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 March 31, 2003 [ ] 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___ Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 120-2 of the Exchange Act). Yes _____ No __X__ PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED BALANCE SHEETS (in thousands, except unit data)
March 31, December 31, 2003 2002 (Unaudited) (Note) Assets Cash and cash equivalents $ 1,212 $ 3,175 Receivables and deposits 270 493 Restricted escrows 1,112 1,114 Other assets 1,277 592 Investment in affiliated partnerships 987 894 Investment in Master Loan to affiliate 14,123 14,144 Investment properties: Land 14,272 14,272 Buildings and related personal property 68,162 67,805 82,434 82,077 Less: Accumulated depreciation (20,177) (19,158) 62,257 62,919 $ 81,238 $ 83,331 Liabilities and Partners' Capital Liabilities Accounts payable $ 500 $ 176 Tenant security deposit liabilities 682 689 Accrued property taxes 226 326 Other liabilities 1,210 1,408 Mortgage notes payable 52,353 52,649 54,971 55,248 Partners' Capital General partner 123 125 Limited partners (199,043.2 units issued and outstanding) 26,144 27,958 26,267 28,083 $ 81,238 $ 83,331 Note: The consolidated balance sheet at December 31, 2002 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per unit data)
Three Months Ended March 31, 2003 2002 Revenues: Rental income $ 4,058 $ 2,708 Other income 314 221 Total revenues 4,372 2,929 Expenses: Operating 2,093 1,245 General and administrative 258 152 Depreciation 1,019 719 Interest 912 463 Property taxes 263 208 Total expenses 4,545 2,787 (Loss) income from operations (173) 142 Equity income from investment 350 -- Net income $ 177 $ 142 Net income allocated to general partner (1%) $ 2 $ 1 Net income allocated to limited partners (99%) 175 141 $ 177 $ 142 Net income per limited partnership unit $ 0.88 $ 0.71 Distributions per limited partnership unit $ 9.99 $ 2.27 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, 2001 199,045.2 $ 123 $ 28,214 $ 28,337 Distributions to partners -- (5) (451) (456) Net income for the three months ended March 31, 2002 -- 1 141 142 Partners' capital at March 31, 2002 199,045.2 $ 119 $ 27,904 $ 28,023 Partners' capital at December 31, 2002 199,043.2 $ 125 $ 27,958 $ 28,083 Distributions to partners -- (4) (1,989) (1,993) Net income for the three months ended March 31, 2003 -- 2 175 177 Partners' capital at March 31, 2003 199,043.2 $ 123 $ 26,144 $ 26,267 See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Three Months Ended March 31, 2003 2002 Cash flows from operating activities: Net income $ 177 $ 142 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,019 719 Amortization of loan costs, lease commissions and mortgage premiums (18) 19 Equity income from investment (350) -- Change in accounts: Receivables and deposits 229 190 Other assets (694) (677) Accounts payable 324 37 Tenant security deposit liabilities (7) (28) Accrued property taxes (100) 23 Other liabilities (198) 180 Net cash provided by operating activities 382 605 Cash flows from investing activities: Net withdrawals from restricted escrows 2 2 Property improvements and replacements (357) (105) Principal receipts on Master Loan 15 -- Distributions from affiliated partnerships 258 -- Net cash used in investing activities (82) (103) Cash flows from financing activities: Distributions to partners (1,993) (456) Payments on mortgage notes payable (258) (89) Lease commissions, paid (12) -- Net cash used in financing activities (2,263) (545) Net decrease in cash and cash equivalents (1,963) (43) Cash and cash equivalents at beginning of period 3,175 922 Cash and cash equivalents at end of period $ 1,212 $ 879 Supplemental disclosure of cash flow information: Cash paid for interest $ 934 $ 449 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 ultimately owned by 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 three month period ended March 31, 2003 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2003. 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, 2002. 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 E" for detailed disclosure of the Partnership's segments). Note B - Net Investment in Master Loan The Partnership was initially 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 March 31, 2003, 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 three months ended March 31, 2003 and 2002 there was no interest income recorded by 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. There was no provision for impairment loss during the three months ended March 31, 2003 and 2002. The General Partner evaluates the net realizable value on a semi-annual basis or as circumstances dictate that it should be analyzed. 