SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
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JOHNSTOWN/CONSOLIDATED INCOME PARTNERS/2
One Insignia Financial Plaza
Post Office Box 2347
Greenville, South Carolina 29602
(Name of Registrant as Specified In Its Charter)
James C. Morton, III, Esq.
Haynsworth, Marion, McKay & GuJrard, LLP
75 Beattie Place, 11th Floor
Two Insignia Financial Plaza
Greenville, South Carolina 29601
(864) 240-3320
(Name, Address and Telephone Number of Persons Authorized to Receive
Notices and Communications on Behalf of Persons Filing Statement)
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JOHNSTOWN/CONSOLIDATED INCOME PARTNERS/2
One Insignia Financial Plaza
Post Office Box 2347
Greenville, South Carolina 29602
(864) 239-1000
CONSENT SOLICITATION STATEMENT
SEPTEMBER 20, 1996
INTRODUCTION
General
This consent solicitation ("Consent Solicitation") is furnished in
connection with the solicitation of consents by ConCap Equities, Inc., a
Delaware corporation ("General Partner" or "CEI"), the General Partner of
Johnstown/Consolidated Income Partners/2, a California limited partnership (the
"Partnership"), to grant the General Partner the authority to sell all or
substantially all the assets of the Partnership (the "Partnership Assets") to an
entity or entities not affiliated with the General Partner or the Partnership.
If such a sale were to occur, it would consequently bring about the liquidation
of the Partnership. This Consent Solicitation and enclosed consent form
("Consent") are first being mailed to unitholders ("Unitholders") on or about
September 20, 1996. Please complete, date and sign the enclosed Consent and
return it to Johnstown/Consolidated Income Partners/2 Proxy Returns, P.O. Box
2347, Greenville, South Carolina 29602, in the enclosed envelope. The Consent
Solicitation and Consent will expire on the earlier of (i) the Consent Effective
Date (as defined herein) and (ii) midnight on November 22, 1996 (the "Expiration
Date"), unless the General Partner elects to extend the Expiration Date for a
period of up to an additional sixty (60) days.
This Consent Solicitation is not being made to, and Consents will not
be accepted from, Unitholders in any jurisdiction in which the Consent
Solicitations would violate blue sky or securities laws of such jurisdiction.
Under the California Revised Limited Partnership Act, unless the
partnership agreement provides otherwise, limited partners have the right to
vote on certain matters, and action may be taken by the General Partner only
after the affirmative vote of a majority in interest of the limited partners.
Under the Fourth Amended and Restated Certificate and Agreement of
Johnstown/Consolidated Income Partners/2 (the "Partnership Agreement"), it is
unclear whether the General Partner has the authority to sell all or
substantially all of the Partnership Assets without first seeking the vote of
the limited partners. See "Discussion of the Partnership Agreement." The
General Partner believes the sale of substantially all of the Partnership Assets
at a price of not less than Two Million Dollars ($2,000,000), if a binding
contract can be entered into on or before June 30, 1997, would be in the
Unitholders' best interest. The General Partner further believes that having to
seek limited partners' approval of a sale of the Partnership's Assets after a
buyer is located would adversely impact the General Partner's ability to
effectuate a sale on favorable terms and conditions. See "REASONS FOR THE
CONSENT SOLICITATION." A consequence of the closing of such a sale would be the
dissolution and termination of the Partnership. See "Dissolution Following
Authorized Sale."
The Proposal
Unitholders' consent is sought to amend the Partnership Agreement to
authorize the General Partner to sell all or substantially all of the
Partnership Assets to a person or persons not affiliated with the General
Partner or the Partnership, pursuant to a binding agreement to be entered into
on or before June 30, 1997, at a price of not less than Two Million Dollars
($2,000,000) (the "Amendment"). The Partnership Assets are a 2/3rds undivided
interest in Florida #6 Mini Warehouse - Lauderhill, Florida (the "Property").
The General Partner is not authorized to sell all or substantially all of the
Partnership Assets to any buyer affiliated with the Partnership or the General
Partner. The full text of the Amendment is set forth herein.
Interests of Certain Persons
The General Partner is entitled to receive a distribution of one
percent (1%) of distributable cash from operations which includes net cash
proceeds from the sale of Partnership Assets. On Dissolution following such
sale, at a price of Two Million Dollars ($2,000,000), the General Partner would
receive a cash distribution of approximately Seven Hundred Fifteen Dollars
($715). See "Certain Federal Income Tax Considerations - Distributions to
Unitholders."
Record Date
The General Partner has fixed 5:00 P.M. (Greenville, South Carolina
time) on September 19, 1996, as the record date ("Record Date") for determining
those Unitholders entitled to notice of and to vote the interests in the
Partnership (the "Limited Partnership Interests") with respect to matters set
forth herein. The General Partner anticipates that there will be sixty-seven
thousand eight hundred fourteen (67,814) units (the "Units") of Limited
Partnership Interests outstanding and entitled to vote on the Amendment.
Approval of an Authorized Sale
Unitholders should note that subsequent to the Amendment, the
Unitholders will have no opportunity to evaluate the terms of any purchase
offers for the Partnership Assets. See "Certain Considerations." As stated
above, upon approval, the General Partner shall, consistent with obtaining the
fair value of the Partnership Assets, take full account of the Partnership
Assets, seek potential purchasers, and distribute the proceeds or assets as
promptly as practicable.
Procedure for Consenting to the Amendment
The Amendment will be approved (the "Consent Effective Date") when
properly completed, unrevoked consents with respect to such sale are signed by
holders of record on the Record Date of at least a majority of the Units then
outstanding (the "Majority Vote") and such consents are delivered to the
Partnership, provided the requisite consents are so delivered by the Expiration
Date. If the Amendment is adopted, the proposed amendment to the Partnership
Agreement set forth above will be effective and will apply prospectively from
and after the date of approval of such proposal by the Limited Partners.
Each Unit shall be entitled to one (1) vote with respect to the
proposed Amendment. If a Unitholder specifies a choice with respect to the
matter identified on the form of Consent, the Consent will be given in
accordance with the specification so made. If a Unitholder executes a Consent
but has failed to check a box marked "CONSENT" or "WITHHOLD CONSENT," such
Unitholder will be deemed to have consented to the Amendment. If a Unitholder
votes to "WITHHOLD CONSENT" or does not return the Consent, then such associated
Unit or Units will not count towards satisfying the Majority Vote requirement.
Revocation of Consent
Unitholders are hereby advised that the delivery of a subsequently
executed Consent will revoke all previously executed Consents. Hence,
Unitholders may revoke their Consent at any time prior to the Consent Effective
Date. After the Consent Effective Date, no revocations can be made.
Any Unitholder who desires to revoke a previously executed Consent may
do so by furnishing the General Partner with a later dated Consent or letter or
other written notice stating such Unitholder's name and that such Unitholder
wishes to revoke a previously executed Consent. Such revocations will be deemed
effective on the date of receipt by Johnstown/Consolidated Income Partners/2
Proxy Returns at the following address: P.O. Box 2347, Greenville, South
Carolina 29602.
Consent Solicitation Expenses
The Partnership has retained Beacon Hill Partners Inc. to assist in
contacting the Unitholders at a fee of approximately Two Thousand Dollars
($2,000), plus expenses. In addition, certain officers, representatives and
regular employees of the General Partner may also contact the Unitholders by
telephone or facsimile or in person. The Partnership will reimburse brokers and
other custodians or nominees for their reasonable expenses incurred in
forwarding solicitation materials to beneficial owners of the Units. The entire
cost of this solicitation will be borne by the Partnership.
Expenses of Sale
If the Partnership sells the Partnership Assets (its undivided 2/3rds
interest in the Property), rather than selling the Property in conjunction with
Johnstown/Consolidated Income Partners (the owners of the other 1/3rd interest
in the Property), the Partnership shall bear all expenses incurred in connection
with the sale. The General Partner believes that a higher price and a better
return to the Limited Partners can be obtained if the Property is sold as one
unit, rather than selling the Partnership Assets separately. If the Partnership
and Johnstown/Consolidated Income Partners work together to sell the Property,
the Partnership will divide the expenses incurred in connection with the sale
with Johnstown/Consolidated Income Partners. The expenses will be divided on a
percentage of ownership basis with the Partnership paying 2/3rds and
Johnstown/Consolidated Income Partners paying the other 1/3rd. This arrangement
is dictated by an agreement executed between the partnerships in 1991, when the
partnerships foreclosed on the mortgage on the Property.
DISCUSSION OF THE PARTNERSHIP AGREEMENT
The relevant provisions of the Partnership Agreement are as follows:
Section 2.04, Powers and Duties of the Limited Partners and Unitholders,
provides as follows:
Neither the Limited Partners nor the Unitholders shall have any right to
vote on or approve (i) transactions in which the General Partner has an
actual or potential conflict of interest; (ii) the sale, exchange,
financing, refinancing, or other disposition of Assets; or (iii) any other
matter not specifically provided for in this Agreement.
Section 9.01, Dissolving Events, provides as follows:
The Partnership shall be liquidated and dissolved in the manner hereinafter
provided upon the happening of any of the following events (referred to
herein as "Dissolving Events"):
(a) the sale or other disposition and the conversion to cash of
all or substantially all of the Assets of the Partnership; . . .
Section 2.02(b), General Restrictions on the Powers of the General Partner,
provides:
. . . Unless the prior consent of the Limited Partners holding a
majority of the Limited Partner Interests of the Partnership is
obtained, the General Partner shall be prohibited from: . . .
(D) selling substantially all of the Partnership's Assets in a
single sale or in multiple sales in the same 12-month period,
except in the orderly liquidation and winding up of the business
of the Partnership upon its termination and dissolution;
(E) dissolving the Partnership, except as provided in Section
2.01(e); . . . [' 2.01(e) is not applicable here]
As noted above, '' 2.02(b)(D) and 2.04 give the General Partner the
power to sell Partnership Assets but ' 2.02(b)(E) does not give the General
Partner the power to dissolve the Partnership except as provided in ' 2.02(e),
which does not apply here. Consequently, it is unclear whether the General
Partner has the authority, without the approval of the limited partners, to sell
the Assets of the Partnership, if such sale would result in the dissolution of
the Partnership. The Amendment will give the General Partner the authority to
enter into a binding agreement to sell, at any time prior to June 30, 1997, the
Partnership Assets for a price of not less than Two Million Dollars
($2,000,000), and, thereafter, dissolve the Partnership.
DESCRIPTION OF THE PROPOSED AMENDMENT
THE GENERAL PARTNER BELIEVES THAT THE PROPOSED AMENDMENT IS IN THE BEST INTEREST
OF THE UNITHOLDERS AND THAT THE UNITHOLDERS SHOULD VOTE TO "CONSENT" TO THE
AMENDMENT.
