<PAGE>
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended September 30, 1996
------------------
Commission file number 0-14513
-------------
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
- --------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
District of Columbia 52-1420605
- ----------------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
- ----------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
(301) 468-9200
- -------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at September 30, 1996
- ---------------------------------- ----------------------------------
(Not applicable) (Not applicable)
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
Page
----
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Consolidated Balance Sheets - as of September 30, 1996
and December 31, 1995 . . . . . . . . . . . . . . 1
Consolidated Statements of Operations - for the
three and nine months ended September 30, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . 2-3
Consolidated Statements of Partners' Deficit - for
the nine months ended September 30, 1996 . . . . 4
Consolidated Statements of Cash Flows - for the nine
months ended September 30, 1996 and 1995 . . . . 5
Notes to Consolidated Financial Statements . . . . 6-17
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . 18-23
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 24
Signatures . . . . . . . . . . . . . . . . . . . . . . . . 25
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . 26
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
As of As of
September 30, December 31,
1996 1995
------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,341,951 $ 1,351,524
Restricted cash and cash equivalents 1,205,531 1,607,970
Accounts receivable, less allowance for doubtful accounts
of $71,020 and $35,413, respectively 1,403,900 1,433,999
Prepaid expenses 1,047,600 840,370
Current portion of deferred rent receivable 20,932 20,932
Inventory and other 67,825 78,392
------------- -------------
Total current assets 5,087,739 5,333,187
------------- -------------
Property and equipment:
Buildings and tenant improvements 122,153,543 121,441,795
Furniture and equipment 14,863,036 14,618,333
------------- -------------
137,016,579 136,060,128
Less-accumulated depreciation (53,969,735) (50,341,193)
------------- -------------
Total property and equipment 83,046,844 85,718,935
------------- -------------
Other assets:
Deferred charges, less accumulated amortization of
$2,625,384 and $1,843,919, respectively 2,420,259 2,292,912
Deferred rent receivable, less reserve of $107,010 407,109 407,109
Escrows and deposits 482,997 176,938
------------- -------------
Total other assets 3,310,365 2,876,959
------------- -------------
Total assets $ 91,444,948 $ 93,929,081
============= =============
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities:
Current portion of first mortgage note $ 5,826,115 $ 6,033,080
Accounts payable 578,782 471,456
Accrued expenses 808,206 726,157
Due to affiliates 3,080,238 3,029,645
Other liabilities 36,078 34,578
------------- -------------
Total current liabilities 10,329,419 10,294,916
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-1-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
LIABILITIES AND PARTNERS' DEFICIT - Continued
<TABLE>
<CAPTION>
As of As of
September 30, December 31,
1996 1995
------------- -------------
(Unaudited)
<S> <C> <C>
First mortgage note 63,020,940 67,117,079
Second mortgage note 17,028,395 18,050,167
Third mortgage note 5,982,000 5,779,500
Due to guarantor of operating deficits 2,336,372 2,243,984
Deferred gain on debt forgiveness 72,954,829 83,258,456
Deferred revenue and security deposits 263,566 355,915
------------- -------------
Total liabilities 171,915,521 187,100,017
------------- -------------
Commitments and contingencies (note 6)
Partners' deficit (80,470,573) (93,170,936)
------------- -------------
Total liabilities and partners' deficit $ 91,444,948 $ 93,929,081
============= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-2-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
----------------------------- -----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Rooms $ 3,038,829 $ 2,745,003 $ 9,216,646 $ 8,810,398
Food and beverage 1,136,926 978,400 3,697,329 3,414,830
Telephone 171,163 140,371 500,029 442,470
Office retail and parking rentals 2,327,789 2,071,864 6,966,858 6,741,173
Other 14,741 31,013 65,206 67,738
------------ ------------ ------------ ------------
6,689,448 5,966,651 20,446,068 19,476,609
------------ ------------ ------------ ------------
Departmental expenses:
Rooms 598,731 584,592 1,842,011 1,820,229
Food and beverage 885,115 776,820 2,794,864 2,544,843
Telephone 95,476 97,827 294,070 309,606
Other -- -- 511 --
------------ ------------ ------------ ------------
1,579,322 1,459,239 4,931,456 4,674,678
------------ ------------ ------------ ------------
Gross operating income 5,110,126 4,507,412 15,514,612 14,801,931
------------ ------------ ------------ ------------
Unallocated operating expenses:
Administrative 420,532 435,272 1,282,943 1,266,386
Marketing 364,300 351,927 1,098,257 1,083,296
Energy costs 558,827 559,058 1,404,497 1,391,566
Property operations and maintenance 475,977 514,907 1,546,968 1,535,720
------------ ------------ ------------ ------------
1,819,636 1,861,164 5,332,665 5,276,968
------------ ------------ ------------ ------------
Operating income before interest and other
income, fixed charges and other deductions
and extraordinary item - gain on debt forgiveness 3,290,490 2,646,248 10,181,947 9,524,963
------------ ------------ ------------ ------------
Interest and other income 11,770 6,959 28,929 26,709
------------ ------------ ------------ ------------
Fixed charges and other deductions:
Depreciation 1,209,514 1,200,000 3,628,542 3,600,000
Amortization 197,667 92,566 593,001 277,698
Interest expense 188,842 207,974 566,835 619,960
Management fees 257,733 216,325 834,527 681,020
Real estate and personal property taxes 255,978 281,225 820,319 834,811
Ground rent 400,000 400,000 1,200,000 1,200,000
Net cash flow participation -- -- -- 150,000
Other 134,181 136,939 437,432 555,075
------------ ------------ ------------ ------------
2,643,915 2,535,029 8,080,656 7,918,564
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-3-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS - Continued
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
----------------------------- -----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income before extraordinary item -
gain on debt forgiveness 658,345 118,178 2,130,220 1,633,108
Extraordinary item-gain on debt forgiveness 3,516,674 3,496,050 10,570,143 10,727,222
------------ ------------ ------------ ------------
Net income 4,175,019 3,614,228 12,700,363 12,360,330
Net income attributed to minority interest (4,183,281) (3,628,215) (12,724,598) (12,388,975)
------------ ------------ ------------ ------------
Net loss attributed to Partnership $ (8,262) $ (13,987) $ (24,235) $ (28,645)
