FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period.........to.........
Commission file number 0-11723
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
(Exact name of registrant as specified in its charter)
California 94-2883067
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
Registrant's telephone number
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
BALANCE SHEET
(in thousands, except unit data)
March 31, December 31,
1998 1997
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 11,561 $ 12,417
Interest receivable on Master Loan 643 634
Other assets 11 21
Investment in Master Loan to affiliate 80,549 80,549
Less: Allowance for impairment loss (42,129) (42,715)
38,420 37,834
$ 50,635 $ 50,906
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ -- $ 6
Other liabilities 8 10
Distributions payable 141 141
149 157
Partners' Capital (Deficit)
General partner (495) (507)
Limited partners (909,134 units outstanding
at March 31, 1998 and December 31, 1997) 50,981 51,256
50,486 50,749
$ 50,635 $ 50,906
Note: The balance sheet at December 31, 1997, has been derived from the audited
financial statements at that date, but does not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See Accompanying Notes to Financial Statements
b)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
1998 1997
Revenues:
Interest income on investment
in Master Loan to affiliate $ 643 $ 89
Reduction of provision for impairment loss 586 136
Interest income on investments 174 208
Total revenues 1,403 433
Expenses:
General and administrative 167 109
Total expenses 167 109
Net income $1,236 $ 324
Net income allocated to general partner (1%) $ 12 $ 3
Net income allocated to limited partners (99%) 1,224 321
$1,236 $ 324
Net income per limited partnership unit $ 1.35 $ .35
See Accompanying Notes to Financial Statements
c)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 912,182 $ 1 $228,046 $228,047
Partners' capital (deficit) at
December 31, 1996 909,138 $ (560) $ 55,026 $ 54,466
Net income for the three months
ended March 31, 1997 -- 3 321 324
Partners' capital (deficit) at
March 31, 1997 909,138 (557) 55,347 54,790
Partners' capital (deficit) at
December 31, 1997 909,134 (507) 51,256 50,749
Net income for the three months
ended March 31, 1998 -- 12 1,224 1,236
Distributions to partners -- -- (1,499) (1,499)
Partners' capital (deficit) at
March 31, 1998 909,134 $ (495) $ 50,981 $ 50,486
See Accompanying Notes to Financial Statements
d)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
1998 1997
Cash flows from operating activities:
Net income $ 1,236 $ 324
Adjustments to reconcile net income to
net cash provided by operating activities:
Reduction of provision for impairment loss (586) (136)
Change in accounts:
Interest receivable on Master Loan (9) (89)
Other assets 10 (7)
Accounts payable (6) (5)
Other liabilities (2) --
Net cash provided by operating activities 643 87
Cash flows from investing activities:
Principal receipts on Master Loan -- 324
Net cash provided by investing activities -- 324
Cash flows from financing activities:
Distributions to partners (1,499) --
Net cash used in financing activities (1,499) --
Net (decrease) increase in cash and cash equivalents (856) 411
Cash and cash equivalents at beginning of period 12,417 18,478
Cash and cash equivalents at end of period $11,561 $18,889
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Consolidated Capital
Institutional Properties/2 (the "Partnership") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of Concap Equities, Inc. (the "General Partner"), all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended March 31, 1998, are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 1998. For further information,
refer to the financial statements and footnotes thereto included in the
Partnership's annual report on Form 10-K for the year ended December 31, 1997.
Certain reclassifications have been made to the 1997 information to conform to
the 1998 presentation.
NOTE B - TRANSACTIONS WITH AFFILIATION 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 General Partner is wholly-owned by Insignia Properties Trust ("IPT"), an
affiliate of Insignia Financial Group, Inc. ("Insignia"). The Partnership
Agreement (the "Agreement") also provides for reimbursement to the General
Partner and its affiliates for costs incurred in connection with the
administration of Partnership activities. The General Partner and its
affiliates received reimbursements as reflected in the following table:
For the Three Months Ended
March 31,
1998 1997
(in thousands)
Reimbursements for services of affiliates
(included in general and administrative
expenses) $ 72 $83
For the period of January 1, 1997 to August 31, 1997, the Partnership insured
its properties under a master policy through an agency affiliated with the
General Partner with an 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 master policy. The agent assumed the financial
obligations to the affiliate of the General Partner which receives payment 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 was not significant.
