-----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, N1fIE6+RgVm5yh2zUMtAl1nFh86Y5eJKjJaBVKw82CVYKVHcvSLDuuZIKu5lrMYl KDtA57ngE00fiWwJ0X6WPA== 0000711642-05-000470.txt : 20050815 0000711642-05-000470.hdr.sgml : 20050815 20050815152957 ACCESSION NUMBER: 0000711642-05-000470 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050815 DATE AS OF CHANGE: 20050815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CENTRAL INDEX KEY: 0000352983 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 942744492 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-10831 FILM NUMBER: 051026258 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-K/A 1 ccipaa.txt CCIPAA SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A No. 2 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004 [ ] 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 (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, PO Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) Registrant's telephone number (864) 239-1000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Units of Limited Partnership Interests (Title of class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes _X__ No _ Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ___ No _X__ State the aggregate market value of the voting partnership interests held by non-affiliates computed by reference to the price at which the partnership interests were sold, or the average bid and asked prices of such partnership interests as of December 31, 2004. No market exists for the limited partnership interests of the Registrant, and, therefore, no aggregate market value can be determined. DOCUMENTS INCORPORATED BY REFERENCE None Explanatory Note Consolidated Capital Institutional Properties (the "Partnership" or "Registrant") is filing this Amendment on Form 10-K (the "Amendment") for the sole purpose of amending the Partnership's Amended Annual Report on Form 10-K/A No.1 ("Amendment No. 1") for the year ended December 31, 2004 (the "Amended Filing"). This Amendment adjusts the Item 9A(a) disclosure regarding the Partnership's disclosure controls and procedures. Please note that this Amendment restates only those items of the Amended Filing that were affected by the above-described corrections. Furthermore, the information contained in this Amendment is as of the date of the Amended Filing and does not reflect any subsequent information or events occurring after the date of the Amended Filing. Therefore, you should read this Amendment together with other documents that we have filed with the SEC subsequent to the filing of the Amended Filing. Information in such reports and documents updates and supersedes certain information contained in this Amendment. 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. 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; litigation, including costs associated with prosecuting and defending claims and any adverse outcomes, 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. PART I Item 1. Description of Business General The Partnership was organized on April 28, 1981, as a Limited Partnership under the California Uniform Limited Partnership Act. On July 23, 1981, the Partnership registered with the SEC under the Securities Act of 1933 (File No. 2-72384) and commenced a public offering for the sale of $200,000,000 of limited partnership units (the "Units"). The sale of Units terminated on July 21, 1983, with 200,342 Units sold for $1,000 each, or gross proceeds of $200,342,000 to the Partnership. In accordance with its Partnership Agreement (the original partnership agreement of the Partnership together with all amendments thereto shall be referred to as the "Agreement"), the Partnership has repurchased and retired a total of 1,296.8 Units for a total purchase price of $1,000,000. The Partnership may repurchase any Units, at its absolute discretion, but is under no obligation to do so. Since its initial offering, the Registrant has not received, nor are limited partners required to make, additional capital contributions. The Partnership Agreement provides that the Partnership is to terminate on December 31, 2011 unless terminated prior to such date. Upon the Partnership's formation in 1981, Consolidated Capital Equities Corporation ("CCEC") was the Corporate General Partner. In 1988, through a series of transactions, Southmark Corporation ("Southmark") acquired controlling interest in CCEC. In December 1988, CCEC filed for reorganization under Chapter 11 of the United States Bankruptcy Code. In 1990, as part of CCEC's reorganization plan, ConCap Equities, Inc. ("CEI") acquired CCEC's general partner interests in the Partnership and in 15 other affiliated public limited partnerships (the "Affiliated Partnerships"), and CEI replaced CCEC as managing general partner in all 16 partnerships. The selection of CEI as the sole managing general partner was approved by a majority of the limited partners in the Partnership and in each of the Affiliated Partnerships pursuant to a solicitation of the Limited Partners dated August 10, 1990. As part of this solicitation, the Limited Partners also approved an amendment to the Agreement to limit changes of control of the Partnership. All of CEI's outstanding stock was owned by Insignia Properties Trust ("IPT"). Effective February 26, 1999, IPT was merged into Apartment Investment and Management Company ("AIMCO"). Hence, CEI is now a wholly-owned subsidiary of AIMCO, a publicly held real estate investment trust. The Partnership's primary business and only industry segment is real estate related operations. The Partnership was originally formed for the benefit of its Limited Partners (herein so called and together with the General Partner shall be called the "Partners"), to lend funds to Consolidated Capital Equity Partners ("EP"), a California general partnership in which certain of the partners were former shareholders and former management of CCEC, the former Corporate General Partner of the Partnership. See "Status of the Master Loan" for a description of the loan and settlement of EP's bankruptcy. The Partnership advanced a total of approximately $180,500,000 under the Master Loan (as defined in "Status of the Master Loan"), which was secured by 18 apartment complexes and 4 office complexes. In 1990, the Partnership foreclosed on one of these apartment complexes, The Loft Apartments. In addition, the Partnership acquired a multiple-use building, The Sterling Apartment Homes and Commerce Center ("The Sterling"), through a deed-in-lieu of foreclosure transaction in 1995. 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 collateralized the Master Loan or extending the terms of the Master Loan. The General Partner decided to foreclose on the properties that collateralized the Master Loan. The General Partner began the process of foreclosure or executing deeds in lieu of foreclosure during 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. On November 10, 2003 the Partnership acquired the remaining four properties held by CCEP through a foreclosure sale. As the deeds were executed, title in the properties previously owned by CCEP was transferred to the Partnership subject to the existing liens on such properties, including the first mortgage loans. As a result, during the years ended December 2003 and 2002, the Partnership assumed responsibility for the operations of such properties. As a result of the foregoing, at December 31, 2004, the Partnership owned seven apartment properties one each in North Carolina, Colorado and Kansas, four in Florida and one multiple-use complex in Pennsylvania. See "Item 2. Properties" below. The Registrant has no employees. Management and administrative services are provided by the General Partner and by agents retained by the General Partner. Property management services are performed at the Partnership's properties by an affiliate of the General Partner. Risk Factors The real estate business in which the Partnership is engaged is highly competitive. There are other residential and commercial properties within the market area of the Partnership's properties. The number and quality of competitive properties, including those residential properties which may be managed by an affiliate of the General Partner in such market area, could have a material effect on the rental market for the apartments and the commercial space at the Partnership's properties and the rents that may be charged for such apartments and space. While the General Partner and its affiliates own and/or control a significant number of apartment units in the United States, such units represent an insignificant percentage of total apartment units in the United States and competition for the apartments is local. Laws benefiting disabled persons may result in the Partnership's incurrence of unanticipated expenses. Under the Americans with Disabilities Act of 1990, or ADA, all places intended to be used by the public are required to meet certain Federal requirements related to access and use by disabled persons. Likewise, the Fair Housing Amendments Act of 1988, or FHAA, requires apartment properties first occupied after March 13, 1990 to be accessible to the handicapped. These and other Federal, state and local laws may require modifications to the Partnership's properties, or restrict renovations of the properties. Noncompliance with these laws could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature, which could result in substantial capital expenditures. Although the General Partner believes that the Partnership's properties are substantially in compliance with present requirements, the Partnership may incur unanticipated expenses to comply with the ADA and the FHAA. Both the income and expenses of operating the properties owned by the Partnership are subject to factors outside of 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 patterns or needs of users. In addition, there are risks inherent in owning and operating residential and commercial properties because such properties are susceptible to the impact of economic and other conditions outside of the control of the Partnership. From time to time, the Federal Bureau of Investigation, or FBI, and the United States Department of Homeland Security issue alerts regarding potential terrorist threats involving apartment buildings. Threats of future terrorist attacks, such as those announced by the FBI and the Department of Homeland Security, could have a negative effect on rent and occupancy levels at the Partnership's properties. The effect that future terrorist activities or threats of such activities could have on the Partnership's operations is uncertain and unpredictable. If the Partnership were to incur a loss at a property as a result of an act of terrorism, the Partnership could lose all or a portion of the capital invested in the property, as well as the future revenue from the property. In this regard, the Partnership has purchased insurance to cover acts of terrorism. The General Partner does not anticipate that these costs will have a negative effect on the Partnership's consolidated financial condition or results of operations. There have been, and it is possible there may be other, Federal, state and local legislation and regulations enacted relating to the protection of the environment. The Partnership is unable to predict the extent, if any, to which such new legislation or regulations might occur and the degree to which such existing or new legislation or regulations might adversely affect the properties owned by the Partnership. The Partnership monitors its properties for evidence of pollutants, toxins and other dangerous substances, including the presence of asbestos. In certain cases environmental testing has been performed which resulted in no material adverse conditions or liabilities. In no case has the Partnership received notice that it is a potentially responsible party with respect to an environmental clean up site. A further description of the Partnership's business is included in Management's Discussion and Analysis of Financial Condition and Results of Operations included in "Item 7" of this Form 10-K/A No. 2. Segments Segment data for the years ended December 31, 2004, 2003 and 2002 is included in "Item 8. Financial Statements - Note N" and is an integral part of the Form 10-K/A No. 2. Status of the Master Loan Prior to 1989, the Partnership had loaned funds totaling $170,400,000 to EP subject to a nonrecourse note with a participation interest (the "Master Loan"), pursuant to the Master Loan Agreement dated July 22, 1981, between the Partnership and EP. The Partnership secured the Master Loan with deeds of trust or mortgages on real property purchased with the funds advanced, as well as by the assignment and pledge of promissory notes from the partners of EP. During 1989, EP defaulted on certain interest payments that were due under the Master Loan. Before the Partnership could exercise its remedies for such defaults, EP filed for bankruptcy protection in a Chapter 11 reorganization proceeding. On October 18, 1990, the bankruptcy court approved EP's consensual plan of reorganization (the "Plan"). In November 1990, EP and the Partnership consummated a closing under the Plan pursuant to which, among other things, the Partnership and EP executed an amended and restated loan agreement (the "New Master Loan Agreement"), EP was converted from a California General Partnership to a California Limited Partnership, Consolidated Capital Equity Partners, L.P., ("CCEP"), and CCEP renewed the deeds of trust on all the collateral to secure the New Master Loan Agreement. ConCap Holdings, Inc. ("CHI"), a Texas corporation and wholly-owned subsidiary of CEI, is the sole General Partner of CCEP and an affiliate of the Partnership. The General Partners of EP became Limited Partners in CCEP. CHI had full discretion with respect to conducting CCEP's business, including managing CCEP's properties and initiating and approving capital expenditures and asset dispositions and refinancings. For 1992, Excess Cash Flow was generally defined in the New Master Loan Agreement as net cash flow from operations after third-party debt service. Effective January 1, 1993, the Partnership and CCEP amended the New Master Loan Agreement to stipulate that Excess Cash Flow would be computed net of capital improvements. Such expenditures were formerly funded from advances on the Master Loan from the Partnership to CCEP. This amendment and change in the definition of Excess Cash Flow had the effect of reducing income on the investment in the Master Loan by the amount of CCEP's capital expenditures since such amounts were previously excluded from Excess Cash Flow. Under the terms of the New Master Loan Agreement (as adopted in November 1990), interest accrued at a fluctuating rate per annum adjusted annually on July 15 by the percentage change in the U.S. Department of Commerce Implicit Price Deflator for the Gross National Product subject to an interest rate ceiling of 12.5%. Interest payments were payable quarterly in an amount equal to "Excess Cash Flow". If such Excess Cash Flow payments were less than the current accrued interest during the quarterly period, the unpaid interest was added to principal, compounded annually, and was payable at the loan's maturity. If such Excess Cash Flow payments were greater than the current accrued interest, the excess amount was applied to the principal balance of the loan. Any net proceeds from the sale or refinancing of any of CCEP's properties were paid to the Partnership under the terms of the New Master Loan Agreement. The New Master Loan Agreement matured in November 2000. The General Partner had been negotiating with CCEP with respect to its options which included foreclosing on the properties which collateralized the Master Loan or extending the terms of the loan. The General Partner decided to foreclose on the properties that collateralize the Master Loan. During the year ended December 31, 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 was completed during the fourth quarter of 2003. 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 during the years ended December 31, 2003 and 2002, respectively. Prior to the foreclosure in 2003, the principal balance of the Master Loan due to the Partnership totaled approximately $14,123,000. This amount represented the estimated 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 $1,520,000 for the year ended December 31, 2003. Interest income was recognized on the cash basis in accordance with Statement of Financial Accounting Standards ("SFAS") No. 114. The cumulative unrecognized interest owed on the Master Loan was forgiven by the Partnership when the properties were foreclosed on during 2003 and 2002. Item 2. Description of Properties The following table sets forth the Partnership's investment in real estate as of December 31, 2004:
Date of Property Acquisition Type of Ownership Use The Loft Apartments 11/19/90 Fee ownership, subject to Apartment Raleigh, NC a first mortgage 184 units The Sterling Apartment Homes 12/01/95 Fee ownership subject to Apartment and Commerce Center a first mortgage (1) 536 units Philadelphia, PA Commercial 110,368 sq ft The Knolls Apartments 8/09/02 Fee ownership, subject to Apartment Colorado Springs, CO a first mortgage 262 units Indian Creek Village Apartments 8/09/02 Fee ownership, subject to Apartment Overland Park, KS a first mortgage 274 units Plantation Gardens 11/10/03 Fee ownership, subject to Apartment Apartments a first mortgage 372 units Plantation, FL Palm Lake 11/10/03 Fee ownership, subject to Apartment Apartments a first mortgage 150 units Tampa, FL The Dunes Apartments 11/10/03 Fee ownership, subject to Apartment Indian Harbor, FL a first mortgage 200 units Regency Oaks 11/10/03 Fee ownership, subject to Apartment Apartments a first mortgage 343 units Fern Park, FL (1) Property is held by a Limited Partnership in which the Registrant ultimately owns a 100% interest.
Schedule of Properties: Set forth below for each of the Partnership's properties is the gross carrying value, accumulated depreciation, depreciable life, method of depreciation and Federal tax basis at December 31, 2004.
Gross Carrying Accumulated Federal Property Value Depreciation Rate Method Tax Basis (in thousands) (in thousands) The Loft Apartments $ 7,826 $ 5,045 5-30 yrs S/L $ 4,233 The Sterling Apartment Homes and Commerce Center 39,715 19,022 5-30 yrs S/L 24,742 The Knolls 17,909 1,128 5-30 yrs S/L 16,082 Indian Creek Village 12,167 850 5-30 yrs S/L 11,535 Plantation Gardens 19,494 733 5-30 yrs S/L 18,671 Palm Lake 4,752 202 5-30 yrs S/L 4,554 The Dunes 6,998 358 5-30 yrs S/L 6,692 Regency Oaks 9,769 499 5-30 yrs S/L 9,419 $118,630 $27,837 $95,928
See "Note B" of the consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for a description of the Partnership's capitalization and depreciation policies. Schedule of Property Indebtedness: The following table sets forth certain information relating to the mortgages encumbering the Partnership's properties at December 31, 2004.
