-----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, I+5ujCtJeYMb+r27Bryy71jWCVB+8JUqH4UIw6PjKlscO0pSCdpxZrKvU86IKA54 7DUPM0nqgsheaDrri2nG7g== 0000711642-01-500130.txt : 20010810 0000711642-01-500130.hdr.sgml : 20010810 ACCESSION NUMBER: 0000711642-01-500130 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010809 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-10831 FILM NUMBER: 1701532 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: PO BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET 17TH FLOOR STREET 2: PO BOX 1089 CITY: DENVER STATE: CO ZIP: 80222 10-Q 1 ccip-ep.txt CCIPEP 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 June 30, 2001 [ ] 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)
June 30, December 31, 2001 2000 (Unaudited) (Note) Assets Cash and cash equivalents $ 3,068 $ 2,036 Receivables and deposits 150 886 Restricted escrows 314 453 Other assets 1,891 1,616 Investment in Master Loan 26,747 34,231 Less: Allowance for impairment loss -- (3,176) 26,747 31,055 Investment properties: Land 3,564 3,564 Building and related personal property 38,849 38,762 42,413 42,326 Less: accumulated depreciation (14,539) (12,989) 27,874 29,337 $ 60,044 $ 65,383 Liabilities and Partners' Capital Liabilities Accounts payable $ 273 $ 189 Tenant security deposit liabilities 648 675 Accrued property taxes 49 -- Other liabilities 615 741 Mortgage notes payable 26,619 26,762 28,204 28,367 Partners' Capital General partner 144 118 Limited partners (199,045.2 units issued and outstanding) 31,696 36,898 31,840 37,016 $ 60,044 $ 65,383 Note: The balance sheet at December 31, 2000, 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 in the United States 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 Six Months Ended June 30, June 30, 2001 2000 2001 2000 Rental income $ 2,797 $ 2,640 $ 5,602 $ 5,227 Interest income on investment in Master Loan 804 1,000 2,704 1,000 Reduction of provision for impairment loss -- -- 3,176 -- Interest income 18 101 59 215 Other income 215 222 444 367 Total revenues 3,834 3,963 11,985 6,809 Operating 1,308 1,147 2,612 2,308 General and administrative 372 199 543 299 Depreciation 775 767 1,550 1,505 Interest 462 480 947 959 Property taxes 209 143 419 286 Total expenses 3,126 2,736 6,071 5,357 Net income $ 708 $ 1,227 $ 5,914 $ 1,452 Net income allocated to general partner (1%) $ 7 $ 12 $ 59 $ 14 Net income allocated to limited partners (99%) 701 1,215 5,855 1,438 Net income $ 708 $ 1,227 $ 5,914 $ 1,452 Net income per limited partnership unit $ 3.52 $ 6.10 $ 29.42 $ 7.22 Distributions per limited partnership unit $ 16.53 $ 5.97 $ 55.55 $ 33.51 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, 1999 199,045.2 $ (58) $ 67,343 $ 67,285 Distributions to partners -- -- (6,670) (6,670) Net income for the six months ended June 30, 2000 -- 14 1,438 1,452 Partners' (deficit) capital at June 30, 2000 199,045.2 $ (44) $ 62,111 $ 62,067 Partners' capital at December 31, 2000 199,045.2 $ 118 $ 36,898 $ 37,016 Distributions to partners -- (33) (11,057) (11,090) Net income for the six months ended June 30, 2001 -- 59 5,855 5,914 Partners' capital at June 30, 2001 199,045.2 $ 144 $ 31,696 $ 31,840 See Accompanying Notes to Consolidated Financial Statements
d) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Six Months Ended June 30, 2001 2000 Cash flows from operating activities: Net income $ 5,914 $ 1,452 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,615 1,564 Reduction of provision for impairment loss (3,176) -- Change in accounts: Receivables and deposits 736 347 Other assets (340) (341) Accounts payable 84 83 Tenant security deposit liabilities (27) 47 Accrued property taxes 49 33 Other liabilities (126) (32) Net cash provided by operating activities 4,729 3,153 Cash flows from investing activities: Net receipts from restricted escrows 139 62 Property improvements and replacements (87) (1,242) Principal receipts on Master Loan 7,484 167 Net cash provided by (used in) investing activities 7,536 (1,013) Cash flows from financing activities: Distributions to partners (11,090) (6,670) Payments on mortgage notes payable (143) (146) Net cash used in financing activities (11,233) (6,816) Net increase (decrease) in cash and cash equivalents 1,032 (4,676) Cash and cash equivalents at beginning of period 2,036 11,175 Cash and cash equivalents at end of period $ 3,068 $ 6,499 Supplemental disclosure of cash flow information: Cash paid for interest $ 917 $ 931 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 six month periods ended June 30, 2001 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2001. 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, 2000. The General Partner is ultimately owned by Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. 