<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 June 30, 1999
------------------
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 June 30, 1999)
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
Page
----
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1999
and December 31, 1998 . . . . . . . . . . . . . . 1
Consolidated Statements of Operations - for the
three and six months ended June 30, 1999 and 1998
(as restated for 1998) . . . . . . . . . . . . . 3
Consolidated Statement of Changes in Partners'
Deficit - for the six months ended
June 30, 1999 . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows - for the six
months ended June 30, 1999 and 1998 (as restated
for 1998) . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements -
June 30, 1999 and 1998 (as restated for 1998) . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . 23
Item 3. Quantitative and Qualitative Disclosures About
Market Risk . . . . . . . . . . . . . . . . . . . 31
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 31
Signature . . . . . . . . . . . . . . . . . . . . . . . . 32
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . 33
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,439,544 $ 4,628,707
Restricted cash and cash equivalents 4,063,335 2,970,343
Accounts receivable, less allowance for doubtful accounts
of $84,320 and $85,310, respectively 1,515,709 1,107,240
Prepaid expenses 317,524 793,231
Current portion of deferred rent receivable 181,472 181,472
Inventory and other assets 68,359 70,536
------------- -------------
Total current assets 11,585,943 9,751,529
------------- -------------
Property and equipment:
Buildings and tenant improvements 123,971,543 123,741,442
Furniture and equipment 16,586,650 16,084,500
------------- -------------
140,558,193 139,825,942
Less accumulated depreciation (65,593,017) (63,440,811)
------------- -------------
Property and equipment, net 74,965,176 76,385,131
------------- -------------
Other assets:
Deferred charges, less accumulated amortization
of $4,224,866 and $3,793,947, respectively 2,410,198 2,601,472
Deferred rent receivable, less reserve of $246,863 805,979 805,979
Escrows and deposits 402,611 551,303
------------- -------------
Total other assets 3,618,788 3,958,754
------------- -------------
Total assets $ 90,169,907 $ 90,095,414
============= =============
(Continued)
</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>
June 30, December 31,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Current portion of first mortgage note $ 5,191,434 $ 5,398,922
Accounts payable 829,722 734,162
Accrued expenses 865,324 989,079
Due to affiliates 5,733,691 5,441,810
------------- -------------
Total current liabilities 12,620,171 12,563,973
First mortgage note 48,348,309 51,267,336
Second mortgage note 13,281,899 13,963,080
Third mortgage note 6,724,500 6,589,500
Due to guarantor of operating deficits 2,653,971 2,599,769
Deferred gain on debt restructuring 99,323,571 98,998,507
Deferred revenue and security deposits 370,266 487,678
------------- -------------
Total liabilities 183,322,687 186,469,843
------------- -------------
Commitments and contingencies
Partners' deficit (93,152,780) (96,374,429)
------------- -------------
Total liabilities and partners' deficit $ 90,169,907 $ 90,095,414
============= =============
</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,
----------------------------- -----------------------------
1999 1998 1999 1998
(as restated) (as restated)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Rooms $ 4,264,961 $ 4,089,304 $ 8,083,747 $ 7,565,708
Food and beverage 2,056,245 1,776,351 3,738,315 3,188,565
Telephone 188,687 172,687 356,917 322,174
Office, retail and parking rentals 2,214,574 2,489,970 4,656,269 5,002,016
Other 54,900 49,188 94,966 76,492
------------ ------------ ------------ ------------
8,779,367 8,577,500 16,930,214 16,154,955
------------ ------------ ------------ ------------
Departmental expenses:
Rooms 907,228 845,876 1,724,277 1,616,086
Food and beverage 1,441,312 1,213,841 2,720,656 2,335,332
Telephone 97,768 93,928 194,254 180,821
Other 85,391 90,552 165,943 189,000
------------ ------------ ------------ ------------
2,531,699 2,244,197 4,805,130 4,321,239
------------ ------------ ------------ ------------
Other operating expenses:
Administrative 446,173 364,131 902,158 856,068
Marketing 314,954 309,414 623,631 624,568
Energy costs 443,953 472,240 841,149 853,150
Property operations and maintenance 563,411 540,004 1,077,349 1,038,349
------------ ------------ ------------ ------------
1,768,491 1,685,789 3,444,287 3,372,135
------------ ------------ ------------ ------------
Operating income before other income, fixed
charges and other deductions, and net income
attributed to minority interest 4,479,177 4,647,514 8,680,797 8,461,581
------------ ------------ ------------ ------------
Other income 59,636 13,145 104,887 23,854
------------ ------------ ------------ ------------
Fixed charges and other deductions:
Depreciation 1,076,103 1,062,256 2,152,206 2,124,512
Amortization 152,638 88,462 305,276 176,924
Interest expense 255,413 261,026 510,908 521,624
Management fees 583,355 339,884 1,058,596 637,342
Real estate and personal property taxes 269,164 259,016 536,000 518,031
Ground rent 400,000 400,000 800,000 800,000
Other 98,752 99,780 201,049 194,924
------------ ------------ ------------ ------------
2,835,425 2,510,424 5,564,035 4,973,357
------------ ------------ ------------ ------------
</TABLE>
(Continued)
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,
----------------------------- -----------------------------
1999 1998 1999 1998
(as restated) (as restated)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 1,703,388 $ 2,150,235 $ 3,221,649 $ 3,512,078
Net income attributed to minority interest (1,718,156) (2,159,467) (3,257,866) (3,529,023)
------------ ------------ ------------ ------------
Net loss attributed to Partnership $ (14,768) $ (9,232) $ (36,217) $ (16,945)
============ ============ ============ ============
Net loss attributed to Partnership $ (14,768) $ (9,232) $ (36,217) $ (16,945)
============ ============ ============ ============
Net loss allocated to General
Partners and affiliated Initial
Limited Partner (1%) $ (148) $ (92) $ (362) $ (169)
============ ============ ============ ============
Net loss allocated to Additional
Limited Partners (99%) $ (14,620) $ (9,140) $ (35,855) $ (16,776)
============ ============ ============ ============
Net loss per unit of Additional Limited
Partnership interest based 600 units
issued and outstanding $ (24.37) $ (15.23) $ (59.76) $ (27.96)
============ ============ ============ ============
</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) Income
General Limited not Allocable
Partners Partners to Partners Total
--------- -------- --------------- ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 $(530,118) $248,987 $ (96,093,298) $(96,374,429)
Net loss attributed to Partnership (362) (35,855) -- (36,217)
Net income attributed to minority
interest (Note 1) -- -- 3,257,866 3,257,866
--------- -------- ------------- ------------
Balance, June 30, 1999 $(530,480) $213,132 $ (92,835,432) $(93,152,780)
========= ======== ============= ============
</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 six months ended
June 30,
-------------------------------
1999 1998
(as restated)
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,221,649 $ 3,512,078