Principal Principal Balance At Balance December 31, Interest Period Maturity Due At Property 2004 Rate (2) Amortized Date Maturity (1) (in thousands) (in thousands) The Loft Apartments 1st mortgage $ 3,983 6.95% 360 months 12/01/05 $ 3,903 The Sterling Apartment Homes and Commerce Center 1st mortgage 21,340 6.77% 120 months 10/01/08 19,975 Apartments 1st mortgage 8,908 7.78% 240 months 03/01/10 7,105 Indian Creek Village Apartments 1st mortgage 7,877 7.83% 240 months 01/01/10 6,351 Plantation Gardens Apartments 1st mortgage 8,733 7.83% 240 months 03/01/10 6,972 Palm Lake Apartments 1st mortgage 2,695 7.86% 240 months 02/01/10 2,158 The Dunes Apartments 1st mortgage 3,698 7.81% 240 months 02/01/10 2,960 Regency Oaks Apartments 1st mortgage 6,866 7.80% 240 months 02/01/10 5,494 $ 64,100 Unamortized mortgage premiums 1,668 $ 65,768 $ 54,918
(1) See "Item 8. Financial Statements and Supplementary Data - Note E" for information with respect to the Partnership's ability to prepay these mortgages and other specific details about the mortgages. (2) Fixed rate mortgages The General Partner plans to refinance the mortgage on The Loft Apartments prior to its maturity date. If the property cannot be refinanced or sold for a sufficient amount, the Partnership may risk losing the property through foreclosure. Rental Rates and Occupancy: Average annual rental rates and occupancy for 2004 and 2003 for each property:
Average Annual Average Rental Rates Occupancy Property 2004 2003 2004 2003 The Loft Apartments $ 7,629/unit $ 7,663/unit 87% 85% The Sterling Apartment Homes 16,982/unit 16,672/unit 93% 94% The Sterling Commerce Center 16.02/s.f. 17.90/s.f. 79% 57% The Knolls Apartments 7,051/unit 7,539/unit 86% 81% Indian Creek Village Apartments 7,743/unit 7,974/unit 89% 91% Plantation Gardens Apartments 9,163/unit 9,198/unit 93% 91% Palm Lake Apartments 7,740/unit 7,699/unit 93% 94% The Dunes Apartments 7,316/unit 7,202/unit 94% 92% Regency Oaks Apartments 7,000/unit 6,728/unit 94% 95%
The General Partner attributes the increase in occupancy at The Knolls Apartments to a reduction in average rental rates and increased marketing efforts. The General Partner attributes the increase in occupancy at The Sterling Commerce Center to the leasing during the fourth quarter of 2003 of a portion of the space vacated in 2001 by the anchor tenant at the property. As noted under "Item 1. Description of Business", the real estate industry is highly competitive. All of the properties are subject to competition from other residential apartment complexes and commercial properties in the area. The General Partner believes that all of the properties are adequately insured. Each apartment complex leases properties for terms of one year or less. No residential tenant leases 10% or more of the available rental space. All of the properties are in good physical condition, subject to normal depreciation and deterioration as is typical for assets of this type and age. The following is a schedule of the lease expirations of the commercial space for The Sterling Commerce Center for the years beginning 2005 through the maturities of the current leases. Number of % of Gross Expirations Square Feet Annual Rent Annual Rent 2005 2 3,160 $ 69,603 6.24% 2006 6 21,908 333,843 29.94% 2007 3 7,347 219,156 19.65% 2008 3 4,059 86,450 7.75% 2010 3 28,094 299,870 26.89% 2011 1 8,752 106,200 9.53% One commercial tenant (The Deveraux Foundation) leases 22.6% of available rental space. No other commercial tenant leases 10% or more of the available space. Real Estate Taxes and Rates: Real estate taxes and rates in 2004 for each property were: Billing Rate (in thousands) The Loft Apartments $ 92 1.04% The Sterling Apartment Homes and Commerce Center 744 8.87% The Knolls Apartments 53 5.91% Indian Creek Village Apartments* 119 9.93% Plantation Gardens Apartments* 351 2.25% Palm Lake Apartments 103 2.23% The Dunes Apartments* 129 2.30% Regency Oaks Apartments 165 1.84% *The Partnership is currently appealing the assessed values of the properties. Capital Improvements: The Loft Apartments During the year ended December 31, 2004, the Partnership completed approximately $151,000 of capital improvements at The Loft Apartments, consisting primarily of floor covering, air conditioning unit and roof replacements and fitness equipment upgrades. These improvements were funded from operating cash flow and replacement reserves. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2005. Such capital expenditures will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. The Sterling Apartment Homes and Commerce Center During the year ended December 31, 2004, the Partnership completed approximately $3,288,000 of capital improvements at The Sterling Apartment Homes and Commerce Center consisting primarily of costs of a redevelopment project at The Sterling Apartment Homes, tenant improvements, structural upgrades, floor covering replacements, interior decorating, elevator improvements and heating upgrades. These improvements were funded from operating cash flow, advances from the General Partner and replacement reserves. The Partnership regularly evaluates the capital improvements needs of the property. Certain routine capital expenditures are anticipated during 2005. The redevelopment project which began in 2004 is scheduled to be completed during 2007. The project budget is approximately $23,487,000. The Partnership plans to fund these redevelopment expenditures from operating cash flow, partnership reserves and advances from the General Partner. During the year ended December 31, 2004 approximately $2,272,000 of redevelopment costs were incurred. 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 year ended December 31, 2004, the Partnership completed approximately $2,363,000 of capital improvements at The Knolls Apartments consisting primarily of costs of a redevelopment project, floor covering and appliance replacements, parking area improvements and swimming pool decking replacement. These improvements were funded from operating cash flow and advances from the General Partner. The Partnership regularly evaluates the capital improvement needs of the property. Certain routine capital expenditures are anticipated during 2005. The redevelopment project which began in 2004 is scheduled to be completed during 2005. The project budget is approximately $6,878,000. The Partnership plans to fund these redevelopment expenditures from operating cash flow, partnership reserves and advances from the General Partner. During the year ended December 31, 2004 approximately $2,104,000 of redevelopment costs were incurred. 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. Indian Creek Village Apartments During the year ended December 31, 2004, the Partnership completed approximately $260,000 of capital improvements at Indian Creek Village Apartments consisting primarily of costs related to the reconstruction of nine units damaged by a fire, wood siding replacement, exterior painting, floor covering replacements and parking lot resurfacing. These improvements were funded from insurance proceeds, advances from the General Partner and operating cash flow. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements or replacements, certain routine capital expenditures are anticipated during 2005. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property. Plantation Gardens Apartments During the year ended December 31, 2004, the Partnership completed approximately $213,000 of capital improvements at Plantation Gardens Apartments, consisting primarily of floor covering and appliance replacements and parking area resurfacing. These improvements were funded from operating cash flow. The Partnership regularly evaluates the capital improvements needs of the property. While the Partnership has no material commitments for property improvements or replacements, certain routine capital expenditures are anticipated during 2005. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property. Palm Lake Apartments During the year ended December 31, 2004, the Partnership completed approximately $388,000 of capital improvements at Palm Lake Apartments consisting primarily of roof replacement, structural improvements, parking area resurfacing, wood siding and floor covering replacements. These improvements were funded from operating cash flow. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements or replacements, certain routine capital expenditures are anticipated during 2005. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property. The Dunes Apartments During the year ended December 31, 2004, the Partnership completed approximately $155,000 of capital improvements at The Dunes Apartments consisting primarily of floor covering replacements, swimming pool decking replacement, and reconstruction of damages to the property caused by Hurricane Jeanne. These improvements were funded from operating cash flow. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements or replacements, certain routine capital expenditures are anticipated during 2005. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property. Regency Oaks Apartments During the year ended December 31, 2004, the Partnership completed approximately $1,076,000 of capital improvements at Regency Oaks Apartments consisting primarily of floor covering, air conditioning unit, roof and appliance replacements, parking area resurfacing, major landscaping, clubhouse renovations, structural improvements and reconstruction of damages to the property caused by a fire and damages caused by Hurricanes Charlie and Frances. These improvements were funded from operating cash flow and insurance proceeds. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements or replacements, certain routine capital expenditures are anticipated during 2005. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property. Silverado Apartments During the year ended December 31, 2004, the Partnership completed approximately $8,000 of capital improvements at Silverado Apartments, consisting primarily of floor covering replacements. These improvements were funded from operating cash flow. The property was sold to a third party on March 31, 2004. Tates Creek Village Apartments During the year ended December 31, 2004, the Partnership completed approximately $28,000 of capital improvements at Tates Creek Village Apartments consisting primarily of floor covering replacements. These improvements were funded from operating cash flow. The property was sold to a third party on June 28, 2004. Capital improvements at the Partnership's properties will be incurred only if cash is available from operations or from Partnership reserves. To the extent that capital improvements are completed, the Partnership's distributable cash flow, if any, may be adversely affected at least in the short term. Item 3. 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 purported to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) that 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 that 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 sought monetary damages and equitable relief, including judicial dissolution of the Partnership. In addition, during the third quarter of 2001, a complaint captioned Heller v. Insignia Financial Group (the "Heller action") was filed against the same defendants that are named in the Nuanes action. On or about August 6, 2001, plaintiffs filed a first amended complaint. The Heller action was brought as a purported derivative action, and asserted claims for, among other things, breach of fiduciary duty, unfair competition, conversion, unjust enrichment, and judicial dissolution. On January 8, 2003, the parties filed a Stipulation of Settlement in proposed settlement of the Nuanes action and the Heller action. 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 at least one round of tender offers 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 provided for the limitation of the allowable costs which the 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. On June 13, 2003, the court granted final approval of the settlement and entered judgment in both the Nuanes and Heller actions. On August 12, 2003, an objector ("Objector") filed an appeal (the "Appeal") seeking to vacate and/or reverse the order approving the settlement and entering judgment thereto. On November 24, 2003, the Objector filed an application requesting the court order AIMCO to withdraw settlement tender offers it had commenced, refrain from making further offers pending the appeal and auction any units tendered to third parties, contending that the offers did not conform with the terms of the settlement. Counsel for the Objector (on behalf of another investor) had alternatively requested the court take certain action purportedly to enforce the terms of the settlement agreement. On December 18, 2003, the court heard oral argument on the motions and denied them both in their entirety. The Objector filed a second appeal challenging the court's use of a referee and its order requiring Objector to pay those fees. On January 28, 2004, the Objector filed his opening brief in the Appeal. On April 23, 2004, the General Partner and its affiliates filed a response brief in support of the settlement and the judgment thereto. The plaintiffs have also filed a brief in support of the settlement. On June 4, 2004, Objector filed a reply to the briefs submitted by the General Partner and Plaintiffs. In addition both the Objector and plaintiffs filed briefs in connection with the second appeal. On March 21, 2005, the Court of Appeals issued opinions in both pending appeals. With regard to the settlement and judgment entered thereto, the Court of Appeals vacated the trial court's order and remanded to the trial court for further findings on the basis that the "state of the record is insufficient to permit meaningful appellate review". With regard to the second appeal, the Court of Appeals reversed the order requiring the Objector to pay referee fees. 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. As previously disclosed, AIMCO Properties L.P. and NHP Management Company, both affiliates of the General Partner, are defendants in an action in the United States District Court, District of Columbia. The plaintiffs have styled their complaint as a collective action under the Fair Labor Standards Act ("FLSA") and seek to certify state subclasses in California, Maryland, and the District of Columbia. Specifically, the plaintiffs contend that AIMCO Properties L.P. failed to compensate maintenance workers for time that they were required to be "on-call." Additionally, plaintiffs allege AIMCO Properties L.P. failed to comply with the FLSA in compensating maintenance workers for time that they worked in responding to a call while "on-call." The defendants have filed an answer to the amended complaint denying the substantive allegations. Discovery relating to the certification of the collective action has concluded and briefing on the matter is underway. Although the outcome of any litigation is uncertain, AIMCO Properties, L.P. does not believe that the ultimate outcome will have a material adverse effect on its financial condition or results of operations. Similarly, the General Partner does not believe that the ultimate outcome will have a material adverse effect on the Partnership's consolidated financial condition or results of operations. Item 4. Submission of Matters to a Vote of Security Holders During the quarter ended December 31, 2004, no matter was submitted to a vote of unitholders through the solicitation of proxies or otherwise. PART II Item 5. Market for Partnership Equity and Related Partner Matters The Partnership, a publicly-held limited partnership, offered and sold 200,342 limited partnership units (the "Units") aggregating $200,342,000. The Partnership currently has 8,883 holders of record owning an aggregate of 199,043.2 Units. Affiliates of the General Partner owned 145,195.60 units or 72.95% at December 31, 2004. No public trading market has developed for the Units, and it is not anticipated that such a market will develop in the future. The following table sets forth the distributions made by the Partnership for the years ended December 31, 2002, 2003 and 2004: Distributions Per Limited Aggregate Partnership Unit (in thousands) 01/01/02 - 12/31/02 $ 3,572 (1) $ 17.79 01/01/03 - 12/31/03 3,424 (2) 17.11 01/01/04 - 12/31/04 4,132 (3) 20.76 (1) Consists of approximately $3,098,000 of cash from operations and approximately $474,000 of cash from surplus funds. (2) Consists of approximately $1,793,000 of cash from operations and approximately $1,631,000 of cash from sales proceeds from CCEP for sale of Society Park Apartments. (3) Consists of approximately $39,000 of cash from operations and approximately $4,093,000 of cash from sales proceeds from the sale of Silverado Apartments in March 2004 and the sale of Tates Creek Village Apartments in June 2004. Future cash distributions will depend on the levels of cash generated from operations, and the timing of debt maturities, refinancings, and/or property sales. The Partnership's cash available for distribution is reviewed on a monthly basis. There can be no assurance that the Partnership will generate sufficient funds from operations, after planned capital expenditures, to permit distributions to its partners in 2005 or subsequent periods. See "Item 2. Description of Properties - Capital Improvements" for information relating to planned capital expenditures at the properties. In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 145,195.60 Units in the Partnership representing 72.95% of the outstanding Units at December 31, 2004. 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 in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that would include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 72.95% of the outstanding Units, AIMCO and its affiliates are in a position to control all such voting decisions with respect to the Partnership. 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 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. Item 6. Selected Financial Data The following table, as restated (see "Item 8. Financial Statements and Supplementary Data - Note A") sets forth a summary of selected financial data for the Partnership. This summary should be read in conjunction with the Partnership's financial statements and notes thereto appearing in "Item 8. Financial Statements and Supplementary Data".
