<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 quarterly period ended March 31, 1998
--------------
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.
Not applicable Not applicable
- -------------------------- ---------------------------------------
(Class) (Outstanding at March 31, 1998)
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
Page
----
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1998
and December 31, 1997 . . . . . . . . . . . . . . 1
Consolidated Statements of Operations - for the
three months ended March 31, 1998 and 1997 . . . 2-3
Consolidated Statement of Changes in Partners'
Deficit - for the three months ended
March 31, 1998 . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows - for the three
months ended March 31, 1998 and 1997 . . . . . . 5
Notes to Consolidated Financial Statements . . . . 6-16
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . 17-21
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 22
Signatures . . . . . . . . . . . . . . . . . . . . . . . . 23
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . 24
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,882,748 $ 2,071,829
Restricted cash and cash equivalents 2,747,422 2,433,117
Accounts receivable, less allowance for doubtful accounts
of $85,324 and $86,439, respectively 1,539,430 1,317,229
Prepaid expenses 556,434 771,659
Current portion of deferred rent receivable 136,579 136,579
Inventory and other 69,109 70,790
------------- -------------
Total current assets 7,931,722 6,801,203
------------- -------------
Property and equipment:
Buildings and tenant improvements 123,296,689 123,255,734
Furniture and equipment 15,597,245 15,514,277
------------- -------------
138,893,934 138,770,011
Less-accumulated depreciation (60,198,657) (59,136,401)
------------- -------------
78,695,277 79,633,610
------------- -------------
Other assets:
Deferred charges, less accumulated amortization of
$3,340,098 and $3,188,815, respectively 2,788,725 2,878,253
Deferred rent receivable, less reserve of $171,763 550,472 550,472
Escrows and deposits 520,650 456,470
------------- -------------
3,859,847 3,885,195
------------- -------------
Total assets $ 90,486,846 $ 90,320,008
============= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-1-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND PARTNERS' DEFICIT
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Current portion of first mortgage note $ 5,569,252 $ 5,748,221
Accounts payable 561,767 551,409
Accrued expenses 1,140,427 997,275
Due to affiliates 4,720,901 4,616,073
------------- -------------
Total current liabilities 11,992,347 11,912,978
First mortgage note 55,672,959 57,026,686
Second mortgage note 14,984,852 15,325,443
Third mortgage note 6,387,000 6,319,500
Due to guarantor of operating deficits 2,521,147 2,490,352
Deferred gain on debt forgiveness 51,283,208 54,491,976
Deferred revenue and security deposits 591,267 532,658
------------- -------------
Total liabilities 143,432,780 148,099,593
------------- -------------
Commitments and contingencies
Partners' deficit (52,945,934) (57,779,585)
------------- -------------
Total liabilities and partners' deficit $ 90,486,846 $ 90,320,008
============= =============
</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
March 31,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenue:
Rooms $ 3,476,404 $ 2,993,874
Food and beverage 1,412,214 1,286,333
Telephone 149,487 135,913
Office, retail and parking rentals 2,512,046 2,238,565
Other 27,304 20,536
------------ ------------
7,577,455 6,675,221
------------ ------------
Departmental expenses:
Rooms 770,210 683,989
Food and beverage 1,121,491 1,064,891
Telephone 86,893 100,717
------------ ------------
1,978,594 1,849,597
------------ ------------
Other operating expenses:
Administrative 590,385 446,393
Marketing 315,154 292,894
Energy costs 380,910 369,147
Property operations and maintenance 498,345 493,584
------------ ------------
1,784,794 1,602,018
------------ ------------
Operating income before other income, fixed
charges and other deductions and extraordinary item 3,814,067 3,223,606
------------ ------------
Other income 10,709 8,610
------------ ------------
Fixed charges and other deductions:
Depreciation 1,062,256 1,203,064
Amortization 88,462 130,860
Interest expense 260,598 220,902
Management fees 297,458 257,490
Real estate and personal property taxes 259,015 254,371
Ground rent 400,000 400,000
Other 95,144 105,339
------------ ------------
2,462,933 2,572,026
------------ ------------
</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
