FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
For the transition period from.........to.........
Commission file number 0-16010
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
(Exact name of small business issuer as specified in its charter)
California 94-3004963
(State or other jurisdiction of (IRS Employer
incorporation or organization) (Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
Issuer's telephone number
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 1998
Assets
Cash and cash equivalents $ 1,729
Receivables and deposits, net of allowance of $127 192
Restricted escrows 295
Other assets 392
Investment properties:
Land $ 1,571
Buildings and related personal property 11,801
13,372
Less accumulated depreciation (6,365) 7,007
$ 9,615
Liabilities and Partners' (Deficit) Capital
Accounts payable $ 117
Tenant security deposit liabilities 54
Accrued property taxes 85
Other liabilities 68
Notes payable 2,325
Partners' (Deficit) Capital
General partner $ (176)
Corporate limited partner on behalf
of the Unitholders - (128,810 Units
issued and outstanding) 7,142 6,966
$ 9,615
See Accompanying Notes to Financial Statements
b)
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 546 $ 531 $ 1,117 $ 1,082
Other income 80 59 144 97
Casualty gain 107 -- 215 --
Gain on sale of investment
property -- 437 -- 437
Total revenues 733 1,027 1,476 1,616
Expenses:
Operating 211 229 444 452
General and administrative 74 63 139 115
Depreciation 135 122 264 244
Interest 46 46 92 92
Property taxes 42 37 85 78
Bad debt (recovery) expense (3) 38 (18) 48
Total expenses 505 535 1,006 1,029
Net income $ 228 $ 492 $ 470 $ 587
Net income allocated to
general partner (1%) $ 2 $ 5 $ 5 $ 6
Net income allocated to
limited partners (99%) 226 487 465 581
Net income $ 228 $ 492 $ 470 $ 587
Net income per Unit of
Depository Receipt $ 1.75 $ 3.78 $ 3.61 $ 4.51
Distributions per Unit of
Depository Receipt $ -- $ -- $ 7.69 $ --
<FN>
See Accompanying Notes to Financial Statements
</FN>
</TABLE>
c)
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(Unaudited)
(in thousands, except unit data)
Unitholders
Units of
Units of Depositary
Depositary General Receipt
Receipt Partner (Note A) Total
Original capital contributions 129,266 $ 1 $32,317 $32,318
Partners' (deficit) capital
at December 31, 1997 128,810 $ (171) $ 7,667 $ 7,496
Net income for the six months
ended June 30, 1998 -- 5 465 470
Distributions to partners -- (10) (990) (1,000)
Partners' (deficit) capital at
June 30, 1998 128,810 $ (176) $ 7,142 $ 6,966
See Accompanying Notes to Financial Statements
d) JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 470 $ 587
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 264 244
Amortization of lease commissions
and loan costs 31 24
Gain on sale of investment property -- (437)
Bad debt (recovery) expense (18) 48
Casualty gain (215) --
Change in accounts:
Receivables and deposits (59) (67)
Other assets (112) (6)
Accounts payable (286) (88)
Tenant security deposit liabilities -- 2
Accrued property taxes 85 23
Other liabilities 10 4
Net cash provided by operating activities 170 334
Cash flows from investing activities:
Proceeds from sale of investment property -- 1,287
Property improvements and replacements (431) (29)
Net deposits to restricted escrows (34) (8)
Net insurance proceeds from casualty gain 254 --
Net cash (used in) provided by investing activities (211) 1,250
Cash flows from financing activities:
Loan costs paid -- (11)
Distributions to partners (1,000) --
Net cash used in financing activities (1,000) (11)
Net (decrease) increase in cash and cash equivalents (1,041) 1,573
Cash and cash equivalents at beginning of period 2,770 1,583
Cash and cash equivalents at end of period $ 1,729 $ 3,156
Supplemental disclosure of cash flow information
Cash paid for interest: $ 85 $ 85
<FN>
See Accompanying Notes to Financial Statements
</FN>
</TABLE>
e)
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Johnstown/Consolidated Income
Partners, (the "Partnership") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of ConCap Equities, Inc. (the "General Partner"), all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended June
30, 1998, are not necessarily indicative of the results that may be expected for
the fiscal year ending December 31, 1998. For further information, refer to the
financial statements and footnotes thereto included in the Partnership's annual
report on Form 10-KSB for the fiscal year ended December 31, 1997.
Certain reclassifications have been made to the 1997 balances to conform to the
1998 presentation.
