<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 June 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 June 30, 1996
- ---------------------------------- ----------------------------------
(Not applicable) (Not applicable)
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996
Page
----
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Consolidated Balance Sheets - as of June 30, 1996
and December 31, 1995 . . . . . . . . . . . . . . 1
Consolidated Statements of Operations - for the
three and six months ended June 30, 1996 and 1995 2-3
Consolidated Statements of Partners' Deficit - for
the six months ended June 30, 1996 . . . . . . . 4
Consolidated Statements of Cash Flows - for the six
months ended June 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
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 23
Signatures . . . . . . . . . . . . . . . . . . . . . . . . 24
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . 25
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
As of As of
June 30, December 31,
1996 1995
------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,065,379 $ 1,351,524
Restricted cash and cash equivalents 1,683,952 1,607,970
Accounts receivable, less allowance for doubtful accounts
of $75,093 and $35,413, respectively 1,160,370 1,433,999
Prepaid expenses 275,994 840,370
Current portion of deferred rent receivable 20,932 20,932
Inventory and other 69,073 78,392
------------- -------------
Total current assets 5,275,700 5,333,187
------------- -------------
Property and equipment:
Buildings and tenant improvements 121,945,291 121,441,795
Furniture and equipment 14,824,210 14,618,333
------------- -------------
136,769,501 136,060,128
Less-accumulated depreciation (52,760,221) (50,341,193)
------------- -------------
Total property and equipment 84,009,280 85,718,935
------------- -------------
Other assets:
Deferred charges, less accumulated amortization of
$2,364,896 and $1,843,919, respectively 2,350,652 2,292,912
Deferred rent receivable, less reserve of $107,010 407,109 407,109
Escrows and deposits 387,769 176,938
------------- -------------
Total other assets 3,145,530 2,876,959
------------- -------------
Total assets $ 92,430,510 $ 93,929,081
============= =============
</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
<TABLE>
<CAPTION>
As of As of
June 30, December 31,
1996 1995
------------- -------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Current portion of first mortgage note $ 5,853,705 $ 6,033,080
Accounts payable 530,743 471,456
Accrued expenses 682,636 726,157
Due to affiliates 3,056,480 3,029,645
Other liabilities 36,078 34,578
------------- -------------
Total current liabilities 10,159,642 10,294,916
First mortgage note 64,471,865 67,117,079
Second mortgage note 17,368,986 18,050,167
Third mortgage note 5,914,500 5,779,500
Due to guarantor of operating deficits 2,305,576 2,243,984
Deferred gain on debt forgiveness 76,543,837 83,258,456
Deferred revenue and security deposits 311,696 355,915
------------- -------------
Total liabilities 166,916,460 187,100,017
------------- -------------
Commitments and contingencies (note 6)
Partners' deficit (84,645,592) (93,170,936)
------------- -------------
Total liabilities and partners' deficit $ 92,430,510 $ 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 six months ended
June 30, June 30,
----------------------------- -----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Rooms $ 3,486,274 $ 3,355,562 $ 6,177,817 $ 6,065,395
Food and beverage 1,387,526 1,332,181 2,560,403 2,436,430
Telephone 173,251 173,649 328,866 302,099
Office retail and parking rentals 2,313,456 2,338,722 4,639,069 4,669,309
Other 31,607 17,339 50,465 36,725
------------ ------------ ------------ ------------
7,392,114 7,217,453 13,756,620 13,509,958
------------ ------------ ------------ ------------
Departmental expenses:
Rooms 676,212 665,200 1,243,280 1,235,637
Food and beverage 968,642 887,224 1,909,749 1,768,023
Telephone 92,764 113,683 198,594 211,779
Other 511 -- 511 --
------------ ------------ ------------ ------------
1,738,129 1,666,107 3,352,134 3,215,439
------------ ------------ ------------ ------------
Gross operating income 5,653,985 5,551,346 10,404,486 10,294,519
------------ ------------ ------------ ------------
Unallocated operating expenses:
Administrative 450,342 387,646 862,411 831,114
Marketing 365,789 368,207 733,957 731,369
Energy costs 459,313 418,268 845,670 832,508
Property operations and maintenance 562,304 553,036 1,070,991 1,020,813
------------ ------------ ------------ ------------
1,837,748 1,727,157 3,513,029 3,415,804
------------ ------------ ------------ ------------
Operating income before interest and other
income, fixed charges and other deductions
and extraordinary item - gain on debt forgiveness 3,816,237 3,824,189 6,891,457 6,878,715
------------ ------------ ------------ ------------
Interest and other income 9,371 12,321 17,159 19,750
------------ ------------ ------------ ------------
Fixed charges and other deductions:
Depreciation 1,209,514 1,200,000 2,419,028 2,400,000