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 third quarter of 2002 on all the properties in CCEP. During August 2002, the General Partner executed deeds in lieu of foreclosure on four of the active properties of CCEP. In addition, one of the properties held by CCEP was sold in December 2002. The foreclosure process on the remaining four properties held by CCEP is ongoing. As the deeds were executed, title in the properties previously owned by CCEP were transferred to the Partnership, subject to the existing liens on such properties, including the first mortgage loans. As a result, the Partnership assumed responsibility for the operations of such properties. The results of operations of the foreclosed properties are reflected in the accompanying consolidated statements of operations for the period ending March 31, 2003. The principal balance of the Master Loan due to the Partnership totaled approximately $14,123,000 and $14,144,000 at March 31, 2003 and December 31, 2002, respectively. This amount represents the fair market value of the remaining properties held by CCEP, less the net liabilities owed by the properties. Interest, calculated on the accrual basis, due to the Partnership pursuant to the terms of the Master Loan Agreement, but not recognized in the income statements due to the impairment of the loan, totaled approximately $440,000, and $11,769,000 for the three months ended March 31, 2003 and 2002, respectively. Interest income is recognized on the cash basis as required by SFAS 114. At March 31, 2003 and December 31, 2002, such cumulative unrecognized interest totaling approximately $902,000 and $462,000 was not included in the balance of the investment in Master Loan. Cumulative unrecognized interest owed on the Master Loan of approximately $376,239,000 was forgiven by the Partnership during the third quarter of 2002. The remaining collateral properties are encumbered by first mortgages totaling approximately $23,139,000 as of March 31, 2003, which are senior to the Master Loan. This has been taken into consideration in determining the fair value of the Master Loan. During the three months ended March 31, 2003 and 2002, the Partnership made no advances to CCEP on the Master Loan. During the three months ended March 31, 2003 the Partnership received principal payments on the Master Loan of approximately $15,000 from escrows released by the mortgage lender of Society Park which was sold during 2002. No principal payments were received during the three months ended March 31, 2002. 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. 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 $234,000 and $143,000 for the three months ended March 31, 2003 and 2002, respectively, which is included in operating expenses. An affiliate of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $129,000 and $112,000 for the three months ended March 31, 2003 and 2002, respectively which is included in general and administrative expenses. The Partnership insures 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 2003 and 2002, the Partnership's cost for insurance coverage and fees associated with policy claims administration provided by AIMCO and its affiliates is approximately $212,000 and $256,000, respectively. Note D - Investment in Affiliated Partnerships
Ownership Investment Balance Partnership Type of Ownership Percentage March 31, 2003 Consolidated Capital Non-controlling Growth Fund General Partner 0.40% $ 40 Consolidated Capital Non-controlling Properties III General Partner 1.85% 24 Consolidated Capital Non-controlling Properties IV General Partner 1.85% 923 $ 987
These investments were assumed during the foreclosure of investment properties from CCEP (see "Note B") and are accounted for on the equity method of accounting. Distributions from the affiliated partnerships are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. When the investment balance has been reduced to zero, subsequent distributions received are recognized as income in the accompanying statements of operations. During the three months ended March 31, 2003, the Partnership received distributions of approximately $258,000 from two of the affiliated partnerships, of which approximately $243,000 related to the sale of a property in Consolidated Capital Growth Fund. Of this amount, approximately $236,000 was recognized as equity income in investment once the investment balance allocated to that property had been reduced to zero. The Partnership also recognized equity income in investment of approximately $114,000 related to the sale of a property in Consolidated Capital Properties IV. There were no distributions associated with this sale. Note E - 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 property. The Partnership's property segments consist of five apartment complexes one each in North Carolina, Texas, Colorado, Kansas, and Kentucky and one multiple use facility consisting of apartment units and commercial space in Pennsylvania. The Partnership rents apartment units to tenants for terms that are typically less than twelve months. The commercial property leases space to various medical offices, career service facilities, and retail shops at terms ranging from month to month to five years. Measurement of segment profit and 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 summary of significant accounting policies. Factors management used to identify the enterprise's reportable segment: The Partnership's reportable segments are business units (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 months ended March 31, 2003 and 2002 is shown in the tables below (in thousands). The "Other" Column includes partnership administration related items and income and expense not allocated to reportable segments.