FOR THE YEARS ENDED DECEMBER 31, 2004 2003 2002 2001 2000 STATEMENTS OF OPERATIONS (Restated) (Restated) (Restated) (in thousands, except per unit data) Total revenues $ 24,123 $ 15,817 $ 13,556 $ 15,484 $ 14,193 Total expenses (23,931) (15,978) (12,360) (11,582) (10,823) Reduction in provision for impairment loss -- -- -- 3,176 14,241 Income (loss)from continuing operations 192 (161) 1,196 7,078 17,611 (Loss) income from discontinued operations (1,113) 227 291 -- -- Gain on sale of discontinued operations 1,716 -- -- -- -- Gain on foreclosure of real estate 156 839 1,562 -- -- Equity in income of 18 1,029 -- -- -- investment Net income $ 969 $ 1,934 $ 3,049 $ 7,078 $ 17,611 Net income per Limited Partnership Unit $ 4.82 $ 9.62 $ 15.17 $ 35.20 $ 87.59 Distributions per Limited Partnership Unit $ 20.76 $ 17.11 $ 17.79 $ 78.83 $ 240.55 Limited Partnership Units outstanding 199,043.2 199,043.2 199,043.2 199,045.2 199,045.2
AS OF DECEMBER 31, BALANCE SHEETS 2004 2003 2002 2001 2000 (in thousands) Total assets $ 95,178 $105,012 $ 83,062 $ 56,089 $ 65,383 Mortgage notes payable $ 65,768 $ 75,195 $ 52,649 $ 26,457 $ 26,762
The comparability of the information above has been affected by the foreclosure of the eight CCEP properties. See "Item 1. Description of Business" for further information. In addition, as a result of the sales of Silverado Apartments and Tates Creek Village Apartments to third parties on March 31, 2004 and June 28, 2004, respectively, and in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, the information above for the years ending December 2003 and 2002 has been restated to reflect the operations of Silverado and Tates Creek Village Apartments as (loss) income from discontinued operations. These two properties were acquired by the Partnership during 2002, so the information for the years ended December 31, 2001 and 2000 was not impacted. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This item should be read in conjunction with "Item 8. Financial Statements and Supplementary Data" and other items contained elsewhere in this report. Results of Operations 2004 Compared to 2003 The Partnership's net income for the year ended December 31, 2004 was approximately $969,000 compared to net income of approximately $1,934,000 for the corresponding period in 2003. The decrease in net income for the year ended December 31, 2004 as compared to the year ended December 31, 2003 is due to an increase in loss from discontinued operations, a decrease in equity in income from investment and a decrease in gain on foreclosure of real estate recorded in 2004 as discussed below, partially offset by the increase in income from continuing operations and a gain on sale of Silverado and Tates Creek Village Apartments during the year ended December 31, 2004 as discussed below. The decrease in equity in income from investment for the year ended December 31, 2004 is due to a decrease in the recognition of the Partnership's share of distributions received and recognized as earnings from affiliated partnerships in excess of investment balance during the year ended December 31, 2004. The Partnership assumed investments in three affiliated partnerships during the foreclosure of investment properties from Consolidated Capital Equity Properties ("CCEP") as discussed below. 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 year ended December 31, 2004, the Partnership recognized approximately $18,000 in equity in income from investment related to its allocated share of the income (loss) for the investments. During the year ended December 31, 2003, the Partnership received approximately $1,048,000 in distributions from two of the investments. Approximately $1,015,000 of the distribution related to the sale of three properties in Consolidated Capital Growth Fund, an affiliated limited partnership in which the Partnership held a special limited partner interest. Of this amount, approximately $984,000 was recognized as equity in income from investment once the investment balance allocated to those properties had been reduced to zero. The Partnership also recognized equity in income from investment of approximately $45,000 related to its allocated share of the income (loss) for the investments. On March 31, 2004, the Partnership sold Silverado Apartments, located in El Paso, Texas, to a third party for $6,650,000. After payment of closing costs, the net sales proceeds received by the Partnership were approximately $6,169,000. The Partnership used a portion of the proceeds to repay the mortgage encumbering the property of approximately $3,248,000. The sale resulted in a gain on sale of investment property of approximately $1,510,000 during the year ended December 31, 2004. In addition, the Partnership recorded a loss on early extinguishment of debt of approximately $685,000 as a result of prepayment penalties paid partially offset by the write off of the unamortized mortgage premium which is included in loss from discontinued operations. Pursuant to the Partnership Agreement and in conjunction with the sale, a disposition fee of approximately $333,000 was earned by and paid to the General Partner during the year ended December 31, 2004. On June 28, 2004, the Partnership sold Tates Creek Village Apartments, located in Lexington, Kentucky, to a third party for $6,980,000. After payment of closing costs, the net sales proceeds received by the Partnership were approximately $6,420,000. The Partnership used a portion of the proceeds to repay the mortgage encumbering the property of approximately $3,851,000. The sale resulted in a gain on sale of investment property of approximately $206,000 during the year ended December 31, 2004. In addition, the Partnership recorded a loss on early extinguishment of debt of approximately $476,000 as a result of prepayment penalties paid, partially offset by the write off of the unamortized mortgage premium which is included in loss from discontinued operations. Pursuant to the Partnership Agreement and in conjunction with the sale, a disposition fee of approximately $349,000 was earned by and paid to the General Partner during the year ended December 31, 2004. As a result of the sales of Silverado Apartments and Tates Creek Village Apartments to third parties during the year ended December 31, 2004 and in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the accompanying consolidated statements of operations, at "Item 8. Financial Statements and Supplementary Data", for the years ended December 31, 2003 and 2002 have been restated as of January 1, 2002 to reflect the operations of Silverado Apartments and Tates Creek Village Apartments as income from discontinued operations of approximately $227,000 and $291,000 for the years ended December 31, 2003 and 2002, including revenues of approximately $2,790,000 and $1,090,000, respectively. The Partnership recognized income from continuing operations for the year ended December 31, 2004 of approximately $192,000 compared to a loss from continuing operations of approximately $161,000 for the corresponding period in 2003. The increase in income from continuing operations for the year ended December 31, 2004, is due to an increase in total revenues partially offset by an increase in total expenses. The increases in total revenues and total expenses is largely due to the acquisition at a foreclosure sale of four properties (Plantation Gardens, Palm Lake, The Dunes and Regency Oaks Apartments) during November 2003. These properties were acquired at a foreclosure sale due to CCEP's inability to repay the Master Loan to the Partnership and accrued interest. 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 collateralized the Master Loan or extending the terms of the Master Loan. The General Partner decided to foreclose on the properties that collateralized the Master Loan. The General Partner began the process of foreclosure or executing deeds in lieu of foreclosure during 2002 on all the properties in CCEP. The foreclosure process on the above four properties held by CCEP was completed during the fourth quarter of 2003. 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 during the fourth quarter of 2003. During the year ended December 31, 2004 the Partnership recognized a gain on foreclosure of real estate of approximately $156,000. The gain on the foreclosure was primarily the result of CCEP's remaining funds being sent to the Partnership as a final payment on the Master Loan. CCEP's remaining funds were primarily a refund of reimbursement of accountable administrative expenses from an affiliate of the General Partner. During the year ended December 31, 2003 the Partnership recognized a gain on foreclosure of approximately $839,000 which was the excess of the actual fair market value of the properties at the time of the foreclosure sale over the value of the Master Loan balance collateralized by the properties. For the year ended December 31, 2004, the four properties foreclosed in 2003 had income of approximately $188,000, which includes revenues of approximately $8,587,000 compared to income of approximately $107,000, which includes revenues of approximately $683,000, for the corresponding period of 2003. Excluding the operations of the properties foreclosed in 2003, the Partnership's net income from continuing operations, including equity income from investment, for the year ended December 31, 2004 was approximately $22,000 compared to net income from continuing operations, including equity income from investment, for the year ended December 31, 2003 of approximately $761,000. The decrease in net income from continuing operations for the year ended December 31, 2004 as compared to the year ended December 31, 2003 is due to a decrease in equity income from investment, as discussed above, and an increase in total expenses partially offset by an increase in total revenues. Total expenses, exclusive of the properties foreclosed in 2003, increased during the year ended December 31, 2004 primarily due to an increase in operating and property tax expenses, partially offset by decreases in interest, depreciation and general and administrative expenses. Operating expenses increased primarily due to an increase in property expenses. Property expenses increased primarily due to an increase in utility expenses at The Sterling Commerce Center, The Sterling Apartment Homes, The Knolls Apartments and Indian Creek Village Apartments and an increase in salaries and other related benefits at The Knolls, The Loft and Indian Creek Village Apartments and The Sterling Commerce Center. Property tax expense increased primarily due to a prior year tax reduction recorded during 2003 at Indian Creek Village Apartments. Interest expense decreased due to principal payments made on the mortgage notes encumbering the Partnership's properties and a decrease in interest paid for advances from the General Partner. Depreciation expense decreased due to assets becoming fully depreciated at The Sterling Apartment Homes. General and administrative expenses decreased for the year ended December 31, 2004 primarily due to the timing of the payment of a business privilege tax paid to the city of Philadelphia during the year ended December 31, 2003, and reduced legal fees associated with the foreclosures of the properties held by CCEP during 2003 and a decrease in the costs of services included in the management reimbursements to the General Partner as allowed under the Partnership Agreement. Also included in general and administrative expenses for the years ended December 31, 2004 and 2003 are costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement. Total revenues increased for the year ended December 31, 2004 due to an increase in rental and other income partially offset by a decrease in casualty gain (as discussed below). Rental income increased due to increases in occupancy at The Sterling Commerce Center, The Loft Apartments and The Knolls Apartments and increased average rental rates at The Sterling Apartment Homes, partially offset by reduced average rental rates at The Sterling Commerce Center and The Loft, The Knolls and Indian Creek Village Apartments and reduced occupancy at The Sterling Apartment Homes and Indian Creek Village Apartments. During the year ended December 31, 2003, there was a casualty gain of approximately $25,000 recorded at The Sterling Apartment Homes related to an electrical fire that damaged two units. This gain was the result of the receipt of insurance proceeds of approximately $73,000, net of the write off of net fixed assets of approximately $48,000. 2003 Compared to 2002 The Partnership's net income for the year ended December 31, 2003 was approximately $1,934,000 compared to net income of approximately $3,049,000 for the corresponding period in 2002. The decrease in net income for the year ended December 31, 2003 as compared to the year ended December 31, 2002 is primarily due to an increase in total expenses, a decrease in gain on foreclosure of real estate and a decrease in interest payments received and therefore recognized on the Master Loan partially offset by an increase in total revenues and an increase in equity in income of investment. Interest income on investment in Master Loan is only recognized to the extent that actual cash is received. The receipt of cash was dependent on the corresponding cash flow of the properties which secured the Master Loan. The decrease in gain on foreclosure of real estate and the increase in total expenses is largely due to the acquisition at a foreclosure sale of four properties (Plantation Gardens, Palm Lake, The Dunes and Regency Oaks Apartments) during November 2003 and the foreclosure of four properties (Silverado, The Knolls, Indian Creek Village, and Tates Creek Village Apartments) during August 2002 as discussed above. As a result, the Partnership assumed responsibility for the operations of such properties during the fourth quarter of 2003 and the third quarter of 2002, respectively. In November 2003, the Partnership acquired the four remaining properties held by CCEP: Plantation Gardens Apartments, Regency Oaks Apartments, The Dunes Apartments, and Palm Lake Apartments. These properties were sold at a foreclosure sale due to CCEP's inability to repay the Master Loan and accrued interest. An affiliate of the General Partner advanced the Partnership approximately $31,278,000 in order to purchase these properties at the sale. Approximately $523,000 was retained by the court for its costs and was capitalized as acquisition costs by the Partnership and will be amortized over the estimated useful life of the properties. The advance bore interest at prime plus 2% and the Partnership paid approximately $114,000 in interest expense for the period the loan was outstanding during 2003. The Partnership acquired the properties previously held by CCEP subject to the existing liens on the properties including the first mortgage loans. As a result of the acquisition of these remaining four properties that were held by CCEP, the Partnership recognized a gain on foreclosure of approximately $839,000 which was the excess of the actual fair market value of the properties at the time of the foreclosure sale over the value of the Master Loan balance collateralized by the properties. CCIP intends to continue to operate these properties as residential apartment complexes. Exclusive of the items related to the Master Loan, the gain on foreclosure of real estate, and the operations of the foreclosed properties, the Partnership recognized net income for the year ended December 31, 2003 of approximately $122,000 compared to net income of approximately $461,000 for the corresponding period in 2002. The decrease in net income for the year ended December 31, 2003 as compared to the year ended December 31, 2002 is primarily due to an increase in total expenses and a decrease in total revenues. Total expenses, exclusive of the foreclosed properties, increased during the year ended December 31, 2003 primarily due to increases in operating expenses and general and administrative expenses partially offset by a decrease in depreciation expense. Operating expense increased during the year ended December 31, 2003 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 partially offset by a decrease in salaries and other related benefits and contract security patrol expenses at The Sterling Apartment Homes. Maintenance expenses increased due to an increase in contract services at Sterling Apartment Homes and The Loft Apartments. Depreciation expense decreased during the year ended December 31, 2003 due to capital improvements and replacements becoming fully depreciated during the past year at The Sterling. The increase in general and administrative expenses for the year ended December 31, 2003 is primarily due to an increase in the costs of services included in the management reimbursements to the General Partner as allowed under the Partnership Agreement and professional fees associated with the management of the Partnership's properties. Also included in general and administrative expense for the year ended December 31, 2003 are costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement. The decrease in total revenues, exclusive of the foreclosed properties, during the year ended December 31, 2003 is primarily due to a decrease in rental income and other income. Rental income decreased primarily due to a decrease in rental rates at Sterling Apartment Homes and Commerce Center and The Loft Apartments and a decrease in occupancy at The Loft Apartments. These decreases were partially offset by an increase in occupancy at The Sterling Apartment Homes and Commerce Center. The decrease in other income is primarily due to a decrease in utility reimbursements at The Sterling Apartment Homes. The equity in income from investment for the year ended December 31, 2003 is due to the recognition of the Partnership's share of distributions received and recognized as earnings from affiliated partnerships in excess of investment balance. 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 years ended December 31, 2003 and 2002, the Partnership received approximately $1,048,000 and $23,000, respectively, in distributions from two of the partnerships. Approximately $1,015,000 of the distributions related to the sale of three of the properties in Consolidated Capital Growth Fund. Of this amount, approximately $984,000 was recognized as equity in income from investment once the investment balance allocated to those properties had been reduced to zero. The Partnership also recognized equity in income from investment of approximately $45,000 for the year ended December 31, 2003 for its allocated share of the income (loss) for the investments. The Partnership's financial results depend upon a number of factors including the ability to attract and maintain tenants at the investment properties, interest rates on mortgage loans, costs incurred to operate the investment properties, general economic conditions and weather. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in 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, the General Partner may use rental concessions and rental rate reductions to offset softening market conditions, accordingly, there is no guarantee that the General Partner will be able to sustain such a plan. Further, a number of factors that are outside the control of the Partnership, such as the local economic climate and weather, can adversely or positively affect the Partnership's financial results. Capital Resources and Liquidity At December 31, 2004, the Partnership had cash and cash equivalents of approximately $955,000 compared to approximately $2,417,000 at December 31, 2003. Cash and cash equivalents decreased approximately $1,462,000 since December 31, 2003 due to approximately $12,029,000 of cash used in financing activities, partially offset by approximately $6,631,000 and $3,936,000 of cash provided by investing and operating activities, respectively. Cash used in financing activities consisted of principal payments made on the mortgages encumbering the Partnership's properties, repayment of the mortgage notes payable as a result of the sale of Silverado and Tates Creek Village Apartments, prepayment penalties paid, distributions to partners and lease commissions paid, partially offset by advances from affiliates. Cash provided by investing activities consisted of proceeds from the sale of Silverado and Tates Creek Village Apartments, insurance proceeds received, receipts on the Master Loan and net receipts from restricted escrow accounts maintained by the mortgage lenders, partially offset by property improvements and replacements. The Partnership invests its working capital reserves in interest bearing accounts. During the year ended December 31, 2004, the Partnership received approximately $156,000 from CCEP as the final payment on the Master Loan. During the years ended December 31, 2003 and 2002, the Partnership received approximately $15,000 and $1,719,000 in principal payments on the Master Loan. Approximately $88,000 was received during the year ended December 31, 2002, representing cash received from distributions from three affiliated partnerships which were required to be transferred to the Partnership under the terms of the Master Loan. In addition, during the years ended December 31, 2003 and 2002 approximately $15,000 and $1,631,000 was received representing proceeds received from the sale of Society Park Apartments. 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. The General Partner monitors developments in the area of legal and regulatory compliance. For example, 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. The Partnership regularly evaluates the capital improvements needs of all its properties for the upcoming year. Certain routine capital expenditures are anticipated during 2005. In addition, the Partnership has material commitments to complete rehabilitation projects at The Sterling Apartment Homes and The Knolls Apartments. The budget for these two projects for 2005 is approximately $17,016,000. Such capital expenditures will depend on the physical condition of the properties as well as replacement reserves and anticipated cash flow generated by the properties. It is anticipated that a substantial portion of the costs associated with the redevelopment projects will be funded from advances from affiliates of the General Partner. Other capital expenditures will be incurred only if cash is available from operations and Partnership reserves. To the extent that 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 Partnership. The mortgage indebtedness encumbering the Partnership's properties of approximately $65,768,000 requires monthly payments of principal and interest, and balloon payments of approximately $3,903,000, $19,975,000 and $31,040,000 during 2005, 2008 and 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 years ended December 31, 2002, 2003 and 2004 (in thousands, except per unit data): Distributions Per Limited Aggregate Partnership Unit 01/01/02 - 12/31/02 $ 3,572 (1) $ 17.79 01/01/03 - 12/31/03 3,424 (2) 17.11 01/01/04 - 12/31/04 4,132 (3) 20.76 (1) Consists of approximately $3,098,000 of cash from operations and approximately $474,000 of cash from surplus funds. (2) Consists of approximately $1,793,000 of cash from operations and approximately $1,631,000 of cash from sales proceeds from CCEP for sale of Society Park Apartments. (3) Consists of approximately $39,000 of cash from operations and approximately $4,093,000 of cash from sales proceeds from the sale of Silverado Apartments in March 2004 and the sale of Tates Creek Village Apartments in June 2004. Future cash distributions will depend on the levels of cash generated from operations, and the timing of debt maturities, refinancings, and/or property sales. The Partnership's cash available for distribution is reviewed on a monthly basis. There can be no assurance that the Partnership will generate sufficient funds from operations, after planned capital improvement expenditures, to permit any distributions to its partners during 2005 or subsequent periods. Other In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 145,195.60 limited partnership units (the "Units") in the Partnership representing 72.95% of the outstanding Units at December 31, 2004. 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 in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that would include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 72.95% of the outstanding Units, AIMCO and its affiliates are in a position to control all such voting decisions with respect to the Partnership. 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 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. During the year ended December 31, 2004, the Partnership received approximately $156,000 from CCEP as the final payment on the Master Loan. During the years ended December 31, 2003 and 2002, the Partnership received approximately $15,000 and $1,719,000 in principal payments on the Master Loan. Approximately $88,000 was received during the year ended December 31, 2002, representing cash received from distributions from three affiliated partnerships which were required to be transferred to the Partnership under the terms of the Master Loan. In addition, during the years ended December 31, 2003 and 2002 approximately $15,000 and $1,631,000 was received representing proceeds received from the sale of Society Park Apartments. Critical Accounting Policies and Estimates A summary of the Partnership's significant accounting policies is included in "Note B - Organization and Significant Accounting Policies" which is included in the consolidated financial statements in "Item 8. Financial Statements and Supplementary Data". The General Partner believes that the consistent application of these policies enables the Partnership to provide readers of the financial statements with useful and reliable information about the Partnership's operating results and financial condition. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the Partnership to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Judgments and assessments of uncertainties are required in applying the Partnership's accounting policies in many areas. 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 and fourth quarter of 2003 were recorded at fair market value at the time of the foreclosures. 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, but are not limited to, changes in 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 impairment of the Partnership's assets. Revenue Recognition The Partnership generally leases apartment units for twelve-month terms or less. The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Rental income attributable to leases, net of any concessions, is recognized on a straight-line basis over the term of the lease. The Partnership evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants. 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 was evaluated for impairment based upon the fair value of the collateral properties as the collateral was the sole basis of repayment of the loan. The fair value of the remaining collateral properties was based on the fair market value of those properties. If the fair value of a collateral property increased or decreased for other than temporary conditions, then the allowance on the Master Loan was adjusted appropriately. The investment in the Master Loan was considered to be impaired under SFAS No. 114, "Accounting by Creditors for Impairment of a Loan". Due to this impairment, interest income was recognized on the cash basis of accounting. Item 7a. Market Risk Factors 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 December 31, 2004, a 100 basis point increase or decrease in market interest rates would impact Partnership income by approximately $513,000. The following table summarizes the Partnership's debt obligations at December 31, 2004. The interest rates represent the weighted-average rates. The fair value of the Partnership's long term debt at the Partnership's incremental borrowing rate is approximately $68,183,000. Principal Amount by Expected Maturity Fixed Rate Debt Long-term Average Interest Debt Rate 7.67% (in thousands) 2005 $ 5,579 2006 1,750 2007 1,887 2008 21,900 2009 1,753 Thereafter 31,231 Total $64,100 Item 8. Financial Statements and Supplementary Data CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES LIST OF FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2004 and 2003, as restated Consolidated Statements of Operations for the Years ended December 31, 2004, 2003 and 2002, as restated Consolidated Statements of Changes in Partners' Capital for the Years ended December 31, 2004, 2003 and 2002, as restated Consolidated Statements of Cash Flows for the Years ended December 31, 2004, 2003 and 2002, as restated Notes to Consolidated Financial Statements, as restated Report of Independent Registered Public Accounting Firm The Partners Consolidated Capital Institutional Properties We have audited the accompanying consolidated balance sheets of Consolidated Capital Institutional Properties as of December 31, 2004 and 2003, and the related consolidated statements of operations, changes in partners' deficit, and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Partnership's internal control over financial reporting. Our audit included consideration of internal controls over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Consolidated Capital Institutional Properties at December 31, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States. As discussed in Note A to the consolidated financial statements, in 2005 the management of Consolidated Capital Institutional Properties determined that the initial value assigned in 2002 to a special limited partnership interest in an affiliate was overstated and that the related equity in income from the special limited partnership investment as reported in each of the years ended December 31, 2004, 2003 and 2002 was overstated. /s/ ERNST & YOUNG LLP Greenville, South Carolina March 21, 2005 Except for Notes A, C, D, J, N, and Q, as to which the date is June 23, 2005 CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED BALANCE SHEETS (in thousands, except unit data) (as restated - see Note A)
December 31, 2004 2003 Assets Cash and cash equivalents $ 955 $ 2,417 Receivables and deposits 1,155 404 Restricted escrows 662 922 Other assets 989 999 Investment in affiliated partnerships (Note J) 624 606 Investment properties (Notes E and G): Land 20,365 22,780 Buildings and related personal property 98,265 100,078 118,630 122,858 Less accumulated depreciation (27,837) (23,194) 90,793 99,664 $ 95,178 $105,012 Liabilities and Partners' Capital Liabilities Accounts payable $ 1,499 $ 211 Tenant security deposit liabilities 825 964 Accrued property taxes 100 564 Other liabilities 1,229 1,499 Due to affiliates (Note F) 2,596 255 Mortgage notes payable (Note E) 65,768 75,195 72,017 78,688 Partners' Capital General partner 133 123 Limited partners (199,043.2 units issued and outstanding) 23,028 26,201 23,161 26,324 $ 95,178 $105,012 See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per unit data) (as restated - see Note A)
Years Ended December 31, 2004 2003 2002 Revenues: Rental income $ 22,035 $ 14,622 $ 12,209 Interest income on investment in Master Loan to affiliate (Note D) -- -- 386 Other income 2,088 1,170 961 Casualty gain (Note M) -- 25 -- Total revenues 24,123 15,817 13,556 Expenses: Operating 11,352 6,877 5,173 General and administrative 857 1,151 836 Depreciation 5,163 3,674 3,088 Interest 4,630 3,361 2,299 Property taxes 1,662 915 964 Casualty losses (Note M) 267 -- -- Total expenses 23,931 15,978 12,360 Income (loss) from continuing operations 192 (161) 1,196 (Loss) income from discontinued operations (Notes B & H) (1,113) 227 291 Gain on sale of discontinued operations (Note H) 1,716 -- -- Gain on foreclosure of real estate (Note D) 156 839 1,562 Equity in income from investment (Note J) 18 1,029 -- Net income (Note C) $ 969 $ 1,934 $ 3,049 Net income allocated to general partner (1%) $ 10 $ 19 $ 30 Net income allocated to limited partners (99%) 959 1,915 3,019 $ 969 $ 1,934 $ 3,049 Per limited partnership unit: Income (loss) from continuing operations $ 0.97 $ (0.80) $ 5.94 (Loss) income from discontinued operations (5.54) 1.13 1.45 Gain on sale of discontinued operations 8.54 -- -- Gain on foreclosure of real estate 0.77 4.17 7.78 Equity in income of investment .08 5.12 -- Net income per limited partnership unit $ 4.82 $ 9.62 $ 15.17 Distributions per limited partnership unit $ 20.76 $ 17.11 $ 17.79 See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (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 Abandonment of limited partnership units (Note L) (2.0) -- -- -- Distributions to partners -- (31) (3,541) (3,572) Net income for the year ended December 31, 2002, as restated -- 30 3,019 3,049 Partners' capital at December 31, 2002, as restated 199,043.2 $ 122 $ 27,692 $ 27,814 Distributions to partners -- (18) (3,406) (3,424) Net income for the year ended December 31, 2003, as restated -- 19 1,915 1,934 Partners' capital at December 31, 2003, as restated 199,043.2 123 26,201 26,324 Distributions to partners -- -- (4,132) (4,132) Net income for the year ended December 31, 2004, as restated -- 10 959 969 Partners' capital at December 31, 2004, as restated 199,043.2 $ 133 $ 23,028 $ 23,161 See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (as restated - see Note A)
Years Ended December 31, 2004 2003 2002 Cash flows from operating activities: Net income $ 969 $ 1,934 $ 3,049 Adjustments to reconcile net income to net cash provided by operating activities: Gain on foreclosure of real estate (156) (839) (1,562) Depreciation 5,300 4,056 3,189 Amortization of loan costs, lease commissions and mortgage premiums (190) (68) 43 Equity in income from investment (18) (1,029) -- Gain on sale of discontinued operations (1,716) -- -- Loss on early extinguishment of debt 1,161 -- -- Casualty loss (gain) 267 (17) -- Change in accounts: Receivables and deposits (539) 347 6 Other assets (111) (90) (24) Accounts payable (108) (146) 50 Tenant security deposit liabilities (139) (6) (5) Accrued property taxes (464) (328) 88 Due to affiliates (50) 912 -- Other liabilities (270) (106) 593 Net cash provided by operating activities 3,936 4,620 5,427 Cash flows from investing activities: Net proceeds from sale of discontinued operations 12,589 -- -- Property improvements and replacements (6,658) (1,472) (582) Acquisition costs paid -- (523) -- Insurance proceeds received 284 112 -- Net receipts from (deposits to) restricted escrows 260 192 (205) Receipts on Master Loan 156 15 1,719 Distributions from affiliated partnerships -- 1,048 24 Net cash provided by (used in) investing activities 6,631 (628) 956 Cash flows from financing activities: Distributions to partners (4,132) (3,424) (3,572) Payments on mortgage notes payable (1,655) (1,128) (558) Repayment of mortgage note payable (7,099) -- -- Prepayment penalties (1,527) -- -- Lease commissions paid (7) (198) -- Advances from general partner 2,391 31,498 -- Repayment of advances from general partner -- (31,498) -- Net cash used in financing activities (12,029) (4,750) (4,130) Net (decrease) increase in cash and cash equivalents (1,462) (758) 2,253 Cash and cash equivalents at beginning of year 2,417 3,175 922 Cash and cash equivalents at end of year $ 955 $ 2,417 $ 3,175 Supplemental disclosure of cash flow information: Cash paid for interest $ 5,087 $ 4,135 $ 2,467 Supplemental disclosure of non-cash activity: Property improvements and replacements in accounts payable $ 1,272 $ -- $ -- See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES STATEMENTS OF CASH FLOWS (continued) (in thousands) SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES Foreclosure During the year ended December 31, 2003, Plantation Gardens, Palm Lake, The Dunes and Regency Oak Apartments were purchased at a foreclosure sale by the Partnership. During the year ended December 31, 2002, Silverado, The Knolls, Indian Creek Village, and Tates Creek Village Apartments were foreclosed upon by the Partnership. In connection with the transactions above, the following accounts were adjusted by the non-cash amounts in 2003 and 2002, as follows: 2003 2002 Receivables and deposits $ (258) $ (66) Investment in Master Loan to affiliates 14,129 10,567 Restricted escrows -- (517) Other assets (205) 11 Investment properties (38,901) (38,273) Investments in affiliated partnerships -- (649) Accounts payable 181 -- Tenant security deposit liabilities 281 128 Accrued property taxes 566 238 Due to affiliates (657) -- Other liabilities 197 212 Mortgage notes payable 23,828 26,787 Gain on foreclosure of real estate $ (839) $(1,562) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004 Note A - Correction of an Error As disclosed in Note D to the financial statements, Consolidated Capital Institutional Properties (the "Partnership" or "Registrant") assumed ownership of special limited partner interests during a foreclosure process in 2002. The Partnership initially recorded its investment in affiliated partnerships received in connection with the 2002 foreclosure at their estimated fair values, based on the fair values of the underlying assets and liabilities of the respective affiliated partnerships and the ownership percentages stated in the related partnership agreements. When this valuation was performed, the Partnership did not note that the partnership agreement for one of the affiliated partnerships, Consolidated Capital Properties IV ("CCP IV"), contains provisions that require all partnership distributions resulting from a property sale or refinancing to be paid to the limited partners until such time as the limited partners have received a return of their initial invested capital. At the time of the foreclosure, the limited partners of CCP IV had not received a return of their initial invested capital and, based on the estimated fair values of the investment properties and outstanding debt balances at that time, there would be insufficient net asset value to return all invested capital to the limited partners in an assumed liquidation of CCP IV. Based on the substantial deficiency in net asset values that would be required to return invested capital to the limited partners of CCP IV, it was unlikely that the Partnership would participate in sale and refinancing distributions of CCP IV in the foreseeable future. Accordingly, the initial values assigned to the investment in CCP IV should have been based primarily on the estimated discounted cash flows from operations that were expected to be distributed to the Partnership, and the Partnership should not have recognized any equity in earnings attributed to the gains on property sales in CCP IV during 2003 and 2004 because none of the related sales proceeds will be distributed to the Partnership. Since the initial investment in CCP IV was recorded in 2002 at a value of $844,000, the Partnership has recorded equity in earnings of $72,000, equity in gain on sale of properties owned by CCP IV of $657,000 and operating distributions of $53,000, resulting in an unadjusted carrying value of the Partnership's investment in CCP IV of $1,520,000 at December 31, 2004. The Partnership has determined that a value of $575,000 should have been assigned during 2002 to the special limited partner interest in CCP IV using the methodology described above and the Partnership should not have recognized during 2003 and 2004 the equity in gain on sale of properties totaling $657,000. The following tables set forth the adjustments to the balance sheets as of December 31, 2004 and 2003 and the statements of operations for the years ended December 31, 2004, 2003 and 2002. The only financial statement line items included below are those that have been restated from the originally reported amounts.
