FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________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.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Partnership was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No___
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
BALANCE SHEETS
(in thousands, except unit data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
(Unaudited) (Note)
Assets
<S> <C> <C>
Cash and cash equivalents $ 5,358 $ 6,846
Accounts receivable -- 92
Other assets 11 11
Investment in Master Loan to affiliate 47,425 47,503
Less: allowance for impairment loss (29,129) (29,129)
18,296 18,374
$ 23,665 $ 25,323
Liabilities and Partners' (Deficit) Capital
Liabilities
Other liabilities $ 53 $ 58
Distributions payable 141 141
194 199
Partners' (Deficit) Capital
General partner (421) (410)
Limited partners (909,123.60 units outstanding) 23,892 25,534
23,471 25,124
$ 23,665 $ 25,323
Note: The balance sheet at December 31, 1999, 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
</TABLE>
<PAGE>
b)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Revenues:
Interest income on investment
<S> <C> <C> <C> <C>
in Master Loan to affiliate $ -- $ -- $ 1,198 $ 575
Interest income on investments 82 50 242 162
Total revenues 82 50 1,440 737
Expenses:
General and administrative 242 122 508 427
Total expenses 242 122 508 427
Net (loss) income $ (160) $ (72) $ 932 $ 310
Net (loss) income allocated
to general partner (1%) $ (2) $ (1) $ 9 $ 3
Net (loss) income allocated
to limited partners (99%) (158) (71) 923 307
$ (160) $ (72) $ 932 $ 310
Net (loss) income per limited
partnership unit $ (.17) $ (.08) $ 1.02 $ .34
Distribution per limited partnership unit $ .64 $ -- $ 2.82 $ 4.90
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
c)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 912,182 $ 1 $228,046 $228,047
Partners' (deficit) capital
at December 31, 1998 909,134 $ (362) $ 62,673 $ 62,311
Net income for the nine months
ended September 30, 1999 -- 3 307 310
Distributions to partners -- (42) (4,454) (4,496)
Partners' (deficit) capital
at September 30, 1999 909,134 $ (401) $ 58,526 $ 58,125
Partners' (deficit) capital
at December 31, 1999 909,124 $ (410) $ 25,534 $ 25,124
Net income for the nine months
ended September 30, 2000 -- 9 923 932
Distributions to partners -- (20) (2,565) (2,585)
Partners' (deficit) capital at
September 30, 2000 909,124 $ (421) $ 23,892 $ 23,471
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
d)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net income $ 932 $ 310
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in accounts:
Interest receivable on Master Loan 92 (130)
Other assets -- (8)
Other liabilities (5) 42
Net cash provided by operating activities 1,019 214
Cash flows provided by investing activities:
Principal receipts on Master Loan 78 1,102
Cash flows used in financing activities:
Distributions to partners (2,585) (4,496)
Net decrease in cash and cash equivalents (1,488) (3,180)
Cash and cash equivalents at beginning of period 6,846 10,969
Cash and cash equivalents at end of period $ 5,358 $ 7,789
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
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" or "Registrant") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of ConCap Equities, Inc. (the "General
Partner"), all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and nine month periods ended September 30, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000. 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, 1999.
Note B - Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust, with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the General Partner. The General Partner does not believe that this transaction
has had or will have a material effect on the affairs and operations of the
Partnership.
Note C - Related Party Transactions
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
The Partnership Agreement (the "Agreement") provides for reimbursement to the
General Partner and its affiliates for costs incurred in connection with the
administration of partnership activities. The following payments were made to
the General Partner and affiliates during the nine months ended September 30,
2000 and 1999:
2000 1999
(in thousands)
Reimbursements for services of affiliates (included in
general and administrative expenses) $ 345 $ 162
<PAGE>
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $345,000 and $162,000 for the
nine months ended September 30, 2000 and 1999, respectively.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates currently own 411,020.51 limited
partnership units in the Partnership representing 45.21% of the outstanding
units. A number of these units were acquired pursuant to tender offers made by
AIMCO or its affiliates. It is possible that AIMCO or its affiliates will make
one or more additional offers to acquire additional limited partnership
interests in the Partnership for cash or in exchange for units in the operating
partnership of AIMCO. Under the Partnership Agreement, unitholders holding a
majority of the Units are entitled to take action with respect to a variety of
matters, which would include without limitation, voting on certain amendments to
the Partnership Agreement and voting to remove the General Partner. As a result
of its ownership of 45.21% of the outstanding units, AIMCO is in a position to
significantly influence all voting decisions with respect to the Registrant.
