-----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, BMvYe1oQ5r254/lEL92HAbRXEQ+tvjdC0orA7aeR41ygTU9k55Cu+lhfZK36NlFc l7TrcbPejHUYlDVOHGuVVQ== 0000812564-98-000019.txt : 19980817 0000812564-98-000019.hdr.sgml : 19980817 ACCESSION NUMBER: 0000812564-98-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NONE 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: 98691227 BUSINESS ADDRESS: STREET 1: ONE INSIGNIA FINANCIAL PLAZA STREET 2: PO BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8032391000 MAIL ADDRESS: STREET 1: ONE INSIGNIA FINANCIAL PLAZA STREET 2: PO BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 10-Q 1 FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from.........to......... (Amended by Exch. Act Rel. No. 312905, eff. 4/26/93.) Commission file number 0-10831 CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES (Exact name of registrant as specified in its charter) California 94-2744492 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Insignia Financial Plaza, P. O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (Zip Code) Registrant's telephone number (864) 239-1000 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 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED BALANCE SHEETS (in thousands, except unit data) June 30, December 31, 1998 1997 (Unaudited) (Note) Assets Cash and cash equivalents $ 10,922 $ 8,691 Receivables and deposits 689 984 Restricted escrows 127 66 Other assets 1,003 383 Interest receivable on Master Loan 1,544 604 Investment in Master Loan 88,784 91,265 Less: allowance for impairment loss (17,417) (40,686) 71,367 50,579 Investment properties: Land 3,620 3,620 Building and related personal property 33,556 31,715 37,176 35,335 Less accumulated depreciation (6,108) (5,014) 31,068 30,321 $116,720 $ 91,628 Liabilities and Partners' (Deficit) Capital Liabilities Accounts payable $ 101 $ 164 Tenant security deposit liabilities 432 356 Accrued property taxes 33 -- Other liabilities 443 504 Mortgage note payable 4,422 4,448 5,431 5,472 Partners' (Deficit) Capital General Partner (113) (364) Limited Partners (199,052 units issued and outstanding at June 30, 1998, and December 31, 1997) 111,402 86,520 111,289 86,156 $116,720 $ 91,628 Note: The balance sheet at December 31, 1997, has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. See Accompanying Notes to Financial Statements b) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 Revenues: Rental income $ 2,360 $ 1,881 $ 4,541 $ 3,707 Interest income on investment in Master Loan to affiliate 1,544 558 3,184 1,420 Reduction of provision for impairment loss 23,269 -- 23,269 -- Interest income 66 104 155 231 Other income 184 138 312 291 Total revenues 27,423 2,681 31,461 5,649 Expenses: Operating 1,224 1,192 2,624 2,570 Depreciation 558 459 1,102 854 General and administrative 176 126 307 214 Property taxes 150 140 337 280 Interest 80 82 160 163 Total expenses 2,188 1,999 4,530 4,081 Net income $25,235 $ 682 $26,931 $ 1,568 Net income allocated to general partner (1%) $ 252 $ 7 $ 269 16 Net income allocated to limited partners (99%) 24,983 675 26,662 1,552 $25,235 $ 682 $26,931 $ 1,568 Net income per Limited Partnership Unit $125.51 $ 3.39 $133.94 $ 7.80 See Accompanying Notes to 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, 1996 199,052 $ (380) $ 84,968 $ 84,588 Distributions -- (20) (1,979) (1,999) Net income for the six months ended June 30, 1997 -- 16 1,552 1,568 Partners' (deficit) capital at June 30, 1997 199,052 $ (384) $ 84,541 $ 84,157 Partners' (deficit) capital at December 31, 1997 199,052 $ (364) $ 86,520 $ 86,156 Distributions -- (18) (1,780) (1,798) Net income for the six months ended June 30, 1998 -- 269 26,662 26,931 Partners' (deficit) capital at June 30, 1998 199,052 $ (113) $111,402 $111,289 See Accompanying Notes to Financial Statements d) CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Six Months Ended June 30, 1998 1997 Cash flows from operating activities: Net income $ 26,931 $ 1,568 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,130 866 Casualty loss 14 -- Reduction of provision for impairment loss (23,269) -- Change in accounts: Receivables and deposits 295 444 Other assets (388) (317) Interest receivable on Master Loan (940) (558) Accounts payable (63) (1,076) Tenant security deposit liabilities 76 4 Accrued property taxes 33 33 Other liabilities (61) (42) Net cash provided by operating activities 3,758 922 Cash flows from investing activities: Net deposits to restricted escrows (61) (2) Property improvements and replacements (1,863) (4,554) Lease commissions paid (260) (101) Proceeds from sale of securities available for sale -- 3 Principal receipts on Master Loan 2,481 1,590 Net cash provided by (used in) investing activities 297 (3,064) Cash flows from financing activities: Distributions to partners (1,798) (1,999) Payments on notes payable (26) (24) Net cash used in financing activities (1,824) (2,023) Net increase (decrease) in cash and cash equivalents 2,231 (4,165) Cash and cash equivalents at beginning of period 8,691 12,348 Cash and cash equivalents at end of period $ 10,922 $ 8,183 Supplemental disclosure of cash flow information: Cash paid for interest $ 154 $ 156 See Accompanying Notes to 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") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of ConCap Equities, Inc. (the "General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 1998, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the annual report on Form 10-K for the year ended December 31, 1997 for the Partnership. Certain reclassifications have been made to the 1997 information to conform to the 1998 presentation. NOTE B - RELATED PARTY TRANSACTIONS The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all partnership activities. The General Partner is wholly-owned by Insignia Properties Trust ("IPT"), an affiliate of Insignia Financial Group, Inc. ("Insignia"). The Partnership paid property management fees based upon collected gross rental revenues for property management services as noted below for the six month periods ended June 30, 1998 and 1997. The partnership agreement ("Agreement") also provides for reimbursement to the General Partner and its affiliates for costs incurred in connection with the administration of partnership activities. The General Partner and its affiliates received reimbursements as reflected in the following table: Six Months Ended June 30, 1998 1997 (in thousands) Property management fees (included in operating expenses) $239 $205 Reimbursement for services of affiliates (included in operating, general and administrative expenses, other assets and investment properties) (1) 172 235 (1) Included in "Reimbursement for services of affiliates" for the six months ended June 30, 1998 and 1997 is approximately $32,000 and $128,000, respectively, in reimbursements for construction oversight costs. In addition, approximately $1,000 of lease commissions are included for the six months ended June 30, 1998. For the period of January 1, 1997 to August 31, 1997, the Partnership insured its properties under a master policy through an agency affiliated with the General Partner with an insurer unaffiliated with the General Partner. An affiliate of the General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the General Partner which receives payments on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the General Partner by virtue of the agent's obligations is not significant. On July 30, 1998, an affiliate of Insignia commenced tender offers for limited partnership interests in five real estate limited partnerships (including the Partnership) in which various Insignia affiliates act as general partner. The Purchaser offered to purchase up to 50,000 of the outstanding units of limited partnership interest in the Partnership, at $415 per Unit, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase dated July 30, 1998 (the "Offer to Purchase") and the related Assignment of Partnership Interest attached as Exhibits (a)(1) and (a)(2), respectively, to the Tender Offer Statement on Schedule 14D-1 originally filed with the Securities and Exchange Commission on July 30, 1998. Because of the existing and potential future conflicts of interest (described in the Partnership's Statements on Schedule 14D-9 filed with the Securities and Exchange Commission), neither the Partnership nor the General Partner expressed any opinion as to the Offer to Purchase and made no recommendation as to whether unit holders should tender their units in response to the Offer to Purchase. In addition, because of these conflicts of interest, as a result of the Purchaser's affiliation with various Insignia affiliates, the manner in which the Purchaser votes its limited partner interests in the Partnership may not always be consistent with the best interests of the other limited partners. On October 30, 1997, an affiliate of Insignia commenced tender offers for limited partnership interests in two real estate limited partnerships (including the Partnership) in which various Insignia affiliates act as general partner. The Purchaser offered to purchase up to 45,000 of the outstanding units of limited partnership interest in the Partnership, at $400 per Unit, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase dated October 30, 1997 (the "Offer to Purchase") and the related Assignment of Partnership Interest attached as Exhibits (a)(1) and (a)(2), respectively, to the Tender Offer Statement on Schedule 14D-1 originally filed with the Securities and Exchange Commission on October 30, 1997. Because of the existing and potential future conflicts of interest (described in the Partnership's Statements on Schedule 14D-9 filed with the Securities and Exchange Commission), neither the Partnership nor the General Partner expressed any opinion as to