2003 Residential Commercial Other Totals Rental income $ 3,800 $ 258 $ -- $ 4,058 Other income 287 27 -- 314 Interest expense 856 56 -- 912 Depreciation 977 42 -- 1,019 General and administrative expenses -- -- 258 258 Segment profit (loss) 203 (152) 126 177 Total assets 64,477 867 15,894 81,238 Capital expenditures for investment properties 340 17 -- 357
2002 Residential Commercial Other Totals Rental income $ 2,445 $ 263 $ -- $ 2,708 Other income 191 29 1 221 Interest expense 406 57 -- 463 Depreciation 698 21 -- 719 General and administrative expenses -- -- 152 152 Segment profit (loss) 373 (80) (151) 142 Total assets 27,722 1,302 26,874 55,898 Capital expenditures for investment properties 97 8 -- 105
Note F - 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 ordered by the court, was submitted by the parties. On July 10, 2002, the Court entered an order vacating the 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 could have an opportunity to discuss settlement. On October 30, 2002, the court entered an order extending the stay in effect through January 10, 2003. On January 8, 2003, the parties filed a Stipulation of Settlement in proposed settlement of the Nuanes action and the Heller action described below. On April 4, 2003, the Court preliminarily approved the settlement and scheduled a hearing on final approval for June 2, 2003. In general terms, the proposed settlement provides for certification for settlement purposes of a settlement class consisting of all limited partners in this Partnership and others (the "Partnerships") as of December 20, 2002, the dismissal with prejudice and release of claims in the Nuanes and Heller litigation, payment by AIMCO of $9.9 million (which shall be distributed to settlement class members after deduction of attorney fees and costs of class counsel and certain costs of settlement) and up to $1 million toward the cost of independent appraisals of the Partnerships' properties by a Court appointed appraiser. An affiliate of the General Partner has also agreed to make a tender offer to purchase all of the partnership interests in the Partnerships within one year of final approval, if it is granted, and to provide partners with the independent appraisals at the time of these tenders. The proposed settlement also provides for the limitation of the allowable costs which the Managing General Partner or its affiliates will charge the Partnerships in connection with this litigation and imposes limits on the class counsel fees and costs in this litigation. On April 11, 2003, notice was distributed to limited partners providing the details of the proposed 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. Before completing briefing on the appeal, the parties stayed further proceedings in the appeal pending the Court's review of the terms of the proposed settlement described above. The General Partner does not anticipate that any costs to the Partnership, 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 report contain certain forward-looking statements, including, without limitation, statements regarding future financial performance and the effect of government regulations. The discussions of the Registrant's business and results of operations, including forward-looking statements pertaining to such matters, do not take into account the effects of any changes to the Registrant's business and results of operations. Actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors including, without limitation: national and local economic conditions; the terms of governmental regulations that affect the Registrant and interpretations of those regulations; the competitive environment in which the Registrant operates; financing risks, including the risk that cash flows from operations may be insufficient to meet required payments of principal and interest; real estate risks, including variations of real estate values and the general economic climate in local markets and competition for tenants in such markets; and possible environmental liabilities. Readers should carefully review the Registrant's financial statements and the notes thereto, as well as the risk factors described in the documents the Registrant files from time to time with the Securities and Exchange Commission. The Partnership's investment properties consist of six properties. 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 three months ended March 31, 2003 and 2002: Average Occupancy Property 2003 2002 The Loft Apartments (2) 81% 94% Raleigh, North Carolina The Sterling Apartment Homes 91% 93% The Sterling Commerce Center (1) 54% 54% Philadelphia, Pennsylvania Silverado Apartments (2), (3) 91% 96% El Paso, Texas The Knolls Apartments (2), (3) 82% 90% Colorado Springs, Colorado Indian Creek Village Apartments (4),(3) 91% 86% Overland Park, Kansas Tates Creek Village Apartments (3) 86% 86% Lexington, Kentucky (1) The General Partner attributes the low occupancy at The Sterling Commerce Center to the loss of a major tenant in late December 2001. The Partnership is actively seeking a tenant to lease the space formerly occupied by this major tenant. (2) The General Partner attributes the decrease in occupancy at The Loft, The Knolls, and Silverado Apartments to the competitive market of the apartment industry in the properties' locations. (3) The Partnership acquired these investment properties through foreclosure during the third quarter of 2002 (see discussion below). (4) The General Partner attributes the increase in occupancy at Indian Creek Village Apartments to an increase in marketing outreach and promotions. Results of Operations The Partnership's net income for the three months ended March 31, 2003 was approximately $177,000 compared to net income of approximately $142,000 for the corresponding period in 2002. The increase in net income for the three months ended March 31, 2003 as compared to the three months ended March 31, 2002 is primarily due to an increase in total revenues and equity income from investment partially offset by an increase in total expenses. Total revenues increased primarily due to increases in rental income. Rental income increased largely due to the foreclosure of four properties (Silverado, The Knolls, Indian Creek Village, and Tates Creek Village Apartments) during August 2002. 