-----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, RdbKUO1BG0+t4H3WupATcaTa9VUob7gJtEy0wX+tJIhukvPRJ7mqbnPzawjOL9bc 3MJ/vDn0cbxIWyqDb9gKfQ== 0000352983-96-000001.txt : 19960401 0000352983-96-000001.hdr.sgml : 19960401 ACCESSION NUMBER: 0000352983-96-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 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: 1934 Act SEC FILE NUMBER: 000-10831 FILM NUMBER: 96540952 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 [Fee Required] For the fiscal year ended December 31, 1995 or [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period.........to......... Commission file number 0-10831 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) (Zip Code) 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. 155,999 of 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 million 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 million 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 1,297 Units for a total purchase price of $1 million. 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 GII Realty, Inc. In December 1994, the parent of GII Realty, Inc., entered into a transaction (the "Insignia Transaction") in which among other things, MAE-ICC, Inc., a wholly owned subsidiary of Metropolitan Asset Enhancement, L.P. ("MAE"), an affiliate of Insignia Financial Group, Inc. ("Insignia") acquired an option (exercisable in whole or in part from time to time) to purchase all of the stock of GII Realty, Inc. and, pursuant to a partial exercise of such option, acquired 50.5% of that stock. As a part of the Insignia Transaction, MAE-ICC, Inc. also acquired all of the outstanding stock of Partnership Services, Inc., an asset manager and a subsidiary of Insignia acquired all of the outstanding stock of Coventry Properties, Inc., a property manager. In addition, confidentiality, non-competition, and standstill arrangements were entered into between certain of the parties. Those arrangements, among other things, prohibit GII Realty's former sole shareholder from purchasing Partnership Units for a period of three years. On October 24, 1995, MAE-ICC, Inc. exercised the remaining portion of its option to purchase all of the remaining outstanding capital stock of GII Realty, Inc. held by Gordon Realty, Inc. Pursuant to the terms of the option, MAE-ICC, Inc. acquired the remaining 49.5% of the outstanding capital stock of GII Realty, Inc. 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, 1995, the Partnership had advanced a total of approximately $180.1 million to EP and its successor under the Master Loan (as defined in "Status of the Master Loan"). As of December 31, 1995, the balance of the Master Loan, net of the allowance for possible losses, was approximately $53.8 million. 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 three (3) 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 Carlton House Apartment and Office Building ("Carlton House") through a deed-in-lieu of foreclosure transaction on November 30, 1995. The Carlton House 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 Financial Group, Inc. ("Insignia"), an affiliate of the General Partner. 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 property is subject to competition from similar properties in the vicinity in which the property is 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 $170.4 million 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, 1995: Date of Property Purchase Type of Ownership Use The Loft Apartments 11/19/90 Fee ownership. Apartment Raleigh, NC 188 units The Carlton House 12/01/95 Fee ownership. Apartment Apartment and Office 537 units Building Commercial Philadelphia, PA 140,421 sq.ft. Schedule of Properties: (in thousands)
Gross Carrying Accumulated Federal Property Value Depreciation Rate Method Tax Basis The Loft Apartments $ 6,468 $1,934 5-20 S/L $ 5,625 The Carlton House Apartment and Office Building 14,908 24 5-25 S/L 19,768 $21,376 $1,958
See "Note A" of the financial statements included in "Item 8." for a description of the Partnership's depreciation policy. Schedule of Mortgages: (in thousands)
Principal Principal Balance At Stated Balance December 31, Interest Period Maturity Due At Property 1995 Rate Amortized Date Maturity The Loft Apartments 1st mortgage $4,545 6.95% (1) 12/2005 $3,903 (1) Payments of approximately $30,000 consisting of principal and interest.
Average Annual Rental Rate and Occupancy: Average Annual Average Rental Rates Occupancy Property 1995 1994 1995 1994 The Loft Apartments $ 7,806/unit $7,271/unit 91% 94% The Carlton House 10,185/unit (a) 86% (a) (residential) The Carlton House $3.53/s.f. (a) 46% (a) (commercial) (a) Rates for Carlton House represent December 1995 only as the property was acquired by the Registrant on November 30, 1995. 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. One commercial tenant, an employment agency, leases greater than 10% of the available space. The following is a schedule of the lease expirations of the commercial space in Carlton House for the years beginning 1996 through the maturities of current leases: Number of % of Gross Expirations Square Feet Annual Rent Annual Rent 1996 8 35,040 $568,161 49.56% 1997 4 7,858 152,535 13.31% 1998 4 37,268 103,967 9.07% 1999 1 2,454 30,675 2.68% 2000 1 901 22,680 1.98% 2001 0 0 0 0% 2002 0 0 0 0% 2003 0 0 0 0% 2004 0 0 0 0% 2005 1 2,259 37,893 3.31% Real estate taxes and rates in 1995 for each property were (in thousands): 1995 1995 Billing Rate The Loft $63 1.17% The Carlton House 49(a) 8.26% (a) Represents portion of 1995 billings accrued for December 1995 only. Item 3. Legal Proceedings The Partnership is unaware of any pending or outstanding litigation that is not of a routine nature. The General Partner of the Registrant believes that all such pending or outstanding litigation will be resolved without a material adverse effect upon the business, financial conditions, results of operations, or liquidity of the Partnership. Item 4. Submission of Matters to a Vote of Security Holders During the fourth quarter of the fiscal year ended December 31, 1995, 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, 1995, there were 24,416 holders of record owning an aggregate of 199,052 Units. Distributions of approximately $3,007,000 and approximately $3,686,000 were made to the limited partners in 1995 and 1994, respectively. Additionally, distributions of approximately $30,000 and $37,000 were made to the General Partner in 1995 and 1994, 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. Subsequent to year end, the Partnership paid a distribution of approximately $15.5 million. 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, 1995 1994 1993 1992 1991 STATEMENTS OF OPERATIONS (in thousands, except unit data) Revenues $ 5,265 $ 4,490 $ 6,180 $ 8,189 $ 7,692 Costs and expenses (3,078) (1,496) (1,849) (1,892) (1,953) Provision for impairment loss (5,578) -- (11,100) (9,000) -- (Loss) income from operations (3,391) 2,994 (6,769) (2,703) 5,739 Gain on sale of securities available for sale -- -- 20 -- 188 Net (loss) income $ (3,391) $ 2,994 $ (6,749)$ (2,703) $ 5,927 Net (loss) income per Limited Partnership Unit: (Loss) income from operations $ (16.87) $ 14.90 $ (33.67)$ (13.44) $ 28.54 Gain on sale of securities available for sale -- -- .10 -- .93 Net (loss) income $ (16.87) $ 14.90 $ (33.57)$ (13.44) $ 29.47 Distributions per Limited Partnership Unit $ 15.10 $ 18.52 $ 28.50 $ 26.25 $ 42.61 Limited Partnership Units outstanding 199,052 199,045 199,051 199,051 199,051
AS OF DECEMBER 31, BALANCE SHEETS 1995 1994 1993 1992 1991 (in thousands) Total assets $ 106,351 $107,630 $108,442 $120,876 $129,003 Mortgage notes and interest payable $ 4,560 $ -- $ -- $ -- $ --
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 Carlton House Apartment and Office building ("Carlton House") is a multiple-use facility which consists of an apartment complex and commercial space. This property was transferred from CCEP to a wholly owned subsidiary of the Partnership on November 30, 1995. The operations of Carlton House had an immaterial impact on the results of operations of the Partnership for the year ended December 31, 1995, with revenues of $594,469 and expenses of $443,522. Results of Operations 1995 Compared With 1994 The Partnership's net loss for the year ended December 31, 1995, was approximately $3,391,000 as compared to net income of approximately $2,994,000 for the year ended December 31, 1994. The increase in net loss is primarily due to the $5,578,000 increase in the provision for impairment loss on the Master Loan. The primary cause of the increase in the provision for impairment loss on the Master Loan is a reduction in the estimated fair value of the underlying collateral properties. Also contributing to the increased net loss is an increase in operating expenses at The Lofts as a result of higher maintenance expenses and an increase in general and administrative expenses. The increase in maintenance expense is the result of interior and exterior painting projects, patio fencing, exterior lighting, window renovations, curb and sidewalk repairs, and major landscaping. General and administrative expenses increased due to increased insurance costs along with the additional costs involved in printing 1994 10-K's for investors. There were also 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 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 Carlton House from CCEP to the Partnership. Depreciation expense increased during 1995 due to the purchase of additional fixed assets in 1995. Interest expense increased as a result of the financing of The Lofts in December 1995. This property did not have a mortgage balance prior to December 1995 and as a result had no interest expense. Also, other income decreased due to a settlement of suits against Southmark in 1994 resulting in the Partnership receiving its pro rata share of the claims filed in Southmark's bankruptcy proceeding. No such event occurred in 1995. Partially offsetting these decreases in net income is an increase in rental income due to higher rental rates which more than offset the decrease in occupancy at The Lofts. In connection with the transfer of Carlton House to Kennedy Boulevard Associates, L.P. ("KBA-I"), a wholly 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 to its estimated net realizable value. CCEP recorded this write-down during the fourth quarter 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. 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. 1994 Compared With 1993 Rental revenues for the year ended December 31, 1994, increased $117,000 over 1993 primarily because of increased rental charges at The Lofts Apartments. Operating expense for the year ended December 31, 1994, decreased $154,000 as compared to 1993 primarily due to decreases in non-capital refurbishments and replacements and lower personnel and property administrative expense. General and administrative expenses for the year ended December 31, 1994, decreased $232,000 primarily because of a decrease in overhead expenses allocated to the Partnership and decreases in direct costs, such as data processing, insurance and communication expenses. Other income for the year ended December 31, 1994, decreased $266,000 from 1993 because lower average cash balances were available for investment, as excess cash was distributed to the Partners in 1994, combined with the effect of lower market yields available during 1994. For the year ended December 31, 1994, income from the investment in the Master Loan decreased $1.5 million from 1993. Net funds provided by CCEP for Master Loan payments decreased as a result of several factors, as hereinafter described. Funds used for CCEP property operations increased $1.2 million because of increases in replacements and refurbishments and an increase in service and utility expenses. Debt service payments to CCEP, third party lien holders, decreased $159,000 from 1993, as a result of the maturity and payoff of a note payable and the modification of a note payable to eliminate mortgage interest participation which occurred during the third quarter of 1993. In August 1994, CCEP sold a tract of land and the related improvements adjacent to one of the Partnership's properties and received proceeds of approximately $130,000. In February 1994, CCEP advanced $589,000 to New Carlton House Partners, as an advance on the Carlton House Note, to pay Carlton House's 1994 property taxes in an effort to protect CCEP's interest in the property. In February 1994, the Partnership advanced $40,000 to CCEP as an advance on the Master Loan. CCEP then advanced $40,000 to NCHP as an advance on the Carlton House Note to pay the remaining balance of 1993 property taxes. All cash flows generated by Carlton House are being reinvested in the property. Liquidity and Capital Resources At December 31, 1995, the Partnership had unrestricted cash of approximately $26,122,000 versus approximately $1,520,000 at December 31, 1994. Net cash provided by operating activities decreased primarily due to a decrease in net income as noted above and due to an increase in other assets. These changes were partially offset by a decrease in due from affiliate and an increase in accounts payable. Cash provided by investing activities increased as a result of principal receipts on the Master Loan which was partially offset by an increase in property improvements and replacements and an increase in advances on the Master Loan. Principal receipts on the Master Loan in 1995 were due primarily to the refinancing proceeds received from CCEP. Net cash provided by financing activities increased due to the financing of The Lofts. At December 31, 1994, the Partnership had unrestricted cash of approximately $1,520,000 versus approximately $214,000 at December 31, 1993. Net cash provided by operating activities decreased primarily due to the increase in restricted cash and due from affiliates, and the decrease in accounts payable and distributions payable. Cash provided by investing activities increased primarily as a result of the sale of securities available for sale. This increase was partially offset by the purchase of securities available for sale. Cash used in financing activities decreased as a result of decreased distributions to partners. The Partnership has budgeted for approximately $14 million of deferred maintenance and capital improvements to be made to The Carlton House during 1996 and 1997. These programs will be paid for using a portion of the cash received from CCEP in 1995 on debt service on the Master Loan. The major budgeted capital improvements are for exterior renovation, elevator rehabilitation, residential and commercial common area renovations. 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. Distributions of approximately $1,485,000 or $7.46 per Unit were made to the limited partners in both March and September 1995. A matching distribution of approximately $15,000 was made to the General Partner for each distribution. In July 1995, a distribution of approximately $36,000 was made to pay the limited partners' income taxes due to the State of North Carolina for income generated by the Partnership's investment property located in North Carolina and a matching distribution of approximately $1,000 was made to the General Partner. Subsequent to year end, the Partnership paid a distribution of approximately $15.5 million. 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 (at market), totaling approximately $31.7 million, were greater than the reserve requirement of $8.0 million as of December 31, 1995. CCEP Property Operations The Partnership has invested approximately $4 million in CCEP during 1995 as additional advances under the Master Loan. This money was used by CCEP for deferred maintenance and capital improvements at its properties. The money was also used to pay off third party debt at certain of its investment properties. Additional advances under the Master Loan are anticipated to be made to CCEP in 1996 as these properties continue the deferred maintenance and capital improvement programs. For the year ended December 31, 1995, CCEP's net loss totaled $37.9 million on total revenues of $25.0 million. 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 1995, CCEP's statement of operations includes total interest expense attributable to the Master Loan of $29.9 million, of which approximately $27.4 million 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. However, CCEP's operations are expected to provide cash flow during 1996 which will be available to be utilized as Master Loan debt service. During the year ended December 31, 1995, the Partnership received approximately $38.9 million as principal and interest payments of the Master Loan. Approximately $15.5 million was due to the transfer of Carlton House as satisfaction for that portion of the loan. Normal interest payments as required by the agreement accounted for approximately $2.5 million. Financing proceeds of certain CCEP properties that were transferred to the partnership as required per the agreement accounted for approximately $19.9 million. Cash received on certain investments by CCEP, which are required to be transferred to the Partnership per the agreement, accounted for approximately $1 million. Item 8. Financial Statements and Supplementary Data CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES LIST OF FINANCIAL STATEMENTS Reports of Independent Auditors Consolidated Balance Sheets as of December 31, 1995 and 1994 Consolidated Statements of Operations for the Years Ended December 31, 1995, 1994 and 1993 Consolidated Statements of Partners' Capital (Deficit) for the Years Ended December 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 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 sheet of Consolidated Capital Institutional Properties as of December 31, 1995, and the related consolidated statements of operations, changes in partners' capital (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Consolidated Capital Institutional Properties as of December 31, 1995, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ERNST & YOUNG LLP Greenville, South Carolina February 15, 1996 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of Consolidated Capital Institutional Properties: We have audited the accompanying consolidated balance sheet of Consolidated Capital Institutional Properties (a California limited partnership) as of December 31, 1994, and the related statements of operations, partners' capital (deficit) and cash flows for the years ended December 31, 1994 and 1993. 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 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 financial statements referred to above present fairly, in all material respects, the financial position of Consolidated Capital Institutional Properties as of December 31, 1994, and the results of its operations and its cash flows for the years ended December 31, 1994 and 1993, in conformity with generally accepted accounting principles. /s/Arthur Andersen, LLP Dallas, Texas March 23, 1995 CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED BALANCE SHEETS (in thousands, except unit data) DECEMBER 31, Assets 1995 1994 Cash and cash equivalents: Unrestricted $ 26,122 $ 1,520 Restricted-tenant security deposits 335 34 Securities available for sale 5,264 8,329 Due from affiliates -- 935 Other assets 1,444 276 Net investment in Master Loan 95,246 127,686 Less: Allowance for impairment loss (41,478) (35,900) 53,768 91,786 Investment properties: Land 3,620 1,053 Buildings and related personal property 17,756 5,202 21,376 6,255 Less: accumulated depreciation (1,958) (1,505) 19,418 4,750 $106,351 $107,630 Liabilities and Partners' Capital (Deficit) Liabilities Accounts payable $ 368 $ 55 Tenant security deposits 323 47 Distributions payable 324 324 Mortgage note and interest payable 4,560 -- 5,575 426 Partners' Capital (Deficit) General Partner (358) (294) Limited Partners - 199,052 and 199,045 units outstanding in 1995 and 1994 101,134 107,498 100,776 107,204 $106,351 $107,630 See Accompanying Notes to Consolidated Financial Statements CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per unit data)
FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993 Revenues: Rental income $ 2,069 $ 1,312 $ 1,195 Interest income on investment in Master Loan to affiliate 2,502 2,448 3,989 Other income 694 730 996 Total revenues 5,265 4,490 6,180 Costs and expenses: Operating 1,154 599 726 General and administrative 1,456 480 712 Depreciation 453 417 411 Interest 15 -- -- Provision for impairment loss 5,578 -- 11,100 Total expenses 8,656 1,496 12,949 (Loss) income from operations (3,391) 2,994 (6,769) Gain on sale of securities available for sale -- -- 20 Net (loss) income $(3,391) $ 2,994 $(6,749) Net (loss) income allocated to general partner $ (34) $ 30 $ (67) Net (loss) income allocated to limited partners (3,357) 2,964 (6,682) $(3,391) $ 2,994 $(6,749) (Loss) income per Limited Partnership Unit $(16.87) $ 14.90 $(33.57) Distributions per Limited Partnership Unit $ 15.10 $ 18.52 $ 28.50 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, 1992 199,051 (163) 120,575 120,412 Distributions (57) (5,673) (5,730) Net loss for the year ended December 31, 1993 (67) (6,682) (6,749) Partners' capital (deficit) at December 31, 1993 199,046 (287) 108,220 107,933 Distributions (37) (3,686) (3,723) Net income for the year ended December 31, 1994 30 2,964 2,994 Partners' capital (deficit) at December 31, 1994 199,045 (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 See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993 Cash flows from operating activities: Net (loss) income $(3,391) $ 2,994 $ (6,749) Adjustments to reconcile net (loss) income to net cash provided by operating Depreciation 453 417 411 Amortization of discount on securities available for sale -- 2 (2) Provision for impairment loss on Master Loan to affiliates 5,578 -- 11,100 Gain on sale of securities available for sale -- -- (20) Receipt of Southmark stock -- (7) -- Changes in accounts: Restricted cash (301) (26) (8) Due from affiliates 935 (376) (41) Other assets (1,243) 99 215 Accounts payable 337 (68) 53 Distributions payable -- (8) -- Tenant security deposit liabilities 276 -- -- Net cash provided by operating activities 2,644 3,027 4,959 Cash flows from investing activities: Property improvements and replacements (274) (27) (19) Proceeds from sale of securities available for sale 5,180 5,461 1,765 Purchase of securities available for (2,115) (3,392) (140) Purchase of mortgage loan -- -- (100) Principal receipts on Master Loan 21,661 -- -- Advances on Master Loan (4,002) (40) (2,390) Net cash provided by (used in) investing activities 20,450 2,002 (884) Cash flows from financing activities: Distributions to partners (3,037) (3,723) (5,738) Proceeds from long-term borrowings 4,545 -- -- Net cash provided by (used in) financing activities 1,508 (3,723) (5,738) Net increase (decrease) in cash and cash equivalents 24,602 1,306 (1,663) Cash and cash equivalents, at beginning of year 1,520 214 1,877 Cash and cash equivalents, at end of year $ 26,122 $ 1,520 $ 214 See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, 1995, the Partnership had advanced a total of approximately $180.1 million 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 GII Realty, Inc. In December 1994, the parent of GII Realty, Inc., entered into a transaction (the "Insignia Transaction") in which, among other things, MAE-ICC, Inc., a wholly owned subsidiary of Metropolitan Asset Enhancement, L.P. ("MAE"), an affiliate of Insignia Financial Group, Inc. ("Insignia") acquired an option (exercisable in whole or in part from time to time) to purchase all of the stock of GII Realty, Inc. and, pursuant to a partial exercise of such option, acquired 50.5% of that stock. As a part of the Insignia Transaction, MAE-ICC, Inc. also acquired all of the outstanding stock of Partnership Services, Inc., an asset manager and a subsidiary of Insignia acquired all of the outstanding stock of Coventry Properties, Inc., a property manager. In addition, confidentiality, non-competition, and standstill arrangements were entered into between certain of the parties. Those arrangements, among other things, prohibit GII Realty's former sole shareholder from purchasing Partnership Units for a period of three years. On October 24, 1995, MAE-ICC, Inc. exercised the remaining portion of its option to purchase all of the remaining outstanding capital stock of GII Realty, Inc. held by Gordon Realty, Inc. Pursuant to the terms of the option, MAE-ICC, Inc. acquired the remaining outstanding capital stock of GII Realty, Inc. 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.") and four other affiliated limited and general partnerships and three affiliated corporations, all of which are ultimately wholly-owned by the Partnership. KBA-I, L.P. holds title to The Carlton House Apartment and Office Building. 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: Replacement Reserve Account: At the time of the December 15, 1995, refinancing, $59,800 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, 1995, the balance remaining was $59,800 and is included in other assets. Repair Escrow Account: In addition to the Replacement Reserve Account, $268,625 of the refinancing proceeds were designated for a "repair escrow" to cover necessary repairs and replacements to be completed at The Lofts within one year of closing. At December 31, 1995, the balance was $268,625 and is included in other assets. All excess funds will be transferred into the Replacement Reserve Account. Escrows for Taxes: These funds are held by the Partnership and are designated for the payment of real estate taxes and are included in other assets. 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 $123,097 are included in other assets and are being amortized on a straight-line basis over the life of the loan. Note A - Organization and summary of Significant Accounting Policies - continued Cash and Cash Equivalents: Unrestricted - Unrestricted cash includes cash on hand and in banks, money market funds and U.S. Treasury Bills with original maturities less than 90 days. U.S. Treasury Notes and U.S. Treasury Bills with original maturities greater than 90 days are considered to be investments. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Restricted cash - tenant security deposits - The Partnership requires security deposits from lessees for the duration of the lease and such deposits are considered restricted cash. 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. Investment Properties: Prior to 1995, investment properties were carried at the lower of cost or estimated fair value, which was determined using the higher of the property's non-recourse debt amount, when applicable, or the net operating income of the investment property capitalized at a rate deemed reasonable for the type of property. During 1995, the Partnership adopted FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The effect of adoption was not material. Investment in Master Loan: Beginning in 1995, the Partnership adopted Financial Accounting Standards Board Statement No. 114, "Accounting by Creditors for Impairment of a Loan." Under the new standard, the 1995 allowance for credit losses related to loans that are identified for evaluation in accordance with Statement 114 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. The effect of adoption was not material. Prior to 1995, the allowance for credit losses related to these loans was based on undiscounted cash flows or the fair value of the collateral for collateral dependent loans. Investments: Securities available-for-sale: The General Partner determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. Presently, all of the Partnership's investments are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, reported in a separate component of partner's capital. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in investment income. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in investment income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in investment income. Note A - Organization and summary of Significant Accounting Policies - continued Leases: The Partnership leases certain commercial space to tenants under various lease terms. The leases are accounted for as operating leases in accordance with Financial Accounting Standards Board Statement No. 13. 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. 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. Lease Commissions: Lease commissions are capitalized and amortized using the straight-line method over the life of the applicable lease. At December 31, 1995 and 1994, lease commissions totaled $37,886 and $0, respectively, with accumulated amortization of $500 and $0, 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 Unitholders 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. The tax basis of the Partnership's assets and liabilities is approximately $81.1 million greater than the assets and liabilities as reported in the financial statements. 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, 199,045 and 199,051 Units outstanding in 1995, 1994 and 1993, respectively. Fair Value: In 1995, the Partnership implemented Statement of Financial Accounting Standards No. 107, "Disclosure about Fair Value of Financial Instruments," which requires disclosure of fair value information about financial instruments for which it is practicable to estimate that value. The carrying amount of the Partnership's cash and cash equivalents approximates fair value due to short-term maturities. The Partnership estimates the fair value of its fixed rate mortgages by discounted cash flow analysis, based on estimated borrowing rates currently available to the Partnership. The General Partner believes that the carrying amount of the debt approximates the fair value due to the fact that the debt was obtained on December 15, 1995. The carrying amount of the Partnership's net investment in the Master Loan approximated fair value due to the fact that it has been valued based on the fair value of the underlying collateral. Reclassifications: Certain reclassifications have been made to the 1993 and 1994 information to conform to the 1995 presentation. Note B - Securities Available for Sale Investments, stated at cost, consist of the following at December 31, 1995 (in thousands):
Interest Face Maturity Rate Amount Cost Date U.S. Treasury Note 7.38% $2,600 $2,591 May 15, 1996 U.S. Treasury Note 7.88% 2,647 2,660 July 15, 1996 Southmark Corporation Redeemable Series A Preferred Stock N/A 7 7 N/A Accrued interest 6 $5,264
Investments stated at cost consist of the following at December 31, 1994 (in thousands): Maturity Cost Date U.S. Treasury Note $1,999 April 15, 1995 U.S. Treasury Note 2,591 May 15, 1996 U.S. Treasury Note 2,660 July 15, 1996 U.S. Treasury Bill 585 February 16, 1995 U.S. Treasury Bill 487 March 30, 1995 Southmark Corporation Redeemable Series A Preferred Stock 7 N/A $8,329 The Partnership's investments are classified as available-for-sale. The General Partner believes that the market value of the investments is approximately the same as the cost. Note C - Net Investment in Master Loan At December 31, 1995, the recorded investment in Master Loan is considered to be impaired under Statement 114. The Partnership measures the impairment of the loan based upon the estimated fair value of the collateral due to the fact repayment of the loan is expected to be provided solely by 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 Carlton House to Kennedy Boulevard Associates, L.P. ("KBA-I"), a wholly 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 to its estimated net realizable value. CCEP recorded this write-down during the fourth quarter 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 due to the Partnership pursuant to the terms of the Master Loan Agreement, but not recognized in the income statements, totaled approximately $27.4 million, $24.6 million and $20.3 million for the years ended December 31, 1995, 1994 and 1993, respectively. At December 31, 1995, and December 31, 1994, such cumulative unrecognized interest totaling approximately $138.2 million and $110.8 million was not included in the balance of the investment in Master Loan. In addition, seven of the properties are collateralized by first mortgages totaling $24,970,000 which are superior to the Master Loan. In February 1994, the Partnership advanced $40,000 to Consolidated Capital Equity Partners, L.P. ("CCEP") as an advance on the Master Loan. CCEP then advanced $40,000 to New Carlton House Partners as an advance on the note receivable secured by the Carlton House Apartment and Office Building ("Carlton House") to pay the remaining balance of 1993 property taxes. During 1995, the Partnership advanced approximately $4 million to CCEP as an advance on the Master Loan. CCEP used the advances to pay for deferred maintenance and capital improvements on the properties which collateralize the Master Loan. A portion of the advance was used to pay off third party debt on certain of the properties which collateralize the Master Loan. Note C - Net Investment in Master Loan - continued 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, 1995, 1994, and 1993, 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 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. 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 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 Carlton House, the Partnership, 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 Carlton House 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 Carlton House 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 Carlton House 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 Carlton House to KBA-I, L.P. and the Partnership recorded the transfer on November 30, 1995. Note C - Net Investment in Master Loan - continued The investment in Master Loan consists of the following: AS OF DECEMBER 31, 1995 1994 (in thousands) Master Loan funds advanced, at beginning of year $127,686 $127,646 Master Loan funds advanced 4,002 40 Principal receipts on Master Loan (20,905) -- Principal reduction due to the Carlton House acquisition, including cash received of $756,000 (15,537) -- Master Loan funds advanced, at end of year $ 95,246 $127,686 The allowance for impairment loss on Master Loan to affiliates consists of the following: AS OF DECEMBER 31, 1995 1994 1993 (in thousands) Allowance for impairment loss on Master Loan to affiliates, beginning of year $ 35,900 $ 35,900 $ 24,900 Provision for impairment loss 5,578 -- 11,000 Allowance for impairment loss on Master Loan to affiliates, end of year $ 41,478 $ 35,900 $ 35,900 Note D - Mortgage Note Payable On December 15, 1995, the Partnership successfully financed The Lofts. The principal terms of mortgage note payable are as follows (in thousands):
Principal Monthly Principal Balance At Payment Stated Balance December 31, Including Interest Maturity Due At Property 1995 Interest Rate Date Maturity The Lofts $ 4,545 $ 30 6.95% 12/1/05 $ 3,903
The estimated fair value of the Partnership's aggregate debt is approximately $4,545,000. This estimate is not necessarily indicative of the amounts the Partnership may pay in actual market transactions. Scheduled principal payments of mortgage notes payable subsequent to December 31, 1995, are as follows (in thousands): YEAR ENDED NOTES DECEMBER 31, PAYABLE 1996 $ 47 1997 50 1998 53 1999 57 2000 62 Thereafter 4,276 Total $ 4,545 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, 1995, 1994 and 1993. For the year ended December 31, 1994, a portion of such property management fees were paid to Coventry Properties, Inc. ("Coventry"), an affiliate of the General Partner, for day-to-day property management services and a portion was paid to Partnership Services, Inc. ("PSI") for advisory services related to day-to-day property operations. During 1993, property management services were provided by an unaffiliated management company. In July 1993, Coventry assumed day-to- day property management responsibilities. In late December 1994, an affiliate of Insignia Financial Group, Inc. ("Insignia") assumed day-to-day property management responsibilities for all of the Partnership's properties. Fees paid to affiliates of Insignia during the year ended December 31, 1995, and fees paid to Coventry and PSI for the years ended December 31, 1994 and 1993, are reflected in the following table: For the Year Ended December 31, 1995 1994 1993 (in thousands) Property management fees $120 $65 $38 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. In 1995, the General Partner and its current and former affiliates, which includes Coventry for the year ended December 31, 1994 and 1993, received reimbursements as reflected in the following table: For the Year Ended December 31, 1995 1994 1993 (in thousands) Reimbursement for services of affiliates $305 $226 $300 As of December 31, 1995, the Partnership had paid $14,501 and had accrued $13,015 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. On July 1, 1995, the Partnership began insuring its properties under a master policy through an agency and insurer unaffiliated with the General Partner. An affiliate of the General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The 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. Effective with the "Insignia Transaction" on December 8, 1994, Insignia Financial Group, Inc., an affiliate of the General Partner, acquired the 42,843 units previously held by LP Acceptance Corporation. 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, totaling approximately $31.7 million, were greater than the reserve requirement of approximately $8.0 million at December 31, 1995. Subsequent to year-end, the Partnership paid a distribution of approximately $15.5 million. The Partnership is unaware of any pending or outstanding litigation that is not of a routine nature. The General Partner believes that all such 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. Note G - Other Income In 1991, the Partnership (and simultaneously other affiliated partnerships) entered claims in Southmark Corporation's Chapter 11 bankruptcy proceeding. These claims related to Southmark Corporation's activities while it exercised control (directly, or indirectly through its affiliates) over the Partnership. The Bankruptcy Court set the Partnership's and the affiliated partnerships' allowed claim at $11 million, in the aggregate. In March 1994, the Partnership received 909 shares of Southmark Corporation Redeemable Series A Preferred Stock, and 6,651 shares of Southmark Corporation New Common Stock, with an aggregate market value on the date of receipt of $6,690, and $49,847 in cash, representing the Partnership's share of the recovery, based on its pro rata share of the claims filed. At December 31, 1995, the Partnership recognized approximately $152,000 of income on the receipt of an insurance refund on a self-insurance policy that expired on December 31, 1995. Note H - Real Estate and Accumulated Depreciation (in thousands)
Initial Cost To Partnership Buildings Cost and Related Capitalized Personal Subsequent to Description Land Property Acquisition The Lofts Apartments $ 1,053 $ 4,147 $ 1,268 Raleigh, NC The Carlton House Apartments 2,567 12,341 -- and Office Building Philadelphia, PA $ 3,620 $ 16,488 $ 1,268
(in thousands)
Gross Amount At Which Carried at December 31, 1995 Buildings And Related Personal Accumulated Date of Date Depreciable Description Land Property Total Depreciation Construction Acquired Life-Years The Lofts $ 1,053 $ 5,415 $ 6,468 $ 1,934 1975 11/19/90 5-20 The Carlton House 2,567 12,341 14,908 24 1961 12/01/95 5-25 Total $ 3,620 $17,756 $21,376 $ 1,958
Note H - Real Estate and Accumulated Depreciation - continued Reconciliation of real estate and accumulated depreciation:
Years Ended December 31, 1995 1994 1993 (in thousands) REAL ESTATE: Balance, real estate at beginning of year $ 6,255 $ 6,228 $ 6,209 Additions 15,121 27 19 Balance, real estate at end of year $ 21,376 $ 6,255 $ 6,228 ACCUMULATED DEPRECIATION: Balance, depreciation of real estate at beginning of year $ 1,505 $ 1,088 $ 677 Depreciation of real estate 453 417 411 Balance, depreciation of real estate at at end of year $ 1,958 $ 1,505 $ 1,088
The aggregate cost of the real estate for Federal income tax purposes at December 31, 1995 and 1994 is $26,404,138 and $6,394,326. The accumulated depreciation taken for Federal income tax purposes at December 31, 1995 and 1994 is $1,011,597 and $774,608. Note I - 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, 1996 $ 926 1997 278 1998 121 1999 86 2000 46 Thereafter 182 $ 1,639 There is no assurance that this rental income will continue at the same level when the current leases expire. Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure As of May 3, 1995, Arthur Andersen LLP, the independent accountant previously engaged as the principal accountant to audit the financial statements of the Registrant, was dismissed. As of the same date, the firm of Ernst & Young LLP was engaged to provide that service for the Registrant. The audit report of Arthur Andersen LLP on the financial statements of the Partnership as of and for the year ended December 31, 1994 did not contain any adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles. During the Partnership's two most recent fiscal years and any subsequent interim period preceding the change, there were no disagreements with the former accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the former accountant, would have caused it to make reference to the subject matter of the disagreements in connection with its report. 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, 1995, their ages and the nature of all positions with CEI presently held by them are as follows: NAME OF INDIVIDUAL POSITION IN CEI AGE Carroll D. Vinson President 55 William H. Jarrard, Jr. Vice President 49 John K. Lines Vice President/Secretary 36 Kelley M. Buechler Assistant Secretary 38 Robert D. Long, Jr. Chief Accounting Officer/ 28 Controller Carroll D. Vinson has been President of CEI since December of 1994 and President of the MAE subsidiaries since August 1994. Prior to that, during 1993 to August 1994, Mr. Vinson was affiliated with Crisp, Hughes & Co. (a regional CPA firm) and engaged in various other investment and consulting activities. Briefly, in early 1993, Mr. Vinson served as President and Chief Executive Officer of Angeles Corporation, a real estate investment firm. From 1991 to 1993, Mr. Vinson was employed by Insignia in various capacities including Managing Director-President during 1991. From 1986 to 1990, Mr. Vinson was President and a Director of U.S. Shelter Corporation, a real estate services company which sold substantially all of its assets to Insignia in December 1990. William H. Jarrard, Jr. has been Vice President of CEI since December of 1994, Vice President of the MAE subsidiaries since January 1992 and Managing Director - Partnership Administration of Insignia since January 1991. During the five years prior to joining Insignia in 1991, he served in a similar capacity for U.S. Shelter. Mr. Jarrard is a graduate of the University of South Carolina and a certified public accountant. John K. Lines has been Vice President and Secretary of CEI since December of 1994, Secretary of the MAE subsidiaries since August 1994, General Counsel of Insignia since June 1994, and General Counsel and Secretary of Insignia since July 1994. From May 1993 until June 1994, Mr. Lines was the Assistant General Counsel and Vice President of Ocwen Financial Corporation in West Palm Beach, Florida. From October 1991 until April 1993, Mr. Lines was a Senior Attorney with Banc One Corporation in Columbus, Ohio. From May 1984 until October 1991, Mr. Lines was employed as an associate with Squire Sanders & Dempsey in Columbus, Ohio. Robert D. Long, Jr. has been Controller and Chief Accounting Officer of CEI since December 1994 and Chief Accounting Officer and Controller of the MAE subsidiaries since February 1994. Prior to joining MAE, he was an auditor for the State of Tennessee and was associated with the accounting firm of Harshman Lewis and Associates. He is a graduate of the University of Memphis. Kelley M. Buechler has been Assistant Secretary of CEI since December 1994, Assistant Secretary of the MAE subsidiaries since January 1992, and Assistant Secretary of Insignia since January 1991. During the five years prior to joining Insignia in 1991, she served in a similar capacity for U.S. Shelter. Ms. Buechler is a graduate of the University of North Carolina. 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, 1995. Item 12. Security Ownership of Certain Beneficial Owners and Management (a) Security Ownership of Certain Beneficial Owners Except as provided below, as of December 31, 1995, 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 Financial Group, Inc. 43,053 22% One Insignia Financial Plaza P. O. Box 1089 Greenville, SC 29602 (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, 1995, the following persons were known to CEI to be the beneficial owners of more than 5 percent (5%) of its common stock: NUMBER OF PERCENT NAME AND ADDRESS CEI SHARES OF TOTAL GII Realty, Inc. 100,000 100% One Insignia Financial Plaza P. O. Box 1089 Greenville, SC 29602 Item 13. Certain Relationships and Related Transactions Transactions with Current Management and Others The Registrant has a property management agreement with Insignia Management Group, L.P. pursuant to which Insignia Management Group, L.P., has assumed direct responsibility for day-to-day management of the Partnership's properties. This service includes the supervision of leasing, rent collection, maintenance, budgeting, employment of personnel, payment of operating expenses, etc. Insignia Management Group, L.P. receives a property management fee equal to 5% of apartment revenues. During the fiscal year ended December 31, 1995, Insignia Management Group, L.P. received $120,000 in fees for property management. Transactions with Former Related Parties In 1991, the Partnership (and simultaneously other affiliated partnerships) entered claims in Southmark Corporation's Chapter 11 bankruptcy proceeding. These claims related to Southmark Corporation's activities while it exercised control (directly, or indirectly through its affiliates) over the Partnership. The Bankruptcy Court set the Partnership's and the affiliated partnerships' allowed claim at $11 million, in the aggregate. In March 1994, the Partnership received 909 shares of Southmark Corporation Redeemable Series A Preferred Stock, and 6,651 shares of Southmark Corporation New Common Stock, with an aggregate market value on the date of receipt of $6,690, and $49,847 in cash, representing the Partnership's share of the recovery, based on its pro rata share of the claims filed. 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, 1995 and 1994 Consolidated Statements of Operations for the Years Ended December 31, 1995, 1994 and 1993 Consolidated Statements of Partners' Capital (Deficit) for the Years Ended December 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 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"). S-K REFERENCE SEQUENTIAL NUMBER DOCUMENT DESCRIPTION PAGE NUMBER 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 1990 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). S-K REFERENCE SEQUENTIAL NUMBER DOCUMENT DESCRIPTION PAGE NUMBER 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. S-K REFERENCE SEQUENTIAL NUMBER DOCUMENT DESCRIPTION PAGE NUMBER 11 Statement regarding computation of Net Income 22 per Limited Partnership Unit (Incorporated by reference to Note 1 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, 1995 and 1994. (b) Reports on Form 8-K filed in the fourth quarter of fiscal year 1995: A Form 8-K dated October 24, 1995, was filed reporting the purchase of the remaining capital stock of GII Realty, Inc. by MAE-ICC, Inc. A Form 8-K dated November 30, 1995, was filed reporting a transfer and foreclosure on The Carlton House. CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES 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 29, 1996 By: /s/ Carroll D. Vinson Date Carroll D. Vinson President March 29, 1996 By: /s/ Robert D. Long, Jr. Date Robert D. Long, Jr. Controller, Principal Accounting Officer 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 29, 1996 By: /s/ Carroll D. Vinson Date Carroll D. Vinson Director and President March 29, 1996 By: /s/ Robert D. Long, Jr. Date Robert D. Long, Jr. Controller, Principal Accounting Officer EX-10.17 2 EXHIBIT 10.17 Loan No. 734079451 MULTIFAMILY NOTE US $4,545,000.00 New York, New York As of November 30, 1995 FOR VALUE RECEIVED, the undersigned promise to pay LEHMAN BROTHERS HOLDINGS INC. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc., or order, the principal sum of Four Million Five Hundred Forty-five Thousand and 00/100 Dollars, with interest on the unpaid principal balance from the date of this Note, until paid, at the rate of 6.95 percent per annum. Principal and interest shall be payable at 3 World Financial Center, New York, New York 10285, or such other place as the holder hereof may designate in writing, in consecutive monthly installments of Thirty Thousand Eighty Five Dollars and 53/100 (US $30,085.53) on the first day of each month beginning January, 1996, until the entire indebtedness evidenced hereby is fully paid, except that any remaining indebtedness, if not sooner paid, shall be due and payable on December 1, 2005. If any installment under this Note is not paid when due, the entire principal amount outstanding hereunder and accrued interest thereon shall at once become due and payable, at the option of the holder hereof. The holder hereof may exercise this option to accelerate during any default by the undersigned regardless of any prior forbearance. In the event of any default in the payment of this Note, and if the same is referred to an attorney at law for collection or any action at law or in equity is brought with respect hereto, the undersigned shall pay the holder hereof all expenses and costs, including, but not limited to, attorney's fees. Prepayments shall be applied against the outstanding principal balance of this Note and shall not extend or postpone the due date of any subsequent monthly installments or change the amount of such installments, unless the holder hereof shall agree otherwise in writing. The holder hereof may require that any partial prepayments be made on the date monthly installments are due and be in the amount of that part of one or more monthly installments which would be applicable to principal. From time to time, without affecting the obligation of the undersigned or the successors or assigns of the undersigned to pay the outstanding principal balance of this Note and observe the covenants of the undersigned contained herein, without affecting the guaranty of any person, corporation, partnership or other entity for payment of the outstanding principal balance of this Note, without giving notice to or obtaining the consent of the undersigned, the successors or assigns of the undersigned or guarantors, and without liability on the part of the holder hereof, the holder hereof may, at the option of the holder hereof, extend the time for payment of said outstanding principal balance or any part thereof, reduce the payments thereon, release anyone liable on any of said outstanding principal balance, accept a renewal of this Note, modify the terms and time of payment of said outstanding principal balance, join in any extension or subordination agreement, release any security given herefor, take or release other or additional security, and agree in writing with the undersigned to modify the rate of interest or period of amortization of this Note or change the amount of the monthly installments payable hereunder. Presentment, notice of dishonor, and protest are hereby waived by all makers, sureties, guarantors and endorsers hereof. This Note shall be the joint and several obligation of all makers, sureties, guarantors and endorsers, and shall be binding upon them and their successors and assigns. The indebtedness evidenced by this Note is secured by a Mortgage or Deed of Trust dated as of November 30, 1995, and reference is made thereto for rights as to acceleration of the indebtedness evidenced by this Note. This Note shall be governed by the law of the jurisdiction in which the Property subject to the Mortgage or Deed of Trust is located. The undersigned shall pay any installment of principal and/or interest due hereunder within ten (10) calendar days after such installment of principal and/or interest is due. The undersigned shall pay any other installment due hereunder or due in accordance with the terms of the Mortgage or Deed of Trust Securing this Note, within thirty (30) calendar days of the date such installment is due. The monthly installment payable on January 1, 1996 shall include interest on the outstanding principal balance of this Note for a full month at the above- specified interest rate, notwithstanding the fact that as of the due date of that installment principal may not have been outstanding for a full month. Witness the hand(s) and seal(s) of the undersigned. CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES, a California limited partnership ATTEST: By: ConCap Equities, Inc., a Delaware corporation, its general partner Secretary By: /s/Robert Long (Corporate Seal) Robert Long Vice President and Chief Accounting Officer PAY TO THE ORDER OF FEDERAL HOME LOAN MORTGAGE CORPORATION WITHOUT RECOURSE. This 30th day of November, 1995. LEHMAN BROTHERS HOLDINGS INC. d/b/a Lehman Capital, A Division of Lehman Brothers Holdings Inc. By:/s/ Eileen A. Brennan Name: Title: EX-27 3
5 This schedule contains summary financial information extracted from Consolidated Capital Institutional Properties 1995 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-31-1995 DEC-31-1995 26,122 5,264 95,246 41,478 0 0 21,376 1,958 106,351 0 4,560 0 0 0 100,776 106,351 0 5,265 0 0 8,656 0 15 0 0 0 0 0 0 (3,391) (16.87) 0 The Registrant has an unclassified balance sheet.
EX-99.1 4 EXHIBIT 99.1 CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995 and 1994 EXHIBIT 99.1 (Continued) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. TABLE OF CONTENTS December 31, 1995 LIST OF FINANCIAL STATEMENTS Reports of Independent Auditors Consolidated Balance Sheets as of December 31, 1995 and 1994 Consolidated Statements of Operations for the Years Ended December 31, 1995, 1994 and 1993 Consolidated Statements of Partners' Deficit for the Years Ended December 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 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 sheet of Consolidated Capital Equity Partners L.P. as of December 31, 1995, and the related consolidated statements of operations, changes in partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Consolidated Capital Equity Partners L.P. as of December 31, 1995, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. As discussed in Note A to the consolidated financial statements, in 1995 the Partnership changed its method of accounting for impairment of long-lived assets and for long-lived assets to be disposed of. /s/ERNST & YOUNG LLP Greenville, South Carolina February 15, 1996 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of Consolidated Capital Equity Partners, L.P.: We have audited the accompanying consolidated balance sheet of Consolidated Capital Equity Partners, L.P. (a California limited partnership) as of December 31, 1994, and the related consolidated statements of operations, partners' deficit and cash flows for the years ended December 31, 1994 and 1993. 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 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 financial statements referred to above present fairly, in all material respects, the financial position of Consolidated Capital Equity Partners, L.P. as of December 31, 1994, and the results of its operations and its cash flows for the years ended December 31, 1994 and 1993, in conformity with generally accepted accounting principles. /s/Arthur Andersen, LLP Dallas, Texas March 23, 1995 EXHIBIT 99.1 (Continued) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED BALANCE SHEETS (in thousands) DECEMBER 31, 1995 1994 Assets Cash and cash equivalents $ 2,225 $ 3,393 Securities available for sale -- 195 Investments in limited partnerships 460 2,508 Other assets 5,725 1,254 Investment properties: Land 10,452 10,831 Building and related personal property 94,906 93,660 105,358 104,491 Less accumulated depreciation (68,167) (63,288) 37,191 41,203 Real estate assets of property in- substance foreclosed -- 20,722 Less accumulated depreciation -- (1,122) -- 19,600 $ 45,601 $ 68,153 Liabilities and Partners' Deficit Liabilities Accounts payable and accrued liabilities $ 3,035 $ 2,038 Mortgage notes and interest payable 25,050 4,700 Master Loan and interest payable 233,490 238,486 Due to affiliates -- 969 261,575 246,193 Partners' Deficit General Partner (2,159) (1,780) Limited Partners (213,815) (176,260) (215,974) (178,040) $ 45,601 $ 68,153 See Accompanying Notes to Consolidated Financial Statements EXHIBIT 99.1 (Continued) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands)
FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993 Revenues: Rental $ 24,907 $ 22,987 $ 19,161 Other income 119 77 173 Total revenues 25,026 23,064 19,334 Costs and expenses: Interest 30,432 27,573 24,852 Operating 16,380 15,903 12,831 Depreciation and amortization 6,431 6,132 5,410 General and administrative 965 780 756 Loss on real estate in-substance foreclosed -- -- 4,795 Write-down of investment properties and investment in limited partnerships 8,814 -- -- Total expenses 63,022 50,388 48,644 Gain on real estate tax settlement -- -- 1,108 Gain (loss) on disposition of property 81 (31) -- Loss before extraordinary item (37,915) (27,355) (28,202) Loss on early extinguishment of debt (19) -- -- Net loss $(37,934) $(27,355) $(28,202) Net loss allocated to general partner (1%) $ (379) $ (273) $ (282) Net loss allocated to limited partners (99%) (37,555) (27,082) (27,920) $(37,934) $(27,355) $(28,202) See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT (in thousands)
General Limited Partner Partners Total Partners' deficit at December 31, 1992 $ (1,225) $(121,258) $(122,483) Net loss for the year ended December 31, 1993 (282) (27,920) (28,202) Partners' deficit at December 31, 1993 (1,507) (149,178) (150,685) Net loss for the year ended December 31, 1994 (273) (27,082) (27,355) 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) See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993 Cash flows from operating activities: Net loss $(37,934) $(27,355) $(28,202) Adjustments to reconcile net loss to net cash provided by operating activities: Loss on real estate in-substance foreclosed -- -- 4,795 Gain on real estate tax statement -- -- (1,108) Depreciation and amortization 6,440 6,132 5,410 (Gain) loss on disposition of property (81) 31 -- Cash received from property in-substance foreclosed -- -- 800 Write-down of investment properties and investments in limited partnerships 8,814 -- -- Change in accounts: Other assets (2,871) (170) 7 Interest payable 79 24,648 20,270 Payable to affiliates (969) 349 (52) Accounts payable and accrued liabilities 1,039 141 (1,517) Interest on Master Loan 27,428 -- -- Net cash provided by operating activities 1,945 3,776 403 Cash flows from investing activities: Property improvements and replacements (5,137) (2,149) (710) Purchase of securities available for sale -- (195) -- Proceeds from sale of securities available for sale 195 -- -- Net proceeds from the disposition of real estate -- 130 -- Net cash used in investing activities (4,942) (2,214) (710) Cash flows from financing activities: Proceeds from long-term borrowings 23,635 -- -- Advances on Master Loan 4,002 40 2,390 Loan costs paid (798) -- -- Principal payments on Master Loan (21,661) -- -- Principal payments on notes payable (3,349) (638) (652) Net cash provided by (used in) financing activities 1,829 (598) 1,738 Net (decrease) increase in cash and and cash equivalents (1,168) 964 1,431 Cash and cash equivalents, at beginning of year 3,393 2,429 998 Cash and cash equivalents, at end of year $ 2,225 $ 3,393 $ 2,429 Supplemental disclosure of cash flow information: Cash paid for interest $ 2,917 $ 2,550 $ 4,577 See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued) CONSOLIDATED CAPITAL EQUITY PARTNERS L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 GII Realty, Inc. In December 1994, the parent of GII Realty, Inc., entered into a transaction (the "Insignia Transaction") in which, among other things, MAE-ICC, Inc., a wholly owned subsidiary of Metropolitan Asset Enhancement, L.P., an affiliate of Insignia Financial Group, Inc. ("Insignia") acquired an option (exercisable in whole or in part from time to time) to purchase all of the stock of GII Realty, Inc. and, pursuant to a partial exercise of such option, acquired 50.5% of that stock. As a part of the Insignia Transaction, MAE-ICC, Inc. also acquired all of the outstanding stock of Partnership Services, Inc., an asset manager, and Insignia acquired all of the outstanding stock of Coventry Properties, Inc., a property manager. In addition, confidentiality, non-competition, and standstill arrangements were entered into between certain of the parties. Those arrangements, among other things, prohibit GII Realty's former sole shareholder from purchasing Partnership Units for a period of three years. On October 24, 1995, MAE-ICC, Inc. exercised the remaining portion of its option to purchase all of the remaining outstanding capital stock of GII Realty, Inc. held by Gordon Realty, Inc. Pursuant to the terms of the option, MAE-ICC, Inc. acquired the remaining 49.5% of the outstanding capital stock of GII Realty, Inc. 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 assets and liabilities at December 31, 1994, and operations from September 30, 1993, through November 30, 1995, of the Carlton House are consolidated in CCEP's financial statements pursuant to accounting guidelines regarding notes receivable in-substance foreclosed. Carlton House was transferred to CCIP in a series of transactions on November 30, 1995. Note A - Organization and Summary of Significant Accounting Policies - continued 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: Unrestricted - Unrestricted cash 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. Restricted cash - tenant security deposits - CCEP requires security deposits from lessees for the duration of the lease and such deposits are considered restricted cash. 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 $375,357 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, 1995, the balance remaining was $375,357 and is included in other assets. Repair Escrow Account: In addition to the Replacement Reserve Account, $2,456,056 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. At December 31, 1995, the balance was $2,465,056 and is included in other assets. All excess funds will be transferred into the Replacement Reserve Account. Escrows for Taxes: These funds, held by the Partnership and the mortgage holder, are designated for the payment of real estate taxes and are included in other assets. 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 $798,088 are included in other assets and are being amortized on a straight-line basis over the life of the loans. Note A - Organization and Summary of Significant Accounting Policies - continued Investments: Securities available-for-sale: The General Partner determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, reported in a separate component of partner's capital. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in investment income. Realized gains and losses and declines in value judged to be other- than-temporary on available-for-sale securities are included in investment income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in other income. Note Receivable In-Substance Foreclosed: The note receivable secured by the Carlton House Apartment and Office Building ("Carlton House") was deemed in- substance foreclosed as of September 30, 1993. The Carlton House 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 interest in three affiliated limited partnerships that were contributed by EP's general partners to the Partnership. These investments are stated at the lower of estimated fair value of the interests at the time of contribution to the Partnership or the current estimated fair value of the interests. The Partnership 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 in the amount of $1,047,860. This amount was subsequently paid to CCIP as a principal payment on the Master Loan per the loan agreement. Advertising: The Partnership expenses the costs of advertising as incurred. Investment Properties: Prior to 1995, investment properties were carried at the lower of cost or estimated fair value, which was determined using the higher of the property's non-recourse debt amount, when applicable, or the net operating income of the investment property capitalized at a rate deemed reasonable for the type of property. During 1995, CCEP adopted FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. 444 De Haro has experienced a decline in its estimated net realizable value. Accordingly, the Partnership recorded approximately $2.814 million in expense for the write-down on the real estate in the year ended December 31, 1995. Note A - Organization and Summary of Significant Accounting Policies - continued Leases: The Partnership leases certain commercial space to tenants under various lease terms. The leases are accounted for as operating leases in accordance with Financial Accounting Standards Board Statement No. 13. 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. 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. Lease Commissions: Lease commissions are capitalized and amortized using the straight-line method over the life of the applicable lease. At December 31, 1995 and 1994, lease commissions totaled $624,749 and $1,630,617, respectively, with accumulated amortization of $201,461 and $1,319,052, 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 CHI. Due to Affiliates: Due to affiliates primarily represents cash flow payments owed by CCEP to CCIP in accordance with the terms of the Master Loan. 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 the Partnership's assets and liabilities is approximately $128.8 million greater than the assets and liabilities as reported in the financial statements at December 31, 1995. Fair Value: In 1995, the Partnership implemented Statement of Financial Accounting Standards No. 107, "Disclosure about Fair Value of Financial Instruments," which requires disclosure of fair value information about financial instruments for which it is practicable to estimate that value. The carrying amount of the Partnership's cash and cash equivalents approximates fair value due to short-term maturities. The Partnership estimates the fair value of its fixed rate mortgages by discounted cash flow analysis, based on estimated borrowing rates currently available to the Partnership. Reclassifications: Certain reclassifications have been made to the 1994 and 1993 information to conform to the 1995 presentation. Note B - Note Receivable Deemed in-Substance Foreclosed CCEP held a note receivable (the "Carlton House Note") secured by a deed of trust on the Carlton House 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 Carlton House. CCEP recognized $150,000 of interest income related to the note receivable in the statements of operations for the year ended December 31, 1993. However, in 1994 and 1995, no interest income was recognized as no cash related to the note receivable was received by CCEP. The Carlton House was originally owned by CCEP. In 1984, CCEP sold the Carlton House and received back a $28 million 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 Carlton House. Pursuant to a reorganization plan, a successor (New Carlton House Partners, "NCHP") to the buyer executed a new promissory note in the amount of $31.5 million (the Carlton House Note). In early 1991, NCHP defaulted on the Carlton House Note. Since the default, CCEP and NCHP have negotiated a restructuring of the Carlton House 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 Carlton House from an unaffiliated third party. This mortgage note, which is subordinate to CCEP's Master Loan debt secured by Carlton House, remains the obligation of NCHP. As a result of the facts that (1) NCHP has no equity in the Carlton House, considering the current fair value of the Carlton House; (2) proceeds for repayment of the Carlton House Note can be expected to come only from the operations or sale of the Carlton House; and (3) NCHP effectively abandoned control of the Carlton House to CCEP when 1801 Tower, Inc. gained the general partner interest in NCHP in 1993, CCEP deemed the Carlton House Note in-substance foreclosed as of December 31, 1993. Accordingly, the net note receivable secured by Carlton House is presented as "Note Receivable in-substance foreclosed" in accompanying financial statements for 1994. 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 Carlton House, the Partnership, 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 Carlton House 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 Carlton House 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 Carlton House 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 Carlton House to KBA-I, L.P. and CCIP recorded the transfer on November 30, 1995. Summarized below are the assets, liabilities, equity and the results of operations of the Carlton House that are included in CCEP's financial statements for the years ended December 31, 1995, 1994 and 1993, prepared on the same basis as CCEP's financial statements. Any intercompany balances between CCEP and the Carlton House have been eliminated in CCEP's consolidated financial statements and the summarized financial statements set forth below: December 31, 1994 ASSETS (in thousands) Real estate: Land $ 3,805 Buildings and improvements 16,917 20,722 Less: Accumulated depreciation (1,122) 19,600 Cash and cash equivalents 1,519 Securities available for sale 195 Prepaid expenses and other assets 103 Total assets $ 21,417 LIABILITIES AND PARTNERS' DEFICIT Notes and interest payable $ 16 Due to affiliates 763 Other liabilities 467 Total liabilities 1,246 Partners' equity 20,171 Total liabilities and partners' equity $ 21,417 Note B - Note Receivable Deemed in-Substance Foreclosed - continued
For the Eleven For the Year For the Three Months Ended Ended Months Ended November 30, December 31, December 31, 1995 1994 1993 Rental revenue $ 5,705 $ 4,831 $ 1,164 Investment income 26 27 -- Total revenues 5,731 4,858 1,164 Costs and expenses: Property operations 3,747 4,108 1,371 Depreciation 953 920 202 Administrative 103 78 -- Interest 1,342 3 3 Write-down of investment property 5,000 -- -- Total costs and expenses 11,145 5,109 1,576 Loss from operations (5,414) (251) (412) Gain on real estate tax settlement -- -- 1,108 Net (loss) income $(5,414) $ (251) $ 696
Note C - Disposition of Real Estate 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. During 1994, CCEP sold a building and the related parcel of land which was adjacent to the Plantation Gardens Apartments. CCEP recognized a $31,000 loss on the sale. Note D - Master Loan and Accrued Interest Payable The Master Loan principal and accrued interest payable balances at December 31, 1995, and December 31, 1994, are $233.5 million and $238.5 million, respectively. Terms of 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, 1995, 1994 and 1993 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 the Partnership'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 1995, CCIP advanced approximately $4 million to CCEP as an advance on the Master Loan to pay for deferred maintenance and capital improvements and to pay off certain third party mortgages. In December 1993, CCIP advanced approximately $2.1 million to CCEP as an advance on the Master Loan. CCEP then advanced approximately $2.1 million to New Carlton House Partners as an advance on the Carlton House note to pay Carlton House's 1994 property taxes. In February 1994, CCIP advanced approximately $589,000 to New Carlton House Partners ("NCHP"), as an advance on the note receivable ("Carlton House Note") secured by a deed of trust on the Carlton House Apartment and Office Building ("Carlton House"), to pay Carlton House's 1994 property taxes. In February 1994, CCIP advanced $40,000 to CCEP as an advance on the Master Loan. CCEP then advanced $40,000 to NCHP as an advance on the Carlton House Note to pay the remaining balance of 1993 property taxes. The Carlton House note was forgiven in the November 30, 1995, deed-in-lieu of foreclosure transaction. The Carlton House note had been previously written-off in the 1993 in-substance foreclosure transaction. In connection with the transfer of Carlton House 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 on the Partnership 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. 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 before the property was transferred to KBA- I. Note E - Notes and Interest Payable The principal 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 1995 Interest Rate Date Maturity Indian Creek Village 1st Mortgage $ 4,700 $ 31 6.95% 12/01/05 $ 4,036 The Knolls 1st Mortgage 5,425 36 6.95% 12/01/05 4,659 Lakeview Office Tower 1st Mortgage 1,335 17 10.5% 09/15/07 -- Palm Lake 1st Mortgage 1,750 12 6.95% 12/01/05 1,503 Plantation Gardens 1st Mortgage 7,100 47 6.95% 12/01/05 6,097 Society Park East 1st Mortgage 2,060 14 6.95% 12/01/05 1,769 Tates Creek Village 1st Mortgage 2,600 17 6.95% 12/01/05 2,233 Totals $24,970 $174
At December 31, 1995, the notes payable are all nonrecourse, collateralized by deeds of trust on the real property. The estimated fair value of CCEP's aggregate debt, excluding the Master Loan, is approximately $25,151,000. This estimate is not necessarily indicative of the amount the Partnership may pay in actual market transactions. Note E - Notes and Interest Payable - continued 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. Summary of Maturities Principal payments on notes payable are due as follows (in thousands): Years Ending December 31, Notes Payable 1996 $ 304 1997 328 1998 355 1999 383 2000 414 Thereafter 23,186 Total $ 24,970 Note F - 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. CCEP paid property management fees based upon collected gross rental revenues for property management services in each of the years ended December 31, 1995, 1994 and 1993. For the years ended December 31, 1994 and 1993, a portion of such property management fees were paid to the unaffiliated property management companies performing day-to-day property management services and a portion was paid to Partnership Services, Inc. ("PSI") for advisory services related to day- to-day property operations. In July 1993, Coventry Properties, Inc. ("Coventry"), an affiliate of the General Partner, assumed day-to-day property management responsibility for two of CCEP's properties under the same fee arrangement as the unaffiliated management companies. Additionally, from February 1993 until December 1994, Coventry managed The Carlton House for CCEP. In late December 1994, an affiliate of Insignia Financial Group, Inc. ("Insignia"), an affiliate of the General Partner, assumed day-to-day property management responsibilities for all of CCEP's properties. Fees paid to affiliates of Insignia during the year ended December 31, 1995, and fees paid to Coventry and PSI for the year ended December 31, 1994 and 1993, are reflected in the following table. Note F - Related Party Transactions - continued Also, CCEP is subject to an Investment Advisory Agreement between CCEP and an affiliate of ConCap Holdings, Inc. ("CHI"). This agreement provides for an annual fee, payable in monthly installments, to an affiliate of CHI for advising and consulting services for CCEP's properties. Advisory fees paid pursuant to this agreement are reflected in the following table: For the Years Ended December 31, 1995 1994 1993 (in thousands) Property management fees $1,253 $740 $292 Investment advisory fees 233 257 257 Lease commissions 221 110 -- 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. The General Partner and its current and former affiliates, which includes Coventry, received reimbursements for the year ended December 31, 1995, 1994 and 1993, as reflected in the following table: For the Years Ended December 31, 1995 1994 1993 (in thousands) Reimbursement for services of affiliates $423 $319 $322 In addition to the compensation and reimbursements described above, interest payments are made to and loan advances are received from Consolidated Capital Institutional Properties ("CCIP") pursuant to the Master Loan Agreement. Such interest payments totaled approximately $2.5 million and $1.5 million for the year ended December 31, 1995 and 1994. The Partnership received advances under the Master Loan Agreement totaling $40,000 in February 1994. Advances of approximately $4 million were made under the Master Loan Agreement during the year ended December 31, 1995. Carlton House 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 CCEP 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. Note F - Related Party Transactions - continued On July 1, 1995, CCEP began insuring its properties under a master policy through an agency and insurer unaffiliated with the General Partner. An affiliate of the General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The current agent assumed the financial obligations to the affiliate of the General Partner, who receives payments on these obligations from the agent. The amount of CCEP'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, 1996 $ 2,198 1997 1,823 1998 1,454 1999 1,227 2000 798 Thereafter 1,134 $ 8,634 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: (in thousands)
Building & Related Personal Accumulated Depreciable Description Land Interest Total Depreciation Life-Years 444 De Haro $ 947 $11,858 $ 12,805 $ 8,750 3-18 Granada 171 2,802 2,973 1,930 5-18 Indian Creek Village 1,041 7,861 8,902 5,492 5-18 The Knolls 647 6,578 7,225 4,497 5-18 Lakeview Office Tower 235 3,415 3,650 2,501 5-18 Northlake Quadrangle 980 4,030 5,010 3,119 5-18 Village Square 272 4,101 4,373 2,978 5-18 Plantation Gardens 1,958 12,721 14,679 8,924 5-18 Regency 350 6,924 7,274 4,970 5-18 Sherwood Square 892 5,412 6,304 3,914 5-18 Shirewood Townhomes 494 5,794 6,288 4,120 5-18 Silverado 628 4,523 5,151 3,375 5-18 Society Park 966 8,052 9,018 5,821 5-18 Society Park East 489 4,572 5,061 3,257 5-18 Tates Creek Village 382 6,263 6,645 4,519 5-18 Total $10,452 $94,906 $105,358 $68,167
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