-----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, JbA3LHSryr8TTVxa7f5b6FXJV99djGew/km1yXV/sJIuzbK2wwllQdPXpUtZbyBT oLTt8jmol1YLO8LDTwGAkw== 0000711642-99-000309.txt : 19991117 0000711642-99-000309.hdr.sgml : 19991117 ACCESSION NUMBER: 0000711642-99-000309 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CENTRAL INDEX KEY: 0000352983 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 942744492 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-10831 FILM NUMBER: 99752063 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: PO BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET 17TH FLOOR STREET 2: PO BOX 1089 CITY: DENVER STATE: CO ZIP: 80222 10-Q 1 FORM 10-Q-_ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 QUARTERLY OR TRANSITIONAL REPORT U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________to _________ Commission file number 0-10831 CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES (Exact name of small business issuer as specified in its charter) California 94-2744492 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 Beattie Place, P.O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (864) 239-1000 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No PART I _ FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED BALANCE SHEETS (in thousands, except unit data) September 30 December 31 1999 1998 (Unaudited) (Note) Assets Cash and cash equivalents $ 30,721 $ 8,683 Receivables and deposits 927 985 Restricted escrows 561 1,912 Other assets 1,675 1,243 Investment in Master Loan 68,425 88,578 Less: allowance for impairment loss (17,417) (17,417) 51,008 71,161 Investment properties: Land 3,564 3,564 Building and related personal property 36,684 34,932 40,248 38,496 Less: accumulated depreciation (9,272) (7,298) 30,976 31,198 $115,868 $115,182 Liabilities and Partners' (Deficit) Capital Liabilities Accounts payable $ 201 $ 431 Tenant security deposits liabilities 575 504 Accrued property taxes 49 62 Distributions payable 20,375 -- Other liabilities 574 691 Mortgage note payable 27,147 27,360 48,921 29,048 Partners' (Deficit) Capital General partner (62) (96) Limited partners (199,045.20 units issued and outstanding) 67,009 86,230 66,947 86,134 $115,868 $115,182 Note: The balance sheet at December 31, 1998, has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. See Accompanying Notes to Consolidated Financial Statements b) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 Revenues: Rental income $ 2,470 $ 2,300 $ 7,389 $ 6,841 Interest income on investment in Master Loan to affiliate 1,691 1,543 2,744 4,727 Reduction of provision for impairment loss -- -- -- 23,269 Interest income 54 138 195 308 Other income 145 179 454 476 Total revenues 4,360 4,160 10,782 35,621 Expenses: Operating 936 1,106 3,144 3,730 Depreciation 711 598 1,974 1,700 General and administrative 120 142 417 449 Property taxes 142 146 366 483 Interest 485 106 1,447 266 Total expenses 2,394 2,098 7,348 6,628 Net income $ 1,966 $ 2,062 $ 3,434 $ 28,993 Net income allocated to general partner (1%) $ 19 $ 21 $ 34 $ 290 Net income allocated to limited partners (99%) 1,947 2,041 3,400 28,703 $ 1,966 $ 2,062 $ 3,434 $ 28,993 Net income per limited partnership unit $ 9.78 $ 10.26 $ 17.08 $ 144.20 Distributions per limited partnership unit $104.35 $100.48 $ 113.64 $ 109.42 See Accompanying Notes to Consolidated Financial Statements c) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL (Unaudited) (in thousands, except unit data) Limited Partnership General Limited Units Partner Partners Total Original capital contributions 200,342 $ 1 $200,342 $200,343 Partners' (deficit) capital at December 31, 1997 199,052 $ (364) $ 86,520 $ 86,156 Distributions -- (18) (21,780) (21,798) Net income for the nine months ended September 30, 1998 -- 290 28,703 28,993 Partners' (deficit) capital at September 30, 1998 199,052 $ (92) $ 93,443 $ 93,351 Partners' (deficit) capital at December 31, 1998 199,045.2 (96) $ 86,230 $ 86,134 Distributions -- -- (22,621) (22,621) Net income for the nine months ended September 30, 1999 -- 34 3,400 3,434 Partners' (deficit) capital at September 30, 1999 199,045.2 $ (62) $ 67,009 $ 66,947 See Accompanying Notes to Consolidated Financial Statements d) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Nine Months Ended September 30, 1999 1998 Cash flows from operating activities: Net income $ 3,434 $28,993 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,067 1,747 Casualty loss -- 14 Reduction of provision for impairment loss -- (23,269) Gain on sale of land -- (19) Change in accounts: Receivables and deposits 58 72 Other assets (517) (311) Interest receivable on Master Loan -- (938) Accounts payable (230) (28) Tenant security deposit liabilities 71 127 Accrued property taxes (13) 46 Other liabilities (117) (72) Net cash provided by operating activities 4,753 6,362 Cash flows from investing activities: Receipts from (net deposits) to restricted escrows 1,351 (1,860) Property improvements and replacements (1,752) (2,613) Lease commissions paid -- (259) Proceeds from sale of land -- 75 Principal receipts on Master Loan 20,153 2,481 Net cash provided by (used in) investing activities 19,752 (2,176) Cash flows from financing activities: Distributions to partners (2,246) (21,798) Proceeds from mortgage note payable -- 23,000 Payments on notes payable (213) (39) Loan costs paid (8) (279) Net cash (used in) provided by financing activities (2,467) 884 Net increase in cash and cash equivalents 22,038 5,070 Cash and cash equivalents at beginning of period 8,683 8,691 Cash and cash equivalents at end of period $ 30,721 $ 13,761 Supplemental disclosure of cash flow information: Cash paid for interest $ 1,404 $ 257 Supplemental disclosure of non-cash activity: As of September 30, 1999, distributions payable was adjusted by approximately $20,375,000 relating to non-cash activity. See Accompanying Notes to Consolidated Financial Statements e) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A _ BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Consolidated Capital Institutional Properties (the "Partnership" or "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of ConCap Equities, Inc. (the "General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 1999, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1998. Certain reclassifications have been made to the 1998 information to conform to the 1999 presentation. Principles of Consolidation The Partnership's financial statements include the accounts of Kennedy Boulevard Associates I, L.P. ("KBA-I, L.P."), Kennedy Boulevard Associates II, L.P. ("KBA- II, L.P."), Kennedy Boulevard Associates III, L.P. ("KBA-III, L.P."), Kennedy Boulevard Associates IV, L.P. ("KBA-IV, L.P."), which are all Pennsylvania Limited Partnerships, and Kennedy Boulevard GP I, a Pennsylvania Partnership. The general partners of each of the affiliated limited and general partnerships are Limited Liability Companies of which the Partnership is the sole member. The Limited Partners of each of the affiliated limited and general partnerships are either the Partnership or a Limited Liability Company of which the Partnership is the sole member. Therefore, the Partnership owns 100% of and controls the affiliated limited and general partnerships. KBA-I, L.P. holds title to The Sterling Apartment Home and Commerce Center ("Sterling"). NOTE B _ TRANSFER OF CONTROL Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust merged into Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the General Partner. The General Partner does not believe that this transaction will have a material effect on the affairs and operations of the Partnership. NOTE C _ RELATED PARTY TRANSACTIONS The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for (i) certain payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were made to the General Partner and affiliates during the nine months ended September 30, 1999 and 1998: 1999 1998 (in thousands) Property management fees (included in operating expenses) $ 395 $ 362 Reimbursement for services of affiliates (included in operating, and general and administrative expenses, other assets and investment properties) 187 337 During the nine months ended September 30, 1999 and 1998, affiliates of the General Partner were entitled to receive 5% of gross receipts from the Registrant's properties for providing property management services. The Registrant paid to such affiliates approximately $395,000 and $362,000 for the nine months ended September 30, 1999 and 1998, respectively. An affiliate of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $187,000 and $337,000 for the nine months ended September 30, 1999 and 1998, respectively. Included in these expenses is approximately $20,000 and $33,000 in reimbursements for construction oversight costs for the nine months ended September 30, 1999 and 