Units of Depositary Receipt
Johnstown/Consolidated Depositary Corporation (the "Corporate Limited Partner"),
an affiliate of the General Partner, serves as a depositary of certain Units of
Depositary Receipt ("Units"). The Units represent economic rights attributable
to the limited partnership interests in the Partnership and entitle the
Unitholders thereof ("Unitholders") to certain economic benefits, allocations
and distributions of the Partnership. For this reason, Partners' (deficit)
capital is herein represented as an interest of the Unitholder.
NOTE B - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all of the Partnership
activities. The General Partner is wholly-owned by Insignia Properties Trust
("IPT"), an affiliate of Insignia Financial Group, Inc. ("Insignia"). The
Partnership Agreement provides for certain payments to affiliates for services
and as reimbursement of certain expenses incurred on behalf of the Partnership.
The following transactions with affiliates of the General Partner were incurred
for the six months ended June 30, 1998 and 1997:
1998 1997
(in thousands)
Property management fees (included in operating expenses) $ 58 $ 57
Reimbursement for services of affiliates (included in
general and administrative expense) 47 43
The Partnership Agreement provides that the Partnership shall pay in monthly
installments to the General Partner, or an affiliate, a yearly asset management
fee equal to: (i) 3/8 of 1% of the original principal balance of mortgage loans
outstanding at the end of the month preceding the installment payment; (ii) 1/8
of 1% of the market value of guaranteed mortgage-backed securities as of the end
of the Partnership quarter immediately preceding the installment payment; and
(iii) 5/8 of 1% of the purchase price of the properties plus improvements for
managing the Partnership's assets. In the event the property was not owned at
the beginning or end of the year, such fee shall be pro rated for the short-year
period of ownership. Under this provision, fees of approximately $46,000 and
$49,000 were paid to the General Partner and its affiliates for the six months
ended June 30, 1998 and 1997, respectively, and are included in general and
administrative expense.
In addition to the reimbursement for services of affiliates, there were $13,000
and $20,000 of construction oversight costs for the six months ended June 30,
1998 and 1997, respectively. These amounts are included in investment property
and operating expense. Also, lease commissions of $78,000 and $6,000 for the
six months ended June 30, 1998 and 1997, respectively, were paid to affiliates
and are included in other assets.
For the period January 1, 1997 to August 31, 1997, the Partnership insured its
properties under a master policy through an agency affiliated with the General
Partner with an insurer unaffiliated with the General Partner. An affiliate of
the General Partner acquired, in the acquisition of a business, certain
financial obligations from an insurance agency which was later acquired by the
agent who placed the master policy. The agent assumed the financial obligations
to the affiliate of the General Partner which received payment on these
obligations from the agent. The amount of the Partnership's insurance premiums
accruing to the benefit of the affiliate of the General Partner by virtue of the
agent's obligations was not significant.
On December 19, 1997, Insignia affiliates (the "Purchaser") commenced tender
offers for limited partnership interests in ten real estate limited partnerships
(including the Partnership) in which various Insignia affiliates act as general
partner. The Purchaser offered to purchase up to 39,000 units of the
outstanding units of limited partnership interest in the Partnership, at $68.00
per Unit, net to the seller in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated December 19, 1997, (the
"Offer to Purchase") and the related Assignment of Partnership Interest attached
as Exhibits (a)(1) and (a)(2), respectively, to the Tender Offer Statement on
Schedule 14D-1 originally filed with the Securities and Exchange Commission on
December 19, 1997. Because of the existing and potential future conflicts of
interest (described in the Partnership's Statements on Schedule 14D-9 filed with
the Securities and Exchange Commission), neither the Partnership nor the General
Partner expressed any opinion as to the Offer to Purchase and made no
recommendation as to whether unit holders should tender their units in response
to the Offer to Purchase. During February 1998, the tender offers were completed
and an affiliate of Insignia purchased 13,985.5 units of limited partnership
interest in the Partnership.
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in IPT,
with Apartment Investment and Management Company ("AIMCO"), a publicly traded
real estate investment trust. The closing, which is anticipated to happen in
September or October of 1998, is subject to customary conditions, including
government approvals and the approval of Insignia's shareholders. If the
closing occurs, AIMCO will then control the General Partner of the Partnership.
NOTE C - COMMITMENT
The Partnership is required by the Partnership Agreement to maintain working
capital for contingencies of not less than 5% of Net Invested Capital as defined
in the Partnership Agreement. In the event expenditures are made from these
reserves, operating revenues shall be allocated to such reserves to the extent
necessary to maintain the foregoing level. Reserves, including cash and cash
equivalents and tenant security deposits totaling approximately $1,784,000 at
June 30, 1998, exceeded the Partnership's reserve requirement of approximately
$1,385,000.