March 31,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net income before extraordinary item 1,361,843 660,190
Extraordinary item-gain on debt forgiveness 3,471,808 3,501,208
------------ ------------
Net income 4,833,651 4,161,398
Total income attributed to minority interest (4,841,364) (4,169,664)
------------ ------------
Net loss attributed to Partnership $ (7,713) $ (8,266)
============ ============
Net loss allocated to General
Partners and affiliated Initial
Limited Partner (1.01%) $ (78) $ (83)
============ ============
Net loss allocated to Additional
Limited Partners (98.99%) $ (7,635) $ (8,183)
============ ============
Net loss per unit of Additional Limited
Partnership interest based 600 units
issued and outstanding $ (12.73) $ (13.64)
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
-4-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
Losses not
General Limited Allocable
Partners Partners to Partners Total
--------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1997 $(529,758) $284,582 $ (57,534,409) $ (57,779,585)
Net loss attributed to Partnership (78) (7,635) -- (7,713)
Total income attributed to minority
interest -- -- 4,841,364 4,841,364
--------- -------- ------------- -------------
Balance, March 31, 1998 $(529,836) $276,947 $(52,693,045) $ (52,945,934)
========= ======== ============= =============
</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 three months ended
March 31,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,833,651 $ 4,161,398
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 1,062,256 1,203,064
Amortization 88,462 130,860
Extraordinary item-gain on debt forgiveness (3,471,808) (3,501,208)
Interest expense related to the amortization of financing costs 62,822 62,822
Net interest expense added to debt 98,296 98,296
Interest payments treated as a reduction in mortgage debt (1,551,034) (1,540,697)
Changes in assets and liabilities:
Increase in restricted cash and cash equivalents (314,305) (395,492)
Increase in accounts receivable, net (222,201) (481,953)
Decrease in prepaid expenses 215,220 241,698
Decrease in inventory and other 1,681 5,799
(Increase) decrease in escrows and deposits (64,180) 59,657
Increase in accounts payable 10,358 292,028
Increase (decrease) in accrued expenses 143,152 (126,704)
Increase (decrease) in deferred revenue and security deposits 58,609 (221,967)
------------ ------------
Net cash provided by (used in) operating activities 950,979 (12,399)
------------ ------------
Cash flows from investing activities:
Purchase of building improvements (40,955) (198,260)
Purchase of furniture and equipment (82,968) (183,396)
Payment of leasing costs (61,751) (176,691)
------------ ------------
Net cash used in investing activities (185,674) (558,347)
------------ ------------
Cash flows from financing activities:
Proceeds from mortgage debt 265,785 206,979
Payment on mortgage debt (324,999) (324,999)
Advances from affiliates 104,828 126,514
------------ ------------
Net cash provided by financing activities 45,614 8,494
------------ ------------
Net increase (decrease) in cash and cash equivalents 810,919 (562,252)
Cash and cash equivalents, beginning of period 2,071,829 2,015,244
------------ ------------
Cash and cash equivalents, end of period $ 2,882,748 $ 1,452,992
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,551,034 $ 1,540,697
============ ============
</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 reflect all
adjustments, consisting of normal recurring accruals necessary for a fair
presentation of the financial position of Capital Income Properties-C Limited
Partnership (the Partnership) as of March 31, 1998 and the results of its
consolidated operations and its cash flows for the three months ended March 31,
1998 and 1997.
These unaudited consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and accounting policies and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Partnership's annual report filed on Form
10-K at December 31, 1997.
Certain reclassifications have been made to the 1997 consolidated financial
statements to conform them with the 1998 presentation.
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 the following: (i) 0.01% owned
by CRICO-Bethesda Growth Partners Limited Partnership, the affiliated Initial
Limited Partner, and (ii) 98.99% 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 March 31, 1998 and December 31, 1997 and for each of
the three-month periods ended March 31, 1998 and 1997 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.