When voting on matters, AIMCO would in all likelihood vote the Units it acquired
in a manner favorable to the interest of the General Partner because of their
affiliation with the General Partner.
Note D - Net Investment in Master Loan
At September 30, 2000, the recorded investment in the Master Loan is considered
to be impaired under "Statement of Financial Accounting Standards No. 114 ("SFAS
114"), "Accounting by Creditors for Impairment of a Loan". 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 nine month periods ended September 30, 2000 and 1999,
there were no changes in the fair value of the collateral and accordingly no
income was recognized.
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, the physical
condition of the property and other factors or by obtaining an appraisal by an
independent third party. 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 General Partner evaluates the net
realizable value on a semi-annual basis.
The principal balance of the Master Loan due to the Partnership totaled
approximately $47,425,000 at September 30, 2000. Interest due to the Partnership
pursuant to the terms of the Master Loan Agreement, but not recognized in the
income statements, totaled approximately $17,604,000 and $18,736,000 for the
nine months ended September 30, 2000 and 1999, respectively. At September 30,
2000 and December 31, 1999, such cumulative unrecognized interest totaled
approximately $218,547,000 and $200,943,000 and was not included in the balance
of the investment in Master Loan. The allowance for possible losses totaled
approximately $29,129,000 at both September 30, 2000 and December 31, 1999.
<PAGE>
During the first nine months of 2000, no advances were made to CCEP/2. Principal
payments received from CCEP/2 on the Master Loan were $78,000 and $1,102,000 for
the nine months ended September 30, 2000 and 1999, respectively.
Approximately $1,198,000 and $575,000 for the nine months ended September 30,
2000 and 1999, respectively, was recorded as interest income on investment in
Master Loan to affiliate based upon cash generated as a result of the operations
of the properties which secure the loan. Of the $1,198,000 received during 2000,
$853,000 was received from Village Brooke as a result of its receipt of a
portion of the insurance proceeds due from the destruction of the property (see
the Financial Statements of Consolidated Capital Equity Partners/Two, L.P. Note
C - Casualty Event, included in these financial statements).
Note E - Commitment
Until October 17, 2000, the Partnership was 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 were made from this reserve, operating revenues were to be
allocated to such reserve to the extent necessary to maintain the foregoing
level. Reserves, including cash and securities available for sale, totaling
approximately $5,358,000, were slightly less than the reserve requirement of
approximately $5,362,000 at September 30, 2000. On September 16, 2000, the
Partnership sought the vote of limited partners to amend the Partnership
Agreement to eliminate the requirement for the Partnership to maintain reserves
equal to at least 5% of the limited partner's capital contributions less
distributions to limited partners and instead permit the General Partner to
determine reasonable reserve requirements of the Partnership. The vote was
sought pursuant to a Consent Solicitation that expired on October 16, 2000 at
which time the amendment was approved by the requisite percent of limited
partnership interests. Upon expiration of the consent period, a total number of
488,079.40 units had voted of which 469,876.40 units had voted in favor of the
amendment, 15,160.70 units voted against the amendment and 3,042.30 units
abstained.
Note F - Distribution
The Partnership distributed approximately $2,000,000 from operations
(approximately $1,980,000 to the limited partners, or approximately $2.18 per
limited partnership unit) and $585,000 to the limited partners from surplus cash
(approximately $0.64 per limited partnership unit) during the nine months ended
September 30, 2000. The Partnership distributed approximately $4,173,000 from
operations (approximately $4,131,000 to the limited partners, or approximately
$4.54 per limited partnership unit) and $323,000 from surplus cash to the
limited partners (approximately $0.36 per limited partnership unit) for the nine
months ended September 30, 1999. Subsequent to September 1999, the Partnership
distributed approximately $22,000,000 from surplus cash to the limited partners
(approximately $24.20 per limited partnership unit) and approximately $500,000
from operations (approximately $495,000 to the limited partners, or
approximately $0.54 per limited partnership unit).
