FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 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)
June 30, December 31,
1998 1997
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 12,210 $ 12,417
Interest receivable on Master Loan 505 634
Other assets 18 21
Investment in Master Loan to affiliate 80,470 80,549
Less: Allowance for impairment loss (15,129) (42,715)
65,341 37,834
$ 78,074 $ 50,906
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 50 $ 6
Other liabilities 11 10
Distributions payable 141 141
202 157
Partners' Capital (Deficit)
General partner (221) (507)
Limited partners (909,134 units
outstanding at June 30, 1998 and
December 31, 1997, respectively) 78,093 51,256
77,872 50,749
$ 78,074 $ 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)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues:
Interest income on investment
in Master Loan to affiliate $ 426 $ -- $ 1,069 $ 89
Reduction of provision for
impairment loss 27,000 374 27,586 510
Interest income on investments 137 113 311 321
Total revenues 27,563 487 28,966 920
Expenses:
General and administrative 177 157 344 266
Total expenses 177 157 344 266
Net income $27,386 $ 330 $28,622 $ 654
Net income allocated
to general partner (1%) $ 274 $ 3 $ 286 $ 7
Net income allocated
to limited partners (99%) 27,112 327 28,336 647
$27,386 $ 330 $28,622 $ 654
Net income per limited partnership unit $ 29.82 $ .36 $ 31.17 $ .71
<FN>
See Accompanying Notes to Financial Statements
</FN>
</TABLE>
c)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner 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 six months
ended June 30, 1997 -- 7 647 654
Partners' capital (deficit) at
June 30, 1997 909,138 $ (553) $ 55,673 $ 55,120
Partners' capital (deficit) at
December 31, 1997 909,134 $ (507) $ 51,256 $ 50,749
Net income for the six months
ended June 30, 1998 -- 286 28,336 28,622
Distributions to partners -- -- (1,499) (1,499)
Partners' capital (deficit) at
June 30, 1998 909,134 $ (221) $ 78,093 $ 77,872
See Accompanying Notes to Financial Statements
d)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1998 1997
Cash flows from operating activities:
Net income $ 28,622 $ 654
Adjustments to reconcile net income to
net cash provided by operating activities:
Reduction of provision for impairment loss (27,586) (510)
Change in accounts:
Interest receivable on Master Loan 129 12
Other assets 3 (8)
Accounts payable 44 37
Other liabilities 1 (19)
Net cash provided by operating activities 1,213 166
Cash flows from investing activities:
Principal receipts on Master Loan 79 388
Net cash provided by investing activities 79 388
Cash flows used in financing activities:
Distributions to partners (1,499) (9,992)
Net cash used in financing activities (1,499) (9,992)
Net decrease in cash and cash equivalents (207) (9,438)
Cash and cash equivalents at beginning of period 12,417 18,478
Cash and cash equivalents at end of period $ 12,210 $ 9,040
See Accompanying Notes to Financial Statements
e)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Consolidated Capital
Institutional Properties/2 (the "Partnership") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of ConCap Equities, Inc., (the "General Partner"), all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three and six
month periods ended June 30, 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 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 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 Six Months Ended
June 30,
1998 1997
(in thousands)
Reimbursements for services of affiliates
(included in general and administrative
expenses) $149 $139
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.
On July 30, 1998, an Insignia affiliate commenced tender offers for limited
partnership interests in five 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 $50 per Unit, net to the seller in
cash, upon the terms and subject to the conditions set forth in the Offer to
Purchase dated July 30, 1998 (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 July 30, 1998.
Because of the existing and potential future conflicts of interest (described in
both of the above 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 either Offer to Purchase and made no
recommendation as to whether unit holders should tender their units in response
to either 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 October 1997 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
September or October 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 June 30, 1998, the recorded investment in the Master Loan is considered to be
impaired under "Statement 114." The Partnership measures the impairment of the
loan based upon the fair value of the collateral due to the fact that repayment
of the loan is expected to be provided solely by the collateral. For the six
months ended June 30, 1998 and 1997, the Partnership recorded approximately
$27,586,000 and $510,000, respectively, in income based upon an increase in the
fair value of the collateral.