On October 30, 1997, an Insignia affiliate commenced tender offers for limited
partnership interests in two real estate limited partnerships (including the
Partnership) in which Insignia affiliates act as general partner. The Purchaser
offered to purchase up to 300,000 of the outstanding units of limited
partnership interest in the Partnership, at $40.00 per Unit, net to the seller
in cash, upon the terms and subject to the conditions set forth in the Offer to
Purchase dated October 30, 1997 (the "Offer to Purchase") and the related
Assignment of Partnership Interest attached as Exhibits (a)(1) and (a)(2),
respectively, to the Tender Offer Statement on Schedule 14D-1 originally filed
with the Securities and Exchange Commission on October 30, 1997. Because of the
existing and potential future conflicts of interest (described in the
Partnership's Statements on Schedule 14D-9 filed with the Securities and
Exchange Commission), neither the Partnership nor the General Partner expressed
any opinion as to the Offer to Purchase and made no recommendation as to whether
unit holders should tender their units in response to the Offer to Purchase. In
addition, because of these conflicts of interest, as a result of the Purchaser's
affiliation with various Insignia affiliates, the manner in which the Purchaser
votes its limited partner interests in the Partnership may not always be
consistent with the best interests of the other limited partners. As a result
of the tender offer, an Insignia affiliate purchased 164,940.99 of the
outstanding limited partner units of the Partnership during December 1997 and an
additional 4,164.30 in February 1998.
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in IPT,
with Apartment Investment and Management Company ("AIMCO"), a publicly traded
real estate investment trust. The closing, which is anticipated to happen in
the third quarter of 1998, is subject to customary conditions, including
government approvals and the approval of Insignia's shareholders. If the
closing occurs, AIMCO will then control the General Partner of the Partnership.
NOTE C - NET INVESTMENT IN MASTER LOAN
At March 31, 1998, 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 three months ended March 31, 1998 and 1997, the Partnership recorded
approximately $586,000 and $136,000, respectively, in income based upon an
increase in the fair value of the collateral. Approximately $643,000 and $89,000
for March 31, 1998 and 1997, respectively, was recorded as interest income on
investment in Master Loan to affiliate based upon cash generated as a result of
improved operations of the properties which secure the loan. A cash payment for
approximately $634,000 was received from Consolidated Capital Equity Partners/2,
L.P. ("CCEP/2") during the first quarter of 1998 for interest income recognized
in 1997. The payment for the interest income recorded in the first quarter of
1998 is expected to be received during the second quarter of 1998.
The principal balance of the Master Loan due to the Partnership totaled
approximately $80,549,000 at March 31, 1998. Interest due to the Partnership
pursuant to the terms of the Master Loan Agreement, but not recognized in the
income statements, totaled approximately $5,212,000, and $5,400,000 for the
three months ended March 31, 1998, and 1997, respectively. At March 31, 1998
and December 31, 1997, such cumulative unrecognized interest totaled
approximately $159,582,000 and $154,370,000 and was not included in the balance
of the investment in Master Loan. The allowance for possible losses totaled
approximately $42,129,000 and $42,715,000 at March 31, 1998 and December 31,
1997, respectively.
During the first quarter of 1998, no advances were made to CCEP/2 or payments
received from CCEP/2 on the Master Loan.
NOTE D - CONTINGENCIES
In May 1997, the Partnership was named as a defendant in a lawsuit brought by
PHC Construction Corporation in the Circuit Court for Oakland County, Michigan.
An additional complaint was filed in November 1997 by PHC Construction against
the Partnership, CCEP/2 and other defendants. These lawsuits have been
consolidated. The complaints arise from construction services allegedly
performed by the plaintiff at the North Park Plaza Building in Southfield,
Michigan prior to the sale of that property in September 1996. The complaints
assert claims for breach of contract, quantum meruit and promissory estoppel.
The General Partner believes the claims asserted are without merit and intends
to vigorously defend the action. Based upon the facts currently available, the
General Partner believes that the disposition of this matter will not have a
materially adverse effect on the financial position of the Partnership.
In January 1998, a limited partner of the Partnership commenced an arbitration
proceeding against an affiliate of the General Partner claiming that the
affiliate of the General Partner had breached certain contractual and fiduciary
duties allegedly owed to the claimant. The General Partner believes the claim
to be without merit and intends to vigorously defend the claim.