1998, respectively. In addition, approximately $66,000 of lease commissions and approximately $35,000 in loan financing costs were paid to an affiliate of the General Partner for the nine months September 30, 1998. No such costs were incurred for the nine months ended September 30, 1999. On June 9, 1999, AIMCO Properties, L.P., an affiliate of the General Partner, commenced a tender offer to purchase up to 48,977.06 units of limited partnership interest in the Partnership (approximately 24.61% of the total outstanding units) for a purchase price of $424 per unit. The offer expired on July 14, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 3,736.20 units. As a result, AIMCO and its affiliates currently own 96,887.20 units of limited partnership interest in the Partnership representing approximately 48.68% of the total outstanding units. It is possible that AIMCO or its affiliate will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. (See "Note H - Legal Proceedings"). NOTE D - NET INVESTMENT IN MASTER LOAN The Partnership was formed for the benefit of its limited partners to lend funds to Consolidated Capital Equity Partners ("CCEP"), a California general partnership. The Partnership loaned funds to CCEP subject to a nonrecourse note with a participation interest (the "Master Loan"). At September 30, 1999, the recorded investment in the Master Loan was considered to be impaired under Statement of Financial Accounting Standard No. 114 ("SFAS 114"), Accounting by Creditors for Impairment of a Loan. The Partnership measures the impairment of the loan based upon the fair value of the collateral due to the fact that repayment of the loan is expected to be provided solely by the collateral. For the nine months ended September 30, 1999 and 1998, the Partnership recorded approximately $2,744,000 and $4,727,000, respectively, of interest income based upon cash generated as a result of improved operations at the properties which secure the loan. The fair value of the collateral properties was determined using the net operating income of the collateral properties capitalized at a rate deemed reasonable for the type of property adjusted for market conditions, the physical condition of the property and other factors, or by obtaining an appraisal by an independent third party. This methodology has not changed from that used in prior calculations performed by the General Partner in determining the fair value of the collateral properties. During the nine months ended September 30, 1998, a reduction in the provision for impairment loss was recognized for approximately $23,269,000 due to an increase in the net realizable value of the collateral properties. There was no change in the provision for impairment loss for the nine months ended September 30, 1999. The General Partner evaluates the net realizable value on a semi-annual basis. The General Partner has seen a consistent increase in the net realizable value of the collateral properties, taken as a whole, over the past two years. The increase is deemed to be attributable to major capital improvement projects and the concerted effort to complete deferred maintenance items that have been ongoing over the past few years at the various properties. This has enabled the properties to increase their respective occupancy levels or, in some cases, to maintain the properties' high occupancy levels. The vast majority of this work was funded by cash flow from the collateral properties themselves as no amounts have been borrowed on the master loan or from other sources in the past few years in order to fund such improvements. The General Partner attributes the increase in the net realizable value of the collateral properties securing the Master Loan to the increase in occupancy and/or average rental rates of such properties. The increase in occupancy at the properties is attributable to approximately $8,403,000 of combined capital improvements made at most of the properties for the three years ended December 31, 1998. For the nine months ended September 30, 1999, approximately $2,092,000 of capital improvements have been completed at the collateral properties. These improvements have been funded primarily from property operations and cash flows as the only advances from the Partnership to CCEP total approximately $367,000 for 1998, 1997 and 1996. During the nine months ended September 30, 1999, the Partnership made no advances to CCEP as an advance on the Master Loan. Based upon the consistent increase in net realizable value of the collateral properties, the General Partner determined the increase to be permanent in nature and accordingly, reduced the allowance for impairment loss on the master loan during the nine months ended September 30, 1998. 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 $27,471,000 and $27,356,000 for the nine months ended September 30, 1999 and 1998, respectively. Interest income is recognized on the cash basis as allowed under SFAS 114. At September 30, 1999, and December 31, 1998, such cumulative unrecognized interest totaling approximately $257,467,000 and $229,995,000 was not included in the balance of the investment in Master Loan. In addition, nine of the properties are collateralized by first mortgages totaling approximately $22,632,000 which are superior to the Master Loan. Accordingly, this fact has been taken into consideration in determining the fair value of the Master Loan. During the nine months ended September 30, 1999, the Partnership received approximately $20,153,000 as principal payments on the Master Loan. Approximately $153,000 of these payments represent cash received on certain investments by CCEP, which are required to be transferred to the Partnership per the Master Loan Agreement. In addition, approximately $20,000,000 represents part of the approximately $21,900,000 in net proceeds from the sale of 444 DeHaro. The remaining net proceeds will be paid to CCIP during the fourth quarter of 1999. Approximately $2,744,000 of interest payments were also made during the nine months ended September 30, 1999. NOTE E - COMMITMENT The Partnership is required by the Partnership Agreement to maintain working capital reserves for contingencies of not less than 5% of Net Invested Capital, as defined in the Partnership Agreement. In the event expenditures are made from this reserve, operating revenue shall be allocated to such reserves to the extent necessary to maintain the foregoing level. Reserves, including cash and cash equivalents and tenant security deposits totaling approximately $31,287,000, were greater than the reserve requirement of approximately $4,959,000 at September 30, 1999. At September 30, 1999 the Partnership had declared a distribution payable of approximately $20,375,000. This distribution was subsequently paid during October 1999, thereby reducing the reserve amount noted above to approximately $10,912,000. NOTE F - SALE OF LAND In July 1998, the Partnership sold approximately 55,000 square feet of land (5.33% of the total land) at The Loft Apartments. The land was situated to the side of the property. This resulted in a net gain of approximately $19,000 on the sale. NOTE G _ SEGMENT REPORTING Description of the types of products and services from which the reportable segment derives its revenues: The Partnership has two reportable segments: residential properties and commercial properties. The Partnership's residential property segment consist of one apartment complex in North Carolina 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 twelve months or less. The commercial property leases space to various medical offices, various career services facilities, and a credit union at terms ranging from two months to fifteen years. Measurement of segment profit or loss: The Partnership evaluates performance based on net income. The accounting policies of the reportable segments are the same as those described in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1998. Factors management used to identify the enterprise's reportable segment: The Partnership's reportable segments are investment properties that offer different products and services. The reportable segments are each managed separately because they provide distinct services with different types of products and customers. Segment information for the nine months ended September 30, 1999 and 1998 is shown in the tables below (in thousands). The "Other" column includes Partnership administration related items and income and expense not allocated to the reportable segment. 