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 March 31, 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___
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
BALANCE SHEETS
(in thousands, except unit data)
March 31, December 31,
2000 1999
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 6,903 $ 6,846
Accounts receivable -- 92
Other assets 11 11
Investment in Master Loan to affiliate 47,499 47,503
Less: allowance for impairment loss (29,129) (29,129)
18,370 18,374
$ 25,284 $ 25,323
Liabilities and Partners' (Deficit) Capital
Liabilities
Other liabilities $ 31 $ 58
Distributions payable 141 141
172 199
Partners' (Deficit) Capital
General partner (410) (410)
Limited partners (909,123.60 units outstanding) 25,522 25,534
25,112 25,124
$ 25,284 $ 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
b)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
2000 1999
Revenues:
Interest income on investments $ 75 $ 40
Total revenues 75 40
Expenses:
General and administrative 87 125
Total expenses 87 125
Net loss $ (12) $ (85)
Net loss allocated to general partner (1%) $ -- $ (1)
Net loss allocated to limited partners (99%) (12) (84)
$ (12) $ (85)
Net loss per limited partnership unit $ (.01) $ (.09)
Distribution per limited partnership unit $ -- $ 4.90
See Accompanying Notes to Financial Statements
<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 loss for the three months
ended March 31, 1999 -- (1) (84) (85)
Distributions to partners -- (42) (4,454) (4,496)
Partners' (deficit) capital
at March 31, 1999 909,134 $ (405) $ 58,135 $ 57,730
Partners' (deficit) capital
at December 31, 1999 909,124 $ (410) $ 25,534 $ 25,124
Net loss for the three months
ended March 31, 2000 -- -- (12) (12)
Partners' (deficit) capital at
March 31, 2000 909,124 $ (410) $ 25,522 $ 25,112
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
d)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (12) $ (85)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Change in accounts:
Interest receivable on Master Loan 92 (130)
Other assets -- 1
Other liabilities (27) 34
Net cash provided by (used in) operating activities 53 (180)
Cash flows provided by investing activities:
Principal receipts on Master Loan 4 1,074
Cash flows used in financing activities:
Distributions to partners -- (4,496)
Net increase (decrease) in cash and cash equivalents 57 (3,602)
Cash and cash equivalents at beginning of period 6,846 10,969
Cash and cash equivalents at end of period $ 6,903 $ 7,367
See Accompanying Notes to Financial Statements
</TABLE>
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 month period ended March 31, 2000, are not necessarily indicative of the
results that may be expected for the fiscal 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 three months ended March 31, 2000
and 1999:
2000 1999
(in thousands)
Reimbursements for services of affiliates (included in
general and administrative expenses) $ 54 $ 77
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $54,000 and $77,000 for the
three months ended March 31, 2000 and 1999, respectively.
AIMCO and its affiliates currently own 377,456.61 limited partnership units in
the Partnership representing 41.52% 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. As a result of its
ownership of 41.52% 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 March 31, 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 three month periods ended March 31, 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 $47,499,000 and $47,503,000 at March 31, 2000 and December 31,
1999. Interest due to the Partnership pursuant to the terms of the Master Loan
Agreement, but not recognized in the income statements, totaled approximately
$6,300,000 and $6,493,000 for the three months ended March 31, 2000 and 1999,
respectively. At March 31, 2000 and December 31, 1999, such cumulative
unrecognized interest totaled approximately $206,550,000 and $200,250,000 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 March 31, 2000 and
December 31, 1999.
During the first three months of 2000, no advances were made to CCEP/2.
Principal payments received from CCEP/2 on the Master Loan were $4,000 and
$1,074,000 for the three months ended March 31, 2000 and 1999, respectively.
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 $6,903,000, were greater than the
reserve requirement of approximately $5,391,000 at March 31, 2000.
Note F - Distribution
There were no distributions during the three months ended March 31, 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 three months ended
March 31, 1999.
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, the 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 by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia 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 and the Insignia Merger (see
"Note B - Transfer of Control"). 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 own units as of November
3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999
from the Superior Court of the State of California, County of San Mateo, 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 class plaintiffs' counsel to enter the
settlement. On December 14, 1999, the General Partner and its affiliates
terminated the proposed settlement. Certain plaintiffs have filed a motion to
disqualify some of the plaintiffs' counsel in the action. 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.