<PAGE>
Note G - Segment Reporting
Statement of Financial Standards ("SFAS") No. 131, "Disclosure about Segments of
an Enterprise and Related Information" ("Statement 131") established standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. As defined in SFAS No. 131,
the Partnership has only one reportable segment. Moreover, due to the very
nature of the Partnership's operations, the General Partner believes that
segment-based disclosures will not result in a more meaningful presentation than
the financial statements as presently presented.
Note H - Legal Proceedings
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, its General Partner and several of their affiliated
partnerships and corporate entities. The action 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 of interests in certain general partner
entities by Insignia Financial Group, Inc. and entities which were, at one time,
affiliates of Insignia; past tender offers by the Insignia affiliates to acquire
limited partnership units; the management of partnerships by the Insignia
affiliates; and the Insignia Merger. The plaintiffs seek 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 filed demurrers to the amended complaint which
were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to final court approval, on behalf of the Partnership
and all limited partners who owned units as of November 3, 1999. Preliminary
approval of the settlement was obtained on November 3, 1999 from the Court, at
which time the Court set a final approval hearing for December 10, 1999. Prior
to the December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the General Partner and its affiliates terminated the
proposed settlement. In February 2000, counsel for some of the named plaintiffs
filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated
the settlement. On June 27, 2000, the Court entered an order disqualifying them
from the case. The Court is considering applications for lead counsel and has
currently scheduled a hearing on the matter for November 20, 2000. The General
Partner does not anticipate that costs associated with this case will be
material to the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
<PAGE>
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
September 30, 2000 AND 1999
<PAGE>
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
(Unaudited) (Note)
Assets
<S> <C> <C>
Cash and cash equivalents $ 4,484 $ 3,747
Restricted cash -- 7,750
Receivables and deposits 752 853
Restricted escrows 83 139
Other assets 217 260
Investment properties:
Land 2,731 2,731
Buildings and related personal property 17,891 17,228
20,622 19,959
Less accumulated depreciation (12,149) (11,317)
8,473 8,642
$ 14,009 $ 21,391
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 71 $ 323
Accrued property taxes 423 546
Tenant security deposit liabilities 110 194
Other liabilities 166 812
Mortgage notes 9,000 15,557
Master loan and interest payable 265,279 247,753
275,049 265,185
Partners' Deficit
General partner (2,596) (2,424)
Limited partners (258,444) (241,370)
(261,040) (243,794)
$ 14,009 $ 21,391
Note: The balance sheet at December 31, 1999, 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
</TABLE>
<PAGE>
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Revenues: (restated) (restated)
Rental income $ 1,091 $ 1,339 $ 3,705 $ 4,352
Other income 173 95 867 356
Casualty gain 2 -- 806 --
Total revenues 1,266 1,434 5,378 4,708
Expenses:
Operating 480 495 1,508 1,700
General and administrative 104 126 314 350
Depreciation 272 293 832 883
Interest 6,422 6,772 19,511 20,248
Property taxes 153 175 424 507
Total expenses 7,431 7,861 22,589 23,688
Loss from continuing operations (6,165) (6,427) (17,211) (18,980)
(Loss) income from
discontinued operations -- (455) -- 26
Gain on sale of discontinued
operations -- 15,517 -- 15,517
(Loss) income before
extraordinary item (6,165) 8,635 (17,211) (3,437)
Extraordinary loss on early
extinguishment of debt -- (7) (35) (7)
Net (loss) income $(6,165) $ 8,628 $(17,246) $ (3,444)
Net (loss) income allocated
to general partner (1%) $ (62) $ 86 $ (172) $ (34)
Net (loss) income allocated
to limited partners (99%) (6,103) 8,542 (17,074) (3,410)
$(6,165) $ 8,628 $(17,246) $ (3,444)
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
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, 1998 $ (2,442) $(243,149) $ (245,591)
Net loss for the nine months
ended September 30, 1999 (34) (3,410) (3,444)
Partners' deficit
at September 30, 1999 $ (2,476) $(246,559) $ (249,035)
Partners' deficit
at December 31, 1999 $ (2,424) $(241,370) $ (243,794)
Net loss for the nine months
ended September 30, 2000 (172) (17,074) (17,246)
Partners' deficit at
September 30, 2000 $ (2,596) $(258,444) $ (261,040)
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net loss $(17,246) $(3,444)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 832 3,367
Amortization of loan costs and lease commissions 40 493
Gain on sale of discontinued operations -- (15,517)
