CHI has full discretion with respect to conducting
CCEP/2's business. CHI and the limited partners are hereinafter referred to
collectively as the "Partners." All of CEI's outstanding stock is owned by an
affiliate of Insignia Financial Group, Inc. ("Insignia"), which was acquired
through two transactions in December 1994 and October 1995.
Principles of Consolidation: In 1985, EP/2 together with Anderson CC 2, a
Georgia limited partnership, entered into a general partnership agreement ("CC
Office Associates") to acquire Cosmopolitan Center, an office building located
in Atlanta, Georgia. Pursuant to such general partnership agreement, the
property ownership is split 90%/10% between CCEP/2, as successor to EP/2, and
Anderson CC 2, respectively. CCEP/2's investment in CC Office Associates is
consolidated in CCEP/2's financial statements. No minority interest liability
has been reflected for Anderson CC 2's minority 10% interest because the Master
Loan balance, which is secured by a deed of trust held by CCIP/2 on
Cosmopolitan Center, exceeds the value of the property. As a result, CC Office
Associates has a net capital deficit and no minority liability exists with
respect to CCEP/2.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and the accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents:
Unrestricted - Unrestricted cash includes cash on hand and in banks and in
money market funds. U.S. Treasury Bills with original maturities greater than
90 days are considered to be investments. At certain times, the amount of cash
deposited at a bank may exceed the limit on insured deposits.
Restricted Cash - Tenant Security Deposits - The Partnership requires
security deposits from lessees for the duration of the lease and such deposits
are considered restricted cash. Deposits are refunded when the tenant vacates,
provided the tenant has not damaged its space and is current on its rental
payments. Security deposits of approximately $546,000 and $521,000 are
included in cash and cash equivalents at December 31, 1996 and 1995,
respectively.
Escrows for Taxes: These funds of approximately $798,000 and $740,000 at
December 31, 1996 and 1995, respectively, are held by the Partnership and the
mortgage lender, designated for the payment of real estate taxes and included
in other assets.
Depreciation: Depreciation is provided by the straight-line method over the
estimated lives of the apartment properties and related personal property. For
Federal income tax purposes, the accelerated cost recovery method is used (1)
for real property over 15 years for additions prior to March 16, 1984, 18 years
for additions after March 15, 1984, and before May 9, 1985, and 19 years for
additions after May 8, 1985, and before January 1, 1987, and (2) for personal
property over 5 years for additions prior to January 1, 1987. As a result of
the Tax Reform Act of 1986, for additions after December 31, 1986, the modified
accelerated cost recovery method is used for depreciation of (1) real property
additions over 27 1/2 years and (2) personal property additions over 5 to 15
years.
Loan Costs: Loan costs of $544,000 (net of accumulated amortization of
approximately $34,000 at December 31, 1996) are included in other assets and are
being amortized on a straight-line basis over the life of the loans.
Investments in Limited Partnerships: The investments in limited partnerships
represent certain interests in three affiliated limited partnerships that were
contributed by EP/2's general partners to the Partnership. These investments
are stated at the lower of estimated fair value of the interests at the time of
contribution to the Partnership or the current estimated fair value of the
interests. The Partnership wrote this investment down $1 million to its
estimated fair value during the third quarter of 1995. For the year ended
December 31, 1996, CCEP/2 received approximately $124,000 in distributions from
affiliated partnerships. In the fourth quarter of 1995, CCEP/2 received similar
distributions of approximately $1,048,000. This amount was subsequently paid to
CCIP/2 as a principal payment on the Master Loan per the loan agreement.
Advertising: The Partnership expenses the costs of advertising as incurred.
Investment Properties: In 1995, the Partnership adopted "FASB Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires impairment losses to be 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. One of the
properties owned by the Partnership experienced a decline in net realizable
value; as a result, the Partnership recorded a write-down of approximately
$800,000 on this property during the year ended December 31, 1996. The
Partnership recorded a write-down of approximately $14.4 million on seven of its
properties during the year ended December 31, 1995.
Leases: The Partnership leases certain commercial space to tenants under
various lease terms. The leases are accounted for as operating leases in
accordance with "Financial Accounting Standards Board Statement No. 13." Some
of the leases contain stated rental increases during their term. For leases
with fixed rental increases, rents are recognized on a straight-line basis over
the terms of the lease.