1999 Residential Commercial Other Totals Rental income $ 6,325 $ 1,064 $ -- $ 7,389 Interest income 20 4 171 195 Other income 343 111 -- 454 Interest income on investment in Master Loan -- -- 2,744 2,744 Interest expense 1,290 157 -- 1,447 Depreciation 1,912 62 -- 1,974 General and administrative expense -- -- 417 417 Segment profit 569 367 2,498 3,434 Total assets 34,718 1,860 79,290 115,868 Capital expenditures for investment properties 1,716 36 -- 1,752 1998 Residential Commercial Other Totals Rental income $ 5,795 $ 1,046 $ -- $ 6,841 Interest income 20 4 284 308 Other income 358 118 -- 476 Interest income on investment in Master Loan -- -- 4,727 4,727 Reduction of provision for impairment loss -- -- 23,269 23,269 Interest expense 266 -- -- 266 Depreciation 1,662 38 -- 1,700 General and administrative expense -- -- 449 449 Segment profit 757 405 27,831 28,993 Total assets 34,847 1,294 85,716 121,857 Capital expenditures for investment properties 2,369 244 -- 2,613 NOTE H _ LEGAL PROCEEDINGS In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, the General Partner and several of their affiliated partnerships and corporate entities. The complaint purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging the acquisition by Insignia Financial Group, Inc. ("Insignia") and entities which were, at one time, affiliates of Insignia ("Insignia Affiliates") of interests in certain general partner entities, past tender offers by Insignia Affiliates to acquire limited partnership units, the management of partnerships by Insignia Affiliates and the Insignia Merger (see "Note B - Transfer of Control"). The complaint seeks monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs have filed an amended complaint. The General Partner filed demurrers to the amended complaint which were heard February 1999. Pending the ruling on such demurrers, settlement negotiations commenced. On November 2, 1999, the parties executed and filed a Stipulation of Settlement ("Stipulation"), settling claims, subject to final court approval, on behalf of the Partnership and all limited partners who own units as of November 3, 1999. The Court has preliminarily approved the Settlement and scheduled a final approval hearing for December 10, 1999. In exchange for a release of all claims, the Stipulation provides that, among other things, an affiliate of the General Partner will make tender offers for all outstanding limited partnership interests in 49 partnerships, including the Registrant, subject to the terms and conditions set forth in the Stipulation, and has agreed to establish a reserve to pay an additional amount in settlement to qualifying class members (the "Settlement Fund"). At the final approval hearing, Plaintiffs' counsel will make an application for attorneys' fees and reimbursement of expenses, to be paid in part by the partnerships and in part from the Settlement Fund. The General Partner does not anticipate that costs associated with this case will be material to the Partnership's overall operations. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS The matters discussed in this Form 10-Q contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosures contained in this Form 10-Q and the other filings with the Securities and Exchange Commission made by the Registrant from time to time. The discussion of the Registrant's business and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Registrant's business and results of operations. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. The Partnership's investment properties consist of two properties, The Loft and The Sterling Apartment Homes and Commerce Center ("The Sterling"). The Sterling is a multiple-use facility which consists of an apartment complex and commercial space. The following table sets forth the average occupancy of the properties for the nine months ended September 30, 1999 and 1998: Average Occupancy Property 1999 1998 The Loft Apartments 96% 91% Raleigh, North Carolina The Sterling Apartment Homes 91% 91% The Sterling Commerce Center 88% 82% Philadelphia, Pennsylvania The General Partner attributes the increase in occupancy at The Loft Apartments to increased marketing and capital improvements to increase the curb appeal of the property. Also, the property changed the timing of lease expirations. They now expire during the spring and summer months when there is more rental traffic at the property rather than during the winter months when traffic is historically slower. The increase in occupancy at the Sterling Commerce Center is attributable to major capital improvements including exterior renovations, elevator rehabilitation and common area renovations which have been completed over the last year. Results of Operations The Partnership's net income for the nine months ended September 30, 1999 was approximately $3,434,000 compared to a net income of approximately $28,993,000 for the corresponding period in 1998. The Partnership recorded net income of approximately $1,966,000 for the three months ended September 30, 1999 compared to net income of $2,062,000 for the corresponding period in 1998. The decrease in net income for the nine months ended September 30, 1999 compared with the corresponding period in 1998 was primarily due to the $23,269,000 reduction of provision for impairment loss recognized in 1998. Excluding the reduction of provision for impairment loss, the Partnership's net income for the nine months ended September 30, 1998 was approximately $5,724,000. For the comparable nine month periods, total revenues decreased exclusive of the reduction of provision for impairment loss, due to a decline in interest income related to the Master Loan, which was partially offset by an increase in rental income. The decrease in interest income related to the Master Loan is a factor of the method used to recognize income. Income is only recognized to the extent that actual cash is received. The receipt of cash is dependent on the corresponding cash flow of the properties, which secure the Master Loan. Cash flow for these properties was lower for the nine months ended September 30, 1999 as a result of capital expenditures at the properties. The increase in rental income was due to an increase in occupancy at The Loft and The Sterling Commerce Center and an increase in the average annual rental rates at The Loft and The Sterling Apartment Homes. The increase in total expenses for both the three and nine months ended September 30, 1999 is primarily attributable to increases in interest and depreciation expenses, partially offset by decreases in operating, general and administrative and property tax expenses. Interest expense increased due to the financing of The Sterling in September 1998. Depreciation expense increased due to major capital improvements and replacements at The Sterling during 1998 and the nine months ended September 30, 1999. The decrease in operating expenses was mainly due to the completion of interior building improvements at The Sterling during the nine months ended September 30, 1998. Also contributing to the decrease in operating expense is a decrease in insurance expense due to a change in insurance carriers and a decrease in legal fees which were incurred during the nine months ended September 30, 1998 to defend the Partnership's objection of an increase in assessment values at The Sterling. General and administrative expense decreased due to a decrease in reimbursements to the General Partner for accountable administrative expenses, which is partially offset by an increase in legal fees due to the settlement of legal disputes as previously disclosed in prior quarters. Property tax expense decreased due to a refund received at The Sterling during the nine months ended September 30, 1999 as a result of the successful appeal of the increase in the property's assessment values. Included in general and administrative expenses for the three and nine month periods ended September 30, 1999 and 1998 are management reimbursements to the General Partner allowed under the Partnership Agreement. In addition, costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement are also included. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of each of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the General Partner will be able to sustain such a plan. Liquidity and Capital Resources At September 30, 1999, the Partnership had cash and cash equivalents of approximately $30,721,000 as compared to approximately $13,761,000 at September 30, 1998. Cash and cash equivalents increased approximately $22,038,000 for the nine months ended September 30, 1999 from the Partnership's fiscal year end. This increase was primarily due to approximately $19,752,000 of net cash provided by investing activities and, to a lesser extent, to approximately $4,753,000 of net cash provided by operating activities which was partially offset by approximately $2,467,000 of net cash used in financing activities. Cash provided by investing activities consisted primarily of principal repayments received on the Master Loan and, to a lesser extent, net receipts from escrow accounts maintained by the mortgage lender which is partially offset by property improvements and replacements. Cash used in financing activities consisted primarily of distributions to partners and, to a lesser extent, payments of principal made on the mortgages encumbering the Registrant's properties and the payment of loan costs. The Registrant invests its working capital reserves in a money market account. The Partnership is required by the Partnership Agreement to maintain working capital reserves for contingencies of not less than 5% of Net Invested Capital, as defined by the Partnership Agreement. Reserves, including cash and cash equivalents and tenant security deposits totaling approximately $31,287,000, were greater than the reserve requirement of approximately $4,959,000 at September 30, 1999. At September 30, 1999 the Partnership had declared a distribution payable of approximately $20,375,000. This distribution was subsequently paid during October 1999, thereby reducing the reserve amount noted above to approximately $10,912,000. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the various properties to adequately maintain the physical assets and other operating needs of the Partnership and to comply with Federal, state, and local legal and regulatory requirements. Capital improvements planned for each of the Registrant's properties are detailed below. The Loft During the nine months ended September 30, 1999, the Partnership completed approximately $75,000 of capital improvements at The Loft, consisting primarily of flooring replacement, roof and air conditioning improvements, landscaping and drapery and blinds. These improvements were funded from cash flow and replacement reserves. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the General Partner on interior improvements, it is estimated that the property requires approximately $152,000 of capital improvements over the next few years. Capital improvements budgeted for, but not limited to, approximately $132,000 are planned for 1999 which include certain of the required improvements and consist of HVAC condensing units, carpet and vinyl improvements, landscaping, and roof upgrades. The Sterling During the nine months ended September 30, 1999, the Partnership completed approximately $1,677,000 of capital improvements at The Sterling, consisting primarily of plumbing and electrical upgrades, new appliances, cabinet and furniture replacements and interior building improvements. These improvements were funded primarily from cash flow and replacement reserves. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the General Partner on interior improvements, it is estimated that the property requires approximately $4,407,000 of capital improvements over the next few years. Capital improvements budgeted for, but not limited to, approximately $3,013,000 are planned for 1999 which include certain of the required improvements and consist of electrical upgrades, plumbing fixtures, cabinets, and HVAC condensing units. The additional capital improvements planned for 1999 at the Partnership's properties will be made only to the extent of cash available from operations and Partnership reserves. To the extent that such budgeted capital improvements are completed, the Registrant's distributable cash flow, if any, may be adversely affected at least in the short term. The Registrant's current assets are thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Registrant. The mortgage indebtedness of approximately 27,147,000 requires monthly payments of principal and interest and balloon payments of approximately $3,903,000 and $19,975,000 on December 1, 2005 and October 1, 2008, respectively. The General Partner will attempt to refinance such indebtedness and/or sell the properties prior to such maturity date. If the properties cannot be refinanced or sold for a sufficient amount, the Registrant may risk losing such properties through foreclosure. Distributions from surplus cash of approximately $2,246,000 were paid to limited partners ($11.28 per limited partnership unit) during the nine months ended September 30, 1999. In addition, distributions totaling approximately $20,375,000 were declared as of September 30, 1999 and paid from surplus funds in October 1999 to the limited partners ($102.36 per limited partnership unit). During the nine months ended September 30, 1998, the Partnership paid approximately $21,798,000 in distributions from operations, of which $21,780,000 was paid to limited partners ($109.42 per limited partnership unit). Included in the 1998 amounts were payments to the North Carolina Department of Revenue for withholding taxes related to income generated by the Partnership's investment property located in that state. The Registrant's distribution policy is reviewed on a semi-annual basis. Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves, and the timing of debt maturities, refinancings, and/or property sales. There can be no assurance, however, that the Partnership will generate sufficient funds from operations, after planned capital improvement expenditures, to permit further distributions to its partners during the remainder of 1999 or subsequent periods. CCEP Property Operations For the nine months ended September 30, 1999, CCEP's net loss totaled approximately $11,516,000 on total revenues of approximately $14,329,000. CCEP recognizes interest expense on the Master Loan Agreement obligation according to the note terms, although payments to the Partnership are required only to the extent of Excess Cash Flow, as defined therein. During the nine months ended September 30, 1999, CCEP's statement of operations includes total interest expense attributable to the Master Loan of approximately $30,215,000, all but $2,744,000 of which represents interest accrued in excess of required payments. CCEP is expected to continue to generate operating losses as a result of such interest accruals and noncash charges for depreciation. During the nine months ended September 30, 1999, the Partnership received approximately $20,153,000 as principal payments on the Master Loan. Approximately $153,000 of this amount was received on certain investments by CCEP, which are required to be transferred to the Partnership per the Master Loan Agreement. The remaining $20,000,000 represents part of the net proceeds from the sale of 444 DeHaro. The property was sold in September 1999 to an unrelated third party for a contract price of approximately $23,250,000. CCEP received net proceeds of approximately $21,900,000 after the payment of closing costs. The remaining net proceeds will be paid to CCIP during the fourth quarter of 1999. Tender Offer On June 9, 1999, AIMCO Properties, L.P., an affiliate of the General Partner, commenced a tender offer to purchase up to 48,977.06 (approximately 24.61% of the total outstanding units) units of limited partnership interest in the Partnership for a purchase price of $424 per unit. The offer expired on July 14, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 3,736.20 units. As a result, AIMCO and its affiliates currently own 96,887.20 units of limited partnership interest in the Partnership representing approximately 48.68% of the total outstanding units. It is possible that AIMCO or its affiliate will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. (See "Item 1. Financial Statements, Note H - Legal Proceedings"). Year 2000 Compliance General Description of the Year 2000 Issue and the Nature and Effects of the Year 2000 on Information Technology (IT) and Non-IT Systems The Year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. The Partnership is dependent upon the General Partner and its affiliates for management and administrative services ("Managing Agent"). Any of the computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Over the past two years, the Managing Agent has determined that it will be required to modify or replace significant portions of its software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Managing Agent presently believes that with modifications or replacements of existing software and certain hardware, the Year 2000 issue can be mitigated. However, if such modifications and replacements are not made, or not completed in time, the Year 2000 issue could have a material impact on the operations of the Partnership. The Managing Agent's plan to resolve Year 2000 issues involves four phases: assessment, remediation, testing, and implementation. To date, the Managing Agent has fully completed its assessment of all the information systems that could be significantly affected by the Year 2000, and has begun the remediation, testing and implementation phases on both hardware and software systems. Assessments are continuing in regards to embedded systems. The status of each is detailed below. Status of Progress in Becoming Year 2000 Compliant, Including Timetable for Completion of Each Remaining Phase Computer Hardware: During 1997 and 