NOTE D - DISTRIBUTIONS
During the six months ended June 30, 1998, the Partnership paid distributions
attributable to cash flow from operations of approximately $1,000,000. During
the six months ended June 30, 1997, no distributions were declared or paid.
In May 1997, the Partnership sold its one-third undivided interest in the
Florida #6 Mini-Warehouse, located in Lauderhill, Florida, to an unaffiliated
party, Shurgard Storage Centers, Inc., a Delaware corporation. The
Partnership's share of the net proceeds was $1,287,000, after payment of closing
costs. The Partnership realized a gain of $437,000 on the sale during the
second quarter of 1997.
The sales transaction is summarized as follows (amounts in thousands):
Cash proceeds received $1,287
Net real estate (1) (850)
Gain on sale of investment property $ 437
(1) Real estate at cost, net of accumulated depreciation of $729,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Partnership's investment properties consist of one apartment complex and two
commercial properties. The following table sets forth the average occupancy of
the properties for the six months ended June 30, 1998 and 1997:
Average Occupancy
1998 1997
Cedar Brooke Apartments
Independence, Missouri 95% 97%
Florida #11 Mini-Warehouse
Davie, Florida 96% 99%
Phoenix Business Campus
College Park, Georgia 71% 70%
The Partnership realized net income of approximately $228,000 and $470,000 for
the three and six months ended June 30, 1998, respectively, compared to net
income of approximately of $492,000 and $587,000 for the three and six months
ended June 30, 1997, respectively. The decrease in net income is primarily due
to an overall decrease in revenues attributable to the gain on the sale of the
Florida #6 Mini-Warehouse recorded during the six months ended June 30, 1997
(see discussion below). Partially offsetting this decrease in revenue was an
increase in rental income related to increased rental rates at all of the
investment properties and an increase in other income attributable to lease
cancellation fees received from a tenant at Phoenix Business Campus. In
addition, for the six months ended June 30, 1998, there was a casualty gain
related to a fire at Cedar Brooke Apartments (see discussion below) and a
recovery on bad debt at Phoenix Business Campus.
In May 1997, the Partnership sold its one-third undivided interest in the
Florida #6 Mini-Warehouse, located in Lauderdale, Florida (see Note E). The
Partnership's share of the net proceeds was $1,287,000, after payment of closing
costs. As a result of the sale, the Partnership realized a gain of $437,000
during the second quarter of 1997.
In the fourth quarter of 1997, there was a fire at Cedar Brooke Apartments that
caused extensive damage to the clubhouse. Insurance proceeds of approximately
$254,000 were received and replacement efforts began during the first part of
1998. The Partnership recorded a casualty gain of approximately $215,000 as a
result of combining the proceeds received less the write off of the
undepreciated balance of the assets destroyed in the fire.
For the six months ended June 30, 1998, approximately $7,000 of major repairs
and maintenance, comprised primarily of construction oversight costs, is
included in operating expense. For the six months ended June 30, 1997,
approximately $45,000 of major repairs and maintenance, comprised primarily of
exterior building improvements and construction oversight costs related to
repair projects at Cedar Brooke Apartments, is included in operating expense.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of each of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expenses. As part of
this plan, the General Partner attempts to protect the Partnership from the
burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
General Partner will be able to sustain such a plan.
At June 30, 1998, the Partnership held cash and cash equivalents of
approximately $1,729,000 compared to approximately $3,156,000 at June 30, 1997.
Cash and cash equivalents had a net decrease of approximately $1,041,000 for the
six months ended June 30, 1998 as compared to a net increase of approximately
$1,573,000 for the same period in 1997. Net cash provided by operating
activities decreased primarily due to a large decrease in accounts payable and
an increase in other assets. Accounts payable decreased due to the payment of
tenant improvements at Phoenix Business Campus while other assets increased as a
result of an increase in lease commissions, primarily due to a new tenant that
is scheduled to move in at Phoenix Business Campus. Net cash used in investing
activities increased as a result of increased property improvements and
replacements primarily attributable to the reconstruction of the clubhouse at
Cedar Brooke Apartments and tenant improvements at Phoenix Business Campus. In
addition, the Partnership received sales proceeds due to the sale of the Florida
#6 Mini-Warehouse in 1997. These unfavorable variances were partially offset by
insurance proceeds received related to the Cedar Brooke casualty. The increase
in net cash used in financing activities can be attributed to the cash
distribution paid to partners during the six months ended June 30, 1998.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the investment properties to adequately maintain the
physical assets and other operating needs of the Partnership. Such assets are
currently thought to be sufficient for any near-term needs of the Partnership.