Amortization 197,667 92,566 395,334 185,132
Interest expense 188,633 273,109 377,993 411,986
Management fees 297,546 241,175 576,794 464,695
Real estate and personal property taxes 283,115 276,793 564,341 553,586
Ground rent 400,000 400,000 800,000 800,000
Net cash flow participation -- 150,000 -- 150,000
Other 142,593 96,093 303,251 418,136
------------ ------------ ------------ ------------
2,719,068 2,729,736 5,436,741 5,383,535
------------ ------------ ------------ ------------
</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
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
----------------------------- -----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income before extraordinary item -
gain on debt forgiveness 1,106,540 1,106,774 1,471,875 1,514,930
Extraordinary item-gain on forgiveness 3,537,152 3,598,083 7,053,469 7,231,172
------------ ------------ ------------ ------------
Net income 4,643,692 4,704,857 8,525,344 8,746,102
Net income attributed to minority interest (4,650,029) (4,717,434) (8,541,317) (8,760,760)
------------ ------------ ------------ ------------
Net loss attributed to Partnership $ (6,337) $ (12,577) $ (15,973) $ (14,658)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-4-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS - Continued
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
----------------------------- -----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss allocated to general
partners and affiliated initial
limited partner (1.01%) $ (64) $ (127) $ (161) $ (148)
============ ============ ============ ============
Net loss allocated to additional
limited partners (98.99%) $ (6,273) $ (12,450) $ (15,812) $ (14,510)
============ ============ ============ ============
Net loss allocated to limited
partners per unit $ (10.46) $ (20.75) $ (26.35) $ (24.18)
============ ============ ============ ============
Limited partnership units
issued and outstanding 600 600 600 600
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-5-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
For the six months ended June 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 (161) (15,812) -- (15,973)
Net income attributed to minority
interest (Note 2) -- -- 8,541,317 8,541,317
--------- -------- ------------- -------------
Balance, June 30, 1996 $(529,240) $335,989 $ (84,452,341) $ (84,645,592)
========= ======== ============= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-6-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended
June 30,
-------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,525,344 $ 8,746,102
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 2,419,028 2,400,000
Amortization 395,334 185,132
Extraordinary item-gain on debt forgiveness (7,053,469) (7,231,172)
Interest expense related to the amortization of financing costs 125,643 125,666
Net interest expense added to debt 196,592 232,680
Interest payments treated as a reduction in mortgage debt (3,155,799) (3,266,538)
Changes in assets and liabilities:
Increase in restricted cash and cash equivalents (75,982) (490,984)
Decrease in accounts receivable, net 273,629 146,380
Decrease in prepaid expenses 564,376 562,747
Decrease in inventory and other 9,319 8,461
Decrease in deferred rent receivable, net - 237,221
(Increase) decrease in escrows and deposits (210,831) 245,918
Increase (decrease) in accounts payable 59,287 (60,781)
(Decrease) increase in accrued expenses (43,521) 177,100
Increase in other liabilities 1,500 853
Decrease in deferred revenue and security deposits (44,219) (71,485)
------------ ------------
Net cash provided by operating activities 1,986,231 1,947,300
------------ ------------
Cash flows from investing activities:
Purchase of building improvements (503,496) (409,825)
Purchase of furniture and equipment (205,877) (466,906)
Payment of leasing costs (578,717) (248,977)
------------ ------------
Net cash used in investing activities (1,288,090) (1,125,708)
------------ ------------
Cash flows from financing activities:
Net payment of debt (11,121) (433,334)
Proceeds from advances from affiliates 63,682 60,985
Repayment of advances from affiliates (36,847) --
------------ ------------
Net cash used in financing activities 15,714 (372,349)
------------ ------------
Net increase in cash and cash equivalents 713,855 449,243
Cash and cash equivalents, beginning of period 1,351,524 1,649,561
------------ ------------
Cash and cash equivalents, end of period $ 2,065,379 $ 2,098,804
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-7-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended
June 30,
-------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 3,155,799 $ 3,266,538
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-8-
<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 June 30, 1996 and December 31, 1995 and
the results of its consolidated operations for the three and six months ended
June 30, 1996 and 1995 and its consolidated cash flows for the six months ended
June 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.
