-----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, Lt/LA9npGL9N8RXKjyhmd25p6OLYqy5AI1+o4f1aZkYFAztE3JOfsUvylWR5Ycoj kL8c3ZRftFjOXe1hmolWow== 0000711642-02-000241.txt : 20020814 0000711642-02-000241.hdr.sgml : 20020814 20020814150755 ACCESSION NUMBER: 0000711642-02-000241 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 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: 02735420 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.txt CCIP UNITED STATES 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, 2002 [ ] 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 CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED BALANCE SHEETS (in thousands, except unit data)
June 30, December 31, 2002 2001 (Unaudited) (Note) Assets Cash and cash equivalents $ 1,086 $ 922 Receivables and deposits 363 488 Restricted escrows 417 392 Other assets 1,007 604 Investment in Master Loan to affiliate 26,430 26,430 Investment properties: Land 3,564 3,564 Building and related personal property 39,760 39,658 43,324 43,222 Less: Accumulated depreciation (17,455) (15,969) 25,869 27,253 $ 55,172 $ 56,089 Liabilities and Partners' Capital Liabilities Accounts payable $ 126 $ 126 Tenant security deposit liabilities 514 566 Accrued property taxes 46 -- Other liabilities 668 603 Mortgage notes payable 26,285 26,457 27,639 27,752 Partners' Capital General partner 119 123 Limited partners (199,045.2 units issued and outstanding) 27,414 28,214 27,533 28,337 $ 55,172 $ 56,089 Note: The balance sheet at December 31, 2001 has been derived from the audited consolidated financial statements at that date, but does not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per unit data)
Three Months Ended Six Months Ended June 30, June 30, 2002 2001 2002 2001 Rental income $ 2,679 $ 2,797 $ 5,387 $ 5,602 Interest income on investment in Master Loan to affiliate 386 804 386 2,704 Reduction of provision for impairment loss -- -- -- 3,176 Other income 184 233 405 503 Total revenues 3,249 3,834 6,178 11,985 Operating 1,127 1,308 2,372 2,612 General and administrative 237 372 389 543 Depreciation 767 775 1,486 1,550 Interest 471 462 934 947 Property taxes 208 209 416 419 Total expenses 2,810 3,126 5,597 6,071 Net income $ 439 $ 708 $ 581 $ 5,914 Net income allocated to general partner (1%) $ 4 $ 7 $ 6 $ 59 Net income allocated to limited partners (99%) 435 701 575 5,855 Net income $ 439 $ 708 $ 581 $ 5,914 Net income per limited partnership unit $ 2.19 $ 3.52 $ 2.89 $ 29.42 Distributions per limited partnership unit $ 4.64 $ 16.53 $ 6.91 $ 55.55 See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' 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' 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 Partners' capital at December 31, 2001 199,045.2 $ 123 $ 28,214 $ 28,337 Distributions to partners -- (10) (1,375) (1,385) Net income for the six months ended June 30, 2002 -- 6 575 581 Partners' capital at June 30, 2002 199,045.2 $ 119 $ 27,414 $ 27,533 See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Six Months Ended June 30, 2002 2001 Cash flows from operating activities: Net income $ 581 $ 5,914 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,514 1,615 Reduction of provision for impairment loss -- (3,176) Change in accounts: Receivables and deposits 125 736 Other assets (431) (340) Accounts payable -- 84 Tenant security deposit liabilities (52) (27) Accrued property taxes 46 49 Other liabilities 65 (126) Net cash provided by operating activities 1,848 4,729 Cash flows from investing activities: Net (deposits to) receipts from restricted escrows (25) 139 Property improvements and replacements (102) (87) Principal receipts on Master Loan to affiliate -- 7,484 Net cash (used in) provided by investing activities (127) 7,536 Cash flows from financing activities: Distributions to partners (1,385) (11,090) Payments on mortgage notes payable (172) (143) Net cash used in financing activities (1,557) (11,233) Net increase in cash and cash equivalents 164 1,032 Cash and cash equivalents at beginning of period 922 2,036 Cash and cash equivalents at end of period $ 1,086 $ 3,068 Supplemental disclosure of cash flow information: Cash paid for interest $ 905 $ 917 See Accompanying Notes to Consolidated Financial Statements
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"), which is a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended June 30, 2002 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2002. 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, 2001. Segment Reporting: Statement of Financial Accounting Standards ("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 D" for detailed disclosure of the Partnership's segments). Reclassifications: Certain reclassifications have been made to the 2001 information to conform to the 2002 presentation. These reclassifications had no impact on net income or partners' capital as previously reported. 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. 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 $286,000 and $310,000 for the six months ended June 30, 2002 and 2001, respectively, which is included in operating expenses. An affiliate of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $225,000 and $251,000 for the six months ended June 30, 2002 and 2001, respectively, which is included in general administrative expenses. Beginning in 2001, the Partnership began insuring its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the General Partner. During the six months ended June 30, 2002 and 2001, the Partnership was charged by AIMCO and its affiliates approximately $98,000 and $60,000, respectively, for insurance coverage and fees associated with policy claims administration. 