As of December 31, 2004 As of December 31, 2003 (in thousands) As Previously As Previously Reported As Restated Reported As Restated Investment in affiliated partnerships $ 1,550 $ 624 $ 992 $ 606 Partners' capital 24,087 23,161 26,710 26,324
Years Ended December 31,
2004 2003 2002 (in thousands, except per unit data) As As As Previously As Previously As Previously As Reported Restated Reported Resated Reported Restated Gain on foreclosure of real $ 156 $ 156 $ 839 $ 839 $1,831 $1,562 estate Equity in income of 558 18 1,146 1,029 -- -- investment Net income 1,509 969 2,051 1,934 3,318 3,049 Net income allocated to general partner 15 10 21 19 33 30 Net income allocated to limited partner 1,494 959 2,030 1,915 3,285 3,019 Gain on foreclosure of real estate per limited partnership unit 0.77 0.77 4.17 4.17 9.11 7.78 Equity in income of investment per limited partnership unit 2.77 0.08 5.70 5.12 -- -- Net income per limited partnership unit 7.51 4.82 10.20 9.62 16.50 15.17
Note B - Organization and Significant Accounting Policies Organization: The Partnership, a California Limited Partnership, was formed on April 28, 1981, to lend funds through nonrecourse notes with participation interests (the "Master Loan"). The loans were made to, and the real properties that secured the Master Loan were purchased and owned by, Consolidated Capital Equity Partners, ("EP"), a California general partnership in which certain of the partners were former shareholders and former management of Consolidated Capital Equities Corporation ("CCEC"), the former Corporate General Partner. The Partnership had advanced a total of approximately $180,500,000 to EP and its successor under the Master Loan. Upon the Partnership's formation in 1981, CCEC, a Colorado corporation, was the Corporate General Partner. In December 1988, CCEC filed for reorganization under Chapter 11 of the United States Bankruptcy Code. In 1990, as part of CCEC's reorganization plan, ConCap Equities, Inc., a Delaware corporation (the "General Partner" or "CEI"), acquired CCEC's General Partner interests in the Partnership and in 15 other affiliated public Limited Partnerships (the "Affiliated Partnerships") and replaced CCEC as Managing General Partner in all 16 partnerships. During 1989, EP defaulted on certain interest payments that were due under the Master Loan. Before the Partnership could exercise its remedies for such defaults, EP filed for bankruptcy protection in a Chapter 11 reorganization proceeding. On October 18, 1990, the Bankruptcy Court approved EP's consensual plan of reorganization (the "Plan"). In November 1990, EP and the Partnership consummated a closing under the Plan pursuant to which, among other things, the Partnership and EP executed an amended and restated loan agreement (the "New Master Loan Agreement"). EP was converted from a California General Partnership to a California Limited Partnership, Consolidated Capital Equity Partners, L.P. ("CCEP"), and CCEP renewed the deeds of trust on all the collateral to secure the New Master Loan Agreement. ConCap Holdings, Inc. ("CHI"), a Texas corporation and wholly-owned subsidiary of CEI, was the sole general partner of CCEP and an affiliate of the Partnership. The General Partners of EP became Limited Partners in CCEP. CHI had full discretion with respect to conducting CCEP's business, including managing CCEP's properties and initiating and approving capital expenditures and asset dispositions and refinancings. All of CEI's outstanding stock was owned by Insignia Properties Trust ("IPT"). Effective February 26, 1999, IPT was merged into Apartment Investment and Management Company ("AIMCO"). Hence, CEI is now a wholly-owned subsidiary of AIMCO, a publicly held real estate investment trust. The General Partner began the process of foreclosure or executing deeds in lieu of foreclosure during 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 was completed during the fourth quarter of 2003. 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. During 2004 the Partnership sold two of its investment properties. The Partnership Agreement provides that the Partnership is to terminate on December 31, 2011 unless terminated prior to such date. The Partnership now owns and operates seven apartment properties one each in North Carolina, Colorado and Kansas, four in Florida and one multiple-use complex in Pennsylvania. Principles of Consolidation: The Partnership's consolidated financial statements include the accounts of CCIP Sterling, L.P., a Pennsylvania Limited Partnership, Kennedy Boulevard Associates II, L.P., Kennedy Boulevard Associates III, L.P., Kennedy Boulevard Associates IV, L.P., and Kennedy Boulevard GP I ("KBGP-I"), a Pennsylvania Partnership. Each of the entities above except KBGP-I are Pennsylvania limited partnerships, and the general partners of each of these affiliated limited and general partnerships are limited liability corporations of which the Partnership is the sole member. Therefore, the Partnership controls these affiliated limited and general partnerships, and consolidation is required. CCIP Sterling, L.P. holds title to The Sterling Apartment Home and Commerce Center ("the Sterling"). All interpartnership transactions have been eliminated. Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications: Certain reclassifications have been made to the 2002 and 2003 information to conform to the 2004 presentation. Allocation of Profits, Gains, and Losses: The Agreement provides for net income and net losses for both financial and tax reporting purposes to be allocated 99% to the Limited Partners and 1% to the General Partner. Net Income Per Limited Partnership Unit: Net income per Limited Partnership Unit ("Unit") is computed by dividing net income allocated to the Limited Partners by the number of Units outstanding at the beginning of the year. Per Unit information has been computed based on 199,043.2 Units for 2004 and 2003 and 199,045.2 Units for 2002 (see "Note L" for further information). Cash and Cash Equivalents: Cash and cash equivalents includes cash on hand and in banks. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Cash balances include approximately $794,000 and $2,246,000 at December 31, 2004 and 2003, respectively, that are maintained by an affiliated management company on behalf of affiliated entities in cash concentration accounts. Restricted Escrows: At the time of the 1995 refinancing of The Loft, approximately $60,000 of the proceeds were designated for a Replacement Reserve Fund for certain capital replacements at the property. Additionally, monthly deposits are required pursuant to the mortgage agreement. At December 31, 2004 and 2003, the balance in this reserve was approximately $103,000 and $159,000, respectively. In conjunction with the financing of the Sterling in September 1998, the Partnership is required to make monthly deposits of approximately $17,000 with the mortgage company to establish and maintain a replacement reserve fund designated for repairs and replacements at the property. As of December 31, 2004 and 2003, the balance was approximately $264,000 and $470,000, respectively. At the time of refinancing of The Knolls in September 2000, approximately $505,000 of the proceeds were designated for a replacement reserve fund for certain capital replacements. At December 31, 2004 and 2003 the balance in the replacement reserve fund was approximately $295,000 and $293,000, respectively. Depreciation: Depreciation is provided by the straight-line method over the estimated lives of the apartment and commercial properties and related personal property. For Federal income tax purposes, the accelerated cost recovery method is used for real property over 19 years for additions after May 8, 1985, and before January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the modified accelerated cost recovery method is used for depreciation of (1) real property additions over 27 1/2 years and (2) personal property additions over 5 years. Deferred Costs: As of December 31, 2004 and 2003, loan costs of approximately $569,000 for both years less accumulated amortization of approximately $389,000 and $332,000 respectively, are included in other assets. The loan costs are amortized over the terms of the related loan agreements. Amortization expense was approximately $57,000 for both the years ended December 31, 2004 and 2003 and is included in interest expense. Amortization expense is expected to be approximately $57,000 for 2005, approximately $45,000 for each of the years 2006 and 2007 and approximately $33,000 for 2008. Leasing commissions and other direct costs incurred in connection with successful leasing efforts are deferred and amortized over the terms of the related leases. Amortization of these costs is included in operating expenses. At December 31, 2004 and 2003, capitalized lease commissions totaled approximately $386,000 and $379,000, respectively, with accumulated amortization of approximately $159,000 and $154,000, respectively. Tenant Security Deposits: The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. Deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on rental payments. Investment Properties: Investment properties consist of seven apartment complexes and one multiple-use building consisting of apartment units and commercial space and are stated at cost or at fair market value as determined at the time of the foreclosures in 2002 and 2003. Acquisition fees are capitalized as a cost of real estate. The Partnership capitalizes all expenditures in excess of $250 that clearly relate to the acquisition and installation of real and personal property components. These expenditures include costs incurred to replace existing property components, costs incurred to add a material new feature to a property, and costs that increase the useful life or service potential of a property component. These capitalized costs are depreciated over the useful life of the asset. Expenditures for ordinary repairs, maintenance and apartment turnover costs are expensed as incurred. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were recorded in the years ended December 31, 2004, 2003 or 2002. Fair Value of Financial Instruments: SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", as amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments", requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value is defined in the SFAS as the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes that the carrying amounts of its financial instruments (except for long term debt) approximate their fair values due to the short term maturity of these instruments. The Partnership estimates fair value by discounting future cash flows using a discount rate commensurate with that currently believed to be available to the Partnership for similar term, fully amortizing long term debt. The fair value of the Partnership's long term debt at the Partnership's incremental borrowing rate is approximately $68,183,000. Leases: 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 and the Partnership fully reserves all balances outstanding over thirty days. The Partnership generally leases apartment units for twelve-month terms or less. The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Rental income attributable to leases, net of any concessions, is recognized on a straight-line basis over the term of the lease. The Partnership evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants. Segment Reporting: 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 N" for detailed disclosure of the Partnership's segments. Advertising: The Partnership expenses the costs of advertising as incurred. Advertising costs of approximately $449,000, $273,000 and $113,000 for the years ended December 31, 2004, 2003 and 2002, respectively, were charged to operating expense and (loss) income from discontinued operations. Discontinued Operations: As a result of the sales of Silverado Apartments and Tates Creek Village Apartments to third parties during the year ended December 31, 2004 and in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the accompanying consolidated statements of operations for the years ended December 31, 2003 and 2002 have been restated as of January 1, 2002 to reflect the operations of Silverado Apartments and Tates Creek Village Apartments as income from discontinued operations of approximately $227,000 and $291,000 for the years ended December 31, 2003 and 2002, including revenues of approximately $2,790,000 and $1,090,000, respectively. Note C - Income Taxes The Partnership has received a ruling from the Internal Revenue Service that it will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the consolidated financial statements of the Partnership. Taxable income or loss of the Partnership is reported in the income tax returns of its partners. The following is a reconciliation of reported net income and Federal taxable income, as restated (in thousands, except per unit data):
2004 2003 2002 Net income as reported $ 969 $ 1,934 $ 3,049 Add (deduct): Deferred revenue and other liabilities (450) 67 1,150 Depreciation differences 416 306 460 Accrued expenses (10) 22 (9) Interest income -- 1,975 3,207 Differences in valuation allowances -- -- -- Gain on foreclosure -- (839) (2,974) Other 330 573 1,371 Federal taxable income $ 1,255 $ 4,038 $ 6,254 Federal taxable income per limited partnership unit $ 6.24 $ 20.08 $ 31.10
The following is reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities, as restated (in thousands): December 31, 2004 2003 Net assets as reported $ 23,161 $ 26,324 Land and buildings 508 410 Accumulated depreciation 4,627 4,050 Syndication fees 22,500 22,500 Other 4,463 4,852 Net assets - Federal tax basis $ 55,259 $ 58,136 Note D - 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"). The loans were made to, and the real properties that secured the Master Loan were purchased and owned by CCEP. 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 collateralized the Master Loan or extending the terms of the Master Loan. The General Partner decided to foreclose on the properties that collateralized the Master Loan. The General Partner began the process of foreclosure or executing deeds in lieu of foreclosure during 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. On November 10, 2003 the Partnership acquired the remaining four properties held by CCEP through a foreclosure sale. As the deeds were executed, title in the properties previously owned by CCEP was transferred to the Partnership subject to the existing liens on such properties, including the first mortgage loans. As a result, during the years ended December 2003 and 2002, the Partnership assumed responsibility for the operations of such properties. The results of operations of the four properties foreclosed on in 2002 are reflected in the accompanying consolidated statements of operations for the years ended December 31, 2004, 2003 and 2002. The results of operations for the four properties foreclosed on in November 2003 are included in the years ended December 31, 2004 and 2003. The following table sets forth the Partnership's non-cash activities during the years ended December 31, 2004, 2003 and 2002 with respect to the foreclosures of Plantation Gardens, Palm Lake, The Dunes and Regency Oak Apartments in 2003 and Silverado, The Knolls, Indian Creek Village and Tates Creek Village Apartments in 2002, respectively:
2004 2003 2002 (As Restated) Investment properties (a) $ -- $ 38,901 $38,273 Investments in affiliated partnerships (b) -- -- 649 Mortgage notes payable (c) -- (23,828) (26,787) Master loan, net of allowance (d) -- (14,129) (10,567) Other assets received, net of other liabilities assumed 156 (105) (6) Gain on foreclosure of real estate $ 156 $ 839 $ 1,562
(a) Amount represents the estimated fair value of the properties. The fair value was determined by appraisals obtained in September 2000 from an independent third party which have been updated by management using the net operating income of all of the collateral properties capitalized at a rate deemed reasonable for the type of property and adjusted by management for current market conditions, physical condition of each respective property, and other factors. (b) See "Note J". (c) Amount represents the present value of the mortgages encumbering the investment properties acquired through foreclosure, discounted at a rate currently available to the Partnership. (d) Amount represents the amount of the Master Loan associated with the properties acquired. In November 2003, the Partnership acquired the four remaining properties held by CCEP: Plantation Gardens Apartments, Regency Oaks Apartments, The Dunes Apartments, and Palm Lake Apartments. These properties were sold at a foreclosure sale due to CCEP's inability to repay the Master Loan and accrued interest. An affiliate of the General Partner advanced the Partnership approximately $31,278,000 in order to purchase these properties at the sale. Approximately $523,000 was retained by the court for its costs and was capitalized as acquisition costs by the Partnership and will be amortized over the estimated useful lives of the properties. The advance bore interest at prime plus 2% and the Partnership paid approximately $114,000 in interest expense for the period the loan was outstanding during 2003. The Partnership acquired the properties previously held by CCEP subject to the existing liens on the properties including the first mortgage loans. As a result of the acquisition of these remaining four properties that were held by CCEP, the Partnership recognized a gain on foreclosure of approximately $839,000 which was the excess of the actual fair market value of the properties at the time of the foreclosure sale over the value of the Master Loan balance collateralized by the properties. CCIP intends to continue to operate these properties as residential apartment complexes. Prior to the acquisition of the four remaining properties held by CCEP at a foreclosure sale in 2003, the principal balance of the Master Loan due to the Partnership totaled approximately $14,144,000 at December 31, 2002. This amount represented the fair market value of the remaining properties held by CCEP at December 31, 2002, 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 $1,520,000 and $462,000 for the years ended December 31, 2003 and 2002. Interest income was recognized on the cash basis as required by SFAS 114. During the year ended December 31, 2004, the Partnership received approximately $156,000 from CCEP as the final payment on the Master Loan. During the years ended December 31, 2003 and 2002, the Partnership received approximately $15,000 and $1,719,000 in principal payments on the Master Loan. Approximately $88,000 was received during the year ended December 31, 2002, representing cash received from distributions from three affiliated partnerships which were required to be transferred to the Partnership under the terms of the Master Loan. In addition, during the years ended December 31, 2003 and 2002 approximately $15,000 and $1,631,000 was received representing proceeds received from the sale of Society Park Apartments. Note E - Mortgage Notes Payable The terms of mortgage notes payable are as follows:
Principal Balance At December 31, Monthly Principal Payment Balance (including Interest Maturity Due At Property 2004 2003 interest) Rate Date Maturity (in thousands) (in (in thousands) thousands) The Loft Apartments 1st mortgage $ 3,983 $ 4,064 $ 30 6.95% 12/01/05 $ 3,903 The Sterling Apartment Homes and Commerce Center 1st mortgage 21,340 21,654 149 6.77% 10/01/08 19,975 The Knolls Apartments 1st mortgage 8,908 9,180 81 7.78% 03/01/10 7,105 Indian Creek Village Apartments 1st mortgage 7,877 8,117 72 7.83% 01/01/10 6,351 Plantation Gardens Apartments 1st mortgage 8,733 8,999 80 7.83% 03/01/10 6,972 Palm Lake Apartments 1st mortgage 2,695 2,777 25 7.86% 02/01/10 2,158 The Dunes Apartments 1st mortgage 3,698 3,812 34 7.81% 02/01/10 2,960 Regency Oaks Apartments 1st mortgage 6,866 7,078 63 7.80% 02/01/10 5,494 Silverado Apartments(1) 1st mortgage -- 3,264 -- -- -- -- Tates Creek Village Apartments (1) 1st mortgage -- 3,909 -- -- -- -- $64,100 $72,854 Unamortized mortgage loan premium (1) 1,668 2,341 $65,768 $75,195 $534 $54,918
(1) The mortgages and related loan premium for Silverado and Tates Creek Village Apartment were repaid as a result of their sales during the year ended December 31, 2004. The mortgage notes payable are fixed rate mortgages that are non-recourse and are secured by a pledge of the Partnership's rental properties and by a pledge of revenues from the respective rental properties. The mortgage notes payable include a prepayment penalty if repaid prior to maturity. Further, the properties may not be sold subject to existing indebtedness. The General Partner plans to refinance the mortgage on The Loft Apartments prior to its maturity date. If the property cannot be refinanced or sold for a sufficient amount, the Partnership may risk losing the property through foreclosure. The mortgages on the foreclosed properties were recorded at their fair value at the time of the foreclosure, which generated a mortgage premium on these mortgages. The fair value of the mortgages was determined based upon the incremental borrowing rate available to the Partnership at the time of foreclosure. The mortgage premium of approximately $1,668,000 is net of accumulated amortization of approximately $421,000. The mortgage premiums are being amortized over the remaining lives of the loans. Amortization expense is included in interest expense on the consolidated statements of operations. Scheduled principal payments of the mortgage notes payable subsequent to December 31, 2004, are as follows (in thousands): Mortgage Note 2005 $ 5,579 2006 1,750 2007 1,887 2008 21,900 2009 1,753 Thereafter 31,231 Total $64,100 Note F - Related Party Transactions The Partnership has no employees and depends 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 receive 5% of gross receipts from all of the Partnership's properties for providing property management services. The Partnership was charged by affiliates approximately $1,248,000, $948,000 and $695,000 for the years ended December 31, 2004, 2003 and 2002, respectively, which is included in operating expenses and (loss) income from discontinued operations. At December 31, 2004 approximately $13,000 of these fees remain unpaid and are included in due to affiliate. Affiliates of the General Partner charged the Partnership for reimbursement of accountable administrative expenses amounting to approximately $930,000, $717,000 and $454,000 for the years ended December 31, 2004, 2003 and 2002, respectively which is included in general and administrative expenses and investment properties. The portion of these reimbursements included in investment properties for the years ended December 31, 2004 and 2003 are fees related to construction management services provided by an affiliate of the General Partner of approximately $269,000 and $46,000, respectively. The construction management fees are calculated based on a percentage of current year additions to investment properties. At December 31, 2004, approximately $172,000 of these fees remain unpaid and are included in due to affiliates. For the year ended December 31, 2003, the first three quarters were based on estimated amounts and in the fourth quarter of 2003, the reimbursement of accountable administrative expenses was adjusted based on actual costs (see "Note O"). In connection with the sale of Silverado Apartments on March 31, 2004 (see "Note H"), the General Partner earned a disposition fee of approximately $333,000. In connection with the sale of Tates Creek Village Apartments on June 28, 2004 the General Partner earned a disposition fee of approximately $349,000. These fees are included in gain on sale of discontinued operations and were paid during the year ended December 31, 2004. In accordance with the Partnership Agreement, the General Partner advanced the Partnership approximately $2,391,000 for expenses at the Partnership's properties and to fund redevelopment costs at The Sterling Apartment Homes and The Knolls Apartments during the year ended December 31, 2004. Interest was charged at the prime rate plus 2% and amounted to approximately $20,000 for the year ended December 31, 2004. There were no payments made on outstanding loans during the year ended December 31, 2004. At December 31, 2004, the amount of the outstanding loans and accrued interest was approximately $2,411,000 and is included in due to affiliates (see "Note K"). In accordance with the Partnership Agreement, the General Partner advanced the Partnership approximately $220,000 for expenses at four of the Partnership's properties during the year ended December 31, 2003. This advance was repaid in full prior to December 31, 2003. Interest was charged at the prime rate plus 2% and amounted to less than $1,000 for the year ended December 31, 2003. In November 2003, an affiliate of the General Partner advanced the Partnership approximately $31,278,000 to acquire the last four properties held by CCEP at a foreclosure sale (See "Note D"). The advance was repaid prior to the year ended December 31, 2003. Interest was charged at the prime rate plus 2% and amounted to approximately $114,000 during the year ended December 31, 2003. There were no loans from the General Partner or associated interest expense during the year ended December 31, 2002. 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 the years ended December 31, 2004, 2003 and 2002 the Partnership was charged by AIMCO and its affiliates approximately $282,000, $212,000 and $256,000, respectively, for insurance coverage and fees associated with policy claims administration. In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 145,195.60 limited partnership units (the "Units") in the Partnership representing 72.95% of the outstanding Units at December 31, 2004. 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 in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that would include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 72.95% of the outstanding Units, AIMCO and its affiliates are in a position to control all such voting decisions with respect to the Partnership. 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 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. Note G - Investment Properties and Accumulated Depreciation
Investment Properties Initial Cost To Partnership (in thousands) Buildings Cost and Related Capitalized Personal Subsequent to Description Encumbrances Land Property Acquisition (in thousands) (in thousands) The Loft Apartments $ 3,983 $ 1,053 $ 4,147 $ 2,626 The Sterling Apt Homes and Commerce Center 21,340 2,567 12,341 24,807 The Knolls Apartments 8,908 4,318 10,682 2,909 Indian Creek Village 7,877 3,975 8,225 (33) Apartments Plantation Gardens Apartments 8,733 4,046 15,217 231 Palm Lake Apartments 2,695 989 3,369 394 The Dunes Apartments 3,698 1,449 5,427 122 Regency Oaks Apartments 6,866 2,024 6,902 843 Total $64,100 $20,421 $66,310 $ 31,899
Gross Amount At Which Carried At December 31, 2004 (in thousands)
Buildings And Related Personal Accumulated Date Depreciable Description Land Property Total Depreciation Acquired Life-Years (in thousands) The Loft $ 997 $ 6,829 $ 7,826 $ 5,045 11/19/90 5-30 The Sterling 2,567 37,148 39,715 19,022 12/01/95 5-30 The Knolls 4,318 13,591 17,909 1,128 08/09/02 5-30 Indian Creek Village 3,975 8,192 12,167 850 08/09/02 5-30 Plantation Gardens 4,046 15,448 19,494 733 11/10/03 5-30 Palm Lake 989 3,763 4,752 202 11/10/03 5-30 The Dunes 1,449 5,549 6,998 358 11/10/03 5-30 Regency Oaks 2,024 7,745 9,769 499 11/10/03 5-30 Totals $20,365 $ 98,265 $118,630 $27,837
Reconciliation of "investment properties and accumulated depreciation": Years Ended December 31, 2004 2003 (in thousands) Real Estate Balance, real estate at beginning of year $122,858 $82,077 Acquisition of properties through foreclosure -- 39,424 Property improvements and replacements 7,930 1,472 Sale of investment property (11,357) -- Disposal of property (801) (115) Balance, real estate at end of year $118,630 $122,858 Accumulated Depreciation Balance at beginning of year $ 23,194 $ 19,158 Additions charged to expense 5,300 4,056 Sale of investment property (619) -- Disposal of property (38) (20) Balance at end of year $ 27,837 $ 23,194 The aggregate cost of the real estate for Federal income tax purposes at December 31, 2004 and 2003, is approximately $119,138,000 and $123,268,000, respectively. Accumulated depreciation for Federal income tax purposes at December 31, 2004 and 2003 is approximately $23,210,000, and $19,144,000, respectively. Note H - Sale of Investment Property On March 31, 2004, the Partnership sold Silverado Apartments, located in El Paso, Texas, to a third party for $6,650,000. After payment of closing costs, the net sales proceeds received by the Partnership were approximately $6,169,000. The Partnership used a portion of the proceeds to repay the mortgage encumbering the property of approximately $3,248,000. The sale resulted in a gain on sale of investment property of approximately $1,510,000 during the year ended December 31, 2004. In addition, the Partnership recorded a loss on early extinguishment of debt of approximately $685,000 as a result of prepayment penalties paid partially offset by the write off of the unamortized mortgage premium which is included in loss from discontinued operations. Pursuant to the Partnership Agreement and in conjunction with the sale, a disposition fee of approximately $333,000 was earned by and paid to the General Partner during the year ended December 31, 2004. Included in (loss) income from discontinued operations for the years ended December 31, 2004, 2003 and 2002 are results of the property's operations of approximately $(672,000), $119,000 and $170,000, respectively, including revenues of approximately $339,000, $1,411,000 and $543,000, respectively. On June 28, 2004, the Partnership sold Tates Creek Village Apartments, located in Lexington, Kentucky, to a third party for $6,980,000. After payment of closing costs, the net sales proceeds received by the Partnership were approximately $6,420,000. The Partnership used a portion of the proceeds to repay the mortgage encumbering the property of approximately $3,851,000. The sale resulted in a gain on sale of investment property of approximately $206,000 during the year ended December 31, 2004. In addition, the Partnership recorded a loss on early extinguishment of debt of approximately $476,000 as a result of prepayment penalties paid, partially offset by the write off of the unamortized mortgage premium which is included in loss from discontinued operations. Pursuant to the Partnership Agreement and in conjunction with the sale, a disposition fee of approximately $349,000 was earned by and paid to the General Partner during the year ended December 31, 2004. Included in (loss) income from discontinued operations for the years ended December 31, 2004, 2003 and 2002 are results of the property's operations of approximately $(441,000), $108,000 and $121,000, respectively, including revenues of approximately $704,000, $1,379,000 and $547,000, respectively. Note I - Commercial Leases In December 2001, the Partnership's most significant commercial tenant at The Sterling Commerce Center vacated its space which represented 30.58% of the leaseable commercial space. The Partnership filed a lawsuit against such tenant seeking monetary damages for unpaid rent, including rent which had been abated in favor of the tenant completing significant improvements to its space. The Partnership accepted a settlement whereby the tenant paid $180,000 in satisfaction of all unpaid rent amounts due and the Partnership accepted possession of the improvements completed by the tenant which were valued at approximately $498,000. The settlement amount was paid in 2002. Beginning in 2002, these improvements are being depreciated over their remaining estimated useful lives. Rental income on the commercial property leases is recognized by the straight-line method over the life of the applicable leases. Minimum future rental income for the commercial properties subject to noncancellable operating leases is as follows (in thousands): Year Ending December 31, 2005 $ 1,035 2006 904 2007 711 2008 511 2009 436 2010 358 2011 29 $ 3,984 There is no assurance that this rental income will continue at the same level when the current leases expire. Note J - Investment in Affiliated Partnerships The Partnership had investments in the following affiliated partnerships:
Investment Ownership At December 31, Partnership Type of Ownership Percentage 2004 2003 (in thousands) (As Restated) Consolidated Capital Special Limited Growth Fund Partner 0.40% $ 13 $ 14 Consolidated Capital Special Limited Properties III Partner 1.85% 17 30 Consolidated Capital Special Limited Properties IV Partner 1.85% 594 562 $ 624 $ 606
These investments were assumed during the foreclosure of investment properties from CCEP (see "Note D") 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 year ended December 31, 2004, the Partnership recognized approximately $18,000 in equity in income from investment related to its allocated share of the income (loss) for the investments. During the year ended December 31, 2003, the Partnership received approximately $1,048,000 in distributions from two of the investments. Approximately $1,015,000 of the distributions related to the sale of three of the properties in Consolidated Capital Growth Fund. Of this amount, approximately $984,000 was recognized as equity in income from investment once the investment balance allocated to those properties had been reduced to zero. The Partnership also recognized equity in income from investment of approximately $45,000 related to its allocated share of the income (loss) for the investments. Note K - Subsequent Event Subsequent to December 31, 2004, the General Partner advanced the Partnership approximately $1,639,000 to fund redevelopment costs at The Sterling and The Knolls Apartments, hurricane damage related expenditures at Regency Oaks Apartments and operating deficit at The Knolls Apartments. Note L - Abandonment of Limited Partnership Units During the year ended December 31, 2002, the number of Limited Partnership Units decreased by 2 units due to limited partners abandoning their units. In abandoning his or her Limited Partnership Unit(s), a limited partner relinquishes all right, title, and interest in the partnership as of the date of abandonment. However, the limited partner is allocated his or her share of net income or loss for that year. The income or loss per Limited Partnership Unit in the accompanying consolidated statements of operations is calculated based on the number of units outstanding at the beginning of the year. There were no such abandonments in 2004 or 2003. Note M - Casualty Gains and Losses During the year ended December 31, 2004, there was a fire at Indian Creek Village Apartments that damaged nine units. The property suffered damages of approximately $442,000. Insurance proceeds of approximately $242,000 were received during the year ended December 31, 2004. No loss is being recognized for this casualty as it is anticipated that insurance proceeds will cover the damages incurred. During the year ended December 31, 2004, there was a casualty loss of approximately $25,000 recorded at Regency Oaks Apartments related to a fire that damaged four apartment units. The loss was the result of the write off of net fixed assets of approximately $79,000, partially offset by insurance proceeds of approximately $54,000. During the year ended December 31, 2004, the Partnership's investment property, Regency Oaks Apartments, sustained damages from Hurricanes Charlie, Francis and Jeanne. The damages incurred totaled approximately $242,000, which will not be covered by insurance proceeds. There was a casualty loss of approximately $242,000 recorded at Regency Oaks Apartments related to the damages to the property caused by the hurricanes. This loss was the result of the write off of net fixed assets of approximately $242,000. In addition, the property incurred approximately $73,000 in clean up costs related to this hurricane which is included in operating expenses. During the year ended December 31, 2004, the Partnership's investment property, The Dunes Apartments, sustained damages from Hurricane Jeanne. The damages incurred totaled approximately $38,000, which will not be covered by insurance proceeds. There was a casualty loss of approximately $38,000 recorded at The Dunes Apartments related to the damages to the property caused by Hurricane Jeanne. This loss was the result of the write off of net fixed assets of approximately $38,000. In addition, the property incurred approximately $16,000 in clean up costs related to Hurricane Francis which is included in operating expenses. During the year ended December 31, 2003, there was a casualty gain of approximately $25,000 recorded at The Sterling Apartment Homes related to an electrical fire that damaged two units. This gain was the result of the receipt of insurance proceeds of approximately $73,000, net of the write off of net fixed assets of approximately $48,000. During the year ended December 31, 2003, there was a casualty loss of approximately $8,000 recorded at Tates Creek Village Apartments related to an ice storm which resulted in major landscaping damage which is included in (loss) income from discontinued operations. The loss was the result of the receipt of insurance proceeds of approximately $39,000, net of the write off of undepreciated fixed assets of approximately $47,000. Note N - 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 seven apartment complexes one each in North Carolina, Colorado and Kansas, four in Florida, 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 seven 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 years ending December 31, 2004, 2003 and 2002 is shown in the tables below, as restated (in thousands). The "Other" Column includes partnership administration related items and income and expense not allocated to reportable segments.