For all other leases, minimum rents are recognized over the terms of the leases.
The Partnership generally leases apartment units for twelve-month terms or less.
The Partnership recognizes income as earned on these leases. In addition,
management finds it necessary to offer rental concessions during particularly
slow months or in response to heavy competition from other similar complexes in
the area. Concessions are charged to expense as incurred.
Lease Commissions: Lease commissions are capitalized and amortized using the
straight-line method over the life of the applicable lease. At December 31,
1996 and 1995, lease commissions totaled approximately $2,745,000 and
$2,358,000, respectively, with accumulated amortization of approximately
$1,458,000 and $1,102,000, respectively. Lease commissions are included in other
assets.
Allocation of Net Income and Cash Distributions: Pursuant to the Partnership
Agreement, net income and net losses for both financial and tax reporting
purposes are allocated 99% to the Limited Partners and 1% to CHI. Distributions
to the Partners are not allowed until CCEP/2 has fully paid and performed under
the terms of the Master Loan.
Due to Affiliates: Due from affiliates primarily represents cash flow payments
owed by CCEP/2 to CCIP/2 in accordance with the terms of the Master Loan.
Income Taxes: No provision has been made in the financial statements for
Federal income taxes because under current law, no Federal income taxes are paid
directly by CCEP/2. The Partners are responsible for their respective shares of
CCEP/2's net income or loss. CCEP/2 reports certain transactions differently
for tax than for financial statement purposes.
The tax basis of the Partnership's assets and liabilities is approximately
$140.7 million greater than the assets and liabilities as reported in the
financial statements at December 31, 1996.
Fair Value: In 1995, the Partnership implemented "Statement of Financial
Accounting Standards No. 107, Disclosure about Fair Value of Financial
Instruments," which requires disclosure of fair value information about
financial instruments for which it is practicable to estimate that value. The
carrying amount of the Partnership's cash and cash equivalents approximates fair
value due to short-term maturities. The Partnership estimates the fair value of
its fixed rate mortgages by discounted cash flow analysis, based on estimated
borrowing rates currently available to the Partnership.
Reclassifications: Certain reclassifications have been made to the 1995 and
1994 information to conform to the 1996 presentation.
Note B - Disposition of Real Estate
During 1994, the Partnership sold Chagrin Richmond Office Building and
recognized a $714,000 loss on the sale of real estate.
Note C - Master Loan and Accrued Interest Payable
The Master Loan principal and accrued interest payable balances at December 31,
1996 and 1995, are $216.8 million and $203.8 million, respectively.
Terms of Master Loan Agreement
Under the terms of the Master Loan Agreement, interest accrues at 10% per annum
and payments are due quarterly in an amount equal to Excess Cash Flow, generally
defined in the Master Loan Agreement as net cash flow from operations after
third-party debt service. If such Excess Cash Flow payments are less than the
current accrued interest during the quarterly period, the unpaid interest is
added to principal, compounded annually, and is payable at the loan's maturity.
If such Excess Cash Flow payments are greater than the currently payable
interest, the excess amount is applied to the principal balance of the loan.
Any net proceeds from 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
matures in November 2000. The General Partner has determined that the Master
Loan and related interest payable has no determinable fair value since payments
are limited to net cash flows, as defined, but is not believed to be in excess
of the fair values of the underlying collateral.
Effective January 1, 1993, CCEP/2 and CCIP/2 amended the Master Loan Agreement
to stipulate that Excess Cash Flow would be computed net of capital
improvements. Such expenditures were formerly funded from advances on the Master
Loan from CCIP/2 to CCEP/2. This amendment and change in the definition of
Excess Cash Flow will have the effect of reducing Master Loan payments to CCIP/2
by the amount of CCEP/2's capital expenditures since such amounts were
previously excluded from Excess Cash Flow. The amendment will have no effect on
the computation of interest expense on the Master Loan.
During 1996, CCIP/2 loaned approximately $1 million to CCEP/2 as an advance on
the Master Loan to pay for capital improvements at various properties in order
to maintain the assets that secure the Master Loan. Also, during 1996, CCEP/2
paid down the Master Loan by $8,604,000. The payments were made from
approximately $124,000 of proceeds from certain investments, $501,000 of
required cash flow payments, and $7,979,000 of proceeds from refinancings.
These funds are required to be transferred to CCIP/2 under the terms of the
Master Loan.