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 2,152,206 2,124,512
Amortization 305,276 176,924
Interest expense related to the amortization of financing costs 125,642 125,642
Net interest expense added to debt 189,203 196,592
Interest payments treated as a reduction in mortgage debt (2,923,580) (3,111,933)
Changes in assets and liabilities:
Increase in restricted cash and cash equivalents (1,092,992) (704,797)
Increase in accounts receivable, net (408,469) (162,016)
Decrease in prepaid expenses 475,707 452,618
Decrease in inventory and other assets 2,177 10,259
Decrease (increase) in escrows and deposits 148,692 (211,046)
Increase in accounts payable 95,560 160,150
Decrease in accrued expenses (123,755) (326,524)
(Decrease) increase in deferred revenue and security deposits (117,412) 265,899
------------ ------------
Net cash provided by operating activities 2,049,904 2,508,358
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (732,251) (207,323)
------------ ------------
Net cash used in investing activities (732,251) (207,323)
------------ ------------
Cash flows from financing activities:
Proceeds from mortgage debt 90,946 309,136
Payments on mortgage debt (649,998) (649,998)
Net advances from affiliates 291,881 164,281
Payment of leasing costs (239,645) (61,823)
------------ ------------
Net cash used in financing activities (506,816) (238,404)
------------ ------------
Net increase in cash and cash equivalents 810,837 2,062,631
Cash and cash equivalents, beginning of period 4,628,707 2,071,829
------------ ------------
Cash and cash equivalents, end of period $ 5,439,544 $ 4,134,460
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 2,923,580 $ 3,111,933
============ ============
</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
JUNE 30, 1999 AND 1998
(AS RESTATED FOR 1998)
(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 June 30, 1999, and the results of its
operations for the three and six months ended June 30, 1999 and 1998 and its
cash flows for the six months ended June 30, 1999 and 1998. The results of
operations for the interim period ended June 30, 1999, are not necessarily
indicative of the results to be expected for the full year.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and with
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 such rules and
regulations. These condensed financial statements should be read in conjunction
with the financial statements and notes thereto included in the Partnership's
annual report on Form 10-K at December 31, 1998.
Certain amounts in the 1998 financial statements have been reclassified to
conform to the 1999 presentation.
The accompanying unaudited consolidated financial statements for the three
and six months ended June 30, 1998, have been restated in order to properly
account for the restructuring of the Partnership's mortgage debt, as discussed
in Note 4. The estimated extraordinary gain calculated by the Partnership due
to the restructuring was originally deferred and was being amortized into income
over the term of the restructured mortgage debt. The Partnership's financial
statements for the three and six months ended June 30, 1998 have been restated
to eliminate the amortization of the extraordinary gain, and therefore,
deferring the gain from the restructuring until realized, as required under
Statement of Financial Accounting Standards No. 15 (SFAS 15), "Accounting by
Debtors and Creditors for Troubled Debt Restructurings." Due to this
restatement, net income of the Partnership decreased $3,712,401 and $7,184,209
for the three and six months ended June 30, 1998, respectively. The restatement
had no effect on the Partnership's net income before extraordinary item, as
previously reported. The entire effect of this restatement is attributable to
BMCLP (as defined below) and not to the partners of the Partnership.
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 340,000 square feet of net rentable
office space and approximately 14,000 square feet of net rentable retail space.
-7-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(AS RESTATED FOR 1998)
(Unaudited)
2. THE PARTNERSHIP - Continued
In addition, attached to the structure is a parking facility, for approximately
1,300 cars, serving the entire development (collectively, the 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. Martin C.
Schwartzberg retired from CRI and its affiliated businesses effective January 1,
1990 and has had no role in management of the Partnership since then. 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 the Special Limited
Partners). Since CRCC is a wholly owned affiliate of CRI, the accompanying
unaudited financial statements as of June 30, 1999 and December 31, 1998 and for
each of the three-month and six month periods ended June 30, 1999 and 1998 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.
Of the total partners deficit of $93,152,780 and $96,374,429 as of June
30, 1999 and December 31, 1998, respectively, $92,835,432 and $96,093,298,
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: (1) 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 (2) cumulative net BMCLP losses since June 15, 1992 of
$15,362,593 and $18,620,459 as of June 30, 1999 and December 31, 1998,
respectively. BMCLP income and losses subsequent to June 15, 1992, have been
consolidated into the operating accounts of the Partnership in the accompanying
consolidated statements of operations. BMCLP income has been allocated 100% to
the minority interest and will continue to be allocated in this manner until the
minority interest's cumulative losses have been eliminated.
Sale Contract
-------------
BMCLP has entered into a contract for the sale of the Development,
contingent upon the consent of the Partnership. A proxy will be sent to the
Investors of the Partnership in August, 1999 to solicit majority approval of the
sale contract. There is no assurance that majority approval will be obtained,
nor that a sale will take place if such approval is obtained. (See Note 9.)
-8-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(AS RESTATED FOR 1998)
(Unaudited)
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).
-9-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(AS RESTATED FOR 1998)
(Unaudited)
3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP - Continued
Condensed financial information of the Partnership on an unconsolidated
basis follows.
<TABLE>
<CAPTION>
BALANCE SHEETS
--------------
June 30, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Total assets $ 127 $ 126
============ ============
Total liabilities $ 317,475 $ 281,257
Partners' deficit (317,348) (281,131)
------------ ------------
Total liabilities and partners' deficit $ 127 $ 126
============ ============
</TABLE>
STATEMENTS OF OPERATIONS
------------------------
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
----------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ -- $ -- $ 1 $ --
Professional fees (8,815) (2,579) (24,365) (5,309)
Other expenses (5,953) (6,653) (11,853) (11,636)
------------ ------------ ------------ ------------
Net loss $ (14,768) $ (9,232) $ (36,217) $ (16,945)
============ ============ ============ ============
</TABLE>
-10-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(AS RESTATED FOR 1998)
(Unaudited)
3. INVESTMENT IN BETHESDA METRO CENTER LIMITED PARTNERSHIP - Continued
Condensed financial information of BMCLP on an unconsolidated
basis follows.