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
March 31, 2000 AND 1999
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
March 31, December 31,
2000 1999
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 3,554 $ 3,747
Restricted cash 7,750 7,750
Receivables and deposits (net of allowance 750 853
of $398)
Restricted escrows 171 139
Other assets 278 260
Investment properties:
Land 2,731 2,731
Buildings and related personal property 17,366 17,228
20,097 19,959
Less accumulated depreciation (11,596) (11,317)
8,501 8,642
$ 21,004 $ 21,391
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 86 $ 323
Accrued property taxes 423 546
Tenant security deposit liabilities 102 194
Other liabilities 616 812
Mortgage notes 15,527 15,557
Master loan and interest payable 254,049 247,753
270,803 265,185
Partners' Deficit
General partner (2,484) (2,424)
Limited partners (247,315) (241,370)
(249,799) (243,794)
$ 21,004 $ 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
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2000 1999
Revenues: (restated)
Rental income $ 1,466 $ 1,603
Other income 199 204
Total revenues 1,665 1,807
Expenses:
Operating 512 643
General and administrative 131 128
Depreciation 279 364
Interest 6,611 6,677
Property taxes 137 207
Total expenses 7,670 8,019
Loss from continuing operations (6,005) (6,212)
Income from discontinued operations -- 87
Net loss $ (6,005) $(6,125)
Net loss allocated to general partner (1%) $ (60) $ (61)
Net loss allocated to limited partners (99%) (5,945) (6,064)
$ (6,005) $(6,125)
See Accompanying Notes to Consolidated Financial Statements
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 three months
ended March 31, 1999 (61) (6,064) (6,125)
Partners' deficit
at March 31, 1999 $ (2,503) $(249,213) $ (251,716)
Partners' deficit
at December 31, 1999 $ (2,424) $(241,370) $ (243,794)
Net loss for the three months
ended March 31, 2000 (60) (5,945) (6,005)
Partners' deficit at
March 31, 2000 $ (2,484) $(247,315) $ (249,799)
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>
Three Months Ended
March 31,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (6,005) $ (6,125)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 279 1,248
Amortization of loan costs and lease commissions 15 170
Change in accounts:
Receivables and deposits 103 325
Other assets (33) 5
Accounts payable (237) (127)
Accrued property taxes (123) (110)
Tenant security deposit liabilities (92) 1
Other liabilities (196) 20
Interest on Master Loan 6,300 6,493
Net cash provided by operating activities 11 1,900
Cash flows from investing activities:
Net deposits to restricted escrows (32) (190)
Property improvements and replacements (138) (506)
Lease commissions paid -- (189)
Net cash used in investing activities (170) (885)
Cash flows from financing activities:
Principal payments on notes payable (30) (76)
Principal payments on Master Loan (4) (1,074)
Net cash used in financing activities (34) (1,150)
Net decrease in cash and cash equivalents (193) (135)
Cash and cash equivalents at beginning of period 3,747 2,199
Cash and cash equivalents at end of period $ 3,554 $ 2,064
Supplemental disclosure of cash flow information:
Cash paid for interest $ 296 $ 637
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 a net loss of approximately $6,005,000 for the quarter
ended March 31, 2000. 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
$254,049,000, 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 March 31, 2000,
partners' deficit was approximately $249,799,000.
The General Partner expects revenues from the four 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 month
period ended March 31, 2000, are not necessarily indicative of the results that
may be expected for the fiscal 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.
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 March 31, 2000,
$10,000,000 in insurance proceeds have been received. All of the property's
fixed assets and related accumulated depreciation were written off as a result
of this casualty. Lost rents of approximately $250,000 have been recorded as of
March 31, 2000. The General Partner is currently negotiating with the taxing
authorities to have the property taxed as undeveloped land. The General Partner
is currently evaluating and surveying the land to determine possible new
construction of the property.
Note D - 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 income from discontinued operations as of
March 31, 2000 and 1999. The consolidated statement of operations for the three
month period ended March 31, 1999 has been restated to reflect the discontinued
segment. Revenues of these properties were approximately $3,019,000 for the
three months ended March 31, 1999. No revenues from the properties were recorded
during the three months ended March 31, 2000. Income from discontinued
operations was approximately $87,000 for the three months ended March 31, 1999.
Note E - 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 three months ended March 31, 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 three months ended
March 31, 2000 and 1999 as follows:
2000 1999
(in thousands)
Property management fees (included in operating expenses) $ 74 $ 85
Investment advisory fees (included in general
and administrative expense) 45 44
Reimbursement for services of affiliates (included in
operating, general and administrative expenses,
and investment properties) 49 68
Due to General Partner 447 --
During the three months ended March 31, 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 $74,000 and $85,000 for the
three months ended March 31, 2000 and 1999, respectively.
An affiliate of the General Partner received investment advisory fees amounting
to approximately $45,000 and $44,000 for the three months ended March 31, 2000
and 1999, respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expense amounting to approximately $49,000 and $68,000 for the
three months ended March 31, 2000 and 1999, respectively.