NOTE E - COMMITMENT
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 totaling approximately $11,561,000, were greater than the
reserve requirement of approximately $7,082,000 at March 31, 1998.
NOTE F - DISTRIBUTION
In March 1998, the Partnership distributed approximately $1,499,000 all to the
limited partners ($1.65 per limited partnership unit). This distribution was
from surplus funds as a result of the sale of one of the CCEP/2 properties late
in 1997, which was passed up to the Partnership in 1997 as a reduction in
principal of the Master Loan.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Partnership's sole investment property was sold in 1996 and accordingly as
of March 31, 1998, the Partnership has no real estate assets.
Results of Operations
The Partnership reported net income of approximately $1,236,000 for the three
months ended March 31, 1998, as compared to net income of approximately $324,000
for the three months ended March 31, 1997. The increase in net income is due to
an increase in interest income on investment in Master Loan to affiliate and the
reduction of provision for impairment loss. As discussed in "Item 1. Financial
Statements Note C - Net Investment in Master Loan," the Partnership recorded
interest income of approximately $643,000 and $89,000 and recorded a reduction
of allowance for impairment loss of approximately $586,000 and $136,000 for
March 31, 1998 and 1997, respectively. The increase in income recognized is due
to an increase in the fair value of the underlying collateral properties and due
to improved operations at such properties. Interest income increased due to an
increase in cash balances and higher yields on those investments.
Offsetting the increase in net income was an increase in general and
administrative expenses as a result of an increase in legal fees. Legal fees
increased due to the lawsuit discussed in "Item 1. Financial Statements Note D -
Contingencies".
Liquidity and Capital Resources
At March 31, 1998 the Partnership had cash and cash equivalents of approximately
$11,561,000 as compared to approximately $18,889,000 at March 31, 1997. The net
decrease in cash and cash equivalents for the three months ended March 31, 1998
was $856,000. The net increase in cash and cash equivalents for the three months
ended March 31, 1997 was $411,000. Net cash flows provided by operating
activities increased primarily due to the increase in interest payments received
on the Master Loan as discussed above. Net cash provided by investing
activities decreased due to the lack of principal receipts on the Master Loan
for the three months ended March 31, 1998 as compared to March 31, 1997. Cash
used in financing activities increased due to the distribution paid to the
partners during the three months ended March 31, 1998.
The sufficiency of existing liquid assets to meet future liquidity requirements
is directly related to the level of expenditures required to meet the ongoing
operating needs of the Partnership. Such assets are currently thought to be
sufficient for any near-term needs of the Partnership. See "CCEP/2 Property
Operations" for discussion on CCEP/2's ability to provide future cash flow as
Master Loan debt service. The Partnership made a distribution of approximately
$1,499,000 during the three months ended March 31, 1998. No distribution was
made during the three months ended March 31, 1997. Future cash distributions
will depend on the levels of net cash generated from operations, Master Loan
interest income, and the availability of cash reserves.
The Partnership is required by the Partnership Agreement to maintain working
capital reserves for contingencies of not less than 5% of Net Invested Capital,
as defined by the Partnership Agreement. Reserves, including cash and cash
equivalents, totaling approximately $11,561,000, were greater than the reserve
requirement of $7,082,000 at March 31, 1998. The General Partner is evaluating
the feasibility of making a distribution to the partners during the fourth
quarter of 1998.
CCEP/2 Property Operations
For the three months ended March 31, 1998, CCEP/2's net loss totaled
approximately $5,543,000 on total revenues of approximately $4,741,000. CCEP/2
recognizes interest expense on the New Master Loan Agreement obligation
according to the note terms, although payments to the Partnership are required
only to the extent of Excess Cash Flow, as defined therein. During the three
months ended March 31, 1998, CCEP/2's statement of operations includes total
interest expense attributable to the Master Loan of approximately $5,858,000,
all of which represents interest accrued in excess of required payments except
approximately $643,000. CCEP/2 is expected to continue to generate operating
losses as a result of such interest accruals and noncash charges for
depreciation.