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ -------------
(Unaudited)
<S> <C> <C>
Investment in real estate, at cost, net $ 74,965,176 $ 76,385,131
Current assets 11,585,816 9,751,403
Other assets 3,618,788 3,958,754
------------ ------------
Total assets $ 90,169,780 $ 90,095,288
============ ============
Current liabilities $ 12,302,696 $ 12,282,716
Other liabilities 170,702,516 173,905,870
Partners deficit (92,835,432) (96,093,298)
------------ ------------
Total liabilities and partners deficit $ 90,169,780 $ 90,095,288
============ ============
</TABLE>
STATEMENTS OF OPERATIONS
------------------------
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
----------------------------- -----------------------------
1999 1998 1999 1998
(as restated) (as restated)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 8,839,003 $ 8,590,645 $ 17,035,100 $ 16,178,809
Expenses (7,120,847) (6,431,178) (13,777,234) (12,649,786)
------------ ------------ ------------ ------------
Net income $ 1,718,156 $ 2,159,467 $ 3,257,866 $ 3,529,023
============ ============ ============ ============
</TABLE>
-11-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(AS RESTATED FOR 1998)
(Unaudited)
4. MORTGAGE DEBT
Restructuring of Mortgage Debt
------------------------------
On November 16, 1994, BMCLP's lender sold its first and second mortgage
notes (the First Mortgage Note and the Second Mortgage Note, collectively, the
Notes) to BMC Lender Partnership (BMC), an unaffiliated entity. BMC amended and
restated the First Mortgage Note (the Restated First Mortgage Note) to a
principal amount of $48,000,000 and sold the Restated First Mortgage Note to
General Electric Capital Corporation (GECC). 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. Of
the total $58 million principal amount of the Restated Notes, $55 million was
paid to Great Western in consideration for the Notes, approximately $1.8 million
was used to fund loan fees and related costs on behalf of BMCLP, approximately
$200,000 was used to fund interest and insurance premiums at the closing date,
and the remaining amount of approximately $1.0 million was deposited into an
escrow account restricted for working capital requirements.
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, 1999 and December 31, 1998 was 4.95% and 5.27%, 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. One of the major tenants of the
Office Building cancelled its lease at the end of 1998 and moved out of its
space at the end of February 1999. As of July 30, 1999, 60% of the space leased
to this former major tenant has been leased to new tenants. No additional
principal payments have been paid to GECC or requested to be paid by GECC, and
therefore have not been reflected in the accompanying consolidated financial
statements. 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 such 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, 1999 and 1998, GECC advanced $0 and
$222,434, 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 Restated First Mortgage Note.
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 was established. Monthly payments of $23,125 were made into
this reserve from January, 1995 through January, 1999. As of June 30, 1999 and
December 31, 1998, the interest reserve balance was $1,163,883 and $1,135,046,
respectively; this amount is reflected in restricted cash and cash equivalents
in the accompanying consolidated balance sheets.
-12-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(AS RESTATED FOR 1998)
(Unaudited)
4. MORTGAGE DEBT - Continued
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 priority, as follows:
(1) Debt service and reserves on the Restated First Mortgage Note.
(2) Establishment of working capital reserves of $50,000 plus an amount
reasonably required to pay ordinary and necessary expenses of
operations.
(3) Debt service on the Restated Second Mortgage Note (to the extent of
available cash flow).
(4) Principal and interest on additional advances, as discussed below, if
any, made to BMCLP by BMC.
(5) 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 at the maturity date of the Restated Notes:
(1) 75% of the amount by which the "Economic Value" of the Development, as
defined, up to $100 million, exceeds the unpaid principal balance and
accrued interest under the Restated Notes, and
(2) 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.
Historically, the Partnership has not received appraisals of the Development in
order to determine the Economic Value. However, in the opinion of the Managing
General Partner, based on its knowledge of the Development and recent purchase
offers, the Economic Value Participation Interest due to BMC as of June 30, 1999
and December 31, 1998, is not in excess of the deferred gain recorded by the
Partnership as of each of those dates. See Note 9 for a discussion of the
estimated Economic Value based on the terms of the sale agreement entered into
by BMCLP on August 2, 1999.
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
-13-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(AS RESTATED FOR 1998)
(Unaudited)
4. MORTGAGE DEBT - 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 million 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 July 30, 1999, no additional advances
have been made.
BMC required that BMCLP deposit a deed in lieu of foreclosure in escrow to
be recordable in the event of a default under the Restated Second Mortgage Note.
CRCC agreed to amend and restate various "no bankruptcy" agreements of the type
the original lender, Great Western, had required of it and certain affiliates.
The new agreements are not secured or guaranteed, but a default thereunder could
trigger the recordation of the escrowed deed in lieu of foreclosure. Among
other things, an event of default would occur if an entity other than CRCC
became a General Partner of BMCLP (and could potentially put BMCLP in
bankruptcy).
Additionally, under the terms of the Restated Second Mortgage Note, the
Partnership established working capital reserves 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 by demonstrating the
need for such funds to BMC. As of June 30, 1999 and December 31, 1998, the
balance in this escrow account was $326,558 and $319,294, respectively; this
amount is reflected in restricted cash and cash equivalents in the accompanying
consolidated balance sheets. There were no withdrawals from or deposits to this
escrow account by BMCLP during the six months ended June 30, 1999 or 1998; only
interest income of $7,264 was added to this account during the first six months
of 1999.
In connection with the debt 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 is to be deferred without interest and is to be paid,
together with the outstanding principal balance of the Third Mortgage Note, upon
the earliest of: (1) sale of the assets of BMCLP; (2) refinancing of the
Restated Notes for an amount in excess of the aggregate outstanding principal
balances due thereunder; or (3) one day later than the later of any maturity
date under the Restated Notes. As of June 30, 1999 and December 31, 1998,
accrued interest of $3,724,500 and $3,589,500, 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 the Third Mortgage Note during the six months ended
June 30, 1999 or 1998.
-14-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(AS RESTATED FOR 1998)
(Unaudited)
4. MORTGAGE DEBT - Continued
Debt Restructuring
------------------
BMCLP's outstanding obligation under the Restated Notes prior to the
restructuring was $197,754,727. In accordance with SFAS 15, the net carrying
amount of the outstanding principal and accrued interest prior to the
restructuring in excess of the total estimated future cash payments for
principal and interest (based on the interest rate in effect on the date of
restructuring of the Restated First Mortgage Note) of the Restated Notes was
recorded as a deferred gain on debt restructuring in the accompanying
consolidated balance sheets. Under SFAS 15, a debtor should not recognize a
gain on restructuring involving indeterminate future cash payments (the floating
rate interest on the Restated First Mortgage Note and the Economic Value
Participation Interest on the Restated Second Mortgage Note) as long as the
maximum total future cash payments may exceed the carrying amount of the debt.