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"). The loans were made to, and the real properties that secure the Master Loan were purchased and are owned by CCEP. At June 30, 2002, the recorded investment in the Master Loan is 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, 2002 and 2001, the Partnership recorded approximately $386,000 and $2,704,000, 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 all of the collateral properties which on a combined basis secure the Master Loan, was determined by obtaining an appraisal by an independent third party or by using the net operating income of all of the collateral properties capitalized at a rate deemed reasonable for the type of property adjusted for market conditions, the physical condition of each property and other factors less the value of the first mortgage loans held on each property which are superior to the Master Loan. 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 $3,176,000 reduction 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 of the Master Loan from the sales proceeds of Magnolia Trace in January 2001. There was no change in the provision for impairment loss during the six months ended June 30, 2002. The General Partner evaluates the net realizable value on a semi-annual basis or as circumstance dictate that it should be analyzed. The principal balance of the Master Loan due to the Partnership totaled approximately $26,430,000 at June 30, 2002. 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 $23,528,000 and $18,446,000 for the six months ended June 30, 2002 and 2001, respectively. Interest income is recognized on the cash basis as required by SFAS 114. At June 30, 2002 and December 31, 2001, such cumulative unrecognized interest totaling approximately $368,166,000 and $345,024,000 was not included in the balance of the investment in Master Loan. In addition, all of the collateral properties are encumbered by first mortgages totaling approximately $54,184,000 which are senior 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, 2002, the Partnership did not receive any principal payments on the Master Loan. During the six months ended June 30, 2001, the Partnership received approximately $7,484,000, 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 additional proceeds from the refinancing of the mortgages encumbering nine of the investment properties in 2000. Approximately $72,000 was received during the six months ended June 30, 2001 representing cash received on certain investments held by CCEP, which are required to be transferred to the Partnership per the Master Loan Agreement. Terms of the Master Loan Agreement The Master Loan matured in November 2000. The General Partner had been negotiating with CCEP with respect to its options which included foreclosing on the properties which collateralize the Master Loan or extending the terms of the loan. The General Partner has decided to foreclose on the properties that collateralize the Master Loan. The General Partner began the process of foreclosure or executing deeds in lieu of foreclosure during the second quarter of 2002 on all the properties in CCEP. As the deeds are executed, title in the properties currently owned by CCEP will be transferred to the Partnership, subject to the existing liens on such properties, including the first mortgage loans. As a result, the Partnership will become responsible for the operations of such properties. Subsequent to June 30, 2002 deeds in lieu of foreclosure were executed on four of the properties in CCEP. Note D - 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 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, 2001. 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 six months ended June 30, 2002 and 2001 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 segments.
For the three months ended June 30, 2002 Residential Commercial Other Totals Rental income $ 2,396 $ 283 $ -- $ 2,679 Other income 157 26 1 184 Interest income on investment in Master Loan -- -- 386 386 Interest expense 414 57 -- 471 Depreciation 701 66 -- 767 General and administrative expense -- -- 237 237 Segment profit 392 (103) 150 439
For the six months ended June 30, 2002 Residential Commercial Other Totals Rental income $ 4,841 $ 546 $ -- $ 5,387 Other income 348 55 2 405 Interest income on investment in Master Loan -- -- 386 386 Interest expense 820 114 -- 934 Depreciation 1,399 87 -- 1,486 General and administrative expense -- -- 389 389 Segment profit 765 (183) (1) 581 Total assets 27,158 1,187 26,827 55,172 Capital expenditures 90 12 -- 102
For the three months ended June 30, 2001 Residential Commercial Other Totals Rental income $ 2,408 $ 389 $ -- $ 2,797 Other income 149 81 3 233 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 Other income 339 160 4 503 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
Note E - 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. (the "Nuanes action") 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. On July 20, 2001, Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed a fourth amended class and derivative action complaint. On September 12, 2001, the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the General Partner and affiliated defendants filed a demurrer to the fourth amended complaint, which was heard on December 11, 2001. On February 2, 2002, the Court served its order granting in part the demurrer. The Court has dismissed without leave to amend certain of the plaintiffs' claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a putative class comprised of all non-affiliated persons who own or have owned units in the partnerships. The General Partner and affiliated defendants oppose the motion. On April 29, 2002, the Court held a hearing on plaintiffs' motion for class certification and took the matter under