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 June 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___
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
BALANCE SHEETS
(in thousands, except unit data)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(Unaudited) (Note)
Assets
<S> <C> <C>
Cash and cash equivalents $ 6,072 $ 6,846
Accounts receivable -- 92
Other assets 11 11
Investment in Master Loan to affiliate 47,449 47,503
Less: allowance for impairment loss (29,129) (29,129)
18,320 18,374
$ 24,403 $ 25,323
Liabilities and Partners' (Deficit) Capital
Liabilities
Other liabilities $ 46 $ 58
Distributions payable 141 141
187 199
Partners' (Deficit) Capital
General partner (419) (410)
Limited partners (909,123.60 units outstanding) 24,635 25,534
24,216 25,124
$ 24,403 $ 25,323
See Accompanying Notes to Financial Statements
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.
</TABLE>
b)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Revenues:
Interest income on investment
<S> <C> <C> <C> <C>
in Master Loan to affiliate $ 1,198 $ 575 $ 1,198 $ 575
Interest income on investments 85 72 160 112
Total revenues 1,283 647 1,358 687
Expenses:
General and administrative 179 180 266 305
Total expenses 179 180 266 305
Net income $ 1,104 $ 467 $ 1,092 $ 382
Net income allocated
to general partner (1%) $ 11 $ 5 $ 11 $ 4
Net income allocated
to limited partners (99%) 1,093 462 1,081 378
$ 1,104 $ 467 $ 1,092 $ 382
Net income per limited partnership unit $ 1.20 $ .51 $ 1.19 $ .42
Distribution per limited partnership unit $ 2.18 $ -- $ 2.18 $ 4.90
See Accompanying Notes to Financial Statements
</TABLE>
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 six months
ended June 30, 1999 -- 4 378 382
Distributions to partners -- (42) (4,454) (4,496)
Partners' (deficit) capital
at June 30, 1999 909,134 $ (400) $ 58,597 $ 58,197
Partners' (deficit) capital
at December 31, 1999 909,124 $ (410) $ 25,534 $ 25,124
Net income for the six months
ended June 30, 2000 -- 11 1,081 1,092
Distributions to partners -- (20) (1,980) (2,000)
Partners' (deficit) capital at
June 30, 2000 909,124 $ (419) $ 24,635 $ 24,216
See Accompanying Notes to Financial Statements
</TABLE>
d)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net income $ 1,092 $ 382
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in accounts:
Interest receivable on Master Loan 92 (130)
Other assets -- (44)
Other liabilities (12) 30
Net cash provided by operating activities 1,172 238
Cash flows provided by investing activities:
Principal receipts on Master Loan 54 1,077
Cash flows used in financing activities:
Distributions to partners (2,000) (4,496)
Net decrease in cash and cash equivalents (774) (3,181)
Cash and cash equivalents at beginning of period 6,846 10,969
Cash and cash equivalents at end of period $ 6,072 $ 7,788
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 and six month periods ended June 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 six months ended June 30, 2000 and
1999:
2000 1999
(in thousands)
Reimbursements for services of affiliates (included in
general and administrative expenses) $ 158 $ 108
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $158,000 and $108,000 for the
six months ended June 30, 2000 and 1999, respectively.
AIMCO and its affiliates currently own 378,283.51 limited partnership units in
the Partnership representing 41.61% 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 41.61% 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 June 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 six month periods ended June 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 $47,449,000 at June 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 $11,358,000 and $12,276,000 for the six
months ended June 30, 2000 and 1999, respectively. At June 30, 2000 and December
31, 1999, such cumulative unrecognized interest totaled approximately
$212,301,000 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 June 30, 2000 and December 31, 1999.
During the first six months of 2000, no advances were made to CCEP/2. Principal
payments received from CCEP/2 on the Master Loan were $54,000 and $1,077,000 for
the six months ended June 30, 2000 and 1999, respectively.
Approximately $1,198,000 and $575,000 for the six months ended June 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. Both amounts were received during the three
months ended June 30, 2000 and 1999. 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
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 $6,072,000, were greater than the
reserve requirement of approximately $5,391,000 at June 30, 2000.