The deficit in partners' capital generated by activity at BMCLP remains the
obligation of the Special Limited Partners of BMCLP.
-7-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. THE PARTNERSHIP - Continued
Therefore, of the total partners deficit of $52,945,934 and $57,779,585 as
of March 31, 1998 and December 31, 1997, respectively, $52,693,045 and
$57,534,409, respectively, are not attributable to the partners of the
Partnership. The amounts not attributable to the partners of the Partnership
are comprised of the following: (i) cumulative BMCLP losses in excess of the
Partnership s investment in BMCLP as of June 15, 1992 (the date of
consolidation) of $77,472,839, plus (ii) cumulative net BMCLP income since June
15, 1992 of $24,779,794 and $19,938,430 as of March 31, 1998 and December 31,
1997, respectively. BMCLP losses/income 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 to acquire a 92.5%
limited partnership interest. No capital contributions have been made by the
Partnership since 1990 related to this investment. 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 follows.
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Total assets $ 116 $ 116
============ ============
Total liabilities $ 253,005 $ 245,292
Partners' deficit (252,889) (245,176)
------------ ------------
Total liabilities and partners' deficit $ 116 $ 116
============ ============
</TABLE>
-8-
<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
March 31,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Professional fees $ (2,730) $ (6,541)
Other expenses (4,983) (1,725)
------------ ------------
Net loss $ (7,713) $ (8,266)
============ ============
</TABLE>
Condensed financial information of BMCLP on an unconsolidated basis
follows.
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
Investment in real estate, at cost, net $ 78,695,277 $ 79,633,610
Current assets 7,931,606 6,801,087
Other assets 3,859,847 3,885,195
------------- -------------
Total assets $ 90,486,730 $ 90,319,892
============= =============
Current liabilities $ 11,739,342 $ 11,667,686
Other liabilities 131,440,433 136,186,615
Partners' deficit (52,693,045) (57,534,409)
------------- -------------
Total liabilities and partners'
deficit $ 90,486,730 $ 90,319,892
============= =============
</TABLE>
-9-
<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
March 31,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenue $ 7,588,164 $ 6,683,831
Expenses (6,218,608) (6,015,375)
------------ ------------
Net income before extraordinary item 1,369,556 668,456
Extraordinary item - gain on debt
forgiveness 3,471,808 3,501,208
------------ ------------
Net income $ 4,841,364 $ 4,169,664
============ ============
</TABLE>
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 March 31, 1998 and December 31, 1997 was 5.65% and 5.79%, respectively. In
addition to monthly interest payments, monthly principal payments are due in the
amount of $108,333. Furthermore, if certain major tenants of the Office
Building, as defined in the Restated First Mortgage Note agreement, do not
exercise an option to renew, or if they cancel their leases, 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 three months ended March 31,
1998 and 1997, GECC advanced $222,434 and $176,171, respectively, to BMCLP for
tenant improvements and leasing costs. Interest accrued on cumulative advances
is included in interest expense, and is also added to the balance of the Rested
First Mortgage Note.
-10-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP - Continued
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 March 31, 1998 and December 31, 1997, $901,875 and $832,500, respectively,
had been deposited into the interest reserve account and is reflected in
restricted cash and cash equivalents on the accompanying consolidated balance
sheets.
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
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
-11-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP - Continued
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 May 15, 1998, 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 both March
31, 1998 and December 31, 1997, $273,654 was included in restricted cash related
to this escrow.
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. The Third Mortgage Note bears simple interest at 9%. 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 March 31, 1998 and December 31, 1997, accrued
interest of approximately $3,387,000 and $3,319,500, 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 three months ended March 31,
1998 or 1997.
Deferred Gain on Debt Forgiveness
---------------------------------
BMCLP's outstanding obligation under the Restated First Mortgage 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 accompanying 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 9.9% and
10.04% in effect at March 31, 1998 and December 31, 1997, 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 $61,242,211 and $62,774,907 at March 31, 1998 and December 31, 1997,
respectively, including additional draws subsequent to the restructuring.