============ ============ ============ ============
Net loss allocated to general
partners and affiliated initial
limited partner (1.01%) $ (84) $ (141) $ (245) $ (289)
============ ============ ============ ============
Net loss allocated to additional
limited partners (98.99%) $ (8,178) $ (13,846) $ (23,990) $ (28,356)
============ ============ ============ ============
Net loss allocated to limited
partners per unit $ (13.63) $ (23.08) $ (39.98) $ (47.26)
============ ============ ============ ============
Limited partnership units
issued and outstanding 600 600 600 600
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-4-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
For the nine months ended September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Losses not
General Limited Allocable
Partners Partners to Partners Total
--------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $(529,079) $351,801 $ (92,993,658) $ (93,170,936)
Net loss attributed to Partnership (245) (23,990) -- (24,235)
Net income attributed to minority
interest (Note 2) -- -- 12,724,598 12,724,598
--------- -------- ------------- -------------
Balance, September 30, 1996 $(529,324) $327,811 $ (80,269,060) $ (80,470,573)
========= ======== ============= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-5-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
-------------------------------
1996 1995
------------ ------------
<S> <C><C>
Cash flows from operating activities:
Net income $ 12,700,363 $ 12,360,330
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 3,628,542 3,600,000
Amortization 593,001 277,698
Extraordinary item-gain on debt forgiveness (10,570,143) (10,727,222)
Interest expense related to the amortization of financing costs 188,463 188,500
Net interest expense added to debt 294,888 349,020
Interest payments treated as a reduction in mortgage debt (4,722,239) (4,931,800)
Changes in assets and liabilities:
Decrease in restricted cash and cash equivalents 402,439 238,427
Decrease (increase) in accounts receivable, net 30,099 (45,681)
Increase in prepaid expenses (207,230) (285,135)
Decrease in inventory and other 10,567 10,673
Decrease in deferred rent receivable, net -- 338,124
(Increase) decrease in escrows and deposits (306,059) 155,949
Increase in accounts payable 107,326 7,055
Increase in accrued expenses 82,049 338,287
Increase in other liabilities 1,500 850
(Decrease)increase in deferred revenue and security deposits (92,349) 236,573
------------ ------------
Net cash provided by operating activities 2,141,217 2,111,648
------------ ------------
Cash flows from investing activities:
Purchase of building improvements (711,748) (631,034)
Purchase of furniture and equipment (244,703) (545,869)
Payment of leasing costs (908,812) (261,759)
------------ ------------
Net cash used in investing activities (1,865,263) (1,438,662)
------------ ------------
Cash flows from financing activities:
Net payment of debt (336,120) (758,334)
Proceeds from advances from affiliates 109,443 113,025
Repayment of advances from affiliates (58,850) --
------------ ------------
Net cash used in financing activities (285,527) (645,309)
------------ ------------
Net (decrease) increase in cash and cash equivalents (9,573) 27,677
Cash and cash equivalents, beginning of period 1,351,524 1,649,561
------------ ------------
Cash and cash equivalents, end of period $ 1,341,951 $ 1,677,238
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 4,722,239 $ 4,931,800
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-6-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
In the opinion of C.R.I., Inc. (CRI), the Managing General Partner, the
accompanying unaudited consolidated financial statements of Capital Income
Properties-C Limited Partnership (the Partnership) contain all adjustments of a
normal recurring nature necessary to present fairly the Partnership's
consolidated financial position as of September 30, 1996 and December 31, 1995
and the results of its consolidated operations for the three and nine months
ended September 30, 1996 and 1995 and its consolidated cash flows for the nine
months ended September 30, 1996 and 1995.
These unaudited consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. While CRI believes that the disclosures
presented are adequate to make the information not misleading, it is suggested
that these consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes included in the Partnership's
annual report filed on Form 10-K for the year ended December 31, 1995.
Certain amounts in the 1995 financial statements have been reclassified to
conform to the 1996 presentation. The results for the nine months in the period
ended September 30, 1996 are not necessarily indicative of the results expected
for the entire year.
2. THE PARTNERSHIP
The Partnership, a District of Columbia limited partnership, was organized
as of December 15, 1984. The purpose of the Partnership is to invest in real
estate by acquiring and holding a limited partnership interest in Bethesda Metro
Center Limited Partnership (BMCLP). BMCLP owns and operates a 381-room hotel
known as the Hyatt Regency Bethesda Hotel (the Hotel) and an office building
known as Bethesda Metro Office Building (the Office Building) located in
Bethesda, Maryland, containing approximately 336,000 square feet of net rentable
office space and approximately 18,000 square feet of net rentable retail space.
In addition, attached to the structure is a parking facility for approximately
1,300 cars serving the entire development.
CRI, as Managing General Partner of the Partnership, has a 0.01% general
partner interest. Other general partner interests which total 0.99% are held by
three individuals affiliated (or formerly affiliated) with CRI. The total
limited partner interest of 99% is comprised of 0.01% owned by CRICO-Bethesda
Growth Partners Limited Partnership, the affiliated Initial Limited Partner, and
the remaining 98.99% interest is widely held by unrelated parties. On June 15,
1992, pursuant to a debt modification with BMCLP's former first mortgage lender,
C.R.C.C. of Bethesda, Inc. (CRCC) replaced the managing general partners of
BMCLP (unrelated parties hereinafter referred to as Special Limited Partners).
Since CRCC is a wholly owned affiliate of CRI, the accompanying unaudited
financial statements as of September 30, 1996 and December 31, 1995 and for each
of the three-month and nine-month periods ended September 30, 1996 and 1995 have
been consolidated with BMCLP.
Although an entity affiliated with the Partnership has assumed
responsibility for management of BMCLP and the Partnership has consolidated its
-7-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. THE PARTNERSHIP - Continued
interest therein in the accompanying financial statements, the Partnership has
not assumed responsibility for any past or future operating deficits of BMCLP.
The deficit in partners' capital generated by activity at BMCLP remains the
obligation of the Special Limited Partners of BMCLP.