The results for the six months in the period ended June 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 June 30, 1996 and December 31, 1995 and for each of
the three-month and six-month periods ended June 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
interest therein in the accompanying financial statements, the Partnership has
not assumed responsibility for any past or future operating deficits of BMCLP.
-9-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. THE PARTNERSHIP - Continued
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 $84,645,592 and $93,170,936 as
of June 30, 1996 and December 31, 1995, respectively, $84,452,341 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 June 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 $6,979,502 and $15,520,819 as of June 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 June 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:
<TABLE>
<CAPTION>
BALANCE SHEETS
--------------
As of As of
June 30, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
Total assets $ 116 $ 116
============ ============
Accounts payable $ 193,367 $ 177,394
Partners' deficit (193,251) (177,278)
------------ ------------
Total liabilities and partners' deficit $ 116 $ 116
============ ============
</TABLE>
-10-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP - Continued
STATEMENTS OF OPERATIONS
------------------------
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
----------------------------- -----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Professional fees $ 5,175 $ 8,412 $ 13,625 $ 8,412
Other expenses 1,162 4,165 2,348 6,246
------------ ------------ ------------ ------------
Net loss $ 6,337 $ 12,577 $ 15,973 $ 14,658
============ ============ ============ ============
</TABLE>
-11-
<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
June 30, December 31,
1996 1995
------------- -------------
(Unaudited)
<S> <C> <C>
Investment in real estate, at cost, net $ 84,009,280 $ 85,718,935
Current assets 5,275,584 5,333,071
Other assets 3,145,530 2,876,959
------------- -------------
Total assets $ 92,430,394 $ 93,928,965
============= =============
Current liabilities $ 9,966,275 $ 10,117,522
Other liabilities 166,916,460 176,805,101
Partners' deficit (84,452,341) (92,993,658)
------------- -------------
Total liabilities and partners' deficit $ 92,430,394 $ 93,928,965
============= =============
</TABLE>
-12-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP - Continued
STATEMENTS OF OPERATIONS
------------------------
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
----------------------------- -----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 7,401,485 $ 7,229,774 $ 13,773,779 $ 13,529,708
Expenses (6,288,608) (6,110,423) (12,285,931) (12,000,120)
------------ ------------ ------------ ------------
Income before extraordinary item 1,112,877 1,119,351 1,487,848 1,529,588
Extraordinary item-gain on debt forgiveness 3,537,152 3,598,083 7,053,469 7,231,172
------------ ------------ ------------ ------------
Net income $ 4,650,029 $ 4,717,434 $ 8,541,317 $ 8,760,760
============ ============ ============ ============
</TABLE>
-13-
<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 June 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 six months ended June 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 June 30, 1996 and December 31, 1995, $416,250 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.
(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
-14-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP - Continued
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 August 5, 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 June 30, 1996
and December 31, 1995, balances in the escrow account totalled $23,654 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.
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
-15-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP - Continued
later of any maturity date under the Restated Notes. As of June 30, 1996 and
December 31, 1995, accrued interest of $2,914,500 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 six months ended
June 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 June 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 $70,325,570 and $73,150,159 at June 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 $146,869,407 and $156,408,615 at June 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 $76,543,837 and
$83,258,456 difference between the carrying value and total future obligation of
the debt at June 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
interest rate changes are reflected as a reclassification between the Restated
First Mortgage Note and deferred gain on debt forgiveness. For the six months
ended June 30, 1996, $468,780 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 six
months ended June 30, 1995, $4,794,651 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.