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, Kennedy Boulevard Associates III, L.P. a Pennsylvania Limited Partnership, Kennedy Boulevard Associates IV, L.P. a Pennsylvania Limited Partnership 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 such partnerships and consolidation is appropriate. KBA-I, L.P. holds title to The Sterling Apartment Home and Commerce Center ("Sterling"). Segment Reporting: Statement of Financial Accounting Standards ("SFAS") SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" established standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also established standards for related disclosures about products and services, geographic areas, and major customers. See "Note F" for detailed disclosure of the Partnership's segments. Note B - 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 six months ended June 30, 2001 and 2000: 2001 2000 (in thousands) Property management fees (included in operating expenses) $ 310 $ 279 Reimbursement for services of affiliates (included in operating and general and administrative expenses and investment properties) 251 167 Affiliates of the General Partner are entitled to receive 5% of gross receipts from the Registrant's properties for providing property management services. The Registrant paid to such affiliates approximately $310,000 and $279,000 for the six months ended June 30, 2001 and 2000, respectively. An affiliate of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $251,000 and $167,000 for the six months ended June 30, 2001 and 2000, respectively. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 126,161 limited partnership units (the "Units") in the Partnership representing 63.38% of the outstanding Units as of June 30, 2001. 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 63.38% 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 its affiliation with the General Partner. Note C - 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 general partner of CCEP is an affiliate of the General Partner. The Partnership loaned funds to CCEP subject to a nonrecourse note with a participation interest (the "Master Loan"). At June 30, 2001, the recorded investment in the Master Loan was considered to be impaired under 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, as repayment of the loan is expected to be provided solely by the collateral. For the six months ended June 30, 2001 and 2000, the Partnership recorded approximately $2,704,000 and $1,000,000, respectively, of interest income based upon "Excess Cash Flow" (as defined in the terms of the New Master Loan Agreement) generated by CCEP and paid to the Partnership. The fair value of all of the collateral properties which on a combined basis secure the Master Loan, 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. The approximate reduction of $3,176,000 in the provision for impairment loss recognized during the six months ended June 30, 2001 is attributed to an increase in the net realizable value of the collateral properties and to the payment of principal on the Master Loan from the sales proceeds of Magnolia Trace. There was no change in the provision for impairment loss during the six months ended June 30, 2000. The General Partner evaluates the net realizable value on a semi-annual basis or as circumstances dictate that it should be analyzed. 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 $18,446,000 and $20,210,000 for the six months ended June 30, 2001 and 2000, respectively. Interest income is recognized on the cash basis as required by SFAS 114. At June 30, 2001 and December 31, 2000, such cumulative unrecognized interest totaling approximately $324,708,000 and $306,262,000 was not included in the balance of the investment in Master Loan. All of the collateral properties are collateralized by first mortgages totaling approximately $55,459,000 which are superior to the Master Loan. Accordingly, this fact has been taken into consideration in determining the fair value of the Master Loan. During the six months ended June 30, 2001 and 2000, the Partnership received approximately $7,484,000 and $167,000 respectively, in principal payments on the Master Loan. During the six months ended June 30, 2001, approximately $5,987,000 was received representing net proceeds from the sale of Magnolia Trace and approximately $1,425,000 was received representing refinancing proceeds, which are required to be paid to the Partnership as principal payments on the Master Loan as per the terms of the Master Loan Agreement. Approximately $72,000 and $167,000 for the six months ended June 30, 2001 and 2000 respectively, represents cash received on certain investments held by CCEP, which are required to be transferred to the Partnership per the Master Loan Agreement. Note D - 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. 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 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 E - Distributions During the six months ended June 30, 2001, distributions from surplus cash of approximately $7,767,000 were paid to the limited partners ($39.02 per limited partnership unit) and distributions of approximately $3,323,000 (approximately $3,290,000 paid to the limited partners or $16.53 per limited partnership unit) were paid from operations. During the six months ended June 30, 2000, the Partnership paid approximately $6,670,000 in distributions from surplus cash to the limited partners ($33.51 per limited partnership unit). Included in the amounts at June 30, 2001 and 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. Subsequent to June 30, 2001, the Partnership declared and paid a distribution from operations of approximately $2,238,000 (approximately $2,216,000 paid to the limited partners or $11.13 per limited partnership unit) and a distribution from surplus cash of approximately $452,000 to the limited partners ($2.27 per limited partnership unit). Note F - 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 consist 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, 2000. 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 six months ended June 30, 2001 and 2000 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.