Therefore, of the total partners deficit of $80,470,573 and $93,170,936 as
of September 30, 1996 and December 31, 1995, respectively, $80,269,060 and
$92,993,658, respectively, are not attributable to the partners of the
Partnership. Rather, they are attributable to the Special Limited Partners of
BMCLP. The amounts attributable to the Special Limited Partners as of September
30, 1996 and December 31, 1995 are comprised of cumulative BMCLP losses in
excess of the Partnership s investment in BMCLP as of June 15, 1992 of
$77,472,839, and cumulative net BMCLP losses of $2,796,221 and $15,520,819 as of
September 30, 1996 and December 31, 1995, respectively. BMCLP losses subsequent
to June 15, 1992, have been consolidated into the operating accounts of the
Partnership in the accompanying consolidated statements of operations.
3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP
The Partnership invested $42,500,100 in cash in BMCLP through September 30,
1996, to acquire a 92.5% limited partnership interest. BMCLP losses before June
15, 1992, were not recorded in the accompanying financial statements of the
Partnership since cumulative BMCLP losses exceeded the Partnership's investment
in 1992. Prior to June 15, 1992, the Partnership's investment in BMCLP was
accounted for under the equity method which prohibits the recognition of
investment losses in excess of the original investment. However, subsequent to
June 15, 1992, the Partnership's investment in BMCLP has been consolidated in
the accompanying financial statements (see Note 2).
Condensed financial information of the Partnership on an unconsolidated
basis is as follows:
-8-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP - Continued
<TABLE>
<CAPTION>
BALANCE SHEETS
--------------
As of As of
September 30, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
Total assets $ 116 $ 116
============ ============
Accounts payable $ 201,629 $ 177,394
Partners' deficit (201,513) (177,278)
------------ ------------
Total liabilities and partners' deficit $ 116 $ 116
============ ============
</TABLE>
STATEMENTS OF OPERATIONS
------------------------
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
----------------------------- -----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Professional fees $ 4,925 $ 12,250 $ 18,550 $ 20,662
Other expenses 3,337 1,737 5,685 7,983
------------ ------------ ------------ ------------
Net loss $ 8,262 $ 13,987 $ 24,235 $ 28,645
============ ============ ============ ============
</TABLE>
-9-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP - Continued
Condensed financial information of BMCLP on an unconsolidated basis
is as follows:
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
As of As of
September 30, December 31,
1996 1995
------------- -------------
(Unaudited)
<S> <C> <C>
Investment in real estate, at cost, net $ 83,046,844 $ 85,718,935
Current assets 5,087,623 5,333,071
Other assets 3,310,365 2,876,959
------------- -------------
Total assets $ 91,444,832 $ 93,928,965
============= =============
Current liabilities $ 10,127,790 $ 10,117,522
Other liabilities 161,586,102 176,805,101
Partners' deficit (80,269,060) (92,993,658)
------------- -------------
Total liabilities and partners' deficit $ 91,444,832 $ 93,928,965
============= =============
</TABLE>
STATEMENTS OF OPERATIONS
------------------------
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
----------------------------- -----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 6,701,218 $ 5,973,610 $ 20,474,997 $ 19,503,318
Expenses (6,034,611) (5,841,445) (18,320,542) (17,841,565)
------------ ------------ ------------ ------------
Income before extraordinary item 666,607 132,165 2,154,455 1,661,753
Extraordinary item-gain on debt forgiveness 3,516,674 3,496,050 10,570,143 10,727,222
------------ ------------ ------------ ------------
Net income $ 4,183,281 $ 3,628,215 $ 12,724,598 $ 12,388,975
============ ============ ============ ============
</TABLE>
-10-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP - Continued
On November 16, 1994, BMCLP's lender sold its first and second mortgage
notes (collectively, the Notes) to BMC Lender Partnership (BMC), an unaffiliated
entity. BMC sold the first mortgage note to General Electric Capital
Corporation (GECC) which amended and restated the first mortgage note (the
Restated First Mortgage Note) to a principal amount of $48,000,000. BMC amended
and restated the second mortgage note (the Restated Second Mortgage Note)
(collectively, the Restated Notes) to a principal amount of $10,000,000 advanced
at closing.
The Restated First Mortgage Note requires monthly interest payments in
arrears, payable at 4.25% in excess of the GECC Composite Commercial Rate which
at September 30, 1996 and December 31, 1995 was 5.49% and 5.81%, respectively.
In addition to monthly interest payments, monthly principal payments are due in
the amount of $108,333. Furthermore, if a major tenant of the Office Building,
as defined in the Restated First Mortgage Note agreement, shall not exercise
their option to renew or cancels their lease, additional principal payments
equal to 100% of net cash flow, as defined, must be remitted to GECC. These
payments must continue until the space vacated is 93% rented and other minimum
financial conditions are met. All unpaid principal is due at the maturity date
which is November 30, 2001. Additional advances may be made by GECC in an
aggregate amount not to exceed 50% of all previously made principal payments.
Any additional advances are generally intended to fund tenant improvements,
leasing costs and other capital improvements but may be used to fund other cash
flow needs as well. During the nine months ended September 30, 1996 and 1995,
GECC advanced $638,877 and $216,666, respectively, to BMCLP for tenant
improvements.
Additionally, under the terms of the Restated First Mortgage Note, an
interest reserve account to be used as additional collateral under the Restated
First Mortgage Note must be established. Monthly payments of $23,125 must be
made into this reserve beginning January 1, 1995 through December 1, 1998. As
of September 30, 1996 and December 31, 1995, $485,625 and $277,500,
respectively, had been deposited into the interest reserve account and is
reflected in restricted cash and cash equivalents on the accompanying
consolidated balance sheet.
The Restated Second Mortgage Note stipulates that 16% interest is payable
monthly from available cash flow, as defined, on a cumulative basis. Based on
the provisions of the Restated Second Mortgage Note, BMCLP's cash flow from
operations shall be disbursed in the following priority:
(a) Debt service and reserves on the Restated First Mortgage Note.
(b) Establishment of working capital reserves of $50,000 plus an amount
reasonably required to pay ordinary and necessary expenses of
operations.
(c) Debt service on the Restated Second Mortgage Note, to the extent of
available cash flow.
(d) Principal and interest on additional advances, as discussed below, if
any, made to BMCLP by BMC.
-11-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP - Continued
(e) 75% of the remaining net cash flow (as defined) to BMC and 25% of the
remaining net cash flow to BMCLP (less up to $50,000 per year to cover
management and administrative costs of the Partnership and/or CRCC),
subject to the establishment of the reserves as stipulated in the
agreement, as discussed below.