2004 (Restated) Residential Commercial Other Totals Rental income $20,617 $ 1,418 $ -- $22,035 Other income 1,947 137 4 2,088 Equity in income of investment -- -- 18 18 Interest expense 4,382 222 26 4,630 Depreciation expense 4,895 268 -- 5,163 General and administrative expenses -- -- 857 857 Casualty loss (267) -- -- (267) Gain on sale of investment 1,716 -- -- 1,716 Loss from discontinued operations (1,113) -- -- (1,113) Gain on foreclosure of real estate -- -- 156 156 Segment profit (loss) 2,107 (433) (705) 969 Total assets 92,833 1,607 738 95,178 Capital expenditures for investment Properties 7,181 749 -- 7,930
2003 (Restated) Residential Commercial Other Totals Rental income $13,505 $ 1,117 $ -- $14,622 Other income 1,053 115 2 1,170 Casualty gain 25 -- -- 25 Equity in income of investment -- -- 1,029 1,029 Interest expense 3,022 225 114 3,361 Depreciation expense 3,506 168 -- 3,674 General and administrative expenses -- -- 1,151 1,151 Income from discontinued operations 227 -- -- 227 Gain on foreclosure of real estate -- -- 839 839 Segment profit (loss) 1,824 (495) 605 1,934 Total assets 102,425 1,121 1,466 105,012 Capital expenditures for investment Properties 1,195 277 -- 1,472
2002 (Restated) Residential Commercial Other Totals Rental income $11,100 $ 1,109 $ -- $12,209 Other income 839 118 4 961 Interest expense 2,071 228 -- 2,299 Depreciation expense 2,911 177 -- 3,088 General and administrative expenses -- -- 836 836 Income from discontinued operations 291 -- -- 291 Interest income on investment In Master Loan -- -- 386 386 Gain on foreclosure of real estate -- -- 1,562 1,562 Segment profit (loss) 2,257 (324) 1,116 3,049 Total assets 65,550 862 16,650 83,062 Capital expenditures for investment properties 560 22 -- 582
Note O - Fourth-Quarter Adjustment The Partnership's policy is to record management reimbursements to the General Partner as allowed under the Partnership Agreement on a quarterly basis, using estimated financial information furnished by an affiliate of the General Partner. For the first three quarters of 2003, these reimbursements of accountable administrative expenses were based on estimated amounts. During the fourth quarter of 2003, the Partnership recorded an adjustment to management reimbursements to the General Partner of approximately $221,000, due to a difference in the estimated costs and the actual costs incurred. The actual management reimbursements to the General Partner for the year ended December 31, 2003 were approximately $672,000, as compared to the estimated management reimbursements to the General Partner for the nine months ended September 30, 2003 of approximately $337,000. The adjustment to management reimbursements was included in general and administrative expenses. There were no material adjustments to management reimbursements during the fourth quarter of 2004. Note P - Contingencies 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 purported to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) that 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 that 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 sought monetary damages and equitable relief, including judicial dissolution of the Partnership. In addition, during the third quarter of 2001, a complaint captioned Heller v. Insignia Financial Group (the "Heller action") was filed against the same defendants that are named in the Nuanes action. On or about August 6, 2001, plaintiffs filed a first amended complaint. The Heller action was brought as a purported derivative action, and asserted claims for, among other things, breach of fiduciary duty, unfair competition, conversion, unjust enrichment, and judicial dissolution. On January 8, 2003, the parties filed a Stipulation of Settlement in proposed settlement of the Nuanes action and the Heller action. 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 at least one round of tender offers 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 provided for the limitation of the allowable costs which the 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. On June 13, 2003, the court granted final approval of the settlement and entered judgment in both the Nuanes and Heller actions. On August 12, 2003, an objector ("Objector") filed an appeal (the "Appeal") seeking to vacate and/or reverse the order approving the settlement and entering judgment thereto. On November 24, 2003, the Objector filed an application requesting the court order AIMCO to withdraw settlement tender offers it had commenced, refrain from making further offers pending the appeal and auction any units tendered to third parties, contending that the offers did not conform with the terms of the settlement. Counsel for the Objector (on behalf of another investor) had alternatively requested the court take certain action purportedly to enforce the terms of the settlement agreement. On December 18, 2003, the court heard oral argument on the motions and denied them both in their entirety. The Objector filed a second appeal challenging the court's use of a referee and its order requiring Objector to pay those fees. On January 28, 2004, the Objector filed his opening brief in the Appeal. On April 23, 2004, the General Partner and its affiliates filed a response brief in support of the settlement and the judgment thereto. The plaintiffs have also filed a brief in support of the settlement. On June 4, 2004, Objector filed a reply to the briefs submitted by the General Partner and Plaintiffs. In addition both the Objector and plaintiffs filed briefs in connection with the second appeal. On March 21, 2005, the Court of Appeals issued opinions in both pending appeals. With regard to the settlement and judgment entered thereto, the Court of Appeals vacated the trial court's order and remanded to the trial court for further findings on the basis that the "state of the record is insufficient to permit meaningful appellate review". With regard to the second appeal, the Court of Appeals reversed the order requiring the Objector to pay referee fees. 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. As a previously disclosed, AIMCO Properties L.P. and NHP Management Company, both affiliates of the General Partner, are defendants in an action in the United States District Court, District of Columbia. The plaintiffs have styled their complaint as a collective action under the Fair Labor Standards Act ("FLSA") and seek to certify state subclasses in California, Maryland, and the District of Columbia. Specifically, the plaintiffs contend that AIMCO Properties L.P. failed to compensate maintenance workers for time that they were required to be "on-call." Additionally, plaintiffs allege AIMCO Properties L.P. failed to comply with the FLSA in compensating maintenance workers for time that they worked in responding to a call while "on-call." The defendants have filed an answer to the amended complaint denying the substantive allegations. Discovery relating to the certification of the collective action has concluded and briefing on the matter is underway. Although the outcome of any litigation is uncertain, AIMCO Properties, L.P. does not believe that the ultimate outcome will have a material adverse effect on its financial condition or results of operations. Similarly, the General Partner does not believe that the ultimate outcome will have a material adverse effect on the Partnership's financial condition or results of operations. Similarly, the General Partner does not believe that the ultimate outcome will have a material adverse effect on the Partnership's financial condition or results of operations. The Partnership is unaware of any other pending or outstanding litigation matters involving it or its investment properties that are not of a routine nature arising in the ordinary course of business. Environmental Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership and operation of its properties, the Partnership could potentially be liable for environmental liabilities or costs associated with its properties. Mold The Partnership is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements. The Partnership has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure. Affiliates of the General Partner have implemented a national policy and procedures to prevent or eliminate mold from its properties and the General Partner believes that these measures will eliminate, or at least minimize, the effects that mold could have on residents. To date, the Partnership has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. Because the law regarding mold is unsettled and subject to change the General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Partnership's consolidated financial condition or results of operations. SEC Investigation As previously disclosed, the Central Regional Office of the United States Securities and Exchange Commission (the "SEC") is conducting a formal investigation relating to certain matters. Although the staff of the SEC is not limited in the areas that it may investigate, AIMCO believes the areas of investigation include AIMCO's miscalculated monthly net rental income figures in third quarter 2003, forecasted guidance, accounts payable, rent concessions, vendor rebates, capitalization of payroll and certain other costs, and tax credit transactions. AIMCO is cooperating fully. AIMCO is not able to predict when the matter will be resolved. AIMCO does not believe that the ultimate outcome will have a material adverse effect on its consolidated financial condition or results of operations. Similarly, the General Partner does not believe that the ultimate outcome will have a material adverse effect on the Partnership's consolidated financial condition or results of operations. Note Q - Selected Quarterly Financial Data (Unaudited) The following is a summary of the unaudited quarterly results of operations for the Partnership, as restated (in thousands, except per unit data):
1st 2nd 3rd 4th 2004 (Restated) Quarter Quarter Quarter Quarter Total Total revenues $5,849 $5,858 $6,144 $6,272 $24,123 Total expenses 5,887 6,171 6,562 5,311 23,931 (Loss) income from continuing Operations (38) (313) (418) 961 192 Loss from discontinued operations (651) (449) (13) -- (1,113) Gain on sale of investment 1,433 283 -- -- 1,716 Gain on foreclosure of real estate -- 156 -- -- 156 Equity in income of investment -- 17 -- 1 18 Net income (loss) $ 744 $ (306) $ (431) $ 962 $ 969 Net income (loss) allocated to General Partner (1%) $ 7 $ (3) $ (4) $ 10 $ 10 Net income (loss) allocated to Limited Partners (99%) 737 (303) (427) 952 959 $ 744 $ (306) $ (431) $ 962 $ 969 Net income (loss) per limited partnership unit $ 3.70 $ (1.52) $ (2.15) $ 4.79 $ 4.82 Distributions per limited partnership unit $ -- $ 9.13 $ 11.63 $ -- $ 20.76
1st 2nd 3rd 4th 2003(Restated) Quarter Quarter Quarter Quarter Total Total revenues $3,698 $3,790 $3,920 $4,409 $15,817 Total expenses 3,903 3,858 3,677 4,540 15,978 (Loss) income from continuing Operations (205) (68) 243 (131) (161) Income from discontinued Operations 32 36 50 109 227 Gain on foreclosure of real Estate -- -- -- 839 839 Equity in income of investment 233 -- 748 48 1,029 Net income (loss) $ 60 $ (32) $ 1,041 $ 865 $ 1,934 Net income allocated to General Partner (1%) $ -- $ -- $ 10 $ 9 $ 19 Net income (loss) allocated to Limited Partners (99%) 60 (32) 1,031 856 1,915 $ 60 $ (32) $ 1,041 $ 865 $ 1,934 Net income (loss) per limited partnership unit $ 0.30 $ (0.16) $ 5.18 $ 4.30 $ 9.62 Distributions per limited partnership unit $ 9.99 $ 1.75 $ 5.37 $ -- $ 17.11
1st 2nd 3rd 4th 2002 (Restated) Quarter Quarter Quarter Quarter Total Total revenues $2,929 $3,249 $3,488 $3,890 $13,556 Total expenses 2,787 2,810 3,078 3,685 12,360 Income from continuing operations 142 439 410 205 1,196 Income from discontinued operations -- -- 166 125 291 Gain on foreclosure of real estate -- -- 1,562 -- 1,562 Net income $ 142 $ 439 $ 2,138 $ 330 $ 3,049 Net income allocated to General Partner (1%) $ 1 $ 4 $ 21 $ 4 $ 30 Net income allocated to Limited Partners (99%) 141 435 2,117 326 3,019 $ 142 $ 439 $ 2,138 $ 330 $ 3,049 Net income per limited partnership unit $ 0.71 $ 2.19 $ 10.64 $ 1.63 $ 15.17 Distributions per limited partnership unit $ 2.27 $ 4.64 $ 4.70 $ 6.18 $ 17.79
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures (a) Disclosure Controls and Procedures. The Partnership's management, with the participation of the principal executive officer and principal financial officer of the General Partner, who are the equivalent of the Partnership's principal officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnership's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, 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 concluded that, as of the end of such period, the Partnership's disclosure controls were not effective due to the Partnership's failure to properly record the Partnership's investment in an affiliated partnership and incorrectly recognizing equity in gains on sale of investment properties in the affiliated partnership in 2003 and 2004. The Partnership's management believes that, as of the date of the filing of Amendment No. 1 on July 1, 2005, the Partnership's ineffective disclosure controls were and continue to be fully remediated. Actions taken include improving the education of accounting personnel to ensure the understanding and application of appropriate accounting treatment, as well as improving the Partnership's accounting review procedures. (b) Internal Control Over Financial Reporting. There have not been any changes in the Partnership's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2004 that have materially affected, or are reasonably likely to materially affect, the Partnership's internal control over financial reporting. Item 9B. Other Information None. PART III Item 10. Directors, Executive Officers of the General Partner of the Partnership The names and ages of, as well as the positions and offices held by, the present officers and directors of ConCap Equities, Inc. ("CEI") the Partnership's General Partner as of December 31, 2004, their ages and the nature of all positions with CEI presently held by them are as follows: Martha L. Long 45 Director and Senior Vice President Harry G. Alcock 42 Director and Executive Vice President Miles Cortez 61 Executive Vice President, General Counsel and Secretary Patti K. Fielding 41 Executive Vice President Paul J. McAuliffe 48 Executive Vice President and Chief Financial Officer Thomas M. Herzog 42 Senior Vice President and Chief Accounting Officer Stephen B. Waters 43 Vice President Martha L. Long has been a Director and Senior Vice President of the General Partner since February 2004. Ms. Long has been with AIMCO since October 1998 and has served in various capacities. From 1998 to 2001, Ms. Long served as Senior Vice President and Controller of AIMCO and the General Partner. During 2002 and 2003, Ms. Long served as Senior Vice President of Continuous Improvement for AIMCO. Harry G. Alcock was appointed as a Director of the General Partner in October 2004 and was appointed Executive Vice President of the General Partner in February 2004 and has been Executive Vice President and Chief Investment Officer of AIMCO since October 1999. Prior to October 1999 Mr. Alcock served as a Vice President of AIMCO from July 1996 to October 1997, when he was promoted to Senior Vice President-Acquisitions where he served until October 1999. Mr. Alcock has had responsibility for acquisition and financing activities of AIMCO since July 1994. Miles Cortez was appointed Executive Vice President, General Counsel and Secretary of the General Partner in February 2004 and of AIMCO in August 2001. Prior to joining AIMCO, Mr. Cortez was the senior partner of Cortez Macaulay Bernhardt & Schuetze LLC, a Denver law firm, from December 1997 through September 2001. Patti K. Fielding was appointed Executive Vice President - Securities and Debt of the General Partner in February 2004 and of AIMCO in February 