the Offer to Purchase and made no recommendation as to whether unit holders should tender their units in response to the Offer to Purchase. In addition, because of these conflicts of interest, as a result of the Purchaser's affiliation with various Insignia affiliates, the manner in which the Purchaser votes its limited partner interests in the Partnership may not always be consistent with the best interests of the other limited partners. During December 1997 an affiliate of Insignia tendered 27,330 units related to the tender offer mentioned above. In February 1998 an affiliate of Insignia tendered an additional 1570.5 units as a result of this tender offer. On March 17, 1998, Insignia entered into an agreement to merge its national residential property management operations, and its controlling interest in IPT, with Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The closing, which is anticipated to happen in the third quarter of 1998, is subject to customary conditions, including government approvals and the approval of Insignia's shareholders. If the closing occurs, AIMCO will then control the General Partner of the Partnership. NOTE C - NET INVESTMENT IN MASTER LOAN The Partnership was formed for the benefit of its limited partners to lend funds to Consolidated Capital Equity Partners ("CCEP"), a California general partnership. The Partnership loaned funds to CCEP subject to a nonrecourse note with a participation interest (the "Master Loan"). At June 30, 1998, 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 six months ended June 30, 1998, the Partnership recorded approximately $23,269,000 in income based upon an increase in the fair value of the collateral. For the six months ended June 30, 1998 and 1997, the Partnership recorded approximately $3,184,000 and $1,420,000, 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. This methodology has not changed from that used in prior calculations performed by the General Partner in determining the fair value of the collateral properties. The approximate $23,269,000 reduction in the provision for impairment loss that was recognized during the three months ended June 30, 1998 is attributed to an increase in the net realizable value of the collateral properties. 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 strong 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 cashflow from the collateral properties themselves as no amounts have been borrowed on the master loan or from other sources in the past few years. 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 six months ended June 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 $18,325,000 and $16,468,000 for the six months ended June 30, 1998 and 1997, respectively. Interest income is recognized on the cash basis as allowed under SFAS 114. At June 30, 1998, and December 31, 1997, such cumulative unrecognized interest totaling approximately $212,941,000 and $197,800,000 was not included in the balance of the investment in Master Loan. In addition, six of the properties are collateralized by first mortgages totaling approximately $22,996,000 which are superior to the Master Loan. Accordingly this fact has been taken into consideration in determining the fair value of the Master Loan. During the six months ended June 30, 1998, the Partnership made no advances to CCEP as an advance on the Master Loan. During the six months ended June 30, 1998, the Partnership received approximately $2,481,000 as principal payments on the Master Loan. Cash received on certain investments by CCEP, which are required to be transferred to the Partnership per the Master Loan Agreement, accounted for approximately $79,000. Approximately $296,000 received was due to an excess cash flow payment received from CCEP as stipulated by the Master Loan Agreement. Approximately $2,106,000 received was due to the sale of Northlake Quadrangle. Such proceeds are required to be transferred to the Partnership per the Master Loan Agreement. Approximately $2,244,000 of interest payments were also made during the six months ended June 30, 1998. NOTE D - COMMITMENT The Partnership is required by the Agreement to maintain working capital reserves for contingencies of not less than 5% of Net Invested Capital, as defined in the 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 $11,352,000, were greater than the reserve requirement of approximately $7,261,000 at June 30, 1998. NOTE E - SUBSEQUENT EVENT 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. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 occupancies of the properties for the six months ended June 30, 1998 and 1997: Average Occupancy Property 1998 1997 The Loft Apartments 92% 95% Raleigh, North Carolina The Sterling Apartment Homes 92% 84% The Sterling Commerce Center 79% 69% Philadelphia, Pennsylvania The General Partner attributes the increase in occupancy at The Sterling Apartment Homes to recent renovations completed over the past year and to changes in demographics. The increase in occupancy at The Sterling Commerce Center is attributable to recent major capital improvements including exterior renovations, elevator rehabilitation, and common area renovations. The decrease in occupancy at The Loft Apartments is due to a declining market and increased competition in the area. Results of Operations The Partnership's net income for the three and six months ended June 30, 1998, was approximately $25,235,000 and $26,391,000, respectively, compared to net income of approximately $682,000 and $1,568,000 for the corresponding periods ended June 30, 1997. The increase in net income is due to an increase in revenues, partially offset by an increase in expenses. Revenues increased due to increases in rental income and interest income recorded on the investment in Master Loan to affiliate and the reduction of provision for impairment loss. Rental income increased due to an increase in occupancy at The Sterling despite a decrease in occupancy at The Loft Apartments, as discussed above. As discussed in "Item 1 - Financial Statements, Note C - Net Investment in Master Loan", the Partnership recorded interest income of approximately $3,184,000 and $1,420,000 for June 30, 1998 and 1997, respectively, and recorded a reduction of allowance for impairment loss of approximately $23,269,000 for June 30, 1998. The increase in income recognized is due to an increase in the fair value of the underlying collateral properties as a result of capital improvements and repairs performed over the last few years, changing market conditions and due to improved operations at such properties. Contributing to the increase in expenses was an increase in depreciation expense, general and administrative expense, and property tax expense. The increase in depreciation is due to the major capital improvements and renovations to The Sterling over the past year. The increase in general and administrative expense is due to an increase in expense reimbursements and professional fees. Property tax expense increased at The Sterling for the six months ended June 30, 1998, compared to the six months ended June 30, 1997, due to a reassessment of the property. In the first quarter of 1998, there was a fire at The Lofts Apartments that was contained to one unit. The upstairs was completely destroyed and the downstairs endured water damage. A loss of approximately $14,000 related to this casualty has been included in operating expense for the six months ended June 30, 1998. 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. Included in operating expense for the six months ended June 30, 1998, is approximately $274,000 of major repairs and maintenance comprised primarily of expenses related to window coverings and interior building improvements. Included in operating expense for the six months ended June 30, 1997, is approximately $289,000 of major repairs and maintenance comprised primarily of major landscaping, window coverings and exterior and interior building improvements. 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 expense. As part of this plan, the General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the General Partner will be able to sustain such a plan. Liquidity and Capital Resources At June 30, 1998, the Partnership had cash and cash equivalents of approximately $10,922,000 versus approximately $8,183,000 at June 30, 1997. The net increase in cash and cash equivalents for the six months ended June 30, 1998, is approximately $2,231,000 compared to a net decrease of approximately $4,165,000 for the six months ended June 30, 1997. Net cash provided by operating activities for the six months ended June 30, 1998, increased as a result of an increase in net income from operations, as discussed above along with a decrease in cash used to pay accounts payable. The decrease in accounts payable for the six months ended June 30, 1997, resulted from the payment of invoices relating to the renovations at The Sterling. The decrease in accounts payable for the six months ended June 30, 1998, results from the timing of the payment of invoices. Net cash provided by investing activities increased due to an increase in principal receipts received on the Master Loan and a decrease in property improvements and replacements, due to the completion of most of the renovations at The Sterling. Net cash used in financing activities decreased due to a decrease in distributions to partners. 