Extraordinary loss on early extinguishment of debt 35 7
Casualty (gain) loss (806) 33
Change in accounts:
Restricted cash 7,750 --
Receivables and deposits (333) (12)
Other assets (32) 556
Accounts payable (252) 102
Accrued property taxes (123) (263)
Tenant security deposit liabilities (84) (466)
Other liabilities (646) 1,387
Interest payable on Master Loan 17,604 18,866
Net cash provided by operating activities 6,739 5,109
Cash flows from investing activities:
Proceeds from sale of discontinued operations -- 36,029
Insurance proceeds received 1,298 --
Net withdrawals from (deposits to) restricted escrows 56 (106)
Property improvements and replacements (721) (1,568)
Lease commissions paid -- (439)
Net cash provided by investing activities 633 33,916
Cash flows from financing activities:
Repayment of mortgage notes payable (6,517) (2,316)
Principal payments on mortgage notes payable (40) (215)
Principal payments on Master Loan (78) (1,102)
Prepayment penalty -- (4)
Net cash used in financing activities (6,635) (3,637)
Net increase in cash and cash equivalents 737 35,388
Cash and cash equivalents at beginning of period 3,747 2,199
Cash and cash equivalents at end of period $ 4,484 $ 37,587
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,911 $ 2,530
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The Partnership's financial statements have been prepared assuming that the
Partnership will continue as a going concern. The Partnership continues to incur
operating losses, suffers from inadequate liquidity, has an accumulated deficit,
and is unable to repay the Master Loan balance which matures in November 2000.
The Partnership realized net losses of approximately $6,165,000 and $17,246,000
for the three and nine months ended September 30, 2000, respectively. The
General Partner expects the Partnership to continue to incur such losses from
operations.
The Partnership's indebtedness to CCIP/2 under the Master Loan of approximately
$265,279,000, including accrued interest, matures in November 2000. The General
Partner is currently in negotiations with CCIP/2 with respect to its options at
maturity. The Partnership does not have the means with which to satisfy this
obligation. No other sources of additional financing have been identified by the
Partnership, nor does the General Partner have any other plans to remedy the
liquidity problems the Partnership is currently experiencing. At September 30,
2000, partners' deficit was approximately $261,040,000.
The General Partner expects revenues from the four remaining investment
properties will be sufficient over the next twelve months to meet all property
operating expenses, mortgage debt service requirements and capital expenditure
requirements. However, these cash flows will be insufficient to repay to CCIP/2
the Master Loan balance, including accrued interest, in the event it is not
renegotiated.
As a result of the above, there is substantial doubt about the Partnership's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or amounts and classifications of liabilities that may
result from these uncertainties.
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 Holdings, Inc., (the "General Partner"), all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three and nine
month periods ended September 30, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Partnership's annual report on Form 10-K for
Consolidated Capital Institutional Properties/2 L.P. for the year ended December
31, 1999.
Reclassifications: Certain reclassifications have been made to the 1999
information to conform to the 2000 presentation.
<PAGE>
Note B - Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust, with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the General Partner. The General Partner does not believe that this transaction
has had or will have a material effect on the affairs and operations of the
Partnership.
Note C - Casualty Event
In April 1999, one of the Partnership's residential properties, Village Brooke,
was completely destroyed by a tornado. It is estimated that the property
sustained approximately $16,000,000 in damages. As of September 30, 2000,
$11,302,000 in insurance proceeds have been received, which includes
approximately $1,298,000 received in 2000. All of the property's fixed assets
and related accumulated depreciation were written off as a result of this
casualty. Lost rents of approximately $750,000 have been recorded as of
September 30, 2000. A casualty gain of approximately $806,000 was recognized
during the nine months ended September 30, 2000 as a result of receiving
additional insurance proceeds which were previously not recognized net of
approximately $58,000 of additional clean up costs incurred. The General Partner
is currently negotiating with the taxing authorities to have the property taxed
as undeveloped land and is currently evaluating and surveying the land to
determine possible new construction of the property.