The following sets forth the text of the proposed amendment to the
Partnership Agreement, showing the changes (additions are indicated by text
in quotation marks; deletions are indicated by text in all caps):
2.01 Rights and Powers of the General Partner
(h) "Sale of Substantially All of the Partnership Assets. The General
Partner may act to sell all or substantially all of the Assets of the
Partnership without the prior consent of the Limited Partners holding a
majority of the Limited Partner Interests if the General Partner has an
executed contract of sale with a buyer by June 30, 1997, provided the offer
to purchase the Assets is for at least Two Million Dollars ($2,000,000),
and the buyer is not affiliated with the Partnership or the General
Partner."
2.02 General Limitations
(b) General Restrictions on the Powers of the General Partner. The
General Partner shall not cause the Partnership to: (i) reinvest any
Distributable Cash from Operations; (ii) operate the Partnership in such a
manner as to have the Partnership classified as an "investment company" for
purposes of the Investment Company Act of 1940; (iii) grant the Sponsor or
an Affiliate an exclusive right to sell or exclusive employment to sell
Assets for the Partnership; (iv) cause the Partnership to enter into any
agreements with the General Partner or its Affiliates that shall not be
subject to termination without penalty by either party upon not more than
sixty (60) days' written notice, except for the Depository Agreement or any
joint-venture agreement with an Affiliate; (v) invest in securities of
other issuers for investment or for the purpose of exercising control
unless it acquires all of such securities in order to facilitate the
acquisition of real property or, unless the securities are limited
partnership interests described in Section 2.02(e); (vi) underwrite
securities of other issuers; (vii) issue senior securities; (viii) engage
in the purchase and sale (or turnover) of investments (ix) acquire Assets
in exchange for Units or Interests. Neither the General Partner nor the
Sponsor may receive a rebate, give-up, or similar payment or enter into any
reciprocal business arrangement that would circumvent the restrictions
against dealing with Affiliates or Sponsors contained in the Agreement.
Unless the prior consent of Limited Partners holding a majority of Limited
Partner Interests of the Partnership is obtained, the General Partner shall
be prohibited from:
(A) amending this Agreement, except as otherwise provided in
Article XVI;
(B) withdrawing or retiring from its position as General Partner
except as otherwise provided in Section 8.02;
(C) appointing a new General Partner or Partners except as
otherwise provided in Section 8.02;
(D) "Reserved;"
(E) "Reserved;"
(F) executing or delivering any assignment for the benefit of
the creditors or the Partnership; or
(G) releasing, assigning, or transferring a Partnership claim,
security, commodity, or any other Assets of the Partnership
without full and adequate consideration.
REASONS FOR THE CONSENT SOLICITATION
Background and Reasons for the Amendment
The Partnership was organized as a limited partnership to invest in
mortgage loans originated or purchased by the Partnership and to acquire, own,
operate and ultimately dispose of income-producing real properties for the
benefit of its Unitholders. The Partnership concluded its investment activities
by acquiring a 2/3rds undivided interest in a mortgage on a mini-warehouse
located in Lauderhill, Florida and a real estate acquisition, development and
construction lending arrangement which was subsequently repaid in 1989. In
September 1991, the Partnership was forced to foreclose the mortgage on the
Partnership's sole asset, the 2/3rds undivided interest in the mini-warehouse.
Since the interest in the Property is the only asset of the Partnership, the
General Partner seeks to maximize the return on the investment of the
Unitholders by selling the Partnership Assets and distributing the proceeds to
the Unitholders. The General Partner is also the General Partner of
Johnstown/Income Consolidated Partners, a California limited partnership which
owns the other 1/3rd undivided interest in the Property.
The General Partner believes that the return on investment to the
Unitholders would be maximized by the sale of the 2/3rds undivided interest in
the Property and the subsequent liquidation and distribution of the proceeds
thereof to the Unitholders. The General Partner has concluded the Partnership
Assets should be sold if a desirable price can be achieved. The General Partner
has concluded that the sale and subsequent liquidation are in the best interest
of the Unitholders for each of the following reasons taken together and without
specifically placing any greater or lesser importance on any of them: (1)
according to section 1.05(a) of the Partnership Agreement, one objective of the
Partnership is to preserve and protect the Unitholders' investments "in a
diversified portfolio," the Partnership Agreement, in section 1.05(b)
specifically contemplates a diversified portfolio of properties, the Partnership
presently holds only one (1) investment in one (1) property, thus the goal is
not being met; (2) the Partnership has held an interest in the Property for
longer than anticipated; (3) because of increasing competition, as evidenced by
decreasing occupancy (from 97% to 90% from 1994 to 1995) and the fact that there
are now twenty-eight (28) similar facilities within a five (5) mile radius, the
General Partner, has through an analysis of the Property determined that a
longer holding period will not necessarily result in a significant increase in
market value; (4) the General Partner believes that a fair value can currently
be achieved for the Partnership Assets; (5) the Partnership may need to expend
capital to maintain the Property in the next few years; (6) operating expenses
of the Property and the Partnership are significant in relation to the value of
the Partnership Assets, presently expenses are forty-five percent (45%) of
revenue; (7) the expenses of maintaining and operating a public partnership when
the partnership owns only one asset do not allow for economies of scale; (7) the
evolution of the Partnership has been such that the General Partner believes
that it is in the best interests of the Unitholders to sell the Partnership
Assets and liquidate the Partnership; and (8) specific factors as set forth
below.
As more fully described below, as of the date hereof, the Partnership
owns and operates only this one investment property.
Florida #6 Mini Warehouse - Lauderhill, Florida. This mini-warehouse
is located on approximately 4.01 acres of land and contains approximately 61,039
square feet of leasable space, with 43,315 square feet being non-air conditioned
and 17,724 being air conditioned. The facility contains 751 self storage units,
located in seven (7) one-story buildings and one (1) three-story building. In
1995, the average occupancy was ninety percent (90%). The self storage units
are rented on a short-term basis, typically month-to-month.
Occupancy Rates and Average Leasing Income. The following table
summarizes the occupancy rate and average rental income per square foot for the
#6 Florida Mini Warehouse (the "Property") for each of the last five (5) fiscal
years.
AVERAGE RENTAL
YEAR OCCUPANCY RATE INCOME PER SQ. FT
1995...........................90%........................ $10.44
1994...........................97%.........................$ 9.77
1993...........................95%........................$ 6.80*
1992...........................99%.........................$ 9.79
1991...........................90%.........................$ 9.72
* Hurricane Year.
Principal Tenants. Currently there are no tenants occupying ten
percent (10%) or more of the leasable square footage of the Property.
The principal business carried on at the Property is the rental of
individual storage spaces to consumers who lease the space on a short-term
basis, in almost all instances month-to-month.
In summary, because the Partnership never intended to own and operate
the Property, and because the general and specific reasons state above, the
General Partner believes that it is in the best interest of the Partnership and
its Partners to pursue the sale of its interest in the Property and to
subsequently dissolve the Partnership.
As of June 30, 1996, the Partnership had approximately Five Hundred
Fifty-Three Thousand Dollars ($553,000) in cash. These funds are being
accumulated to provide sufficient funds to cover any capital improvements and/or
operating expenses which may arise at the Partnership's property. Attached
hereto as Exhibit "A" is a schedule of cash distributions which the Partnership
has made to Unitholders since the Partnership's inception.
As of June 30, 1996, the Partnership's 2/3rds undivided interest in
the Property had an undepreciated book value of approximately Two Million One
Hundred Eighty-Seven Thousand Dollars ($2,187,000), as reflected in the
Partnership's updated financial statements. As of June 30, 1996, the Property
was not encumbered by any mortgage, note or other indebtedness, and the
Partnership's 2/3rds interest was owned clear of any other encumbrances.
The General Partner believes that all of the Property is covered by
adequate insurance provided by reputable companies and with commercially
reasonable deductibles, limits and policy specifications customarily carried for
similar properties.
THE SALE PROCESS
Coordination with Other Owners
ConCap Equities, Inc. is the general partner of both
Johnstown/Consolidated Income Partners (a California limited partnership) and
Johnstown/Consolidated Income Partners/2. Johnstown/Consolidated Income
Partners is the record owner of the remaining 1/3rd undivided interest in the
Property and has indicated its desire to sell its 1/3rd undivided interest in
the Property, in conjunction with the sale by the Partnership of the Partnership
Assets, if fair value is obtained. The General Partner believes that the sale
proceeds of the Property may be greater if a purchaser can purchase all, rather
than an undivided 2/3rds portion, of the Property. Regardless, the General
Partner intends to pursue a sale of the Partnership Assets if the Minimum Price
can be secured.
If the General Partner elects to sell the Property in conjunction with
Johnstown/Consolidated Income Partners, the Partnership will divide the expenses
incurred in connection with the sale with Johnstown/Consolidated Income
Partners. The expenses will be divided on an ownership basis with the
Partnership paying 2/3rds and Johnstown/Consolidated Income Partners paying the
other 1/3rd. This arrangement is dictated by an agreement executed between the
partnerships in 1991, when the partnerships foreclosed on the mortgage on the
Property. However, if the Partnership sells the interests in the Partnership
itself, rather than the Property, the Partnership shall bear all expenses
incurred in connection with the sale.
All expenses associated with selling the Property will be divided
2/3rds to the Partnership and 1/3rd to Johnstown/Consolidated Income Partners.
Each limited partnership will be responsible for its own separate expenses,
including the Partnership's responsibility for the cost of solicitation of the
consents to the Agreement.
The Sale Price
If the Amendment is approved, the General Partner will seek to obtain
a fair price for the Partnership Assets based on the market. Such price may be
obtained through a negotiated sale or public auction. The General Partner may
list the Property with a real estate broker experienced in sales of similar
properties.
The General Partner does not intend to have the Partnership Assets or
the Property appraised by an independent appraiser. The General Partner
believes that based on its experience in managing self-storage concerns, the
interest previously shown in the property from other national self-storage
management and operation firms, and the sales interest to be generated by it in
the sales process, it will be in a position to determine whether a fair price
can be obtained. In 1995, the Partnership received indications of interest from
a non-affiliated potential buyer to purchase the entire Property at a price of
approximately Three Million Five Hundred Thousand Dollars ($3,500,000), the
Partnership's 2/3rds interest being Two Million Three Hundred Thirty-three
Thousand Three Hundred Thirty-three Dollars ($2,333,333). The General Partner's
inability to bind the Partnership to a sale was one of the reasons the
transaction could not be pursued. The Minimum Price is being established
approximately fifteen percent (15%) below the price of the indication of
interest for several reasons. First, there is no assurance that the potential
purchaser would have paid that price. Second, the amount a potential purchaser
would be willing to pay for the Property will depend, in part, on numerous
factors, including the current occupancy rate, the cost of funds, and the
physical status of the Property. Occupancy rates can vary significantly since
self-storage units are generally rented on a short-term basis, usually month-to-
month. The occupancy rates in 1995, were above ninety percent (90%) and there
is no assurance that occupancy rates at this level can be maintained. Further,
since the indication of interest in the Property was received in 1995,
additional self-storage units have been built in the area, interest rates (and
therefore the costs of funds to purchase) have increased, the need for
additional capital expenditures estimated at Sixty-six Thousand Dollars
($66,000) over the next four (4) years have been identified, and Rent Loss has
increased from twelve percent (12%) in 1995 to thirteen point six percent
(13.6%) in 1996. Rent Loss is vacancy loss plus bad debt plus any other amounts
written off in the operation of the Property, such as concessions.
