-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IxVolO73+2oHIpLqEJrleQVEC6Ol7q227UJ/ZcgP2fXts6McJz5r86ngiHsYMhiP xUJLx4uUcXBvZRUet0MndQ== 0000317900-98-000001.txt : 19980325 0000317900-98-000001.hdr.sgml : 19980325 ACCESSION NUMBER: 0000317900-98-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980324 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CENTRAL INDEX KEY: 0000352983 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 942744492 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-10831 FILM NUMBER: 98571388 BUSINESS ADDRESS: STREET 1: ONE INSIGNIA FINANCIAL PLAZA STREET 2: PO BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8032391000 MAIL ADDRESS: STREET 1: ONE INSIGNIA FINANCIAL PLAZA STREET 2: PO BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 10-K 1 FORM 10-K--ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (As last amended in Rel. No. 34-31905, eff 10/26/93.) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the fiscal year ended December 31, 1997 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 0-10831 CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES (Exact name of registrant as specified in its charter) California 94-2744492 (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) Issuer's telephone number (864) 239-1000 Securities registered under Section 12(b) of the Act: None Securities registered under Section 12(g) of the Act: Limited Partnership Units (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (' 229.405 of this chapter) is not contained herein, and will not 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-K or any amendment to this Form 10-K. [X] (Amended by Exch Act Rel No. 28869, eff. 5/1/91.) State the aggregate Market Value of the Limited Partnership Units ("Units") held by non-affiliates of the Registrant. 121,946 of the Partnership's 199,052 Units are held by non-affiliates. The aggregate market value of Units held by non- affiliates is not determinable since there is no public trading market for Units and transfers of Units are not subject to certain restrictions. PART I ITEM 1. BUSINESS GENERAL Consolidated Capital Institutional Properties (the "Partnership" or the "Registrant") was organized on April 28, 1981, as a limited partnership under the California Uniform Limited Partnership Act. On July 23, 1981, the Partnership registered with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 (File No. 2-72384) and commenced a public offering for the sale of $200,000,000 of Units. The Units represent equity interests in the Partnership and entitled the holders thereof (the "Limited Partners") to participate in certain allocations and distributions of the Partnership. The sale of Units terminated on July 21, 1983, with 200,342 Units sold for $1,000 each, or gross proceeds of approximately $200,000,000 to the Partnership. The Partnership subsequently filed a Form 8-A Registration Statement with the SEC and registered its Units under the Securities Exchange Act of 1934 (File No. 0- 10831) on January 3, 1982. In accordance with its partnership agreement (the original partnership agreement of the Partnership together with all amendments thereto shall be referred to as the "Agreement"), the Partnership has repurchased and retired a total of 1,290 Units for a total purchase price of $1,000,000. The Partnership may repurchase any Units, in its absolute discretion, but is under no obligation to do so. Upon the Partnership's formation in 1981, Consolidated Capital Equities Corporation ("CCEC") was the corporate general partner. In 1988, through a series of transactions Southmark Corporation ("Southmark") acquired control of 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, ConCap Equities, Inc. ("CEI" or the "General Partner") acquired CCEC's general partner interests in the Partnership and in 15 other affiliated public limited partnerships (the "Affiliated Partnerships") and CEI replaced CCEC as managing general partner in all 16 partnerships. The selection of CEI as the General Partner was approved by a majority of the Limited Partners in the Partnership and in each of the Affiliated Partnerships pursuant to a solicitation of the Limited Partners dated August 10, 1990. As part of this solicitation, the Limited Partners also approved an amendment to the Agreement to limit changes of control of the Partnership. All of CEI's outstanding stock is owned by Insignia Properties Trust, an affiliate of Insignia Financial Group, Inc. ("Insignia"), which was acquired through two transactions in December 1994, and October 1995. The Partnership's primary business and only industry segment is real estate related operations. The Partnership was formed for the benefit of its Limited Partners (herein so called and together with the General Partner shall be called the "Partners"), to lend funds to Consolidated Capital Equity Partners ("EP"), a California general partnership in which certain of the partners were former shareholders and former management of CCEC, the former corporate general partner of the Partnership. See "Status of the Master Loan" for a description of the loan and settlement of EP's bankruptcy. Through December 31, 1997, the Partnership had advanced a total of approximately $180,500,000 to EP and its successor under the Master Loan (as defined in "Status of the Master Loan"). As of December 31, 1997, the balance of the Master Loan, net of the allowance for possible losses, was approximately $50,600,000. EP used the proceeds from these loans to acquire eighteen (18) apartment buildings and four (4) office complexes, which served as collateral for the Master Loan. EP's successor in bankruptcy (as more fully described in "Status of the Master Loan") currently has twelve (12) apartment buildings, and two (2) office complexes. The Partnership acquired The Loft Apartments through foreclosure in November 1990. Prior to that time, The Loft Apartments had been collateral on the Master Loan. The Partnership acquired a multiple-use building, The Sterling Apartment Homes and Commerce Center ("The Sterling") (formerly known as The Carlton House Apartment and Office Building) through a deed-in-lieu of foreclosure transaction on November 30, 1995. The Sterling had been collateral on the Master Loan. For a brief description of the properties refer to "Item 2 - Description of Property." The Registrant has no employees. Management and administrative services are performed by CEI, the General Partner, and by an affiliate of Insignia, an affiliate of the General Partner. On March 17, 1998, Insignia entered into an agreement to merge its national residential property management operations, and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The closing, which is anticipated to happen in the third quarter of 1998, is subject to customary conditions, including government approvals and the approval of Insignia's shareholders. If the closing occurs, AIMCO will then control the General Partner of the Partnership. The real estate business in which the Partnership is engaged is highly competitive and the Partnership is not a significant factor in this industry. The Registrant's properties are subject to competition from similar properties in the vicinity in which the properties are located. In addition, various limited partnerships have been formed by the General Partner and/or its affiliates to engage in business which may be competitive with the Registrant. STATUS OF THE MASTER LOAN Prior to 1989, the Partnership had loaned funds totaling $170,400,000 to EP subject to a nonrecourse note with a participation interest (the "Master Loan"), pursuant to the Master Loan Agreement dated July 22, 1981, between the Partnership and EP. The Partnership secured the Master Loan with deeds of trust or mortgages on real property purchased with the funds advanced, as well as by the assignment and pledge of promissory notes from the partners of EP. During 1989, EP defaulted on certain interest payments that were due under the Master Loan. Before the Partnership could exercise its remedies for such defaults, EP filed for bankruptcy protection in a Chapter 11 reorganization proceeding. On October 18, 1990, the bankruptcy court approved EP's consensual plan of reorganization (the "Plan"). In November 1990, EP and the Partnership consummated a closing under the Plan pursuant to which, among other things, the Partnership and EP executed an amended and restated loan agreement (the "New Master Loan Agreement"), EP was converted from a California general partnership to a California limited partnership, Consolidated Capital Equity Partners, L.P. ("CCEP"), and CCEP renewed the deeds of trust on all the collateral to secure the New Master Loan Agreement. ConCap Holdings, Inc. ("CHI"), a Texas corporation and wholly-owned subsidiary of CEI, is the sole general partner of CCEP and an affiliate of the Partnership. The general partners of EP became limited partners in CCEP. CHI has full discretion with respect to conducting CCEP's business, including managing CCEP's properties and initiating and approving capital expenditures and asset dispositions and refinancings. Under the terms of the New Master Loan Agreement (as adopted in November 1990), interest accrues at a fluctuating rate per annum adjusted annually on July 15 by the percentage change in the U.S. Department of Commerce Implicit Price Deflator for the Gross National Product subject to an interest rate ceiling of 12.5%. Interest payments are currently payable quarterly in an amount equal to "Excess Cash Flow." If such Excess Cash Flow payments are less than the current accrued interest during the quarterly period, the unpaid interest is added to principal, compounded annually, and is payable at the loan's maturity. If such Excess Cash Flow payments are greater than the current accrued interest, the excess amount is applied to the principal balance of the loan. Any net proceeds from the sale or refinancing of any of CCEP's properties are paid to the Partnership under the terms of the New Master Loan Agreement. The New Master Loan Agreement matures in November 2000. For 1992, Excess Cash Flow was generally defined in the New Master Loan Agreement as net cash flow from operations after third-party debt service. Effective January 1, 1993, the Partnership and CCEP amended the New Master Loan Agreement to stipulate that Excess Cash Flow would be computed net of capital improvements. Such expenditures were formerly funded from advances on the Master Loan from the Partnership to CCEP. This amendment and change in the definition of Excess Cash Flow will have the effect of reducing income on the investment in the Master Loan by the amount of CCEP's capital expenditures since such amounts were previously excluded from Excess Cash Flow. ITEM 2. DESCRIPTION OF PROPERTY The following table sets forth the Registrant's investment in real estate as of December 31, 1997: Date of Property Purchase Type of Ownership Use The Loft Apartments 11/19/90 Fee ownership, Apartment Raleigh, NC subject to a first 188 units mortgage. The Sterling Apartment 12/01/95 Fee ownership. Apartment Homes and Commerce 537 units Center Commercial Philadelphia, PA 111,741 sq.ft. SCHEDULE OF PROPERTIES: (dollar amounts in thousands) Gross Carrying Accumulated Federal Property Value Depreciation Rate Method Tax Basis The Loft Apartments $ 6,832 $2,637 5-20 S/L $ 5,509 The Sterling Apartment Homes and Commerce Center 28,503 2,377 5-25 S/L 27,205 $35,335 $5,014 See "Note A" of the financial statements included in "Item 8." for a description of the Partnership's depreciation policy. SCHEDULE OF MORTGAGES: (dollar amounts in thousands) Principal Principal Balance At Stated Balance December 31, Interest Period Maturity Due At Property 1997 Rate Amortized Date Maturity The Loft Apartments 1st mortgage $4,448 6.95% (1) 12/2005 $3,903 (1) Payments of approximately $30,000 consisting of principal and interest are being amortized over 360 months with a balloon payment due December 1, 2005. AVERAGE ANNUAL RENTAL RATE AND OCCUPANCY: Average Annual Average Rental Rates Occupancy Property 1997 1996 1997 1996 The Loft Apartments $ 8,425/unit $ 8,093/unit 95% 95% The Sterling Apartment 11,740/unit 10,886/unit 87% 84% Homes (residential) The Sterling Commerce $13.87/s.f. $7.34/s.f. 70% 68% Center (commercial) As noted under "Item 1. Description of Business," the real estate industry is highly competitive. All of the properties of the Partnership are subject to competition from other residential apartment complexes and commercial buildings in the area. The General Partner believes that the properties are adequately insured. The multi-family residential properties' lease terms are for one year or less. There are no commercial tenants who lease greater than 10% of the available space. The following is a schedule of the lease expirations of the commercial space in The Sterling for the years beginning 1998 through the maturities of current leases: Number of % of Gross Expirations Square Feet Annual Rent Annual Rent 1998 5 13,139 $164,719 15.28% 1999 2 6,012 69,753 6.47% 2000 2 5,227 71,242 6.61% 2001 4 9,638 159,438 14.79% 2002 1 5,302 42,408 3.94% 2003 1 4,738 57,633 5.34% 2004 1 2,835 41,122 3.82% 2005 2 3,160 60,444 5.61% 2006 1 3,838 65,000 6.03% 2007 2 6,057 202,494 18.79% Real estate taxes and rates in 1997 for each property were: 1997 1997 Billing Rate (in thousands) The Loft $ 63 1.23% The Sterling 502 8.72% ITEM 3. LEGAL PROCEEDINGS In January 1998, a limited partner of the Partnership commenced an arbitration proceeding against the General Partner claiming that the General Partner had breached certain contractual and fiduciary duties allegedly owed to the claimant. The General Partner believes the claim to be without merit and intends to vigorously defend the claims. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature. The General Partner of the Registrant believes that all such other pending or outstanding litigation will be resolved without a material adverse effect upon the business, financial condition, results of operations, or liquidity of the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fiscal year ended December 31, 1997, no matter was submitted to a vote of the Unit holders through the solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP AND RELATED PARTNER MATTERS There is no established market for the Units and it is not anticipated that any will occur in the foreseeable future. As of December 31, 1997, there were 19,492 holders of record owning an aggregate of 199,052 Units. Distributions of approximately $1,979,000 and approximately $16,986,000 were made to the limited partners in 1997 and 1996, respectively. Additionally, distributions of approximately $20,000 and approximately $30,000 were made to the General Partner in 1997 and 1996, respectively. Subsequent to December 31, 1997, distributions of approximately $1,778,000 and approximately $18,000 were made to the limited partners and General partner, respectively. Future distributions will depend on the levels of cash generated from operations, refinancings, property sales, and the availability of cash reserves. Such cash reserves are subject to the requirements of the Agreement which requires that the Partnership have reserves equal to 5% of Net Invested Capital. On October 30, 1997, an Insignia affiliate commenced tender offers for limited partnership interests in two real estate limited partnerships (including the Partnership) in which various Insignia affiliates act as general partner. The Purchaser offered to purchase up to 45,000 of the outstanding units of limited partnership interest in the Partnership, at $400 per Unit, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase dated October 30, 1997 (the "Offer to Purchase") and the related Assignment of Partnership Interest attached as Exhibits (a)(1) and (a)(2), respectively, to the Tender Offer Statement on Schedule 14D-1 originally filed with the Securities and Exchange Commission on October 30, 1997. Because of the existing and potential future conflicts of interest (described in the Partnership's Statements on Schedule 14D-9 filed with the Securities and Exchange Commission), neither the Partnership nor the General Partner expressed any opinion as to the Offer to Purchase and made no recommendation as to whether unit holders should tender their units in response to the Offer to Purchase. In addition, because of these conflicts of interest, as a result of the Purchaser's affiliation with various Insignia affiliates, the manner in which the Purchaser votes its limited partner interests in the Partnership may not always be consistent with the best interests of the other limited partners. During December 1997 an affiliate of Insignia tendered 27,330 units related to the tender offer mentioned above. In February 1998 an affiliate of Insignia tendered an additional 1570.5 units as a result of this tender offer. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth a summary of certain financial data for the Partnership. This summary should be read in conjunction with the Partnership's financial statements and notes thereto appearing in "Item 8 - Financial Statements and Supplementary Data." FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995 1994 1993 STATEMENTS OF OPERATIONS (in thousands, except unit data) Revenues $ 11,669 $ 9,475 $ 5,286 $ 4,490 $ 6,180 Costs and expenses (8,102) (8,647) (3,099) (1,496) (1,849) Provision for impairment loss -- -- (5,578) -- (11,100) Income (loss) from operations 3,567 828 (3,391) 2,994 (6,769) Gain on sale of securities available for sale -- -- -- -- 20 Net income (loss) $ 3,567 $ 828 $ (3,391) $ 2,994 $ (6,749) Net income (loss) per Limited Partnership Unit: Income (loss) from operations $ 17.74 $ 4.12 $ (16.87) $ 14.90 $ (33.67) Gain on sale of securities available for sale -- -- -- -- .10 Net income (loss) $ 17.74 $ 4.12 $ (16.87) $ 14.90 $ (33.57) Distributions per Limited Partnership Unit $ 9.94 $ 85.33 $ 15.10 $ 18.52 $ 28.50 Limited Partnership Units outstanding 199,052 199,052 199,052 199,052 199,052 AS OF DECEMBER 31, BALANCE SHEETS 1997 1996 1995 1994 1993 (in thousands) Total assets $ 91,628 $ 91,657 $106,351 $107,630 $108,442 Mortgage note payable $ 4,448 $ 4,498 $ 4,545 $ -- $ -- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This item should be read in conjunction with the consolidated financial statements and other items contained elsewhere in this report. The Sterling is a multiple-use facility which consists of an apartment complex and commercial space. This property was transferred from Consolidated Capital Equity Partners, L.P. ("CCEP") to a wholly owned subsidiary of the Partnership on November 30, 1995. The operations of The Sterling had a significant impact on the results of operations of the Partnership for the year ended December 31, 1996, with revenues of approximately $6,291,000 and expenses of approximately $6,356,000. The operations of The Sterling had an immaterial impact on the results of operations of the Partnership for the year ended December 31, 1995, as the Partnership owned The Sterling for only one month of 1995. Included in the 1995 statement of operations were revenues of approximately $594,000 and expenses of approximately $444,000. Results of Operations The Partnership's net income for the year ended December 31, 1997 was approximately $3,567,000 compared to a net income of $828,000 for the corresponding period in 1996. The increase in net income is primarily due to interest income recorded on the investment in Master Loan to affiliate. This increase is a result of an increase in the fair value of the underlying collateral properties due to an increase in operations of such properties. In addition, rental income increased at the Sterling residential property due to an increase in both average rental rates and average occupancy for 1997. Also contributing to the increase in net income for 1997 over 1996 was a decrease in operating and general and administrative expenses. Operating expenses decreased due to a reduction in repairs and maintenance expense for the Loft during 1997. Repairs and maintenance expense for the Loft was higher in 1996 than in 1997 due to property damages caused by Hurricane Fran. Operating expenses also decreased due to a reduction in the Sterling's insurance requirements during 1997 as a result of the completion of major renovations in 1996. The decrease in general and administrative expense is attributable to legal and professional fees incurred in 1996 as a result of the acquisition of the Sterling. Partially offsetting the increase in net income was an increase in depreciation and a decrease in other income. Depreciation increased for the year ended December 31, 1997 as a direct result of major capital improvements and renovations to The Sterling. Other income decreased as a result of a decrease in investment balances during 1997. During the year ended December 31, 1997, the Partnership incurred approximately $616,000 in major repairs and maintenance comprised primarily of interior and exterior building improvements, major landscaping and window coverings. Included in operating expense for the year ended December 31, 1996, is approximately $534,000 of major repairs and maintenance comprised primarily of major landscaping, exterior painting, and exterior building improvements. The Partnership's net income for the year ended December 31, 1996, was approximately $828,000 compared to a net loss of approximately $3,391,000 for the year ended December 31, 1995. The increase in net income is primarily due to a provision for impairment loss on the Master Loan recognized in 1995. The Partnership recorded a $5,578,000 provision for impairment loss on the Master Loan for the year ended December 31, 1995. The primary cause for this impairment loss in 1995 was a reduction in the estimated fair value of the underlying collateral properties in that year. Approximately $5,000,000 of the provision for impairment loss related to The Sterling before it was transferred to the Partnership. Also contributing to the increase in net income was the recognition of a $792,000 increase in the reduction of the provision for impairment losses of the Master Loan due to an increase in fair market value of the underlying assets that collateralize the Master Loan in 1996. In addition, general and administrative expenses decreased for the year ended December 31, 1996, compared to the corresponding period of 1995. This decrease was the result of increased printing costs incurred in 1995, related to the printing of additional 10-K's for investors. Also, there were additional costs associated with the combined efforts of the Dallas and Greenville offices during the transition period that ended June 30, 1995. The increased costs related to the transition efforts were incurred to minimize any disruption in the 1994 year-end reporting function including K-1 preparation and distribution. Additionally, the Partnership incurred approximately $772,000 in transfer fees related to the transfer of The Sterling from CCEP to the Partnership during the year ended December 31, 1995. Offsetting these decreases in general and administrative costs were increases in professional fees incurred for a valuation of The Sterling and a successful tax appeal at The Sterling. Other income increased during the year ended December 31, 1996, due to increased interest income resulting from higher cash balances due to the proceeds received from the December 1995 financing of The Loft, and also from the principal payments received on the Master Loan in December 1995. Offsetting the increases in net income noted above for the year ended December 31, 1996, compared to the corresponding period in 1995, was a decrease in interest income recorded on the investment in Master Loan to affiliate, the transfer of The Sterling from CCEP, which resulted in significant increases in rental income, operating expenses and depreciation expense for the year ended December 31, 1996, and an increase in interest expense. The decrease in interest income on the investment in Master Loan is the result of a decrease in interest payments as required by the loan agreement. The Sterling reported a net loss of approximately $65,000 during the year ended December 31, 1996. The transfer of The Sterling from CCEP resulted in significant increases in rental income, which were more than offset by significant increases in operating expenses, and depreciation expense. Operating expenses at The Sterling were significantly higher during 1996 due to the major ongoing renovation project. The Loft was also a contributing factor in offsetting the increase in net income due to an increase in interest expense. The increase in interest expense resulted from the financing of The Lofts in December 1995. Because this property did not have a mortgage balance prior to December 1995, interest expense during the year ended December 31, 1995 was minimal. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expense. 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, 1997, the Partnership had cash and cash equivalents of approximately $8,691,000 as compared to approximately $12,348,000 at December 31, 1996. The net decrease in cash and cash equivalents for the years ended December 31,1997 and 1996 is $3,657,000 and $13,774,000, respectively. Net cash provided by operating activities increased primarily because of the increase in net income from operations as discussed above. This increase was partially offset by a decrease in accounts payable resulting from the payment of invoices relating to the renovations at The Sterling. Net cash provided by investing activities decreased for the year ended December 31, 1997 due to increased expenditures for property improvements and replacements and a decrease in proceeds from the sale of securities due to the liquidation of available for sale securities during the year ended December 31, 1996. Net cash used in financing activities decreased as a result of a reduction in partners' distributions made during the year ended December 31, 1997. At December 31, 1996, the Partnership had cash and cash equivalents of approximately $12,348,000 versus approximately $26,122,000 at December 31, 1995. The net decrease in cash and cash equivalents for the year ended December 31, 1996 is $13,774,000 compared to a net increase in cash and cash equivalents of $24,602,000 for the year ended December 31, 1995. Net cash provided by operating activities decreased for 1996 as compared to 1995 primarily due to the decrease in net income after adjustment for the provision for impairment loss on investment in Master Loan to affiliates in 1995 as described above. In addition, other assets increased due to the acquisition of The Sterling in 1995. Net cash provided by investing activities decreased as a result of a decrease in principal receipts on the Master Loan. These principal receipts on the Master Loan in 1995 were due primarily to the refinancing proceeds received from CCEP. The decrease in cash provided by investing activities also resulted from an increase in property improvements and replacement due to the capital improvements at The Sterling as noted above. Partially offsetting the decrease in cash provided by investing activities was a decrease in advances on the Master Loan. Cash used in financing activities increased due to an increase in distributions to partners which was partially offset by a decrease in proceeds from long-term borrowings, which resulted from the financing of The Loft in December 1995. The Partnership has budgeted approximately $567,000 for capital improvements to be made to its commercial and residential properties during 1998. These improvements will be paid by existing cash and from cash generated by property operations and debt service on the Master Loan. As of December 31, 1997, approximately $12,213,000 had been spent on these programs. 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. The mortgage indebtedness of approximately $4,448,000 requires monthly principal and interest payments and requires a balloon payment on December 1, 2005, at which time the property will either be refinanced or sold. Distributions of approximately $1,979,000 were made to the limited partners during the year ended December 31, 1997. A matching distribution of approximately $20,000 was made to the General Partner. Included in these amounts are payments to the North Carolina Department of Revenue for withholding taxes related to income generated by the Partnership's investment property located in that state. Distributions of approximately $16,986,000 were made to the limited partners during the year ended December 31, 1996. Approximately $30,000 was distributed to the General Partner during that same period. Included in these amounts are payments to the North Carolina Department of Revenue for withholding taxes related to income generated by the Partnership's investment property located in that state. Subsequent to December 31, 1997, distributions of approximately $1,778,000 and approximately $18,000 were made to the limited partners and General Partner, respectively. Future cash distributions will depend on the levels of cash generated from operations, Master Loan interest income, capital expenditure requirements, property sales, and the availability of cash reserves. The Partnership is required by the Partnership Agreement to maintain working capital reserves for contingencies of not less than 5% of Net Invested Capital, as defined by the Partnership Agreement. Reserves, including cash and cash equivalents and securities available for sale totaling approximately $9,048,000, were greater than the reserve requirement of approximately $7,261,000 at December 31, 1997. CCEP Property Operations For the year ended December 31, 1997, CCEP's net loss totaled approximately $32,600,000 on total revenues of approximately $20,700,000. CCEP recognizes interest expense on the New Master Loan Agreement obligation according to the note terms, although payments to the Partnership are required only to the extent of Excess Cash Flow, as defined therein. During the year ended December 31, 1997, CCEP's statement of operations includes total interest expense attributable to the Master Loan of approximately $32,800,000, all of which represents interest accrued in excess of required payments. CCEP is expected to continue to generate operating losses as a result of such interest accruals and noncash charges for depreciation. During the year ended December 31, 1997, the Partnership received approximately $2,105,000 as principal payments on the Master Loan. Cash received on certain investments by CCEP, which are required to be transferred to the Partnership per the Master Loan Agreement, accounted for approximately $462,000. Approximately $643,000 received was due to an "Excess Cash Flow" payment from CCEP as described above and $1,000,000 consisted of a principal payment. Year 2000 The Partnership is dependent upon the General Partner and Insignia for management and administrative services. Insignia has completed an assessment and will have to modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter (the "Year 2000 Issue"). The project is estimated to be completed not later than December 31, 1998, which is prior to any anticipated impact on its operating systems. The General Partner believes that with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Partnership. Other Certain items discussed in this annual report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act") and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Partnership to be materially different from any future results, performance or achievements expressed or implied by such forward- looking statements. Such forward-looking statements speak only as of the date of this annual report. The Partnership expressly disclaims any obligation or undertaking to release publicly any updates of revisions to any forward-looking statements contained herein to reflect any change in the Partnership's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES LIST OF FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors Consolidated Balance Sheets as of December 31, 1997 and 1996 Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Changes in Partners' Capital (Deficit) for the Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements Report of Ernst & Young LLP, Independent Auditors The Partners Consolidated Capital Institutional Properties We have audited the accompanying consolidated balance sheets of Consolidated Capital Institutional Properties as of December 31, 1997 and 1996, and the related consolidated statements of operations, changes in partners' capital (deficit) and cash flows for each of the three years in the period ended December 31, 1997. 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 audits. We conducted our audits 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 audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Consolidated Capital Institutional Properties at December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ERNST & YOUNG LLP Greenville, South Carolina January 23, 1998, except for Note I, as to which the date is March 17, 1998 CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED BALANCE SHEETS (in thousands, except unit data) December 31, Assets 1997 1996 Cash and cash equivalents $ 8,691 $ 12,348 Receivables and deposits 984 988 Restricted escrows 66 63 Other assets 383 209 Interest receivable on Master Loan 604 -- Investment in Master Loan 91,265 93,370 Less: allowance for impairment loss (40,686) (40,686) 50,579 52,684 Investment properties: Land 3,620 3,620 Buildings and related personal property 31,715 24,962 35,335 28,582 Less: accumulated depreciation (5,014) (3,217) 30,321 25,365 $ 91,628 $ 91,657 Liabilities and Partners' Capital (Deficit) Liabilities Accounts payable $ 164 $ 1,789 Tenant security deposit liabilities 356 317 Other liabilities 504 465 Mortgage note payable 4,448 4,498 5,472 7,069 Partners' Capital (Deficit) General Partner (364) (380) Limited Partners - (199,052 units issued and outstanding in 1997 and 1996) 86,520 84,968 86,156 84,588 $ 91,628 $ 91,657 See Accompanying Notes to Consolidated Financial Statements CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per unit data) Years Ended December 31, 1997 1996 1995 Revenues: Rental income $ 7,969 $ 7,262 $ 1,874 Interest income on investment in Master Loan to affiliate 2,668 -- 2,502 Reduction in provision for impairment loss on investment in Master Loan to affiliate -- 792 -- Other income 1,032 1,421 910 Total revenues 11,669 9,475 5,286 Expenses: Operating 4,990 5,809 1,064 General and administrative 433 690 1,456 Depreciation 1,797 1,259 452 Interest 324 326 15 Property taxes 558 563 112 Provision for impairment loss on Master Loan to affiliate -- -- 5,578 Total expenses 8,102 8,647 8,677 Net income (loss) $ 3,567 $ 828 $(3,391) Net income (loss) allocated to general partner $ 36 $ 8 $ (34) Net income (loss) allocated to limited partners 3,531 820 (3,357) $ 3,567 $ 828 $(3,391) Income (loss) per Limited Partnership Unit $ 17.74 $ 4.12 $(16.87) Distributions per Limited Partnership Unit $ 9.94 $ 85.33 $ 15.10 See Accompanying Notes to Consolidated Financial Statements CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT) (in thousands, except unit data) Limited Partnership General Limited Units Partner Partners Total Original capital contributions 200,342 $ 1 $200,342 $200,343 Partners' capital (deficit) at December 31, 1994 199,052 $ (294) $107,498 $107,204 Distributions (30) (3,007) (3,037) Net loss for the year ended December 31, 1995 (34) (3,357) (3,391) Partners' capital (deficit) at December 31, 1995 199,052 (358) 101,134 100,776 Distributions (30) (16,986) (17,016) Net income for the year ended December 31, 1996 8 820 828 Partners' capital (deficit) at December 31, 1996 199,052 (380) 84,968 84,588 Distributions (20) (1,979) (1,999) Net income for the year ended December 31, 1997 36 3,531 3,567 Partners' capital (deficit) at December 31, 1997 199,052 $ (364) $ 86,520 $ 86,156 See Accompanying Notes to Consolidated Financial Statements CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Years Ended December 31, 1997 1996 1995 Cash flows from operating activities: Net income (loss) $ 3,567 $ 828 $(3,391) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,827 1,277 453 Reduction in provision for impairment loss on investment in Master Loan to affiliates -- (792) -- Provision for impairment loss on investment in Master Loan to affiliates -- -- 5,578 Changes in accounts: Receivables and deposits 4 127 128 Other assets (207) 116 (211) Interest receivable on Master Loan (604) -- -- Accounts payable (176) 147 90 Tenant security deposit liabilities 39 (6) 291 Other liabilities 39 (49) 157 Net cash provided by operating activities 4,489 1,648 3,095 Cash flows from investing activities: Property improvements and replacements (8,202) (5,757) (274) Purchases of securities available for sale -- -- (2,115) Proceeds from sale of securities available for sale 3 5,257 5,180 Receipts from (deposits to) restricted escrows (3) 265 (328) Principal receipts on Master Loan 2,105 2,243 21,661 Advances on Master Loan -- (367) (4,002) Net cash (used in) provided by investing activities (6,097) 1,641 20,122 Cash flows from financing activities: Loan costs paid -- -- (123) Distributions to partners (1,999) (17,016) (3,037) Payments on notes payable (50) (47) -- Proceeds from long-term borrowings -- -- 4,545 Net cash (used in) provided by financing activities (2,049) (17,063) 1,385 Net (decrease) increase in cash and cash equivalents (3,657) (13,774) 24,602 Cash and cash equivalents, at beginning of year 12,348 26,122 1,520 Cash and cash equivalents, at end of year $ 8,691 $ 12,348 $26,122 Supplemental disclosure of cash flow information: Cash paid for interest $ 311 $ 302 $ -- SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY Property Improvements and Replacements Accounts payable was adjusted approximately $1,449,000 at December 31, 1996, for non-cash amounts in connection with property improvements and replacements. See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1997 NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization: Consolidated Capital Institutional Properties (the "Partnership"), a California limited partnership, was formed on April 28, 1981, to lend funds through nonrecourse notes with participation interests (the "Master Loan"). The loans were made to, and the real properties that secure the Master Loan were purchased and owned by, Consolidated Capital Equity Partners, ("EP"), a California general partnership in which certain of the partners were former shareholders and former management of Consolidated Capital Equities Corporation ("CCEC"), the former corporate general partner. Through December 31, 1997, the Partnership had advanced a total of approximately $180,500,000 to EP and its successor under the Master Loan. Upon the Partnership's formation in 1981, CCEC, a Colorado corporation, was the corporate 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") and replaced CCEC as managing general partner in all 16 partnerships. During 1989, EP defaulted on certain interest payments that were due under the Master Loan. Before the Partnership could exercise its remedies for such defaults, EP filed for bankruptcy protection in a Chapter 11 reorganization proceeding. On October 18, 1990, the Bankruptcy Court approved EP's consensual plan of reorganization (the "Plan"). In November 1990, EP and the Partnership consummated a closing under the Plan pursuant to which, among other things, the Partnership and EP executed an amended and restated loan agreement (the "New Master Loan Agreement"). EP was converted from a California general partnership to a California limited partnership, Consolidated Capital Equity Partners, L.P. ("CCEP"), and CCEP renewed the deeds of trust on all the collateral to secure the New Master Loan Agreement. ConCap Holdings, Inc. ("CHI"), a Texas corporation and wholly-owned subsidiary of CEI, is the sole general partner of CCEP and an affiliate of the Partnership. The general partners of EP became limited partners in CCEP. CHI has full discretion with respect to conducting CCEP's business, including managing CCEP's properties and initiating and approving capital expenditures and asset dispositions and refinancings. All of CEI's outstanding stock is owned by Insignia Properties Trust, an affiliate of Insignia Financial Group, Inc. ("Insignia"), which was acquired through two transactions in December 1994 and October 1995. At December 31, 1997, Insignia Properties, L.P., an affiliate of Insignia, owned a total of 77,106 Units of the Partnership. The Partnership owns and operates one apartment property and one multiple-use building in North Carolina and Pennsylvania, respectively. Also, the Partnership is the holder of a note receivable which is collateralized by apartment and commercial properties located throughout the United States. Principles of Consolidation: The Partnership's financial statements include the accounts of Kennedy Boulevard Associates, I, L.P., a Pennsylvania limited partnership ("KBA-I, L.P.") which is 99% owned by the Partnership, Kennedy Boulevard Associates II, L.P. a Pennsylvania limited partnership ("KBA-II, L.P."), Kennedy Boulevard Associates III, L.P. a Pennsylvania limited partnership ("KBA-III, L.P."), Kennedy Boulevard Associates IV, L.P. a Pennsylvania limited partnership ("KBA-IV, L.P.") and Kennedy Boulevard GP I, a Pennsylvania partnership. The general partners of each of the affiliated limited and general partnerships are limited liability corporations of which the Partnership is the sole member. The limited partners of each of the affiliated limited and general partnerships are either the Partnership or a limited liability corporation of which the Partnership is the sole member. Therefore, the Partnership controls the affiliated limited and general partnerships and consolidation is appropriate. KBA-I, L.P. holds title to The Sterling Apartment Home and Commerce Center ("Sterling"). All intercompany transactions have been eliminated. 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 the accompanying notes. Actual results could differ from those estimates. Restricted Escrows: At the time of the December 15, 1995, refinancing, approximately $60,000 of the proceeds were designated for a "replacement reserve fund" for certain capital replacements (as defined in the Replacement Reserve Agreement) at The Lofts. At December 31, 1997, the balance remaining was approximately $66,000 and is included in restricted escrows. Escrows for Taxes: All escrow funds are designated for the payment of real estate taxes and are held by the Partnership. These funds totaled approximately $437,000 and $551,000 at December 31, 1997 and 1996, respectively, and are included in receivables and deposits. Depreciation: Depreciation is provided by the straight-line method over the estimated lives of the apartment and commercial properties and related personal property. For Federal income tax purposes, the modified accelerated cost recovery method is used. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the modified accelerated cost recovery method is used for depreciation of (1) real property additions over 27 1/2 years and (2) personal property additions over 5 to 15 years. Loan Costs: Loan costs of approximately $124,000 (1997 and 1996), less accumulated amortization of approximately $26,000 (1997) and $13,000 (1996), are included in other assets and are being amortized on a straight-line basis over the life of the loan. Cash and Cash Equivalents: Includes cash on hand and in banks, certificates of deposit, and money market funds with original maturities less than 90 days. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Tenant Security Deposits: The Partnership requires security deposits from lessees for the duration of the lease and such deposits totaling $356,000 (1997) and $317,000 (1996) are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Advertising: The Partnership expenses the costs of advertising as incurred. Advertising expense, included in operating expenses, was approximately $164,000 and $265,000 for the years ended December 31, 1997 and 1996, respectively. Investment Properties: Investment properties are stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. Investment in Master Loan: In accordance with SFAS No. 114, Accounting by Creditors for Impairment of a Loan, the allowance for credit losses related to loans that are identified for evaluation in accordance with the Statement is based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. Leases: The Partnership leases certain commercial space to tenants under various lease terms. The leases are accounted for as operating leases in accordance with SFAS No. 13, Accounting for Leases. Some of the leases contain stated rental increases during their term. For leases with fixed rental increases, rents are recognized on a straight-line basis over the terms of the leases. For all other leases, minimum rents are recognized over the terms of the leases. The Partnership generally leases apartment units for twelve-month terms or less. The Partnership recognizes income as earned on these leases. In addition, management finds it necessary to offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Concessions are charged to expenses as incurred, as the difference between expensing concessions as incurred versus the straight-line method of amortizing the expense over the life of the lease is not considered material to net income (loss) for any given year. Lease Commissions: Lease commissions are capitalized and amortized using the straight-line method over the life of the applicable lease. At December 31, 1997 and 1996, lease commissions totaled approximately $204,000 and $38,000, with accumulated amortization of approximately $31,000 and $16,000, respectively. Lease commissions are included in other assets. Income Taxes: No provision has been made in the financial statements for Federal income taxes because, under current law, no Federal income taxes are paid directly by the Partnership. The Unit holders are responsible for their respective shares of Partnership net income or loss. The Partnership reports certain transactions differently for tax than for financial statement purposes. Partners' Capital (Deficit): The Partnership Agreement ("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. Net Income (Loss) Per Limited Partnership Unit: Net income (loss) per Limited Partnership Unit ("Unit") is computed by dividing net income (loss) allocated to the Limited Partners by the number of Units outstanding. Per Unit information has been computed based on 199,052 Units outstanding in 1997, 1996 and 1995, respectively. Fair Value of Financial Instruments: The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long term debt, after discounting the scheduled loan payments, at an estimated borrowing rate currently available to the Partnership, approximates its carrying balance. Reclassifications: Certain reclassifications have been made to the 1996 and 1995 information to conform to the 1997 presentation. NOTE B - INCOME TAXES The Partnership has received a ruling from the Internal Revenue Service that it will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss of the Partnership is reported in the income tax returns of its partners. The following is a reconciliation of reported net income and Federal taxable loss (in thousands, except per unit data): 1997 1996 1995 Net income (loss) as reported $ 3,567 $ 828 $(3,391) Add (deduct): Deferred revenue and other liabilities 14 31 126 Depreciation differences 266 264 223 Accrued expenses (4) 17 (10) Interest income (2,668) -- -- Differences in valuation allowances -- (792) 5,572 Other gain (loss) on disposition (99) -- 772 Federal taxable income $ 1,076 $ 348 $ 3,292 Federal taxable income (loss) per limited partnership unit $ 5.35 $ 1.73 $ 16.37 The tax basis of the Partnership's assets and liabilities is approximately $78,100,000 greater than the assets and liabilities as reported in the financial statements at December 31, 1997. NOTE C - NET INVESTMENT IN MASTER LOAN At December 31, 1997, the recorded investment in Master Loan is considered to be impaired under SFAS No. 114. The Partnership measures the impairment of the loan based upon the fair value of the collateral due to the fact that repayment of the loan is expected to be provided solely by the collateral. For the year ended December 31, 1997, the Partnership recorded approximately $2,668,000 of interest income based upon cash generated as a result of improved operations at the properties which secure the loan. For the year ended December 31, 1996, the Partnership recorded approximately $792,000 in income based upon an increase in the fair value of the collateral. For the year ended December 31, 1995, the Partnership recorded approximately $5,578,000 in expense based upon a decrease in the fair value of the collateral. In connection with the transfer of The Sterling to Kennedy Boulevard Associates, L.P. ("KBA-I"), a 99% owned subsidiary of the Partnership, the General Partner had a valuation performed on the property to determine its estimated fair value. The asset had previously been recorded on the books of CCEP and for valuation for the Master Loan based upon appraisals performed by a third party. The last appraisal valued the property as of May 12, 1995. Based on its ongoing evaluation of the condition of the property, the General Partner concluded that additional information received during the fourth quarter of 1995 regarding the extent of deferred maintenance and improvements needed to the property indicated that a $5,000,000 write-down was needed to reduce the property at its estimated net realizable value. CCEP recorded this write-down during the fourth quarter of 1995, before the property was transferred to KBA-I. As this property was collateral for the Master Loan and the value of the Master Loan is recorded based upon the estimated fair value of the underlying collateral, the Partnership recorded an increase in the Provision for Impairment Loss on the Master Loan to affiliate due to this impairment. Interest, calculated on the accrual basis, is due to the Partnership pursuant to the terms of the Master Loan Agreement, but not recognized in the income statements due to the impairment of the loan, totaled approximately $30,100,000, $29,500,000 and $27,400,000 for the years ended December 31, 1997, 1996 and 1995, respectively. Interest income is recognized on the cash basis as allowed under "SFAS 114". At December 31, 1997 and 1996, such cumulative unrecognized interest totaling approximately $197,800,000 and $167,700,000 was not included in the balance of the investment in Master Loan. In addition, six of the properties are collateralized by first mortgages totaling approximately $23,133,000 which are superior to the Master Loan. Accordingly this fact has been taken into consideration in determining the fair value of the Master Loan. During the year ended December 31, 1997, the Partnership made no advances to CCEP on the Master Loan. Advances on the Master Loan to CCEP totaled $367,000 during the year ended December 31, 1996. CCEP used the advances to pay for deferred maintenance and capital improvements on the properties which collateralize the Master Loan. During the year ended December 31, 1997, the Partnership received approximately $2,105,000 as principal payments on the Master Loan. Cash received on certain investments by CCEP, which are required to be transferred to the Partnership per the Master Loan Agreement, accounted for approximately $462,000. Approximately $643,000 received was due to excess cash flow payments received from CCEP as stipulated by the Master Loan Agreement. Another $1,000,000 was received from CCEP as an additional principal payment. Terms of the New Master Loan Agreement Under the terms of the New Master Loan Agreement (as adopted in November 1990), interest accrues at a fluctuating rate per annum adjusted annually on July 15 by the percentage change in the U.S. Department of Commerce Implicit Price Deflator for the Gross National Product subject to an interest rate ceiling of 12.5%. The interest rates for each of the years ended December 31, 1997, 1996, and 1995, was 12.5%. These payments are currently payable quarterly in an amount equal to "Excess Cash Flow." Unpaid interest is added to principal, compounded annually, and is payable at the loan's maturity. Any net proceeds from the sale or refinancing of any of CCEP's properties are paid to the Partnership under the terms of the New Master Loan Agreement. The New Master Loan Agreement matures in November 2000. Effective January 1, 1993, the Partnership and CCEP amended the New Master Loan Agreement to stipulate that Excess Cash Flow would be computed net of capital improvements. Such expenditures were formerly funded from advances on the Master Loan from the Partnership to CCEP. This amendment and change in the definition of Excess Cash Flow will have the effect of reducing payments on the investment in Master Loan by the amount of CCEP's capital expenditures, since such amounts were previously excluded from Excess Cash Flow. On November 30, 1995, New Carlton House Partners, Ltd., a Pennsylvania limited partnership ("NCHP"), owner of a multi-use apartment/commercial building known as The Sterling, the Partnership, Philly Associates Inc., a Texas Corporation ("Philly"), and KBA-I, L.P. (an affiliate of CCIP) entered into a consensual Transfer Agreement whereby certain mortgage notes held by CCEP and Philly that are secured by The Sterling were assigned to KBA-I, L.P. As NCHP is unable to repay the debt, the parties agreed that in order to avoid the additional costs and expenses of litigation or a judicial foreclosure, that NCHP transfer The Sterling to KBA-I, L.P. by a deed-in-lieu of foreclosure in full satisfaction of its obligations on the mortgages assigned to KBA-I, L.P. As an additional matter, the transfer of The Sterling to KBA-I, L.P. shall be in satisfaction of a portion of the amounts owed by CCEP to the Partnership under the Master Loan Agreement. NCHP transferred The Sterling to KBA-I, L.P. and the Partnership recorded the transfer on November 30, 1995. The investment in Master Loan consists of the following: As of December 31, 1997 1996 (in thousands) Master Loan funds advanced, at beginning of year $93,370 $95,246 Master Loan funds advanced -- 367 Principal receipts on Master Loan (2,105) (2,243) Master Loan funds advanced, at end of year $91,265 $93,370 The allowance for impairment loss on Master Loan to affiliates consists of the following: As of December 31, 1997 1996 1995 (in thousands) Allowance for impairment loss on Master Loan to affiliates, beginning of year $40,686 $41,478 $35,900 (Reduction of) provision for impairment loss -- (792) 5,578 Allowance for impairment loss on Master Loan to affiliates, end of year $40,686 $40,686 $41,478 NOTE D - MORTGAGE NOTE PAYABLE On December 15, 1995, the Partnership financed The Lofts. The principal terms of the mortgage note payable are as follows (in thousands): Principal Monthly Principal Balance At Payment Stated Balance December 31, Including Interest Maturity Due At Property 1997 Interest Rate Date Maturity The Lofts $ 4,448 $ 30 6.95% 12/1/05 $ 3,903 The mortgage note payable is non-recourse and is secured by pledge of the Partnership's property and by pledge of revenue from the apartment property. The note requires prepayment penalties if repaid prior to maturity. Scheduled principal payments of the mortgage note payable subsequent to December 31, 1997, are as follows (in thousands): Year Ended December 31, 1998 $ 53 1999 57 2000 62 2001 66 2002 71 Thereafter 4,139 Total $4,448 NOTE E - RELATED PARTY TRANSACTIONS The Partnership has no employees and is dependent on the General Partner and its affiliates for management and administration of all Partnership activities. The Partnership paid property management fees based upon collected gross rental revenues for property management services as noted below for the years ended December 31, 1997, 1996 and 1995. The Partnership Agreement ("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 received reimbursements as reflected in the following table: For the Years Ended December 31, 1997 1996 1995 (in thousands) Property management fees, included in operating expense $424 $409 $120 Reimbursement for services of affiliates (included in operating, general and administrative, other assets and investment properties) (1) 587 485 305 (1) Included in "Reimbursement for services of affiliates" for the years ended 1997 and 1996 is approximately $191,000 and $219,000, respectively, in reimbursements for construction oversight costs. In addition, approximately $167,000 of lease commissions are included for the year ended December 31, 1997. As of December 31, 1995, the Partnership had paid approximately $15,000 and had accrued approximately $13,000 of reimbursements to an affiliate of the General Partner related to the refinancing of The Lofts, which is included in "Reimbursement for services of affiliates" above. For the period of July 1, 1995 to August 31, 1997, the Partnership insured 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 master policy. The agent assumed the financial obligations to the affiliate of the General Partner who receives payments 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. On October 30, 1997, an Insignia affiliate commenced tender offers for limited partnership interests in two real estate limited partnerships (including the Partnership) in which various Insignia affiliates act as general partner. The Purchaser offered to purchase up to 45,000 of the outstanding units of limited partnership interest in the Partnership, at $400 per Unit, net to the seller incash, upon the terms and subject to the conditions set forth in the Offer to Purchase dated October 30, 1997 (the "Offer to Purchase") and the related Assignment of Partnership Interest attached as Exhibits (a)(1) and (a)(2), respectively, to the Tender Offer Statement on Schedule 14D-1 originally filed with the Securities and Exchange Commission on October 30, 1997. Because of the existing and potential future conflicts of interest (described in the Partnership's Statements on Schedule 14D-9 filed with the Securities and Exchange Commission), neither the Partnership nor the General Partner expressed any opinion as to the Offer to Purchase and made no recommendation as to whether unit holders should tender their units in response to the Offer to Purchase. In addition, because of these conflicts of interest, as a result of the Purchaser's affiliation with various Insignia affiliates, the manner in which the Purchaser votes its limited partner interests in the Partnership may not always be consistent with the best interests of the other limited partners. During December 1997 an affiliate of Insignia tendered 27,330 units related to the tender offer mentioned above. In February 1998 an affiliate of Insignia tendered an additional 1570.5 units as a result of this tender offer. At December 31, 1997, Insignia Properties, L.P. was the beneficial owner of 77,106 of the Partnership's limited partnership units. NOTE F - COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS The Partnership is required by the Agreement to maintain working capital reserves for contingencies of not less than 5% of Net Invested Capital, as defined in the Agreement. In the event expenditures are made from this reserve, operating revenue shall be allocated to such reserves to the extent necessary to maintain the foregoing level. Reserves, including cash and cash equivalents and securities available for sale (at market), totaling approximately $9,048,000, were greater than the reserve requirement of approximately $7,261,000 at December 31, 1997. In January 1998, a limited partner of the Partnership commenced an arbitration proceeding against the General Partner claiming that the General Partner had breached certain contractual and fiduciary duties allegedly owed to the claimant. The General Partner believes the claim to be without merit and intends to vigorously defend the claims. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature. The General Partner believes that all such other matters are adequately covered by insurance and will be resolved without a material adverse effect upon the business, financial condition, results of operations, or liquidity of the Partnership. Subsequent to December 31, 1997, the Partnership made a distribution of approximately $1,788,000 to limited partners and $18,000 to the General Partner. NOTE G - REAL ESTATE AND ACCUMULATED DEPRECIATION (dollar amounts in thousands) Initial Cost To Partnership Buildings Cost and Related Capitalized Personal Subsequent to Description Encumbrances Land Property Acquisition The Lofts Apartments $ 4,448 $ 1,053 $ 4,147 $ 1,632 Raleigh, NC The Sterling Apartment Homes -- 2,567 12,341 13,595 and Commerce Center Philadelphia, PA $ 4,448 $ 3,620 $16,488 $15,227
Gross Amount At Which Carried at December 31, 1997 Buildings And Related Personal Accumulated Date of Date Depreciable Description Land Property Total Depreciation Construction Acquired Life-Years The Lofts $ 1,053 $ 5,779 $ 6,832 $2,637 1975 11/19/90 5-20 The Sterling 2,567 25,936 28,503 2,377 1961 12/01/95 5-25 Total $ 3,620 $31,715 $35,335 $5,014
Reconciliation of real estate and accumulated depreciation: Years Ended December 31, 1997 1996 1995 (in thousands) REAL ESTATE: Balance, real estate at beginning of year $28,582 $21,376 $ 6,255 Additions 6,753 7,206 274 Property acquired through foreclosure -- -- 14,847 Balance, real estate at end of year $35,335 $28,582 $ 21,376 ACCUMULATED DEPRECIATION: Balance at beginning of year $ 3,217 $ 1,958 $ 1,506 Additions charged to expense 1,797 1,259 452 Balance at end of year $ 5,014 $ 3,217 $ 1,958 The aggregate cost of the real estate for Federal income tax purposes at December 31, 1997 and 1996, is approximately $36,244,000 and $29,491,000, respectively. Accumulated depreciation for Federal income tax purposes at December 31, 1997 and 1996, is approximately $3,530,000 and $1,999,000, respectively. NOTE H - REVENUES Rental income on the commercial property leases is recognized on a straight-line basis over the life of the applicable leases. Minimum future rental income for the commercial properties subject to noncancellable operating leases is as follows (in thousands): Year Ending December 31, 1998 $ 781 1999 738 2000 681 2001 604 2002 476 Thereafter 1,511 $ 4,791 There is no assurance that this rental income will continue at the same level when the current leases expire. NOTE I - SUBSEQUENT EVENT On March 17, 1998, Insignia entered into an agreement to merge its national residential property management operations, and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The closing, which is anticipated to happen in the third quarter of 1998, is subject to customary conditions, including government approvals and the approval of Insignia's shareholders. If the closing occurs, AIMCO will then control the General Partner of the Partnership. ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER OF THE PARTNERSHIP The names of the directors and executive officers of ConCap Equities, Inc. ("CEI"), the Partnership's General Partner as of December 31, 1997, their ages and the nature of all positions with CEI presently held by them are as follows: NAME OF INDIVIDUAL POSITION IN CEI AGE William H. Jarrard, Jr. President/Director 51 Ronald Uretta Vice President/Treasurer 41 Daniel M. LeBey Vice President/Secretary 32 Robert D. Long, Jr. Vice President 30 Kelley M. Buechler Assistant Secretary 40 Martha L. Long Controller 38 William H. Jarrard, Jr. has been President and Director of CEI since December 1996. He has acted as Senior Vice President of Insignia Properties Trust ("IPT"), parent of the General Partner since May 1997. Mr. Jarrard previously acted as Managing Director - Partnership Administration of Insignia From January 1991 through September 1997 and served as Managing Director - Partnership Administration and Asset Management from July 1994 until January 1996. Ronald Uretta has been Vice President and Treasurer of CEI since December 1996 and Insignia's Treasurer since January 1992. Since August 1996, he has also served as Insignia's Chief Operating Officer. He has also served as Insignia's Secretary from January 1992 to June 1996 and as Insignia's Chief Financial Officer from January 1992 to August 1996. Daniel M. LeBey has been Vice President and Secretary of CEI since January 29, 1998 and Insignia's Assistant Secretary since April 30, 1997. Since July 1996 he has also served as Insignia's Associate General Counsel. From September 1992 until June 1996, Mr. LeBey was an attorney with the law firm of Alston & Bird LLP, Atlanta, Georgia. Robert D. Long, Jr. has been Vice President of CEI since January 2, 1998. Mr. Long joined Metropolitan Asset Enhancement, L.P. ("MAE"), an affiliate of Insignia, in September 1993. Since 1994 he has acted as Vice President and Chief Accounting Officer of the MAE subsidiaries. Mr. Long was an accountant for Insignia until joining MAE in 1993. Prior to joining Insignia, Mr. Long was an auditor for the State of Tennessee and was associated with the accounting firm of Harsman Lewis and Associates. Kelley M. Buechler has been Assistant Secretary of CEI since December 1994 and Assistant Secretary of Insignia since 1991. Martha L. Long has been Controller of CEI since December 1996 and Senior Vice President - Finance and Controller of Insignia since January 1997. In June 1994, Ms. Long joined Insignia as its Controller, and was promoted to Senior Vice President - Finance in January 1997. Prior to that time, she was Senior Vice President and Controller of the First Savings Bank, in Greenville, SC. ITEM 11. EXECUTIVE COMPENSATION No remuneration was paid to the General Partner nor any of its directors and officers during the year ended December 31, 1997. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) Security Ownership of Certain Beneficial Owners Except as provided below, as of February 28, 1998, no person was known to CEI to own of record or beneficially more than 5 percent (5%) of the Units of the Partnership: NUMBER OF PERCENT NAME AND ADDRESS UNITS OF TOTAL Insignia Properties, L.P. 78,953.40 39.67% One Insignia Financial Plaza P. O. Box 1089 Greenville, SC 29602 Insignia Properties, L.P. is an affiliate of Insignia. (See "Item 1"). (b) Beneficial Owners of Management Except as described in "Item 12(a)" above, neither CEI nor any of the directors, 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 December 31, 1997, 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 Insignia Properties Trust 100,000 100% One Insignia Financial Plaza P. O. Box 1089 Greenville, SC 29602 Insignia Properties Trust is an affiliate of Insignia. (See "Item 1") On March 17, 1998, Insignia entered into an agreement to merge its national residential property management operations, and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The closing, which is anticipated to happen in the third quarter of 1998, is subject to customary conditions, including government approvals and the approval of Insignia's shareholders. If the closing occurs, AIMCO will then control the General Partner of the Partnership. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Partnership has no employees and is dependent on the General Partner and its affiliates for management and administration of all Partnership activities. The Partnership paid property management fees based upon collected gross rental revenues for property management services as noted below for the years ended December 31, 1997, 1996 and 1995. The Partnership Agreement ("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 received reimbursements as reflected in the following table: For the Years Ended December 31, 1997 1996 1995 (in thousands) Property management fees $424 $409 $120 Reimbursement for services of affiliates (1) 587 485 305 (1) Included in "Reimbursement for services of affiliates" for the years ended 1997 and 1996 is approximately $191,000 and $219,000, respectively, in reimbursements for construction oversight costs. In addition, approximately $167,000 of lease commissions are included for the year ended December 31, 1997. As of December 31, 1995, the Partnership had paid approximately $15,000 and had accrued approximately $13,000 of reimbursements to an affiliate of the General Partner related to the refinancing of The Lofts, which is included in "Reimbursement for services of affiliates" above. For the period of July 1, 1995 to August 31, 1997, the Partnership insured 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 master policy. The agent assumed the financial obligations to the affiliate of the General Partner who receives payments 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. On October 30, 1997, an Insignia affiliate commenced tender offers for limited partnership interests in two real estate limited partnerships (including the Partnership) in which various Insignia affiliates act as general partner. The Purchaser offered to purchase up to 45,000 of the outstanding units of limited partnership interest in the Partnership, at $400 per Unit, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase dated October 30, 1997 (the "Offer to Purchase") and the related Assignment of Partnership Interest attached as Exhibits (a)(1) and (a)(2), respectively, to the Tender Offer Statement on Schedule 14D-1 originally filed with the Securities and Exchange Commission on October 30, 1997. Because of the existing and potential future conflicts of interest (described in the Partnership's Statements on Schedule 14D-9 filed with the Securities and Exchange Commission), neither the Partnership nor the General Partner expressed any opinion as to the Offer to Purchase and made no recommendation as to whether unit holders should tender their units in response to the Offer to Purchase. In addition, because of these conflicts of interest, as a result of the Purchaser's affiliation with various Insignia affiliates, the manner in which the Purchaser votes its limited partner interests in the Partnership may not always be consistent with the best interests of the other limited partners. During December 1997 an affiliate of Insignia tendered 27,330 units related to the tender offer mentioned above. In February 1998 an affiliate of Insignia tendered an additional 1570.5 units as a result of this tender offer. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. Financial Statements Consolidated Balance Sheets as of December 31, 1997 and 1996 Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Changes in Partners' Capital (Deficit) for the Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements 2. Schedules All schedules are omitted because they are not required, are not applicable or the financial information is included in the financial statements or notes thereto 3. Exhibits S-K REFERENCE SEQUENTIAL NUMBER DOCUMENT DESCRIPTION PAGE NUMBER 3 Certificates of Limited Partnership, as N/A amended to date. (Incorporated by refer- ence to the Annual Report on Form 10-K for the year ended December 31, 1991 ("1991 Annual Report")). 10.1 Amended Loan Agreement dated November N/A 15, 1990 (the "Effective Date"), by and between the Partnership and EP (Incorpora- ted by reference to the Annual Report on Form 10-K for the year ended December 31, 1990 ("1990 Annual Report")). 10.2 Assumption Agreement as of the Effective N/A Date, by and between EP and CCEP (Incor- porated by reference to the 1990 Annual Report). 10.3 Assignment of Claims as of the Effective N/A Effective Date, by and between the Partner- ship and EP (Incorporated by reference to the 1990 Annual Report). 10.4 Assignment of Partnership Interests in N/A Western Can, Ltd., by and between EP and CCEP (Incorporated by reference to the 990 Annual Report). 10.5 Bill of Sale and Assignment dated October 23, N/A 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 Assignment and Assumption Agreement dated N/A dated October 23, 1990, by and between CCMLP and Metro ConCap, Inc. (300 series of Property Management contracts). (Incorporated by reference to the 1990 Annual Report). 10.7 Construction Management Cost Reimbursement N/A Agreement dated January 1, 1991, by and between the Partnership and Metro ConCap, Inc. (Incorporated by reference to the 1991 Annual Report). 10.8 Investor Services Agreement dated October 23, N/A 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). 10.9 Assignment and Assumption Agreement (Investor N/A Services Agreement) dated October 23, 1990 by and between CCEC and ConCap Services Company (Incorporated by reference to the 1990 Annual Report). 10.10 Letter of Notice dated December 20,1991, from N/A Partnership Services, Inc. ("PSI") to the Partner- ship regarding the change in ownership and dissolution of ConCap Services Company whereby PSI assumed the Investor Services Agreement. (Incorporated by reference to the 1991 Annual Report). 10.11 Financial Services Agreement dated October 23, N/A 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). 10.12 Assignment and Assumption Agreement (Financial N/A 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). 10.13 Letter of Notice dated December 20, 1991, from N/A 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 1991 Annual Report). 10.14 Property Management Agreement No. 503 N/A dated February 16, 1993, by and between the Partnership, New Carlton House Partners, Ltd. and Coventry Properties, Inc. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1992). 10.15 Property Management Agreement No. 508 dated N/A June 1, 1993, by and between the Partnership and Coventry Properties, Inc. 10.16 Assignment and Assumption Agreement as to N/A Certain Property Management Services dated November 17, 1993, by and between Coventry Properties, Inc. and Partnership Services, Inc. 10.17 Multifamily Note dated November 30, 1995 between Consolidated Capital Institutional Properties, a California limited partnership, and Lehman Brothers Holdings Inc. d/b/a Lehman Capital, A Division of Lehman Brothers Holding Inc. 11 Statement regarding computation of Net Income 20 per Limited Partnership Unit (Incorporated by reference to Note A of Item 8 - Financial State- ments of this Form 10-K). 16 Letter, dated August 12, 1992, from Ernst & Young N/A to the Securities and Exchange Commission regard- ing change in certifying accountant. (Incorporated by reference to Form 8-K dated August 6, 1992). 27 Financial Data Schedule containing summary N/A financial information extracted from the balance sheet and statement of operations which is qualified in its entirety by reference to such financial statements. 28.1 Fee Owner's Limited Partnership Agreement dated N/A November 14, 1990 (Incorporated by reference to the 1990 Annual Report). 99.1 Audited Financial Statements of Consolidated Capital Equity Partners, L.P. for the years ended December 31, 1997 and 1996. (b) Reports on Form 8-K filed in the fourth quarter of fiscal year 1997: None. SIGNATURE PAGE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES By: CONCAP EQUITIES, INC. Its General Partner, March 24, 1998 By: /s/ William H. Jarrard, Jr. Date William H. Jarrard, Jr. President/Director March 24, 1998 By: /s/ Ronald Uretta Date Ronald Uretta Vice President/Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. March 24, 1998 By: William H. Jarrard, Jr. Date William H. Jarrard President/Director March 24, 1998 By: /s/Ronald Uretta Date Ronald Uretta Vice President/Treasurer EX-27 2
5 This schedule contains summary financial information extracted from Consolidated Capital Institutional Properties 1997 Year-End 10-K and is qualified in its entirety by reference to such 10-K filing. 0000352983 CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES 1,000 12-MOS DEC-31-1997 DEC-31-1997 8,691 0 0 0 0 0 35,335 (5,014) 91,628 0 4,448 0 0 0 86,156 91,628 0 11,669 0 0 8,102 0 324 0 0 0 0 0 0 3,567 17.74 0 Registrant has an unclassified balance sheet. Multiplier is 1.
EX-99.1 3 EXHIBIT 99.1 CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 and 1996 TABLE OF CONTENTS December 31, 1997 LIST OF FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors Consolidated Balance Sheets as of December 31, 1997 and 1996 Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Changes in Partners' Deficit for the Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements Report of Ernst & Young LLP, Independent Auditors The Partners Consolidated Capital Equity Partners L.P. We have audited the accompanying consolidated balance sheets of Consolidated Capital Equity Partners L.P. as of December 31, 1997 and 1996, and the related consolidated statements of operations, changes in partners' deficit and cash flows for each of the three years in the period ended December 31, 1997. 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 audits. We conducted our audits 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 audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Consolidated Capital Equity Partners L.P. at December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Greenville, South Carolina January 23, 1998 except for Note I, as to which the date is March 17, 1998 CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED BALANCE SHEETS (in thousands) December 31, 1997 1996 Assets Cash and cash equivalents $ 1,439 $ 1,961 Receivables and deposits 1,241 1,639 Restricted escrows 798 1,420 Investments in limited partnerships -- 336 Other assets 1,550 1,474 Investment properties: Land 10,217 10,217 Buildings and related personal property 97,598 95,236 107,815 105,453 Less accumulated depreciation (75,746) (70,606) 32,069 34,847 $ 37,097 $ 41,677 Liabilities and Partners' Deficit Liabilities Accounts payable $ 426 $ 798 Tenant security deposit liabilities 620 611 Accrued property taxes 116 314 Other liabilities 513 362 Mortgage notes and interest payable 23,133 23,393 Master Loan and interest payable 289,783 261,136 314,591 286,614 Partners' Deficit General Partners (2,775) (2,449) Limited Partners (274,719) (242,488) (277,494) (244,937) $ 37,097 $ 41,677 See Accompanying Notes to Consolidated Financial Statements CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands) Years Ended December 31, 1997 1996 1995 Revenues: Rental income $ 19,425 $ 19,091 $ 23,892 Other income 1,310 1,336 1,545 Gain on disposition of property -- 907 81 Total revenues 20,735 21,334 25,518 Expenses: Operating 11,463 11,453 15,106 General and administrative 842 965 965 Depreciation 5,191 5,257 6,335 Interest 34,512 31,323 30,432 Property taxes 1,271 1,299 1,781 Loss and disposition of property 13 -- -- Write-down of investment properties and investment in limited partnerships -- -- 8,814 Total expenses 53,292 50,297 63,433 Loss before extraordinary item (32,557) (28,963) (37,915) Loss on early extinguishment of debt -- -- (19) Net loss $(32,557) $(28,963) $(37,934) Net loss allocated to general partner (1%) $ (326) $ (290) $ (379) Net loss allocated to limited partners (99%) (32,231) (28,673) (37,555) $(32,557) $(28,963) $(37,934) See Accompanying Notes to Consolidated Financial Statements CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT (in thousands) General Limited Partner Partners Total Partners' deficit at December 31, 1994 $(1,780) $(176,260) $(178,040) Net loss for the year ended December 31, 1995 (379) (37,555) (37,934) Partners' deficit at December 31, 1995 (2,159) (213,815) (215,974) Net loss for the year ended December 31, 1996 (290) (28,673) (28,963) Partners' deficit at December 31, 1996 (2,449) (242,488) (244,937) Net loss for the year ended December 31, 1997 (326) (32,231) (32,557) Partners' deficit at December 31, 1997 $(2,775) $(274,719) $(277,494) See Accompanying Notes to Consolidated Financial Statements CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended December 31, 1997 1996 1995 Cash flows from operating activities: Net loss $(32,557) $(28,963) $(37,934) Adjustments to reconcile net loss to net cash provided by operating activities: (Gain) loss on disposition of property 13 (907) (81) Depreciation and amortization 5,414 5,450 6,440 Write-down of investment properties and investments in limited partnerships -- -- 8,814 Change in accounts: Receivables and deposits 398 (332) (95) Other assets (300) 200 (1,200) Accounts payable (372) (735) 940 Tenant security deposit liabilities 9 22 (358) Accrued property taxes (198) 3 86 Other liabilities 151 (252) 489 Accrued interest on Master Loan 30,752 29,523 27,428 Payable to affiliates -- -- (969) Net cash provided by operating activities 3,310 4,009 3,560 Cash flows from investing activities: Property improvements and replacements (2,425) (3,963) (5,137) Net proceeds from the disposition of real estate -- 1,882 -- Proceeds from sale of securities -- -- 195 Receipts from (deposits to) restricted escrows 622 1,678 (2,569) Distributions from investments in limited partnerships 336 124 1,048 Net cash used in investing activities (1,467) (279) (6,463) Cash flows from financing activities: Proceeds from long-term borrowing -- -- 23,635 Advances on Master Loan -- 367 4,002 Principal payments on Master Loan (2,105) (2,243) (21,661) Principal payments on notes payable (260) (283) (3,365) Loan costs paid -- (1) (798) Repayment of note payable -- (1,295) -- Net cash (used in) provided by financing activities (2,365) (3,455) 1,813 Net (decrease) increase in cash and cash equivalents (522) 275 (1,090) Cash and cash equivalents, at beginning of year 1,961 1,686 2,776 Cash and cash equivalents, at end of year $ 1,439 $ 1,961 $ 1,686 Supplemental disclosure of cash flow information: Cash paid for interest $ 3,682 $ 1,664 $ 2,917 See Accompanying Notes to Consolidated Financial Statements December 31, 1997 NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization: Consolidated Capital Equity Partners ("EP"), a California general partnership, was formed on June 24, 1981, to engage in the business of acquiring, operating and holding equity investments in income-producing real properties. The operations of EP were financed substantially through nonrecourse notes (the "Master Loan") from Consolidated Capital Institutional Properties ("CCIP"), a California limited partnership. These notes are secured by the real properties owned by EP. The General Partner of CCIP is ConCap Equities, Inc. ("CEI"), a Delaware corporation. In November 1990, EP's general partners executed a new partnership agreement (the "New Partnership Agreement") in conjunction with the bankruptcy settlement discussed below whereby EP converted from a general partnership to a California limited partnership, Consolidated Capital Equity Partners L.P. ("CCEP"). Pursuant to the New Partnership Agreement, ConCap Holding, Inc. ("CHI"), a Texas corporation, a wholly-owned subsidiary of CEI, became the general partner of CCEP, and the former general partners of EP became limited partners of CCEP. CHI has full discretion with respect to conducting CCEP's business, including managing CCEP's properties and initiating and approving capital expenditures and asset dispositions and refinancings. All of CEI's outstanding stock is owned by Insignia Properties Trust, an affiliate of Insignia Financial Group, Inc. ("Insignia"), which was acquired through two transactions in December 1994 and October 1995. Principles of Consolidation: CCEP owns a 75% interest in a limited partnership ("Western Can, Ltd.") which owns 444 De Haro, an office building in San Francisco, California. CCEP's investment in Western Can, Ltd. is consolidated in CCEP's financial statements. No minority interest liability has been reflected for the 25% minority interest because Western Can Ltd. has a net capital deficit and no minority liability exists with respect to CCEP. The operations from September 30, 1993, through November 30, 1995, of The Sterling are consolidated in CCEP's financial statements pursuant to accounting guidelines regarding notes receivable in-substance foreclosed. The Sterling was transferred to CCIP in a series of transactions on November 30, 1995. 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 the accompanying notes. Actual results could differ from those estimates. Cash and Cash Equivalents: Includes cash on hand and in banks and in money market funds. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Tenant Security Deposits: CCEP requires security deposits from lessees for the duration of the lease and such deposits totaling $611,000 (1997) and $554,000 (1996) are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Restricted Escrows: Replacement Reserve Account: At the time of the December 15, 1995 refinancing, approximately $375,000 of the proceeds were designated for a "replacement reserve fund" for certain capital replacements (as defined in the Replacement Reserve Agreement) at Plantation Gardens, Palm Lake, Society Park East, The Knolls, Indian Creek Village and Tates Creek Village. At December 31, 1997 and 1996, the balance in the "replacement reserve fund" was approximately $798,000 and $693,000, respectively. Repair Escrow Account: In addition to the Replacement Reserve Account, approximately $2,456,000 of the refinancing proceeds were designated for a "repair escrow" to cover necessary repairs and replacements to be completed at Plantation Gardens, Palm Lake, Society Park East, The Knolls, Indian Creek Village and Tates Creek Village within one year of closing. As of December 31, 1997, substantially all of these repairs and replacements had been completed and any excess funds have been transferred into the Replacement Reserve Account. Escrows for Taxes: These funds totaling $399,000 (1997) and $678,000 (1996), held by the Partnership and the mortgage holder, are designated for the payment of real estate taxes and are included in receivables and deposits. Depreciation: Depreciation is provided by the straight-line method over the estimated lives of the apartment properties and related personal property. For Federal income tax purposes, the accelerated cost recovery method is used (1) for real property over 15 years for additions prior to March 16, 1984, 18 years for additions after March 15, 1984, and before May 9, 1985, and 19 years for additions after May 8, 1985, and before January 1, 1987, and (2) for personal property over 5 years for additions prior to January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the modified accelerated cost recovery method is used for depreciation of (1) real property additions over 27 1/2 years and (2) personal property additions over 5 to 15 years. Loan Costs: Loan costs of approximately $781,000 (1997 and 1996), less accumulated amortization of $163,000 (1997) and $81,000 (1996), are included in other assets and are being amortized on a straight-line basis over the life of the loans. Note Receivable In-Substance Foreclosed: The Sterling Apartment Homes and Commerce Center ("The Sterling") was deemed in-substance foreclosed as of September 30, 1993. The Sterling note receivable is deemed in-substance foreclosed because control of the property effectively rests with an affiliate of CCEP and the debtor is unable to pay debt service according to the note terms. The note receivable in-substance foreclosed is recorded at the estimated fair value of the collateral property (See "Note B"). Investments in Limited Partnerships: The investments in limited partnerships represent certain interests in three affiliated limited partnerships that were contributed by EP's general partners to CCEP. These investments are stated at the lower of estimated fair value of the interests at the time of contribution to CCEP or the current estimated fair value of the interests. CCEP wrote this investment down $1 million to its estimated fair value during the third quarter of 1995. Also, in the fourth quarter of 1995, CCEP received distributions from two of the affiliated partnerships of approximately $1,048,000. During 1997, CCEP received distributions from two of the affiliated partnerships of $336,000. During 1996, CCEP received distributions from three of the affiliated partnerships of approximately $124,000. These amounts were subsequently paid to CCIP as a principal payment on the Master Loan per the loan agreement. Advertising: CCEP expenses the costs of advertising as incurred. Advertising expense, included in operating expenses, was approximately $394,000, $351,000 and $352,000 for the years ended December 31, 1997, 1996 and 1995, respectively. Investment Properties: Investment properties are stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. During 1995, 444 De Haro experienced a decline in its estimated net realizable value. Accordingly, CCEP recorded approximately $2,814,000 in expense for the write-down on the real estate in the year ended December 31, 1995. CCEP did not record any expense for the write down on real estate during the years ended December 31, 1997 and 1996. Leases: CCEP leases certain commercial space to tenants under various lease terms. The leases are accounted for as operating leases in accordance with "SFAS Statement No. 13, Accounting for Leases". Some of the leases contain stated rental increases during their term. For leases with fixed rental increases, rents are recognized on a straight-line basis over the terms of the lease. For all other leases, minimum rents are recognized over the terms of the leases. CCEP generally leases apartment units for twelve-month terms or less. CCEP recognizes income as earned on these leases. In addition, management finds it necessary to offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Concessions are charged to expense as incurred. Lease Commissions: Lease commissions are capitalized and amortized using the straight-line method over the life of the applicable lease. At December 31, 1997 and 1996, lease commissions totaled approximately $860,000 and $741,000, respectively, with accumulated amortization of approximately $383,000 and $297,000, respectively. Lease commissions are included in other assets. Allocation of Net Income: Pursuant to the Partnership Agreement, net income and net losses for both financial and tax reporting purposes are allocated 99% to the Limited Partners and 1% to the General Partner. Income Taxes: No provision has been made in the financial statements for Federal income taxes because, under current law, no Federal income taxes are paid directly by CCEP. The Partners are responsible for their respective shares of CCEP's net income or loss. CCEP reports certain transactions differently for tax than for financial statement purposes. The tax basis of CCEP's assets and liabilities is approximately $190,692,000 greater than the assets and liabilities as reported in the financial statements at December 31, 1997. Reclassifications: Certain reclassifications have been made to the 1995 and 1996 information to conform to the 1997 presentation. NOTE B - NOTE RECEIVABLE DEEMED IN-SUBSTANCE FORECLOSED CCEP held a note receivable (the "Sterling Note" formerly the "Carlton House Note") secured by a deed of trust on The Sterling with a scheduled maturity in 1995. According to the note terms, interest accrues at 10% and compounds monthly on principal plus accrued but unpaid interest. The note receivable has been in default since 1991. As described more fully below the required debt service payments were reduced to only the amount of net cash flow from The Sterling. CCEP recognized no interest income in 1994 and 1995, as no cash related to the note receivable was received by CCEP. The Sterling was originally owned by CCEP. In 1984, CCEP sold The Sterling and received back a $28,000,000 purchase money note secured by a first lien on the property. CCEP assigned this purchase money note to CCIP as additional collateral for the Master Loan. In 1986, the buyer defaulted on this purchase money note and filed for bankruptcy when CCEP attempted to foreclose on The Sterling. Pursuant to a reorganization plan, a successor (New Carlton House Partners, Ltd., "NCHP") to the buyer executed a new promissory note in the amount of $31,500,000 ("The Sterling Note"). In early 1991, NCHP defaulted on The Sterling Note. Since the default, CCEP and NCHP have negotiated a restructuring of The Sterling Note. During the negotiating process, the owner made interim payments of $150,000 per month. In 1992, CCEP and NCHP entered into a Restructure Agreement. Pursuant to the Restructure Agreement, 1801 Tower, Inc., an affiliate of CCEP and CCIP was substituted as the new general partner of NCHP in February 1993. In September 1993, a wholly-owned subsidiary of CCIP purchased the $20.4 million second lien mortgage note secured by The Sterling from an unaffiliated third party. This mortgage note, which is subordinate to CCEP's Master Loan debt secured by The Sterling, remains the obligation of NCHP. As a result of the facts that (1) NCHP has no equity in The Sterling, considering the current fair value of The Sterling; (2) proceeds for repayment of The Sterling Note can be expected to come only from the operations or sale of The Sterling; and (3) NCHP effectively abandoned control of The Sterling to CCEP when 1801 Tower, Inc. gained the general partner interest in NCHP in 1993, CCEP deemed The Sterling in-substance foreclosed as of December 31, 1993. On November 30, 1995, NCHP, owner of a multi-use apartment/commercial building known as The Sterling, CCEP, Philly Associates Inc., a Texas Corporation ("Philly"), and Kennedy Boulevard Associates, L.P., a Pennsylvania limited partnership ("KBA-I, L.P.") (an affiliate of CCIP) entered into a consensual Transfer Agreement whereby certain mortgage notes held by CCEP and Philly that are secured by The Sterling were assigned to KBA-I, L.P. As NCHP is unable to repay the debt, the parties agreed that in order to avoid the additional costs and expenses of litigation or a judicial foreclosure, that NCHP transfer The Sterling to KBA-I, L.P. by a deed-in-lieu of foreclosure in full satisfaction of its obligations on the mortgages assigned to KBA-I, L.P. As an additional matter, the transfer of The Sterling to KBA-I, L.P. shall be in satisfaction of a portion of the amounts owed by CCEP to CCIP under the Master Loan Agreement. NCHP transferred The Sterling to KBA-I, L.P. and CCIP recorded the transfer on November 30, 1995. Summarized below are the results of operations of The Sterling that are included in CCEP's financial statements for the year ended December 31, 1995, prepared on the same basis as CCEP's financial statements. Any intercompany balances between CCEP and The Sterling have been eliminated in CCEP's consolidated financial statements and the summarized financial statements set forth below: For the Eleven Months Ended November 30, 1995 Rental revenue $ 5,705 Investment income 26 Total revenues 5,731 Costs and expenses: Property operations 3,747 Depreciation 953 Administrative 103 Interest 1,342 Write-down of investment property 5,000 Total costs and expenses 11,145 Net loss $(5,414) NOTE C - DISPOSITION OF REAL ESTATE During 1997, CCEP recognized a loss of approximately $13,000 related to roof replacements at Regency Oaks. On September 13, 1996, CCEP sold Lakeview Office Tower to an unrelated third party for a contract price of $2,060,000. The Partnership received net proceeds of approximately $1,882,000 after payment of closing costs. A portion of the net proceeds were used to retire a mortgage note payable on the property in the amount of approximately $1,295,000. The remaining proceeds of approximately $587,000 were remitted to CCIP to pay down the Master Loan. During 1995, CCEP recognized a gain of approximately $134,000 related to a clubhouse fire at Tates Creek Village and a roof replacement at The Knolls. Offsetting these gains were losses of approximately $53,000 relating to roof replacements at Granada, Society Park East, Palm Lake, Indian Creek Village and Shirewood Townhomes. NOTE D - MASTER LOAN AND ACCRUED INTEREST PAYABLE The Master Loan principal and accrued interest payable balances at December 31, 1997 and December 31, 1996, are approximately $289,800,000 and $261,000,000, respectively. Terms of the New Master Loan Agreement Under the terms of the New Master Loan Agreement (as adopted in November 1990), interest accrues at a fluctuating rate per annum adjusted annually on July 15 by the percentage change in the U.S. Department of Commerce Implicit Price Deflator for the Gross National Product subject to an interest rate ceiling of 12.5%. The interest rates for each of the years ended December 31, 1997, 1996 and 1995 was 12.5%. Interest payments are currently payable quarterly in an amount equal to "Excess Cash Flow". If such Excess Cash Flow payments are less than the current accrued interest during the quarterly period, the unpaid interest is added to principal, compounded annually, and is payable at the loan's maturity. If such Excess Cash Flow payments are greater than the currently payable interest, the excess amount is applied to the principal balance of the loan. Any net proceeds from sale or refinancing of any of CCEP's properties are paid to CCIP under the terms of the Master Loan Agreement. The Master Loan Agreement matures in November 2000. The General Partner has determined that the Master Loan and related interest payable has no determinable fair value since payments are limited to net cash flow, as defined, however the fair value is not believed to be in excess of the fair value of the underlying collateral. Effective January 1, 1993, CCEP and CCIP amended the New Master Loan Agreement to stipulate that Excess Cash Flow would be computed net of capital improvements. Such expenditures were formerly funded from advances on the Master Loan from CCIP to CCEP. This amendment and change in the definition of Excess Cash Flow will have the effect of reducing Master Loan payments to CCIP by the amount of CCEP's capital expenditures, since such amounts were previously excluded from Excess Cash Flow. The amendment will have no effect on the computation of interest expense on the Master Loan for CCEP. During the year ended December 31, 1997, there were no advances on the Master Loan. CCIP advanced approximately $367,000 and $4,002,000 to CCEP as an advance on the Master Loan during 1996 and 1995, respectively, to pay for deferred maintenance and capital improvements and to pay off certain third party mortgages. In connection with the transfer of The Sterling to KBA-I, the General Partner of CCIP had a valuation performed on the property to determine its estimated fair value. The asset had previously been recorded on the books of the Partnership. For valuation purposes, the Master Loan value was based upon appraisals performed by a third party. The last appraisal valued the property as of May 12, 1995. The General Partner believed that the information needed to evaluate the property had changed since this appraisal and that the use of updated information would ensure a more accurate recording of the transfer of this asset. Based on its ongoing evaluation of the condition of the property, the General Partner concluded that additional information received during the fourth quarter of 1995 regarding the extent of deferred maintenance and improvements needed to the property indicated that a $5,000,000 write-down was needed to reduce the property to its estimated net realizable value. The Partnership recorded this write-down during the fourth quarter of 1995 before the property was transferred to KBA-I. NOTE E - NOTES AND INTEREST PAYABLE The principle terms of mortgage notes payable are as follows (in thousands): Principal Monthly Principal Balance At Payment Stated Balance December 31, Including Interest Maturity Due At Property 1997 Interest Rate Date Maturity Indian Creek Village 1st Mortgage $ 4,600 $ 31 6.95% 12/01/05 $ 4,036 The Knolls 1st Mortgage 5,310 36 6.95% 12/01/05 4,659 Palm Lake 1st Mortgage 1,713 12 6.95% 12/01/05 1,503 Plantation Gardens 1st Mortgage 6,949 47 6.95% 12/01/05 6,097 Society Park East 1st Mortgage 2,016 14 6.95% 12/01/05 1,769 Tates Creek Village 1st Mortgage 2,545 17 6.95% 12/01/05 2,233 Totals $23,133 On December 15, 1995, CCEP successfully financed new mortgage notes on Plantation Gardens, Palm Lake, Society Park East, The Knolls, Tates Creek Village and Indian Creek Village. Of the $23,635,000 gross proceeds received in the refinancing, approximately $546,000 was used to pay off the old mortgage debt on Tates Creek Village. Additionally, $19,857,000 of the net proceeds was used to pay down the Master Loan to CCIP. This new debt is superior to the Master Loan. The notes payable are nonrecourse and collateralized by deeds of trust on the real property. All of the notes require prepayment penalties if repaid prior to maturity. Summary of Maturities Principal payments on notes payable are due as follows (in thousands): Years Ending December 31, 1998 $ 279 1999 298 2000 320 2001 343 2002 367 Thereafter 21,526 Total $ 23,133 NOTE F - RELATED PARTY TRANSACTIONS CCEP has no employees and is dependent on the General Partner and its affiliates for management and administration of all partnership activities. CCEP paid property management fees based upon collected gross rental revenues for property management services in each of the years ended December 31, 1997, 1996 and 1995. The Partnership Agreement ("Agreement") also provides for reimbursement to the General Partner and its affiliates for costs incurred in connection with the administration of CCEP activities. Also, CCEP is subject to an Investment Advisory Agreement between CCEP and an affiliate of the General Partner. This agreement provides for an annual fee, payable in monthly installments, to an affiliate of the General Partner for advising and consulting services for CCEP's properties. The following amounts were paid or accrued to the General Partner and affiliates: For the Years Ended December 31, 1997 1996 1995 (in thousands) Property management fees $1,032 $1,000 $1,253 Investment advisory fees 182 182 233 Lease commissions 139 69 221 Reimbursement for services of affiliates (1) 426 537 428 (1) Included in "reimbursements for services of affiliates" for 1997 and 1996 are approximately $78,000 and $150,000, respectively, for construction oversight costs. There was no such expense in 1995. In addition to the compensation and reimbursements described above, principal and interest payments are made to and loan advances are received from CCIP pursuant to the Master Loan Agreement. Such interest payments totaled approximately $2,064,000 and $2,500,000 for the years ended December 31, 1997 and 1995, respectively. There were no interest payments during 1996. Advances of approximately $367,000 and $4,002,000 were made under the Master Loan Agreement during the years ended December 31, 1996 and 1995, respectively. There were no advances during 1997. During the year ended December 31, 1997, CCEP paid approximately $2,105,000 to CCIP as principal payments on the Master Loan. Cash received on certain investments by CCEP, which are required to be transferred to CCIP per the Master Loan Agreement, accounted for approximately $462,000. Approximately $643,000 was due to excess cash flow payments paid to CCIP as stipulated by the Master Loan Agreement. CCEP also paid an additional $1,000,000 to CCIP as principal payment on the Master Loan. During the year ended December 31, 1996, CCEP paid approximately $2,243,000 to CCIP as principal payments on the Master Loan. Approximately $101,000 was due to the return of a real estate tax escrow set up at the time of the December 1995 financing of a certain CCEP investment property. This escrow was held until CCEP was able to provide proof of payment to the mortgage holder. In September 1996, Lakeview Office Towers was sold and approximately $587,000 was paid to CCIP to pay down the Master Loan. Also, approximately $124,000 of distributions received from three affiliated partnerships and approximately $1,431,000 of excess cash flow was paid to CCIP to reduce the Master Loan obligation. The Sterling was transferred to CCIP on November 30, 1995, in partial settlement of the Master Loan. As a result of this transaction, CCIP relieved the Master Loan obligation by approximately $15,537,000. Additionally, the net proceeds from the financing of Plantation Gardens, Palm Lake, Society Park East, The Knolls, Tates Creek Village and Indian Creek Village of $19,857,000 were paid to CCIP to pay down the Master Loan. Also, approximately $1,048,000 of distributions received from two affiliated partnerships were paid to CCIP to pay down the Master Loan. From July 1, 1995 to August 31, 1997, the Partnership insured 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 payments 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 G - REVENUES Rental income on the commercial property leases is recognized on a straight-line basis over the life of the applicable leases. Minimum future rental income for the commercial properties subject to noncancellable operating leases is as follows (in thousands): YEAR ENDING DECEMBER 31, 1998 $2,357 1999 2,161 2000 1,490 2001 947 2002 657 Thereafter 484 $8,096 There is no assurance that this rental income will continue at the same level when the current leases expire. NOTE H - REAL ESTATE AND ACCUMULATED DEPRECIATION The investment properties owned by the Partnership consist of the following: (dollar amounts in thousands) Building & Related Personal Accumulated Depreciable Description Land Property Total Depreciation Life-Years 444 De Haro $ 947 $12,939 $ 13,886 $ 9,855 3-18 Indian Creek Village 1,041 8,507 9,548 6,369 5-18 The Knolls 647 6,952 7,599 5,273 5-18 Northlake Quadrangle 980 4,215 5,195 3,570 5-18 Palm Lake 272 4,369 4,641 3,469 5-18 Plantation Gardens 1,958 13,065 15,023 10,433 5-18 Regency Oaks 521 10,252 10,773 7,938 5-18 Magnolia Trace 892 5,678 6,570 4,543 5-18 Shirewood Townhomes 494 6,057 6,551 4,722 5-18 Silverado 628 4,660 5,288 3,867 5-18 Society Park 966 8,424 9,390 6,732 5-18 Society Park East 489 5,274 5,763 3,646 5-18 Tates Creek Village 382 7,206 7,588 5,329 5-18 Total $10,217 $97,598 $107,815 $75,746 NOTE I - SUBSEQUENT EVENT On March 17, 1998, Insignia entered into an agreement to merge its national residential property management operations, and its controlling interest in Insignia Properties Trust, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The closing, which is anticipated to happen in the third quarter of 1998, is subject to customary conditions, including government approvals and the approval of Insignia's shareholders. If the closing occurs, AIMCO will then control the General Partner of the Partnership. -----END PRIVACY-ENHANCED MESSAGE-----