Note D - Extinguishment of Debt
During the nine months ended September 30, 2000, the General Partner determined
that it was in the best interest of the Partnership to repay the mortgage note
on Village Brooke. Accordingly, funds which had previously been restricted to
rebuild the property were used to repay the mortgage note which had encumbered
the property of approximately $6,517,000. The Partnership will finance a
construction loan when the re-construction of Village Brooke begins in mid 2001.
An extraordinary loss on early extinguishment of debt of approximately $35,000
was recognized as a result of unamortized loan costs associated with this
mortgage.
Note E - Discontinued Operations
Lahser One, Lahser Two, Crescent Centre, Central Park Place, Central Park Plaza,
Town Center Plaza and Richmond Plaza were the only commercial properties owned
by the Partnership and represented one segment of the Partnership's operations.
All of these properties were sold during 1999 and accordingly the results of the
commercial segment have been shown as gain on sale of and income from
discontinued operations as of September 30, 2000 and 1999. The consolidated
statement of operations for the three and nine month periods ended September 30,
1999 has been restated to reflect the discontinued segment. Revenues of these
properties were approximately $2,012,000 and $8,179,000 for the three and nine
months ended September 30, 1999, respectively. No revenues from the properties
were recorded during the nine months ended September 30, 2000. (Loss) income
from discontinued operations was approximately $(455,000) and $26,000 for the
three and nine months ended September 30, 1999, respectively.
<PAGE>
Note F - Sale of Discontinued Operations
On September 10, 1999, the five commercial properties located in Michigan
(Lahser One, Lahser Two, Crescent Centre, Central Park Place, and Central Park
Plaza) were sold to an unaffiliated third party for $26,125,000. After closing
expenses of approximately $1,092,000 the net proceeds received by the
Partnership were approximately $25,033,000. The sale of the properties resulted
in a gain on sale of investment property of approximately $10,556,000.
On September 22, 1999, Town Center Plaza, located in Santa Ana, California, was
sold to an unaffiliated third party for $11,650,000. After closing expenses of
approximately $654,000, the net proceeds received by the Partnership were
approximately $10,996,000. The Partnership used some of the proceeds from the
sale of the property to pay off the debt encumbering the property of
approximately $2,316,000. The sale of the property resulted in a gain on sale of
investment property of approximately $4,961,000 and a loss on early
extinguishment of debt of approximately $7,000.
Note G - Related Party Transactions
CCEP/2 has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
Affiliates of the General Partner provide property management and asset
management services to the Partnership. CCEP/2 paid property management fees
based upon collected gross rental revenues for property management services for
the nine months ended September 30, 2000 and 1999. 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 nine months ended
September 30, 2000 and 1999 as follows:
2000 1999
(in thousands)
Property management fees (included in operating expenses) $ 205 $ 234
Investment advisory fees (included in general
and administrative expense) 134 134
Reimbursement for services of affiliates (included in
operating, general and administrative expenses,
and investment properties) 63 186
Real estate brokerage commissions (included in gain on sale
of investment property) 447 1,134
<PAGE>
During the nine months ended September 30, 2000 and 1999, affiliates of the
General Partner were entitled to receive 5% of gross receipts from the
Registrant's residential properties for providing property management services.
The Registrant paid to such affiliates approximately $205,000 and $234,000 for
the nine months ended September 30, 2000 and 1999, respectively.
An affiliate of the General Partner received investment advisory fees amounting
to approximately $134,000 for each of the nine months ended September 30, 2000
and 1999.
An affiliate of the General Partner received reimbursement of accountable
administrative expense amounting to approximately $63,000 and $186,000 for the
nine months ended September 30, 2000 and 1999, respectively. Included in these
expenses for the nine months ended September 30, 2000 and 1999 is approximately
$2,000 and $27,000 respectively, of reimbursements for construction oversight
costs.
For acting as real estate broker in connection with the sales of six of the
Partnership's commercial properties, the General Partner was paid a real estate
commission of approximately $1,134,000 during the nine months ended September
30, 1999. A commission of $447,000 was paid during the nine months ended
September 30, 2000 relating to the sale of Richmond Plaza which was accrued at
December 31, 1999.
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 $1,198,000 and $575,000 for the
nine months ended September 30, 2000 and 1999, respectively. These payments were
based upon the results of operations for the Partnership's properties. CCEP/2
made principal payments on the Master Loan of $78,000 and $1,102,000 during the
nine months ended September 30, 2000 and 1999, respectively. These funds were
received from distributions from three affiliated partnerships.