Year 2000
The Partnership is dependent upon the General Partner and Insignia for
management and administrative services. Insignia has completed an assessment
and will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter (the "Year 2000 Issue"). The project is estimated to be completed
not later than December 31, 1998, which is prior to any anticipated impact on
its operating systems. The General Partner believes that with modifications to
existing software and conversions to new software, the Year 2000 Issue will not
pose significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the
Partnership.
Other
Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date
of this quarterly report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates of revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In April 1998, a limited partner of the Partnership commenced an action in the
Circuit Court for Jackson County, Missouri entitled Bond Purchase LLC v. IFGP
Corporation c/o Consolidated Capital Institutional Properties/2, et al. The
complaint claims that the Partnership and an affiliate of the General Partner
breached certain contractual and fiduciary duties allegedly owed to the claimant
and seeks damages and injunctive relief. The General Partner believes the
claims to be without merit and intends to vigorously defend the claims.
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in Superior Court of the State of California for
the County of San Mateo. The Plaintiffs named as defendants, among others, the
Partnership, the General Partner and several of their affiliated partnerships
and corporate entities. The complaint purports to assert claims on behalf of a
class of limited partners and derivatively on behalf of a number of limited
partnerships (including the Partnership) which are named as nominal defendants,
challenging the acquisition by Insignia and its affiliates of interests in
certain general partner entities, past tender offers by Insignia affiliates to
acquire limited partnership units, the management of partnerships by Insignia
affiliates as well as a recently announced agreement between Insignia and
Apartment Investment and Management Company. The complaint seeks monetary
damages and equitable relief, including judicial dissolution of the Partnership.
The General Partner was only recently served with the complaint which it
believes to be without merit, and intends to vigorously defend the action.
In January 1998, a limited partner of the Partnership commenced an arbitration
proceeding against an affiliate of the General Partner claiming that the
affiliate of the General Partner had breached certain contractual and fiduciary
duties allegedly owed to the claimant. The General Partner believes the claim
to be without merit and intends to vigorously defend the claim.
The Registrant 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, or operations of the
Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
S-K Reference
Number Description
27 Financial Data Schedule is filed as an exhibit to
this report.
99.1 Consolidated Capital Equity Partners/Two, L.P.,
unaudited financial statements for the three months
ended March 31, 1998 and 1997.
(b) Reports on Form 8-K:
None filed during the quarter ended March 31, 1998.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
By: CONCAP EQUITIES, INC.
Its General Partner,
May 12, 1998 By: /s/ William H. Jarrard, Jr.
Date William H. Jarrard, Jr.
President and Director
May 12, 1998 By: /s/ Ronald Uretta
Date Ronald Uretta
Vice President and 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.
May 12, 1998 By: /s/William H. Jarrard, Jr.
Date William H. Jarrard, Jr.
President and Director
May 12, 1998 By: /s/Ronald Uretta
Date Ronald Uretta
Vice President and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Consolidated Capital Institutional Properties/2 1998 First Quarter 10-Q
and is qualified in its entirety by reference to such 10-Q filing.
</LEGEND>
<CIK> 0000719184
<NAME> CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 11,561
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 50,635
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 50,486
<TOTAL-LIABILITY-AND-EQUITY> 50,635
<SALES> 0
<TOTAL-REVENUES> 1,403
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 167
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,236
<EPS-PRIMARY> 1.35<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
EXHIBIT 99.1
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1997
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
March 31, December 31,
1998 1997
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 1,810 $ 1,807
Receivables and deposits 1,822 1,964
Restricted escrows 1,352 1,245
Other assets 2,341 2,443
Investment properties:
Land 10,498 10,498
Buildings and related personal property 89,306 88,871
99,804 99,369
Less accumulated depreciation (60,709) (59,501)
39,095 39,868
$ 46,420 $ 47,327
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 281 $ 623
Accrued property taxes 633 770
Tenant security deposit liabilities 569 564