-12-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP - Continued
Although these obligations are lower than the combined obligations of the
Restated First Mortgage Note and the deferred gain on debt forgiveness (which
totalled $112,525,419 and $117,266,883 at March 31, 1998 and December 31, 1997,
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 based. Accordingly, the $51,283,208 and $54,491,976 difference
between the carrying value and total future obligation of the debt at March 31,
1998 and December 31, 1997, respectively, was deferred and is being amortized as
an extraordinary gain in the accompanying 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 on a quarterly basis 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
three months ended March 31, 1998 and 1997, $328,005 and $163,911, respectively,
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. The adjusted deferred gain on debt
forgiveness will be amortized as an extraordinary item over the remaining term
of the Restated First Mortgage Note.
For the three months ended March 31, 1998 and 1997, amortization of this
deferred debt forgiveness amounted to $3,536,773 and $3,566,173, respectively.
The amortization of deferred gain is included in the extraordinary item of
$3,471,808 and $3,501,208 for the three months ended March 31, 1998 and 1997,
respectively, in the accompanying consolidated statements of operations, as it
is shown net of the interest expense on the Restated Second Mortgage Note of
$64,965, for the three months ended March 31, 1998 and 1997, 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 months ended both
March 31, 1998 and 1997 amounted to $64,965 and was added to the principal
balance of the Restated Second Mortgage Note.
-13-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. RELATED-PARTY TRANSACTIONS
A summary of indebtedness to affiliates follows.
<TABLE>
<CAPTION>
Additions/
Balance at Accrued Balance at
Affiliate December 31, 1997 Interest March 31, 1998
------------- ----------------- --------- -------------------
<S> <C> <C> <C>
CRI $ 405,810 $ 18,226 $ 424,036
CHG 1,303,861 22,159 1,326,020
Realty 1,511,128 26,328 1,537,456
Hyatt 1,395,274 38,115 1,433,389
----------- --------- -----------
$ 4,616,073 $ 104,828 $ 4,720,901
=========== ========= ===========
</TABLE>
The $424,036 and $405,810 due to CRI as of March 31, 1998 and December 31,
1997, respectively, is partially comprised of $107,103 of advances to BMCLP to
fund Excess Payments due on its former mortgages with its 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, the
$1,326,020 and $1,303,861 due to Capitol Hotel Group (CHG), an affiliate of the
General Partners, as of March 31, 1998 and December 31, 1997, respectively, and
$1,537,456 and $1,511,128 due to Realty Management Company (Realty), a former
affiliate of one of the Special Limited Partners, as of March 31, 1998 and
December 31, 1997, respectively, represent advances, and interest accrued
thereon, made to BMCLP to fund Excess Payments on the former mortgages with its
former lender, as discussed in Note 2. The advances from CRI, CHG and Realty
accrue interest at the prime rate (8.5% as of March 31, 1998) plus 1% in
accordance with the Partnership Agreement. These advances plus any accrued
interest will be repaid subject to cash availability as defined by the BMCLP
partnership agreement and the Restated Notes, as discussed in Note 2. Finally,
the $1,433,389 and $1,395,274 due to Hyatt Corporation (Hyatt) as of March 31,
1998 and December 31, 1997, respectively, consists of $1,085,429 of incentive
management fees earned under its management agreement with BMCLP which is due
subject to Hyatt meeting certain performance standards as defined in the
management agreement. The remaining balance consists 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 Notes, as discussed in
Note 3. CRCC received a payment of $50,000 on June 30, 1997 from remaining net
cash flow relating to 1996. Additionally, $50,000 was accrued as of March 31,
1998 and December 31, 1997 for fiscal year 1997 management fees in the
consolidated balance sheets. This amount was paid on May 14, 1998.
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
-14-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. RELATED-PARTY TRANSACTIONS - Continued
forth in the partnership agreement. No incentive management fee was incurred or
paid for the three months ended March 31, 1998 and 1997.
