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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report
February 24, 1999
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
District of Columbia
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(State or other jurisdiction of incorporation)
0-14513 52-1420605
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(Commission File Number) (IRS Employer Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
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(Address of principal executive offices) (Zip Code)
(301) 468-9200
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(Issuer's telephone number, including area code)
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ITEM 5. OTHER EVENTS
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General
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Capital Income Properties - C Limited Partnership (the Partnership) was
formed as of December 15, 1984, under the District of Columbia Uniform Limited
Partnership Act for the purpose of investing in a mixed use development located
in Bethesda, Maryland, consisting of a hotel, an office building containing both
office and retail space, a retail pavilion and a parking facility (the
Development). The investment was accomplished through the purchase of a limited
partnership interest in Bethesda Metro Center Limited Partnership (BMCLP), a
Maryland limited partnership which owns, operates and maintains the Development.
Between October 21, 1985 and December 31, 1985, 600 limited partnership
interests (Units) were sold to the public through a private placement offering
with an aggregate offering price of $60,000,000 (reduced to $59,639,200 for
Units paid in full at a discount at inception) conducted pursuant to Section
4(2) of the Securities Act of 1933, as amended and Regulation D promulgated
thereunder. As a result of the sale of half-units, the 600 units outstanding
are held by approximately 700 limited partners (Investors) of the Partnership.
The Partnership made all of its payments of capital contributions totaling
$42,500,100 to BMCLP in nine installments commencing in December 1985 and ending
in March 1990 in return for a 92.5% limited partnership interest in BMCLP. Such
capital contributions were funded with the proceeds of the Investors' capital
contributions to the Partnership. Effective June 15, 1992 the Investors voted,
in connection with a loan modification, to remove the managing general partners
of BMCLP and to make C.R.C.C. of Bethesda, Inc. (CRCC), an affiliate of the
Managing General Partner of the Partnership, the managing general partner of
BMCLP. CRCC is able to exercise significant control over the operating,
financing and investing activities of BMCLP. Accordingly, effective June 15,
1992, the Partnership commenced reporting of its financial statements on a
consolidated basis of accounting for its investment in BMCLP. Prior to the
assumption by CRCC of the BMCLP managing general partner duties, the Partnership
recorded its investment in BMCLP under the equity method.
Restructuring of Original Mortgage Debt
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On November 16, 1994, Great Western Bank (BMCLP's previous lender, "Great
Western") sold BMCLP's first and second mortgage notes (the "Notes") to BMC
Lender Partnership ("BMC"), an unaffiliated entity, which amended and restated
the Notes. 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.
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ITEM 5. OTHER EVENTS - Continued
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The Restated First Mortgage Note requires monthly interest payments in
arrears, payable at 4.25% in excess of the GECC Composite Commercial Rate. In
addition to monthly interest payments, monthly principal payments are due in the
amount of $108,333. All unpaid principal is due at the maturity date, which is
November 30, 2001.
The Restated Second Mortgage Note stipulates that 16% interest is payable
monthly from available cash flow, as defined, on a cumulative basis. The
Restated Second Mortgage Note is due November 30, 2001, and no principal
payments are required until then.
Furthermore, BMC is entitled to an Economic Value Participation Interest as
defined which requires BMCLP to pay the following at the sale of the property,
or at refinancing or maturity 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.
Potential Gain on Debt Restructuring
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BMCLP's outstanding obligation under the 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 has been presented as deferred
gain on debt restructuring in the consolidated balance sheets of the
Partnership. In previously filed financial statements of the Partnership, this
amount was being amortized as an extraordinary gain over the remaining term of
the Restated First Mortgage Note based on a constant effective yield. In
addition, the Partnership remeasured the total future obligation for principal
and interest under the Restated First Mortgage Note based on changes in the
variable interest rate, as defined above.
With regard to the Restated Second Mortgage Note, the total estimated
future obligation for payment of principal and interest at the time of the
restructuring based on the fixed interest rate of 16%, was $21,200,000. This
amount exceeded the carrying amount of the second mortgage note prior to
restructuring of $19,380,974. In previously filed financial statements of the
Partnership, this difference of $1,819,026, which represents a constant
additional interest obligation based on the fixed interest rate, was being
amortized as a reduction of the extraordinary gain on the Restated First
Mortgage Note, as described above.
Restatement of Financial Statements
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The consolidated financial statements as of December 31, 1997 and for the
years ended December 31, 1997 and 1996, to be filed with the Partnership's
report on Form 10-K for the year ended December 31, 1998, will be restated in
order to properly reflect the restructuring of the Partnership's mortgage debt
in accordance with Statement of Financial Accounting Standards No. 15 (SFAS 15)
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ITEM 5. OTHER EVENTS - Continued
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"Accounting by Debtors and Creditors for Troubled Debt Restructurings." As
discussed above, the estimated net gain calculated by the Partnership due to the
restructuring was originally deferred and was being amortized into income, as
disclosed further herein, over the term of the restructured mortgage debt. The
Partnership's 1997 and 1996 financial statements will be restated to eliminate
the amortization of the net extraordinary gain, and therefore deferring the
entire net gain from the restructuring until realized, as required under SFAS
15. Due to this restatement, net income of the Partnership will decrease
$14,129,506 and $14,340,300 for the years ended December 31, 1997 and 1996,
respectively, and the beginning balance of partners' deficit as of December 31,
1995 will increase $15,645,567. The entire effect of this restatement is
attributable to BMCLP and not the partners of the Partnership.
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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 hereunto duly authorized.
CAPITAL INCOME PROPERTIES-C LIMITED PARTNERSHIP
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(Registrant)
by: C.R.I., Inc.
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Managing General Partner
February 24, 1999 by: /s/ Michael J. Tuszka
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Date Michael J. Tuszka
Vice President
and Chief Accounting Officer
(Principal Financial Officer
and Principal Accounting Officer)
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