The minimum price of Two Million Dollars ($2,000,000) (the "Minimum
Price") may or may not be the fair market value of the Partnership Assets, and
the General Partner shall be under no obligation to sell the Partnership Assets
for the Minimum Price if it, in its sole judgment, determines that this price
does not reflect a fair value for the Partnership Assets. Moreover, there is no
assurance that the General Partner will be able to sell the Partnership Assets
for the Minimum Price. The Minimum Price was established by the General Partner
based on its knowledge of the Partnership Assets, using, among other things, a
discounted cash flow analysis of the operating revenue stream generated by the
Property as a whole, using an eleven percent (11%) discount rate, and factoring
in other relevant determinants that affect the value of similar types of real
estate developments as the Property. The factors considered included (i) the
need for future capital expenditures, estimated at Sixty-six Thousand Dollars
($66,000) over the next four (4) years; (ii) the costs of selling the self-
storage facility; (iii) as the Property ages, operating costs are anticipated to
increase; (iv) opportunity costs of funds; and (v) external factors such as
increased competition, as evidenced by the fact that there are now twenty-eight
(28) similar facilities within a five (5) mile radius, and the economic
conditions of the Lauderhill-Miami metro area.
Upon approval of the Amendment, the General Partner will use its best
efforts to consummate the sale of the Partnership Assets upon terms and
conditions which the General Partner expects will maximize the proceeds
distributable to Unitholders. Although none of the final terms of the Sale of
the Partnership Assets in connection with the Sale and subsequent liquidation
can be determined presently, the General Partner will only consider sales of the
Partnership Assets only if such sales are for cash.
Dissolution Following Authorized Sale
Pursuant to the Amendment, upon the sale of significantly all the
Assets of the Partnership, the Partnership will be liquidated. The General
Partner will take full account of the Partnership's assets and liabilities and
apply and distribute the proceeds as follows: distributions will be made in
accordance with the Positive Capital Account balances of the Partners and
Unitholders, after taking into account all Capital Account adjustments for the
Partnership taxable year during which the liquidation occurs, by the end of such
taxable year (or, if later, within ninety (90) days after the date of such
liquidation). The General Partner will be obligated to restore its deficit
Capital Account balance, if any exists, after the liquidation of its interest in
the Partnership, but Limited Partners shall have no such obligation (per ' 5.04
of the Partnership Agreement).
It should be noted that the California Revised Limited Partnership Act
provides that a general partner may wind up the affairs of a partnership
subsequent to its dissolution and that subsequent to such a dissolution a
general partner may, among other things, (i) prosecute and defend civil,
criminal or administrative suits and (ii) distribute to the partners any
remaining assets of the limited partnership. Accordingly, any amounts received
by the Partnership subsequent to the sale and subsequent liquidation in
settlement of any proceeding described herein and any unused funds in any
reserves established by the General Partner, as described above, will be
distributed by the General Partner in accordance with the provisions above. Any
unused amount in any reserve will be distributed when the General Partner
determines in it reasonable judgment that such amount is no longer necessary to
satisfy its intended purpose or to satisfy any actual or anticipated shortfalls
in amounts reserved for other purposes.
Certain Considerations
The General Partner cannot predict when, or if, a sale of the
Partnership Assets or the Property will be consummated or when the liquidation
will occur. Moreover, there can be no assurance that the Property will be sold
at a price which will result in the Partnership receiving the Minimum Price or
that such amount would equal the appraised value of an undivided 2/3rds interest
in the Property.
Unitholders should note that subsequent to the approval of the
Amendment, Unitholders will have no opportunity to evaluate the terms of any
purchase offer for the Partnership Assets or the Property. Unitholders are also
advised that neither California Law nor the Partnership Agreement provide them
with any right to dissent from or seek an independent appraisal of the value of
the Partnership Assets or the Property. Accordingly, subsequent to approval of
the Amendment, if the Partnership Assets are sold, the Unitholders will receive
whatever net proceeds are generated from the sale of the Partnership Assets
based on terms approved solely by the General Partner.
THE GENERAL PARTNER BELIEVES THAT THE PROPOSED SALE AND SUBSEQUENT LIQUIDATION
ARE IN THE BEST INTEREST OF THE UNITHOLDERS AND THAT THE UNITHOLDERS SHOULD VOTE
TO "CONSENT" TO THE SALE AND SUBSEQUENT LIQUIDATION.
Certain Federal Income Tax Considerations
As stated above, upon approval of the Liquidation, the General Partner
intends to sell the Partnership Assets and distribute the proceeds to the
Unitholders (after payment of certain expenses and priority items - see "The
Liquidation Process"). Such sales and distributions will be subject to U.S.
federal income tax in the manner described below. Section references are to the
Internal Revenue Code of 1986, as amended (the "Code").
The following discussion does not address the U.S. federal income tax
consequences of such sales and distributions to a "Non-U.S. Unitholder." A
"non-U.S. Unitholder" is a Unitholder other than (i) a citizen or resident of
the United States, (ii) a corporation or partnership created or organized in the
United States or under the laws of the United States or of any state thereof or
(iii) an estate or trust whose income can be included in gross income for U.S.
federal income tax purposes regardless of its source.
In General. As long as the Partnership is treated as a partnership
for U.S. federal income tax purposes, it will not be subject to U.S. federal
income tax. Rather, each Unitholder and General partner is required to report
on his own U.S. federal income tax return his share of Partnership items of
income, gain, loss, deduction and credit, including items realized in respect of
the sale of the Partnership's property, for each taxable year of the Partnership
ending within or with his taxable year. Accordingly, each Unitholder and each
General Partner may be subject to tax on his distributive share of Partnership
income regardless of whether any cash distribution is made to him. Each
Unitholder's basis in his Units is increased by the amount by which his
distributable share of income exceeds any distributions made or deemed to be
made (e.g., a deemed distribution resulting from a reduction of a Unitholder's
share of the Partnership's liabilities) to him during such year.
Gain or Loss from Sale of Partnership Property. Partnership real
property and depreciable property used in the Partnership's business (which is
not held for sale to customers in the ordinary course of business) and held more
than one year is "section 1231 property." Losses (if any) realized by the
Partnership from the sale of section 1231 property generally will constitute
"passive activity losses" with respect to a Unitholder, other than certain
Unitholders eligible to treat all of their rental real estate activities as a
single activity. Passive activity losses can only offset passive activity
income, until the Unitholder disposes of his entire interest in the passive
activity. Gain (if any) realized by the Partnership from the sale of section
1231 property will be "section 1231 gain" except as to depreciation subject to
recapture under section 1245 of the Code and rent recapture under section 467 of
the Code. A Unitholder's share of any section 1231 gain from the Partnership in
any year will first offset any current passive activity losses and suspended
passive activity losses form the Partnership and other passive activities; any
excess will be combined with any other section 1231 gains or losses (exclusive
of passive activity losses) incurred by the Unitholder. If the section 1231
gains exceed the section 1231 losses, such net gains will be treated as long-
term capital gains. However, a taxpayer's net section 1231 gain will be treated
as ordinary income (rather than capital gain) to the extent of such taxpayer's
net section 1231 losses within the preceding five years. In the case of any
property, the gain reported by the Partnership will be measured by the excess of
the amount realized from the sale over the Partnership's adjusted basis for that
property. Consequently, the gain from any sale may exceed the actual cash
proceeds realized upon the sale.
The distribution of cash to a Unitholder pursuant to the Liquidation
will be treated as a taxable distribution, with the amount of taxable gain (or
loss) realized equal to the difference between (i) the amount of cash received
plus such Unitholder's share of any reduction of Partnership liabilities and
(ii) the tax basis of his unit.
Upon the Liquidation, the Unitholder's share of any losses from the
Partnership previously suspended pursuant to the passive activity loss rules may
be used to offset certain taxable income from other sources, including the gain,
if any, realized as a result of the Liquidation. Any remaining gain from the
Liquidation may be offset by current or previously suspended losses from other
passive activities of the Unitholder.
Gain or loss realized on the Liquidation will be treated as capital
gain or loss, and will be long-term if the Unitholder has held his Unit for more
than one year when the Liquidation is consummated. Capital losses generally are
deductible only to the extent of capital gains plus, in the case of a non-
corporate Unitholder, up to Three Thousand Dollars ($3,000) of ordinary income.
Capital losses realized upon the Liquidation may be utilized to offset capital
gains from other sources and may be carried forward, subject to applicable
limitations.
Special considerations may be applicable to particular types of
Unitholders. Each Unitholder should consult his tax advisor regarding the
specific tax consequences of disposing of Units in the Partnership pursuant to
the liquidation, under not only the U.S. federal income tax laws but also
applicable state, local, foreign or other tax laws.
Distributions to Unitholders based on Sale at Minimum Price of
$2,000,000 if Sale had taken place on December 31, 1995. The total tax basis of
Johnstown/Consolidated Income Partners/2 was Two Million Two Hundred Ten
Thousand One Hundred Eighty-one Dollars ($2,210,181), which includes Forty
Thousand Dollars ($40,000) in anticipated closing costs assuming a sale at the
Minimum Price. This tax basis would result in there being approximately Two
Hundred Ten Thousand One Hundred Eighty-one Dollars ($210,181) in section 1231
losses. This would result in section 1231 losses averaging approximately Three
Dollars and 10/100 ($3.10) per Unit. In addition, the unamortized costs of the
initial formation are approximately Eight Hundred Thousand Dollars ($800,000).
This would result in capital losses averaging approximately Eleven Dollars and
75/100 ($11.75) per Unit.
Based on the cash held by the Partnership at December 31, 1995, and
certain assumed selling expenses, total cash to be distributed after all costs
and liabilities are paid and all assets are collected would be approximately Two
Million Four Hundred One Thousand Dollars ($2,401,000). Of this amount
approximately Seven Hundred Fifteen Dollars ($715) would be distributed to the
General Partner and approximately $2,400,000 would be distributed to
Unitholders. Each Unit would receive an amount of approximately Thirty-five
Dollars ($35).