Iroquois Financial Corporation (Iroquois), which is an affiliate of the
Special Limited Partners, has provided financing through the Third Mortgage
Note.
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 base 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.
Management fees paid to Hyatt for the three months ended March 31, 1998 and
1997, were $199,124 and $172,633, respectively.
BMCLP can terminate the Hotel Management Agreement upon no less than 60
days written notice if, for two successive fiscal years after December 31, 1995
(referred to as the Sixth Full Year), the Owner's Remittance (as defined) is
less than the annual principal and interest payments paid on the first mortgage
note (presently the Restated First Mortgage Note), up to a maximum of
$6,250,000. This shortfall occurred in 1996 and 1997. Accordingly, BMCLP
explored the possibility of engaging a different hotel manager, but Hyatt would
not agree to let the Partnership retain the franchise unless Hyatt managed the
hotel. Instead, BMCLP and Hyatt began negotiating a new Hotel Management
Agreement with a lower fee. Currently, BMCLP may not sell or transfer the Hotel
or any portion thereof without the prior approval of Hyatt, which may not be
unreasonably withheld and will be based upon, among other things, the ability of
the prospective purchaser or transferee to fulfill BMCLP's financial obligations
under the Hotel Management Agreement. However, during these negotiations, Hyatt
asserted that the determination of whether or not a shortfall had occurred must
be based on the portion of the Restated First Mortgage Note allocable to the
Hotel, rather than the entire debt service, and that based on their analysis, a
shortfall may not have occurred in 1996 or 1997. BMCLP vigorously disagrees
with this assertion, and on April 21, 1998 sent a notice to Hyatt terminating
the Hotel Management Agreement effective July 31, 1998, and at the same time,
exercised its right under the Hotel Management Agreement to demand arbitration
seeking a declaratory judgment that BMCLP's termination of Hyatt is proper and
effective. The parties are presently negotiating an agreement to postpone the
-15-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. COMMITMENTS AND CONTINGENCIES - Continued
termination and arbitration for 90 days. Management cannot currently project
the impact on the accompanying consolidated financial statements of the outcome
of these negotiations.
Pursuant to the management agreement, Hyatt also provides "chain services"
to the Hotel, such as promotion services, advertising, and centralized
reservation services, for which BMCLP is to pay its allocable share of Hyatt
expenses. As of March 31, 1998 and December 31, 1997 approximately $110,000 of
this related party payable is recorded as due to affiliates in the accompanying
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 in the accompanying financial statements. The reserve
balances included in escrows and deposits at March 31, 1998 and December 31,
1997, were approximately $453,000 and $391,000, respectively.
BMCLP entered into a management agreement with Realty, an affiliate prior
to July 1, 1988, 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. In connection with the
debt restructuring which occurred November 16, 1994, 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 income collected. 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 made by BMC (the holder of the
Restated Second Mortgage) in 1994 to terminate the original contract.
Management fees for the three months ended March 31, 1998 and 1997, were
approximately $98,000 and $85,000, respectively.
The 1994 federal income tax return of BMCLP is being examined by the
Internal Revenue Service, primarily due to the refinancing of the Notes
resulting in cancellation of debt income to the Partnership. Management cannot
currently project the impact on the accompanying consolidated financial
statements of the outcome of the examination.
-16-
<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 1998, 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 1998 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, 1998.
At March 31, 1998 and December 31, 1997, the Registrant had $116 in
available cash.