Note H - Master Loan and Accrued Interest Payable
The Master Loan principal and accrued interest payable balances at September 30,
2000 and December 31, 1999, are approximately $265,279,000 and approximately
$247,753,000, respectively.
Terms of Master Loan Agreement
Under the terms of the Master Loan, 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
capital improvements and 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.
<PAGE>
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. The General
Partner is currently in negotiations with CCIP/2 with respect to its options
upon maturity. If the Master Loan cannot be extended prior to maturity, the
Partnership will risk losing its three remaining investment properties through
foreclosure.
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 I - Subsequent Event
On October 3, 2000, the Partnership refinanced the mortgage note payable with
GMAC on Windmere Apartments. The refinancing replaced mortgage indebtedness of
$3,000,000 with a new mortgage of $6,075,000. The mortgage was refinanced at a
rate of 7.83% compared to the prior rate of 7.33%. Payments of $50,000 are due
on the first day of each month until the loan matures on September 30, 2020.
On October 31, 2000, the Partnership refinanced the mortgage note payable with
GMAC on Highcrest Townhomes. The refinancing replaced mortgage indebtedness of
$4,166,000 with a new mortgage of $6,760,000. The mortgage was refinanced at a
rate of 7.72% compared to the prior rate of 7.33%. Payments of approximately
$55,000 are due on the first day of each month until the loan matures on
February 1, 2010. A balloon payment of approximately $4,868,000 is due at
maturity.
Note J - Legal Proceedings
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, its General Partner and several of their affiliated
partnerships and corporate entities. The action 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 of interests in certain general partner
entities by Insignia Financial Group, Inc. and entities which were, at one time,
affiliates of Insignia; past tender offers by the Insignia affiliates to acquire
limited partnership units; the management of partnerships by the Insignia
affiliates; and the Insignia Merger. The plaintiffs seek 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 filed demurrers to the amended complaint which
were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to final court approval, on behalf of the Partnership
and all limited partners who owned units as of November 3, 1999. Preliminary
approval of the settlement was obtained on November 3, 1999 from the Court, at
which time the Court set a final approval hearing for December 10, 1999. Prior
to the December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the General Partner and its affiliates terminated the
proposed settlement. In February 2000, counsel for some of the named plaintiffs
filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated
the settlement. On June 27, 2000, the Court entered an order disqualifying them
from the case. The Court is considering applications for lead counsel and has
currently scheduled a hearing on the matter for November 20, 2000. The General
Partner does not anticipate that costs associated with this case will be
material to the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The matters discussed in this Form 10-Q contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-Q and the other filings with the
Securities and Exchange Commission made by the Partnership from time to time.
The discussion of the Partnership's business and results of operations,
including forward-looking statements pertaining to such matters, does not take
into account the effects of any changes to the Partnership's business and
results of operations. Accordingly, actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
Results of Operations
The Partnership's net income for the nine months ended September 30, 2000 and
1999 was approximately $932,000 and $310,000, respectively. The Partnership's
net loss for the three months ended September 30, 2000 and 1999 was
approximately $160,000 and $72,000, respectively. The increase in net income for
the nine months ended September 30, 2000 is due primarily to an increase in
total revenues primarily due to an increase in interest income on the investment
in the Master Loan and, to a lesser extent, an increase in interest income on
investments, partially offset by an increase in total expenses. Interest income
on the investment in the Master Loan increased as a result of an increase in
excess cash flow payments received from CCEP/2. Interest income on investments
increased primarily due to an increase in the cash balance in interest bearing
money market accounts. The increase in total expenses is due to an increase in
general and administrative expenses. The increase in net loss for the three
months ended September 30, 2000 is due to an increase in general and
administrative expenses partially offset by an increase in interest income on
investments as discussed above.
General and administrative expenses increased for the three and nine months
ended September 30, 2000, primarily due to an increase in the costs of services
included in the management reimbursements to the General Partner as allowed
under the Partnership Agreement which were partially offset by a decrease in
legal expenses related to previous litigation and to a decrease in costs of
communications with investors.