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) during the six months ended June 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 six months ended June
30, 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, 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 will entertain applications for lead counsel which must
be filed by August 4, 2000. The Court has scheduled a hearing on August 21, 2000
to address the issue of appointing lead counsel. 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 SIX MONTHS ENDED
June 30, 2000 AND 1999
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
June 30, December 31,
2000 1999
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 4,557 $ 3,747
Restricted cash -- 7,750
Receivables and deposits (net of allowance of 666 853
$214)
Restricted escrows 117 139
Other assets 209 260
Land held for sale 1,099 --
Investment properties:
Land 1,632 2,731
Buildings and related personal property 17,430 17,228
19,062 19,959
Less accumulated depreciation (11,877) (11,317)
7,185 8,642
$ 13,833 $ 21,391
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 53 $ 323
Accrued property taxes 403 546
Tenant security deposit liabilities 108 194
Other liabilities 87 812
Mortgage notes 9,000 15,557
Master loan and interest payable 259,057 247,753
268,708 265,185
Partners' Deficit
General partner (2,535) (2,424)
Limited partners (252,340) (241,370)
(254,875) (243,794)
$ 13,833 $ 21,391
See Accompanying Notes to Consolidated Financial Statements
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.
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Revenues: (restated) (restated)
Rental income $ 1,148 $ 1,410 $ 2,614 $ 3,013
Other income 495 57 694 261
Casualty gain 804 -- 804 --
Total revenues 2,447 1,467 4,112 3,274
Expenses:
Operating 516 562 1,028 1,205
General and administrative 79 96 210 224
Depreciation 281 226 560 590
Interest 6,478 6,799 13,089 13,476
Property taxes 134 125 271 332
Total expenses 7,488 7,808 15,158 15,827
Loss from continuing operations (5,041) (6,341) (11,046) (12,553)
Income from discontinued
operations -- 394 -- 481
Loss before extraordinary item (5,041) (5,947) (11,046) (12,072)
Extraordinary loss on early
extinguishment of debt (35) -- (35) --
Net loss $(5,076) $(5,947) $(11,081) $(12,072)
Net loss allocated
to general partner (1%) $ (51) $ (60) $ (111) $ (121)
Net loss allocated
to limited partners (99%) (5,025) (5,887) (10,970) (11,951)
$(5,076) $(5,947) $(11,081) $(12,072)
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 six months
ended June 30, 1999 (121) (11,951) (12,072)
Partners' deficit
at June 30, 1999 $ (2,563) $(255,100) $ (257,663)
Partners' deficit
at December 31, 1999 $ (2,424) $(241,370) $ (243,794)
Net loss for the six months
ended June 30, 2000 (111) (10,970) (11,081)
Partners' deficit at
June 30, 2000 $ (2,535) $(252,340) $ (254,875)
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net loss $(11,081) $(12,072)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 560 2,305
Amortization of loan costs and lease commissions 29 342
Extraordinary loss on early extinguishment of debt 35 --
Casualty gain (804) --
Change in accounts:
Restricted cash 7,750 --
Receivables and deposits (247) (64)
Other assets (13) (81)
Accounts payable (270) 217
Accrued property taxes (143) 12
Tenant security deposit liabilities (86) (53)
Other liabilities (725) 610
Interest on Master Loan 11,358 12,406
Net cash provided by operating activities 6,363 3,622
Cash flows from investing activities:
Insurance proceeds received 1,296 --
Net withdrawals from restricted escrows 22 10
Property improvements and replacements (260) (1,139)
Lease commissions paid -- (376)
Net cash provided by (used in) investing activities 1,058 (1,505)
Cash flows from financing activities:
Repayment of mortgage notes payable (6,517) --
Principal payments on notes payable (40) (137)
Principal payments on Master Loan (54) (1,077)
Net cash used in financing activities (6,611) (1,214)
Net increase in cash and cash equivalents 810 903
Cash and cash equivalents at beginning of period 3,747 2,199
Cash and cash equivalents at end of period $ 4,557 $ 3,102
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,746 $ 1,831
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
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 $5,076,000 and $11,081,000
for the three and six months ended June 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
$259,057,000, 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 June 30, 2000,
partners' deficit was approximately $254,875,000.
The General Partner expects revenues from the three 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 six
month periods ended June 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.
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 June 30, 2000, $11,300,000
in insurance proceeds have been received, which includes approximately
$1,300,000 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 $500,000 have been recorded as of June 30, 2000. A
casualty gain of approximately $804,000 was recognized during the three and six
months ended June 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 marketing the land for sale.