1998, the Managing Agent identified all of the computer systems at risk and formulated a plan to repair or replace each of the affected systems. In August 1998, the main computer system used by the Managing Agent became fully functional. In addition to the main computer system, PC-based network servers, routers and desktop PCs were analyzed for compliance. The Managing Agent has begun to replace each of the non-compliant network connections and desktop PCs and, as of September 30, 1999, had virtually completed this effort. The total cost to the Managing Agent to replace the PC-based network servers, routers and desktop PCs is expected to be approximately $1.5 million of which $1.3 million has been incurred to date. Computer Software: The Managing Agent utilizes a combination of off-the-shelf, commercially available software programs as well as custom-written programs that are designed to fit specific needs. Both of these types of programs were studied, and implementation plans written and executed with the intent of repairing or replacing any non-compliant software programs. In April 1999 the Managing Agent embarked on a data center consolidation project that unifies its core financial systems under its Year 2000 compliant system. The estimated completion date for this project is October 1999. During 1998, the Managing agent began converting the existing property management and rent collection systems to its management properties Year 2000 compliant systems. The estimated additional costs to convert such systems at all properties, is $200,000, and the implementation and testing process was completed in June 1999. The final software area is the office software and server operating systems. The Managing Agent has upgraded all non-compliant office software systems on each PC and has upgraded virtually all of the server operating systems. Operating Equipment: The Managing Agent has operating equipment, primarily at the property sites, which needed to be evaluated for Year 2000 compliance. In September 1997, the Managing Agent began taking a census and inventory of embedded systems (including those devices that use time to control systems and machines at specific properties, for example elevators, heating, ventilating, and air conditioning systems, security and alarm systems, etc.). The Managing Agent has chosen to focus its attention mainly upon security systems, elevators, heating, ventilating and air conditioning systems, telephone systems and switches, and sprinkler systems. While this area is the most difficult to fully research adequately, management has not yet found any major non-compliance issues that put the Managing Agent at risk financially or operationally. A pre-assessment of the properties by the Managing Agent has indicated virtually no Year 2000 issues. A complete, formal assessment of all the properties by the Managing Agent was virtually completed by September 30, 1999. Any operating equipment that is found non-compliant will be repaired or replaced. The total cost incurred for all properties managed by the Managing Agent as of September 30, 1999 to replace or repair the operating equipment was approximately $75,000. The Managing Agent estimates the cost to replace or repair any remaining operating equipment is approximately $125,000. The Managing Agent continues to have "awareness campaigns" throughout the organization designed to raise awareness and report any possible compliance issues regarding operating equipment within its enterprise. Nature and Level of Importance of Third Parties and Their Exposure to the Year 2000 The Managing Agent has banking relationships with three major financial institutions, all of which have designated their compliance. The Managing Agent has updated data transmission standards with all of the financial institutions. All financial institutions have communicated that they are Year 2000 compliant and accordingly no accounts were required to be moved from the existing financial institutions. The Partnership does not rely heavily on any single vendor for goods and services, and does not have significant suppliers and subcontractors who share information systems (external agent). To date, the Partnership is not aware of any external agent with a Year 2000 compliance issue that would materially impact the Partnership's results of operations, liquidity, or capital resources. However, the Partnership has no means of ensuring that external agents will be Year 2000 compliant. The Managing Agent does not believe that the inability of external agents to complete their Year 2000 remediation process in a timely manner will have a material impact on the financial position or results of operations of the Partnership. However, the effect of non-compliance by external agents is not readily determinable. Costs to Address Year 2000 The total cost of the Year 2000 project to the Managing Agent is estimated at $3.5 million and is being funded from operating cash flows. To date, the Managing Agent has incurred approximately $2.9 million ($0.7 million expenses and $2.2 million capitalized for new systems and equipment) related to all phases of the Year 2000 project. Of the total remaining project costs, approximately $0.5 million is attributable to the purchase of new software and operating equipment, which will be capitalized. The remaining $0.2 million relates to repair of hardware and software and will be expensed as incurred. The Partnership's portion of these costs are not material. Risks Associated with the Year 2000 The Managing Agent believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. As noted above, the Managing Agent has not yet completed all necessary phases of the Year 2000 program. In the event that the Managing Agent does not complete any additional phases, certain worst case scenarios could occur. The worst case scenarios could include elevators, security and heating, ventilating and air conditioning systems that read incorrect dates and operate with incorrect schedules (e.g., elevators will operate on Monday as if it were Sunday). Although such a change would be annoying to residents, it is not business critical. In addition, disruptions in the economy generally resulting from Year 2000 issues could also adversely affect the Partnership. The Partnership could be subject to litigation for, among other things, computer system failures, equipment shutdowns or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. Contingency Plans Associated with the Year 2000 The Managing Agent has contingency plans for certain critical applications and is working on such plans for others. These contingency plans involve, among other actions, manual workarounds and selecting new relationships for such activities as banking relationships and elevator operating systems. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Partnership is exposed to market risks associated with its Master Loan to Affiliate ("Loan). Receipts (interest income) on the Loan are based upon the operations and cash flow of the underlying investment properties that collateralize the Loan. Both the income and expenses of operating the investment properties are subject to factors outside the Partnership's control, such as an oversupply of similar properties resulting from overbuilding, increases in unemployment or population shifts, reduced availability of permanent mortgage financing, changes in zoning laws, or changes in the patterns or needs of users. The investment properties are also susceptible to the impact of economic and other conditions outside of the control of the Partnership as well as being affected by current trends in the market area in which they operate. In this regard, the General Partner of the Partnership closely monitors the performance of the properties collateralizing the loans. Based upon the fact that the loan is considered impaired under Statement of Financial Accounting Standard No. 114, Accounting by Creditors for Impairment of a Loan, interest rate fluctuations do not offset the recognition of income, as income is only recognized to the extent of cash flow. Therefore, market risk factors do not offset the Partnership's results of operations as it relates to the Loan. The Partnership is exposed to market risks from adverse changes in interest rates. In this regard, changes in U.S. interest rates affect the interest earned on the Partnership's cash and cash equivalents as well as interest paid on its indebtedness. As a policy, the Partnership does not engage in speculative or leveraged transactions, nor does it hold or issue financial instruments for its borrowing activities used to maintain liquidity and fund business operations. To mitigate the impact of fluctuations in U.S. interest rates, the Partnership maintains its debt as fixed rate in nature by borrowing on a long-term basis. Based on interest rates at September 30, 1999, a 