2003. Ms. Fielding was appointed Treasurer of AIMCO in January 2005. Ms. Fielding is responsible for debt financing and the treasury department. Ms. Fielding previously served as Senior Vice President - Securities and Debt of AIMCO from January 2000 to February 2003. Ms. Fielding joined AIMCO in February 1997 as a Vice President. Paul J. McAuliffe has been Executive Vice President and Chief Financial Officer of the General Partner since April 2002. Mr. McAuliffe has served as Executive Vice President of AIMCO since February 1999 and was appointed Chief Financial Officer of AIMCO in October 1999. From May 1996 until he joined AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp. Thomas M. Herzog was appointed Senior Vice President and Chief Accounting Officer of the General Partner in February 2004 and of AIMCO in January 2004. Prior to joining AIMCO in January 2004, Mr. Herzog was at GE Real Estate, serving as Chief Accounting Officer & Global Controller from April 2002 to January 2004 and as Chief Technical Advisor from March 2000 to April 2002. Prior to joining GE Real Estate, Mr. Herzog was at Deloitte & Touche LLP from 1990 until 2000. Stephen B. Waters was appointed Vice President of the General Partner in April 2004. Mr. Waters previously served as a Director of Real Estate Accounting since joining AIMCO in September 1999. Mr. Waters has responsibilities for real estate and partnership accounting with AIMCO. One or more of the above persons are also directors and/or officers of a general partner (or general partner of a general partner) of limited partnerships which either have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15(d) of such Act. Further, one or more of the above persons are also directors and/or officers of Apartment Investment and Management Company and the general partner of AIMCO Properties, L.P., entities that have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15 (d) of such Act. The board of directors of the General Partner does not have a separate audit committee. As such, the board of directors of the General Partner fulfills the functions of an audit committee. The board of directors has determined that Martha L. Long meets the requirement of an "audit committee financial expert". The directors and officers of the General Partner with authority over the Partnership are all employees of subsidiaries of AIMCO. AIMCO has adopted a code of ethics that applies to such directors and officers that is posted on AIMCO's website (www.AIMCO.com). AIMCO's website is not incorporated by reference to this filing. Item 11. Executive Compensation No remuneration was paid to the General Partner nor its director or officers. Item 12. Security Ownership of Certain Beneficial Owners and Management (a) Security Ownership of Certain Beneficial Owners Except as noted below, no persons or entity is known by the General Partner to own beneficially more than 5% of the outstanding Units of the Partnership: Name and Address Number of Units Percentage AIMCO IPLP, L.P. (an affiliate of AIMCO) 50,572.4 25.41% Reedy River Properties, L.L.C. (an affiliate of AIMCO) 28,832.5 14.49% Cooper River Properties, L.L.C. (an affiliate of AIMCO) 11,365.6 5.71% AIMCO Properties, L.P. (an affiliate of AIMCO) 54,425.1 27.34% Reedy River Properties, Cooper River Properties LLC and AIMCO IPLP, L.P. are indirectly ultimately owned by AIMCO. Their business addresses are 55 Beattie Place, Greenville, SC 20602. AIMCO Properties, LP is ultimately controlled by AIMCO. Its business address is 4582 S. Ulster St. Parkway, Suite 1100, Denver, Colorado 80237. (b) Beneficial Owners of Management Except as described in Item 12(a) above, neither CEI nor any of the directors, officers or associates of CEI own any Units of the Partnership of record or beneficially. (c) Changes in Control Beneficial Owners of CEI As of December 31, 2004, the following entity was known to CEI to be the beneficial owner of more than 5% of its common stock: NUMBER OF PERCENT NAME AND ADDRESS UNITS OF TOTAL Insignia Properties Trust 55 Beattie Place P.O. Box 1089 Greenville, SC 29602 100,000 100% Effective February 26, 1999, Insignia Properties Trust merged into AIMCO with AIMCO being the surviving corporation. As a result, AIMCO ultimately acquired a 100% interest in Insignia Properties Trust. Item 13. Certain Relationships and Related Transactions The Partnership has no employees and depends 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 receive 5% of gross receipts from all of the Partnership's properties for providing property management services. The Partnership was charged by affiliates approximately $1,248,000, $948,000 and $695,000 for the years ended December 31, 2004, 2003 and 2002, respectively, which is included in operating expenses and (loss) income from discontinued operations. At December 31, 2004 approximately $13,000 of these fees remain unpaid and are included in due to affiliates. Affiliates of the General Partner charged the Partnership for reimbursement of accountable administrative expenses amounting to approximately $930,000, $717,000 and $454,000 for the years ended December 31, 2004, 2003 and 2002, respectively which is included in general and administrative expenses and investment properties. The portion of these reimbursements included in investment properties for the years ended December 31, 2004 and 2003 are fees related to construction management services provided by an affiliate of the General Partner of approximately $269,000 and $46,000, respectively. The construction management fees are calculated based on a percentage of current year additions to investment properties. At December 31, 2004, approximately $172,000 of these fees remain unpaid and are included in due to affiliates. For the year ended December 31, 2003, the first three quarters were based on estimated amounts and in the fourth quarter of 2003, the reimbursement of accountable administrative expenses was adjusted based on actual costs (see "Note O"). In connection with the sale of Silverado Apartments on March 31, 2004 (see "Note H"), the General Partner earned a disposition fee of approximately $333,000. In connection with the sale of Tates Creek Village Apartments on June 28, 2004 the General Partner earned a disposition fee of approximately $349,000. These fees are included in gain on sale of discontinued operations and were paid during the year ended December 31, 2004. In accordance with the Partnership Agreement, the General Partner advanced the Partnership approximately $2,391,000 for expenses at four of the Partnership's properties and to fund redevelopment costs at The Sterling Apartment Homes and The Knolls Apartments during the year ended December 31, 2004. Interest was charged at the prime rate plus 2% and amounted to approximately $20,000 for the year ended December 31, 2004. There were no payments made on outstanding loans during the year ended December 31, 2004. At December 31, 2004, the amount of the outstanding loans and accrued interest was approximately $2,411,000 and is included in due to affiliates. In accordance with the Partnership Agreement, the General Partner advanced the Partnership approximately $220,000 for expenses at four of the Partnership's properties during the year ended December 31, 2003. This advance was repaid in full prior to December 31, 2003. Interest was charged at the prime rate plus 2% and amounted to less than $1,000 for the year ended December 31, 2003. In November 2003, an affiliate of the General Partner advanced the Partnership approximately $31,278,000 to acquire that last four properties held by CCEP at a foreclosure sale (see "Item 8. Financial Statements and Supplementary Data - Note D"). The advance was repaid prior to the year ended December 31, 2003. Interest was charged at the prime rate plus 2% and amounted to approximately $114,000 during the year ended December 31, 2003. There were no loans from the General Partner or associated interest expense during the year ended December 31, 2002. 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 the years ended December 31, 2004, 2003 and 2002 the Partnership was charged by AIMCO and its affiliates approximately $282,000, $212,000 and $256,000, respectively, for insurance coverage and fees associated with policy claims administration. In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 145,195.60 limited partnership units (the "Units") in the Partnership representing 72.95% of the outstanding Units at December 31, 2004. 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 in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that would include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 72.95% of the outstanding Units, AIMCO and its affiliates are in a position to control all such voting decisions with respect to the Partnership. 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 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. PART IV Item 14. Principal Accounting Fees and Services The General Partner has reappointed Ernst & Young LLP as independent auditors to audit the financial statements of the Partnership for 2005. The aggregate fees billed for services rendered by Ernst & Young, LLP for 2004, 2003 and 2002 are described below. Audit Fees. Fees for audit services totaled approximately $97,000, $62,000 and $58,000 for 2004, 2003 and 2002, respectively. Fees for audit services also include fees for the reviews of the Partnership's Quarterly Reports on Form 10-Q. Tax Fees. Fees for tax services totaled approximately $13,000, $32,000 and $20,000 for 2004, 2003 and 2002, respectively. Item 15. Exhibits, Financial Statement Schedules 1. Schedules All schedules are omitted because they are not required, are not applicable or the financial information is included in the financial statements or notes thereto. 2. Exhibits See Exhibit Index attached. 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/Martha L. Long Martha L. Long Senior Vice President By: /s/Stephen B. Waters Stephen B. Waters Vice President Date: August 15, 2005 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/Harry G. Alcock Director and Executive Date: August 15, 2005 Harry G. Alcock Vice President /s/Martha L. Long Director and Senior Vice Date: August 15, 2005 Martha L. Long President /s/Stephen B. Waters Vice President Date: August 15, 2005 Stephen B. Waters EXHIBIT INDEX S-K Reference Document Description 3 Certificates of Limited Partnership, as amended to date. (Incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 1991 ("1991 Annual Report")). 10.20 Mortgage and Security Agreement between Kennedy Boulevard Associates I, L.P., and Lehman Brothers Holdings, Inc., dated August 25, 1998, securing The Sterling Apartment Home and Commerce Center filed in Form 10-Q for the quarter ended September 30, 1998. 10.21 Repair Escrow Agreement between Kennedy Boulevard Associates I, L.P., and Lehman Brothers Holdings, Inc., dated August 25, 1998, securing The Sterling Apartment Home and Commerce Center filed in Form 10-Q for the quarter ended September 30, 1998. 10.22 Replacement Reserve and Security Agreement between Kennedy Boulevard Associates I, L.P., and Lehman Brothers Holdings, Inc., dated August 25, 1998, securing The Sterling Apartment Home and Commerce Center filed in Form 10-Q for the quarter ended September 30, 1998. 10.23 Third Amendment to the Limited Partnership Agreement filed as Exhibit 10.23 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001 and incorporated herein by reference. 10.24 Fourth Amendment to the Limited Partnership Agreement filed as Exhibit 10.24 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001 and incorporated herein by reference. 10.28 Form of Amended Order Setting Foreclosure Sale Date pursuant to amending the foreclosure date filed on September 25, 2003 (Schedules and supplemental materials to this exhibit filed herewith have been omitted but will be provided to the Securities and Exchange Commission upon request).* 10.29 Form of Certificate of Sale as to Property "1" pursuant to sale of Palm Lake Apartments to CCIP Palm Lake, L.L.C. filed October 28, 2003.* 10.30 Form of Certificate of Sale as to Property "2" pursuant to sale of Regency Oaks Apartments to CCIP Regency Oaks, L.L.C. filed October 28, 2003.* 10.31 Form of Certificate of Sale as to Property "3" pursuant to sale of The Dunes Apartments (formerly known as Society Park East Apartments) to CCIP Society Park East, L.L.C. filed October 28, 2003.* 10.32 Form of Certificate of Sale as to Property "4" pursuant to sale of Plantation Gardens Apartments to CCIP Plantation Gardens, L.L.C. filed October 28, 2003.* 10.33 Purchase and Sale contract between Consolidated Capital Equity Partner, LP, a California limited partnership and Cash Investments of El Paso, LLC, a Texas limited liability company dated December 8, 2003 filed as exhibit 10.33 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 and incorporated herein by reference. 10.34 Assignment of purchase and sale contract between Consolidated Capital Equity Partners, LP a California limited partnership and CCIP Silverado, LP, a Delaware limited partnership dated December 8, 2003 filed as exhibit 10.34 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 and incorporated herein by reference. 10.35 Reinstatement and first amendment to purchase and sale contract by and between CCIP Silverado, LP, a Delaware limited partnership, assignee of Consolidated Capital Equity Partners, LP, a California limited liability partnership, and Cash Investments of El Paso, LLC, a Texas limited liability company and EPT San Mateo Apartments, LP, a Texas limited liability partnership, assignee of original purchaser dated February 6, 2004 filed as exhibit 10.35 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 and incorporated herein by reference. 10.36 Purchase and Sale contract between CCIP Tates Creek Village, LLC, a Delaware limited liability company and Tates Creek Investments, LLC, a Michigan limited liability company dated April 13, 2004 for the sale of Tates Creek Village Apartments filed as exhibit 10.36 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 and incorporated herein by reference. 10.37 Amendment of purchase and sale contract between CCIP Tates Creek Village, LLC and Tates Creek Investments, LLC, dated May 27, 2004 filed as exhibit 10.37 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 and incorporated herein by reference. 31.1 Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *Filed as exhibits 10.28 through 10.32 in the Registrant's Quarterly Form 10-Q for the quarter ended September 30, 2003 incorporated herein by reference. Exhibit 31.1 CERTIFICATION I, Martha L. Long, certify that: 1. I have reviewed this annual report on Form 10-K/A No. 2 of Consolidated Capital Institutional Properties; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 15, 2005 /s/Martha L. Long Martha L. Long Senior Vice President of ConCap Equities, Inc., equivalent of the chief executive officer of the Partnership Exhibit 31.2 CERTIFICATION I, Stephen B. Waters, certify that: 1. I have reviewed this annual report on Form 10-K/A No. 2 of Consolidated Capital Institutional Properties; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 15, 2005 /s/Stephen B. Waters Stephen B. Waters Vice President of ConCap Equities, Inc., equivalent of the chief financial officer of the Partnership Exhibit 32.1 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 Annual Report on Form 10-K/A No. 2 of Consolidated Capital Institutional Properties (the "Partnership"), for the year end December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Martha L. Long, as the equivalent of the chief executive officer of the Partnership, and Stephen B. Waters, 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/Martha L. Long Name: Martha L. Long Date: August 15, 2005 /s/Stephen B. Waters Name: Stephen B. Waters Date: August 15, 2005 This certification is furnished with this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----