Furthermore, BMC is entitled to an Economic Value Participation Interest
(as defined) which requires BMCLP to pay the following at the sale or
refinancing of the property or the maturity date of the Restated Notes.
(a) 75% of the amount by which the Economic Value (as defined) of the
Hotel and Office Building (the Development), up to $100 million,
exceeds the unpaid principal balance and accrued interest under the
Restated Notes, and
(b) 50% of the Economic Value in excess of $100 million.
In general, the Economic Value is defined by the Restated Second Mortgage
Note as the value of the Development as determined by the Partnership or the
average of three independent appraisals if deemed necessary by BMC.
The Restated Second Mortgage Note is due on November 30, 2001 and no
principal payments are required until then. However, any amounts remitted to
BMC with respect to its 75% net cash flow participation described above may be
re-advanced to BMCLP for payment of debt service on the Restated First Mortgage
Note, repairs, capital improvements, leasing commissions, tenant concessions and
improvements, taxes and ground lease payments. These advances are limited to
75% of the total amount required to fund these items. The remaining 25% must be
funded by BMCLP. BMC has reserved the right, but does not have the obligation,
to make up to $5,000,000 in additional advances that would be secured under its
Restated Second Mortgage Note. These additional advances would carry an
interest rate of 18% payable from available net cash flow, as defined, and would
also be due on November 30, 2001. As of November 8, 1996, no additional
advances have been made.
Additionally, under the terms of the Restated Second Mortgage Note, the
Partnership received working capital reserves as proceeds in connection with the
November 16, 1994 debt restructuring. These funds are held by BMC in an escrow
account and can be used by BMCLP to fund any operating expenses without
limitation by demonstrating the need for such funds to BMC. As of September 30,
1996 and December 31, 1995, balances in the escrow account totalled $73,654 and
$738,654, respectively. On February 1, 1996 and April 5, 1996, BMC released
$580,000 and $135,000, respectively to BMCLP to fund costs of leasing and
operating expenses. On July 31, 1996, BMCLP deposited $50,000 to replenish the
reserve.
-12-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP - Continued
In connection with the restructuring on November 16, 1994, the Third
Mortgage Note was amended to provide that interest is due and payable annually
only to the extent funds are available after taking into account payment of
amounts due and payable on the Restated Notes and a payment of up to $50,000 per
year to CRCC and/or the Partnership to cover costs of management and
administration. Accrued but unpaid interest shall be deferred without interest
and be paid, together with the outstanding principal balance of the Third
Mortgage Note, upon the earliest of: (i) sale of the assets of BMCLP; (ii)
refinancing of the Restated Notes for an amount in excess of the aggregate
outstanding principal balances due thereunder; or (iii) one day later than the
later of any maturity date under the Restated Notes. As of September 30, 1996
and December 31, 1995, accrued interest of $2,982,000 and $2,779,500,
respectively, has been added to the outstanding principal balance of $3,000,000
in accordance with the amended Third Mortgage Note. No net cash flow as defined
in the agreement was available for repayment of this note during the nine months
ended September 30, 1996.
Debt Forgiveness
----------------
BMCLP's outstanding obligation under the First Restated Note prior to the
restructuring was $178,373,753. The carrying amount of the outstanding
principal and accrued interest that was forgiven based on the assignment and
subsequent restatement of the First Mortgage Note is presented as deferred gain
on debt forgiveness in the consolidated balance sheets. This amount is being
amortized as an extraordinary gain over the remaining term of the Restated First
Mortgage Note based on a constant effective yield as required by Statement of
Financial Accounting Standards No. 15 (SFAS 15), "Accounting by Debtors and
Creditors for Troubled Debt Restructurings".
Based on the Restated First Mortgage Note s interest rate of 9.74% and
10.06% in effect at September 30, 1996 and December 31, 1995, respectively, and
the monthly principal curtailments of $108,333 as stipulated in the Restated
First Mortgage Note, the estimated total future obligation for principal and
interest is $68,847,055 and $73,150,159 at September 30, 1996 and December 31,
1995, respectively. Although these obligations are lower than the combined
obligations of the Restated First Mortgage Note and the deferred gain on debt
forgiveness (which totalled $141,801,884 and $156,408,615 at September 30, 1996
and December 31, 1995, respectively) SFAS 15 does not permit the entire
difference to be recognized as an extraordinary gain at the time of the
restructuring as the Restated First Mortgage Note s interest rate is variable,
which makes the amount of future debt-service payments contingent upon changes
in the index upon which the interest rate is calculated. Accordingly, the
$72,954,829 and $83,258,456 difference between the carrying value and total
future obligation of the debt at September 30, 1996 and December 31, 1995,
respectively, was deferred and is being amortized as an extraordinary gain in
the consolidated statements of operations using the effective interest method
over the term of the Restated First Mortgage Note.
As a result of the fluctuations of the interest rate on the Restated First
Mortgage Note, the Partnership continues to remeasure the total future
obligation for principal and interest based upon changes in the underlying
index, as discussed above. Differences in the future obligation resulting from
-13-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP - Continued
interest rate changes are reflected as a reclassification between the Restated
First Mortgage Note and deferred gain on debt forgiveness. For the nine months
ended September 30, 1996, $461,411 was reclassified from the Restated First
Mortgage Note to the deferred gain on debt forgiveness resulting from decreases
in the future obligation based on decreases in the underlying index. For the
nine months ended September 30, 1995, $3,733,376 was reclassified from the
deferred gain on debt forgiveness to the Restated First Mortgage Note resulting
from increases in the future obligation based on increases in the underlying
index. The adjusted deferred gain on debt forgiveness will be amortized as
extraordinary gain over the remaining term of the Restated First Mortgage Note.
For the three and nine months ended September 30, 1996, amortization of
this deferred debt forgiveness amounted to $3,581,639 and $10,765,038,
respectively, and $3,561,015 and $10,922,117 for the three and nine months ended
September 30, 1995, respectively. The amortization of deferred gain is included
in the extraordinary item of $3,516,674 and $10,570,143 for the three and nine
months ended September 30, 1996, respectively, and $3,496,050 and $10,727,222
for the three and nine months ended September 30, 1995, respectively, in the
consolidated statements of operations, as it is shown net of the interest
expense on the Restated Second Mortgage Note of $64,965 and $194,895, for the
three and nine months ended September 30, 1996, respectively, and $64,965 and
$194,895 for the three and nine months ended September 30, 1995, respectively,
as discussed below.