submission after further briefing, as order by the court, was submitted by the parties. On July 10, 2002, the Court entered an order vacating the current trial date of January 13, 2003 (as well as the pre-trial and discovery cut-off dates) and stayed the case in its entirety through November 7, 2002 so that the parties can have an opportunity to discuss settlement. During the third quarter of 2001, a complaint (the "Heller action") was filed against the same defendants that are named in the Nuanes action, captioned Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed a first amended complaint. The first amended complaint in the Heller action is brought as a purported derivative action, and asserts claims for among other things breach of fiduciary duty; unfair competition; conversion, unjust enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a motion to consolidate the Heller action with the Nuanes action and stated that the Heller action was filed in order to preserve the derivative claims that were dismissed without leave to amend in the Nuanes action by the Court order dated July 10, 2001. On October 5, 2001, the General Partner and affiliated defendants moved to strike the first amended complaint in its entirety for violating the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer in the Nuanes action, or alternatively, to strike certain portions of the complaint based on the statute of limitations. Other defendants in the action demurred to the fourth amended complaint, and, alternatively, moved to strike the complaint. On December 11, 2001, the court heard argument on the motions and took the matters under submission. On February 4, 2002, the Court served notice of its order granting defendants' motion to strike the Heller complaint as a violation of its July 10, 2001 order in the Nuanes action. On March 27, 2002, the plaintiffs filed a notice appealing the order striking the complaint. The parties are currently in the midst of briefing that appeal. The General Partner does not anticipate that any costs, whether legal or settlement costs, associated with these cases 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 Apartments 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, 2002 and 2001: Average Occupancy Property 2002 2001 The Loft Apartments 92% 91% Raleigh, North Carolina The Sterling Apartment Homes 91% 95% The Sterling Commerce Center 55% 89% Philadelphia, Pennsylvania The decrease in occupancy at The Sterling Apartment Homes is due to the competitive market of the apartment industry in the Philadelphia area. The decrease in occupancy at The Sterling Commerce Center is due to the loss of a major tenant in December 2001. The Partnership is actively seeking a tenant to lease the space formerly occupied by this major tenant. Results of Operations The Partnership's net income for the six months ended June 30, 2002 was approximately $581,000 compared to net income of approximately $5,914,000 for the corresponding period in 2001. The Partnership recorded net income of approximately $439,000 for the three months ended June 30, 2002 compared to net income of approximately $708,000 for the corresponding period in 2001. The decrease in net income for the six months ended June 30, 2002 as compared to the six months ended June 30, 2001 is primarily due to the $3,176,000 reduction of the provision for impairment loss on the investment in the Master Loan recognized during the six months ended June 30, 2001, and a decrease of approximately $2,318,000 in interest payments received and therefore recognized on the Master Loan. Interest income on investment in Master Loan 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. The reduction of the provision for impairment loss on the Master Loan was recognized due to an increase in the net realizable value of the collateral properties and the payment of principal on the Master Loan from the sales proceeds of Magnolia Trace during the six months ended June 30, 2001. The General Partner evaluates the net realizable value on a semi-annual basis or when circumstances dictate that it should be analyzed. Excluding the items related to the Master Loan, the Partnership's net income for the six months ended June 30, 2002 and 2001 was approximately $195,000 and $34,000, respectively. For the three months ended June 30, 2002 and 2001, the Partnership had net income of approximately $53,000 and a net loss of approximately $96,000, respectively. The increase in income for the three and six month periods ended June 30, 2002 is due to a decrease in total expenses which more than offset a decrease in total revenues. The decrease in total revenues is due to decreases in rental and other income. The decrease in rental revenue is due to a decrease in occupancy at The Sterling Commerce Center and The Sterling Apartment Homes and a decrease in average rental rates at The Loft Apartments. This was partially offset by an increase in occupancy at The Loft Apartments and an increase in average rental rates at The Sterling Commerce Center and The Sterling Apartment Homes. The decrease in other income is due to a decrease in interest income as a result of lower average cash balances in interest bearing accounts and decreases in cleaning and damage fees, corporate housing revenue and parking income partially offset by an increase in vending income at The Sterling Apartment Homes. Total expenses decreased for the three and six month periods ended June 30, 2002 due to decreases in operating, depreciation and general and administrative expenses. Operating expenses decreased primarily due to a decrease in utility and maintenance expenses at The Sterling Commerce Center and The Sterling Apartment Homes. These decreases were partially offset by increased insurance expense at The Sterling Apartment Homes and Commerce Center. Depreciation expense decreased due to capital improvements and replacements becoming fully depreciated during the past year at The Sterling Commerce Center and The Sterling Apartment Homes. General and administrative expenses decreased for the three and six month periods ended June 30, 2002 due to a business privilege tax paid to the city of Philadelphia during the six months ended June 30, 2001, increased legal fees and a decrease 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. 