For the three months ended June 30, 2001 Residential Commercial Other Totals Rental income $ 2,408 $ 389 $ -- $ 2,797 Interest income 13 2 3 18 Other income 136 79 -- 215 Interest income on investment in Master Loan -- -- 804 804 Interest expense 422 40 -- 462 Depreciation 751 24 -- 775 General and administrative expense -- -- 372 372 Segment profit 199 74 435 708
For the six months ended June 30, 2001 Residential Commercial Other Totals Rental income $ 4,815 $ 787 $ -- $ 5,602 Interest income 48 7 4 59 Other income 291 153 -- 444 Interest income on investment in Master Loan -- -- 2,704 2,704 Reduction of provision for impairment loss -- -- 3,176 3,176 Interest expense 832 115 -- 947 Depreciation 1,503 47 -- 1,550 General and administrative expense -- -- 543 543 Segment profit 437 136 5,341 5,914 Total assets 29,755 1,681 28,608 60,044 Capital expenditures 62 25 -- 87
For the three months ended June 30, 2000 Residential Commercial Other Totals Rental income $ 2,253 $ 387 $ -- $ 2,640 Interest income 33 13 55 101 Other income 166 56 -- 222 Interest income on investment in Master Loan -- -- 1,000 1,000 Interest expense 421 59 -- 480 Depreciation 745 22 -- 767 General and administrative expense -- -- 199 199 Segment profit 262 109 856 1,227
For the six months ended June 30, 2000 Residential Commercial Other Totals Rental income $ 4,463 $ 764 $ -- $ 5,227 Interest income 42 14 159 215 Other income 256 111 -- 367 Interest income on investment in Master Loan -- -- 1,000 1,000 Interest expense 841 118 -- 959 Depreciation 1,463 42 -- 1,505 General and administrative expense -- -- 299 299 Segment profit 372 220 860 1,452 Total assets 32,490 1,713 56,232 90,435 Capital expenditures 1,223 19 -- 1,242
Note G - Legal Proceedings In March 1998, several putative unitholders 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, among other things, 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; management of the partnerships by the Insignia affiliates; and the series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO. 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 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 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 and an appeal was taken from the order on October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the putative class. Plaintiffs filed a third amended complaint on January 19, 2001. On March 2, 2001, the General Partner and its affiliates filed a demurrer to the third amended complaint. On May 14, 2001, the Court heard the demurrer to the third amended complaint. On July 10, 2001, the Court issued an order sustaining defendants' demurrer on certain grounds. Plaintiffs have until August 16, 2001 to file a fourth amended complaint. The General Partner does not anticipate that any costs, whether legal or settlement 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 six months ended June 30, 2001 and 2000: Average Occupancy Property 2001 2000 The Loft Apartments 91% 93% Raleigh, North Carolina The Sterling Apartment Homes 95% 92% The Sterling Commerce Center 89% 89% Philadelphia, Pennsylvania The increase in occupancy at The Sterling Apartment Homes is attributed to a major renovation project which was performed at the property during the past year which improved the curb appeal of the property. Results of Operations The Partnership's net income for the six months ended June 30, 2001 was approximately $5,914,000 compared to net income of approximately $1,452,000 for the corresponding period in 2000. The Partnership recorded net income of approximately $708,000 for the three months ended June 30, 2001 compared to net income of approximately $1,227,000 for the corresponding period in 2000. The increase in net income for the six months ended June 30, 2001 as compared to the six months ended June 30, 2000 is primarily due to the $3,176,000 reduction of the provision for impairment loss on the investment in the Master Loan and an increase of $1,704,000 in interest payments received and therefore recognized on the Master Loan. Each of these factors was caused by improved operations at the collateral properties due to major capital projects and the concerted effort to complete deferred maintenance items that have been ongoing over the past few years. 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 order to fund such improvements. Excluding the items related to the Master Loan, the Partnership's net income for the six months ended June 30, 2001 and 2000 was approximately $34,000 and $452,000, respectively. For the three months ended June 30, 2001 and 2000, the Partnership had a net loss of approximately $96,000 and net income of approximately $227,000, respectively. The decrease in income for the three and six month periods is due to an increase in total expenses which more than offset an increase in total revenues. Total expenses increased for the three and six months ended June 30, 2001 due to increases in operating, property tax, depreciation, and general and administrative expenses. Operating expenses increased due to an increase in utility expense, primarily natural gas, at The Sterling and to increases in salary and other benefits at both investment properties. Property tax expense increased due to a reassessment by the taxing authorities at the Loft and The Sterling which