-16-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP - Continued
For the three and six months ended June 30, 1996, amortization of this
deferred debt forgiveness amounted to $3,602,117 and $7,183,399, respectively
and $3,663,048 and $7,361,102 for the three and six months ended June 30, 1995,
respectively. The amortization of deferred gain is included in the
extraordinary item of $3,537,152 and $7,053,469 for the three and six months
ended June 30, 1996, respectively, and $3,598,083 and $7,231,172 for the three
and six months ended June 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 $129,930, respectively, for the three and six
months ended June 30, 1996 and $64,965 and $129,930 for the three and six months
ended June 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 six months
ended June 30, 1996 amounted to $64,965 and $129,930 respectively, and $64,965
and $129,930 for the three and six months ended June 30, 1995, respectively, and
was added to the principal balance of the Restated Second Mortgage Note.
-17-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. RELATED-PARTY TRANSACTIONS
A summary of indebtedness to affiliates of $3,056,480 and $3,029,645 as of
June 30, 1996 and December 31, 1995, respectively, is presented below:
<TABLE>
<CAPTION>
Balance at Additions Balance at
Related-Party December 31, 1995 (Payments) June 30, 1996
------------- ----------------- --------- -------------
<S> <C> <C> <C>
CRI $ 289,659 $ 19,947 $ 309,606
CHG 1,128,700 43,735 1,172,435
Realty 972,233 -- 972,233
Hyatt 639,053 (36,847) 602,206
----------- --------- -----------
$ 3,029,645 $ 26,835 $ 3,056,480
=========== ========= ===========
</TABLE>
The $309,606 and $289,659 due to CRI as of June 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 $1,172,435 and $1,128,700 due to CHG as of June 30, 1996 and December 31,
1995, respectively, and $972,233 due to Realty as of June 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 $602,206 and $639,053 due to Hyatt as of June 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.
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 six months ended June 30, 1996 and 1995.
-18-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. RELATED-PARTY TRANSACTIONS - Continued
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 six months ended June 30, 1995, $50,874 and
$112,911, 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 six months ended June 30, 1996,
were approximately $203,000 and $365,000, respectively, and for the three and
six months ended June 30, 1995 were approximately $146,000 and $248,000,
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
of June 30, 1996 and December 31, 1995, approximately $238,000 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
-19-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. COMMITMENTS AND CONTINGENCIES - Continued
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 June 30, 1996 and December 31,
1995, were approximately $322,000 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 six months ended June 30,
1996, were approximately $94,000 and $212,000, respectively and approximately
$94,000 and $199,000 for the three and six months ended June 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. The money is being held in
trust until the parties can work out a related agreement concerning WMATA's use
of BMCLP's parking garage space for structural shoring during its repairs of the
overhead concrete deck.
-20-
<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 June 30, 1996 and December 31, 1995, the Registrant had $116 in
available cash.
During the first six months of 1996, the Registrant recorded a $15,973
increase in accounts payable. The increase in accounts payable includes an
increase of $7,923 in loan payable to its Managing General Partner for
administrative expenses and an increase of $8,050 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 $2,065,263 and $1,351,408 at June
30, 1996 and December 31, 1995, respectively. BMCLP had restricted cash and
cash equivalents of $1,683,952 and $1,607,970 at June 30, 1996 and December 31,
1995, respectively. During the first six months of 1996, unrestricted cash and
cash equivalents increased only $713,855 despite net income of $8,541,317. This
was largely due to the non-cash gain on debt forgiveness of $7,053,469 and net
debt and interest payments of $3,166,920 and fixed asset additions and payment
of leasing costs of $709,373 and $578,717, respectively, which were offset by
depreciation and amortization totaling $2,814,362 along with the reduction in
accounts receivables, prepaids and inventory totalling $847,324.
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
June 30, 1996, BMCLP estimates that R&K's total operating deficit obligation has
increased to approximately $29,000,000, although R&K does not concur with this
-21-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
amount. As of June 30, 1996 and December 31, 1995, R&K has provided $2,305,576
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
$1,066,689 and $1,005,097 at June 30, 1996 and December 31, 1995, respectively,
and has been added to the original advance amount. For the six months ended
June 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 six months ended June 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.