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, 2002, the Partnership had cash and cash equivalents of approximately $1,086,000 compared to approximately $3,068,000 at June 30, 2001. Cash and cash equivalents increased approximately $164,000 since December 31, 2001 due to approximately $1,848,000 of cash provided by operating activities partially offset by approximately $1,557,000 and $127,000 of net cash used in financing and investing activities, respectively. Cash used in investing activities consisted of property improvements and replacement and net deposits to escrow accounts maintained by the mortgage lenders. Cash used in financing activities consisted of distributions to partners and 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 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 budgeted approximately $109,000 for capital improvements during 2002 consisting of floor covering replacements, water submetering and swimming pool improvements. During the six months ended June 30, 2002, the Partnership completed approximately $49,000 of capital improvements, consisting primarily of floor covering replacements and swimming pool improvements. These improvements were funded from operating cash flow and replacement reserves. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. The Sterling The Partnership budgeted approximately $1,670,000 for capital improvements during 2002 consisting primarily of window replacement and, to a lesser extent, appliance and floor covering replacements. During the six months ended June 30, 2002, the Partnership completed approximately $53,000 of capital improvements consisting primarily of parking area resurfacing, floor covering replacements and office computers. These improvements were funded from operating cash flow and replacement reserves. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. The additional capital improvements 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 $26,285,000 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 date. If the properties cannot be refinanced or sold for a sufficient amount, the Registrant may risk losing such properties through foreclosure. The Partnership distributed the following amounts during the six months ended June 30, 2002 and 2001 (in thousands, except per unit data):
Six Months Per Limited Six Months Per Limited Ended Partnership Ended Partnership June 30, 2002 Unit June 30, 2001 Unit Operations $ 999 $ 4.97 $ 3,323 $16.53 Surplus (1) 386 1.94 7,767 39.02 $1,385 $ 6.91 $11,090 $55.55
(1) Consists of receipt of principal and interest payments on the Master Loan from operations of the collateral properties. The Registrant's cash available for distribution is reviewed on a monthly 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 2002 or subsequent periods. Other In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 129,498 limited partnership units (the "Units") in the Partnership representing 65.06% of the outstanding Units at June 30, 2002. 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 acquire additional units of limited partnership interest in the Partnership in exchange for cash or a combination of cash and units in the operating partnership of AIMCO either through private purchases or tender offers. In this regard, on June 25, 2002, a tender offer by AIMCO Properties, L.P., to acquire any and all of the units not owned by affiliates of AIMCO for a purchase price of $166.00 per unit expired. Pursuant to this offer, AIMCO acquired 2,859 units during the quarter ended June 30, 2002. 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 voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. As a result of its ownership of 65.06% of the outstanding Units, AIMCO is in a position to control all voting decisions with respect to the Registrant. Although the General Partner owes fiduciary duties to the limited partners of the Partnership, the General Partner also owed fiduciary duties to AIMCO as its sole Stockholder. As a result, the duties of the General Partner, as managing general partner, to the Partnerships and its limited partners may come into conflict with the duties of the General Partner to AIMCO, as it sole stockholder. Critical Accounting Policies and Estimates The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the Partnership to make estimates and assumptions. The Partnership believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity. Impairment of Long-Lived Assets Investment properties are recorded at cost, less accumulated depreciation, unless considered impaired. If events or circumstances indicate that the carrying amount of a property may be impaired, the Partnership will make an assessment of its recoverability by estimating the undiscounted future cash flows, excluding interest charges, of the property. If the carrying amount exceeds the aggregate future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the fair value of the property. Real property investments are subject to varying degrees of risk. Several factors may adversely affect the economic performance and value of the Partnership's investment properties. These factors include changes in the national, regional and local economic climate; local conditions, such as an