Liquidity and Capital Resources
At September 30, 2000, the Partnership had cash and cash equivalents of
approximately $5,358,000 as compared to approximately $7,789,000 at September
30, 1999. The decrease in cash and cash equivalents of approximately $1,488,000
for the nine months ended September 30, 2000, from the Partnership's calendar
year end is due to approximately $2,585,000 of cash used in financing
activities, which was partially offset by approximately $1,019,000 of cash
provided by operating activities and approximately $78,000 of cash provided by
investing activities. Cash provided by investing activities consisted of
principal receipts on the Master Loan. Cash used in financing activities
consisted of distributions to partners. The Partnership invests its working
capital reserves in a money market account.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of expenditures
required to meet the ongoing operating needs of the Partnership and to comply
with Federal, state, local, legal and regulatory requirements. Such assets are
currently thought to be sufficient for any near-term needs of the Partnership.
See "CCEP/2 Property Operations" below for discussion on CCEP/2's ability to
provide future cash flow as Master Loan debt service.
The Partnership distributed approximately $2,000,000 from operations
(approximately $1,980,000 to the limited partners, or approximately $2.18 per
limited partnership unit) and $585,000 to the limited partners from surplus cash
(approximately $0.64 per limited partnership unit) during the nine months ended
September 30, 2000.
During the nine months ended September 30, 1999 the Partnership made a
distribution of approximately $4,173,000 from operations, approximately
$4,131,000 to the limited partners and $323,000 to the limited partners from
surplus cash (approximately $4.54 per limited partnership unit from operations
and approximately $.36 per limited partnership unit from surplus cash).
Subsequent to September 1999, the Partnership distributed approximately
$22,000,000 from surplus cash to the limited partners (approximately $24.20 per
limited partnership unit) and approximately $500,000 from operations
(approximately $495,000 to the limited partners, or approximately $0.54 per
limited partnership unit).
Future cash distributions will depend on CCEP/2's ability to make payments on
the account of the Master Loan and the availability of cash reserves. The
Partnership's distribution policy is reviewed on an annual basis. There can be
no assurance, however, that the Partnership will generate sufficient funds from
operations to permit any additional distributions to its partners during the
remainder of 2000 or subsequent periods.
Until October 17, 2000, the Partnership was 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 were made from this reserve, operating revenues were to be
allocated to such reserve to the extent necessary to maintain the foregoing
level. Reserves, including cash and securities available for sale, totaling
approximately $5,358,000, were slightly less than the reserve requirement of
approximately $5,362,000 at September 30, 2000. On September 16, 2000, the
Partnership sought the vote of limited partners to amend the Partnership
Agreement to eliminate the requirement for the Partnership to maintain reserves
equal to at least 5% of the limited partner's capital contributions less
distributions to limited partners and instead permit the General Partner to
determine reasonable reserve requirements of the Partnership. The vote was
sought pursuant to a Consent Solicitation that expired on October 16, 2000 at
which time the amendment was approved by the requisite percent of limited
partnership interests. Upon expiration of the consent period, a total number of
488,079.40 units had voted of which 469,876.40 units had voted in favor of the
amendment, 15,160.70 voted against the amendment and 3,042.30 units abstained.
During the nine months ended September 30, 2000, the Partnership received
approximately $78,000 as principal payments on the Master Loan consisting of
required cash flow payments. These funds are required to be transferred to the
Partnership under the terms of the Master Loan.
CCEP/2 Property Operations
For the nine months ended September 30, 2000, CCEP/2's net loss totaled
approximately $17,246,000 on total revenues of approximately $5,378,000. 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 nine
months ended September 30, 2000, CCEP/2's consolidated statement of operations
includes total interest expense attributable to the Master Loan of approximately
$18,802,000, of which $17,604,000 represents interest accrued in excess of
required payments. CCEP/2 is expected to continue to generate operating losses
as a result of such interest accruals and noncash charges for depreciation.
In April 1999, one of the Partnership's residential properties, Village Brooke,
was completely destroyed by a tornado. It is estimated that the property
sustained approximately $16,000,000 in damages. As of September 30, 2000,
approximately $11,302,000 in insurance proceeds have been received, which
includes approximately $1,302,000 received in 2000. All of the property's fixed
assets and related accumulated depreciation were written off as a result of this
casualty. Lost rents of approximately $750,000 have been recorded as of
September 30, 2000. A casualty gain of approximately $806,000 was recognized
during the three and nine months ended September 30, 2000 as a result of
receiving additional insurance proceeds which were previously not recognized net
of approximately $58,000 of additional clean up costs incurred. The General
Partner is currently negotiating with the taxing authorities to have the
property taxed as undeveloped land and is also currently marketing the land for
sale.