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 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 third quarter of 2002 on all the properties in CCEP. During August 2002, the General Partner executed deeds in lieu of foreclosure on four of the active properties of CCEP. In addition, one property held by CCEP was sold during December 2002 (see "CCEP Property Operations" for further discussion). The foreclosure process on the remaining four properties held by CCEP is ongoing. As the deeds are executed, title in the properties previously owned by CCEP are transferred to the Partnership, subject to the existing liens on such properties, including the first mortgage loans. As a result, the Partnership assumed responsibility for the operations of such properties during the third quarter of 2002. In addition, rental rates increased at Sterling Apartment Homes. These increases were partially offset by reduced occupancy at The Loft Apartments and Sterling Apartment Homes and increased bad debt expense at The Sterling and The Loft Apartments. The increase in equity income from investment for the three months ended March 31, 2003 is primarily due to the recognition of the Partnership's share of the affiliated Partnership's earnings on its investment balance received from affiliated partnerships due to the foreclosure on the four properties discussed above. The Partnership assumed investments in three affiliated partnerships during the foreclosure of investment properties from CCEP as discussed above. These investments are accounted for on the equity method of accounting. Distributions from the affiliated partnerships are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. When the investment balance has been reduced to zero, subsequent distributions received are recognized as income in the accompanying statements of operations. During the three months ended March 31, 2003, the Partnership received distributions of approximately $258,000 from two of the affiliated partnerships, of which approximately $243,000 related to the sale of a property in Consolidated Capital Growth Fund. Of this amount, approximately $236,000 was recognized as equity income in investment once the investment balance allocated to that property had been reduced to zero. The Partnership also recognized equity income in investment of approximately $114,000 related to the sale of a property in Consolidated Capital Properties IV. There were no distributions associated with this sale. Exclusive of the operations of the foreclosed properties, expenses increased due to increases in operating expenses and general and administrative expenses. Operating expense increased primarily due to an increase in property and maintenance expenses. Property expenses increased due to an increase in utility expenses at The Sterling Apartment Homes and Commerce Center and increased contract security patrol expenses at The Sterling Commerce Center. Maintenance expenses increased due to an increase in contract services at Sterling Apartment Homes and a decrease in the capitalization of certain direct and indirect project costs, primarily payroll related costs, at the properties. General and administrative expense increased for the three months ended March 31, 2003 due to an increase in legal expenses due to costs incurred in connection with the foreclosure mentioned above. Included in general and administrative expenses for the three months ended March 31, 2003 and 2002 are costs of the services provided by the General Partner as allowed under the Partnership Agreement associated with its management of the Partnership. Also included are costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement. 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 March 31, 2003, the Partnership had cash and cash equivalents of approximately $1,212,000 compared to approximately $879,000 at March 31, 2002. Cash and cash equivalents decreased approximately $1,963,000 since December 31, 2002 due to approximately $2,263,000 and $82,000 of net cash used in financing and investing activities, respectively, partially offset by approximately $382,000 of cash provided by operating activities. Cash used in financing activities consisted of distributions to partners, principal payments made on the mortgages encumbering the Registrant's properties and lease commissions paid. Cash used in investing activities consisted of property improvements and replacements partially offset by distributions received from affiliated partnerships, principal receipts on the Master Loan and net withdrawals from escrow accounts maintained by the mortgage lenders. The Partnership 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 Registrant and to comply with Federal, state, and local legal and regulatory requirements. The General Partner monitors developments in the area of legal and regulatory compliance and is studying new federal laws, including the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 mandates or suggests additional compliance measures with regard to governance, disclosure, audit and other areas. In light of these changes, the Partnership expects that it will incur higher expenses related to compliance, including increased legal and audit fees. Capital improvements planned for each of the Partnership's properties are detailed below. The Loft During the three months ended March 31, 2003, the Partnership completed approximately $21,000 of capital improvements, consisting primarily of floor covering and roof replacements. These improvements were funded from operating cash flow. The Partnership evaluates the capital improvement needs of the property during the year and currently expects to complete an additional $161,000 in capital improvements during the remainder of 2003. The additional capital improvements will consist primarily of roof replacement, floor covering replacement, and other building improvements. 