With regard to the Restated Second Mortgage Note, the total estimated
future obligation for payment of principal and interest based on the fixed
interest rate of 16% is $21,200,000. This amount exceeds the carrying value of
the Restated Second Mortgage Note at November 16, 1994, of $19,380,974. In
accordance with SFAS 15, this difference of $1,819,026 represents a constant
additional interest obligation based on the fixed interest rate, and is to be
amortized as a reduction of the extraordinary gain on the Restated First
Mortgage Note at $21,655 per month through maturity, using the effective
interest method, over the term of the Restated Second Mortgage Note.
Accordingly, accrual of this additional interest for the three and nine months
ended September 30, 1996 amounted to $64,965 and $194,895 respectively, and
$64,965 and $194,895 for the three and nine months ended September 30, 1995,
respectively, and was added to the principal balance of the Restated Second
Mortgage Note.
4. RELATED-PARTY TRANSACTIONS
A summary of indebtedness to affiliates of $3,080,238 and $3,029,645 as of
September 30, 1996 and December 31, 1995, respectively, is presented below:
-14-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. RELATED-PARTY TRANSACTIONS - Continued
<TABLE>
<CAPTION>
Balance at Additions Balance at
Related-Party December 31, 1995 (Payments) September 30, 1996
------------- ----------------- --------- -------------------
<S> <C> <C> <C>
CRI $ 289,659 $ 44,132 $ 333,791
CHG 1,128,700 65,311 1,194,011
Realty 972,233 -- 972,233
Hyatt 639,053 (58,850) 580,203
----------- --------- -----------
$ 3,029,645 $ 50,593 $ 3,080,238
=========== ========= ===========
</TABLE>
The $333,791 and $289,659 due to CRI as of September 30, 1996 and December
31, 1995, respectively, is partially comprised of $107,103 of advances to BMCLP
to fund certain payments due on its mortgages with BMCLP's former lender. The
remaining amount due to CRI is comprised of advances to the Partnership to fund
operating deficits and accrued interest on advances. In addition, $1,040,285 of
the $1,194,011 and $1,128,700 due to CHG as of September 30, 1996 and December
31, 1995, respectively, and $972,233 due to Realty as of September 30, 1996 and
December 31, 1995 were also advanced to BMCLP to fund certain payments on the
its mortgage notes with its former lender. The advances from CRI and CHG accrue
interest at the prime rate plus 1% in accordance with the Partnership Agreement
whereas the amount due to Realty is non-interest bearing. These advances plus
any accrued interest will be repaid subject to cash availability as defined by
the Partnership Agreement and the Restated Notes Agreements, as discussed in
Note 3. Finally, the $580,203 and $639,053 due to Hyatt as of September 30,
1996 and December 31, 1995, respectively, consists of $364,187 of incentive
management fees earned under its management agreement with BMCLP and is due
subject to Hyatt meeting certain performance standards as defined in the
Management Agreement. The remaining balances consist of trade payables to Hyatt
for various services as described in Note 6.
CRCC and/or the Partnership may receive an annual payment of up to $50,000
to cover costs of management and administration, to the extent that funds are
available after payment of amounts due on the Restated First and Second Mortgage
Notes, as discussed in Note 3. CRCC received a payment of $50,000 on January
31, 1995 from remaining net cash flow relating to 1994. Additionally, $50,000
was accrued as of December 31, 1995 for fiscal year 1995 management fees in the
consolidated balance sheets. This amount was paid on June 12, 1996.
-15-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. RELATED-PARTY TRANSACTIONS - Continued
CIP Management 14, Inc., an affiliate of the Managing General Partner, may
receive an incentive management fee on a noncumulative annual basis commencing
in 1987 equal to 9.08% of net cash flow after payment of certain priorities set
forth in the partnership agreement. No incentive management fee has been
incurred or paid for the nine months ended September 30, 1996 and 1995.
During 1995, BMCLP entered into transactions with the Keystone Group, a
former affiliate of one of BMCLP's Special Limited Partners, to provide for the
construction of tenant improvements and capital improvements in the Office
Building. For the three and nine months ended September 30, 1995, $160,808 and
$273,719, respectively, was paid to the Keystone Group. In 1995, the
Partnership was informed by the Special Limited Partner that the Keystone Group
was no longer affiliated with the Special Limited Partner.
As discussed in Note 6, Realty, an affiliate of one of the Special Limited
Partners, provides management services related to the Office Building and, as
discussed in Note 3, Iroquois, which is also an affiliate of the Special Limited
Partners, has provided financing through the Third Mortgage Note.
Provident Commercial, an affiliate of one of BMCLP's Special Limited
Partners, may receive free use of 9,719 square feet of office space until
October 31, 2000. BMCLP estimates that the value of this rent-free office space
is approximately $29,875 per quarter ($12.30 per square foot).
5. ALLOCATION OF PROFITS, LOSSES AND DISTRIBUTIONS OF CASH FLOW
In accordance with the Partnership Agreement, 1% of the Allowable Net Loss
has been allocated to the general partners, and 99% of the Allowable Net Loss
has been allocated to the limited partners. Allocations of cash flow
distributions are specified in the Partnership Agreement.
6. COMMITMENTS AND CONTINGENCIES
Management Agreements
- ---------------------
BMCLP entered into a management agreement with Hyatt in March 1982,
pursuant to which Hyatt is to manage the Hotel commencing from the date the
Hotel opened through December 31, 2015. Based on the management agreement,
Hyatt is to be paid a management fee consisting of a basic management fee of 4%
of gross revenues, as defined, and an incentive management fee which is
calculated based on 20% of the adjusted gross operating profit, as defined. In
1992, in connection with a loan modification completed by BMCLP, Hyatt agreed to
reduce its basic management fee from 4% to 3% from December 31, 1991 to December
31, 1995. As of January 1, 1996, the basic management fee has returned to 4%.
Management fees paid to Hyatt for the three and nine months ended September 30,
1996, were approximately $174,000 and $539,000, respectively, and for the three
and nine months ended September 30, 1995 were approximately $117,000 and
$382,000, respectively.