For purposes of applying SFAS 15, the Restated Notes have been aggregated, as
the restructuring was negotiated between BMCLP and a single lender.
Based on the Restated First Mortgage Note s interest rates of 9.20% and
9.52% in effect at June 30, 1999 and December 31, 1998, 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
was $53,539,743 and $56,666,258 at June 30, 1999 and December 31, 1998,
respectively, including additional draws subsequent to the restructuring. 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 total estimated future
obligation resulting from interest rate changes are reflected as a
reclassification between the Restated First Mortgage Note and deferred gain on
debt restructuring. For the six months ended June 30, 1999 and 1998, $454,994
and $279,830, respectively, were reclassified from the Restated First Mortgage
Note to the deferred gain on debt restructuring resulting from decreases in the
future obligation based on decreases in the underlying index.
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 amount of
the Restated Second Mortgage Note at November 16, 1994, of $19,380,974. As
noted above, the Restated Notes have been aggregated for accounting purposes.
Therefore, in accordance with SFAS 15, this difference of $1,819,026, which
represents a constant additional interest obligation based on the fixed interest
rate, is being accrued and added to the Restated Second Mortgage Note principal
balance over the term of the Restated Second Mortgage Note as a reclassification
from the deferred gain on debt restructuring. For the six months ended both
June 30, 1999 and 1998, $129,930 was reclassified from the deferred gain on debt
restructuring to the Restated Second Mortgage Note.
Due to the variable interest rate on the Restated First Mortgage Note and
BMCLP's potential liability to BMC as a result of the Economic Value
Participation Interest, the total future obligations under the Restated Notes,
-15-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(AS RESTATED FOR 1998)
(Unaudited)
4. MORTGAGE DEBT - Continued
including future interest and contingent payments, cannot currently be
determined. Therefore, the deferred gain on debt restructuring will not be
recognized as an extraordinary gain unless it is realized through repayment or
refinancing of the Restated Notes. As of June 30, 1999 and December 31, 1998,
the deferred gain on debt restructuring was $99,323,571 and $98,998,507,
respectively.
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" (SFAS 107), requires the disclosure of fair
value information about financial instruments for which it is practicable to
estimate that value. The Partnership has determined that the carrying amount of
the total future obligation of the Restated First Mortgage Note, which
represents the estimated total future obligation of principal and interest,
approximates fair value based on the variable nature of the Restated First
Mortgage Note's interest rate. Because future debt service payments are
contingent upon changes in the underlying index upon which the interest rate is
calculated, the total future obligation of the Restated First Mortgage Note is
expected to fluctuate with changing market rates of interest. The Partnership
has determined that it is not practicable to estimate the fair value for the
Restated Second Mortgage Note or the Third Mortgage Note due to: (1) the lack
of an active market for these types of financial instruments, (2) the variable
nature of the remaining net cash flow payments payable to BMC under the Restated
Second Mortgage Note, as discussed above, (3) the variable nature of the Third
Mortgage Note's interest payments as a result of its dependence on available
cash flow from BMCLP, and (4) the excessive costs associated with an independent
appraisal of the Restated Second Mortgage Note and the Third Mortgage Note.
5. RELATED-PARTY TRANSACTIONS
Amounts due to affiliates were as follows.
<TABLE>
<CAPTION>
Additions/
Accrued
Balance at Interest Balance at
Affiliate December 31, 1998 (Payments), net June 30, 1999
------------- ----------------- --------------- -------------
<S> <C> <C> <C>
CRI $ 467,133 $ 44,545 $ 511,678
CHG 1,390,760 40,821 1,431,581
Realty 1,614,642 48,501 1,663,143
Hyatt 1,969,275 158,014 2,127,289
----------- ---------- ----------
$ 5,441,810 $ 291,881 $5,733,691
=========== ========== ==========
</TABLE>
-16-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(AS RESTATED FOR 1998)
(Unaudited)
5. RELATED-PARTY TRANSACTIONS - Continued
The $511,678 and $467,133 due to CRI as of June 30, 1999 and December 31,
1998, respectively, are partially comprised of $146,933 and $142,792,
respectively, of advances to BMCLP to fund Excess Payments due on its former
mortgages with Great Western. 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 $1,431,581 and $1,390,760 due to CHG as of June 30,
1999 and December 31, 1998, respectively, and $1,663,143 and $1,614,642 due to
Realty as of June 30, 1999 and December 31, 1998, respectively, represent
advances made to BMCLP and interest accrued thereon, to fund Excess Payments on
the Great Western Notes, as discussed in Note 4. The advances from CRI, CHG and
Realty accrue interest at the prime rate (7.75% as of June 30, 1999, and 8.00%
effective July 1, 1999) 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 4. Finally, the $2,127,289 and $1,969,275 due to
Hyatt as of June 30, 1999 and December 31, 1998, respectively, consist of
$1,983,049 and $1,845,766, respectively, 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. During
the six months ended June 30, 1999 and 1998, Hyatt was paid $260,270 and $0,
respectively, of incentive management fees earned during 1998 and 1997,
respectively. Additionally, Hyatt earned incentive management fees of $235,726
and $397,553 during the three and six months ended June 30, 1999, respectively,
and $0 and $0 during the three and six months ended June 30, 1998, respectively.
The incentive management fees earned during the first two quarters of 1999
remain unpaid as of July 30, 1999. The remaining unpaid incentive management
fees have been deferred by Hyatt in accordance with the Management Agreement.
The remaining $144,240 and $123,509 balance due to Hyatt as of June 30, 1999 and
December 31, 1998, respectively, consist of trade payables to Hyatt for various
services as described in Note 7.
CRCC 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 4. CRCC
received a payment of $50,000 on May 14, 1998 from remaining net cash flow
relating to 1997. Additionally, $50,000 was accrued as of December 31, 1998 for
fiscal year 1998 management fees in the accompanying consolidated balance
sheets. This amount was paid on April 19, 1999.
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 was earned or
paid for either of the six months ended June 30, 1999 and 1998.
Realty Management Company, which is a former affiliate of one of the
Special Limited Partners, provides management and leasing services related to
the Office Building, while Iroquois Financial Corporation, which is an affiliate
of the Special Limited Partners, has provided financing through the Third
Mortgage Note.