Security Ownership of Management and Certain Beneficial Owners
No person (including any "group" as that term is used in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended) is known to the
Partnership to be the beneficial owner of more than five percent (5%) of the
outstanding units as of the Record Date.
The following persons as directors or executive officers of the
General Partner have interests in the Partnership as shown in the chart below:
Name of Individual Position in CEI Interest in the Partnership
Carroll D. Vinson...........President..........................0%
William H. Jarrard.......Vice President .......................0%
John K. Lines.......Vice President/Secretary ..................0%
Kelley M. Buechler.....Assistant Secretary.....................0%
Robert D. Long, Jr... Chief Accounting Officer/................0%
Controller
The following table presents certain information regarding the number
of Units beneficially owned by the General Partner as of the Record Date. At
such date none of the directors or executive officers of the General Partner
beneficially owned any Units.
Beneficial Owner Number of Units Percent of Class
ConCap Equities, Inc............0..............................0%
The benefit to the General Partner upon the sale and subsequent
dissolution would be that the General Partner would receive its proportionate
share, taking into account the capital account balances. The General Partner
will receive approximately Seven Hundred Fifteen Dollars ($715).
Other Matters
Even though the Partnership is not required to and does not conduct
Partnership meetings, the General Partner may call a Partnership meeting at any
time, and the General Partner is required to call a Partnership meeting within
ten (10) days after written request for such a meeting by Limited Partners who
are the record holders of at least ten percent (10%) of the total outstanding
Units. Any such request submitted to the General Partner shall state the
purpose of the proposed meeting and the matters proposed to be acted upon.
Partnership meetings shall be held at the principal office of the Partnership or
at such other place as may be designated by the General Partner. As of the date
hereof, the General Partner has not received any written requests by any Limited
Partner for a Partnership meeting.
IF YOU ARE A UNITHOLDER ON THE RECORD DATE, YOU ARE RESPECTFULLY
REQUESTED TO COMPLETE, DATE, SIGN, AND RETURN THE ACCOMPANYING CONSENT
IN THE ENCLOSED ENVELOPE AT YOUR EARLIEST CONVENIENCE, BUT IN ALL
INSTANCES BEFORE THE EXPIRATION DATE.
Further Information
Unitholders having questions about the Amendment should telephone
Beacon Hill Partners Inc. at (1-212-843-8500).
Information Delivered with Consent Solicitation
This Consent Solicitation is accompanied by the Partnership's Annual
Report on Form 10-KSB for the year ended December 31, 1995, (the "Form 10-K") as
Exhibit "B." This document and the subsequently filed Quarterly Report on Form
10-QSB, for the quarter ending June 30, 1996, attached hereto as Exhibit "C",
are incorporated by reference and shall be deemed to be a part hereof. The
Exhibits to such documents are available without charge to any person, upon oral
or written request, from Beacon Hill Partners, Inc., 90 Broad Street, New York,
New York 10004 (telephone: 212-843-8500). Any document so requested will be
furnished by first-class mail or other equally prompt means within two (2)
business days of receipt of such request.
EXHIBIT "A"
Schedule of Cash Distributions to Unitholders since the Partnerships'
Inception
<TABLE>
<CAPTION>
GENERAL DISTRIBUTABLE CASH FLOW SURPLUS TOTAL
FROM OPERATIONS FUNDS/RETURN OF DISTRIBUTIONS
CAPITAL
UNITS
PERIOD OUTSTANDING PER UNIT TOTAL PER UNIT TOTAL PER TOTAL
(WEIGHTED UNIT
AVERAGE)
<S> <C> <C> <C> <C> <C> <C> <C>
1987 40,942 $ .83 $ 34,000 $ .29 $ 12,000 $ 1.12 $ 46,000
1988 65,882 .00 0 6.41 422,000 6.41 422,000
1989 68,854 .00 0 50.50 3,477,000 50.50 3,477,000
1990 68,854 .00 0 0 0 0 0
1991 68,854 .00 0 0 0 0 0
1992 68,841 1.80 124,000 4.60 317,000 6.40 441,000
1993 68,729 3.60 248,000 0 0 3.60 248,000
1994 67,814 5.97 405,000 0 0 5.97 405,000
1995 67,814 2.92 198,000 0 0 2.92 198,000
TOTALS $15.12 $1,009,000 $61.80 $4,228,000 $76.92 $5,237,000
</TABLE>
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS/2
CONSENT TO AMEND THE LIMITED PARTNERSHIP AGREEMENT
The undersigned, a limited partner in Johnstown/Consolidated Income
Partners/2 (the "Partnership"), a California limited partnership, does hereby
CONSENT
1
WITHHOLD CONSENT
2
with respect to all units of limited partnership interest of the
Partnership held of record by the undersigned on September 19, 1996, to the
amendment to the Partnership's Limited Partnership Agreement which would
eliminate the requirement that the limited partners of the Partnership consent
to any sale or other disposition of all or substantially all of the
Partnership's Assets to the extent that, in the determination of the General
Partner, such sale or disposition is in the best interests of the Partnership,
which amendment is set forth in the Consent Solicitation Statement dated
September 20, 1996, which has been furnished to the undersigned. If no
specification is made above, the undersigned by signing and returning this card
will be deemed to have given the above consent.
THIS CONSENT IS SOLICITED ON BEHALF OF THE GENERAL PARTNER OF THE PARTNERSHIP.
THE GENERAL PARTNER RECOMMENDS A VOTE IN FAVOR OF THE PROPOSED ACTION DESCRIBED
IN THE CONSENT SOLICITATION STATEMENT.
Dated , 1996
Signature
Capacity
Please mark an "X" in the appropriate box above and then sign, date and return
this Consent promptly by using the enclosed envelope. No Postage is required if
mailed in the United States. This Consent should be signed exactly as your name
appears hereon. When signing as an attorney, executor, administrator, trustee,
guardian or officer of a corporation, give your full title as such. In the case
of joint ownership, each joint owner should sign. If a corporation please sign
in full corporate name by president or other authorized officer. If a
partnership, please sign in the partnership name by authorized person
FORM 10-KSB--ANNUAL OR TRANSITIONAL REPORT UNDER
SECTION 13 OR 15(d)
(As last amended by 34-31905, eff. 4/26/93)
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [Fee Required]
For the fiscal year ended December 31, 1995
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [No Fee Required]
For the transition period.........to.........
Commission file number 0-16682
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS/2
(Name of small business issuer in its charter)
California 94-3032501
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (864) 239-1000
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Units of Depositary Receipts
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 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
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $472,000
State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests, as of December 31, 1995. Market value information for the
Registrant's partnership interests is not available. Should a trading market
develop for these interests, it is management's belief that such trading would
not exceed $25,000,000.
PART I
Item 1. Description of Business
Johnstown/Consolidated Income Partners/2 (the "Partnership") was organized on
March 9, 1987, as a limited partnership under the California Revised Limited
Partnership Act. On June 19, 1987, the Partnership registered with the
Securities and Exchange Commission ("SEC") under the Securities Act of 1933
(File No. 33-13348) and commenced a public offering for sale of $100 million of
Units. The Units represent economic rights attributable to the limited
partnership interests in the Partnership and entitle the holders thereof
(hereinafter referred to as "Unitholders") to the economic benefits attributable
to equity interests in the Partnership and to participate in certain allocations
and distributions of the Partnership. The limited partner of the Partnership is
Johnstown/Consolidated Depositary Corporation/2 (the "Corporate Limited
Partner"), an affiliate of the General Partner (as hereinafter defined). The
Corporate Limited Partner serves as depositary for the Units pursuant to a
Depositary Agreement (herein so called) entered into with the Partnership. The
Partnership subsequently filed a Form 8-A Registration Statement with the SEC
and registered the Units under the Securities Exchange Act of 1934 (File No. 0-
16682) on June 11, 1988. The offering closed in October 1988, with 68,854 Units
sold at $100 each, or gross proceeds of approximately $6.9 million to the
Partnership. The Partnership had retired a total of 1,040 Units as of December
31, 1995. The Partnership gave no consideration for the Units retired.
By the end of fiscal year 1988, approximately 74% of the monies raised had been
invested in a mortgage loan (a joint loan in which the Partnership owns a two-
thirds undivided interest with an affiliated limited partnership) and a real
estate acquisition, development and construction lending ("ADC") arrangement.
Of the remaining 26%, 11% was required for organizational and offering expenses,
sales commissions and acquisition fees, and 15% was retained in Partnership
reserves for working capital, as required by the Partnership Agreement herein so
called.
The General Partner of the Partnership is ConCap Equities, Inc., a Delaware
corporation (the "General Partner" or "CEI"). The principal place of business
for the Partnership and for the General Partner is One Insignia Financial Plaza,
Greenville, South Carolina 29602.
The Partnership's primary business and only industry segment is real estate
related operations. The Partnership was formed to invest in mortgage loans
originated or purchased by the Partnership and to acquire, own, operate and
ultimately dispose of income-producing real properties for the benefit of its
Unitholders. The Partnership was formed with the intention of investing at
least one-third but not more than two-thirds of the Partnership's net capital
proceeds in non-leveraged or low-leveraged commercial and residential real
estate and to devote at least one-third but not more than two-thirds of such net
capital proceeds to making or purchasing mortgage loans. By August 1988, the
Partnership had completed its investing activities and had acquired a two-thirds
undivided interest in a mortgage loan which the Partnership foreclosed on in
September 1991, and an ADC arrangement which was subsequently repaid in 1989.
At December 31, 1995, the Partnership's only asset was a two-thirds undivided
interest in a mini-warehouse located in Lauderhill, Florida.
As of December 31, 1995, the Partnership's working capital reserves were in
excess of 3% of Net Invested Capital as required by its Partnership Agreement.
See "Item 6 - Management's Discussion and Analysis or Plan of Operations", for
discussion of Partnership liquidity and capital resources.
The real estate business is highly competitive. The Registrant's real property
investment is subject to competition from similar types of properties in the
vicinity in which it is located and the Partnership is not a significant factor
in its industry. In addition, various limited partnerships have been formed by
related parties to engage in business which may be competitive with the
Registrant.
The Registrant has no employees. Management and administrative services are
performed by affiliates of Insignia Financial Group, Inc. ("Insignia"), an
affiliate of the General Partner. The property manager is responsible for the
day-to-day operations of each property. The General Partner has also selected
affiliates of Insignia to provide real estate advisory and asset management
services to the Partnership. As advisor, such affiliates provide all
partnership accounting and administrative services, investment management, and
supervisory services over property management and leasing. For a further
discussion of property and partnership management, see "Item 12."