Pursuant to the management agreement, Hyatt also provides chain services
to the Hotel such as promotion services, advertising, centralized reservation
services, for which BMCLP is to pay its allocable share of Hyatt expenses. As
-16-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. COMMITMENTS AND CONTINGENCIES - Continued
of September 30, 1996 and December 31, 1995, approximately $216,000 and
$275,000, respectively, of this related party payable are recorded as due to
affiliates in the accompanying consolidated financial statements.
The management agreement provides for the establishment of a property
improvement fund. Contributions to the property improvement fund are equal to
3% of gross Hotel revenues (as defined). Unexpended reserves are recorded as
escrows and deposits within the accompanying financial statements. The reserve
balances included in escrows and deposits at September 30, 1996 and December 31,
1995, were approximately $421,000 and $114,000, respectively.
BMCLP entered into a management agreement with Realty, an affiliate of one
of the Special Limited Partners, dated January 31, 1985, pursuant to which
Realty is to manage the Office Building for a term of 20 years commencing from
the date the Office Building opened. Under the terms of this agreement, Realty
receives a monthly management fee equal to 4% of all income collected from the
operation of the Office Building. Realty had agreed to allow BMCLP to defer
payments of all management fees, effective January 1, 1992, through the date of
the restructuring of the original mortgage debt. In connection with the debt
restructuring which occurred November 16, 1994, BMC paid Realty $1,000,000 to
terminate its former management contract with BMCLP. At that time BMCLP entered
into a new management contract with Realty for a term of one year which will
automatically renew for successive one year periods so long as Realty is not
then in default of the management contract. The agreement provides for a
management fee in the amount of 4% of total revenues. Of this amount, one-half
shall be paid by Realty to BMC, during the term of the Restated Second Mortgage
Note, in partial consideration for the $1,000,000 payment to terminate the
original contract. Management fees for the three and nine months ended
September 30, 1996, were approximately $83,000 and $295,000, respectively and
approximately $100,000 and $299,000 for the three and nine months ended
September 30, 1995, respectively.
BMCLP constructed its buildings on land it leases from the Washington
Metropolitan Area Transit Authority (WMATA). WMATA asserted claims against
BMCLP concerning the deterioration of the concrete slab in areas that WMATA has
used as a bus terminal and Kiss & Ride area since 1985. WMATA asserted that the
deterioration is due to construction defects, but BMCLP takes the position that
the deterioration is due to improper maintenance. The deterioration has reached
the point that BMCLP's parking garage, which underlies the concrete slab, could
be damaged. Accordingly, although BMCLP denies any legal liability for the
repair of the concrete slab, it has agreed to contribute $100,000 toward repair
of the deck in exchange for a full release of any and all claims WMATA may have
with respect to the design and construction issues. The estimated cost for
repair is approximately $1,000,000, of which WMATA will pay all but the $100,000
contributed by BMCLP. BMCLP has negotiated a form of release with WMATA, and in
July 1996 submitted it together with the $100,000. On September 26, 1996 a form
of release and a settlement agreement was signed thus releasing BMCLP from any
liability over $100,000. The settlement agreement specifies work to be
performed and WMATA's use of BMCLP's parking garage space for structural shoring
during its repairs of the overhead concrete deck. The $100,000 is being held in
a trust until the work is completed or until WMATA requests payment.
-17-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Liquidity
---------
The Registrant does not have adequate cash reserves or any source of cash
to fund its projected cash requirements in 1996, which are principally comprised
of professional fees and administrative expenses. Additionally, based on the
projected operating performance of Bethesda Metro Center Limited Partnership
(BMCLP), it is unlikely that the Registrant will receive any cash distribution
from its investment in BMCLP in 1996 due to priorities established for
distribution of excess cash flow pursuant to the restructuring of BMCLP's
mortgage notes. However, the Managing General Partner of the Registrant has
represented a willingness to fund projected cash flow requirements of the
Registrant for the year ending December 31, 1996.
At September 30, 1996 and December 31, 1995, the Registrant had $116 in
available cash.
During the first nine months of 1996, the Registrant recorded a $24,235
increase in accounts payable. The increase in accounts payable includes an
increase of $25,960 in loan payable to its Managing General Partner for
administrative expenses and a decrease of $1,725 in third-party payables.
Capital Resources
-----------------
BMCLP, of which the Registrant owns a 92.5% limited partnership interest,
had unrestricted cash and cash equivalents of $1,341,835 and $1,351,408 at
September 30, 1996 and December 31, 1995, respectively. BMCLP had restricted
cash and cash equivalents of $1,205,531 and $1,607,970 at September 30, 1996 and
December 31, 1995, respectively. During the first nine months of 1996,
unrestricted cash and cash equivalents decreased $9,573 despite net income of
$12,724,598. This was largely due to the non-cash gain on debt forgiveness of
$10,570,143, net debt and interest payments of $5,058,359, and fixed asset
additions and payment of leasing costs of $956,451 and $908,812, respectively,
which were offset by depreciation and amortization totaling $4,221,543, and a
decrease of restricted cash of $402,439 along with the increase of accounts
payable of $107,326.
Operating Deficit Reserve
-------------------------
For operating deficits which arise, the Limited Partnership Agreement (LPA)
provides that Alan I. Kay and Allen E. Rozansky and their affiliates
(collectively, R&K) are required to loan, or cause to be loaned, all amounts
necessary to pay operating deficits (Operating Deficit Loans) up to an aggregate
principal amount of $15,600,000. R&K and the Partnership have agreed that the
former Second Mortgage Note of $10,000,000 was an Operating Deficit Loan "caused
to be" made to BMCLP by R&K. Further, R&K's Operating Deficit Loan obligation
limit of $15,600,000 was increased by (i) an amount equal to the net positive
difference between the interest due and payable under the original terms of the
First Mortgage Note and the interest due and payable under the original First
Mortgage Note as a result of the third loan modification and (ii) the amount
that interest accruing on the original Second Mortgage Note exceeded the
interest that would have accrued had the loan been made directly by R&K. At
September 30, 1996, BMCLP estimates that R&K's total operating deficit
-18-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
obligation has increased to approximately $29,000,000, although R&K does not
concur with this amount. As of September 30, 1996 and December 31, 1995, R&K
has provided $2,336,372 and $2,243,984, respectively, including accrued
interest, to BMCLP to fund operating deficits under this provision of the LPA.