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. Such assets are currently thought to be sufficient for any near-term needs of the Partnership. The mortgage indebtedness of approximately $4,422,000 requires monthly principal and interest payments and requires a balloon payment on December 1, 2005, at which time the property will either be refinanced or sold. Distributions of approximately $1,780,000 were made to the limited partners during the six months ended June 30, 1998. A matching distribution of approximately $18,000 was made to the General Partner. Included in these amounts are 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. Distributions of approximately $1,979,000 were made to the limited partners during the six months ended June 30, 1997. A matching distribution of approximately $20,000 was made to the General Partner. Included in these amounts are 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 General Partner is currently in the process of obtaining financing on The Sterling Apartment Homes and Commerce Center and anticipates completion of the financing during the second half of 1998. The General Partner anticipates making a distribution from the proceeds of the financing. However, there can be no assurance as to whether the General Partner will obtain this financing as expected. 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 $11,352,000, were greater than the reserve requirement of approximately $7,261,000 at June 30, 1998. CCEP Property Operations For the six months ended June 30, 1998, CCEP's net loss totaled approximately $16,537,000 on total revenues of approximately $11,149,000. CCEP recognizes interest expense on the New Master Loan Agreement obligation according to the note terms, although payments to the Partnership are required only to the extent of Excess Cash Flow, as defined therein. During the six months ended June 30, 1998, CCEP's statement of operations includes total interest expense attributable to the Master Loan of approximately $18,325,000, all but $2,244,000 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 six months ended June 30, 1998, the Partnership received approximately $2,481,000 as principal payments on the Master Loan. Cash received on certain investments by CCEP, which are required to be transferred to the Partnership per the Master Loan Agreement, accounted for approximately $79,000. Approximately $296,000 received was due to an "Excess Cash Flow" payment from CCEP as described above. Approximately $2,106,000 received was due to the sale of Northlake Quadrangle, as discussed below. On April 16, 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. A loss on disposal of property of approximately $28,000 was the result of a re- roofing project at Regency Oaks Apartments in June 1998 and is included in operating expense at June 30, 1998. This loss was the result of the write-off of the old roof that was not fully depreciated at the time of the write-off. Year 2000 The Partnership is dependent upon the General Partner and Insignia for management and administrative services. Insignia has completed an assessment and will have to modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter (the "Year 2000 Issue"). The project is estimated to be completed not later than December 31, 1998, which is prior to any anticipated impact on its operating systems. The General Partner believes that with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Partnership. Other Certain items discussed in this quarterly report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act") and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Partnership to be materially different from any future results, performance or achievements expressed or implied by such forward- looking statements. Such forward-looking statements speak only as of the date of this quarterly report. The Partnership expressly disclaims any obligation or undertaking to release publicly any updates of revisions to any forward-looking statements contained herein to reflect any change in the Partnership's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In January 1998, a limited partner of the Partnership commenced an arbitration proceeding against the General Partner claiming that the General Partner had breached certain contractual and fiduciary duties allegedly owed to the claimant. The General Partner believes the claim to be without merit and intends to vigorously defend the claim. 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 and its 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 as well as a recently announced agreement between Insignia and AIMCO. 