1% increase or decrease in market interest rates would not have a material impact on the Partnership. The following table summarizes the Partnership's debt obligations at December 31, 1998. The interest rates represent the weighted-average rates. The fair value of the debt obligations approximate the recorded value as of December 31, 1998. Principal Amount by Expected Maturity Fixed Rate Debt Long-term Average Interest Debt Rate 6.86% (in thousands) 1999 $ 282 2000 297 2001 323 2002 346 2003 371 Thereafter 25,741 Total $ 27,360 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, the General Partner and several of their affiliated partnerships and corporate entities. The complaint purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging the acquisition by Insignia Financial Group, Inc. ("Insignia") and entities which were, at one time, affiliates of Insignia ("Insignia Affiliates") of interests in certain general partner entities, past tender offers by Insignia Affiliates to acquire limited partnership units, the management of partnerships by Insignia Affiliates and the Insignia Merger (see "Part I _ Financial Information, Item 1. Financial Statements, Note B _ Transfer of Control"). The complaint seeks monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs have filed an amended complaint. The General Partner filed demurrers to the amended complaint which were heard February 1999. Pending the ruling on such demurrers, settlement negotiations commenced. On November 2, 1999, the parties executed and filed a Stipulation of Settlement ("Stipulation"), settling claims, subject to final court approval, on behalf of the Partnership and all limited partners who own units as of November 3, 1999. The Court has preliminarily approved the Settlement and scheduled a final approval hearing for December 10, 1999. In exchange for a release of all claims, the Stipulation provides that, among other things, an affiliate of the General Partner will make tender offers for all outstanding limited partnership interests in 49 partnerships, including the Registrant, subject to the terms and conditions set forth in the Stipulation, and has agreed to establish a reserve to pay an additional amount in settlement to qualifying class members (the "Settlement Fund"). At the final approval hearing, Plaintiffs' counsel will make an application for attorneys' fees and reimbursement of expenses, to be paid in part by the partnerships and in part from the Settlement Fund. The General Partner does not anticipate that costs associated with this case will be material to the Partnership's overall operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: S-K Reference Number Description 27 Financial Data Schedule, is filed as an exhibit to this report. 99.1 Consolidated Capital Equity Partners, L.P., unaudited financial statement for the nine months ended September 30, 1999 and 1998. b) Reports on Form 8-K during the quarter ended September 30, 1999: Current report on Form 8-K dated September 7, 1999 and filed on September 21, 1999 disclosing the sale of 444 DeHaro in CCEP. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES By: CONCAP EQUITIES, INC. General Partner By: /s/Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/Martha L. Long Martha L. Long Senior Vice President and Controller Date: November 15, 1999 EX-27 2
5 This schedule contains summary financial information extracted from Consolidated Capital Instutional Properties 1999 Third Quarter 10-Q and is qualified in its entirety by reference to such 10-Q filing. 0000352983 CONSOLIDATED CAPITAL INSTUTIONAL PROPERTIES 1,000 9-MOS DEC-31-1999 SEP-30-1999 30,721 0 0 0 0 0 40,248 9,272 115,868 0 27,147 0 0 0 66,947 115,868 0 10,782 0 0 7,348 0 1,447 0 0 0 0 0 0 3,434 17.08 0 Registrant has an unclassified balance sheet. Multiplier is 1.
EX-99.1 3 EXHIBIT 99.1 CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED September 30, 1999 AND 1998 EXHIBIT 99.1 (Continued) PART I _ FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED BALANCE SHEETS (in thousands, except unit data) September 30 December 31 1999 1998 (Unaudited) (Note) Assets Cash and cash equivalents $ 2,868 $ 1,992 Receivables and deposits 1,647 1,282 Restricted escrows 599 759 Other assets 681 1,262 Investment in discontinued operations 231 -- Investment properties: Land 8,290 9,237 Building and related personal property 84,279 95,236 92,569 104,473 Less accumulated depreciation (70,318) (77,251) 22,251 27,222 $ 28,277 $ 32,517 Liabilities and Partners' Deficit Liabilities Accounts payable $ 239 $ 353 Tenant security deposit liabilities 463 573 Accrued property taxes 861 245 Other liabilities 379 590 Mortgage notes 22,632 22,855 Master loan and interest payable 326,006 318,688 350,580 343,304 Partners' Deficit General partner (3,223) (3,108) Limited partners (319,080) (307,679) (322,303) (310,787) $ 28,277 $ 32,517 Note: The balance sheet at December 31, 1998, has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. See Accompanying Notes to Consolidated Financial Statements EXHIBIT 99.1 (Continued) b) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands)
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 Revenues: Rental income $ 4,458 $ 4,411 $ 13,363 $ 13,049 Other income 292 404 966 1,114 Total revenues 4,750 4,815 14,329 14,163 Expenses: Operating 2,090 2,314 6,179 6,610 General and administrative 166 133 453 454 Depreciation 1,197 1,155 3,538 3,418 Property taxes 296 277 917 867 Interest 10,466 9,449 31,460 28,615 Total expenses 14,215 13,328 42,547 39,964 Loss before discontinued operations $ (9,465) $ (8,513) $(28,218) $(25,801) (Loss) income from discontinued operations (172) 129 12 357 Gain on sale of discontinued operations 16,690 -- 16,690 523 Net income (loss) 7,053 (8,384) (11,516) (24,921) Net income (loss) allocated to general partner (1%) $ 71 $ (84) $ (115) $ (249) Net income (loss) allocated to limited partners (99%) 6,982 (8,300) (11,401) (24,672) $ 7,053 $ (8,384) $(11,516) $(24,921)
See Accompanying Notes to Consolidated Financial Statements EXHIBIT 99.1 (Continued) c) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT (Unaudited) (in thousands) For the Nine Months Ended September 30, 1999 and 1998 General Limited Partners Partners Total Partners' deficit at December 31, 1997 $ (2,775) $(274,719) $(277,494) Distributions -- (27) (27) Net loss for the nine months ended September 30, 1998 (249) (24,672) (24,921) Partners' deficit at September 30, 1998 $ (3,024) $(299,418) $(302,442) Partners' deficit at December 31, 1998 $ (3,108) $(307,679) $(310,787) Net loss for the nine months ended September 30, 1999 (115) (11,401) (11,516) Partners' deficit at September 30, 1999 $ (3,223) $(319,080) $(322,303) See Accompanying Notes to Consolidated Financial Statements EXHIBIT 99.1 (Continued) d) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Nine Months Ended September 30, 1999 1998 Cash flows from operating activities: Net loss $(11,516) $(24,921) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 3,598 4,118 Gain on sale of discontinued operations (16,690) (523) Loss on disposal of property -- 28 Change in accounts: Receivables and deposits (602) (706) Other assets (91) 35 Investment in discontinued operations (814) -- Accounts payable (103) (65) Tenant security deposit liabilities 42 (9) Accrued property taxes 616 778 Other liabilities (80) (49) Accrued interest on Master Loan 27,471 23,568 Net cash provided by operating activities 1,831 2,254 Cash flows from investing activities: Property improvements and replacements (2,092) (1,328) Lease commissions paid -- (54) Net receipts from restricted escrows 160 238 Proceeds from sale of investment property 21,900 2,179 Net cash provided by investing activities 19,968 1,035 Cash flows from financing activities: Principal payments on Master Loan (20,153) (2,481) Principal payments on notes payable (223) (207) Distributions to partners -- (27) Net cash used in financing activities (20,376) (2,715) Net increase in cash and cash equivalents 1,423 574 Cash and cash equivalents at beginning of period 1,445 1,439 Cash and cash equivalents at end of period $ 2,868 $ 2,013 Supplemental disclosure of cash flow information: Cash paid for interest $ 3,930 $ 4,990 See Accompanying Notes to Consolidated Financial Statements e) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A _ BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Consolidated Capital Equity Partners, L.P. ("CCEP" or the "Partnership") have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of ConCap Holdings, Inc. (the "General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 1999, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1999. Certain reclassifications have been made to the 1998 information to conform to the 1999 presentation. Consolidation As of December 31, 1998, CCEP owned a 75% interest in a limited partnership ("Western