Upon the Partnership's formation in 1987, Consolidated Capital Equities
Corporation ("CCEC") was the sole Corporate General Partner, and
Johnstown/Consolidated Depositary Corporation/2, a wholly-owned subsidiary of
CCEC, was the sole limited partner. In 1988, through a series of transactions,
Southmark Corporation ("Southmark") acquired a controlling interest in CCEC. In
December 1988, CCEC filed for reorganization under Chapter 11 of the United
States Bankruptcy Code. In 1990, as part of CCEC's reorganization plan, CEI
acquired CCEC's general partner interests in the Partnership and in 15 other
affiliated public limited partnerships (the "Affiliated Partnerships"), acquired
the stock of the Corporate Limited Partner, and CEI replaced CCEC as managing
general partner in all 16 partnerships. The selection of CEI as the sole
managing general partner was approved by a majority of the Unitholders in the
Partnership and by the limited partners in each of the Affiliated Partnerships
pursuant to a solicitation of the Unitholders and limited partners dated August
10, 1990. As part of this solicitation, the Unitholders also approved an
amendment to the Partnership Agreement to limit changes of control of the
Partnership.
All of CEI's outstanding stock is owned by GII Realty, Inc. In December 1994,
the parent of GII Realty, Inc., entered into a transaction (the "Insignia
Transaction") in which, among other things, MAE-ICC, Inc., a wholly owned
subsidiary of Metropolitan Asset Enhancement, L.P. ("MAE") and an affiliate of
Insignia, acquired an option (exercisable in whole or in part from time to time)
to purchase all of the stock of GII Realty, Inc. and, pursuant to a partial
exercise of such option, acquired 50.5% of that stock. As a part of the
Insignia Transaction, MAE-ICC, Inc. also acquired all of the outstanding stock
of Partnership Services, Inc., an asset management entity and Insignia acquired
all of the outstanding stock of Coventry Properties, Inc., a property management
entity. In addition, confidentiality, non-competition, and standstill
arrangements were entered into between certain of the parties. Those
arrangements, among other things, prohibit GII Realty's former sole shareholder
from purchasing Partnership Units for a period of three years. On October 24,
1995, MAE-ICC, Inc. exercised the remaining portion of its option to purchase
all of the remaining outstanding capital stock of GII Realty, Inc.
Item 2. Description of Property
The Partnership originally acquired an ADC arrangement and a two-thirds
undivided interest in a mortgage loan. The ADC arrangement was repaid in 1989.
The Partnership foreclosed on its two-thirds undivided interest in the property
securing the mortgage loan in 1991. As of December 31, 1995, the Partnership
owns a two-thirds undivided interest in a mini-warehouse as noted below:
Date of
Property Purchase Type of Ownership Use
Florida #6 Mini Warehouse 11/01/90 Fee ownership Storage -
Lauderhill, Florida 61,121 sq. ft.
Schedule of Property:
(dollar amounts in thousands)
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
Florida #6 Mini
Warehouses $2,186 $407 3-20 years S/L $1,939
See "Note A" of the Financial Statements included in "Item 7" for a description
of the Partnership's depreciation policy.
Schedule of Rental Rates and Occupancy:
Average Annual
Rental Rates Average
(Per Sq. Ft.) Occupancy
Property 1995 1994 1995 1994
Florida #6 Mini Warehouses $10.44 $9.77 90% 97%
As noted under "Item 1. Description of Business", the real estate industry is
highly competitive. The General Partner believes that Florida #6 Mini
Warehouses is adequately insured.
The decrease in occupancy is due to commercial clients reducing their inventory
levels which resulted in reduced usage of storage facilities in 1995.
Schedule of Real Estate Taxes and Rates:
The Partnership's two-thirds share of real estate taxes and rates in 1995 for
the property were:
1995 1995
Taxes Rate
(dollar amounts in thousands)
Florida #6 Mini Warehouses $45 2.4%
Item 3. Legal Proceedings
The Partnership is unaware of any pending or outstanding litigation that is not
of a routine nature. The General Partner of the Partnership believes that all
such pending or outstanding litigation will be resolved without a material
adverse effect upon the business, financial condition, or operations of the
Partnership.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the year ended December 31, 1995, no matters were
submitted to a vote of the Unitholders through the solicitation of proxies or
otherwise.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Security Holder Matters
(A) No established public trading market for the Partnership's Units exists
nor is one expected to develop.
(B) Title of Class Number of Unitholders of Record
Units of Depositary Receipts 596 as of December 31, 1995
(C) The following table sets forth a summary of distributions to the
Unitholders during the years ended December 31, 1995 and 1994:
Years Ended December 31,
1995 1994
(Amounts in thousands)
From Unitholders' economic interest
Regular distributions $ 198 $ 405
In September 1995, the Partnership distributed cash flow from operations of
approximately $198,000 or $2.92 per Unit to Unitholders of record as of
September 1, 1995, and paid a corresponding general partner distribution of
$2,000.
In September 1994, the Partnership distributed cash flow from operations of
approximately $405,000 or $5.97 per Unit to Unitholders of record as of
September 1, 1994, and paid a corresponding general partner distribution of
$4,000 in November 1994.
Cumulative distributions to the Unitholders since the inception of the
Partnership totaled approximately $5.3 million at December 31, 1995.
Item 6. Management's Discussion and Analysis or Plan of Operations
Results of Operations
The Partnership realized income from operations of $147,000 for the year ended
December 31, 1995, compared to income from operations of $193,000 for the year
ended December 31, 1994.
Rental income decreased for the year ended December 31, 1995, compared to the
year ended December 31, 1994, due to the occupancy decrease at the Partnership's
sole investment property resulting from commercial clients reducing their
inventory levels and usage of storage facilities in 1995 compared to 1994.
Property operations expense increased for the year ended December 31, 1995,
compared to the year ended December 31, 1994, due to increased maintenance
contracts and tax expense. Administrative expenses increased for the year ended
December 31, 1995, due to increased mailing costs, professional fees and expense
reimbursements related to the combined efforts of the Dallas and Greenville
partnership administration staffs during the management transition period. The
reimbursements for the Dallas office amounted to approximately $13,000 for the
year ended December 31, 1995.
The increased costs related to the transition efforts were incurred to minimize
any disruption in the year-end reporting function including the financial
reporting and K-1 preparation and distribution. The General Partner expects
recurring administrative expenses to be reduced now that the management
transition is completed.
Other income realized in the year ended December 31, 1994, related to the
receipt of the Partnership's pro rata share of the claims filed in Southmark's
Chapter 11 bankruptcy proceeding (See "Note C" in the Notes to Consolidated
Financial Statements in "Item 7"). During 1995, the Partnership received a
liquidating dividend of approximately $93,000 from Southmark. During the fourth
quarter of 1995, approximately $32,000 was credited to the investment in stock
account. The remaining stock balance is included in prepaid and other assets at
December 31, 1995 at its market value of approximately $3,000.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of its investment property 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.
Liquidity and Capital Resources
At December 31, 1995, the Partnership held unrestricted cash and cash
equivalents of $424,000 compared to $152,000 at December 31, 1994. Net cash
provided by operating activities decreased primarily due to the Partnership's
receipt of approximately $260,000 in cash related to the Southmark bankruptcy
discussed below that did not recur in 1995. The decrease in cash provided by
operating activities was partially offset by a decrease in prepaids and other
assets and an increase in accounts payable and accrued expenses. Net cash
provided by investing activities increased due to an increase in cash proceeds
received from liquidated securities available for sale compared to the year
ended December 31, 1994. Net cash used in financing activities decreased due to
reduced Partner's distributions for the year ended December 31, 1995, compared
to the year ended December 31, 1994.
The Partnership is required by the Partnership Agreement to maintain working
capital for contingencies of not less than 3% of Net Invested Capital as defined
in the Partnership Agreement. In the event expenditures are made from these
reserves, operating revenue shall be allocated to such reserves to the extent
necessary to maintain the foregoing level. Reserves, including cash and cash
equivalents totalling approximately $424,000 at December 31, 1995, exceeded the
Partnership's reserve requirement of approximately $73,000.
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 property to adequately maintain the physical assets
and meet other operating needs of the Partnership. Such assets are currently
thought to be sufficient for any near-term needs of the Partnership. 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. As part of the Partnership's ongoing attempt to
maximize the return to the Unitholders, the Partnership is exploring the
possibility of selling the commercial property in which it has invested.
Currently, disposition is not considered imminent. Additionally, other
investing parties are involved who must be consulted before such a transaction
can be approved. For the year ended December 31, 1995, cash distributions of
$200,000 were declared and paid compared to cash distributions of $409,000 for
the year ended December 31, 1994.
In 1991, the Partnership (and simultaneously other affiliated partnerships)
entered claims in Southmark Corporation's Chapter 11 bankruptcy proceeding.
These claims related to Southmark Corporation's activities while it exercised
control (directly or indirectly through its affiliates) over the Partnership.
The Bankruptcy Court set the Partnership's and the other affiliated
partnerships' allowed claim at an aggregate $11 million. In March 1994, the
Partnership received 4,751 shares of Southmark Corporation Redeemable Series A
Preferred Stock and 34,747 shares of Southmark Corporation New Common Stock with
an aggregate market value on the date of receipt of approximately $35,000 and
$260,000 in cash representing the Partnership's share of the recovery, based on
its pro rata share of the claims filed.
Item 7. Financial Statements
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS/2
LIST OF FINANCIAL STATEMENTS
Reports of Independent Auditors
Balance Sheet December 31, 1995
Statements of Operations Years ended December 31, 1995
and 1994
Statements of Changes in Partners Capital (Deficit) Years ended December
31, 1995 and 1994
Statements of Cash Flows Years ended December 31, 1995 and 1994
Notes to Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners
Johnstown Consolidated Income Partners/2
We have audited the accompanying balance sheet of Johnstown Consolidated Income
Partners/2 as of December 31, 1995, and the related statements of operations,
changes in partners capital (deficit) and cash flows for the year then ended.
These financial statements are the responsibility of the Partnership s
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by the Partnership s management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Johnstown Consolidated Income
Partners/2 as of December 31, 1995, and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
February 14, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Johnstown/Consolidated Income Partners/2:
We have audited the accompanying statements of operations, partners' capital
(deficit) and cash flows of Johnstown/Consolidated Income Partners/2 (a
California limited partnership) for the year ended December 31, 1994. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of
Johnstown/Consolidated Income Partners/2 for the year ended December 31, 1994,
in conformity with generally accepted accounting principles.