-17-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(AS RESTATED FOR 1998)
(Unaudited)
6. ALLOCATION OF PROFITS, LOSSES AND DISTRIBUTIONS OF CASH FLOW
In accordance with the Partnership Agreement, 1% of the Allowable Net Loss
(as defined in the Partnership Agreement) 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.
7. 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 with the date the
Hotel opened through December 31, 2015, absent earlier termination. 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, above the base management fee. During the three and six
months ended June 30, 1999, Hyatt earned and was paid management fees of
$256,935 and $480,943, respectively. During the three and six months ended June
30, 1998, Hyatt earned and was paid management fees of $238,797 and $437,921,
respectively. Additionally, during the three and six months ended June 30,
1999, Hyatt earned incentive management fees of $235,726 and $397,553,
respectively; these fees have not been paid as of July 30, 1999. Hyatt was paid
$260,270 during the six months ended June 30, 1999 for incentive management fees
earned during 1998. Hyatt did not earn any incentive management fees during the
three or six months ended June 30, 1998.
BMCLP can terminate the 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 Amount (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 management agreement
with a lower fee and other provisions more favorable to BMCLP than the existing
Management Agreement. For example, BMCLP desires to eliminate the provision in
the existing agreement that 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 Management Agreement. However, during these negotiations, Hyatt
asserted for the first time 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 Management Agreement effective July 31, 1998. At the same
-18-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(AS RESTATED FOR 1998)
(Unaudited)
7. COMMITMENTS AND CONTINGENCIES - Continued
time, BMCLP exercised its right under the Management Agreement to demand
arbitration seeking a declaratory judgment that BMCLP's termination of Hyatt is
proper and effective, and also seeking reimbursement of certain chain expenses
for which BMCLP believes Hyatt has overcharged. The parties initially agreed to
postpone the termination until October 31, 1998 and the arbitration for 90 days.
The parties subsequently extended these dates several times. The arbitration
extension expired April 1, 1999 and accordingly, the parties have begun the
arbitration process. The termination date was extended to May 17, 1999. The
parties have entered an agreement pursuant to which, during the pendency of the
arbitration, the Partnership will not seek to enforce the termination without at
least 90 days notice to Hyatt, and Hyatt will not cease managing the hotel
without at least 90 days notice to the Partnership. The Managing General
Partner cannot currently predict whether the parties will be able to resolve
their differences, and if not, the impact on the accompanying consolidated
financial statements.
In the event of a sale of the Development, as discussed below, the sale
agreement states that the purchaser may negotiate a new management agreement
with Hyatt, but if the purchaser fails to reach such an agreement, the purchaser
shall assume the Management Agreement at the sale's closing and shall accept the
Development subject to the Management Agreement and the arbitration previously
described. The Management Agreement calls for Hyatt's consent to the
assignment, which shall not be unreasonably withheld. The Partnership can
provide no assurance that Hyatt would consent to an assignment under the
circumstances described.
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, up to 1.5% of gross receipts. As of June 30, 1999 and December 31,
1998, approximately $144,000 and $124,000, respectively, of this related party
payable is recorded as due to affiliates in the accompanying consolidated
financial statements.
The Management Agreement provides for the establishment of a property
improvement fund. Contributions to the property improvement fund are equal to
3% of gross Hotel revenues (as defined). Unexpended reserves are recorded as
escrows and deposits in the accompanying consolidated financial statements. The
reserve balances included in escrows and deposits at June 30, 1999 and December
31, 1998, were approximately $340,000 and $489,000, 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 was to manage the Office Building for a term of 20
years commencing with the date the Office Building opened. Under the terms of
that agreement, Realty received 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
Lender Partnership (the holder of the Restated Second Mortgage Note) paid Realty
-19-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(AS RESTATED FOR 1998)
(Unaudited)
7. COMMITMENTS AND CONTINGENCIES - Continued
$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. Management fees for the
three and six months ended June 30, 1999, were approximately $91,000 and
$180,000, respectively, and approximately $101,000 and $199,000 for the three
and six months ended June 30, 1998, respectively, and are included in management
fees in the accompanying consolidated statements of operations.
In addition to management fees, Realty also receives leasing commissions
for leasing certain space in the Office Building. For the three and six months
ended June 30, 1999, approximately $80,000 and $95,000, respectively, were paid
to Realty for such leasing commissions; no leasing commissions were paid to
Realty during the three or six months ended June 30, 1998.
Examination of Federal Income Tax Return
----------------------------------------
The 1994 federal income tax return of BMCLP is being examined by the
Internal Revenue Service, primarily due to the refinancing of the Notes and the
subsequent election available to the individual partners of the Partnership to
postpone recognition of income taxable to them as a result of the restructuring
of the Notes. Management cannot currently project the outcome of the
examination. However, any impact of the examination will be allocated to the
individual partners for Federal and state income tax purposes.
8. SEGMENT REPORTING
BMCLP has two reportable operating segments, the Hotel and the Office
Building. The Managing General Partner evaluates the performance of each based
on gross operating profit (calculated as total revenues less operating expenses,
excluding depreciation, management fees and other fixed costs). The accounting
policies applicable to the operating segments are the same as those described in
the summary of significant accounting policies in the notes to the financial
statements included in the Partnership's annual report on Form 10-K at December
31, 1998.
-20-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(AS RESTATED FOR 1998)
(Unaudited)
8. SEGMENT REPORTING - Continued
Information related to the reportable operating segments for each of the
three months ended June 30, 1999 and 1998, follows (dollars in thousands).
<TABLE>
<CAPTION>
1999
-----------------------------------------------------------
Office Total Per
Hotel Building Consolidated Data
--------- --------- -----------------
<S> <C> <C> <C>
Total Revenue $ 6,565 $ 2,214 $ 8,779
Operating Expenses (3,640) (660) (4,300)
--------- --------- --------
Gross Operating Profit $ 2,925 $ 1,554 $ 4,479
========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
1998
-----------------------------------------------------------
Office Total Per
Hotel Building Consolidated Data
--------- --------- -----------------
<S> <C> <C> <C>
Total Revenue $ 6,088 $ 2,490 $ 8,578
Operating Expenses (3,335) (595) (3,930)
-------- -------- --------
Gross Operating Profit $ 2,753 $ 1,895 $ 4,648
======== ======== ========
</TABLE>
-21-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(AS RESTATED FOR 1998)
(Unaudited)
8. SEGMENT REPORTING - Continued
Information related to the reportable operating segments for each of the
six months ended June 30, 1999 and 1998, follows (dollars in thousands).