The fair value of the collateral properties was determined using the net
operating income of the collateral properties capitalized at a rate deemed
reasonable for the type of property adjusted for market conditions, physical
condition of the property and other factors. This methodology has not changed
from that used in prior calculations performed by the General Partner in
determining the fair value of the collateral properties. The approximate
$27,000,000 reduction in the provision for impairment loss that was recognized
during the three months ended June 30, 1998 is attributed to an increase in the
net realizable value of the collateral properties. The General Partner evaluates
the net realizable value on a semi-annual basis. The General Partner has seen a
consistent increase in the net realizable value of the collateral properties,
taken as a whole, over the past two years. The increase is deemed to be
attributable to major capital improvement projects and the strong effort to
complete deferred maintenance items that have been ongoing over the past few
years at the various properties. This has enabled the properties to increase
their respective occupancy levels or in some cases to maintain the properties'
high occupancy levels. The vast majority of this work was funded by cashflow
from the collateral properties themselves as no amounts have been borrowed on
the master loan or from other sources in the past few years. Based upon the
consistent increase in net realizable value of the collateral properties the
General Partner determined the increase to be permanent in nature and
accordingly reduced the allowance for impairment loss on the master loan during
the six months ended June 30, 1998.
Approximately $1,069,000 and $89,000 for June 30, 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 of 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. A cash payment of approximately
$564,000 for the interest income recorded in the first quarter of 1998 was
received during the second quarter of 1998. The payment for the interest income
recorded in the second quarter of 1998 is expected to be received in the third
quarter of 1998.
The principal balance of the Master Loan due to the Partnership totaled
approximately $80,470,000 at June 30, 1998. Interest due to the Partnership
pursuant to the terms of the Master Loan Agreement, but not recognized in the
income statements, totaled approximately $10,794,000, and $10,972,000 for the
six months ended June 30, 1998, and 1997, respectively. At June 30, 1998 and
December 31, 1997, such cumulative unrecognized interest totaled approximately
$165,164,000 and $154,370,000 and was not included in the balance of the
investment in Master Loan. The allowance for possible losses totaled
approximately $15,129,000 and $42,715,000 at June 30, 1998 and December 31,
1997, respectively.
During the first six months of 1998, no advances were made to CCEP/2. Payments
received from CCEP/2 on the Master Loan were $79,000.
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.
Additional complaints were filed in November 1997 and July 1998 by PHC
Construction against the Partnership, CCEP/2 and other defendants. Several of
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, promissory
estoppel and constructive trust. The General Partner believes the claims
asserted are without merit and intends to vigorously defend the actions. Based
upon the facts currently available, the General Partner believes that the
disposition of these matters 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 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.
On July 30, 1998, certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners are affiliates of
Insignia filed a complaint in the Superior Court of the State of California,
County of Los Angeles. The action involves 44 real estate limited partnerships
(including the Partnership) in which the plaintiffs allegedly own interests and
which Insignia affiliates allegedly manage or control (the "Subject
Partnerships"). The complaint names as defendants Insignia, several Insignia
affiliates alleged to be managing partners of the defendant limited
partnerships, the Partnership and the General Partner. Plaintiffs allege that
they have requested from, but have been denied by each of the Subject
Partnerships, lists of their respective limited partners for the purpose of
making tender offers to purchase up to 4.9% of the limited partner units of each
of the Subject Partnerships. The complaint also alleges that certain of the
defendants made tender offers to purchase limited partner units in many of the
Subject Partnerships, with the alleged result that plaintiffs have been deprived
of the benefits they would have realized from ownership of the additional units.
The plaintiffs assert eleven causes of action, including breach of contract,
unfair business practices, and violations of the partnership statutes of the
states in which the Subject Partnerships are organized. Plaintiffs seek
compensatory, punitive and treble damages. The Partnership was only recently
served with the complaint and has not yet responded to it. The General Partner
believes the claims to be without merit and intends to defend the action
vigorously.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature. The General Partner believes that all such pending
or outstanding litigation will be resolved without a material adverse effect on
the business, financial condition, or operations of the Partnership.
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 $12,210,000, were greater than the
reserve requirement of approximately $7,082,000 at June 30, 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 June 30, 1998, the Partnership has no real estate assets.
Results of Operations
The Partnership reported net income of approximately $27,386,000 and $28,622,000
for the three and six months ended June 30, 1998, as compared to net income of
approximately $330,000 and $654,000, respectively for the three and six months
ended June 30, 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 $1,069,000 and $89,000 and recorded a reduction of
allowance for impairment loss of approximately $27,586,000 and $510,000 for June
30, 1998 and 1997, respectively. The increase in income recognized is due to an
increase in the fair value of underlying collateral properties as a result of
capital improvements and repairs performed over the last few years and changing
market conditions and due to improved operations at such properties. Interest
income for the three months ended June 30, 1998 increased due to an increase in
cash balances and higher yields on those investments.