oversupply of multifamily properties; competition from other available multifamily property owners and changes in market rental rates. Any adverse changes in these factors could cause an impairment in the Partnership's assets. Revenue Recognition The Partnership generally leases apartment units for twelve-month terms or less. Rental income attributable to leases is recognized monthly as it is earned. The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Concessions are charged to income as incurred. CCEP Property Operations CCIP has decided to foreclose on the properties that collaterize the Master Loan. During the six months ended June 30, 2002, CCIP began the process of foreclosure or executing deeds in lieu of foreclosure. As the deeds are executed, title in the properties currently owned by CCEP will be vested in CCIP, subject to the existing liens on the properties including the first mortgage loans. Subsequent to June 30, 2002 deeds in lieu of foreclosure were executed on four of the properties in CCEP. When CCEP no longer has title to the properties, it will be dissolved. As a result of the decision to liquidate, CCEP changed its basis of accounting for its financial statements at March 31, 2002, to the liquidation basis of accounting. Consequently, assets have been valued at estimated net realizable value and liabilities are presented at their estimated settlement amounts. The valuation of assets and liabilities necessarily requires many estimates and assumptions and there are substantial uncertainties in carrying out the liquidation. The actual realization of assets and settlement of liabilities could be higher or lower than amounts indicated and is based upon estimates of the General Partner of CCEP as of the date of the consolidated financial statements. During the three months ended June 30, 2002, the change in net liabilities remained constant, but was affected by an increase in cash and cash equivalents, receivables and deposits, and the Master Loan and interest. The increase in cash and cash equivalents is primarily due to the operating cash generated by the Partnership's investment properties. The increase in receivables and deposits is primarily due to increase in tenant receivables at several of the Partnership's investment properties. The increase in the Master Loan is due to increases in interest payable due on the Master Loan. During the six months ended June 30, 2001, CCEP paid approximately $7,484,000 in principal payments on the Master Loan. These amounts were paid from the sales proceeds of one of CCEP's investment properties and on certain investments by CCEP, which are required to be transferred to the Partnership per the Master Loan Agreement. No principal payments were made during the six months ended June 30, 2002. Item 3. Quantitative and Qualitative Disclosures about Market Risk The Partnership is exposed to market risks associated with its Master Loan. Receipts (interest income) on the 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 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 affect the recognition of income, as income is only recognized to the extent of cash flow. Therefore, market risk factors do not affect the Partnership's results of operations as it relates to the Master 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, 2002, a 100 basis point 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, 2002. The interest rates represent the weighted-average rates. The fair value of the debt obligations approximated the recorded value as of June 30, 2002. Principal Amount by Expected Maturity Fixed Rate Debt Long-term Average Interest Debt Rate 6.80% (in thousands) 2002 $ 174 2003 371 2004 393 2005 4,320 2006 362 Thereafter 20,665 Total $ 26,285 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. (the "Nuanes action") 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. On July 20, 2001, Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed a fourth amended class and derivative action complaint. On September 12, 2001, the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the General Partner and affiliated defendants filed a demurrer to the fourth amended complaint, which was heard on December 11, 2001. On February 2, 2002, the Court served its order granting in part the demurrer. The Court has dismissed without leave to amend certain of the plaintiffs' claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a putative class comprised of all non-affiliated persons who own or have owned units in the partnerships. The General Partner and affiliated defendants oppose the motion. On April 29, 2002, the Court held a hearing on plaintiffs' motion for class certification and took the matter under submission after further briefing, as order by the court, was submitted by the parties. On July 10, 2002, the Court entered an order vacating the current trial date of January 13, 2003 (as well as the pre-trial and discovery cut-off dates) and stayed the case in its entirety through November 7, 2002 so that the parties can have an opportunity to discuss settlement. During the third quarter of 2001, a complaint (the "Heller action") was filed against the same defendants that are named in the Nuanes action, captioned Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed a first amended complaint. The first amended complaint in the Heller action is brought as a purported derivative action, and asserts claims for among other things breach of fiduciary duty; unfair competition; conversion, unjust enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a motion to consolidate the Heller action with the Nuanes action and stated that the Heller action was filed in order to preserve the derivative claims that were dismissed without leave to amend in the Nuanes action by