<TABLE>
<CAPTION>
1999
-----------------------------------------------------------
Office Total Per
Hotel Building Consolidated Data
--------- --------- -----------------
<S> <C> <C> <C>
Total Revenue $ 12,274 $ 4,656 $ 16,930
Operating Expenses (6,992) (1,257) (8,249)
--------- --------- --------
Gross Operating Profit $ 5,282 $ 3,399 $ 8,681
========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
1998
-----------------------------------------------------------
Office Total Per
Hotel Building Consolidated Data
--------- --------- -----------------
<S> <C> <C> <C>
Total Revenue $ 11,153 $ 5,002 $ 16,155
Operating Expenses (6,374) (1,319) (7,693)
-------- -------- --------
Gross Operating Profit $ 4,779 $ 3,683 $ 8,462
======== ======== ========
</TABLE>
BMCLP does not consider the total assets of each segment in evaluating the
operating performance or in determining the allocation of resources. Therefore,
this information has not been presented.
9. SUBSEQUENT EVENT
On August 2, 1999, BMCLP entered into a sale agreement dated as of July
31, 1999 to sell the Development. If such a sale is completed, it is the
intention of BMCLP to repay the Restated Notes, the Third Mortgage Note and all
related party debt, including both principal and interest. In addition, based
on the proposed purchase price, management has estimated the Economic Value
Participation Interest (see Note 4) due to BMC from BMCLP (assuming a closing
date of September 30, 1999). BMC has indicated that it will accept a discount
on the Economic Value Participation Interest so that the Partnership will have
-22-
<PAGE>
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(AS RESTATED FOR 1998)
(Unaudited)
9. SUBSEQUENT EVENT - Continued
sufficient funds to repay all debt obligations and make a distribution to the
limited partners sufficient to more than offset any Federal income tax effects
of the sale. Based on management's estimate, the Economic Value Participation
Interest would not exceed the deferred gain on restructuring as reflected in the
accompanying consolidated balance sheets. Upon sale, this liability to BMC for
the Economic Value Participation Interest would be recorded as a charge to the
deferred gain on restructuring. The remaining balance of the deferred gain on
restructuring would be recognized as an extraordinary gain by BMCLP. There is
no assurance that this sale will take place, and the accompanying financial
statements do not reflect the effects of the potential sale. In addition, if a
sale does take place, there is no assurance that the Economic Value
Participation Interest due to BMC would not exceed the deferred gain on the
restructuring as reflected in the accompanying consolidated balance sheets.
-23-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Liquidity
---------
The Partnership does not have adequate cash reserves or any source of cash
to fund its projected cash requirements in 1999, 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 Partnership will receive any cash distribution
from its investment in BMCLP in 1999 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 Partnership has
represented a willingness to fund projected cash flow requirements of the
Partnership for the year ending December 31, 1999.
At June 30, 1999 and December 31, 1998, the Partnership had $127 and $126,
respectively, in available cash.
During the six months ended June 30, 1999, the Partnership's available cash
increased due to interest income, whereas accounts payable increased $36,218.
The increase in accounts payable includes an increase of $28,748 in loan payable
to its Managing General Partner for administrative expenses and an increase of
$7,470 in third-party payables.
Capital Resources
-----------------
BMCLP, of which the Partnership owns a 92.5% limited partner interest, had
unrestricted cash and cash equivalents of $5,439,417 and $4,628,581 at June 30,
1999 and December 31, 1998, respectively. During the six months ended June 30,
1999, BMCLP's unrestricted cash and cash equivalents increased by $810,836;
operating activities provided $2,049,904, offset by $732,251 used in investing
activities and $506,816 used in financing activities. The increase of $810,836
was due to net income of $3,257,866, net of net principal and interest payments
totaling $3,573,578, fixed asset additions and payments of leasing costs of
$732,251 and $239,645, respectively, a $1,092,992 increase in restricted cash
and cash equivalents, and a $408,469 increase in accounts receivable, net. All
of these factors were partially offset by depreciation and amortization
totalling $2,457,482, a $475,707 decrease in prepaid expenses, non-cash interest
expense of $314,845, net advances from affiliates of $291,881, and proceeds from
mortgage debt of $90,946.
BMCLP had restricted cash of $4,063,335 and $2,970,343 at June 30, 1999 and
December 31, 1998, respectively.
Operating Deficit Reserve
-------------------------
For operating deficits which arise, the Limited Partnership Agreement (LPA)
provides that Allan E. Rozansky and Alan I. Kay 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 (1) an amount equal to the net positive
difference between the interest due and payable under the original terms of the
-24-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
First Mortgage Note and the interest due and payable under the original First
Mortgage Note as a result of the third loan modification and (2) 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,
1999, BMCLP estimates that R&K's total operating deficit obligation has
increased to approximately $29,000,000, although R&K do not concur with this
amount. As of June 30, 1999 and December 31, 1998, R&K had provided $2,653,971
and $2,599,769, 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
$1,415,084 and $1,360,882 at June 30, 1999 and December 31, 1998, respectively,
and has been added to the original advance amount. For the six months ended
June 30, 1999 and 1998, no amounts were advanced to BMCLP for operating deficits
because R&K have 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 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, 1999 and 1998, GECC advanced $0 and $222,434,
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 Restated 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 of the
Development, including payments under the Restated Notes. As of June 30, 1999
and December 31, 1998, the balance in this escrow account was $326,558 and
$319,294, respectively; this amount is reflected in restricted cash and cash
equivalents in the accompanying consolidated balance sheets. There were no
withdrawals from or deposits to this escrow account by BMCLP during the six
months ended June 30, 1999 or 1998.
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% of net cash flow) if BMCLP pays
its 25% share of net cash flow held in reserves. No advances were made by BMC
to BMCLP during the six months ended June 30, 1999 or 1998.
-25-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
Results of Operations
---------------------
Partnership
- -----------
Three months ended June 30, 1999 versus June 30, 1998
- -----------------------------------------------------
The Partnership recorded a net loss for the three months ended June 30,
1999 of $14,768 compared to a net loss of $9,232 for the corresponding period in
1998. Operating expenses during the second quarter of 1999 were $5,536 higher
than 1998 primarily due to an increase in professional fees partially offset by
a decrease in other expenses.
Six months ended June 30, 1999 versus June 30, 1998
- ---------------------------------------------------
The Partnership recorded a net loss for the six months ended June 30, 1999
of $36,217 compared to a net loss of $16,945 for the corresponding period in
1998. Operating expenses during the first two quarters of 1999 were $19,273
higher than 1998 primarily due to increases in professional fees and other
expenses. The Partnership recognized interest revenue of $1 and $0 during the
six months ended June 30, 1999 and 1998, respectively.