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 believes the action to be without merit, and intends to vigorously defend it. On July 30, 1998 certain entities claiming to own limited partnership interests in certain limited partnerships whose general partners are affiliates of Insignia filed a complaint in the Superior Court of the State of California, County of Los Angeles. The action involves 44 real estate limited partnerships (including the Partnership) in which the plaintiffs allegedly own interests and which Insignia affiliates allegedly manage or control (the "Subject Partnerships"). The complaint names as defendants Insignia, several Insignia affiliates alleged to be managing partners of the defendant limited partnerships, the Partnership and the General Partner. Plaintiffs allege that they have requested from, but have been denied by each of the Subject Partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the limited partner units of each of the Subject Partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase limited partner units in many of the Subject Partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the Subject Partnerships are organized. Plaintiffs seek compensatory, punitive and treble damages. The Partnership was only recently served with the complaint and has not yet responded to it. The General Partner believes the claims to be without merit and intends to defend the action vigorously. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature. The General Partner believes that all such other pending or outstanding litigation will be resolved without a material adverse effect upon the business, financial condition, results of operations, or liquidity of the Partnership. 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 statements for the six months ended June 30, 1998 and 1997. (b) Reports on Form 8-K: None filed during the quarter ended June 30, 1998. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant 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/ William H. Jarrard, Jr. William H. Jarrard, Jr. President/Director By:/s/ Ronald Uretta Ronald Uretta Vice President/Treasurer Date: August 14, 1998 EX-27 2
5 This schedule contains summary financial information extracted from Consolidated Capital Institutional Properties 1998 Second Quarter 10-Q and is qualified in its entirety by reference to such 10-Q filing. 0000352983 CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES 1,000 6-MOS DEC-31-1998 JUN-30-1998 10,922 0 689 0 0 0 (37,176) (6,108) 116,720 0 4,422 0 0 0 111,289 116,720 0 31,461 0 0 4,530 0 0 0 0 0 0 0 0 26,931 133.94 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 SIX MONTHS ENDED June 30, 1998 AND 1997 EXHIBIT 99.1 (Continued) PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED BALANCE SHEETS (in thousands) June 30, December 31, 1998 1997 (Unaudited) (Note) Assets Cash and cash equivalents $ 2,157 $ 1,439 Receivables and deposits 1,511 1,241 Restricted escrows 589 798 Other assets 1,347 1,550 Investment properties: Land 9,237 10,217 Building and related personal property 94,071 97,598 103,308 107,815 Less accumulated depreciation (74,610) (75,746) 28,698 32,069 $ 34,302 $ 37,097 Liabilities and Partners' Deficit Liabilities Accounts payable $ 378 $ 426 Tenant security deposit liabilities 567 620 Accrued property taxes 587 116 Other liabilities 449 513 Mortgage notes 22,996 23,133 Master loan and interest payable 303,383 289,783 328,360 314,591 Partners' Deficit General partner (2,940) (2,775) Limited partners (291,118) (274,719) (294,058) (277,494) $ 34,302 $ 37,097 Note: The balance sheet at December 31, 1997, has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. See Accompanying Notes to Financial Statements b) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands) Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 Revenues: Rental income $ 4,928 $ 4,691 $ 9,867 $ 9,369 Interest income 58 25 93 60 Other income 312 292 666 594 Gain on sale of property 523 -- 523 -- Total revenues 5,821 5,008 11,149 10,023 Expenses: Operating 2,516 2,803 4,901 5,194 General and administrative 155 275 322 527 Depreciation 1,309 1,283 2,638 2,548 Property taxes 314 317 644 642 Interest 9,564 8,629 19,166 17,321 Bad debt (recovery) expense, net (6) -- 15 -- Total expenses 13,852 13,307 27,686 26,232 Net loss $ (8,031) $ (8,299) $(16,537) $(16,209) Net loss allocated to general partner (1%) $ (80) $ (83) $ (165) $ (162) Net loss allocated to limited partners (99%) (7,951) (8,216) (16,372) (16,047) $ (8,031) $ (8,299) $(16,537) $(16,209) See Accompanying Notes to Financial Statements c) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT (Unaudited) For the Six Months Ended June 30, 1998 and 1997 (in thousands) General Limited Partners Partners Total Partners' deficit at December 31, 1996 $ (2,449) $(242,488) $(244,937) Net loss for the six months ended June 30, 1997 (162) (16,047) (16,209) Partners' deficit at June 30, 1997 $ (2,611) $(258,535) $(261,146) Partners' deficit at December 31, 1997 $ (2,775) $(274,719) $(277,494) Distributions -- (27) (27) Net loss for the six months ended June 30, 1998 (165) (16,372) (16,537) Partners' deficit at June 30, 1998 $ (2,940) $(291,118) $(294,058) See Accompanying Notes to Financial Statements d) CONSOLIDATED CAPITAL EQUITY PARTNERS, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Six Months Ended June 30, 1998 1997 Cash flows from operating activities: Net loss $(16,537) $(16,209) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 2,752 2,657 Bad debt expense, net 15 -- Gain on sale of property (523) -- Loss on disposal of property 28 -- Change in