the Court order dated July 10, 2001. On October 5, 2001, the General Partner and affiliated defendants moved to strike the first amended complaint in its entirety for violating the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer in the Nuanes action, or alternatively, to strike certain portions of the complaint based on the statute of limitations. Other defendants in the action demurred to the fourth amended complaint, and, alternatively, moved to strike the complaint. On December 11, 2001, the court heard argument on the motions and took the matters under submission. On February 4, 2002, the Court served notice of its order granting defendants' motion to strike the Heller complaint as a violation of its July 10, 2001 order in the Nuanes action. On March 27, 2002, the plaintiffs filed a notice appealing the order striking the complaint. The parties are currently in the midst of briefing that appeal. The General Partner does not anticipate that any costs, whether legal or settlement costs, associated with these cases 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 EXHIBIT 3.1 Certificate of Limited Partnership, as amended to date (Exhibit 3 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991, is incorporated herein by reference). EXHIBIT 3.2 Agreement of Limited Partnership, incorporated by reference to the Registration Statement of the Registrant (File No. 2-72384) filed April 23, 1981, as amended to date. EXHIBIT 3.3 Fee Owner's Limited Partnership Agreement dated November 14, 1990 (incorporated by reference to the 1990 Annual Report). EXHIBIT 99 Certification of Chief Executive Officer and Chief Financial Officer EXHIBIT 99.1 Consolidated Capital Equity Partners, L.P., unaudited financial statements for the six months ended June 30, 2002 and 2001. b. Reports on Form 8-K during the quarter ended June 30, 2002: 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/Thomas C. Novosel Thomas C. Novosel Senior Vice President and Chief Accounting Officer Date: August 14, 2002 Exhibit 99 Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report on Form 10-Q of Consolidated Capital Institutional Properties (the "Partnership"), for the quarterly period ended June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Patrick J. Foye, as the equivalent of the Chief Executive Officer of the Partnership, and Paul J. McAuliffe, as the equivalent of the Chief Financial Officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. /s/Patrick J. Foye Name: Patrick J. Foye Date: August 14, 2002 /s/Paul J. McAuliffe Name: Paul J. McAuliffe Date: August 14, 2002 This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Partnership for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. EXHIBIT 99.1 CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED June 30, 2002 and 2001 1 EXHIBIT 99.1 (Continued) PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED STATEMENT OF NET LIABILITIES IN LIQUIDATION (Unaudited) (in thousands) June 30, 2002 Assets Cash and cash equivalents $ 1,364 Receivables and deposits 302 Restricted escrows 516 Other assets 231 Investment in affiliated partnerships (Note F) 1,371 Investment properties 94,660 98,444 Liabilities Accounts payable 172 Tenant security deposit liabilities 444 Accrued property taxes 667 Other liabilities 551 Mortgage notes payable 54,184 Master Loan and interest payable 42,426 98,444 Net liabilities in liquidation $ -- See Accompanying Notes to Consolidated Financial Statements EXHIBIT 99.1 (Continued) b) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED BALANCE SHEET (in thousands) December 31, 2001 (Note) Assets Cash and cash equivalents $ 1,321 Receivables and deposits 280 Restricted escrows 615 Other assets 1,514 Investment properties: Land 6,904 Building and related personal property 80,399 87,303 Less accumulated depreciation (68,315) 18,988 $ 22,718 Liabilities and Partners' Deficit Liabilities Accounts payable $ 527 Tenant security deposit liabilities 440 Accrued property taxes 256 Other liabilities 564 Mortgage notes 54,834 Master loan and interest payable (Note C) 371,455 428,076 Partners' Deficit General partner (4,054) Limited partners (401,304) (405,358) $ 22,718 Note: The balance sheet at December 31, 2001 has been derived from the audited consolidated 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) c) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands)
Three Months Six Months Ended Ended March 31, June 30, June 30, 2002 2001 2001 (restated) (restated) Revenues: Rental income $ 3,877 $ 4,201 $ 8,324 Other income 494 472 894 Total revenues 4,371 4,673 9,218 Expenses: Operating 1,839 1,915 3,755 General and administrative 228 209 393 Depreciation 564 1,040 2,060 Property taxes 307 301 595 Interest 12,875 11,640 23,417 Total expenses 15,813 15,105 30,220 Loss from continuing operations (11,442) (10,432) (21,002) Loss from discontinued operations -- -- (35) Gain on sale of discontinued operations (Note D) -- -- 4,377 Net loss $(11,442) $(10,432) $(16,660) Net loss allocated to general partner (1%) $ (114) $ (104) $ (167) Net loss allocated to limited partners (99%) (11,328) (10,328) (16,493) $(11,442) $(10,432) $(16,660) See Accompanying Notes to Consolidated Financial Statements