Partially 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 lawsuits discussed in "Item 1. Financial Statements Note D
- - Contingencies".
Liquidity and Capital Resources
At June 30, 1998 the Partnership had cash and cash equivalents of approximately
$12,210,000 as compared to approximately $9,040,000 at June 30, 1997. The net
decrease in cash and cash equivalents for the six months ended June 30, 1998 was
$207,000. The net decrease in cash and cash equivalents for the six months
ended June 30, 1997 was $9,438,000. Net cash provided by operating activities
increased primarily due to the increase in net income as a result of an increase
in interest income received on the Master Loan as discussed above. Net cash
provided by investing activities decreased due to a decrease in principal
receipts on the Master Loan for the six months ended June 30, 1998 as compared
to June 30, 1997. Cash used in financing activities decreased due to a decrease
in distributions paid to partners.
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 six months ended June 30, 1998. During the second quarter
of 1997, the Partnership made a distribution of approximately $9,992,000. The
General Partner is evaluating the feasibility of making a distribution during
the third quarter of 1998. 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 $12,210,000, were greater than the reserve
requirement of $7,082,000 as of June 30, 1998.
CCEP/2 Property Operations
For the six months ended June 30, 1998, CCEP/2's net loss totaled approximately
$11,253,000 on total revenues of approximately $9,431,000. CCEP/2 recognizes
interest expense on the New Master Loan Agreement obligation according to the
note terms, although payments to the Partnership are required only to the extent
of Excess Cash Flow, as defined therein. During the six months ended June 30,
1998, CCEP/2's statement of operations includes total interest expense
attributable to the Master Loan of approximately $11,863,000, $1,198,000 of
which represents interest paid, and the remaining of which represents interest
expense in excess of required payments. CCEP/2 is expected to continue to
generate operating losses as a result of such interest accruals and noncash
charges for depreciation.
During the six months ended June 30, 1998, CCEP/2 made approximately $79,000 as
principal payments on the Master Loan to the Partnership. This cash was
received by CCEP/2 on certain investments which it holds. Such cash receipts
are required to be transferred to the Partnership per the Agreement.
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.
On June 25, 1998, the General Partner filed a motion seeking dismissal of the
action. In lieu of responding to the motion, the plaintiffs have filed an
amended complaint. The General Partner believes the action to be without merit,
and intends to vigorously defend it.
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 other 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 and
six months ended June 30, 1998 and 1997.
(b) Reports on Form 8-K:
None filed during the quarter ended June 30, 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
August 14, 1998 By: /s/ William H. Jarrard, Jr.
Date William H. Jarrard, Jr.
President and Director
By: /s/ Ronald Uretta
August 14, 1998 Ronald Uretta
Date Vice President and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Consolidated Capital Institutional Properties/2 1998 Second Quarter 10-Q
and is qualified in its entirety by reference to such 10-Q filing.
</LEGEND>
<CIK> 0000719184
<NAME> CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 12,210
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 78,074
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 77,872
<TOTAL-LIABILITY-AND-EQUITY> 78,074
<SALES> 0
<TOTAL-REVENUES> 28,966
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 344
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,622
<EPS-PRIMARY> 31.17<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
EXHIBIT 99.1
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 1998 AND 1997
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED BALANCE SHEET
(in thousands)
June 30, December 31,
1998 1997
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 1,702 $ 1,807
Receivables and deposits 1,913 1,964
Restricted escrows 1,507 1,245
Other assets 2,524 2,443
Investment properties:
Land 10,498 10,498
Buildings and related personal property 90,004 88,871
100,502 99,369
Less accumulated depreciation (61,925) (59,501)
38,577 39,868
$ 46,223 $ 47,327
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 386 $ 623
Tenant security deposit liabilities 581 564
Accrued property taxes 710 770
Other liabilities 566 582
Mortgage notes and interest payable 32,765 32,905
Master loan and interest payable 245,446 234,861
280,454 270,305
Partners' Deficit
General Partner (2,329) (2,216)
Limited Partners (231,902) (220,762)
(234,231) (222,978)
$ 46,223 $ 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.