/s/ Arthur Andersen, LLP
Dallas, Texas
March 23, 1995
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS/2
BALANCE SHEET
(in thousands, except unit data)
December 31, 1995
Assets
Cash and cash equivalents $ 424
Prepaid and other assets 28
Investment property:
Land $ 650
Buildings and personal property 1,536
2,186
Less accumulated depreciation (407) 1,779
$2,231
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable and accrued expenses $ 31
Partners' Capital (Deficit)
General partner $ (38)
Corporate limited partners - on behalf
of the Unitholders - (67,814 Units
issued and outstanding) 2,238 2,200
$2,231
See Accompanying Notes to Financial Statements
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS/2
STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Years Ended December 31,
1995 1994
Revenues:
Rental income $ 393 $ 414
Interest and dividend 79 76
Total revenues 472 490
Expenses:
Property operations 163 148
Depreciation 80 79
Administrative 82 70
Total expenses 325 297
Income from operations 147 193
Other income -- 295
Net income $ 147 $ 488
Net income allocated to general partners (1%) $ 1 $ 5
Net income allocated to limited partners (99%) 146 483
$ 147 $ 488
Net income per weighted average Unit of
Depositary Receipt: $ 2.15 $ 7.12
See Accompanying Notes to Financial Statements
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS/2
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Unitholders
Units of Units of
Depositary General Depositary
Receipts Partner Receipts Total
<S> <C> <C> <C> <C>
Original capital contributions 68,854 $ 1 $ 6,885 $ 6,886
Partners' capital (deficit) at
December 31, 1993 67,814 (38) 2,212 2,174
Net income for the year ended
December 31, 1994 -- 5 483 488
Distributions -- (4) (405) (409)
Partners' capital (deficit)
at December 31, 1994 67,814 (37) 2,290 2,253
Net income for the year ended
December 31, 1995 -- 1 146 147
Distributions -- (2) (198) (200)
Partners' capital (deficit) at
December 31, 1995 67,814 $ (38) $ 2,238 $ 2,200
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS/2
STATEMENTS OF CASH FLOWS
(in thousands, except unit data)
Years Ended December 31,
1995 1994
Cash flows from operating activities:
Net income $ 147 $ 488
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 80 79
Change in accounts:
Prepaids and other assets 26 (38)
Accounts payable and accrued
expenses 17 (11)
Net cash provided by operating
activities
270 518
Cash flows from investing activities:
Property improvements and replacements (1) --
Purchase of securities available for sale (453) (78)
Proceeds from sale of securities
available for sale 656 30
Net cash provided by (used in)
investing activities 202 (48)
Cash flows from financing activities:
Partners' distributions (200) (409)
Net cash used in financing
activities (200) (409)
Net increase in cash 272 61
Cash and cash equivalents at beginning of year 152 91
Cash and cash equivalents at end of year $ 424 $ 152
See Accompanying Notes to Financial Statements
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS/2
Notes to Financial Statements
December 31, 1995
Note A - Organization and Summary of Significant Accounting Policies
Organization
Johnstown/Consolidated Income Partners/2 (the "Partnership"), a California
limited partnership, was formed on March 9, 1987, to acquire and operate
commercial and residential properties and to invest in mortgage loans and
mortgage-backed securities. As of December 31, 1995, the Partnership operates
one commercial property located in Lauderhill, Florida. Consolidated Capital
Equities Corporation ("CCEC"), a Colorado corporation, the former general
partner, and Johnstown/Consolidated Depositary Corporation/2 (the "Corporate
Limited Partner"), an affiliate of the general partner which serves as
depositary of certain Units of Depositary Receipts ("Units"), contributed $1,000
and $100,000, respectively. The Units represent economic rights attributable
to the limited partnership interests in the Partnership and entitle the holders
thereof ("Unitholders") to certain economic benefits, allocations and
distributions of the Partnership.
Upon the Partnership's formation in 1987, CCEC was the general partner.
In December 1988, CCEC filed for reorganization under Chapter 11 of the
United States Bankruptcy Code. In 1990, as part of CCEC's
reorganization plan, ConCap Equities, Inc., a Delaware corporation (the
"General Partner" or "CEI") acquired CCEC's general partner interests in
the Partnership and in 15 other affiliated public limited partnerships
(the "Affiliated Partnerships"), acquired the stock of the Corporate
Limited Partner, and CEI replaced CCEC as managing general partner in
all 16 partnerships.
All of CEI's outstanding stock is owned by GII Realty, Inc. In December
1994, the parent of GII Realty, Inc., entered into a transaction (the
"Insignia Transaction") in which among other things, MAE-ICC, Inc., a
wholly owned subsidiary of Metropolitan Asset Enhancement, L.P., an
affiliate of Insignia Financial Group, Inc. ("Insignia") acquired an
option (exercisable in whole or in part from time to time) to purchase
all of the stock of GII Realty, Inc. and, pursuant to a partial exercise
of such option, acquired 50.5% of that stock. As a part of the Insignia
Transaction, MAE-ICC, Inc. also acquired all of the outstanding stock of
Partnership Services, Inc., an asset management entity and Insignia
acquired all of the outstanding stock of Coventry Properties, Inc., a
property management entity. In addition, confidentiality,
non-competition, and standstill arrangements were entered into between
certain of the parties. Those arrangements, among other things,
prohibit GII Realty's former sole shareholder from purchasing
Partnership Units for a period of three years. On October 24, 1995,
MAE-ICC, Inc. exercised the remaining portion of its option to purchase
all of the remaining outstanding capital stock of GII Realty, Inc.
The principal place of business for the Partnership and for the General
Partner is One Insignia Financial Plaza, Greenville, South Carolina
29602.
Note A - Organization and Summary of Significant Accounting Policies
(continued)
Investment Properties
Prior to 1995, investment properties were carried at the lower of cost
or estimated fair value, which was determined using the higher of the
property's non-recourse debt amount, when applicable, or the net
operating income of the investment property capitalized at a rate deemed
reasonable for the type of property. During 1995, the Partnership
adopted FASB Statement No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of," which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. The impairment loss is measured
by comparing the fair value of the asset to its carrying amount. The
effect of adoption was not material.
Depreciation
Buildings and improvements are depreciated on the straight-line basis
over an estimated useful life of 3 to 20 years.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits, money
market funds, and U.S. Treasury Bills with original maturities of three
months or less. At certain times the amount of cash deposited at a bank
may exceed the limit on insured deposits.
Reclassification
Certain reclassifications have been made to the 1994 information to
conform to the 1995 presentation.
Fair Value
In 1995, the Partnership implemented Statement of Financial Accounting
Standards No. 107, "Disclosure about Fair Value of Financial
Instruments," which requires disclosure of fair value information about
financial instruments for which it is practicable to estimate that
value. The carrying amount of the Partnership's cash and cash
equivalents approximates fair value due to their short-term nature.
Rental Income
The Partnership leases its commercial property under short-term month-
to-month operating leases. The Partnership expects that in the normal
course of business these leases will be renewed or replaced by other
leases.
Note A - Organization and Summary of Significant Accounting Policies
(continued)
Income Taxes
No provision has been made in the financial statements for Federal
income taxes. Under current law, no Federal income taxes are paid directly
by the Partnership, however, the Partners are responsible for their
respective shares of Partnership net income or loss.
The tax basis of the Partnership's assets and liabilities is
approximately $1,209,000 greater than the assets and liabilities as
reported in the financial statements.
Allocation of Net Income and Net Loss
The Partnership Agreement provides for net income and net losses for
both financial and tax reporting purposes to be allocated 99% to the
Limited Partners and 1% to the General Partner.
Advertising Costs
Advertising costs of $8,000 in 1995 and $11,000 in 1994 are charged to
operating expense as incurred.
Units of Depositary Receipts
Johnstown/Consolidated Depositary Corporation (the "Corporate Limited
Partner"), an affiliate of the General Partner, serves as a depositary
of certain Units of Depositary Receipts ("Units"). The Units represent
economic rights attributable to the limited partnership interests in the
Partnership and entitle the holders thereof ("Unitholders") to certain
economic benefits, allocations and distributions of the Partnership.
For this reason, Partner's capital (deficit) is herein represented as an
interest of the Unitholders.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those
estimates.
Note B - Related Party Transactions
The Partnership has no employees and is dependent on the General Partner
and affiliates of Insignia for the management and administration of all
the Partnership activities, as provided for in the partnership
agreement.
The Partnership has paid the property management fees noted below based
upon collected gross rental revenues ("Rental Revenues") for property
management services in each of the years ended December 31, 1995 and
1994, respectively. For the year ended December 31, 1994, a portion of
such property management fees equal to 4% of Rental Revenues was paid to
the property management companies performing day-to-day property
management services and a portion equal to 1% of Rental Revenues was
paid to Partnership Services, Inc. ("PSI") for advisory services related
to day-to-day operations. Coventry Properties, Inc. ("Coventry") an
affiliate of the General Partner provided the day-to-day property
management responsibilities for the Partnership's property during 1994.
In late December 1994, an affiliate of Insignia assumed day-to-day
property management responsibilities. Fees paid to Insignia and
affiliates for the year ended December 31, 1995, and fees paid to PSI
and Coventry for the year ended December 31, 1994, have been reflected
in the following table as compensation to related parties in the
applicable periods:
Years Ended December 31,
1995 1994
(in thousands)
Property management fees $24 $22
The Partnership Agreement also provides for reimbursement to the General
Partner and its affiliates for costs incurred in connection with the
administration of Partnership activities. The General Partner and its
affiliates, which includes Coventry for the year ended December 31,
1994, received reimbursements as reflected in the following table:
Years Ended December 31,
1995 1994
(in thousands)
Reimbursement for services of affiliates $40 $37
In July 1995, the Partnership began insuring its property under a master
policy through an agency and 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
current year's master policy. The current agent assumed the financial
obligations to the affiliate of the General Partner, who receives
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 is
not significant.
Note C - Other Income
In 1991, the Partnership (and simultaneously other affiliated
partnerships) entered claims in Southmark Corporation's Chapter 11
bankruptcy proceeding. These claims related to Southmark Corporation's
activities while it exercised control (directly or indirectly through
its affiliates) over the Partnership. The Bankruptcy Court set the
Partnership's and the other affiliated partnerships' allowed claim at an
aggregate $11 million. In March 1994, the Partnership received 4,751
shares of Southmark Corporation Redeemable Series A Preferred Stock and
34,747 shares of Southmark Corporation New Common Stock with an
aggregate market value on the date of receipt of approximately $35,000
and $260,000 in cash representing the Partnership's share of the
recovery, based on its pro-rata share of the claims filed. During 1995,
the Partnership received a liquidating dividend of approximately $93,000
from Southmark. During the fourth quarter of 1995, approximately
$32,000 was credited to the investment in stock account. The remaining
stock balance is included in prepaid and other assets at December 31,
1995 at its market value of approximately $3,000.
Note D - Commitment
The Partnership is required by the Partnership Agreement to maintain
working capital for contingencies of not less than 3% of Net Invested
Capital as defined in the Partnership Agreement. In the event
expenditures are made from these reserves, operating revenue shall be
allocated to such reserves to the extent necessary to maintain the
foregoing level. Reserves, including cash and cash equivalents
totalling approximately $424,000 exceeded the Partnership's reserve
requirement of approximately $73,000 at December 31, 1995.