Can, Ltd.") which owns 444 De Haro, an office building in San Francisco, California. No minority interest liability was reflected, as of December 31, 1998, for the 25% minority interest because Western Can, Ltd. has a net capital deficit and no minority liability existed with respect to CCEP. In May 1999, a limited partner in Western Can, Ltd. withdrew in connection with a settlement with CCEP pursuant to which the partner was paid $1,350,000 by CCEP. This settlement effectively terminated Western Can Ltd. as CCEP became the sole limited partner. Accordingly as of May 1999 CCEP completely owns 444 De Haro. CCEP's investment in Western Can, Ltd. is consolidated in CCEP's financial statements. In September 1999, 444 DeHaro was sold (see "Note C - Discontinued Segment"). NOTE B _ TRANSFER OF CONTROL Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust merged into Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the General Partner. The General Partner does not believe that this transaction will have a material effect on the affairs and operations of the Partnership. NOTE C - DISCONTINUED SEGMENT In September 1999, 444 De Haro located in San Francisco, California was sold to an unaffiliated third party for approximately $23,250,000. In conjunction with the sale, a fee of approximately $698,000 was paid to the General Partner subsequent to the quarter ended September 30, 1999 in accordance with the Partnership Agreement. Such amount is included in investment in discontinued operations as of September 30, 1999. After payment of closing expenses and the fee to the General Partner, the net proceeds received by the Partnership were approximately $21,900,000. The sale of the property resulted in a gain on sale of discontinued operations of approximately $16,690,000 after writing off the undepreciated value of the property and CCEP's investment in Western Can, Ltd. (as discussed above). As required by the terms of the Master Loan Agreement (see "Note E"), the Partnership remitted $20,000,000 of the net sale proceeds to CCIP representing principal payments on the Master Loan, with the balance to be paid during the fourth quarter of 1999. In April 1998, CCEP sold Northlake Quadrangle to an unrelated third party for a contract price of $2,325,000. The Partnership received net proceeds of approximately $2,106,000 after payment of closing costs. The proceeds were remitted to CCIP to pay down the Master Loan, as required by the Master Loan Agreement. 444 DeHaro was the only remaining property in the commercial segment of the Partnership. Due to the sale of this property, the net assets of 444 Deharo were classified as "Investment in Discontinued Operations" as of September 30, 1999, on the consolidated balance sheet. The results of operations of the property have been classified as "Income from Discontinued Operations" for the three and nine months ended September 30, 1999 and 1998, and the gain on sale of the property is reported as "Gain from sale of discontinued operations". NOTE D _ RELATED PARTY TRANSACTIONS The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for (i) certain payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were made to the General Partner and affiliates during the nine months ended September 30, 1999 and 1998: 1999 1998 (in thousands) Property management fees (included in operating expenses) $ 725 $ 805 Investment advisory fees (included in general and administrative expense) 134 131 Reimbursement for services of affiliates (included in operating, general and administrative expenses, other assets and investment properties) 279 274 During the nine months ended September 30, 1999 and 1998, affiliates of the General Partner were entitled to receive 5% of gross receipts from the Partnership's residential properties for providing property management services. The Partnership paid to such affiliates approximately $725,000 and $708,000 for the nine months ended September 30, 1999 and 1998, respectively. For the nine months ended September 30, 1998, affiliates of the General Partner were entitled to receive varying percentages of gross receipts from the Partnership's two commercial properties for providing property management services. The Partnership paid to such affiliates approximately $97,000 for the nine months ended September 30, 1998. Effective October 1, 1998 (the effective date of the Insignia Merger), these services for the commercial properties were provided by an unrelated party. The Partnership is also subject to an Investment Advisory Agreement between the Partnership and an affiliate of the General Partner. This agreement provides for an annual fee, payable in monthly installments, to an affiliate of the General Partner for advising and consulting services for CCEP's properties. The Partnership paid to such affiliates approximately $134,000 and $131,000 for the nine months ended September 30, 1999 and 1998, respectively. An affiliate of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $279,000 and $274,000 for the nine months ended September 30, 1999 and 1998, respectively. Included in these costs for the nine months ended September 30, 1999 and 1998 is approximately $21,000 and $28,000 in reimbursements for construction oversight costs and approximately $16,000 of lease commissions for the nine months September 30, 1998. There were no lease commissions paid to affiliates of the General Partner for the nine months ended September 30, 1999. In May 1999, an affiliate of the General Partner loaned the Partnership $650,000 in order to facilitate the settlement with the 25% limited partner in Western Can, Ltd. (see "Note A"). In connection with this settlement, the limited partner in Western Can, Ltd. withdrew from the partnership and, as a result, effectively terminated Western Can, Ltd. as the Partnership became the sole limited partner. The note payable to the affiliate of the General Partner was repaid in September 1999. In addition to the compensation and reimbursements described above, interest payments are made to and loan advances are received from Consolidated Capital Institutional Properties ("CCIP") pursuant to the Master Loan Agreement (the "Master Loan"), which is described more fully in the 1998 annual report. Such interest payments totaled approximately $2,744,000 and $4,727,000 for the nine months ended September 30, 1999 and 1998, respectively. There were no advances during the nine months ended September 30, 1999 or 1998. During the nine months ended September 30, 1999 CCEP paid approximately $20,153,000 to CCIP as principal payments on the Master Loan. Approximately $153,000 was from cash received on certain investments by CCEP, which are required to be transferred to CCIP as per the Master Loan Agreement and the remaining $20,000,000 resulted from the receipt of net sale proceeds from 444 De Haro. During the nine months ended September 30, 1998, CCEP paid approximately $2,481,000 to CCIP as principal payments on the Master Loan. Cash received on certain investments by CCEP, which are required to be transferred to CCIP per the Master Loan Agreement, accounted for approximately $79,000. Approximately $296,000 was due to excess cash flow payments paid to CCIP as stipulated by the Master Loan Agreement. Approximately $2,106,000 was due to receipt of sale proceeds from Northlake Quadrangle. On June 18, 1999, AIMCO Properties, L.P., an affiliate of the General Partner, commenced a tender offer to purchase all of the total outstanding limited partnership interests in the Partnership for a purchase price of $300 per 1% limited partnership interest. The offer expired on July 30, 1999. However, no limited partnership interests were purchased pursuant to this tender offer. It is possible that AIMCO or its affiliate will make one or more additional offers to acquire limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. NOTE E - MASTER LOAN AND ACCRUED INTEREST PAYABLE The Master Loan principal and accrued interest payable balances at September 30, 1999 and December 31, 1998, are approximately $326,006,000 and $318,688,000, respectively. Terms of Master Loan Agreement Under the terms of the Master Loan, interest accrues at a fluctuating rate per annum adjusted annually on July 15 by the percentage change in the U.S. Department of Commerce Implicit Price Deflator for the Gross National Product subject to an interest rate ceiling of 12.5%. Payments are currently payable quarterly in an amount equal to "Excess Cash Flow", generally defined in the Master Loan as net cash flow from operations after third-party debt service and capital expenditures. Any unpaid interest is added to principal, compounded annually, and is payable at the loan's maturity. Any net proceeds from the sale or refinancing of any of CCEP's properties are paid to CCIP under the terms of the Master Loan Agreement. The Master Loan Agreement matures in November 