Note D - Mortgage Notes Payable
The principal terms of mortgage notes payable are as follows (in thousands):
Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
Property 1996 Interest Rate Date Maturity
Canyon Crest
1st Mortgage $ 2,000 $ 12 (a) 7.33% 11/01/03 $ 2,000
Highcrest Townhomes
1st Mortgage 4,000 24 (a) 7.33% 11/01/03 4,000
Windemere
1st Mortgage 3,000 18 (a) 7.33% 11/01/03 3,000
Richmond Plaza
1st Mortgage 14,500 95 (a) 7.88% 06/01/00 14,500
Village Brooke
1st Mortgage 6,879 54 8.00% 12/01/02 6,161
Town Center
1st Mortgage 539 9 9.88% 08/01/03 9
2nd Mortgage 273 8 8.63% 06/01/00 7
3rd Mortgage 1,105 10 8.75% 10/01/00 1,028
Other Mortgage 884 8 8.75% 10/01/00 823
Totals $33,180 $238
(a) Interest only payment
The mortgage notes payable are non-recourse and are collateralized by deeds of
trust on the real property. All of these notes are superior to the Master Loan.
The estimated fair values of the Partnership's aggregate debt, excluding the
Master Loan, is approximately $33,593,000. This estimate is not necessarily
indicative of the amounts the Partnership may pay in actual market transactions.
In November 1995, the Partnership successfully refinanced the mortgage note at
Village Brooke Apartments. Of the $6,970,000 gross proceeds received in the
refinancing, approximately $6,702,000 was used to pay off the old mortgage debt.
The new note requires monthly principal and interest payments of approximately
$54,000 at a stated interest rate of 8.0%. A balloon payment of approximately
$6,161,000 is due December 2002.
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 7.88% and a maturity date of June 1, 2000.
The Partnership's new monthly interest only payment is approximately $95,000 and
the first payment was due on December 1, 1996.
On November 13, 1996, CCEP/2 was successful in obtaining financing on Canyon
Crest, Highcrest Townhomes, and Windmere. Gross proceeds from the financing
were $9,000,000; the mortgage notes encumbering the properties carry a stated
interest rate of 7.33% with balloon payments due on November 1, 2003.
Scheduled principal payments of mortgage notes payable subsequent to December
31, 1996, are as follows (in thousands):
Years Ending December 31, Notes Payable
1997 $ 262
1998 285
1999 311
2000 2,132
2001 225
Thereafter 29,965
Total $ 33,180
Note E - Related Party Transactions
The Partnership has no employees and is dependent on the General Partner and its
affiliates for management and administration of all Partnership activities. The
Partnership paid property management fees based upon collected gross rental
revenues for property management services in each of the years ended December
31, 1996, 1995 and 1994. For the year ended December 31, 1994, a portion of
such property management fees were paid to the property management companies
performing day-to-day property management services and a portion was paid to
Partnership Services, Inc. ("PSI") for advisory services related to day-to-day
property operations. In July 1992, Coventry assumed day-to-day property
management responsibility under the same fee arrangement as the prior
unaffiliated management companies. Coventry Properties, Inc. ("Coventry"),
an affiliate of the General partner, provided day-to-day property management
responsibilities for three additional properties of the Partnership under
the same management fee arrangement as the unaffiliated management companies.
In late December 1994, an affiliate of Insignia assumed day-to-day property
management responsibilities for all of CCEP/2's properties. Fees paid to
affiliates of Insignia during the years ended December 31, 1996 and 1995,
and fees paid to Coventry and PSI for the year ended December 31, 1994,
are reflected in the following table.
Also, the Partnership is subject to an Investment Advisory Agreement between
CCEP/2 and an affiliate of ConCap Holdings, Inc. ("CHI"). This agreement
provides for an annual fee, payable in monthly installments, to be paid to an
affiliate of CHI for advisory and consulting services related to CCEP/2's
properties. Advisory fees paid pursuant to this agreement 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 and
former affiliates, which includes Coventry, received reimbursements and fees as
reflected in the following table (in thousands):
For the Years Ended
December 31,
1996 1995 1994
Property management fees $883 $853 $511
Investment advisory fees 154 178 182
Lease commissions 272 514 493
Reimbursement for Services of Affiliates 337 329 293
Included in "Reimbursement for Services of Affiliates" for 1996 are
approximately $45,000 of construction oversight costs.