This amount is net of $342,734 which is due from the Alan I. Kay Companies, an
affiliate of Alan I. Kay, for advances from BMCLP. Interest on amounts advanced
to BMCLP for operating deficits is accrued at the prime rate plus 1% and will be
repaid subject to the terms of the Restated Notes and then out of 50% of cash
flow available after payment of certain priorities as set forth in the BMCLP
partnership agreement. Cumulative interest accrued on these advances was
$1,097,485 and $1,005,097 at September 30, 1996 and December 31, 1995,
respectively, and has been added to the original advance amount. For the nine
months ended September 30, 1996 and 1995, no amounts were advanced to BMCLP for
operating deficits because R&K has represented that their net worth is not
significant, their assets are very illiquid and they do not have resources to
meet their operating deficit obligations.
In accordance with the terms of the Restated First and Second Mortgage
Notes dated November 16, 1994, BMCLP has several additional resources to fund
current operating deficits. If BMCLP requires funds to pay for capital
improvements, tenant improvements, leasing commissions, etc., and is in
compliance with the conditions stated in the Restated First Mortgage Note, GECC
shall advance for such purposes up to 50% of the amounts previously paid by
BMCLP as principal payments. During the nine months ended September 30, 1996
and 1995, GECC advanced $638,877 and $216,666, respectively, to BMCLP for tenant
improvements.
Upon approval of BMC Lender Partnership (BMC), BMCLP may draw upon the
$1,038,654 that was placed in an escrow account at the closing of the Restated
Second Mortgage Note. These funds may be used to pay operating expenses
including capital improvements, tenant improvements and leasing commissions of
the Development including payments under the Restated Notes. On April 3, 1995,
BMCLP withdrew $400,000 from the escrow account to help pay the interest due on
the Restated Second Mortgage Note. BMCLP deposited $100,000 into the escrow
account on April 18, 1995. On February 1, 1996 and April 5, 1996, BMCLP
withdrew $580,000 and $135,000, respectively, from the escrow account to help
pay operating expenses including capital improvements, tenant improvements and
leasing commissions. On July 31, 1996 BMCLP deposited $50,000 into the escrow
account.
BMC may advance additional amounts up to $5,000,000 to BMCLP in accordance
with the Restated Second Mortgage Note. Also, BMC may re-advance funds received
from BMCLP as additional interest payments (75% net cash flow) if BMCLP pays its
25% share of net cash flow held in reserves. No advances were made by BMC to
BMCLP in 1996 or 1995.
-19-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
Results of Operations
---------------------
Registrant
- ----------
Three months ended September 30, 1996 in comparison with
- --------------------------------------------------------
September 30, 1995
------------------
The Registrant recorded a net loss for the three months ended September 30,
1996 of $8,262 as compared with a net loss of $13,987 for the corresponding
period in 1995. Operating expenses during the third quarter of 1996 were $5,725
lower than 1995 primarily due to the timing of accounting and auditing fees.
Nine months ended September 30, 1996 in comparison with
- -------------------------------------------------------
September 30, 1995
------------------
The Registrant recorded a net loss for the nine months ended September 30,
1996 of $24,235 as compared with a net loss of $28,645 for the corresponding
period in 1995. Operating expenses during the nine months ended September 30,
1996 were $4,410 lower than 1995 primarily due to timing of accounting and
auditing fees.
Bethesda Metro Center Limited Partnership
- -----------------------------------------
Three months ended September 30, 1996 in comparison with
- --------------------------------------------------------
September 30, 1995
------------------
BMCLP's net income for the third quarter of 1996 increased $555,066 or 15%
from the corresponding period in 1995, primarily as a result of an increase in
room revenue, food and beverage revenue, telephone revenue and office retail and
parking rentals revenue. BMCLP's net income also increased due to a reduction
in administrative expense, property operations and maintenance expense, interest
expense and real estate and personal property taxes. BMCLP's increase in net
income was also due to the increase in the extraordinary gain on debt
forgiveness due to the fluctuations in the underlying debt interest rate.
Partially offsetting the increase in BMCLP's net income was an increase in food
and beverage expenses, amortization expense due to an increase in deferred
charges and an increase in the hotel's management fees paid due to an increase
from 3% to 4% in 1996.
Room revenue increased $293,826 or 11% from the third quarter of 1995.
Hotel occupancy increased 4% due to a strong July. Food and beverage revenues
increased $158,526 or 16% from the same period last year as a result of strong
social and group banquet business. Telephone revenue increased $30,792 or 22%
due to an increase in long distance revenue. Other revenue decreased $16,272 or
52% primarily due to a decrease in late departure fees and a sales tax refund
received in 1995. The increases in room revenue, food and beverage revenues and
-20-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
telephone revenue resulted in third quarter gross operating profits which
exceeded the same period last year by approximately $352,223 or 27%.
Office building revenue for the third quarter of 1996 increased $255,925 or
12% from the third quarter of 1995. The occupancy of the office building
increased from 94% to 99% for the third quarter of 1996, due to several new
leases that were signed. The retail and marketplace occupancy increased from
77% to 93% primarily due to the reclassification of 4,155 square feet of retail
space to office space. The retail and marketplace average rental rate decreased
from $35 to $33 during the third quarter of 1996 as compared to 1995, primarily
due to new lease renegotiations.
Operating expenses of the office building for the third quarter of 1996
decreased by $36,094 or 5% from the third quarter of 1995 primarily due to costs
incurred in 1995 for consulting fees relating to the WMATA issue, as described
above, and appraisal costs incurred related to the refinancing.
Nine months ended September 30, 1996 in comparison with
- -------------------------------------------------------
September 30, 1995
------------------
BMCLP's net income for the first nine months in 1996 increased $335,623 or
3% from the corresponding period in 1995, primarily as a result of an increase
in room revenue, food and beverage revenue, telephone revenue and office retail
and parking rentals revenue. Contributing to BMCLP's increase in net income was
a decrease in net cash flow participation, and a reduction of interest expense
and other expenses. BMCLP's net income was negatively impacted by an increase
in food and beverage expense, an increase in amortization expense as a result of
increased deferred charges along with a decrease in extraordinary gain on debt
forgiveness due to fluctuations in the underlying debt interest rate. Also
partially offsetting the increase in BMCLP's net income was an increase of
hotel's management fees due to an increase from 3% to 4% during 1996.