Other liabilities 538 582
Mortgage notes 32,836 32,905
Master loan and interest payable 240,084 234,861
274,941 270,305
Partners' Deficit
General partner (2,271) (2,216)
Limited partners (226,250) (220,762)
(228,521) (222,978)
$ 46,420 $ 47,327
Note: The balance sheet at December 31, 1997, has been derived from the
audited financial statements at that date, but does not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See Accompanying Notes to Consolidated Financial Statements
b)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
1998 1997
Revenues:
Rental income $ 4,383 $ 4,227
Other income 358 276
Total revenues 4,741 4,503
Expenses:
Operating 2,045 2,355
General and administrative 181 134
Depreciation 1,208 1,173
Interest 6,530 6,143
Property taxes 320 335
Total expenses 10,284 10,140
Net loss $ (5,543) $ (5,637)
Net loss allocated to general partner (1%) $ (55) $ (56)
Net loss allocated to limited partners (99%) (5,488) (5,581)
$ (5,543) $ (5,637)
See Accompanying Notes to Consolidated Financial Statements
c)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
(Unaudited)
(in thousands)
General Limited
Partner Partners Total
Partners' deficit at December 31, 1996 $(2,017) $(201,079) $(203,096)
Net loss for the three months ended
March 31, 1997 (56) (5,581) (5,637)
Partners' deficit at March 31, 1997 $(2,073) $(206,660) $(208,733)
Partners' deficit at December 31, 1997 $(2,216) $(220,762) $(222,978)
Net loss for the three months ended
March 31, 1998 (55) (5,488) (5,543)
Partners' deficit at March 31, 1998 $(2,271) $(226,250) $(228,521)
See Accompanying Notes to Consolidated Financial Statements
d)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
1998 1997
Cash flows from operating activities:
Net loss $(5,543) $(5,637)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 1,208 1,173
Amortization of loan costs, lease commissions
and ground lease 123 173
Change in accounts:
Receivables and deposits 142 437
Other assets (21) (347)
Accounts payable (342) (20)
Accrued property taxes (137) 87
Tenant security deposit liabilities 5 9
Other liabilities (44) (38)
Interest on Master Loan 5,223 5,488
Net cash provided by operating activities 614 1,325
Cash flows from investing activities:
Property improvements and replacements (435) (676)
Distributions from investment in limited partnerships -- 324
Deposits to restricted escrows (107) (368)
Net cash used in investing activities (542) (720)
Cash flows from financing activities:
Principal payments on notes payable (69) (76)
Principal payments on Master Loan -- (324)
Loan costs paid -- (29)
Net cash used in financing activities (69) (429)
Net increase in cash and cash equivalents 3 176
Cash and cash equivalents at beginning of period 1,807 932
Cash and cash equivalents at end of period $ 1,810 $ 1,108
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,278 $ 742
See Accompanying Notes to Consolidated Financial Statements
e)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Consolidated
Capital Equity Partners/Two, L.P. ("CCEP/2") have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of ConCap Equities, Inc., (the "General Partner"), all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three months
ended March 31, 1998, are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 1998.
Certain reclassifications have been made to the 1997 information to conform to
the 1998 presentation.
Consolidation
In 1985, Equity Partners/Two ("EP/2"), a California general partnership,
together with Anderson CC 2, a Georgia limited partnership, entered into a
general partnership agreement ("CC Office Associates") to acquire Cosmopolitan
Center, an office building located in Atlanta, Georgia. Pursuant to such general
partnership agreement, the property ownership is split 90%/10% between CCEP/2,
as successor to EP/2, and Anderson CC 2, respectively. CCEP/2's investment in CC
Office Associates is consolidated in CCEP/2's financial statements. No minority
interest liability has been reflected for Anderson CC 2's minority 10% interest
because the Master Loan balance, which is secured by a deed of trust held by
Consolidated Capital Institutional Properties/2 ("CCIP/2") on Cosmopolitan
Center, exceeds the value of the property. As a result, CC Office Associates
has a net capital deficit and no minority liability exists with respect to
CCEP/2.
NOTE B - RELATED PARTY TRANSACTIONS
CCEP/2 has no employees and is dependent on the General Partner and its
affiliates for management and administration of all partnership activities. The
General Partner is wholly-owned by Insignia Properties Trust ("IPT"), an
affiliate of Insignia Financial Group, Inc. ("Insignia"). CCEP/2 paid property
management fees based upon collected gross rental revenues for property
management services in each of the three month periods ended March 31, 1998 and
1997. The Partnership Agreement (the "Agreement") also provides for
reimbursement to the General Partner and its affiliates for costs incurred in
connection with the administration of CCEP/2's activities.