Bethesda Metro Center Limited Partnership
- -----------------------------------------
Three months ended June 30, 1999 versus June 30, 1998
- -----------------------------------------------------
BMCLP had net income of $1,718,156 for the second quarter of 1999 compared
to net income of $2,159,467 during the corresponding period in 1998. This was
primarily the result of increases in management fees, food and beverage expense
and rooms expense, as well as a decrease in office, retail and parking rentals
revenue. BMCLP's net income was positively impacted by increases in food and
beverage revenue and rooms revenue.
Rooms revenue for the second quarter of 1999 increased by $175,657, or 4%,
from the corresponding period in 1998, primarily due to a strong economy and
higher average daily room rate. Food and beverage revenue increased $279,894,
or 16%, from the second quarter of 1998 primarily due to new menu items and
better promotion by the wait-staff. Rooms expense for the second quarter of
1999 increased by $61,352, or 7%, from the corresponding period in 1998,
primarily due to additional overtime, and increases in travel agent commissions
and in guest supplies expense. Food and beverage expense increased $227,471, or
19%, from the second quarter of 1998 primarily due to higher food costs due to
higher sales, and additional payroll expense as a result of the addition of a
catering manager. Management fees for the hotel increased $253,864, or 106%,
due to incentive management fees of $235,726 earned during the three months
ended June 30, 1999 versus $0 earned during the three months ended June 30,
1998. Hotel occupancy decreased from 88% to 85% while the average room rate
increased from $132 to $141 during the second quarter of 1999 compared to the
second quarter of 1998. The increases in rooms revenue and food and beverage
revenue, offset by the increases in rooms expense and food and beverage expense,
-26-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
resulted in first quarter 1999 gross operating profits for the hotel exceeding
first quarter 1998 by $172,085, or 6%.
Office building revenue for the second quarter of 1999 decreased $275,396,
or 11%, from the second quarter of 1998 primarily due to decreased occupancy.
The average occupancy of the office building decreased from 100% to 84% while
the average rental rate remained constant at $25 per square foot. The retail
and marketplace average occupancy decreased from 89% to 86%. The retail and
marketplace average rental rate increased from $33 to $35 per square foot during
the second quarter of 1999 compared to the second quarter of 1998. There is no
assurance that these occupancy levels or rental rates will be maintained.
Operating expenses of the office building for the second quarter of 1999
increased $65,026, or 11%, from the second quarter of 1998 primarily due to
increased administrative expenses.
Six months ended June 30, 1999 versus June 30, 1988
- ---------------------------------------------------
BMCLP had net income of $3,257,866 for the six months ended June 30, 1999
compared to net income of $3,529,023 during the corresponding period in 1998.
This was primarily the result of increases in management fees, food and beverage
expense and rooms expense, as well as a decrease in office, retail and parking
rentals revenue. BMCLP's net income was positively impacted by increases in
food and beverage revenue and rooms revenue.
Rooms revenue for the six months ended June 30, 1999 increased by $518,039,
or 7%, from the corresponding period in 1998, primarily due to a strong economy
and higher average daily room rate. Food and beverage revenue for the six
months ended June 30, 1999 increased $549,750, or 17%, from the corresponding
period in 1998 primarily due to new menu items and better promotion by the wait-
staff. Rooms expense for the six months ended June 30, 1999 increased by
$108,191, or 7%, from the corresponding period in 1998, primarily due to
additional overtime, and increases in travel agent commissions and in guest
supplies expense. Food and beverage expense for the six months ended June 30,
1999 increased $385,324, or 16%, from the corresponding period in 1998 primarily
due to higher food costs due to higher sales, and additional payroll expense as
a result of the addition of a catering manager. Management fees for the hotel
increased $440,575, or 101%, due to incentive management fees of $397,553 earned
during the six months ended June 30, 1999 versus $0 earned during the six months
ended June 30, 1998. Hotel occupancy remained steady at 85% while the average
room rate increased from $128 to $137 during the six months ended June 30, 1999
compared to the same period during 1998. The increases in rooms revenue and
food and beverage revenue, offset by the increases in rooms expense and food and
beverage expense, resulted in gross operating profits for the hotel during the
first six months of 1999 exceeding the same period during 1998 by $502,783, or
11%.
Office building revenue for the six months ended June 30, 1999 decreased
$345,747, or 7%, from the corresponding period in 1998 primarily due to
decreased occupancy. The average occupancy of the office building decreased
from 100% to 90% while the average rental rate increased from $25 to $26 per
square foot. The retail and marketplace average occupancy decreased from 89% to
87% while the retail and marketplace average rental rate increased from $33 to
$35 per square foot during the first six months of 1999 compared the same period
-27-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
in 1998. There is no assurance that these occupancy levels or rental rates will
be maintained.
Operating expenses of the office building for the six months ended June 30,
1999 decreased $62,180, or 5%, from the corresponding period in 1998 primarily
due to decreased energy costs and administrative expenses.
-28-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
Selected data regarding the operations of the hotel and office building
follow.
HOTEL
---------------
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
----------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Actual Average Occupancy 85% 88% 85% 85%
Actual Average Room Rate $141 $132 $137 $128
Room Revenue $ 4,264,961 $ 4,089,304 $ 8,083,747 $ 7,565,708
Food & Beverage Revenue $ 2,056,245 $ 1,776,351 $ 3,738,315 $ 3,188,565
Room Profits $ 3,357,733 $ 3,243,428 $ 6,359,470 $ 5,949,622
Food & Beverage Profits $ 614,933 $ 562,510 $ 1,017,659 $ 853,233
Gross Operating Profits
(Before Depreciation, Management
Fees and Other Fixed Costs) $ 2,924,794 $ 2,752,709 $ 5,281,981 $ 4,779,198
</TABLE>
-29-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
OFFICE BUILDING
---------------
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
----------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Leasing:
-------
Average Space Occupied:
Office 84% 100% 90% 100%
Retail and Marketplace 86% 89% 87% 89%
Average Rental Rate:
Office $25 $25 $26 $25
Retail and Marketplace $35 $33 $35 $33
Operations:
----------
Total Income $ 2,214,574 $ 2,489,970 $ 4,656,269 $ 5,002,016
Operating Expenses (660,191) (595,165) (1,257,453) (1,319,633)
------------- ------------ ------------ ------------
Gross Operating Profits
(Before Depreciation, Management
Fees, and Other Fixed Costs) $ 1,554,383 $ 1,894,805 $ 3,398,816 $ 3,682,383
============= ============ ============ ============
</TABLE>
It should be noted that BMCLP's investment in the Development is a
high-risk investment involving many factors beyond the control of its Managing
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. Local market conditions
could be affected by the addition of over 1 million square feet of new office
space currently under construction in downtown Bethesda (although more than half
of the space is committed to single use tenants).