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 During the three months ended March 31, 2003, the Partnership completed approximately $41,000 of capital improvements consisting primarily of floor covering replacements and interior decoration. These improvements were funded from operating cash flow and replacement reserves. The Partnership evaluates the capital improvement needs of the property during the year and currently expects to complete an additional $120,000 in capital improvements during the remainder of 2003. The additional capital improvements will consist primarily of floor covering and appliance replacements, HVAC replacement and heating and electrical upgrades. 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. Silverado Apartments During the three months ended March 31, 2003, the Partnership completed approximately $14,000 of capital improvements at Silverado Apartments consisting primarily of floor covering replacements, and other building improvements. These improvements were funded from operating cash flow. The Partnership evaluates the capital improvement needs of the property during the year and currently expects to complete an additional $625,000 in capital improvements during the remainder of 2003. The additional capital improvements will consist primarily of air conditioning renovations, floor covering and appliance replacements, and exterior painting. 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 Knolls Apartments During the three months ended March 31, 2003, the Partnership completed approximately $206,000 of capital improvements at The Knolls Apartments consisting primarily of major landscaping, structural improvements and floor covering and appliance replacements. These improvements were funded from operating cash flow. The Partnership evaluates the capital improvement needs of the property during the year and currently expects to complete an additional $547,000 in capital improvements during the remainder of 2003. The additional capital improvements will consist primarily of retaining walls, new siding and exterior painting, floor covering replacements, and other property improvements. Additional improvements may be considered and will depend on the physical condition of the property as well as anticipated cash flow generated by the property. Indian Creek Village Apartments During the three months ended March 31, 2003, the Partnership completed approximately $37,000 of capital improvements at Indian Creek Village Apartments consisting primarily of floor covering replacements. These improvements were funded from operating cash flow. The Partnership evaluates the capital improvement needs of the property during the year and currently expects to complete an additional $105,000 in capital improvements during the remainder of 2003. The additional capital improvements will consist primarily of floor covering replacements, exterior painting and air conditioning upgrades. 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. Tates Creek Village Apartments During the three months ended March 31, 2003, the Partnership completed approximately $38,000 of capital improvements at Tates Creek Village Apartments consisting primarily of floor covering and air conditioning unit replacements. These improvements were funded from operating cash flow. The Partnership evaluates the capital improvement needs of the property during the year and currently expects to complete an additional $131,000 in capital improvements during the remainder of 2003. The additional capital improvements will consist primarily of roof replacement, floor covering and appliance replacements, air conditioning unit replacements, and replacement of the hot water heater holding tank. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserve 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 Partnership's distributable cash flow, if any, may be adversely affected at least in the short term. The Partnership's assets are thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Registrant. The mortgage indebtedness of approximately $52,353,000 requires monthly payments of principal and interest and balloon payments of approximately $3,903,000, $19,975,000 and $18,907,000 on December 1, 2005, October 1, 2008 and during 2010, 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 Partnership may risk losing such properties through foreclosure. The Partnership distributed the following amounts during the three months ended March 31, 2003 and 2002 (in thousands, except per unit data):
Three Months Per Limited Three Months Per Limited Ended Partnership Ended Partnership March 31, 2003 Unit March 31, 2002 Unit Operations $ 362 $ 1.80 $ 456 $ 2.27 Sale (1) 1,631 8.19 -- -- $1,993 $ 9.99 $ 456 $ 2.27