Note E - Distributions
During September 1995, the Partnership declared and paid distributions,
attributable to cash flow from operations, of $200,000 to the
Unitholders.
Note F - Investment Property and Accumulated Depreciation
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Initial Cost
To Partnership (a)
Buildings Cost
and Related Capitalized
Personal Subsequent to
Description Encumbrances Land Property Acquisition (a)
<S> <C> <C> <C> <C>
Florida #6
Mini Warehouses
Lauderhill, Florida $ -- $ 650 $1,517 $ 19
</TABLE>
(a) Amounts represented the Partnership's two-thirds undivided interest in the
property. Johnstown/Consolidated Income Partners, an affiliated
partnership, owns the remaining one-third undivided interest in the
property.
Note F - Investment Property and Accumlated Depreciation (continued)
(dollar amounts in thousands)
<TABLE>
<CAPTION>
Gross Amount At Which Carried
At December 31, 1995 (a)
Buildings
And Related
Personal Accumulated Date Depreciable
Description Land Property Total Depreciation Acquired Life-Years
<S> <C> <C> <C> <C> <C> <C>
Florida #6 Mini
Lauderhill, Florida $650 $1,536 $2,186 $407 11/01/90 3-20
</TABLE>
(a) Amounts represented the Partnership's two-thirds undivided interest in the
property. Johnstown/Consolidated Income Partners, an affiliated
partnership, owns the remaining one-third undivided interest in the
property.
Reconciliation of "Investment Property and Accumulated Depreciation":
Years Ended December 31,
1995 1994
Investment Property (in thousands)
Balance at beginning of year $2,185 $2,185
Property improvements 1 --
Balance at End of Year $2,186 $2,185
Accumulated Depreciation
Balance at beginning of year $ 327 $ 248
Additions charged to expense 80 79
Balance at End of Year $ 407 $ 327
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1995 and 1994, is approximately $2,142,000 and $2,141,000.
The accumulated depreciation taken for Federal income tax purposes at
December 31, 1995 and 1994, is approximately $203,000 and $156,000,
respectively.
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure
As reported in the Partnership's Form 8-K filed May 10, 1995, as of May
3, 1995, Arthur Andersen L.L.P., the independent accountant previously
engaged as the principal accountant to audit the financial statements of
the Partnership was dismissed. As of the same date, the firm of Ernst &
Young L.L.P. was engaged to provide that service for the Partnership.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act
The Registrant has no officers or directors. The General Partner
manages and controls the Registrant and has general responsibility and
authority in all matters affecting its business.
The name of the directors and executive officers of ConCap Equities,
Inc. ("CEI"), the Partnership's General Partner, as of December 31,
1995, their age and the nature of all positions with CEI presently held
by them are set forth below. There are no family relationships between
or among any officers and directors.
Name Age Position
Carroll D. Vinson 55 President,Director
Robert D. Long, Jr. 28 Controller,Chief
Accounting Officer
William H. Jarrard, Jr. 49 Vice President
John K. Lines 36 Secretary
Kelley M. Buechler 38 Assistant Secretary
Carroll D. Vinson has been President of CEI since December 1994 and
President of Metropolitan Asset Enhancement, L.P.("MAE") subsidiaries since
August 1994. Prior to that, during 1993 to August 1994, Mr. Vinson was
affiliated with Crisp, Hughes & Co. (regional CPA firm) and engaged in various
other investment and consulting activities, which included portfolio
acquisitions, asset dispositions, debt restructurings and financial
reporting. Briefly, in early 1993, Mr. Vinson served as President and
Chief Executive Officer of Angeles Corporation, a real estate investment firm.
From 1991 to 1993 Mr. Vinson was employed by Insignia in various capacities
including Managing Director-President during 1991. From 1986 to 1990, Mr.
Vinson was President and Director of U.S. Shelter Corporation, a real estate
services company, which sold substantially all of its assets to Insignia in
December 1990.
Robert D. Long, Jr. has been Controller and Chief Accounting Officer of CEI
since December 1994 and Chief Accounting Officer and Controller of the MAE
subsidiaries since February 1994. Prior to joining MAE in September 1993, Mr.
Long served as a senior regional accountant with Insignia Management Group, Inc
since December 1991. From January 1991 until December 1991, Mr. Long was
associated with the accounting firm of Harshman, Lewis and Associates. From
July 1989 until January 1991, Mr. Long was an auditor for the State of
Tennessee. He is a graduate of the University of Memphis.
William H. Jarrard, Jr. has been Vice President of CEI since December
1994, Vice President of the MAE subsidiaries since January 1992 and
Managing Director - Partnership Administration of Insignia since
January 1991. During the five years prior to joining Insignia in
1991, he served in a similar capacity for U.S. Shelter. Mr. Jarrard
is a graduate of the University of South Carolina and a certified
public accountant.
John K. Lines has been Secretary of CEI since December 1994, Secretary
of the MAE subsidiaries since August 1994 and General Counsel and
Secretary of Insignia since July 1994. From May 1993 until June 1994,
Mr. Lines was the Assistant General Counsel and Vice President of
Ocwen Financial Corporation in West Palm Beach, Florida. From October
1991 until April 1993, Mr. Lines was a Senior Attorney with Banc One
Corporation in Columbus, Ohio. From May 1984 until October 1991, Mr.
Lines was employed as an associate with Squire Sanders & Dempsey in
Columbus, Ohio.
Kelley M. Buechler has been Assistant Secretary of CEI since December
1994, Assistant Secretary of the MAE subsidiaries since January 1992
and Assistant Secretary of Insignia since 1991. During the five years
prior to joining Insignia in 1991, she served in a similar capacity
for U.S. Shelter. Ms. Buechler is a graduate of the University of
North Carolina.
CEI is the general partner of the Partnership and 13 other Affiliated
Partnerships as of December 31, 1995.
Item 10. Executive Compensation
No direct compensation was paid or payable by the Partnership to
directors or officers for the year ended December 31, 1995, nor was any
direct compensation paid or payable by the Partnership to directors or
officers of the General Partner for the year ended December 31, 1995.
The Partnership has no plans to pay any such remuneration to any
directors or officers of the General Partner in the future.
See "Item 7 - Financial Statements", "Note B - Related Party
Transactions," for amounts of compensation and reimbursement of salaries
paid by the Partnership to the General Partner and its affiliates and
the former general partner and former affiliates.
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
As of February, 1996, no person was known to CEI to own of record
or beneficially more than 5 percent (5%) of the Units of the
Partnership.
(b) Beneficial Owners of Management
Neither CEI nor any of the directors or officers or associates of
CEI own any Units of the Partnership of record or beneficially.
(c) Changes in Control
Beneficial Owners of CEI
As of February, 1996, the following persons were known to CEI to
be the beneficial owners of more than 5 percent (5%) of its common
stock:
Number of Percent
Name and Address CEI Shares Of Total
GII Realty, Inc. 100,000 100%
One Insignia Financial Plaza
Greenville, SC 29602
GII Realty, Inc. is owned by MAE-ICC, Inc. (See "Item 1.")
Item 12. Certain Relationships and Related Transactions
Transactions with Current Management and Others
Except for the transactions described below, neither CEI nor any of its
directors, officers or associates, or any associates of any of them, has
had any interest in any other transaction to which the Partnership is a
party. Please refer to "Item 7 - Financial Statements", "Note B -
Related Party Transactions," for the amounts and items of permissible
compensation and fees paid to the General Partner and its affiliates and
other related parties for the last two years.
The Partnership has paid property management fees based upon collected
gross rental revenues ("Rental Revenues") for property management
services in each of the years ended December 31, 1995 and 1994,
respectively. A portion of such property management fees equal to 4% of
Rental Revenues has been paid to the property management companies
performing day-to-day property management services and the portion equal
to 1% of Rental Revenues has been paid to Partnership Services, Inc.
("PSI") or its predecessor for advisory services related to day-to-day
property operations. In July 1993, Coventry Properties, Inc.
("Coventry"), an affiliate of the General Partner, assumed day-to-day
property management responsibility for the Partnership's property under
the same management fee arrangement as the unaffiliated management
companies. In late December 1994, management of the Partnership's
property was assumed by an affiliate of Insignia.
All of the above-referenced agreements with affiliates of CEI and
related parties of the Partnership are subject to the conditions and
limitations imposed by the Partnership Agreement.
Litigation with Former Related Parties
In 1991, the Partnership (and simultaneously other affiliated
partnerships) entered claims in Southmark Corporation's Chapter 11
bankruptcy proceeding. These claims related to Southmark Corporation's
activities while it exercised control (directly or indirectly through
its affiliates) over the Partnership. The Bankruptcy Court set the
Partnership's and the other affiliated partnerships' allowed claim at an
aggregate $11 million. In March 1994, the Partnership received 4,751
shares of Southmark Corporation Redeemable Series A Preferred Stock and
34,747 shares of Southmark Corporation New Common Stock with an
aggregate market value on the date of receipt of approximately $35,000
and $260,000 in cash representing the Partnership's share of the
recovery, based on its pro-rata share of the claims filed.
Item 13. Exhibits, Financial Statements, Schedules and Reports on
Form 8-K
(a) Exhibits: See Exhibit Index contained herein.
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
(b) Reports on Form 8-K filed during the fourth quarter of 1995:
A Form 8-K dated October 24, 1995 was filed reporting a change
in the ownership of GII Realty, Inc., the sole stockholder of the
general partner of the Registrant.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS/2
By: CONCAP EQUITIES, INC.
General Partner
By: /s/Carroll D. Vinson
Carroll D. Vinson
President
By: /s/Robert D. Long, Jr.
Robert D. Long, Jr.
Controller and Principal
Accounting Officer
Date: March 25, 1996
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the
capacities and on the date indicated.
/s/Carroll D. Vinson President March 25, 1996
Carroll D. Vinson
/s/Robert D. Long, Jr. Controller and Principal March 25, 1996
Robert D. Long, Jr. Accounting Officer
INDEX OF EXHIBITS
EXHIBIT NO. DOCUMENT DESCRIPTION
3 Certificates of Limited Partnership as amended to date
(Incorporated by reference to the Annual Report on Form
10-K for the year ended December 31, 1991).
10.3 Assignment and Assumption as to Certain Property
Management Services dated October 1, 1991, by and
between CCMLP and ConCap Capital Company.
(Incorporated by reference to the Annual Report
on Form 10-K for the year ended December 31,
1991).
10.4 Construction Management Cost Reimbursement
Agreement dated January 1, 1991, by and between
the Partnership and The Hayman Company.