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.
-22-
<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 June 30, 1996 in comparison with June 30, 1995
- -----------------------------------------------------------------
The Registrant recorded a net loss for 1996 of $6,337 as compared with a
net loss of $12,577 for the corresponding period in 1995. Operating expenses
during the second quarter of 1996 were $6,240 lower than 1995 primarily due to
the timing of accounting and auditing fees and a decrease in general and
administrative expenses.
Six months ended June 30, 1996 in comparison with June 30, 1995
- -----------------------------------------------------------------
The Registrant recorded a net loss for the six months ended June 30, 1996
of $15,973 as compared with a net loss of $14,658 for the corresponding period
in 1995. Operating expenses during the first six months ended June 30, 1996
were $1,315 higher than 1995 primarily due to an increase in accounting and
auditing fees.
Bethesda Metro Center Limited Partnership
- -----------------------------------------
Three months ended June 30, 1996 in comparison with June 30, 1995
- -----------------------------------------------------------------
BMCLP's net income for the second quarter of 1996 decreased $67,405 or 1%
from the corresponding period in 1995, primarily as a result of an increase in
amortization expense as a result of increased deferred charges. Contributing to
the decrease in BMCLP's net income was a decrease in the extraordinary gain on
debt forgiveness recognized in the second quarter of 1996 as compared to the
same period in 1995 due to fluctuations in the underlying debt interest rate.
Partially offsetting the decrease in BMCLP's net income was a decrease in net
cash flow participation. Also offsetting the decrease in BMCLP's net income was
an increase in room revenue, food and beverage revenues and other revenue, as
discussed below.
Room revenue increased by $130,712 or 4% from the second quarter of 1995.
Hotel occupancy remained constant at 88%. Average room rate increased
approximately $4 in the second quarter of 1996 compared to the second quarter of
1995. Food and beverage revenues increased by $55,345 or 4% from the same
period last year as a result of increased banquet patronage. Other revenue
increased $14,268 or 82% primarily due to interest income. The increases in
room revenue and food and beverage revenues along with other revenue resulted in
second quarter gross operating profits which exceeded the same period last year
by approximately $109,152 or 5%.
Office building revenue for the second quarter of 1996 decreased $20,266 or
1% from the second quarter of 1995. The occupancy of the office building
remained constant at 98% as did the rental rate of the office building at $24.
The retail and marketplace occupancy increased from 75% to 95% primarily due to
-23-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
the reclassification of 4,155 square feet of retail space to office space. The
retail and marketplace average rental rate decreased from $35 to $34 during the
second quarter of 1996 as compared to 1995.
Operating expenses of the office building for the second quarter of 1996
increased $96,838 or 15% from the second quarter of 1995 primarily due to common
area painting and wallpapering and maintenance repair to the plaza, fountain and
HVAC system.
Six months ended June 30, 1996 in comparison with June 30, 1995
- ---------------------------------------------------------------
BMCLP's net income for the first six months in 1996 decreased $219,443 or
2.5% from the corresponding period in 1995, primarily as a result of an increase
in amortization expense as a result of increased deferred charges. Contributing
to the decrease in BMCLP's net income was a decrease in the extraordinary gain
on debt forgiveness recognized during the six months ended June 30, 1996 as
compared to the same period in 1995 due to fluctuations in the underlying debt
interest rate. Partially offsetting the decrease in BMCLP's net income was a
decrease in net cash flow participation. Also offsetting the decrease in
BMCLP's net income was an increase in room revenue, food and beverage revenues
and other revenue, as discussed below.
Room revenue increased by $112,422, or 2% from the first six months of
1995. The Hotel experienced a 3% decrease in occupancy to 78% and a $4 increase
in average rate to $113 compared to the first six months of 1995. Food and
beverage revenues increased by $123,973, or 5% from the same period last year as
a result of increased occupancy and banquet patronage. Telephone revenue
increased $26,767 or 9% along with other revenue which increased $13,740 or
37.4% in comparison to the first six months of 1995 primarily due to
cancellation fees and interest income. Year to date gross operating profits
exceeded last year by $141,747 or 4%.