The mortgage indebtedness of $2,325,000, which carries a stated interest rate of
7.33% (interest only) matures in November 2003, at which time the debt will
either be refinanced or the related property (Cedar Brooke Apartments) sold.
During the six months ended June 30, 1998, the Partnership made a distribution
to the partners of $1,000,000. No cash distributions were declared or paid
during the six months ended June 30, 1997. Future cash distributions will
depend on the levels of net cash generated from operations, capital expenditure
requirements, property sales and the availability of cash reserves.
Year 2000
The Partnership is dependent upon the General Partner and Insignia for
management and administrative services. Insignia has completed an assessment
and will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter (the "Year 2000 Issue"). The project is estimated to be completed no
later than December 31, 1998, which is prior to any anticipated impact on its
operating systems. The General Partner believes that with modifications to
existing software and conversions to new software, the Year 2000 Issue will not
pose significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the
Partnership.
Other
Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date
of this quarterly report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled ROSALIE NUANES, ET AL. V. INSIGNIA
FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and its affiliates of
interests in certain general partner entities, past tender offers by Insignia
affiliates as well as a recently announced agreement between Insignia and
Apartment Investment and Management Company. The complaint seeks monetary
damages and equitable relief, including judicial dissolution of the Partnership.
On June 25, 1998, the General Partner filed a motion seeking dismissal of the
action. In lieu of responding to the motion, the plaintiffs have filed an
amended complaint. The General Partner believes the action to be without merit,
and intends to vigorously defend it.
In March 1998, a limited partner of the Partnership commenced an arbitration
proceeding against the General Partner claiming that the General Partner had
breached certain contractual and fiduciary duties allegedly owed to the
claimant. The General Partner believed the claim to be without merit and
intends to vigorously defend the claims.
On July 30, 1998 certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners are affiliates of
Insignia filed a complaint in the Superior Court of the State of California,
County of Los Angeles. The action involves 44 real estate limited partnerships
(including the Partnership) in which the plaintiffs alledgedly own interests and
which Inisgnia affliates alledgedly manager or control (the "Subject
Partnerships"). The complaint names as defendant limited partnerships, the
Partnership and the Managing General Partner. Plaintiffs allege that they have
requested from, but have been denied by each of the Subject Partnerships, lists
of their respective limited partners for the purpose of making tender offers to
purchase up to 4.9% of the limited partner units of each of the Subject
Partnerships. The complaint also alleges that certain of the defendants made
tender offers to purchase limited partner units in many of the Subject
Partnerships, with the alleged result that plaintiffs have been deprived of the
benefits they would have realized from ownership of the additional units. The
plaintiffs assert eleven causes of action, including breach of contract, unfair
business practices, and violations of the partnership statutes of the states in
which the Subject Partnerships are organized. Plaintiffs seek compensatory,
punitive and treble damages. The Partnership was only recently served with the
complaint and has not yet responded to it. The Partnership believes the claims
to be without merit and intends to defend the action vigorously.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature. The General Partner believes that all such other
pending or outstanding litigation will be resolved without a material adverse
effect upon the business, financial conditions, or operations of the
Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
(b) Reports on Form 8-K
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Partnership
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
By: CONCAP EQUITIES, INC.
Its General Partner
By: /s/ William H. Jarrard, Jr.
William H. Jarrard, Jr.
President and Director
By: /s/ Ronald Uretta
Ronald Uretta
Vice President/Treasurer
Date: August 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Johnstown/Consolidated Income Partners 1998 Second Quarter 10-QSB
and is qualified in its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000787621
<NAME> JOHNSTOWN/CONSOLIDATED INCOME PARTNERS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,729
<SECURITIES> 0
<RECEIVABLES> 192
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 13,372
<DEPRECIATION> (6,365)
<TOTAL-ASSETS> 9,615
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 2,325
0
0
<COMMON> 0
<OTHER-SE> 6,966
<TOTAL-LIABILITY-AND-EQUITY> 9,615
<SALES> 0
<TOTAL-REVENUES> 1,476
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,006
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 92
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 470
<EPS-PRIMARY> 7.69<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