(1) From the sale of Society Park Apartments owned by CCEP and received as a principal payment on the Master Loan. 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 2003 or subsequent periods. Other In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 129,734.1 limited partnership units in the Partnership representing 65.18% of the outstanding Units at March 31, 2003. 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. 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 General Partner. As a result of its ownership of 65.18% 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 owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the General Partner to AIMCO, as its 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, and the investment properties foreclosed upon in the third quarter of 2002 are recorded at their fair market value at the time of the foreclosure. 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 and the Partnership fully reserves all outstanding balances over thirty days. 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. The Partnership leases certain commercial space to tenants under various lease terms. The leases are accounted for as operating leases in accordance with SFAS No. 13, "Accounting for Leases". Some of the leases contain stated rental increases during their term. For leases with fixed rental increases, rents are recognized on a straight-line basis over the terms of the leases. For all other leases, minimum rents are recognized over the terms of the leases. Investment in Master Loan to Affiliates and Interest Income Recognition The investment in the Master Loan is evaluated for impairment based upon the fair value of the collateral properties as the collateral is the sole basis of repayment of the loan. The fair value of the remaining collateral properties is based on the fair market value of those properties. If the fair value of a collateral property increases or decreases for other than temporary conditions, then the allowance on the Master Loan is adjusted appropriately. The investment in the Master Loan is considered to be impaired under SFAS No. 114, "Accounting by Creditors for Impairment of a Loan". Due to this impairment, interest income is recognized on the cash basis of accounting. CCEP Property Operations During the year ended December 31, 2002, CCIP foreclosed on four of the properties that collaterized the Master Loan (see "Item 1. Financial Statements - Note B" for further discussion). During the third quarter of 2002, CCIP began the process of foreclosure or executing deeds in lieu of foreclosure. During August 2002, the General Partner executed deeds in lieu of foreclosure on four of the active properties of CCEP. In addition, one property held by CCEP was sold in December 2002. The foreclosure process on the remaining four properties held by CCEP is ongoing. As the deeds are executed, title in the properties previously owned by CCEP are vested in CCIP, subject to the existing liens on the properties including the first mortgage loans. When CCEP no longer has title to any 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 period from January 1, 2003 to March 31, 2003, the net change in liabilities remained constant, but was affected by an increase in cash and cash equivalents, tenant security deposit liabilities, accrued property taxes and Master Loan and interest payable and decreases in other liabilities, mortgage notes payable and accounts payable due to the foreclosure of four of the investment properties held by CCEP as discussed in "Results of Operations" and the sale of Society Park Apartments as discussed below. On December 27, 2002, the Partnership sold Society Park Apartments, located in Tampa, Florida, to an unaffiliated third party for net sales proceeds of approximately $1,631,000, 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. In conjunction with the sale, a fee of approximately $218,000 was earned by the General Partner in accordance with the Partnership Agreement. The fee was paid during the three months ended March 31, 2003. 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 loans. Because 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 March 31, 2003, 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 March 31, 2003. The interest rates represent the weighted-average rates. The fair value of the debt obligations approximated the recorded value as of March 31, 2003. Principal Amount by Expected Maturity Fixed Rate Debt Long-term Average Interest Debt Rate 7.11% (in thousands) 2003 $ 785 2004 1,119 2005 5,106 2006 1,211 2007 1,305 Thereafter 41,477 Total $ 51,003 ITEM 4. Controls and Procedures The principal executive officer and principal financial officer of the General Partner, who are the equivalent of the Partnership's principal executive officer and principal financial officer, respectively, have, within 90 days of the filing date of this quarterly report, evaluated the effectiveness of the Partnership's disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) and have determined that such disclosure controls and procedures are adequate. There have been no significant changes in the Partnership's internal controls or in other factors that could significantly affect the Partnership's internal controls since the date of evaluation. The Partnership does not believe any significant deficiencies or material weaknesses exist in the Partnership's internal controls. Accordingly, no corrective actions have been taken. PART II - OTHER INFORMATION ITEM 1. Legal Proceedings In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. (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 ordered by the court, was submitted by the parties. On July 10, 2002, the Court entered an order vacating the 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 could have an opportunity to discuss settlement. On October 30, 2002, the court entered an order extending the stay in effect through January 10, 2003. On January 8, 2003, the parties filed a Stipulation of Settlement in proposed settlement of the Nuanes action and the Heller action described below. On April 4, 2003, the Court preliminarily approved the settlement and scheduled a