Note D - Extinguishment of Debt
During the three months ended June 30, 2000, the General Partner determined that
it was in the best interest of the Partnership to not rebuild the property,
Village Brooke. Accordingly, funds which had been previously restricted to
rebuild the property were used to repay the mortgage note which had encumbered
the property of approximately $6,517,000. 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 income from discontinued operations as of
June 30, 2000 and 1999. The consolidated statement of operations for the three
and six month periods ended June 30, 1999 has been restated to reflect the
discontinued segment. Revenues of these properties were approximately $3,148,000
and $6,167,000 for the three and six months ended June 30, 1999, respectively.
No revenues from the properties were recorded during the six months ended June
30, 2000. Income from discontinued operations was approximately $394,000 and
$481,000 for the three and six months ended June 30, 1999, respectively.
Note F - 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 six months ended June 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 six months ended
June 30, 2000 and 1999 as follows:
2000 1999
(in thousands)
Property management fees (included in operating expenses) $ 145 $ 149
Investment advisory fees (included in general
and administrative expense) 89 89
Reimbursement for services of affiliates (included in
operating, general and administrative expenses,
and investment properties) 39 121
During the six months ended June 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 $145,000 and $149,000 for the
six months ended June 30, 2000 and 1999, respectively.
An affiliate of the General Partner received investment advisory fees amounting
to approximately $89,000 for each of the six months ended June 30, 2000 and
1999.
An affiliate of the General Partner received reimbursement of accountable
administrative expense amounting to approximately $39,000 and $121,000 for the
six months ended June 30, 2000 and 1999, respectively. Included in these
expenses for the six months ended June 30, 2000 and 1999 is approximately $1,000
and $24,000 respectively, of reimbursements for construction oversight costs.
In addition to the compensation and reimbursements described above, interest
payments are made to and loan advances are received from 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 six
months ended June 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 $54,000 and $1,077,000 during the six
months ended June 30, 2000 and 1999, respectively. These funds were received
from distributions from three affiliated partnerships.
Note G - Master Loan and Accrued Interest Payable
The Master Loan principal and accrued interest payable balances at June 30, 2000
and December 31, 1999, are approximately $259,057,000 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 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 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 will entertain applications for lead counsel which must
be filed by August 4, 2000. The Court has scheduled a hearing on August 21, 2000
to address the issue of appointing lead counsel. 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 income for the three and six months ended June 30, 2000
was approximately $1,104,000 and $1,092,000, respectively, as compared to net
income of approximately $467,000 and $382,000 for the three and six months ended
June 30, 1999, respectively. The increase in net income is due primarily 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. Interest income on
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.
General and administrative expenses remained relatively constant for the three
months ended June 30, 2000. General and administrative expenses decreased for
the six months ended June 30, 2000, primarily due to a decrease in legal
expenses related to the settlement of a litigation case during 1999 and to a
decrease in costs of communications with investors. The decrease in general and
administrative expenses was partially offset by an increase in reimbursements to
the General Partner.
Liquidity and Capital Resources
At June 30, 2000, the Partnership had cash and cash equivalents of approximately
$6,072,000 as compared to approximately $7,788,000 at June 30, 1999. The
decrease in cash and cash equivalents of approximately $774,000 for the six
months ended June 30, 2000, from the Partnership's calendar year end is due to
approximately $2,000,000 of cash used in financing activities, which was
partially offset by approximately $1,172,000 of cash provided by operating
activities and approximately $54,000 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) during the six months ended June 30, 2000. During the
six months ended June 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).
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 $6,072,000, were greater than the reserve
requirement of approximately $5,391,000 at June 30, 2000.
During the six months ended June 30, 2000, the Partnership received
approximately $54,000 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 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 June 30, 2000, $11,300,000
in insurance proceeds have been received, which includes approximately
$1,300,000 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 $500,000 have been recorded as of June 30, 2000. A
casualty gain of approximately $804,000 was recognized during the three and six
months ended June 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.
For the six months ended June 30, 2000, CCEP/2's net loss totaled approximately
$11,081,000 on total revenues of approximately $4,112,000. CCEP/2 recognizes
interest expense on the New Master Loan Agreement obligation according to the
note terms, although payments to the Partnership are required only to the extent
of Excess Cash Flow, as defined therein. During the six months ended June 30,
2000, CCEP/2's consolidated statement of operations includes total interest
expense attributable to the Master Loan of approximately $12,556,000, of which
$11,358,000 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.
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, 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 will entertain applications for lead counsel which must
be filed by August 4, 2000. The Court has scheduled a hearing on August 21, 2000
to address the issue of appointing lead counsel. The General Partner does not
anticipate that costs associated with this case will be material to the
Partnership's overall operations.
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 June 30, 2000.
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:
