10-Q 1 0001.txt QUARTER ENDING SEPTEMBER 30, 2000 FORM 10-Q---QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Quarterly or Transitional Report U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________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.) 55 Beattie Place, P.O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (864) 239-1000 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED BALANCE SHEETS (in thousands, except unit data)
September 30, December 31, 2000 1999 (Unaudited) (Note) Assets Cash and cash equivalents $ 7,092 $ 11,175 Receivables and deposits 791 1,078 Restricted escrows 310 600 Other assets 1,832 1,641 Investment in Master Loan 63,157 67,865 Less: allowance for impairment loss (3,176) (17,417) 59,981 50,448 Investment properties: Land 3,564 3,564 Building and related personal property 38,583 37,115 42,147 40,679 Less: accumulated depreciation (12,222) (9,953) 29,925 30,726 $ 99,931 $ 95,668 Liabilities and Partners' (Deficit) Capital Liabilities Accounts payable $ 172 $ 108 Tenant security deposit liabilities 639 574 Accrued property taxes 70 -- Other liabilities 629 627 Mortgage note payable 26,859 27,074 28,369 28,383 Partners' (Deficit) Capital General partner 114 (58) Limited partners (199,045.2 units issued and outstanding) 71,448 67,343 71,562 67,285 $ 99,931 $ 95,668 Note: The balance sheet at December 31, 1999, has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. See Accompanying Notes to Consolidated Financial Statements
b) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 Revenues: Rental income $ 2,781 $ 2,470 $ 8,008 $ 7,389 Interest income on investment in Master Loan to affiliate 1,000 1,691 2,000 2,744 Reduction of provision for impairment loss 14,241 -- 14,241 -- Interest income 84 54 299 195 Other income 201 145 568 454 Property tax refunds 210 -- 210 61 Total revenues 18,517 4,360 25,326 10,843 Expenses: Operating 1,123 936 3,431 3,144 Depreciation 764 711 2,269 1,974 General and administrative 274 120 573 417 Property taxes 163 142 449 427 Interest 492 485 1,451 1,447 Total expenses 2,816 2,394 8,173 7,409 Net income $15,701 $ 1,966 $17,153 $ 3,434 Net income allocated to general partner (1%) $ 157 $ 19 $ 172 $ 34 Net income allocated to limited partners (99%) 15,544 1,947 16,981 3,400 $15,701 $ 1,966 $17,153 $ 3,434 Net income per Limited Partnership Unit $ 78.09 $ 9.78 $ 85.31 $ 17.08 Distributions per Limited Partnership Unit $ 31.17 $104.35 $ 64.69 $113.64 See Accompanying Notes to Consolidated Financial Statements
c) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL (Unaudited) (in thousands, except unit data)
Limited Partnership General Limited Units Partner Partners Total Original capital contributions 200,342.0 $ 1 $200,342 $200,343 Partners' (deficit) capital at December 31, 1998 199,045.2 $ (96) $ 86,230 $ 86,134 Distributions to partners -- -- (22,621) (22,621) Net income for the nine months ended September 30, 1999 -- 34 3,400 3,434 Partners' (deficit) capital at September 30, 1999 199,045.2 $ (62) $ 67,009 $ 66,947 Partners' (deficit) capital at December 31, 1999 199,045.2 $ (58) $ 67,343 $ 67,285 Distributions to partners -- -- (12,876) (12,876) Net income for the nine months ended September 30, 2000 -- 172 16,981 17,153 Partners' capital at September 30, 2000 199,045.2 $ 114 $ 71,448 $ 71,562 See Accompanying Notes to Consolidated Financial Statements
d) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Nine Months Ended September 30, 2000 1999 Cash flows from operating activities: Net income $ 17,153 $ 3,434 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,356 2,067 Reduction of provision for impairment loss (14,241) -- Change in accounts: Receivables and deposits 287 58 Other assets (212) (517) Accounts payable 64 (230) Tenant security deposit liabilities 65 71 Accrued property taxes 70 (13) Other liabilities 2 (117) Net cash provided by operating activities 5,544 4,753 Cash flows from investing activities: Net receipts from restricted escrows 290 1,351 Property improvements and replacements (1,468) (1,752) Principal receipts on Master Loan 4,708 20,153 Lease commissions paid (59) -- Net cash provided by investing activities 3,471 19,752 Cash flows from financing activities: Distributions to partners (12,876) (2,246) Payments on notes payable (215) (213) Loan costs paid (7) (8) Net cash used in financing activities (13,098) (2,467) Net (decrease) increase in cash and cash equivalents (4,083) 22,038 Cash and cash equivalents at beginning of period 11,175 8,683 Cash and cash equivalents at end of period $ 7,092 $ 30,721 Supplemental disclosure of cash flow information: Cash paid for interest $ 1,401 $ 1,404 Supplemental disclosure of non-cash activity: As of September 30, 1999, distributions payable was adjusted by approximately $20,375 relating to non-cash activity. See Accompanying Notes to Consolidated Financial Statements
e) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note A - Basis of Presentation The accompanying unaudited consolidated financial statements of Consolidated Capital Institutional Properties (the "Partnership" or "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of ConCap Equities, Inc. (the "General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2000, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2000. For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. Reclassifications Certain reclassifications have been made to the 1999 information to conform to the 2000 presentation. 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."), Kennedy Boulevard Associates II, L.P. a Pennsylvania Limited Partnership ("KBA-II, L.P."), Kennedy Boulevard Associates III, L.P. a Pennsylvania Limited Partnership ("KBA-III, L.P."), Kennedy Boulevard Associates IV, L.P. a Pennsylvania Limited Partnership ("KBA-IV, L.P.") and Kennedy Boulevard GP I, a Pennsylvania Partnership. The general partners of each of the affiliated Limited and General Partnerships are Limited Liability Corporations of which the Partnership is the sole member. The Limited Partners of each of the affiliated limited and general partnerships are either the Partnership or a Limited Liability Corporation of which the Partnership is the sole member. Therefore, the Partnership controls the affiliated Limited and General Partnerships and consolidation is appropriate. KBA-I, L.P. holds title to The Sterling Apartment Home and Commerce Center ("Sterling"). Note B - Transfer of Control Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust merged into Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the General Partner. The General Partner does not believe that this transaction has had or will have a material effect on the affairs and operations of the Partnership. Note C - Related Party Transactions The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for (i) certain payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were made to the General Partner and its affiliates during the nine months ended September 30, 2000 and 1999: 2000 1999 (in thousands) Property management fees (included in operating expenses) $ 429 $ 395 Reimbursement for services of affiliates (included in operating, and general and administrative expenses and investment properties) 398 187 During the nine months ended September 30, 2000 and 1999, affiliates of the General Partner were entitled to receive 5% of gross receipts from the Registrant's properties for providing property management services. The Registrant paid to such affiliates approximately $429,000 and $395,000 for the nine months ended September 30, 2000 and 1999, respectively. An affiliate of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $398,000 and $187,000 for the nine months ended September 30, 2000 and 1999, respectively. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates currently own 123,837.50 limited partnership units in the Partnership representing 62.214% of the outstanding units. A number of these units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters, which would include without limitation, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 62.214% of the outstanding units, AIMCO is in a position to influence all voting decisions with respect to the Registrant. When voting on matters, AIMCO would in all likelihood vote the Units it acquired in a manner favorable to the interest of the General Partner because of their affiliation with the General Partner. Note D - Net Investment in Master Loan The Partnership was formed for the benefit of its limited partners to lend funds to Consolidated Capital Equity Partners ("CCEP"), a California general partnership. The Partnership loaned funds to CCEP subject to a nonrecourse note with a participation interest (the "Master Loan"). At September 30, 2000, the recorded investment in the Master Loan was considered to be impaired under Statement of Financial Accounting Standard No. 114 ("SFAS 114"), Accounting by Creditors for Impairment of a Loan. The Partnership measures the impairment of the loan based upon the fair value of the collateral due to the fact that repayment of the loan is expected to be provided solely by the collateral. For the nine months ended September 30, 2000 and 1999, the Partnership recorded approximately $2,000,000 and $2,744,000, respectively, of interest income based upon "Excess Cash Flow" generated (as defined in the terms of the New Master Loan Agreement). The fair value of the collateral properties was determined using the net operating income of the collateral properties capitalized at a rate deemed reasonable for the type of property adjusted for market conditions, the physical condition of the property and other factors, or by obtaining an appraisal by an independent third party. This methodology has not changed from that used in prior calculations performed by the General Partner in determining the fair value of the collateral properties. During the nine months ended September 30, 2000, a reduction in the provision for impairment loss was recognized for approximately $14,241,000 due to an increase in the net realizable value of the collateral properties. There was no change in the provision for impairment loss for the nine months ended September 30, 1999. The General Partner evaluates the net realizable value on a semi-annual basis. The General Partner has seen a consistent increase in the net realizable value of the collateral properties, taken as a whole, over the past two years. The increase is deemed to be attributable to major capital improvement projects and the concerted effort to complete deferred maintenance items that have been ongoing over the past few years at the various properties. This has enabled the properties to increase their respective occupancy levels or, in some cases, to maintain the properties' high occupancy levels. The vast majority of this work was funded by cash flow from the collateral properties themselves as no amounts have been borrowed on the master loan or from other sources in the past few years in order to fund such improvements. The General Partner attributes the increase in the net realizable value of the collateral properties securing the Master Loan to the increase in occupancy and/or average rental rates of such properties. The increase in occupancy at the properties is attributable to approximately $6,847,000 of combined capital improvements made at most of the properties for the past twenty one months. These improvements have been funded primarily from property operations and cash flows. During the nine months ended September 30, 2000 and 1999, the Partnership made no advances to CCEP as an advance on the Master Loan. Based upon the consistent increase in net realizable value of the collateral properties, the General Partner determined the increase to be permanent in nature and accordingly, reduced the allowance for impairment loss on the master loan during the nine months ended September 30, 2000. Interest, calculated on the accrual basis, due to the Partnership pursuant to the terms of the Master Loan Agreement, but not recognized in the consolidated statements of operations due to the impairment of the loan, totaled approximately $29,681,000 and $27,471,000 for the nine months ended September 30, 2000 and 1999, respectively. Interest income is recognized on the cash basis as allowed under SFAS 114. At September 30, 2000, and December 31, 1999, such cumulative unrecognized interest totaling approximately $296,656,000 and $266,975,000 was not included in the balance of the investment in Master Loan. In addition, eight of the properties are collateralized by first mortgages totaling approximately $40,590,000 at September 30, 2000, which are superior to the Master Loan. During the nine months ended September 30, 2000, CCEP incurred new first mortgage debt on two properties and refinanced first mortgage debt on three properties. Accordingly, these facts have been taken into consideration in determining the fair value of the Master Loan. During the nine months ended September 30, 2000 the Partnership received approximately $4,708,000 as principal payments on the Master Loan. Approximately $182,000 was from cash received on certain investments by CCEP, which are required to be transferred to CCIP as per the Master Loan Agreement and the remaining, $4,526,000 resulted from the receipt of net proceeds from the sale of Shirewood Townhomes by CCEP on July 21, 2000. Subsequent to September 30, 2000 the Partnership received approximately $28,770,000 as principal payments on the Master Loan. During the nine months ended September 30, 1999, the Partnership received approximately $20,153,000 as principal payments on the Master Loan. Approximately $153,000 was from cash received on certain investments by CCEP, which are required to be transferred to CCIP as per the Master Loan Agreement and the remaining, $20,000,000 resulted from the receipt of net proceeds from the sale of 444 De Haro. Note E - Commitment Until October 17, 2000, the Partnership was required by the Partnership Agreement to maintain working capital reserves for contingencies of not less than 5% of Net Invested Capital, as defined in the Partnership Agreement. In the event expenditures were made from this reserve, operating revenues were to be allocated to such reserve to the extent necessary to maintain the foregoing level. Reserves, including cash and securities available for sale, totaling approximately $7,092,000, were greater than the reserve requirement of approximately $4,315,000 at September 30, 2000. On September 16, 2000, the Partnership sought the vote of limited partners to amend the Partnership Agreement to eliminate the requirement for the Partnership to maintain reserves equal to at least 5% of the limited partner's capital contributions less distributions to limited partners and instead permit the General Partner to determine reasonable reserve requirements of the Partnership. The vote was sought pursuant to a Consent Solicitation that expired on October 16, 2000 at which time the amendment was approved by the requisite percent of limited partnership interests. Upon expiration of the consent period, a total number of 140,565.90 units had voted of which 136,767.20 units had voted in favor of the amendment, 2,805.70 voted against the amendment and 993.00 units abstained. Note F - Distributions Distributions from surplus cash of approximately $12,876,000 were paid to the limited partners ($64.69 per limited partnership unit) during the nine months ended September 30, 2000. During the nine months ended September 30, 1999, the Partnership paid approximately $2,246,000 in distributions from surplus cash to the limited partners ($11.28 per limited partnership unit). In addition, distributions totaling approximately $20,375,000 were declared as of September 30, 1999 and paid from surplus funds in October 1999 to the limited partners (approximately $102.36 per limited partnership unit). Included in the amounts at September 30, 2000 are payments to both the Pennsylvania and North Carolina Departments of Revenue for withholding taxes related to income generated by the Registrant's investment properties located in those states. Included in the amounts at September 30, 1999 are payments to the North Carolina Department of Revenue for withholding taxes related to income generated by the Registrant's investment property located in that state. Subsequent to September 30, 2000, the Partnership declared and paid to the limited partners a distribution from surplus cash of approximately $35,004,000 ($175.86 per limited partnership unit). Approximately $28,770,000 of which was from the receipt of net financing and refinancing proceeds from CCEP subsequent to September 30, 2000. Note G - Segment Reporting Description of the types of products and services from which the reportable segment derives its revenues: The Partnership has two reportable segments: residential properties and commercial properties. The Partnership's residential property segment consists of one apartment complex located in North Carolina and one multiple-use facility consisting of apartment units and commercial space located in Pennsylvania. The Partnership rents apartment units to tenants for terms that are typically twelve months or less. The commercial property leases space to various medical offices, various career services facilities, and a credit union at terms ranging from two months to fifteen years. Measurement of segment profit or loss: The Partnership evaluates performance based on segment profit (loss) before depreciation. The accounting policies of the reportable segments are the same as those described in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1999. Factors management used to identify the enterprise's reportable segment: The Partnership's reportable segments are investment properties that offer different products and services. The reportable segments are each managed separately because they provide distinct services with different types of products and customers. Segment information for the three and nine month periods ended September 30, 2000 and 1999 is shown in the tables below (in thousands). The "Other" column includes Partnership administration related items and income and expense not allocated to the reportable segment.
Three Months Ended September 30, 2000 Residential Commercial Other Totals Rental income $ 2,395 $ 386 $ -- $ 2,781 Interest income 23 5 56 84 Other income 134 66 1 201 Property tax refunds 179 31 -- 210 Interest income on investment in Master Loan -- -- 1,000 1,000 Reduction of provision for impairment loss -- -- 14,241 14,241 Interest expense 433 59 -- 492 Depreciation 743 21 -- 764 General and administrative expense -- -- 274 274 Segment profit 577 100 15,024 15,701
Nine Months Ended September 30, 2000 Residential Commercial Other Totals Rental income $ 6,858 $ 1,150 $ -- $ 8,008 Interest income 65 19 215 299 Other income 390 177 1 568 Property tax refunds 179 31 -- 210 Interest income on investment in Master Loan -- -- 2,000 2,000 Reduction of provision for impairment loss -- -- 14,241 14,241 Interest expense 1,274 177 -- 1,451 Depreciation 2,206 63 -- 2,269 General and administrative expense -- -- 573 573 Segment profit 949 320 15,884 17,153 Total assets 32,915 1,950 65,066 99,931 Capital expenditures for investment properties 1,449 19 -- 1,468
Three Months Ended September 30, 1999 Residential Commercial Other Totals Rental income $ 2,085 $ 385 $ -- $ 2,470 Interest income 5 2 47 54 Other income 103 42 -- 145 Interest income on investment in Master Loan -- -- 1,691 1,691 Interest expense 446 39 -- 485 Depreciation 684 27 -- 711 General and administrative expense -- -- 120 120 Segment profit 156 192 1,618 1,966
Nine Months Ended September 30, 1999 Residential Commercial Other Totals Rental income $ 6,325 $ 1,064 $ -- $ 7,389 Interest income 20 4 171 195 Other income 343 111 -- 454 Property tax refunds 52 9 -- 61 Interest income on investment in Master Loan -- -- 2,744 2,744 Interest expense 1,290 157 -- 1,447 Depreciation 1,912 62 -- 1,974 General and administrative expense -- -- 417 417 Segment profit 569 367 2,498 3,434 Total assets 34,718 1,860 79,290 115,868 Capital expenditures for investment properties 1,716 36 -- 1,752
Note H - Legal Proceedings In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its General Partner and several of their affiliated partnerships and corporate entities. The action purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging the acquisition of interests in certain general partner entities by Insignia Financial Group, Inc. ("Insignia") and entities which were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; the management of partnerships by the Insignia affiliates; and the Insignia Merger. The plaintiffs seek monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs have filed an amended complaint. The General Partner filed demurrers to the amended complaint which were heard February 1999. Pending the ruling on such demurrers, settlement negotiations commenced. On November 2, 1999, the parties executed and filed a Stipulation of Settlement, settling claims, subject to final court approval, on behalf of the Partnership and all limited partners who owned units as of November 3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999 from the Court, at which time the Court set a final approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing, the Court received various objections to the settlement, including a challenge to the Court's preliminary approval based upon the alleged lack of authority of prior lead counsel to enter the settlement. On December 14, 1999, the General Partner and its affiliates terminated the proposed settlement. In February 2000, counsel for some of the named plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated the settlement. On June 27, 2000, the Court entered an order disqualifying them from the case. The Court is considering applications for lead counsel and has currently scheduled a hearing on the matter for November 20, 2000. The General Partner does not anticipate that costs associated with this case will be material to the Partnership's overall operations. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The matters discussed in this Form 10-Q contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosures contained in this Form 10-Q and the other filings with the Securities and Exchange Commission made by the Registrant from time to time. The discussion of the Registrant's business and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Registrant's business and results of operations. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. The Partnership's investment properties consist of two properties, The Loft and The Sterling Apartment Homes and Commerce Center ("The Sterling"). The Sterling is a multiple-use facility which consists of an apartment complex and commercial space. The following table sets forth the average occupancy of the properties for the nine months ended September 30, 2000 and 1999: Average Occupancy Property 2000 1999 The Loft Apartments 93% 96% Raleigh, North Carolina The Sterling Apartment Homes 93% 91% The Sterling Commerce Center 89% 88% Philadelphia, Pennsylvania The decrease in occupancy at The Loft Apartments is attributed to a large number of new apartment complexes in the area. Results of Operations The Partnership's net income for the nine months ended September 30, 2000 was approximately $17,153,000 compared to net income of approximately $3,434,000 for the corresponding period in 1999. The Partnership recorded net income of approximately $15,701,000 for the three months ended September 30, 2000 compared to net income of approximately $1,966,000 for the corresponding period in 1999. The increase in net income for the three and nine months ended September 30, 2000 compared with the corresponding period in 1999 was primarily due to the $14,241,000 reduction of provision for impairment loss recognized in 2000. During the nine months ended September 30, 2000, a reduction in the provision for impairment loss was recognized for approximately $14,241,000 due to an increase in the net realizable value of the collateral properties. There was no change in the provision for impairment loss for the nine months ended September 30, 1999. The General Partner evaluates the net realizable value on a semi-annual basis. The General Partner has seen a consistent increase in the net realizable value of the collateral properties, taken as a whole, over the past two years. The increase is deemed to be attributable to major capital improvement projects and the concerted effort to complete deferred maintenance items that have been ongoing over the past few years at the various properties. This has enabled the properties to increase their respective occupancy levels or, in some cases, to maintain the properties' high occupancy levels. The vast majority of this work was funded by cash flow from the collateral properties themselves as no amounts have been borrowed on the master loan or from other sources in the past few years in order to fund such improvements. The General Partner attributes the increase in the net realizable value of the collateral properties securing the Master Loan to the increase in occupancy and/or average rental rates of such properties. The increase in occupancy at the properties is attributable to approximately $6,847,000 of combined capital improvements made at most of the properties for the past twenty one months. These improvements have been funded primarily from property operations and cash flows. During the nine months ended September 30, 2000 and 1999, the Partnership made no advances to CCEP as an advance on the Master Loan. Excluding the reduction of provision for impairment loss, the partnership's net income for the three and nine months ended September 30, 2000 was approximately $1,460,000 and $2,912,000 as compared to approximately $1,966,000 and $3,434,000 for the three and nine months ended September 30, 1999. The decrease in net income for the nine month period ended September 30, 2000 compared with the nine month period ended September 30, 1999 was primarily due to an increase in total expenses, partially offset by an increase in total revenues. The decrease in net income for the three month period ended September 30, 2000 compared with the three month period ended September 30, 1999 was primarily due to an increase in total expenses and a decrease in total revenues. The increase in total revenues for the nine months ended September 30, 2000 is attributable to an increase in rental income, interest income, other income and property tax refunds which more than offset the decrease in interest income on investment in Master Loan to affiliate. The decrease in total revenues for the three months ended September 30, 2000 is due to the decrease in interest income on investment in Master Loan to affiliate more than offsetting the increases in the other components of total revenues. The decrease in interest income related to the Master Loan is a factor of the method used to recognize income. Income is only recognized to the extent that actual cash is received. The receipt of cash is dependent on the corresponding cash flow of the properties, which secure the Master Loan. Cash flow for these properties was lower for the nine months ended September 30, 2000 as a result of capital expenditures at the properties. The increase in rental income for the three and nine months ended September 30, 2000 as compared to the same periods in 1999, was due to increases in average rental rates at the Registrant's investment properties offset slightly by a decrease in occupancy at The Loft Apartments. In addition, there has been a decrease in concessions offered at The Sterling as a result of the complex nearing completion of its renovation. The increase in interest income is the result of increased levels of cash maintained in interest bearing accounts. The increase in real estate tax refunds is due to The Sterling receiving refunds on prior year tax bills which had been under appeal. The increase in total expenses for the three and nine months ended September 30, 2000 is primarily due to an increase in depreciation, operating expenses and general and administrative expenses. The increase in operating expense is the result of an increase in property expenses, slightly offset by a decrease in maintenance expense. Property expenses increased due to an increase in the cost of utility expense and salaries at The Sterling. Maintenance expenses decreased due to decreases in repairs and supplies at The Sterling. Depreciation expense increased due to major capital improvements and replacements at The Sterling during 1999. General and administrative expenses increased for the three and nine month periods ended September 30, 2000 and 1999 due to an increase in the costs of services included in the management reimbursements to the General Partner allowed under the Partnership Agreement. In addition, costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement are also included. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of each of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the General Partner will be able to sustain such a plan. Liquidity and Capital Resources At September 30, 2000, the Partnership had cash and cash equivalents of approximately $7,092,000 as compared to approximately $30,721,000 at September 30, 1999. Cash and cash equivalents decreased approximately $4,083,000 for the nine months ended September 30, 2000 from the Partnership's year ended December 31, 1999. This decrease was primarily due to approximately $13,098,000 of net cash used in financing activities offset by approximately $3,471,000 of net cash provided by investing activities and approximately $5,544,000 of net cash provided by operating activities. Cash provided by investing activities consisted primarily of principal repayments received on the Master Loan and net receipts from escrow accounts maintained by the mortgage lender partially offset by property improvements and replacements and lease commissions paid. Cash used in financing activities consisted primarily of distributions to partners and, to a lesser extent, payments of principal made on the mortgages encumbering the Registrant's properties and other loan costs. The Registrant invests its working capital reserves in money market accounts. Until October 17, 2000, the Partnership was required by the Partnership Agreement to maintain working capital reserves for contingencies of not less than 5% of Net Invested Capital, as defined in the Partnership Agreement. In the event expenditures were made from this reserve, operating revenues were to be allocated to such reserve to the extent necessary to maintain the foregoing level. Reserves, including cash and securities available for sale, totaling approximately $7,092,000, were greater than the reserve requirement of approximately $4,315,000 at September 30, 2000. On September 16, 2000, the Partnership sought the vote of limited partners to amend the Partnership Agreement to eliminate the requirement for the Partnership to maintain reserves equal to at least 5% of the limited partner's capital contributions less distributions to limited partners and instead permit the General Partner to determine reasonable reserve requirements of the Partnership. The vote was sought pursuant to a Consent Solicitation that expired on October 16, 2000 at which time the amendment was approved by the requisite percent of limited partnership interests. Upon expiration of the consent period, a total number of 140,565.90 units had voted of which 136,767.20 units had voted in favor of the amendment, 2,805.70 voted against the amendment and 993.00 units abstained. 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 various properties to adequately maintain the physical assets and other operating needs of the Partnership and to comply with Federal, state, and local, legal and regulatory requirements. Capital improvements planned for each of the Registrant's properties are detailed below. The Loft The Partnership has budgeted, but is not limited to, approximately $93,000 for capital improvements during the current year consisting of floor covering and mini-blinds replacements, appliances, HVAC condensing units, and water heaters. During the nine months ended September 30, 2000, the Partnership completed approximately $77,000 of budgeted capital improvements, consisting primarily of appliances, floor covering replacement and mini-blind replacements. These improvements were funded from cash flow and replacement reserves. The Sterling The Partnership has budgeted, but is not limited to, approximately $2,610,000 for capital improvements during the current year consisting of appliances, cabinet replacements, interior building improvements, electrical and plumbing upgrades, and floor covering replacements. During the nine months ended September 30, 2000, the Partnership completed approximately $1,391,000 of budgeted capital improvements consisting primarily of plumbing and electrical upgrades, air conditioning units, appliance and cabinet replacements and interior building improvements. These improvements were funded primarily from cash flow and replacement reserves. The additional capital improvements planned for 2000 at the Partnership's properties will be made only to the extent of cash available from operations and Partnership reserves. To the extent that such budgeted capital improvements are completed, the Registrant's distributable cash flow, if any, may be adversely affected at least in the short term. The Registrant's current assets are thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Registrant. The mortgage indebtedness of approximately $26,859,000 requires monthly payments of principal and interest and balloon payments of approximately $3,903,000 and $19,975,000 on December 1, 2005 and October 1, 2008, respectively. The General Partner will attempt to refinance such indebtedness and/or sell the properties prior to such maturity dates. If the properties cannot be refinanced or sold for a sufficient amount, the Registrant may risk losing such properties through foreclosure. Distributions from surplus cash of approximately $12,876,000 were paid to the limited partners ($64.68 per limited partnership unit) during the nine months ended September 30, 2000. During the nine months ended September 30, 1999, the Partnership paid approximately $2,246,000 in distributions from surplus cash to the limited partners ($11.28 per limited partnership unit). In addition, distributions totaling approximately $20,375,000 were declared as of September 30, 1999 and paid from surplus funds in October 1999 to the limited partners (approximately $102.36 per limited partnership unit). Included in the amounts at September 30, 2000 are payments to both the Pennsylvania and North Carolina Departments of Revenue for withholding taxes related to income generated by the Registrant's investment properties located in those states. Included in the amounts at September 30, 1999, are payments to the North Carolina Department of Revenue for withholding taxes related to income generated by the Registrant's investment property located in that state. Subsequent to September 30, 2000, the Partnership declared and paid to the limited partners a distribution from surplus cash of approximately $35,004,000 ($175.86 per limited partnership unit). Approximately $28,770,000 of which was from the receipt of net financing and refinancing proceeds from CCEP subsequent to September 30, 2000. The Registrant's distribution policy is reviewed on a quarterly basis. Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves, and the timing of debt maturities, refinancings, and/or property sales. There can be no assurance, however, that the Partnership will generate sufficient funds from operations, after planned capital improvement expenditures, to permit further distributions to its partners during the remainder of 2000 or subsequent periods. CCEP Property Operations For the nine months ended September 30, 2000, CCEP's net loss totaled approximately $26,957,000 on total revenues of approximately $17,835,000 of which approximately $3,024,000 is from the gain on sale of one of CCEP's investment properties. CCEP recognizes interest expense on the Master Loan Agreement obligation according to the note terms, although payments to the Partnership are required only to the extent of Excess Cash Flow, as defined therein. During the nine months ended September 30, 2000 and 1999, CCEP's statement of operations includes total interest expense attributable to the Master Loan of approximately $31,680,000 and $30,215,000, respectively, all but approximately $2,000,000 and $2,744,000, respectively, represents interest accrued in excess of required payments. CCEP is expected to continue to generate operating losses as a result of such interest accruals and noncash charges for depreciation. During the nine months ended September 30, 2000, the Partnership received approximately $4,708,000 in principal payments on the Master Loan. Approximately $182,000 was from cash received on certain investments by CCEP, which are required to be transferred to the Partnership per the Master Loan Agreement and the remaining $4,526,000 resulted from the receipt of net proceeds from the sale of Shirewood Townhomes by CCEP on July 21, 2000. Subsequent to September 30, 2000 the Partnership received approximately $28,770,000 as principal payments on the Master Loan. On July 21, 2000, CCEP sold Shirewood Townhomes, located in Shreveport, Louisiana, to an unaffiliated third party for net sales proceeds of approximately $4,526,000, after payment of closing costs. CCEP used all of the proceeds from the sale to paydown the Master Loan principal, as required by the Master Loan Agreement. The sale resulted in a gain on sale of investment property of approximately $3,024,000. Item 3. Quantitative and Qualitative Disclosures about Market Risk The Partnership is exposed to market risks associated with its Master Loan to Affiliate ("Loan). Receipts (interest income) on the Loan are based upon the operations and cash flow of the underlying investment properties that collateralize the Loan. Both the income and expenses of operating the investment properties are subject to factors outside the Partnership's control, such as an oversupply of similar properties resulting from overbuilding, increases in unemployment or population shifts, reduced availability of permanent mortgage financing, changes in zoning laws, or changes in the patterns or needs of users. The investment properties are also susceptible to the impact of economic and other conditions outside of the control of the Partnership as well as being affected by current trends in the market area in which they operate. In this regard, the General Partner of the Partnership closely monitors the performance of the properties collateralizing the loans. Based upon the fact that the loan is considered impaired under Statement of Financial Accounting Standard No. 114, Accounting by Creditors for Impairment of a Loan, interest rate fluctuations do not offset the recognition of income, as income is only recognized to the extent of cash flow. Therefore, market risk factors do not offset the Partnership's results of operations as it relates to the Loan. The Partnership is exposed to market risks from adverse changes in interest rates. In this regard, changes in U.S. interest rates affect the interest earned on the Partnership's cash and cash equivalents as well as interest paid on its indebtedness. As a policy, the Partnership does not engage in speculative or leveraged transactions, nor does it hold or issue financial instruments for its borrowing activities used to maintain liquidity and fund business operations. To mitigate the impact of fluctuations in U.S. interest rates, the Partnership maintains its debt as fixed rate in nature by borrowing on a long-term basis. Based on interest rates at September 30, 2000, an increase or decrease of 100 basis points in market interest rates would not have a material impact on the Partnership. The following table summarizes the Partnership's debt obligations at September 30, 2000. The interest rates represent the weighted-average rates. The fair value of the debt obligations approximate the recorded value as of September 30, 2000. Principal Amount by Expected Maturity Fixed Rate Debt Long-term Average Interest Debt Rate 6.86% (in thousands) 2000 $ 82 2001 323 2002 346 2003 371 2004 393 Thereafter 25,344 Total $ 26,859 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its General Partner and several of their affiliated partnerships and corporate entities. The action purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging the acquisition of interests in certain general partner entities by Insignia Financial Group, Inc. ("Insignia") and entities which were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; the management of partnerships by the Insignia affiliates; and the Insignia Merger. The plaintiffs seek monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs have filed an amended complaint. The General Partner filed demurrers to the amended complaint which were heard February 1999. Pending the ruling on such demurrers, settlement negotiations commenced. On November 2, 1999, the parties executed and filed a Stipulation of Settlement, settling claims, subject to final court approval, on behalf of the Partnership and all limited partners who owned units as of November 3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999 from the Court, at which time the Court set a final approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing, the Court received various objections to the settlement, including a challenge to the Court's preliminary approval based upon the alleged lack of authority of prior lead counsel to enter the settlement. On December 14, 1999, the General Partner and its affiliates terminated the proposed settlement. In February 2000, counsel for some of the named plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated the settlement. On June 27, 2000, the Court entered an order disqualifying them from the case. The Court is considering applications for lead counsel and has currently scheduled a hearing on the matter for November 20, 2000. The General Partner does not anticipate that costs associated with this case will be material to the Partnership's overall operations. Item 4. Submission of Matters to a Vote of Security Holders On September 16, 2000, the Partnership sought the vote of limited partners to amend the Partnership Agreement to eliminate the requirement for the Partnership to maintain reserves equal to at least 5% of the limited partners' capital contributions less distributions to limited partners and instead permit the General Partner to determine reasonable reserve requirements of the Partnership. The vote was sought pursuant to a Consent Solicitation that expired on October 16, 2000 at which time the amendment was approved by the requisite percent of limited partnership interests. Upon expiration of the consent period, a total of 140,565.90 units had voted of which 136,767.20 units had voted in favor of the amendment, 2,805.70 units voted against the amendment and 993.00 units abstained. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: S-K Reference Number Description 27 Financial Data Schedule, is filed as an exhibit to this report. 99.1 Consolidated Capital Equity Partners, L.P., unaudited financial statements for the nine months ended September 30, 2000 and 1999. b) Reports on Form 8-K during the quarter ended September 30, 2000: Current report on Form 8-K filed August 7, 2000 disclosing the sale of Shirewood Townhomes, one of Consolidated Capital Equity Partners, L.P.'s properties. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES By: CONCAP EQUITIES, INC. Its General Partner By: /s/Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/Martha L. Long Martha L. Long Senior Vice President and Controller Date: November 14, 2000 EXHIBIT 99.1 CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED September 30, 2000 and 1999 EXHIBIT 99.1 (Continued) PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED BALANCE SHEETS (in thousands, except unit data)
September 30, December 31, 2000 1999 (Unaudited) (Note) Assets Cash and cash equivalents $ 20,446 $ 2,865 Receivables and deposits 2,306 1,359 Restricted escrows 387 718 Other assets 1,277 761 Investment properties: Land 7,796 8,290 Building and related personal property 82,293 85,969 90,089 94,259 Less accumulated depreciation (69,701) (71,592) 20,388 22,667 $ 44,804 $ 28,370 Liabilities and Partners' Deficit Liabilities Accounts payable $ 514 $ 493 Tenant security deposit liabilities 483 466 Accrued property taxes 890 435 Other liabilities 447 555 Mortgage notes 40,590 22,556 Master loan and interest payable 359,812 334,840 402,736 359,345 Partners' Deficit General partner (3,580) (3,310) Limited partners (354,352) (327,665) (357,932) (330,975) $ 44,804 $ 28,370 Note: The balance sheet at December 31, 1999, has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued) b) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands)
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 Revenues: (restated) (restated) Rental income $ 4,360 $ 4,455 $ 13,518 $ 13,360 Other income 443 295 1,293 969 Gain on sale of investment property 3,024 -- 3,024 -- Total revenues 7,827 4,750 17,835 14,329 Expenses: Operating 2,092 2,090 6,236 6,179 General and administrative 242 166 560 453 Depreciation 1,072 1,197 3,729 3,538 Interest 10,890 10,466 32,920 31,460 Property taxes 287 296 940 917 Total expenses 14,583 14,215 44,385 42,547 Loss from continuing operations (6,756) (9,465) (26,550) (25,218) (Loss) income from discontinued operations -- (172) -- 12 Gain on sale of discontinued operations -- 16,690 -- 16,690 (Loss) income before extraordinary item (6,756) 7,053 (26,550) (11,516) Extraordinary loss on early extinguishment of debt (407) -- (407) -- Net (loss) income $ (7,163) $ 7,053 $(26,957) $(11,516) Net (loss) income allocated to general partner (1%) $ (72) $ 71 $ (270) $ (115) Net (loss) income allocated to limited partners (99%) (7,091) 6,982 (26,687) (11,401) $ (7,163) $ 7,053 $(26,957) $(11,516) See Accompanying Notes to Consolidated Financial Statements
EXHIBIT 99.1 (Continued) c) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT (Unaudited) (in thousands) General Limited Partners Partners Total Partners' deficit at December 31, 1998 $ (3,108) $(307,679) $(310,787) Net loss for the nine months ended September 30, 1999 (115) (11,401) (11,516) Partners' deficit at September 30, 1999 $ (3,223) $(319,080) $(322,303) Partners' deficit at December 31, 1999 $ (3,310) $(327,665) $(330,975) Net loss for the nine months ended September 30, 2000 (270) (26,687) (26,957) Partners' deficit at September 30, 2000 $ (3,580) $(354,352) $(357,932) See Accompanying Notes to Consolidated Financial Statements EXHIBIT 99.1 (Continued) d) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Nine Months Ended September 30, 2000 1999 Cash flows from operating activities: Net loss $(26,957) $(11,516) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 3,788 4,088 Gain on sale of discontinued operations -- (16,690) Extraordinary loss on early extinguishment of debt 407 -- Gain on sale of investment property (3,024) -- Change in accounts: Receivables and deposits (947) (446) Other assets (5) (1,390) Accounts payable 21 (94) Tenant security deposit liabilities 17 (110) Accrued property taxes 455 619 Other liabilities (108) 499 Accrued interest on Master Loan 29,680 27,471 Net cash provided by operating activities 3,327 2,431 Cash flows from investing activities: Property improvements and replacements (2,945) (2,212) Proceeds from sale of investment property 4,526 21,900 Net receipts from restricted escrows 324 160 Lease commission paid -- (144) Net cash provided by investing activities 1,905 19,704 Cash flows from financing activities: Principal payments on Master Loan (4,708) (20,153) Principal payments on notes payable (238) (223) Proceeds from refinancing 24,325 -- Payoff of mortgage notes payable (6,053) -- Debt extinguishment cost (251) -- Loan cost paid (726) -- Net cash provided by (used in) financing activities 12,349 (20,376) Net increase in cash and cash equivalents 17,581 1,759 Cash and cash equivalents at beginning of period 2,865 1,992 Cash and cash equivalents at end of period $ 20,446 $ 3,751 Supplemental disclosure of cash flow information: Cash paid for interest $ 3,216 $ 3,930 See Accompanying Notes to Consolidated Financial Statements
e) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note A - Going Concern The Partnership's financial statements have been prepared assuming that the Partnership will continue as a going concern. The Partnership continues to incur operating losses, suffers from inadequate liquidity, has an accumulated deficit and is unable to repay the Master Loan balance, which matures in November 2000. The Partnership realized a net loss of approximately $26,957,000 for the nine months ended September 30, 2000. The General Partner expects the Partnership to continue to incur such losses from operations. The Partnership generated cash from operations of approximately $3,327,000 during the nine months ended September 30, 2000; however, this was primarily the result of accruing interest of approximately $29,680,000 on its Master Loan indebtedness. The Partnership's indebtedness to CCIP under the Master Loan of approximately $359,812,000, including accrued interest, matures in November 2000. The Partnership has not received notice as to the maturity of the Master Loan. The holder of the note has two options, which include foreclosing on the properties that collateralize the Master Loan or extending the term of the note. Currently, the Partnership does not have the means with which to satisfy this obligation. No other sources of additional financing have been identified by the Partnership, nor does the General Partner have any other plans to remedy the liquidity problems the Partnership is currently experiencing. At September 30, 2000, partners' deficit was approximately $357,932,000. The General Partner expects revenues from the ten investment properties will be sufficient over the next twelve months to meet all property operating expenses, mortgage debt service requirements and capital expenditure requirements. However, these cash flows will be insufficient to repay to CCIP the Master Loan balance, including accrued interest, in the event it is not renegotiated. As a result of the above, there is substantial doubt about the Partnership's ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classifications of liabilities that may result from these uncertainties. Note B - Basis of Presentation The accompanying unaudited consolidated financial statements of Consolidated Capital Equity Partners, L.P. ("CCEP" or the "Partnership") have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of ConCap Holdings, Inc. (the "General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2000, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2000. Certain reclassifications have been made to the 1999 information to conform to the 2000 presentation. Consolidation As of December 31, 1998, CCEP owned a 75% interest in a limited partnership ("Western Can, Ltd.") which owned 444 De Haro, an office building in San Francisco, California. No minority interest liability was reflected, as of December 31, 1998, for the 25% minority interest because Western Can, Ltd. had a net capital deficit and no minority liability existed with respect to CCEP. In May 1999, a limited partner in Western Can, Ltd. withdrew in connection with a settlement with CCEP pursuant to which the partner was paid $1,350,000 by CCEP. This settlement effectively terminated Western Can Ltd. as CCEP became the sole limited partner. CCEP's investment in Western Can, Ltd. is consolidated in CCEP's financial statements. In September 1999, 444 DeHaro was sold (see "Note D - Discontinued Segment"). Note C - Transfer of Control Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust merged into Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the General Partner. The General Partner does not believe that this transaction has had or will have a material effect on the affairs and operations of the Partnership. Note D - Discontinued Segment In September 1999, 444 De Haro located in San Francisco, California was sold to an unaffiliated third party for approximately $23,250,000. In conjunction with the sale, a fee of approximately $698,000 was accrued to the General Partner in accordance with the Partnership Agreement. This fee was paid in 2000. After payment of closing costs and the fee to the General Partner, the net proceeds received by the Partnership were approximately $21,900,000. The sale of the property resulted in a gain on sale of discontinued operations of approximately $16,690,000 after writing off the undepreciated value of the property and CCEP's investment in Western Can, Ltd (as discussed above). As required by the terms of the Master Loan Agreement (see Note F), the Partnership remitted $20,000,000 of the net sale proceeds to CCIP during the nine months ended September 30, 1999. 444 DeHaro was the only remaining property in the commercial segment of the Partnership. Due to the sale of this property, the results of operations of the property have been classified as "(Loss) Income from Discontinued Operations" for the three and nine months ended September 30, 1999. Revenues from 444 DeHaro were approximately $261,000 and $1,279,000 for the three and nine months ended September 30, 1999. No revenues from 444 DeHaro were recorded during the three or nine months ended September 30, 2000. Note E - Related Party Transactions The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for (i) certain payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were made to the General Partner and affiliates during the nine months ended September 30, 2000 and 1999: 2000 1999 (in thousands) Property management fees (included in operating expenses) $ 744 $ 725 Investment advisory fees (included in general and administrative expense) 134 134 Reimbursement for services of affiliates (included in operating, general and administrative expenses and investment properties) 369 279 Due to affiliates (included in other liabilities) 73 -- During the nine months ended September 30, 2000 and 1999, affiliates of the General Partner were entitled to receive 5% of gross receipts from the Partnership's residential properties for providing property management services. The Partnership paid to such affiliates approximately $744,000 and $725,000 for the nine months ended September 30, 2000 and 1999, respectively. The Partnership is also subject to an Investment Advisory Agreement between the Partnership and an affiliate of the General Partner. This agreement provides for an annual fee, payable in monthly installments, to an affiliate of the General Partner for advising and consulting services for CCEP's properties. The Partnership paid to such affiliates approximately $134,000 for both the nine months ended September 30, 2000 and 1999. An affiliate of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $369,000 and $279,000 for the nine months ended September 30, 2000 and 1999, respectively. At September 30, 2000, approximately $73,000 of the current year expense was accrued and is included in other liabilities in the accompanying consolidated balance sheet. 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 (the "Master Loan"), which is described more fully in the 1999 annual report. Such interest payments totaled approximately $2,744,000 for the nine months ended September 30, 1999 and approximately $2,000,000 for the nine months ended September 30, 2000. There were no advances on the Master Loan during the nine months ended September 30, 2000 or 1999. During the nine months ended September 30, 2000 CCEP paid approximately $4,708,000 to CCIP as principal payments on the Master Loan. Approximately $182,000 was from cash received on certain investments by CCEP, which are required to be transferred to CCIP as per the Master Loan Agreement and the remaining, $4,526,000 resulted from the receipt of net proceeds from the sale of Shirewood Townhomes (see "Note G"). During the nine months ended September 30, 1999, CCEP paid approximately $20,153,000 to CCIP as principal payments on the Master Loan. Approximately $153,000 was from cash received on certain investments by CCEP, which are required to be transferred to CCIP as per the Master Loan Agreement and the remaining, $20,000,000 resulted from the receipt of net proceeds from the sale of 444 De Haro. Note F - Master Loan and Accrued Interest Payable The Master Loan principal and accrued interest payable balances at September 30, 2000 and December 31, 1999, are approximately $359,812,000 and $334,840,000, respectively. Terms of Master Loan Agreement Under the terms of the Master Loan, 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%. Payments are currently payable quarterly in an amount equal to "Excess Cash Flow", generally defined in the Master Loan as net cash flow from operations after third-party debt service and capital expenditures. Any unpaid interest is added to principal, compounded annually, and is payable at the loan's maturity. Any net proceeds from the sale or refinancing of any of CCEP's properties are paid to CCIP under the terms of the Master Loan Agreement. The Master Loan Agreement matures in November 2000. The Partnership has not received notice as to the maturity of the Master Loan. The holder of the note has two options which include foreclosing on the properties that collateralize the Master Loan or extending the terms of the note. During the nine months ended September 30, 2000, CCEP paid approximately $4,708,000 to CCIP as principal payments on the Master Loan. Approximately $182,000 was from cash received on certain investments by CCEP, which are required to be transferred to CCIP as per the Master Loan Agreement and the remaining, $4,526,000 resulted from the receipt of net proceeds from the sale of Shirewood Townhomes. There were no advances on the Master Loan for the nine months ended September 30, 2000 or 1999. Subsequent to September 30, 2000, CCEP paid approximately $28,770,000 to CCIP as principal payments to the Master Loan in connection with the transaction discussed in Notes H and I below. Note G - Sale of Property On July 21, 2000 the Partnership sold Shirewood Townhomes, located in Shreveport, Louisiana, to an unaffiliated third party for net sales proceeds of approximately $4,526,000, after payment of closing costs. The Partnership used all of the proceeds from the sale of the property to pay down the Master Loan principal as required by the Master Loan Agreement. The sale resulted in a gain on sale of investment property of approximately $3,024,000. In conjunction with the sale, a fee of approximately $133,000 was paid to the General Partner in accordance with the Partnership Agreement. Note H - Refinancings/Financings and Extraordinary Loss On September 29, 2000, the Partnership refinanced the mortgage encumbering The Dunes Apartments. The refinancing replaced indebtedness of approximately $1,945,000 with a new mortgage in the amount of $4,120,000. The new mortgage carries a stated interest rate of 7.81%. Interest on the old mortgage was 6.95%. Principal and interest payments on the mortgage loan of approximately $34,000 are due monthly until the loan matures on February 1, 2010. Total capitalized loan costs were approximately $116,000 at September 30, 2000. The Partnership recognized an extraordinary loss on the early extinguishment of debt of approximately $134,000 due to the write-off of unamortized loan costs and a prepayment penalty. On September 29, 2000, the Partnership refinanced the mortgage encumbering Palm Lake Apartments. The refinancing replaced indebtedness of approximately $1,653,000 with a new mortgage in the amount of $3,000,000. The new mortgage carries a stated interest rate of 7.86%. Interest on the old mortgage was 6.95%. Principal and interest payments on the mortgage loan of approximately $25,000 are due monthly until the loan matures on February 1, 2010. Total capitalized loan costs were approximately $94,000 at September 30, 2000. The Partnership recognized an extraordinary loss on the early extinguishment of debt of approximately $118,000 due to the write-off of unamortized loan costs and a prepayment penalty. On September 29, 2000, the Partnership refinanced the mortgage encumbering Tates Creek Village Apartments. The refinancing replaced indebtedness of approximately $2,455,000 with a new mortgage in the amount of $4,225,000. The new mortgage carries a stated interest rate of 7.78%. Interest on the old mortgage was 6.95%. Principal and interest payments on the mortgage loan of approximately $35,000 are due monthly until the loan matures on April 1, 2010. Total capitalized loan costs were approximately $106,000 at September 30, 2000. The Partnership recognized an extraordinary loss on the early extinguishment of debt of approximately $155,000 due to the write-off of unamortized loan costs and a prepayment penalty. On September 29, 2000, the Partnership financed a mortgage encumbering Society Park Apartments. The mortgage debt totaled $5,330,000. The mortgage carries a stated interest rate of 7.80%. Principal and interest payments on the mortgage loan of approximately $44,000 are due monthly until the loan matures on February 1, 2010. Total capitalized loan costs were approximately $159,000 at September 30, 2000. On September 29, 2000, the Partnership financed a mortgage encumbering Regency Oaks Apartments. The mortgage debt totaled $7,650,000. The mortgage carries a stated interest rate of 7.80%. Principal and interest payments on the mortgage loan of approximately $63,000 are due monthly until the loan matures on February 1, 2010. Total capitalized loan costs were approximately $217,000 at September 30, 2000. Included in the loan costs capitalized associated with the above transactions was a 1% fee of approximately $243,000 paid to the General Partner in accordance with the terms of the Partnership Agreement. Note I - Subsequent Events On October 3, 2000, the Partnership refinanced the mortgage encumbering Plantation Gardens Apartments. The refinancing replaced indebtedness of approximately $6,704,000 with a new mortgage in the amount of $9,700,000. The new mortgage carries a stated interest rate of 7.83%. Interest on the old mortgage was 6.95%. Principal and interest payments on the mortgage loan of approximately $80,000 are due monthly until the loan matures on March 1, 2010. Total capitalized loan costs were approximately $229,000. The Partnership recognized an extraordinary loss on the early extinguishment of debt of approximately $428,000 due to the write-off of unamortized loan costs and a prepayment penalty during the fourth quarter of 2000. On October 3, 2000, the Partnership refinanced the mortgage encumbering Indian Creek Apartments. The refinancing replaced indebtedness of approximately $4,438,000 with a new mortgage in the amount of $8,750,000. The new mortgage carries a stated interest rate of 7.83%. Interest on the old mortgage was 6.95%. Principal and interest payments on the mortgage loan of approximately $72,000 are due monthly until the loan matures on January 1, 2010. Total capitalized loan costs were approximately $199,000. The Partnership recognized an extraordinary loss on the early extinguishment of debt of approximately $260,000 due to the write-off of unamortized loan costs and a prepayment penalty during the fourth quarter of 2000. On October 3, 2000, the Partnership financed a mortgage encumbering Silverado Apartments. The new mortgage is in the amount of $3,525,000. The new mortgage carries a stated interest rate of 7.87%. Principal and interest payments on the mortgage loan of approximately $29,000 are due monthly until the loan matures on November 1, 2010. Total capitalized loan costs were approximately $110,000. On October 11, 2000, the Partnership refinanced the mortgage encumbering The Knolls Apartments. The refinancing replaced indebtedness of approximately $5,116,000 with a new mortgage in the amount of $9,900,000. The new mortgage carries a stated interest rate of 7.78%. Interest on the old mortgage was 6.95%. Principal and interest payments on the mortgage loan of approximately $81,000 are due monthly until the loan matures on March 1, 2010. Total capitalized loan costs were approximately $228,000. The Partnership recognized an extraordinary loss on the early extinguishment of debt of approximately $315,000 due to the write-off of unamortized loan costs and a prepayment penalty during the fourth quarter of 2000. Included in the loan costs capitalized associated with the above transactions was a 1% fee of approximately $319,000 paid to the General Partner in accordance with the terms of the Partnership Agreement.