During the three months ended March 31, 1998, the Registrant's available
cash remained constant at $116, whereas accounts payable increased $7,713. The
increase in accounts payable includes an increase of $10,583 in loan payable to
its Managing General Partner for administrative expenses and a decrease of
$2,870 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 $2,882,632 and $2,071,713 at March
31, 1998 and December 31, 1997, respectively. During the three months ended
March 31, 1998, unrestricted cash and cash equivalents increased by $810,919;
operating activities provided for $950,979 of the increase and financing
activities provided for $45,614 of the increase, both of which were offset by
$185,674 used in investing activities. The increase of $810,919 was despite net
income of $4,841,364. This was due largely to the non-cash gain on debt
forgiveness of $3,471,808, as well as the net debt and interest payments of
$1,876,033, fixed asset additions and payment of leasing costs of $123,923 and
$61,751, respectively, and a $222,201 increase in accounts receivable, which
were offset by depreciation and amortization totaling $1,150,718.
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
March 31, 1998, BMCLP estimates that R&K's total operating deficit obligation
-17-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
has increased to approximately $29,000,000, although R&K does not concur with
this amount. As of March 31, 1998 and December 31, 1997, R&K has provided
$2,521,148 and $2,490,352, 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
$1,282,261 and $1,251,465 at March 31, 1998 and December 31, 1997, respectively,
and has been added to the original advance amount. For the three months ended
March 31, 1998 and 1997, 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 three months ended March 31, 1998 and
1997, GECC advanced $222,434 and $176,171, respectively, to BMCLP for tenant
improvements and leasing costs. Interest accrued on cumulative advances is
included in interest expense, and is also added to the balance of the Rested
First Mortgage Note.
Upon approval of BMC Lender Partnership (BMC), BMCLP may draw upon the
reserves that were 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. As of both March
31, 1998 and December 31, 1997, $273,654 was included in restricted cash related
to this escrow.
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 1998 or 1997.
Results of Operations
---------------------
Registrant
- ----------
Three months ended March 31, 1998 in comparison with March 31, 1997
- -------------------------------------------------------------------
The Registrant recorded a net loss for the three months ended March 31,
1998 of $7,713 compared to a net loss of $8,266 for the corresponding period in
1997. Operating expenses during the first quarter of 1998 were $553 lower than
-18-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
1997 primarily due to a decrease in professional fees, partially offset by an
increase in other expenses.
Bethesda Metro Center Limited Partnership
- -----------------------------------------
Three months ended March 31, 1998 in comparison with March 31, 1997
- -------------------------------------------------------------------
BMCLP's net income for the first quarter of 1998 increased $671,700 or 16%
from the corresponding period in 1997, primarily as a result of increases in
rooms revenue, food and beverage revenue and office, retail and parking rentals
revenue; along with a decrease in depreciation and amortization expense. The
increase in net income was partially offset by increases in rooms expense, food
and beverage expense and administrative expenses.
Room revenue increased by $482,530 or 16% from the first quarter of 1997
due to increases in transient and group revenue. Hotel occupancy increased 8%
to 82% and the average room rate increased $6 to $123 in the first quarter of
1998 compared to the first quarter of 1997. Food and beverage revenues
increased by $125,881 or 10% from the same period in 1997 due to increases in
public room rental and audio-visual sales. Rooms expense increased $86,221 or
13% from the same period in 1997 due to increased laundry and dry cleaning,
reservations and contract service costs. Food and beverage expense increased
$56,600 or 5% from the same period in 1997 primarily due to increased direct
expenses attributable to uniforms, music and entertainment and operating
equipment. The increases in room revenue and food and beverage revenue offset
by the increases in rooms expense and food and beverage expense resulted in
first quarter gross operating profits which exceeded the same period last year
by approximately $465,000 or 30%.
Office building revenue for the first quarter of 1998 increased $273,481 or
12% from the first quarter of 1997 primarily due to increases in occupancy and
average rental rates. The occupancy of the office building increased from 95%
to 100% while the rental rate increased from $24 to $25. The retail and
marketplace occupancy increased from 83% to 89% primarily due to an improving
market. The retail and marketplace average rental rate increased from $31 to
$32 during the first quarter of 1998 compared to the first quarter of 1997
primarily due to an improving market.
Operating expenses of the office building for the first quarter of 1997
increased $147,929 or 26% from the first quarter of 1997 primarily due to
increased energy, payroll and administrative costs.