increased the assessed values of the properties due to recent renovations at each property. Depreciation increased due to an increase in capital improvements at The Sterling. General and administrative expenses increased for the three and six months ended June 30,2001 due to a business privilege tax paid to the city of Philadelphia and an increase in the costs of services included in the management reimbursements to the General Partner allowed under the Partnership Agreement. In addition to these reimbursements, 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. The increase in total revenues for the six months ended June 30, 2001 is due to an increase in interest income related to the Master Loan and to increases in rental revenue and other income, partially offset by a decrease in interest income. The increase in rental revenue was due to an increase in average rental rates at both of the Partnership's properties and an increase in occupancy at The Sterling and Apartment Homes, offset by a decrease in occupancy at The Loft Apartments. The increase in other income for the six months ended June 30, 2001 is due to increases in utility reimbursements, cleaning and damage fees, and corporate housing revenue at The Sterling Commerce Center and Apartment Homes. Interest income decreased due to the release of the working capital reserve requirement (See Note D to the consolidated financial statements) which resulted in lower average cash balances in interest bearing accounts. 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 June 30, 2001, the Partnership had cash and cash equivalents of approximately $3,068,000 as compared to approximately $6,499,000 at June 30, 2000. Cash and cash equivalents increased approximately $1,032,000 for the six months ended June 30, 2001 from December 31, 2000. This increase was primarily due to approximately $4,729,000 and $7,536,000 of cash provided by operating and investing activities, respectively, which was offset by approximately $11,233,000 of cash used in financing activities. Cash provided by investing activities consisted of principal repayments received on the Master Loan and net receipts from escrow accounts maintained by the mortgage lender slightly offset by property improvements and replacements. Cash used in financing activities consisted primarily of distributions to partners and, to a lesser extent, principal payments made on the mortgages encumbering the Registrant's properties. The Registrant invests its working capital reserves in interest bearing accounts. 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 $51,000 for capital improvements during 2001 consisting of floor covering and window dressing replacements, air conditioning units and water heaters. During the six months ended June 30, 2001, the Partnership completed approximately $46,000 of capital improvements, consisting primarily of the aforementioned budgeted improvements. These improvements were funded from operations and replacement reserves. The Sterling The Partnership has budgeted, but is not limited to, approximately $1,714,000 for capital improvements during the current year consisting of appliances, structural upgrades, interior decoration, recreational facility upgrades and floor covering replacements. During the six months ended June 30, 2001, the Partnership completed approximately $41,000 of capital improvements consisting primarily of interior decoration and floor covering replacements. These improvements were funded primarily from operating cash flow and replacement reserves. The additional capital improvements planned for 2001 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 $26,619,000 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. During the six months ended June 30, 2001, distributions from surplus cash of approximately $7,767,000 were paid to the limited partners ($39.02 per limited partnership unit) and distributions of approximately $3,323,000 (approximately $3,290,000 paid to the limited partners or $16.53 per limited partnership unit) were paid from operations. During the six months ended June 30, 2000, the Partnership paid approximately $6,670,000 in distributions from surplus cash to the limited partners ($33.51 per limited partnership unit). Included in the amounts at June 30, 2001 and 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. Subsequent to June 30, 2001, the Partnership declared and paid a distribution from operations of approximately $2,238,000 (approximately $2,216,000 paid to the limited partners or $11.13 per limited partnership unit) and a distribution from surplus cash of approximately $452,000 to the limited partners ($2.27 per limited partnership unit). 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 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 2001 or subsequent periods. CCEP Property Operations For the six months ended June 30, 2001, CCEP's net loss totaled approximately $16,660,000 on total revenues of approximately $13,634,000. 