(Incorporated by reference to the Annual Report
on form 10-K for the year ended December 31,
1991).
10.5 Bill of Sale and Assignment dated October 23,
1990, by and between CCEC and ConCap Services
Company (Incorporated by reference to the
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1990).
10.6 Investor Services Agreement dated October 23,
1990, by and between the Partnership and CCEC
(Incorporated by reference to the Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1990).
10.7 Assignment and Assumption Agreement (Investor
Services Agreement) dated October 23, 1990, by
and between CCEC and ConCap Services Company.
(Incorporated by reference to the Annual Report
on Form 10-K for the year ended December 31,
1991).
10.8 Letter of Notice dated December 20, 1991, from
Partnership Services, Inc. ("PSI") to the
Partnership regarding the change in ownership and
dissolution of ConCap Services Company whereby
PSI assumed the Investor Services Agreement.
(Incorporated by reference to the Annual Report
on Form 10-k for the year ended December 31,
1991).
10.9 Financial Services Agreement dated October 23,
1990, by and between the Partnership and CCEC
(Incorporated by reference to the Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1990).
10.10 Assignment and Assumption Agreement (Financial
Services Agreement) dated October 23, 1990, by
and between CCEC and ConCap Capital Company
(Incorporated by reference to the Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1990.)
10.11 Letter of Notice dated December 20, 1991, from
PSI to the Partnership regarding the change in
ownership and dissolution of ConCap Capital
Company whereby PSI assumed the Financial
Services Agreement. (Incorporated by reference
to the Annual Report on Form 10-K for the year
ended December 31, 1991).
10.12 Property Management Agreement No. 516 dated June
1, 1993, by and between the Partnership and
Coventry Properties, Inc.
10.13 Assignment and Assumption Agreement as to Certain
Property Management Services dated November 17,
1993, by and between Coventry Properties, Inc.
and Partnership Services, Inc.
10.14 Stock and Asset Purchase Agreement, dated
December 8, 1994 (the "Gordon Agreement"), among
MAE-ICC, Inc. ("MAE-ICC"), Gordon Realty Inc.
("Gordon"), GII Realty, Inc. ("GII Realty"), and
certain other parties. (Incorporated by
reference to Form 8-K dated December 8, 1994)
10.15 Exercise of the Option (as defined in the Gordon
Agreement), dated December 8, 1994, between MAE-
ICC and Gordon. (Incorporated by reference to
Form 8-K dated December 8, 1994).
11 Statement regarding computation of Net Income per
Limited Partnership Unit (Incorporated by
reference to Note 1 of Item 8-Financial
Statements of this Form 10-K).
16.1 Letter dated August 12, 1992, from Ernst & Young
to the Securities and Exchange Commission
regarding change in certifying accountant.
(Incorporated in reference to Form 8-K dated
August 6, 1992).
16.2 Letter dated May 9, 1995 from the Registrant's
former independent accountant regarding its
concurrence with the statements made by the
Registrant regarding a change in the certifying
accountant. (Incorporated by reference to Form
8-K dated May 3, 1995).
FORM 10-QSB.--QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
(As last amended by 34-32231, eff. 6/3/93.)
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
For the transition period.........to.........
Commission file number 0-16682
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS/2
(Exact name of small business issuer as specified in its charter)
California 94-3032501
(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) (Zip Code)
Issuer's telephone number (864) 239-1000
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/2
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 1996
Assets
Cash and cash equivalents $ 553
Accounts receivable 5
Escrows for taxes 33
Prepaid and other assets 5
Investment properties:
Land $ 650
Buildings and related personal property 1,537
2,187
Less accumulated depreciation (447) 1,740
$2,336
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 11
Accrued taxes 24
Other liabilities 35
Partners' Capital (Deficit)
General partner $ (37)
Corporate limited partners - on behalf
of the Unitholders - (67,814 Units
issued and outstanding) 2,303 2,266
$2,336
See Accompanying Notes to Consolidated Financial Statements
b) JOHNSTOWN/CONSOLIDATED INCOME PARTNERS/2
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 102 $ 90 $ 201 $ 177
Other income 9 103 18 112
Total revenues 111 193 219 289
Expenses:
Operating 23 24 42 47
General and administrative 31 29 40 44
Maintenance 3 8 7 12
Depreciation 20 20 40 40
Property taxes 12 12 24 24
Total expenses 89 93 153 167
Net income $ 22 $ 100 $ 66 $ 122
Net income allocated
to general partner (1%) $ -- $ 1 $ 1 $ 1
Net income allocated
to limited partners (99%) 22 99 65 121
$ 22 $ 100 $ 66 $ 122
Net income per Unit of
Depositary Receipts $ .33 $ 1.46 $ .96 $ 1.78
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
c) JOHNSTOWN/CONSOLIDATED INCOME PARTNERS/2
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Unitholders
Units of
Units of Depositary
Depositary General Receipts
Receipts Partner (Note A) Total
<S> <C> <C> <C> <C>
Original capital contributions 68,854 $ 1 $6,885 $6,886
Partners' capital (deficit)
at December 31, 1995 67,814 $ (38) $2,238 $2,200
Net income for the six months
ended June 30, 1996 -- 1 65 66
Partners' capital (deficit) at
June 30, 1996 67,814 $ (37) $2,303 $2,266
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
d) JOHNSTOWN/CONSOLIDATED INCOME PARTNERS/2
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1996 1995
Cash flows from operating activities:
Net income $ 66 $ 122
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 40 40
Change in accounts:
Accounts receivable 1 (2)
Escrows for taxes (25) (16)
Prepaid and other assets 8 7
Accounts payable 7 --
Accrued taxes 24 24
Other liabilities 9 27
Net cash provided by
operating activities 130 202
Cash flows from investing activities:
Property improvements and replacements (1) (1)
Purchase of investments -- (453)
Proceeds from sale of investments -- 531
Net cash (used in) provided by
investing activities (1) 77
Cash flows from financing activities: -- --
Net increase in cash and cash equivalents 129 279
Cash and cash equivalents at beginning of period 424 152
Cash and cash equivalents at end of period $ 553 $ 431
See Accompanying Notes to Consolidated Financial Statements
Note A - Basis of Presentation
The accompanying unaudited financial statements of Johnstown/Consolidated
Income Partners/2 (the "Partnership" or "Registrant") 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 the General Partner, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six months ended
June 30, 1996, are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 1996. 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, 1995.
Certain reclassifications have been made to the 1995 information to conform to
the 1996 presentation.
Units of Depositary Receipts
Johnstown/Consolidated Depositary Corporation/2 (the "Corporate Limited
Partner"), an affiliate of the former general partner, serves as a depositary
of certain Units of Depositary Receipts ("Units"). The Units represent
economic rights attributable to the limited partnership interests in the
Partnership and entitle the holders thereof ("Unitholders") to certain
economic benefits, allocations and distributions of the Partnership.
Note B - Transactions with Affiliated Parties
The Partnership has paid property management fees as noted below based upon
collected gross rental revenues for property management services in each of
the six months ended June 30, 1996 and 1995. Property management fees of
approximately $13,000 and $11,000 were paid to affiliates of the General
Partner for the six months ended June 30, 1996 and 1995, respectively. These
fees are included in operating expenses.
The Partnership Agreement also provides for reimbursement to the General
Partner and its affiliates for costs incurred in connection with the
administration of Partnership activities. Reimbursements for services of
affiliates of approximately $16,000 and $25,000 were paid to the General
Partner and its affiliates for the six months ended June 30, 1996 and 1995,
respectively.
In July 1995, the Partnership began insuring its properties under a master
policy through an agency and 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 current year's master policy. The
current agent assumed the financial obligations to the affiliate of the
General Partner who receives 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 is not
significant.
Note C - Commitment
The Partnership is required by the Partnership Agreement to maintain working
capital reserves for contingencies of not less than 3% of Net Invested Capital
as defined in the Partnership Agreement. In the event expenditures are made
from these reserves, operating revenue shall be allocated to such reserves to
the extent necessary to maintain the foregoing level. Cash and cash
equivalents of approximately $553,000 at June 30, 1996, exceeded the
Partnership's reserve requirement of approximately $73,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Partnership's investment property consists of a two-thirds interest in a
mini-warehouse. The following table sets forth the average occupancy of the
property for the six months ended June 30, 1996 and 1995:
Average Occupancy
1996 1995
Florida #6 Mini-Warehouse 92% 92%
Lauderhill, Florida
The Partnership realized net income of approximately $66,000 for the six
months ended June 30, 1996, and $22,000 for the three months ended June 30,
1996, compared to net income of $122,000 for the six months ended June 30,
1995, and $100,000 for the three months ended June 30, 1995. The decrease in
net income is due primarily to a decrease in other income mitigated by
increased rental revenue.
Rental income increased for the three and six months ended June 30, 1996,
compared to the corresponding periods of 1995 as a result of an overall
increase in rental rates at the Partnership's investment property. Other
income decreased due to the non-recurring nature of the dividends received on
the Partnership's investment in Southmark Preferred Stock during the second
quarter of 1995. Operating expenses decreased due to reduced personnel costs
and maintenance expense decreased due to reduced yard and grounds contract
fees.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of its investment property 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, 1996, the Partnership held cash and cash equivalents of
approximately $553,000 compared to approximately $431,000 at June 30, 1995.
Net cash provided by operations decreased primarily due to the partnership
receiving no dividend income from the Southmark stock, as discussed above.
Net cash provided by investing activities decreased due to the absence of
proceeds from the sale of investments in 1996. The decrease in investing
activities was due to the Partnership investing in shorter term cash
equivalents during 1996 rather than longer term securities. No cash was
provided by or used in financing activities in the six months ended June 30,
1996 or 1995.
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 property 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.
Future cash distributions will depend on the levels of net cash generated from
operations, property sales and the availability of cash reserves. As part of
the Partnership's ongoing attempt to maximize the return to the Unitholders,
the Partnership is exploring the possibility of selling the commercial
property in which it has invested. The General Partner intends to solicit the
Unitholders of the Partnership to amend the Partnership Agreement to authorize
the General Partner to sell all or substantially all of the Partnership's
assets to unaffiliated entities pursuant to a binding agreement to be entered
into on or before December 31, 1996, at a price of not less than $2,000,000.
A consequence of the closing of such a sale would likely be the dissolution
and termination of the Partnership. During the first six months of 1996 or
1995, no cash distributions were declared or paid.
PART II - OTHER INFORMATION
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 registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
JOHNSTOWN/CONSOLIDATED INCOME PARTNERS/2
By: CONCAP EQUITIES, INC.
General Partner
By: /s/ Carroll D. Vinson
Carroll D. Vinson
President
By: /s/ Robert D. Long, Jr.
Robert D. Long, Jr.
Vice President/CAO
Date: August 7, 1996