hearing on final approval for June 2, 2003. In general terms, the proposed settlement provides for certification for settlement purposes of a settlement class consisting of all limited partners in this Partnership and others (the "Partnerships") as of December 20, 2002, the dismissal with prejudice and release of claims in the Nuanes and Heller litigation, payment by AIMCO of $9.9 million (which shall be distributed to settlement class members after deduction of attorney fees and costs of class counsel and certain costs of settlement) and up to $1 million toward the cost of independent appraisals of the Partnerships' properties by a Court appointed appraiser. An affiliate of the General Partner has also agreed to make a tender offer to purchase all of the partnership interests in the Partnerships within one year of final approval, if it is granted, and to provide partners with the independent appraisals at the time of these tenders. The proposed settlement also provides for the limitation of the allowable costs which the Managing General Partner or its affiliates will charge the Partnerships in connection with this litigation and imposes limits on the class counsel fees and costs in this litigation. On April 11, 2003, notice was distributed to limited partners providing the details of the proposed 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. Before completing briefing on the appeal, the parties stayed further proceedings in the appeal pending the Court's review of the terms of the proposed settlement described above. The General Partner does not anticipate that any costs to the Partnership, 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 Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. EXHIBIT 99.1 Consolidated Capital Equity Partners, L.P., unaudited financial statements for the three months ended March 31, 2003 and 2002 b) Reports on Form 8-K filed during the quarter ended March 31, 2003: Current Report on Form 8-K dated December 27, 2002, and filed January 13, 2003 disclosing the sale of Society Park Apartments to an unrelated party. 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: May 15, 2003 CERTIFICATION I, Patrick J. Foye, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Consolidated Capital Institutional Properties; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 15, 2003 /s/Patrick J. Foye Patrick J. Foye Executive Vice President of ConCap Equities, Inc., equivalent of the chief executive officer of the Partnership CERTIFICATION I, Paul J. McAuliffe, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Consolidated Capital Institutional Properties; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 15, 2003 /s/Paul J. McAuliffe Paul J. McAuliffe Executive Vice President and Chief Financial Officer of ConCap Equities, Inc., equivalent of the chief financial officer of the Partnership 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 March 31, 2003 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: May 15, 2003 /s/Paul J. McAuliffe Name: Paul J. McAuliffe Date: May 15, 2003 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 FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED March 31, 2003 and 2002 ITEM 1. Financial Statements CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. STATEMENT OF NET LIABILITIES IN LIQUIDATION (Unaudited) (in thousands)
March 31, December 31, 2003 2002 Assets Cash and cash equivalents $ 1,031 $ 963 Receivables and deposits 196 264 Other assets 74 90 Investment properties 38,500 38,500 39,801 39,817 Liabilities Accounts payable 191 338 Tenant security deposit liabilities 295 272 Due to affiliates 908 929 Accrued property taxes 195 -- Other liabilities 536 876 Mortgage notes payable 23,139 23,290 Master Loan and interest payable 14,537 14,112 39,801 39,817 Net liabilities in liquidation $ -- $ -- Note: The Statement of Net Liabilities in Liquidation at December 31, 2002 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. See Accompanying Notes to Financial Statements
Exhibit 99.1 (continued) statement of changes in net liabilities in liquidation (in thousands) Period from January 1, 2003 to March 31, 2003 Net liabilities in liquidation at December 31, 2002 $ -- Changes in net liabilities in liquidation attributed to: Increase in cash and cash equivalents 68 Decrease in receivables and deposits (68) Decrease in other assets (16) Decrease in accounts payable 147 Increase in tenant security deposit liabilities (23) Decrease in due to affiliates 21 Increase in accrued taxes (195) Decrease in other liabilities 340 Decrease in mortgage notes payable 151 Increase in Master Loan and interest payable (425) Net liabilities in liquidation at March 31, 2003 $ -- See Accompanying Notes to Financial Statements EXHIBIT 99.1 (Continued) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. STATEMENT OF OPERATIONS (Unaudited) (in thousands) Period from January 1, 2002 to March 31, 2002 (restated) Revenues: Rental income $ 1,874 Other income 275 Total revenues 2,149 Expenses: Operating 898 General and administrative 228 Depreciation 263 Property taxes 167 Interest 12,252 Total expenses 13,808 Loss from continuing operations (11,659) Income from discontinued operations 217 Net loss $(11,442) Net loss allocated to general partner (1%) $ (114) Net loss allocated to limited partners (99%) (11,328) $(11,442) See Accompanying Notes to Financial Statements EXHIBIT 99.1 (Continued) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. STATEMENT OF CHANGES IN PARTNERS' DEFICIT (Unaudited) (in thousands) General Limited Partners Partners Total 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 at March 31, 2002 $ -- See Accompanying Notes to Financial Statements EXHIBIT 99.1 (Continued) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. STATEMENT