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 six months ended June 30, 2001 and 2000 CCEP's statements of operations include total interest expense attributable to the Master Loan of approximately $21,150,000 and $21,210,000, respectively, with all but approximately $2,704,000 and $1,000,000, respectively, representing 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 six months ended June 30, 2001, CCEP made approximately $7,484,000 in principal payments on the Master Loan. Approximately $5,987,000 represents net proceeds from the sale of Magnolia Trace, approximately $1,425,000 represents refinancing proceeds and approximately $72,000 represents amounts received on certain investments by CCEP, all of which are required to be transferred to the Partnership per the Master Loan Agreement. Item 3. Quantitative and Qualitative Disclosures about Market Risk The Partnership is exposed to market risks associated with its Master Loan to Affiliate ("Master Loan"). Receipts (interest income) on the Master Loan are based upon the operations and cash flow of the underlying investment properties that collateralize the Master 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 Master Loan. Based upon the fact that the Master 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 June 30, 2001, a 100 basis points increase or decrease in market interest rates would not have a material impact on the Partnership. The following table summarizes the Partnership's debt obligations at June 30, 2001. The interest rates represent the weighted-average rates. The fair value of the debt obligations approximate the recorded value as of June 30, 2001. Principal Amount by Expected Maturity Fixed Rate Debt Long-term Average Interest Debt Rate 6.86% (in thousands) 2001 $ 161 2002 346 2003 371 2004 393 2005 4,320 Thereafter 21,028 Total $26,619 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In March 1998, several putative unitholders 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, among other things, 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; management of the partnerships by the Insignia affiliates; and the series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO. 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 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 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 and an appeal was taken from the order on October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the putative class. Plaintiffs filed a third amended complaint on January 19, 2001. On March 2, 2001, the General Partner and its affiliates filed a demurrer to the third amended complaint. On May 14, 2001, the Court heard the demurrer to the third amended complaint. On July 10, 2001, the Court issued an order sustaining defendants' demurrer on certain grounds. Plaintiffs have until August 16, 2001 to file a fourth amended complaint. The General Partner does not anticipate that any costs, whether legal or settlement costs, associated with this case will be material to the Partnership's overall operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: S-K Reference Number Description 99.1 Consolidated Capital Equity Partners, L.P., unaudited financial statements for the six months ended June 30, 2001 and 2000. b) Reports on Form 8-K during the quarter ended June 30, 2001: None. 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. 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: August 9, 2001 EXHIBIT 99.1 CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED June 30, 2001 and 2000 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)
June 30, December 31, 2001 2000 (Unaudited) (Note) Assets Cash and cash equivalents $ 2,528 $ 5,894 Receivables and deposits 834 928 Restricted escrows 842 767 Other assets 1,670 1,634 Investment properties: Land 6,904 7,796 Building and related personal property 78,522 83,558 85,426 91,354 Less accumulated depreciation (67,274) (70,793) 18,152 20,561 $ 24,026 $ 29,784 Liabilities and Partners' Deficit Liabilities Accounts payable $ 204 $ 410 Tenant security deposit liabilities 487 485 Accrued property taxes 569 218 Other liabilities 980 586 Mortgage notes payable 55,459 56,060 Master loan and interest payable 351,455 340,493 409,154 398,252 Partners' Deficit General partner (3,852) (3,685) Limited partners (381,276) (364,783) (385,128) (368,468) $ 24,026 $ 29,784 Note: The balance sheet at December 31, 2000, 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 in the United States 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 Six Months Ended June 30, June 30, 2001 2000 2001 2000 Revenues: Rental income $ 4,201 $ 4,603 $ 8,351 $ 9,158 Other income 472 469 906 850 Gain on sale of investment property -- -- 4,377 -- Total revenues 4,673 5,072 13,634 10,008 Expenses: Operating 1,915 2,145 3,796 4,144 General and administrative 209 157 393 318 Depreciation 1,040 1,343 2,091 2,657 Interest 11,640 11,012 23,417 22,030 Property taxes 301 327 597 653 Total expenses 15,105 14,984 30,294 29,802 Net loss $(10,432) $ (9,912) $(16,660) $(19,794) Net loss allocated to general partner (1%) $ (104) $ (99) $ (167) $ (198) Net loss allocated to limited partners (99%) (10,328) (9,813) (16,493) (19,596) $(10,432) $ (9,912) $(16,660) $(19,794) 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, 1999 $(3,310) $(327,665) $ (330,975) Net loss for the six months ended June 30, 2000 (198) (19,596) (19,794) Partners' deficit at June 30, 2000 $(3,508) $(347,261) $(350,769) Partners' deficit at December 31, 2000 $(3,685) $(364,783) $(368,468) Net loss for the six months ended June 30, 2001 (167) (16,493) (16,660) Partners' deficit at June 30, 2001 $(3,852) $(381,276) $(385,128) 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)