Room revenue increased $406,248, or 5% from the first nine months of 1995.
The Hotel's occupancy remained constant at 79%, and the average room rate
increased $5 to $112 compared to the first nine months of 1995. Food and
beverage revenues increased $282,499, or 8% from the same period last year as a
result of revenue growth in the banquet department. Telephone revenue increased
$57,559 or 13% primarily due to an increase in long distance calling. Other
revenue decreased $2,532 or 4% in comparison to the first nine months of 1995
primarily due to a reduction in late departure fees and a sales tax refund
received in 1995. Year to date gross operating profits exceeded last year by
$493,970 or 10%.
Office building revenue increased $225,685 or 3% during the first nine
months of 1996 compared with the first nine months of 1995 primarily due to an
increase in occupancy and rental rates. The occupancy of the Office Building
increased from 96% to 97% while the rental rate increased from $23 in the first
nine months of 1995 to $24 in the first nine months of 1996. The retail and
marketplace occupancy increased from 76% to 95% primarily due to the
reclassification of 4,155 square feet of retail space to office space. The
retail and marketplace average rental rate remained constant at $35.
-21-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
Operating expenses for the Office Building for the first nine months of
1996 increased by $62,671 or 3% primarily due to common area painting and
wallcovering and maintenance and repairs to the plaza, fountain and the HVAC
system.
The following tables outline pertinent unaudited data regarding the
operations of the hotel and office building:
-22-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
OFFICE BUILDING
---------------
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
---------------------------- -----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Leasing:
- -------
Average Space Occupied:
Office 99% 94% 97% 96%
Retail and Marketplace 93% 77% 95% 76%
Average Rental Rate:
Office $24 $24 $24 $23
Retail and Marketplace $33 $35 $35 $35
Operations:
- ----------
Total Income $ 2,327,789 $ 2,071,864 $ 6,966,858 $ 6,741,173
Operating Expenses (698,993) (735,087) (2,033,007) (1,970,336)
------------ ------------ ------------ ------------
Gross Operating Profits
(Before Depreciation, Management Fees and
Other Fixed Costs) $ 1,628,796 $ 1,336,777 $ 4,933,851 $ 4,770,837
============ ============ ============ ============
</TABLE>
HOTEL
---------------
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
----------------------------- -----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Actual Average Occupancy 79% 75% 79% 79%
Actual Average Room Rate $109 $104 $112 $107
Room Revenues $ 3,038,829 $ 2,745,003 $ 9,216,646 $ 8,810,398
Food & Beverage Revenues $ 1,136,926 $ 978,400 $ 3,697,329 $ 3,414,830
Room Profits $ 2,440,098 $ 2,160,411 $ 7,374,635 $ 6,990,169
Food & Beverage Profits $ 251,811 $ 201,580 $ 902,465 $ 869,987
Gross Operating Profits
(Before Depreciation, Management
Fees and Other Fixed Costs) $ 1,661,694 $ 1,309,471 $ 5,248,096 $ 4,754,126
</TABLE>
-23-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
It should be noted that BMCLP's investment in the Development is a
high-risk investment involving many factors beyond the control of its General
Partner. Such factors could adversely affect the operation and value of the
Development and, consequently, the value of an interest in the Partnership, to
an extent not currently ascertainable. These factors, include, but are not
limited to, over building of office, hotel or commercial space; changes in the
general or local economic conditions including changes in interest rates;
adjacent land utilization; changes in demand or use with respect to the
proximate business facilities; demographic trends; increases in real estate
taxes; changes in the federal income tax laws, which could be applied
retroactively; local, state and federal environmental, energy, and other
regulations (including regulations governing the maintenance of liquor
licenses); possible restrictive changes in the uses applicable to real estate,
zoning and similar land use and environmental laws and regulations; and acts of
God. Effective July 1, 1996, the local government in Montgomery County,
Maryland, where the hotel is located, increased room taxes from 5% to 7% to fund
the Montgomery County Conference Center which is expected to be complete in
1999.
In addition, Hotel occupancy and room rates may be adversely affected by a
downturn in the business cycle or by shortages of gasoline or increases in the
price of gasoline, increases in airline fare rates or the curtailment of airline
service, or other constraints upon travel. Furthermore, in the event mortgage
payment and/or tax assessment obligations are not met, the Partnership may
sustain a loss of its equity investment as a result of foreclosure of the
Restated First or Second Mortgage Notes and/or tax sale.
PART II. OTHER INFORMATION
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
No reports on Form 8-K were filed with the Commission during the quarter
ended September 30, 1996.
All other items are not applicable.
-24-
<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 duly authorized.
CAPITAL INCOME PROPERTIES-C
LIMITED PARTNERSHIP
(Registrant)
By: CRI, Inc.,
Managing General Partner
November 12, 1996 By: /s/ H. William Willoughby
- -------------------- ---------------------------------
Date H. William Willoughby
President
By: /s/ Deborah K. Browning
---------------------------------
Deborah K. Browning
Vice President/Chief Accounting
Officer
-25-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Method of Filing
- ------- -----------------------------
27 Financial Data Schedule Filed herewith electronically
-26-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE THIRD QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,547,482
<SECURITIES> 0
<RECEIVABLES> 1,474,920
<ALLOWANCES> 71,020
<INVENTORY> 67,825
<CURRENT-ASSETS> 5,087,739
<PP&E> 137,016,579
<DEPRECIATION> 53,969,735
<TOTAL-ASSETS> 91,444,948
<CURRENT-LIABILITIES> 10,329,419
<BONDS> 86,031,335
0
0
<COMMON> 0
<OTHER-SE> (80,470,573)
<TOTAL-LIABILITY-AND-EQUITY> 91,444,948
<SALES> 0
<TOTAL-REVENUES> 20,474,997
<CGS> 0
<TOTAL-COSTS> 10,264,121
<OTHER-EXPENSES> 7,513,821
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 566,835
<INCOME-PRETAX> 2,130,220
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,130,220
<DISCONTINUED> 0
<EXTRAORDINARY> 10,570,143
<CHANGES> 0
<NET-INCOME> 12,700,363
<EPS-PRIMARY> 39.98
<EPS-DILUTED> 39.98
</TABLE>