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Revenues:
Rental income $ 4,422 $ 4,313 $ 8,805 $ 8,540
Other income 268 339 626 615
Total revenues 4,690 4,652 9,431 9,155
Expenses:
Operating 2,021 2,248 4,066 4,603
General and administrative 164 187 345 321
Interest 6,675 6,161 13,205 12,304
Depreciation 1,216 1,229 2,424 2,402
Property taxes 324 325 644 660
Total expenses 10,400 10,150 20,684 20,290
Net loss $(5,710) $(5,498) $(11,253) $(11,135)
Net loss allocated
to general partner (1%) $ (57) $ (55) $ (113) $ (111)
Net loss allocated
to limited partners (99%) (5,653) (5,443) (11,140) (11,024)
$(5,710) $(5,498) $(11,253) $(11,135)
See Accompanying Notes to Consolidated Financial Statements
c)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENT 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 six months ended
June 30, 1997 (111) (11,024) (11,135)
Partners' deficit at June 30, 1997 $(2,128) $(212,103) $(214,231)
Partners' deficit at December 31, 1997 $(2,216) $(220,762) $(222,978)
Net loss for the six months ended
June 30, 1998 (113) (11,140) (11,253)
Partners' deficit at June 30, 1998 $(2,329) $(231,902) $(234,231)
See Accompanying Notes to Consolidated Financial Statements
d)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1998 1997
Cash flows from operating activities:
Net loss $(11,253) $(11,135)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 2,424 2,402
Amortization of loan costs, lease commissions
and ground lease 267 324
Change in accounts:
Other assets (348) (523)
Receivables and deposits 51 184
Accounts payable (237) (93)
Accrued property taxes (60) 205
Tenant security deposit liabilities 17 3
Other liabilities (16) (66)
Interest on master loan 10,664 10,883
Net cash provided by operating activities 1,509 2,184
Cash flows from investing activities:
Deposits to restricted escrows (262) (406)
Property improvements and replacements (1,133) (1,516)
Distributions from investment in limited partnerships -- 336
Net cash used in investing activities (1,395) (1,586)
Cash flow used in financing activities:
Principal payments on notes payable (140) (141)
Principal payments on Master Loan (79) (388)
Loan costs paid -- (29)
Net cash used in financing activities (219) (558)
Net (decrease) increase in cash and cash equivalents (105) 40
Cash and cash equivalents at beginning of period 1,807 932
Cash and cash equivalents at end of period $ 1,702 $ 972
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,287 $ 1,480
See Accompanying Notes to Consolidated Financial Statements
e)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Consolidated
Capital Equity Partners/Two, L.P. ("CCEP/2") have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of ConCap Equities, Inc., (the "General Partner"), all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three and six
month periods ended June 30, 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. On December 2, 1997, CCEP/2 sold Cosmopolitan Center to an unrelated
third party for a contract price of $3,500,000 and realized a gain on sale of
approximately $2,739,000. Approximately $3,307,000 of the proceeds from the
sale of Cosmopolitan Center were paid to CCIP/2 as payment on the Master Loan.
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 six month periods ended June 30, 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 six months ended
June 30, 1998 and 1997 as follows:
1998 1997
(in thousands)
Property management fees (included in operating expenses) $440 $437
Investment advisory fees (included in general and
administrative expenses) 86 77
Lease commissions 147 227
Reimbursement for services of affiliates, (included in
operating, general and administrative expenses and
investment properties) (1) 151 133
(1)Included in "Reimbursement for services of affiliates" for 1998 and 1997 is
approximately $13,000 and $2,000, 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.
Interest payments totaling approximately $1,198,000 were made during the six
months ended June 30, 1998. An interest payment of approximately $89,000 was
made during the six months ended June 30, 1997. No advances were received under
the Master Loan Agreement during each of the six months ended June 30, 1998 and
1997. A principal payment of approximately $79,000 was made on the Master Loan
during the six months ended June 30, 1998. Principal payments of approximately
$388,000 were made on the Master Loan during the six months ended June 30, 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 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.
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 June 30,
1998, and December 31, 1997, are approximately $245,446,000 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.
Additional complaints were filed in November 1997 and July 1998 by PHC
Construction against the Partnership, CCIP/2 and other defendants. Several of
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, among other things, breach of contract,
quantum meruit, promissory estoppel and constructive trust. 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 these matters will not have a materially
adverse effect on the financial position of the Partnership.
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. On June 24, 1998, the General
Partner filed a motion seeking dismissal of the action. In lieu of responding to
the motion, the plaintiffs have filed an amended complaint. The General Partner
believes the action to be without merit, and intends to vigorously defend it.
Rather than responding to the motion, the plaintiffs have recently filed an
amended complaint.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature. The General Partner 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.