d) Exhibit 99.1 (continued) CONSOLIDATED statement of changes in net liabilities in liquidation (Unaudited) (in thousands) Three Months Ended June 30, 2002 Net liabilities in liquidation at March 31, 2002 $ -- Changes in net liabilities in liquidation attributed to: Increase in cash and cash equivalents 159 Increase in receivables and deposits 78 Decrease in restricted escrows (109) Decrease in other assets (111) Decrease in accounts payable 142 Increase in tenant security deposit liabilities (4) Increase in accrued taxes (297) Decrease in other liabilities 176 Decrease in mortgage notes payable 327 Increase in Master Loan and interest payable (361) Net liabilities in liquidation at June 30, 2002 $ -- See Accompanying Notes to Consolidated Financial Statements 5 EXHIBIT 99.1 (Continued) e) 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, 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) Partners' deficit at December 31, 2001 $ (4,054) $(401,304) $(405,358) Net loss for the three months ended March 31, 2002 (114) (11,328) (11,442) Partners' deficit at March 31, 2002 $ (4,168) $(412,632) $(416,800) Adjustment to liquidation basis (Note E) 416,800 Net liabilities in liquidation of June 30, 2002 $ -- See Accompanying Notes to Consolidated Financial Statements EXHIBIT 99.1 (Continued) f) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Three Months Six Months Ended Ended March 31, June 30, 2002 2001 Cash flows from operating activities: Net loss $(11,442) $(16,660) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 604 2,178 Gain on sale of discontinued operations -- (4,377) Change in accounts: Receivables and deposits 56 94 Other assets (430) (34) Accounts payable 36 (206) Tenant security deposit liabilities -- 2 Accrued property taxes 114 351 Other liabilities 163 394 Accrued interest on Master Loan 11,769 18,446 Net cash provided by operating activities 870 188 Cash flows from investing activities: Property improvements and replacements (617) (1,324) Proceeds from sale of investment property -- 6,019 Net deposits to restricted escrows (10) (75) Net cash (used in) provided by investing activities (627) 4,620 Cash flows from financing activities: Principal payments on Master Loan -- (7,484) Principal payments on notes payable (323) (601) Loan costs paid (36) (89) Net cash used in financing activities (359) (8,174) Net decrease in cash and cash equivalents (116) (3,366) Cash and cash equivalents at beginning of period 1,321 5,894 Cash and cash equivalents at end of period $ 1,205 $ 2,528 Supplemental disclosure of cash flow information: Cash paid for interest $ 1,068 $ 5,521 See Accompanying Notes to Consolidated Financial Statements
g) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note A - Going Concern On March 31, 2002, Consolidated Capital Equity Partners, L.P. ("the Partnership" or "CCEP") adopted the liquidation basis of accounting due to the Partnership receiving notification from Consolidated Capital Investment Partners, L.P. ("CCIP"), the holder of the nonrecourse note ("Master Loan") and a related party, of its intention to exercise its remedy under the Master Loan agreement and to foreclose or to execute a deed in lieu of foreclosure on the investment properties held by the Partnership. The Master Loan matured in November 2000. The Partnership does not have the means to satisfy its obligation under the Master Loan. No other sources of additional financing have been identified by the Partnership, nor does ConCap Holdings, Inc. (the "General Partner") have any other plans to remedy the liquidity problems the Partnership is experiencing. Upon completion of the foreclosures or execution of the deeds in lieu of foreclosure, the Partnership will cease to exist as a going concern, and it will be dissolved. Subsequent to June 30, 2002 deeds in lieu of foreclosure were executed on four of the properties in CCEP. The General Partner is ultimately owned by Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. As a result of the decision to liquidate the Partnership, the Partnership changed its basis of accounting for its consolidated financial statements at March 31, 2002, to the liquidation basis of accounting. Consequently, assets have been valued at estimated net realizable value and liabilities are presented at their estimated settlement amounts, including estimated costs associated with completing the liquidation and estimated operations of the investment properties. The valuation of assets and liabilities requires many estimates and assumptions. There are substantial uncertainties in completing the liquidation. The actual realization of assets and settlement of liabilities could be higher or lower than amounts indicated and is based upon estimates of the General Partners as of the date of the consolidated financial statements. 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. Affiliates of the General Partner are entitled to receive 5% of gross receipts from the Partnership's properties for providing property management services. The Partnership paid to such affiliates approximately $458,000 and $465,000 for the six months ended June 30, 2002 and 2001, respectively, which is included in operating expenses and loss from discontinued operations. 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 $115,000 for each of the six month periods ended June 30, 2002 and 2001, which is included in general and administrative expenses. An affiliate of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $264,000 and $232,000 for the six months ended June 30, 2002 and 2001, respectively, which is included in general and administrative expenses and investment properties. Included in these amounts are fees related to construction management services provided by an affiliate of the General Partner of approximately $47,000 and $30,000 for the six months ended June 30, 2002 and 2001, respectively. The construction management service fees are calculated based on a percentage of current year additions to investment properties. In connection with the sale of Magnolia Trace in January 2001, the Partnership paid the General Partner a fee of $206,000 in compensation for its role in the sale. This Partnership fee is included in gain on sale of discontinued operations. 