Also, CCEP/2 is subject to an Investment Advisory Agreement between CCEP/2 and
an affiliate of the General Partner. This agreement provides for an annual fee,
payable in monthly installments, to an affiliate of the General Partner for
advising and consulting services for CCEP/2's properties. The General Partner
and its affiliates received reimbursements and fees for the three months ended
March 31, 1998 and 1997 as follows:
1998 1997
(in thousands)
Property management fees (included in operating expenses) $217 $214
Investment advisory fees (included in general and
administrative expenses) 42 38
Lease commissions 60 142
Reimbursement for services of affiliates, (included in
operating, general and administrative expenses and
investment properties) (1) 81 80
(1)Included in "Reimbursement for services of affiliates" for 1998 and 1997 is
approximately $11,000 and $6,000, respectively, of reimbursements for
construction oversight costs.
In addition to the compensation and reimbursements described above, interest
payments are made to and loan advances are received from CCIP/2 pursuant to the
Master Loan Agreement, which is described more fully in the 1997 Annual Report.
An interest payment of approximately $634,00 was made during the three months
ended March 31, 1998. No interest payments were made during the three month
period ended March 31, 1997. No advances were received under the Master Loan
Agreement during each of the three months ended March 31, 1998 and 1997. No
principal payments were made on the Master Loan during the three months ended
March 31, 1998. Principal payments of approximately $324,000 were made on the
Master Loan during the three months ended March 31, 1997.
For the period of January 1, 1997 to August 31, 1997, the Partnership insured
its properties under a master policy through an agency affiliated with the
General Partner with an 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 master policy. The agent assumed the financial
obligations to the affiliate of the General Partner which received payments on
these obligations from the agent. The amount of CCEP/2's insurance premiums
accruing to the benefit of the affiliate of the General Partner by virtue of the
agent's obligations is not significant.
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in IPT,
with Apartment Investment and Management Company ("AIMCO"), a publicly traded
real estate investment trust. The closing, which is anticipated to happen in
the third quarter of 1998, is subject to customary conditions, including
government approvals and the approval of Insignia's shareholders. If the
closing occurs, AIMCO will then control the General Partner of the Partnership.
NOTE C - MASTER LOAN AND ACCRUED INTEREST PAYABLE
The Master Loan principal and accrued interest payable balances at March 31,
1998, and December 31, 1997, are approximately $240,084,000 and approximately
$234,861,000, 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.
NOTE D - LEGAL PROCEEDING
In May 1997, the Partnership was named as a defendant in a lawsuit brought by
PHC Construction Corporation in the Circuit Court for Oakland County, Michigan.
An additional complaint was filed in November 1997 by PHC Construction against
the Partnership, CCIP/2 and other defendants. These lawsuits have been
consolidated. The complaints arise from construction services allegedly
performed by the plaintiff at the North Park Plaza Building in Southfield,
Michigan prior to the sale of that property in September 1996. The complaints
assert claims for breach of contract, quantum meruit and promissory estoppel.
The General Partner believes the claims asserted are without merit and intends
to vigorously defend the action. Based upon the facts currently available, the
General Partner believes that the disposition of this matter will not have a
materially adverse effect on the financial position of the Partnership.
In January 1998, the Partnership and its General Partner were named as
defendants in a lawsuit brought by a limited partner of the Partnership alleging
that the General Partner has failed to perform its contractual obligations under
the Partnership Agreement. The General Partner believes that there is no merit
to the suit and intends to vigorously defend it.
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled ROSALIE NUANES, ET AL. V. INSIGNIA
FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Corporate General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and its affiliates of
interests in certain general partner entities, past tender offers by Insignia
affiliates to acquire limited partnership units, the management of partnerships
by Insignia affiliates as well as a recently announced agreement between
Insignia and AIMCO. The complaint seeks monetary damages and equitable relief,
including judicial dissolution of the Partnership. The Corporate General
Partner was only recently served with the complaint which it believes to be
without merit, and intends to vigorously defend the action.
In May 1998, the Partnership and its General Partner were named as respondents
in a Petition in Los Angeles Superior Court. The Petition, brought by a limited
partner of the Partnership, seeks performance by the General Partner of certain
alleged contractual obligations under the Partnership Agreement and compliance
with certain alleged statutory requirements. Service on the Partnership was
only recently accomplished, and the General Partner has not yet replied to the
Petition.