In addition to the compensation and reimbursements described above, interest
payments are made to and loan advances are received from Consolidated Capital
Institutional Properties/2 ("CCIP/2") pursuant to the Master Loan Agreement.
Such interest payments totaled approximately $.7 million and $.8 million for the
years ended December 31, 1995, and 1994, respectively. Advances of
approximately $1 million and $1.5 million were made under the Master Loan
Agreement during the years ended December 31, 1996 and 1995, respectively.
Additionally, CCEP/2 made principal payments on the Master Loan of $8,604,000,
$1,252,000 and $315,000 in 1996, 1995, and 1994, respectively. These funds were
received from distributions from two affiliated partnerships, from proceeds of a
lawsuit settlement and financing and refinancing proceeds.
On July 1, 1995, the Partnership began insuring its properties under a master
policy through an agency and insurer unaffiliated with the General Partner. An
affiliate of the General Partner acquired, in the acquisition of a business,
certain financial obligations from an insurance agency which was later acquired
by the agent who placed the current year's master policy. The current agent
assumed the financial obligations to the affiliate of the General Partner, who
receives payments on these obligations from the agent. The amount of the
Partnership's insurance premiums accruing to the benefit of the affiliate of
the General Partner by virtue of the agent's obligations is not significant.
Rental income on the commercial property leases is recognized on a straight-line
basis over the life of the applicable leases. Minimum future rental income for
the commercial properties subject to noncancellable operating leases is as
follows (in thousands):
YEAR ENDING
DECEMBER 31, 1996
1997 $ 8,927
1998 6,712
1999 6,000
2000 2,990
2001 1,568
Thereafter 1,637
$ 27,834
There is no assurance that this rental income will continue at the same level
when the current leases expire.
Note G - Legal Proceedings
CCEP/2 was a general partner in a limited partnership ("Broad and Locust
Associates") which was managed by an unaffiliated co-general partner and which
owned the 230 S. Broad Street Office Complex. Broad and Locust Associates filed
for protection under Chapter 11 of the U.S. Bankruptcy Code in 1992, and in 1993
a reorganization plan was confirmed by the bankruptcy court. Pursuant to the
reorganization, the 230 S. Broad Street Office Complex was transferred to the
first lien holder which held a mortgage loan of approximately $16 million
secured by the property. The bankruptcy court determined the first lien was in
excess of the property's estimated fair value, therefore, CCEP/2's general
partner interest was unsecured. The disposition of the property did not release
CCEP/2 from its $4.4 million obligation to CCIP/2 under the Master Loan which
had been secured by the general partner interest in Broad and Locust Associates.
CCIP/2 had previously recognized a provision for possible losses for the balance
of the Investments in Master Loan secured by the general partner interest in
Broad and Locust Associates. In 1994, CCEP/2 made a demand on certain other
partners of Broad & Locust Associates for the amount of the Deficit Restoration
Obligation ("DRO") as defined in the Broad & Locust Associates Second Amended
and Restated Partnership Agreement entered into in July 1984 by CCEP/2 and
certain other partners. In 1995 approximately $204,000 was received by CCEP/2
on partial settlement of this claim. No assurance can be given that CCEP/2 will
be successful in its attempts to obtain further payment of the DRO amount.
Note H - Real Estate and Accumulated Depreciation
The investment properties owned by the Partnership consist of the following:
(in thousands)
Building
& Related
Personal Accumulated Depreciable
Description Land Interest Total Depreciation Life-Years
Canyon Crest $ 145 $ 3,074 $ 3,219 $ 1,649 3-20
Central Park Plaza 920 10,199 11,119 6,071 1-20
Central Park Place 811 9,017 9,828 5,872 1-20
Cosmopolitan Center 343 3,578 3,921 3,425 1-20
Crescent Center 212 3,279 3,491 2,739 3-20
Lahser I 506 7,733 8,239 5,128 1-20
Lahser II 484 3,940 4,424 2,247 3-20
Highcrest Townhomes 707 6,611 7,318 3,731 3-20
Richmond Plaza 2,019 15,574 17,593 9,963 3-20
Town Center 2,815 13,072 15,887 9,655 1-20
Village Brooke 1,099 7,942 9,041 4,615 3-20
Windemere 780 5,424 6,204 3,092 3-20
Total $10,841 $89,443 $100,284 $58,187