An affiliate of the General Partner received reimbursement of accountable
administrative expense amounting to approximately $63,000 and $186,000 for the
nine months ended September 30, 2000 and 1999, respectively. Included in these
expenses for the nine months ended September 30, 2000 and 1999 is approximately
$2,000 and $27,000 respectively, of reimbursements for construction oversight
costs.
For acting as real estate broker in connection with the sales of six of the
Partnership's commercial properties, the General Partner was paid a real estate
commission of approximately $1,134,000 during the nine months ended September
30, 1999. A commission of $447,000 was paid during the nine months ended
September 30, 2000 relating to the sale of Richmond Plaza which was accrued at
December 31, 1999.
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 $1,198,000 and $575,000 for the
nine months ended September 30, 2000 and 1999, respectively. These payments were
based upon the results of operations for the Partnership's properties. CCEP/2
made principal payments on the Master Loan of $78,000 and $1,102,000 during the
nine months ended September 30, 2000 and 1999, respectively. These funds were
received from distributions from three affiliated partnerships.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk Factors
The Partnership is exposed to market risks associated with its Master Loan to
Affiliate ("Loan"). Receipts (interest income) on the Loan are based upon the
operations and cash flow of the underlying investment properties that
collateralize the Loan. Both the income and expenses of operating the investment
properties are subject to factors outside the Partnership's control, such as an
oversupply of similar properties resulting from overbuilding, increases in
unemployment or population shifts, reduced availability of permanent mortgage
financing, changes in zoning laws, or changes in the patterns or needs of users.
The investment properties are also susceptible to the impact of economic and
other conditions outside of the control of the Partnership as well as being
affected by current trends in the market area which they operate. In this
regard, the General Partner of the Partnership closely monitors the performance
of the properties collateralizing the Loan.
Based upon the fact that the Loan is considered impaired under Statement of
Financial Accounting Standards No. 114, "Accounting by Creditor for Impairment
of a Loan", interest rate fluctuations do not affect the recognition of income,
as income is only recognized to the extent of cash flow. Therefore, market risk
factors do not affect the Partnership's results of operations as it relates to
the Loan.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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, its General Partner and several of their affiliated
partnerships and corporate entities. The action 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 of interests in certain general partner
entities by Insignia Financial Group, Inc. ("Insignia") and entities which were,
at one time, affiliates of Insignia; past tender offers by the Insignia
affiliates to acquire limited partnership units; the management of partnerships
by the Insignia affiliates; and the Insignia Merger. The plaintiffs seek
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 filed demurrers to the
amended complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to final court approval, on behalf of the Partnership
and all limited partners who owned units as of November 3, 1999. Preliminary
approval of the settlement was obtained on November 3, 1999 from the Court, at
which time the Court set a final approval hearing for December 10, 1999. Prior
to the December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the General Partner and its affiliates terminated the
proposed settlement. In February 2000, counsel for some of the named plaintiffs
filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated
the settlement. On June 27, 2000, the Court entered an order disqualifying them
from the case. The Court is considering applications for lead counsel and has
currently scheduled a hearing on the matter for November 20, 2000. The General
Partner does not anticipate that costs associated with this case will be
material to the Partnership's overall operations.
Item 4. Submission of Matters to a Vote of Security Holders
On September 16, 2000, the Partnership sought the vote of limited partners to
amend the Partnership Agreement to eliminate the requirement for the Partnership
to maintain reserves equal to at least 5% of the limited partners' capital
contributions less distributions to limited partners and instead permit the
General Partner to determine reasonable reserve requirements of the Partnership.
The vote was sought pursuant to a Consent Solicitation that expired on October
16, 2000 at which time the amendment was approved by the requisite percent of
limited partnership interests. Upon expiration of the consent period, a total
number of 488,079.40 units had voted of which 469,876.40 units had voted in
favor of the amendment, 15,160.70 units voted against the amendment and 3,042.30
units abstained.
<PAGE>
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.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President and
Controller
Date: November 14, 2000