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 which is described more fully in the 2001 annual report. Such interest payments totaled approximately $386,000 and $2,704,000 for the six months ended June 30, 2002 and 2001, respectively. There were no advances on the Master Loan during the six months ended June 30, 2002 or 2001. During the six months ended June 30, 2001 CCEP paid approximately $7,484,000 to CCIP as principal payments on the Master Loan. There were no principal payments made on the Master Loan during the six months ended June 30, 2002. Beginning in 2001, the Partnership began insuring its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the General Partner. During the six months ended June 30, 2002 and 2001, the Partnership was charged by AIMCO and its affiliates approximately $224,000 and $259,000, respectively, for insurance coverage and fees associated with policy claims administration. Note C - Master Loan and Accrued Interest Payable Prior to the adjustments for the liquidation basis, the Master Loan principal and accrued interest payable balances at June 30, 2002 and December 31, 2001, are approximately $394,597,000 and $371,455,000, respectively. Until the process of foreclosure or executing deeds in lieu of foreclosure on all the properties currently held by CCEP is completed, interest will accrue on the Master Loan 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, and compounded annually. 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 General Partner has been in negotiations with CCIP with respect to its options which include CCIP foreclosing on the properties in CCEP which collateralize the Master Loan or extending the terms of the Master Loan. CCIP has decided to foreclose on the properties that collaterize the Master Loan. CCIP began the process of executing deeds in lieu of foreclosure during the second quarter of 2002 on all the investment properties of the Partnership. As the deeds are executed, title in the properties currently owned by the Partnership will be vested in CCIP, subject to the existing liens on the properties including the first mortgage loans. Subsequent to June 30, 2002 deeds in lieu of foreclosure were executed on four of the properties in CCEP. When the Partnership no longer has title to the properties, it will be dissolved. During the six months ended June 30, 2002, CCEP did not make any principal payments on the Master Loan to CCIP. During the six months ended June 30, 2001, CCEP paid approximately $7,484,000 to CCIP as principal payments on the Master Loan. There were no advances on the Master Loan for the six months ended June 30, 2002 or 2001. Note D - Sale of Property Effective January 1, 2002, the Partnership adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which established standards for the way that public business enterprises report information about long-lived assets that are either being held for sale or have already been disposed of by sale or other means. The standard requires that results of operations for a long-lived asset that is being held for sale or has already been disposed of be reported as a discontinued operation on the statement of operations. As a result, the accompanying consolidated statements of operations have been restated as of January 1, 2001 to reflect the operations of Magnolia Trace as loss from discontinued operations. The Partnership recognized a loss from discontinued operations for the six months ended June 30, 2001 of approximately $35,000 on revenues of approximately $39,000. 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 as a payment on the Master Loan principal as required by the Master Loan Agreement. The sale resulted in a gain on sale of discontinued operations 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. Note E - Adjustment to Liquidation Basis of Accounting At March 31, 2002, in accordance with the liquidation basis of accounting, assets were adjusted to their estimated net realizable value and liabilities were adjusted to their estimated settlement amount. The net adjustment required to convert to the liquidation basis of accounting was a decrease in net liabilities of approximately $416,800,000 which is included in the Statement of Changes in Partners' Deficit/Net Liabilities In Liquidation. The adjustments are summarized as follows: Increase in Net Assets (in thousands) Adjustment of book value of property and improvements to estimated net realizable value $ 75,868 Adjustment for estimated net realizable value of investment in affiliated partnerships 1,371 Adjustment of master loan and accrued interest to estimated settlement amount 341,159 Adjustment of other assets and liabilities, net (1,598) Decrease in net liabilities $416,800 Note F - Investment in Affiliated Partnerships The Partnership has investments in the following affiliated partnerships:
Estimated Ownership Net Realizable Partnership Type of Ownership Percentage Value Consolidated Capital Non-controlling Growth Fund General Partner 0.40% $ 47 Consolidated Capital Non-controlling Properties III General Partner 1.85% 27 Consolidated Capital Non-controlling Properties IV General Partner 1.85% 1,297 $1,371
Prior to the adoption of the liquidation basis of accounting, the Partnership did not recognize an investment in these affiliated partnerships in its consolidated financial statements as these investment balances had been reduced to zero as a result of the receipt of distributions from the affiliated partnerships in prior periods exceeding the investment balance of the Partnership. However, due to the adoption of the liquidation basis of accounting, the investments in these affiliated partnerships have been valued at their estimated fair value and included in the Consolidated Statement of Net Liabilities in Liquidation as of June 30, 2002. -----END PRIVACY-ENHANCED MESSAGE-----