OF CASH FLOWS (Unaudited) (in thousands) Period from January 1, 2002 to March 31,2002 Cash flows from operating activities: Net loss $(11,442) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 604 Change in accounts: Receivables and deposits 56 Other assets (430) Accounts payable 36 Accrued property taxes 114 Other liabilities 163 Accrued interest on Master Loan 11,769 Net cash provided by operating activities 870 Cash flows from investing activities: Property improvements and replacements (617) Net deposits to restricted escrows (10) Net cash used in investing activities (627) Cash flows from financing activities: Principal payments on notes payable (323) Loan costs paid (36) Net cash used in financing activities (359) Net decrease in cash and cash equivalents (116) Cash and cash equivalents at beginning of period 1,321 Cash and cash equivalents at end of period $ 1,205 Supplemental disclosure of cash flow information: Cash paid for interest $ 1,068 See Accompanying Notes to Financial Statements CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. NOTES TO FINANCIAL STATEMENTS (Unaudited) Note A - Basis of Presentation On March 31, 2002, Consolidated Capital Equity Partners, L.P. ("the Partnership" or "CCEP") adopted the liquidation basis of accounting as a result of 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. 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 Partner as of the date of the consolidated financial statements. Note B - Master Loan and Accrued Interest Payable The General Partner had been in negotiations with CCIP with respect to its options which included CCIP foreclosing on the properties in CCEP which collateralize the Master Loan or extending the terms of the Master Loan. CCIP decided to foreclose on the properties that collaterize the Master Loan. CCIP began the process of executing deeds in lieu of foreclosure during the third quarter of 2002 on all the investment properties of the Partnership. During August 2002 the General Partner executed deeds in lieu of foreclosure on four of the active properties of CCEP. In addition, one of the properties held by the Partnership was sold in December 2002. The foreclosure process on the remaining four properties held by CCEP is ongoing. As the deeds are executed, title in the properties previously owned by the Partnership are vested in CCIP, subject to the existing liens on the properties including the first mortgage loans. As a result, during the year ended December 31, 2002, CCIP assumed responsibility for the operations of the foreclosed properties. When the Partnership no longer has title to any properties, it will be dissolved. 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. During the three months ended March 31, 2003, the Partnership paid a principal payment on the Master Loan of approximately $15,000. No Payments were made during the three months ended March 31, 2002. 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. 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 $101,000 and $231,000 for the three months ended March 31, 2003 and 2002, 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 $66,000 for both the three month periods ended March 31, 2003 and 2002, which is included in general and administrative expenses. An affiliate of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $48,000 and $148,000 for the three months ended March 31, 2003 and 2002, 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 $3,000 and $39,000 for the three months ended March 31, 2003 and 2002, 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 Society Park in December 2002 the Partnership paid the General Partner a fee of $218,000 during the three months ended March 31, 2003 as compensation for its role in the sale. This fee was included in gain on sale of discontinued operations at December 31, 2002. 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. There were no interest payments made during the three months ended March 31, 2003 and 2002. There were no advances on the Master Loan during the three months ended March 31, 2003 or 2002. There were also no principal payments made on the Master Loan during the three months ended March 31, 2002. A $15,000 principal payment was made on the Master Loan during the three months ended March 31, 2003. The Partnership insures 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 2003 and 2002, the Partnership's cost for insurance coverage and fees associated with policy claims administration provided by AIMCO and its affiliates is approximately $103,000 and $155,000. Note D - Sale of Property On December 27, 2002, the Partnership sold Society Park Apartments, located in Tampa, Florida, to an unaffiliated third party for net sales proceeds of approximately $1,631,000, 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 $727,000. In conjunction with the sale, a fee of approximately $218,000 was earned by the General Partner in accordance with the Partnership Agreement. The fee was paid during the three months ended March 31, 2003. 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 had investments in the following affiliated partnerships:
Ownership Investment Balance Partnership Type of Ownership Percentage at March 31, 2003 Consolidated Capital Non-controlling Growth Fund General Partner 0.40% $ 40 Consolidated Capital Non-controlling Properties III General Partner 1.85% 24 Consolidated Capital Non-controlling Properties IV General Partner 1.85% 923 $ 987
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 were valued at their estimated fair value and included in the Consolidated Statement of Net Liabilities in Liquidation. During the year ended December 31, 2002 these investments were assigned to CCIP as part of the foreclosure process of the assets of CCEP (see "Note B").