-30-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
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.
Sale Negotiations
-----------------
The Partnership has received several inquiries and offers to purchase the
Development owned by BMCLP. These inquiries and offers were not solicited by
BMCLP. On January 22, 1999, BMCLP entered into a contract for the sale of the
Development. On February 25, 1999, the Partnership confidentially filed
preliminary proxy materials with the Securities and Exchange Commission (the
Commission) to solicit approval of the sale contract by the Partnership's
limited partners. On March 12, 1999, before the proxy materials were delivered
to the Partnership's limited partners, the parties decided to terminate the
contract. On August 2, 1999, BMCLP entered into a new contract dated as of
July 31, 1999 for the sale of the Development. A proxy will be sent to the
investors of the Partnership in August, 1999 to solicit majority approval of the
sale contract. There is no assurance that majority approval will be obtained,
nor that a sale will take place if such approval is obtained.
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. To address
the issue, the Managing General Partner has developed and is currently
implementing a plan (the "Y2K Project") designed to ensure that the Y2K date
change will not have an adverse impact on the Partnership's operations. The Y2K
Project is on schedule and the Managing General Partner expects completion by
the end of 1999. The Y2K Project consists of four phases -- Planning,
Assessment, Implementation and Testing. The Planning Phase began early in 1998
and is complete. Under the Planning Phase, the Managing General Partner
conducted an inventory of all internal hardware and software systems, data
interfaces, business operations and non-information technology functions which
may be susceptible to the Y2K issue. This phase was completed at the end of
November 1998. Under the next phase, the Assessment Phase, all applications and
functions identified in the Planning Phase were analyzed to determine Y2K
compliance and the materiality of each identified risk. In the event of
-31-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
noncompliance, for material risks, timetables for corrective action, as well as
estimated costs to achieve compliance, were determined. This phase was
completed during the first quarter of 1999. The Implementation Phase is now
underway. Renovation and replacement of existing internal hardware and software
systems has begun and completion is expected by August 31, 1999. Additionally,
the Managing General Partner is currently working with third party vendors and
service providers to verify their Y2K compliance, with completion expected by
August 31, 1999. The Testing Phase, which will include testing of internal
applications as well as some third party systems, began during January 1999 and
will continue throughout 1999. Contingency planning commenced during the fourth
quarter 1998 and will be completed by year-end 1999. The Managing General
Partner does not expect the expense associated with the Y2K Project to be
material.
The Partnership has been informed that Realty has chosen to address the Y2K
computer issue by retaining a consultant in the area of real estate and
accounting software. The consultant is assisting Realty in researching and
selecting a new property management accounting software package that is expected
to be fully functional by November 1, 1999. Realty has represented that it is
committed to making any hardware changes required for the Y2K as part of this
program. With regard to building systems, including energy management systems,
elevator systems, and access control systems, Realty has completed an inventory
and has contacted building vendors to determine their current level of Y2K
compliance. For those systems not in compliance, Realty is in the process of
purchasing required software. Realty does not expect the expense associated
with the Y2K project to be material.
The Partnership has been informed that Hyatt is working with Computer
Sciences Corporation (CSC) and Sabre Technology Solutions (STS), its technology
outsourcing partners, to address the Y2K compliance status of each of its major
systems and has implemented a plan in an attempt to ensure that each of its
systems is Y2K compliant by a goal date of August 31, 1999.
Hyatt's major systems include: (1) SPIRIT - a world-wide reservations
system; (2) Envision - a sales system used by its hotels and national sales
force; (3) Revenue Management System - used by hotels to develop forecasts and
establish rate guidelines; (4) Property Management System - used for hotel
operations; and (5) Sales and Catering Automation System - used by hotels to
manage meeting room inventory and the service requirements of group customers.
The evaluation of these systems began in 1995 and has led to a remediation
plan specific to each system. Hyatt's technology outsourcers have reviewed the
application business logic, application development tools, database, system
management tools, operating systems, hardware and network for each system. Once
each of these components is determined to be Y2K compliant, all components will
be tested together transitioning to the Y2K and operating in the Y2K. Hyatt has
represented that each of its major systems has been or is scheduled to be
certified as Y2K compliant by August 31, 1999. Hyatt does not expect the
expense associated with the Y2K project for the Hotel to be material.
Although Realty and Hyatt are coordinating the Y2K compliance efforts at
the Office Building and the Hotel, respectively, it is ultimately the
Partnership's responsibility to ensure that the operations are Y2K compliant.
-32-
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
There has been no change to the information required by this item since
reported in the Partnership's annual report on Form 10-K at December 31, 1998.
PART II. OTHER INFORMATION
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a. None.
b. On April 19, 1999, the Partnership filed a report on Form 8-K dated
March 12, 1999, announcing the termination of the sales contract
entered into by BMCLP on January 22, 1999, for the sale of the
Development.
All other items are not applicable.
-33-
<PAGE>
SIGNATURE
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
August 3, 1999 by: /s/ Michael J. Tuszka
- ---------------- ---------------------------------------
DATE Michael J. Tuszka
Vice President
and Chief Accounting Officer
(Principal Financial Officer
and Principal Accounting Officer)
-34-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Method of Filing
- ------- -----------------------------
27 Financial Data Schedule Filed herewith electronically
-35-
<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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 9,502,879
<SECURITIES> 0
<RECEIVABLES> 1,600,029
<ALLOWANCES> 84,320
<INVENTORY> 68,359
<CURRENT-ASSETS> 11,585,943
<PP&E> 140,558,193
<DEPRECIATION> 65,593,017
<TOTAL-ASSETS> 90,169,907
<CURRENT-LIABILITIES> 12,620,171
<BONDS> 68,354,708
0
0
<COMMON> 0
<OTHER-SE> (93,152,780)
<TOTAL-LIABILITY-AND-EQUITY> 90,169,907
<SALES> 0
<TOTAL-REVENUES> 17,035,101
<CGS> 0
<TOTAL-COSTS> 8,249,417
<OTHER-EXPENSES> 5,053,127
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 510,908
<INCOME-PRETAX> 3,221,649
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,221,649
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,221,649
<EPS-BASIC> (59.76)
<EPS-DILUTED> (59.76)
</TABLE>