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. No
interest payments or advances were made under the Master Loan Agreement during
the three months ended March 31, 2000 or 1999. CCEP/2 made principal payments on
the Master Loan of $4,000 and $1,074,000 during the three months ended March 31,
2000 and 1999, respectively. These funds were received from distributions from
three affiliated partnerships.
Note F - Master Loan and Accrued Interest Payable
The Master Loan principal and accrued interest payable balances at March 31,
2000 and December 31, 1999, are approximately $254,049,000 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.
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 four 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 G - 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, the 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 by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia 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 and the Insignia Merger (see
"Note B - Transfer of Control"). 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 own units as of November
3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999
from the Superior Court of the State of California, County of San Mateo, 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 class plaintiffs' counsel to enter the
settlement. On December 14, 1999, the General Partner and its affiliates
terminated the proposed settlement. Certain plaintiffs have filed a motion to
disqualify some of the plaintiffs' counsel in the action. 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.
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 loss for the three months ended March 31, 2000 and 1999
was approximately $12,000 and $85,000, respectively. The decrease in net loss is
due primarily to an increase in interest income on investments and a decrease in
general and administrative expenses. Interest income increased primarily due to
a slight increase in the cash balances maintained in interest bearing money
market accounts.
General and administrative expenses decreased primarily due to a decrease in
reimbursements to the General Partner and to a lesser extent a decrease in costs
of communications with investors for the three months ended March 31, 2000.
Liquidity and Capital Resources
At March 31, 2000, the Partnership had cash and cash equivalents of
approximately $6,903,000 as compared to approximately $7,367,000 at March 31,
1999. The increase in cash and cash equivalents of approximately $57,000 for the
three months ended March 31, 2000, from the Partnership's calendar year end is
due to approximately $53,000 of cash provided by operating activities and
approximately $4,000 of cash provided by investing activities. Cash provided by
investing activities consisted of principal receipts on the Master Loan. 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.
No distributions were made to the partners during the three months ended March
31, 2000. During the three months ended March 31, 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).
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 a semi-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.
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 $6,903,000, were greater than the reserve
requirement of $5,391,000 at March 31, 2000.
During the three months ended March 31, 2000, the Partnership received
approximately $4,000 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
In April 1999, one of the CCEP/2's residential properties, Village Brooke, was
completely destroyed by a tornado. It is currently estimated that the property
sustained approximately $16,000,000 in damages. As of March 31, 2000,
$10,000,000 in insurance proceeds have been received with additional insurance
proceeds expected in the future. All of the property's fixed assets and related
accumulated depreciation were written off as a result of this casualty. Lost
rents of approximately $250,000 have been recorded as of March 31, 2000. The
General Partner is currently negotiating with the taxing authorities to have the
property taxed as undeveloped land. The General Partner is currently evaluating
and surveying the land to determine possible new construction of the property.
For the three months ended March 31, 2000, CCEP/2's net loss totaled
approximately $6,005,000 on total revenues of approximately $1,665,000. CCEP/2
recognizes interest expense on the New Master Loan Agreement obligation
according to the note terms, although payments to the Partnership are required
only to the extent of Excess Cash Flow, as defined therein. During the three
months ended March 31, 2000, CCEP/2's consolidated statement of operations
includes total interest expense attributable to the Master Loan of approximately
$6,300,000, all of which 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.
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.
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, the 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 by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia 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 and the Insignia Merger (see
"Part 1 - Financial Information, Item 1. Financial Statements, Note B - Transfer
of Control"). 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 own units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Superior Court of the
State of California, County of San Mateo, 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
class plaintiffs' counsel to enter the settlement. On December 14, 1999, the
General Partner and its affiliates terminated the proposed settlement. Certain
plaintiffs have filed a motion to disqualify some of the plaintiffs' counsel in
the action. The General Partner does not anticipate that costs associated with
this case will be material to the Partnership's overall operations.
<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:
Current report on Form 8-K filed on January 7, 2000 in
connection with the sale of Richmond Plaza by CCEP/2 on
December 23, 1999.
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: May 15, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Consolidated
Capital Institutional Properties 2, LP 2000 First Quarter 10-QSB and is
qualified in its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000719184
<NAME> Consolidated Capital Institutional Properties 2
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 6,903
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 25,284
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 25,112
<TOTAL-LIABILITY-AND-EQUITY> 25,284
<SALES> 0
<TOTAL-REVENUES> 75
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 87
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
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<NET-INCOME> (12)
<EPS-BASIC> (0.01)<F2>
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<FN>
<F1> Registrant has an unclassified balance sheet. <F2> Multiplier is 1.
</FN>
</TABLE>