Office building revenue decreased $30,240 or 0.6% during the first six
months of 1996 compared with the first six months of 1995 primarily due to the
receipt of a termination fee from one tenant in 1995. The occupancy of the
Office Building decreased from 97% to 96% while the rental rate increased from
$23 in the first six months of 1995 to $24 in the first six months of 1996. The
retail and marketplace occupancy increased from 75% to 96% primarily due to the
reclassification of 4,155 square feet of retail space to office space. The
retail and marketplace average rental rate increased from $34 to $36.
Operating expenses for the Office Building for the first six months of 1996
increased by $98,765, or 8% primarily due to common area painting and wall
covering and maintenance and repair to the plaza, fountain and the HVAC system.
-24-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
The following tables outline pertinent unaudited data regarding the
operations of the hotel and office building:
OFFICE BUILDING
---------------
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
----------------------------- -----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Leasing:
- -------
Average Space Occupied:
Office 98% 98% 96% 97%
Retail and Marketplace 95% 75% 96% 75%
Average Rental Rate:
Office $24 $24 $24 $23
Retail and Marketplace $34 $35 $36 $34
Operations:
- ----------
Total Income $ 2,313,456 $ 2,333,722 $ 4,639,069 $ 4,669,309
Operating Expenses (728,294) (631,456) (1,334,014) (1,235,249)
----------- ----------- ----------- -----------
Gross Operating Profits
(Before Depreciation, Management Fees and
Other Fixed Costs) $ 1,585,162 $ 1,702,266 $ 3,305,055 $ 3,434,060
=========== =========== =========== ===========
</TABLE>
-25-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
HOTEL
---------------
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
----------------------------- -----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Actual Average Occupancy 88% 88% 78% 81%
Actual Average Room Rate $114 $110 $113 $109
Room Revenues $ 3,486,274 $ 3,355,562 $ 6,177,817 $ 6,065,395
Food & Beverage Revenues $ 1,387,526 $ 1,332,181 $ 2,560,403 $ 2,436,430
Room Profits $ 2,810,062 $ 2,690,362 $ 4,934,537 $ 4,829,758
Food & Beverage Profits $ 418,884 $ 444,957 $ 650,654 $ 668,407
Gross Operating Profits
(Before Depreciation, Management
Fees and Other Fixed Costs) $ 2,231,075 $ 2,121,923 $ 3,586,402 $ 3,444,655
</TABLE>
-26-
<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. As of July 31, 1996, the local government in Montgomery County, Maryland,
where the hotel is located, is contemplating an increase in room taxes from 5%
to 7%.
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 June 30, 1996.
All other items are not applicable.
-27-
<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
August 13, 1996 By: /s/ H. William Willoughby
- -------------------- ---------------------------------
Date H. William Willoughby
President
By: /s/ Deborah K. Browning
---------------------------------
Deborah K. Browning
Vice President/Chief Accounting
Officer
-28-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Method of Filing
- ------- -----------------------------
27 Financial Data Schedule Filed herewith electronically
-29-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SECOND QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,749,331
<SECURITIES> 0
<RECEIVABLES> 1,235,463
<ALLOWANCES> 75,093
<INVENTORY> 69,073
<CURRENT-ASSETS> 5,275,700
<PP&E> 136,769,501
<DEPRECIATION> 52,760,221
<TOTAL-ASSETS> 92,430,510
<CURRENT-LIABILITIES> 10,159,642
<BONDS> 87,755,351
0
0
<COMMON> 0
<OTHER-SE> (84,645,592)
<TOTAL-LIABILITY-AND-EQUITY> 92,430,510
<SALES> 0
<TOTAL-REVENUES> 13,773,779
<CGS> 0
<TOTAL-COSTS> 6,865,163
<OTHER-EXPENSES> 5,058,748
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 377,993
<INCOME-PRETAX> 1,471,875
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,471,875
<DISCONTINUED> 0
<EXTRAORDINARY> 7,053,469
<CHANGES> 0
<NET-INCOME> 8,525,344
<EPS-PRIMARY> (26.35)
<EPS-DILUTED> (26.35)
</TABLE>