2000. During the nine months ended September 30, 1999, CCEP paid approximately $20,153,000 to CCIP as principal payments on the Master Loan. Approximately $153,000 was from cash received on certain investments by CCEP, which are required to be transferred to CCIP per the Master Loan Agreement and the remaining $20,000,000 resulted from the receipt of net sale proceeds from 444 De Haro. There were no advances on the Master Loan for the nine months ended September 30, 1999 or 1998. NOTE F _ YEAR 2000 COMPLIANCE General Description of the Year 2000 Issue and the Nature and Effects of the Year 2000 on Information Technology (IT) and Non-IT Systems The Year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. The Partnership is dependent upon the General Partner and its affiliates for management and administrative services ("Managing Agent"). Any of the computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Over the past two years, the Managing Agent has determined that it will be required to modify or replace significant portions of its software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Managing Agent presently believes that with modifications or replacements of existing software and certain hardware, the Year 2000 issue can be mitigated. However, if such modifications and replacements are not made, or not completed in time, the Year 2000 issue could have a material impact on the operations of the Partnership. The Managing Agent's plan to resolve Year 2000 issues involves four phases: assessment, remediation, testing, and implementation. To date, the Managing Agent has fully completed its assessment of all the information systems that could be significantly affected by the Year 2000, and has begun the remediation, testing and implementation phases on both hardware and software systems. Assessments are continuing in regards to embedded systems. The status of each is detailed below. Status of Progress in Becoming Year 2000 Compliant, Including Timetable for Completion of Each Remaining Phase Computer Hardware: During 1997 and 1998, the Managing Agent identified all of the computer systems at risk and formulated a plan to repair or replace each of the affected systems. In August 1998, the main computer system used by the Managing Agent became fully functional. In addition to the main computer system, PC-based network servers, routers and desktop PCs were analyzed for compliance. The Managing Agent has begun to replace each of the non-compliant network connections and desktop PCs and, as of September 30, 1999, had virtually completed this effort. The total cost to the Managing Agent to replace the PC-based network servers, routers and desktop PCs is expected to be approximately $1.5 million of which $1.3 million has been incurred to date. Computer Software: The Managing Agent utilizes a combination of off-the-shelf, commercially available software programs as well as custom-written programs that are designed to fit specific needs. Both of these types of programs were studied, and implementation plans written and executed with the intent of repairing or replacing any non-compliant software programs. In April 1999 the Managing Agent embarked on a data center consolidation project that unifies its core financial systems under its Year 2000 compliant system. The estimated completion date for this project is October 1999. During 1998, the Managing agent began converting the existing property management and rent collection systems to its management properties Year 2000 compliant systems. The estimated additional costs to convert such systems at all properties, is $200,000, and the implementation and testing process was completed in June 1999. The final software area is the office software and server operating systems. The Managing Agent has upgraded all non-compliant office software systems on each PC and has upgraded virtually all of the server operating systems. Operating Equipment: The Managing Agent has operating equipment, primarily at the property sites, which needed to be evaluated for Year 2000 compliance. In September 1997, the Managing Agent began taking a census and inventory of embedded systems (including those devices that use time to control systems and machines at specific properties, for example elevators, heating, ventilating, and air conditioning systems, security and alarm systems, etc.). The Managing Agent has chosen to focus its attention mainly upon security systems, elevators, heating, ventilating and air conditioning systems, telephone systems and switches, and sprinkler systems. While this area is the most difficult to fully research adequately, management has not yet found any major non-compliance issues that put the Managing Agent at risk financially or operationally. A pre-assessment of the properties by the Managing Agent has indicated virtually no Year 2000 issues. A complete, formal assessment of all the properties by the Managing Agent was virtually completed by September 30, 1999. Any operating equipment that is found non-compliant will be repaired or replaced. The total cost incurred for all properties managed by the Managing Agent as of September 30, 1999 to replace or repair the operating equipment was approximately $75,000. The Managing Agent estimates the cost to replace or repair any remaining operating equipment is approximately $125,000. The Managing Agent continues to have "awareness campaigns" throughout the organization designed to raise awareness and report any possible compliance issues regarding operating equipment within its enterprise. Nature and Level of Importance of Third Parties and Their Exposure to the Year 2000 The Managing Agent has banking relationships with three major financial institutions, all of which have designated their compliance. The Managing Agent has updated data transmission standards with all of the financial institutions. All financial institutions have communicated that they are Year 2000 compliant and accordingly no accounts were required to be moved from the existing financial institutions. The Partnership does not rely heavily on any single vendor for goods and services, and does not have significant suppliers and subcontractors who share information systems (external agent). To date, the Partnership is not aware of any external agent with a Year 2000 compliance issue that would materially impact the Partnership's results of operations, liquidity, or capital resources. However, the Partnership has no means of ensuring that external agents will be Year 2000 compliant. The Managing Agent does not believe that the inability of external agents to complete their Year 2000 remediation process in a timely manner will have a material impact on the financial position or results of operations of the Partnership. However, the effect of non-compliance by external agents is not readily determinable. Costs to Address Year 2000 The total cost of the Year 2000 project to the Managing Agent is estimated at $3.5 million and is being funded from operating cash flows. To date, the Managing Agent has incurred approximately $2.9 million ($0.7 million expenses and $2.2 million capitalized for new systems and equipment) related to all phases of the Year 2000 project. Of the total remaining project costs, approximately $0.5 million is attributable to the purchase of new software and operating equipment, which will be capitalized. The remaining $0.2 million relates to repair of hardware and software and will be expensed as incurred. The Partnership's portion of these costs are not material. Risks Associated with the Year 2000 The Managing Agent believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. As noted above, the Managing Agent has not yet completed all necessary phases of the Year 2000 program. In the event that the Managing Agent does not complete any additional phases, certain worst case scenarios could occur. The worst case scenarios could include elevators, security and heating, ventilating and air conditioning systems that read incorrect dates and operate with incorrect schedules (e.g., elevators will operate on Monday as if it were Sunday). Although such a change would be annoying to residents, it is not business critical. In addition, disruptions in the economy generally resulting from Year 2000 issues could also adversely affect the Partnership. The Partnership could be subject to litigation for, among other things, computer system failures, equipment shutdowns or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. Contingency Plans Associated with the Year 2000 The Managing Agent has contingency plans for certain critical applications and is working on such plans for others. These contingency plans involve, among other actions, manual workarounds and selecting new relationships for such activities as banking relationships and elevator operating systems. -----END PRIVACY-ENHANCED MESSAGE-----