The following tables outline pertinent unaudited data regarding the
operations of the hotel and office building:
-19-
<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
March 31,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Leasing:
- -------
Average Space Occupied:
Office 100% 95%
Retail and Marketplace 89% 83%
Average Rental Rate:
Office $25 $24
Retail and Marketplace $32 $31
Operations:
- ----------
Total Income $ 2,512,046 $ 2,238,565
Operating Expenses (724,468) (576,539)
------------ ------------
Gross Operating Profits
(Before Depreciation, Management Fees and
Other Fixed Costs) $ 1,787,578 $ 1,662,026
============ ============
</TABLE>
HOTEL
---------------
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Actual Average Occupancy 82% 74%
Actual Average Room Rate $123 $117
Room Revenues $ 3,476,404 $ 2,993,874
Food & Beverage Revenues $ 1,412,214 $ 1,286,333
Room Profits $ 2,706,194 $ 2,309,885
Food & Beverage Profits $ 290,723 $ 221,442
Gross Operating Profits
(Before Depreciation, Management
Fees and Other Fixed Costs) $ 2,026,489 $ 1,561,581
</TABLE>
-20-
<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 nearby
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 completed 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 on the
Restated First or Second Mortgage Notes and/or a tax sale.
Year 2000 Computer Issue
------------------------
The Year 2000 ("Y2K") Computer Issue refers to the inability of many
computer systems in use today to recognize "00" in the date field as the year
2000 and to recognize the year 2000 as a leap year. The Y2K problem arose
because, for many years, computer software programs, including programs embedded
in hardware, utilized only the last two digits to specify the year with the
assumption that the first two digits were "19." As a result, such programs may
not be able to recognize and process dates beyond 1999; rather they may
recognize and process "00," "01," "02,", etc., incorrectly as 1900, 1901, 1902,
instead of as 2000, 2001, 2002. In the opinion of computer experts, this could
cause such programs to create erroneous results, malfunction, or fail completely
unless corrective measures are taken.
The Partnership utilizes software and related computer technologies
essential to its operations that will be affected by the Y2K issue. The
Managing General Partner is studying what actions will be necessary to make its
computer systems Year 2000 compliant; certain upgrades are already scheduled.
The expense associated with these actions cannot presently be determined, but
the Managing General Partner does not expect it to be material.
-21-
<PAGE>
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 March 31, 1998.
All other items are not applicable.
-22-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
-----------------------------------------------
(Registrant)
by: C.R.I., Inc.
Managing General Partner
May 15, 1998 by: /s/ Michael J. Tuszka
- ----------------- ---------------------------------
DATE Michael J. Tuszka
Vice President
and Chief Accounting Officer
(Principal Financial Officer
and Principal Accounting Officer)
-23-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Method of Filing
- ------- -----------------------------
27 Financial Data Schedule Filed herewith electronically
-24-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FIRST QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,630,170
<SECURITIES> 0
<RECEIVABLES> 1,624,754
<ALLOWANCES> 85,324
<INVENTORY> 69,109
<CURRENT-ASSETS> 7,931,722
<PP&E> 138,893,934
<DEPRECIATION> 60,198,657
<TOTAL-ASSETS> 90,486,846
<CURRENT-LIABILITIES> 11,992,347
<BONDS> 77,044,811
0
0
<COMMON> 0
<OTHER-SE> (52,945,934)
<TOTAL-LIABILITY-AND-EQUITY> 90,486,846
<SALES> 0
<TOTAL-REVENUES> 7,588,164
<CGS> 0
<TOTAL-COSTS> 3,763,388
<OTHER-EXPENSES> 2,202,335
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 260,598
<INCOME-PRETAX> 1,361,843
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,361,843
<DISCONTINUED> 0
<EXTRAORDINARY> 3,471,808
<CHANGES> 0
<NET-INCOME> 4,833,651
<EPS-PRIMARY> (12.73)
<EPS-DILUTED> (12.73)
</TABLE>