accounts: Receivables and deposits (285) (68) Other assets 34 (82) Accounts payable (48) (542) Tenant security deposit liabilities (22) (20) Accrued property taxes 458 286 Other liabilities (74) 103 Accrued interest on Master Loan 16,081 15,606 Net cash provided by operating activities 1,879 1,731 Cash flows from investing activities: Property improvements and replacements (850) (892) Lease commissions paid (54) (176) Net withdrawals from restricted escrows 209 803 Proceeds from sale of investment property 2,179 -- Distributions from investments in limited partnerships -- 336 Net cash provided by investing activities 1,484 71 Cash flows from financing activities: Principal payments on Master Loan (2,481) (1,590) Principal payments on notes payable (137) (128) Distributions to partners (27) -- Net cash used in financing activities (2,645) (1,718) Net increase in cash and cash equivalents 718 84 Cash and cash equivalents at beginning of period 1,439 1,961 Cash and cash equivalents at end of period $ 2,157 $ 2,045 Supplemental disclosure of cash flow information: Cash paid for interest $ 3,046 $ 1,673 See Accompanying Notes to 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") have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of ConCap Holdings, Inc. (the "General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 1998, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1998. Certain reclassifications have been made to the 1997 information to conform to the 1998 presentation. Consolidation CCEP owns a 75% interest in a limited partnership ("Western Can, Ltd.") which owns 444 De Haro, an office building in San Francisco, California. CCEP's investment in Western Can, Ltd. is consolidated in CCEP's financial statements. No minority interest liability has been reflected for the 25% minority interest because Western Can, Ltd. has a net capital deficit and no minority liability exists with respect to CCEP. NOTE B - RELATED PARTY TRANSACTIONS CCEP has no employees and is dependent on the General Partner and its affiliates for the management and administration of all partnership activities. CCEP paid property management fees based upon collected gross rental revenues for property management services in each of the six month periods ended June 30, 1998 and 1997. The Partnership Agreement ("Agreement") also provides for reimbursement to the General Partner and its affiliates for costs incurred in connection with the administration of CCEP activities. Also, CCEP is subject to an Investment Advisory Agreement between CCEP 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 following amounts were paid or accrued to the General Partner and affiliates: For the Six Months Ended June 30, 1998 1997 (in thousands) Property management fees $536 $509 Investment advisory fees 87 91 Lease commissions 16 -- Reimbursement for services of affiliates 157 174 NOTE B - RELATED PARTY TRANSACTIONS (CONTINUED) There are approximately $24,000 and $39,000, respectively, in reimbursements for construction oversight costs included in investment properties and operating expense for the six months ended June 30, 1998 and 1997. 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 1997 Annual Report. Approximately $2,244,000 in interest payments were made during the six month period ended June 30, 1998. No advances were received under the Master Loan during the six months ended June 30, 1998. Principal payments of approximately $2,481,000 were made on the Master Loan during the six months ended June 30, 1998. For the period January 1, 1997 to August 31, 1997, CCEP insured its properties under a master policy through an agency affiliated with the General Partner with an insurer unaffiliated with the General Partner. An affiliate of the General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the General Partner which receives payments on these obligations from the agent. The amount of CCEP's insurance premiums accruing to the benefit of the affiliate of the General Partner by virtue of the agent's obligations is not significant. NOTE C - MASTER LOAN AND ACCRUED INTEREST PAYABLE The Master Loan principal and accrued interest payable balances at June 30, 1998, and December 31, 1997, are approximately $303,383,000 and $289,783,000, 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%. The interest rates for each of the six month periods ended June 30, 1998 and 1997, were 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 six months ended June 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 an excess cash flow payment paid to CCIP as stipulated by the Master Loan. Approximately $2,106,000 received was due to the sale of Northlake Quadrangle. Such proceeds are required to be transferred to CCIP as per the Master Loan Agreement, as mentioned above. NOTE D - GAIN ON SALE OF PROPERTY On April 16, 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. -----END PRIVACY-ENHANCED MESSAGE-----