Six Months Ended June 30, 2001 2000 Cash flows from operating activities: Net loss $(16,660) $(19,794) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 2,178 2,696 Gain on sale of investment property (4,377) -- Change in accounts: Receivables and deposits 94 (33) Other assets (34) 7 Accounts payable (206) (280) Tenant security deposit liabilities 2 40 Accrued property taxes 351 199 Other liabilities 394 (112) Accrued interest on Master Loan 18,446 20,210 Net cash provided by operating activities 188 2,933 Cash flows from investing activities: Property improvements and replacements (1,324) (2,015) Proceeds from sale of investment property 6,019 -- Net (deposits to) receipts from restricted escrows (75) 365 Net cash provided by (used in) investing activities 4,620 (1,650) Cash flows from financing activities: Principal payments on Master Loan (7,484) (167) Principal payments on mortgage notes payable (601) (158) Loan costs paid (89) -- Net cash used in financing activities (8,174) (325) Net increase in cash and cash equivalents (3,366) 958 Cash and cash equivalents at beginning of period 5,894 2,865 Cash and cash equivalents at end of period $ 2,528 $ 3,823 Supplemental disclosure of cash flow information: Cash paid for interest $ 5,521 $ 1,781 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 matured in November 2000. The Partnership realized a net loss of approximately $16,660,000 for the six months ended June 30, 2001. The General Partner expects the Partnership to continue to incur such losses from operations. The Partnership's indebtedness to Consolidated Capital Institutional Properties ("CCIP") under the Master Loan of approximately $351,455,000, including accrued interest, matured in November 2000. 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. If CCIP were to foreclose on the properties securing the Master Loan, title in the properties owned by the Partnership would be transferred to CCIP, subject to existing liens on such properties including the first mortgage loans. As a result, CCIP would become responsible for the operations of such properties. 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 June 30, 2001, partners' deficit was approximately $385,128,000. The general partner expects revenues from the nine 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, 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 six month periods ended June 30, 2001, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2001. The General Partner is ultimately owned by Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. 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 affiliates during the six months ended June 30, 2001 and 2000: 2001 2000 (in thousands) Property management fees (included in operating expenses) $ 465 $ 502 Investment advisory fees (included in general and administrative expenses) 115 90 Reimbursement for services of affiliates (included in operating and general and administrative expenses and investment properties) 232 179 Affiliates of the General Partner are entitled to receive 5% of gross receipts from the Partnership's investment properties for providing property management services. The Partnership paid to such affiliates approximately $465,000 and $502,000 for the six months ended June 30, 2001 and 2000, respectively. The Partnership is 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 $115,000 and $90,000 for the six months ended June 30, 2001 and 2000, respectively. An affiliate of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $232,000 and $179,000 for the six months ended June 30, 2001 and 2000, respectively. In addition to the compensation and reimbursements described above, interest payments are made to and loan advances are received from CCIP pursuant to the Master Loan Agreement (the "Master Loan"), which is described more fully in the 2000 annual report. Such interest payments totaled approximately $2,704,000 for the six months ended June 30, 2001 and approximately $1,000,000 for the six months ended June 30, 2000. There were no advances on the Master Loan during the six months ended June 30, 2001 or 2000. During the six months ended June 30, 2001 and 2000, CCEP paid approximately $7,484,000 and $167,000, respectively, to CCIP as principal payments on the Master Loan. Note D - Master Loan and Accrued Interest Payable The Master Loan principal and accrued interest payable balances at June 30, 2001 and December 31, 2000, are approximately $351,455,000 and $340,493,000, 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 matured in November 2000. 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. If CCIP were to foreclose on its collateral, CCEP would no longer hold title to its properties and the Partnership would be dissolved. Note E - Sale of Property On January 19, 2001, the Partnership sold Magnolia Trace, located in Baton Rouge, Louisiana, to an unaffiliated third party for net sales proceeds of approximately $6,019,000, 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 $4,377,000. In conjunction with the sale, a fee of approximately $206,000 was paid to the General Partner in accordance with the Partnership Agreement. -----END PRIVACY-ENHANCED MESSAGE-----